Strive, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. ASSET ENTITIES INC. UNAUDITED FINANCIAL STATEMENTS Page Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 2 Statements of Operations 3 Statements of Changes in Stockholder’s Equity 4 Statements of Cash Flows 6 Notes to Financial Statements 7 1 ASSET ENTITIES INC. Balance Sheets September 30, December 31, 2023 2022 ASSETS Current Assets Cash $ 4,021,161 $ 137,177 Prepaid expenses 122,553 - Deferred offering costs - 235,844 Total Current Assets 4,143,714 373,021 Property and equipment, net 7,320 - TOTAL ASSETS $ 4,151,034 $ 373,021 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and credit card liability $ 111,760 $ 214,590 Contract liabilities 23,556 4,648 Total Current Liabilities 135,316 219,238 TOTAL LIABILITIES 135,316 219,238 Commitments and contingencies Stockholders' Equity Preferred Stock; $ 0.0001 par value, 50,000,000 authorized - - Common Stock; $ 0.0001 par value, 200,000,000 authorized Class A Common Stock; $ 0.0001 par value, 10,000,000 authorized 8,385,276 shares issued and outstanding 839 839 Class B Common Stock; $ 0.0001 par value, 190,000,000 authorized 5,375,724 and 2,364,724 shares issued and outstanding, respectively 538 236 Additional paid in capital 8,224,258 779,826 Accumulated deficit ( 4,209,917 ) ( 627,118 ) TOTAL STOCKHOLDERS’ EQUITY 4,015,718 153,783 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,151,034 $ 373,021 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 ASSET ENTITIES INC. Statements of Operations (Unaudited) Three Months Ended Nine months ended September 30, September 30, 2023 2022 2023 2022 Revenues $ 60,135 $ 81,414 $ 196,182 $ 280,137 Operating expenses Contract labor 56,537 32,471 141,201 114,555 General and administrative 518,248 100,696 1,361,902 340,333 Management compensation 675,841 31,900 2,275,878 238,241 Total operating expenses 1,250,626 165,067 3,778,981 693,129 Loss from operations ( 1,190,491 ) ( 83,653 ) ( 3,582,799 ) ( 412,992 ) Net loss $ ( 1,190,491 ) $ ( 83,653 ) $ ( 3,582,799 ) $ ( 412,992 ) Loss per share of common stock - basic and diluted $ ( 0.09 ) $ ( 0.01 ) $ ( 0.27 ) $ ( 0.04 ) Weighted average number of shares of common stock outstanding - basic and diluted 13,761,000 10,250,000 13,317,385 10,104,015 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 ASSET ENTITIES INC. Statement of Stockholders’ Equity (Unaudited) For the nine months ended September 30, 2023: Additional Preferred Stock Class A Common Stock Class B Common Stock Paid in Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit Total Balance - December 31, 2022 - $ - 8,385,276 $ 839 2,364,724 $ 236 $ 779,826 $ ( 627,118 ) $ 153,783 Class B common stock and warrant issued - - - - 1,500,000 150 6,540,343 - 6,540,493 Class B Common stock issued for restricted stock awards - - - - 1,411,000 141 200,069 - 200,210 Net loss - - - - - - - ( 1,071,251 ) ( 1,071,251 ) Balance - March 31, 2023 - $ - 8,385,276 $ 839 5,275,724 $ 527 $ 7,520,238 $ ( 1,698,369 ) $ 5,823,235 Class B Common stock issued for restricted stock awards - - - - 100,000 10 403,705 - 403,715 Net loss - - - - - - - ( 1,321,057 ) ( 1,321,057 ) Balance - June 30, 2023 - $ - 8,385,276 $ 839 5,375,724 $ 537 $ 7,923,943 $ ( 3,019,426 ) $ 4,905,893 Rounding adjustment - - - - - 1 ( 1 ) - - Class B Common stock issued for restricted stock awards - - - - - - 300,316 - 300,315 Net loss - - - - - - - ( 1,190,491 ) ( 1,190,491 ) Balance - September 30, 2023 - $ - 8,385,276 $ 839 5,375,724 $ 538 $ 8,224,258 $ ( 4,209,917 ) $ 4,015,718 4 ASSET ENTITIES INC. Statement of Stockholders’ Equity (Unaudited) For the nine months ended September 30, 2022: Class A Class B Additional Retained earnings Preferred Stock Common Stock Common Stock Paid in Subscription (Accumulated Shares Amount Shares Amount Shares Amount Capital Receivable Deficit) Total Balance - December 31, 2021 - $ - 9,756,000 $ 976 244,000 $ 24 $ 249,976 $ ( 225,976 ) $ 18,137 $ 43,137 Subscription received - - - - - - - 75,000 - 75,000 Net loss - - - - - - - - ( 84,200 ) ( 84,200 ) Balance - March 31, 2022 - $ - 9,756,000 $ 976 244,000 $ 24 $ 249,976 $ ( 150,976 ) $ ( 66,063 ) $ 33,937 Conversion from Class A to Class B common stock - - ( 770,724 ) ( 77 ) 770,724 77 - - - - Class B Common stock issued - - - - 250,000 25 174,900 - - 174,925 Subscription received - - - - - - - 150,000 - 150,000 Net loss - - - - - - - - ( 245,139 ) ( 245,139 ) Balance - June 30, 2022 - $ - 8,985,276 $ 899 1,264,724 $ 126 $ 424,876 $ ( 976 ) $ ( 311,202 ) $ 113,723 Subscription received - - - - - - - 976 - 976 Net loss - - - - - - - - ( 83,653 ) ( 83,653 ) Balance - September 30, 2022 - $ - 8,985,276 $ 899 1,264,724 $ 126 $ 424,876 $ - $ ( 394,855 ) $ 31,046 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 ASSET ENTITIES INC. Statements of Cash Flows (Unaudited) Nine months ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 3,582,799 ) $ ( 412,992 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 904,241 - Depreciation and amortization 223 - Changes in operating assets and liabilities: Prepaid expenses ( 122,553 ) - Accounts payable and accrued expenses ( 171,543 ) 18,573 Contract liabilities 18,908 1,217 Net cash used in operating activities ( 2,953,523 ) ( 393,202 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 7,543 ) - Net cash used in Investing Activities ( 7,543 ) - CASH FLOWS FROM FINANCING ACTIVITIES Class A common stock subscription proceeds received - 976 Class B common stock subscription proceeds received, net 6,845,050 399,925 Deferred offering costs - ( 24,530 ) Net cash provided by financing activities 6,845,050 376,371 Net change in cash 3,883,984 ( 16,831 ) Cash at beginning of period 137,177 33,731 Cash at end of period $ 4,021,161 $ 16,900 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income taxes $ - $ - Cash paid for interest $ - $ - NON CASH INVESTING AND FINANCING ACTIVITIES Conversion from Class A to Class B common stock $ - $ 77 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 ASSET ENTITIES INC. NOTES TO FINANCIAL STATEMENTS September 30, 2023 (Unaudited) Note 1. Organization, Description of Business and Liquidity Organization Asset Entities Inc. (“Asset Entities”, “we”, “us” or the “Company”), began operations as a general partnership in August 2020 and formed Assets Entities Limited Liability Company in the state of California on October 20, 2020. The financial statements reflect the operations of the Company from inception of the general partnership. On March 15, 2022, the Company filed Articles of Merger to register and incorporate with the state of Nevada and changed the company name to Asset Entities Inc. On March 9, 2022, the Company filed Articles of Incorporation with the state of Nevada to authorize the Company to issue 250,000,000 shares, consisting of 10,000,000 shares of Class A Common Stock, $ 0.0001 par value per share (“Class A Common”), 190,000,000 shares of Class B Common stock, $ 0.0001 par value per share (“Class B Common”), and 50,000,000 shares of Preferred Stock, $ 0.0001 par value (the “Preferred Stock”). On March 28, 2022, all 51,250,000 units of the previously outstanding membership interests were exchanged for 9,756,000 shares of Class A Common Stock and 244,000 shares of Class B Common Stock. Description of Business Asset Entities is an Internet company providing social media marketing, content delivery, and development and design services across Discord, TikTok, and other social media platforms. Based on the rapid growth of our Discord servers and social media following, we have developed three categories of services. First, we provide subscription upgrades to premium content on our investment education and entertainment servers on Discord. Second, we codevelop and execute influencer social media and marketing campaigns for clients. Third, we design, develop and manage Discord servers for clients under our “AE.360.DDM” brand. Our AE.360.DDM service was just released in December 2021. All of these services – our Discord investment education and entertainment, social media and marketing, and AE.360.DDM services – are therefore based on our effective use of Discord in combination with ongoing social media outreach on TikTok, Facebook, Twitter, Instagram, and YouTube. Liquidity The Company had an accumulated deficit of $ 4,209,917 as of September 30, 2023 and a net loss of $ 3,582,799 during the nine months ended September 30, 2023. However, in February 2023, the Company completed an equity offering which generated net proceeds of $ 6.6 million. Consequently, the Company’s existing cash resources and the cash received from the equity offering are expected to provide sufficient funds to carry out the Company’s planned operations through the next twelve (12) months. Note 2. Summary of Significant Accounting Policies Basis of Presentation The Company prepares its financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”). The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended December 31, 2022, contained in the Company’s Form 10-K filed on September 30, 2023. 7 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. Cash and Cash Equivalents For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents at September 30, 2023 and December 31, 2022. Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $ 250,000 per institution. The amount in excess of the FDIC insurance as of September 30, 2023, was approximately $ 3.7 million. The Company has not experienced losses on account balances and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant. Accounts Receivable Accounts receivable are recorded in accordance with ASC 310, “Receivables.” Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company had no accounts receivable of as of September 30, 2023 to account for the delinquency related to one specific transaction. Based on management’s estimate under the expected credit loss model and based on all other accounts being current and settled, the Company has not deemed it necessary to make any additional general provision for doubtful accounts at the time of this report. To measure expected credit losses, accounts receivable are grouped based on shared risk characteristics and days past due. Deferred Offering Costs As of December 31, 2022, deferred offering costs represent legal fees for preparation of any securities purchase agreements or current registration statement. The Company records these fees as a current asset that will be netted against gross proceeds received from any offering or placements. In February 2023, the Company issued common stock as initial public offering and recorded offering cost as additional paid in capital. Property and equipment Property and equipment are stated at cost. Depreciation is computed on the straight-line method. Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 8 Fair Value Measurements The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows: ● Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; ● Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and ● Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. The Company’s financial instruments, including cash, accounts receivable, prepaid expense, deferred offering costs and contract liabilities, other current liabilities are carried at historical cost. At September 30, 2023 and December 31, 2022, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. Revenue Recognition The Company recognizes revenue utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation. Subscriptions Subscription revenue is related to a single performance obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability expensed over the contracted service period. Marketing Revenue related to marketing campaign contracts with customers are normally of a short duration, typically less than two weeks. AE.360.DDM Contracts Revenue related to AE.360.DDM contracts with customers are normally of a short duration, typically less than one week. Contract Liabilities Contract liabilities consist of quarterly and annual subscription revenue that have not been recognized. As of September 30, 2023 and December 31, 2022, total contract liabilities were $ 23,556 and $ 4,648 , respectively. Contract liabilities are typically expected to be recognized to revenue over a period not to exceed twelve (12) months. Earnings per Share of Common Stock The Company has adopted ASC Topic 260, “Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for warrants and options using the treasury stock method. As of September 30, 2023, dilutive potential common shares include outstanding warrants. Income Taxes As described in more detail above, the business now conducted by the Company was operated as a partnership from August 1, 2020 until October 19, 2020, when it was reorganized as a limited liability company, or LLC, and that LLC was merged into the Company on March 28, 2022. Prior to that date, the partnership and the subsequent LLC were not subject to federal income tax and all income, deductions, gains and losses were attributed to the partners or members. 9 The Company adopted FASB ASC 740, Income Taxes, at its inception. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Related Parties The Company follows ASC 850, “ Related Party Disclosures ”, for the identification of related parties and disclosure of related party transactions and balances. Commitments and Contingencies The Company follows ASC 450-20, “Loss Contingencies” , to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Recent Accounting Pronouncements In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its financial statements. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements. Note 3. Stockholders’ Equity Authorized Capital Stock On March 9, 2022, the Company filed Articles of Incorporation with the state of Nevada to authorize the Company to issue 250,000,000 shares, consisting of 10,000,000 shares of Class A Common Stock, $ 0.0001 par value per share (“Class A Common”), 190,000,000 shares of Class B Common stock, $ 0.0001 par value per share (“Class B Common”), and 50,000,000 shares of Preferred Stock, $ 0.0001 par value (the “Preferred Stock”). On March 28, 2022, all 51,250,000 units of the previously outstanding membership interests were exchanged for 9,756,000 shares of Class A Common Stock and 244,000 shares of Class B Common Stock. Preferred Stock The Company shall have the authority to issue the shares of Preferred Stock in one or more series with such rights, preferences and designations as determined by the Board of Directors of the Company. 10 Class A Common Stock Each share of Class A Common Stock entitles the holder to ten (10) votes, in person or proxy, on any matter on which an action of the stockholders of the Company is sought and is convertible by the holder into one (1) share of Class B Common Stock. The Company had 8,385,276 shares of Class A Common Stock issued and outstanding as of September 30, 2023 and December 31, 2022. Class B Common Stock Each share of Class B Common Stock entitles the holder to one (1) vote, in person or proxy, on any matter on which an action of the stockholders of the Company is sought. On February 3, 2023, the Company closed an initial public offering of its class B common stock. The Company raised total gross proceeds of $ 7,500,000 in the offering, and after deducting $ 884,880 of underwriting discounts and commissions, the non-accountable expense allowance, and other expenses from the offering, the Company received net proceeds of $ 6,615,120 . During the nine months ended September 30, 2023, the Company granted 1,511,000 shares of class B restricted stock awards (“RSA”) under the 2022 Equity Incentive Plan (“2022 Plan”) to directors and executive officers, valued at $ 3,532,130 . The Company had 5,375,724 and 2,364,724 shares of Class B Common Stock issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. 2022 Equity Incentive Plan The maximum number of shares of Class B Common Stock that may be issued pursuant to awards granted under the 2022 Plan is 2,750,000 shares. Awards that may be granted include: (a) Incentive Stock Options, or ISO (b) Non-statutory Stock Options, (c) Stock Appreciation Rights, (d) Restricted Stock, (e) Restricted Stock Units, or RSUs, (f) Stock granted as a bonus or in lieu of another award, and (g) Performance Awards. These awards offer us and our shareholders the possibility of future value, depending on the long-term price appreciation of our Class B Common Stock and the award holder’s continuing service with us. The RSA shares to directors vest quarterly for one year from the date of grantee’s appointment as a director. The RSA shares to officers vest annually over three years from the grant date. RSA shares are measured at fair market value on the date of grant and stock-based compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital. For the nine months ended September 30, 2023, the Company recorded stock-based compensation expense of $ 904,241 . As of September 30, 2023, 127,000 RSA shares have vested. Warrants On February 7, 2023, the Company issued 105,000 warrants exercisable into 105,000 shares of the Company’s Class B Common Stock which is equal to 7 % of the aggregate number of shares of Class B Common Stock sold in the above mentioned initial public offering. These warrants carry an exercise price of $ 6.25 per share, which is equal to 125 % of the public offering price, subject to adjustment, the warrants also include a cashless exercise provision; these warrants may be exercised at any time for five years following the date of issuance. 11 A summary of activity for nine months ended September 30, 2023, follows: Weighted Weighted Number of Average Average shares Exercise Price Life (years) Outstanding, December 31, 2022 52,500 $ 6.25 4.68 Granted 105,000 6.25 Expired - - - Exercised - - - Outstanding, September 30, 2023 157,500 $ 6.25 4.22 All of the outstanding warrants are exercisable as of September 30, 2023. The intrinsic value of the warrants as of September 30, 2023, is $ 0 . Note 4. Subsequent Events Management evaluated all events from the date of the balance sheet, which was September 30, 2023 through the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure. In October 2023, following the delivery of a Closing Notice by the Company to Triton Funds LP (“Triton”) on September 29, 2023 under the Amended and Restated Closing Agreement, dated as of August 1, 2023, as amended by the Amendment to Amended and Restated Closing Agreement, dated as of September 27, 2023, between the Company and Triton, the Company issued 263,410 shares of Class B Common Stock to Triton and received $ 46,084 , net of discount. The agreement was extended to December 30, 2023. As of the date these financial statements were available to be issued, the Company may elect to require Triton to purchase up to an additional $ 928,916 in shares of Class B Common Stock under the Amended A&R Closing Agreement until December 30, 2023. 12