Tron Inc. 10-Q

Item 1. Financial Statements SRM Entertainment, Inc. Page Condensed Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 (Audited) F-2 Condensed Statements of Operations for the Three and Six Months Ended June 30, 2023 and the Period from Inception (April 22, 2022) to June 30, 2022 (Unaudited) F-3 Condensed Statements of Changes in Shareholders’ Deficit for the Three and Six Months Ended June 30, 2023 and the date of Inception (April 22, 2022) to June 30, 2022 (Unaudited) F-4 Condensed Statements of Cash Flows for the Six Months Ended June 30, 2023 and the date of Inception (April 22, 2022) to June 30, 2022 (Unaudited) F-5 Notes to the Financial Statements (Unaudited) F-6 F- 1 Table of Contents SRM Entertainment, Inc. Condensed Balance Sheets As of June 30, 2023 and December 31, 2022 Six Months Ended June 30, 2023 Year ended December 31, 2022 (Unaudited) (Audited) Assets Cash $ 14,938 $ 7,650 Prepaid expenses 92,219 - Total assets 107,157 7,650 Liabilities and Shareholders’ Deficit Accounts Payable $ 133 $ - Loan from S.R.M. Entertainment Limited 133,449 7,699 Accounts payable to Jupiter Wellness 798 1,374 Accounts payable Total Liabilities 134,380 9,073 Shareholders’ Deficit Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized of which none are issued and outstanding - - Common stock, $ .0001 par value, 100,000,000 shares authorized, 1,700,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022 170 170 Additional paid-in capital - - Subscriptions receivable - ( 20 ) Accumulated deficits ( 27,393 ) ( 1,573 ) Total Shareholders’ Deficit ( 27,223 ) ( 1,423 ) Total Liabilities and Shareholders’ Deficit $ 107,157 $ 7,650 The accompanying notes are an integral part of these unaudited financial statements. F- 2 Table of Contents SRM Entertainment, Inc. Condensed Statements of Operations For the Three and Six Months Ended June 30, 2023 and the Period from Inception (April 22, 2022) to June 30, 2022 (Unaudited) 2023 2022 2023 2022 Three Months Ended June 30, Inception (April 22) to June 30, Six Months Ended June 30, Inception (April 22) to June 30, 2023 2022 2023 2022 Revenue Sales $ - $ - $ - $ - Cost of Sales - - - - Gross profit - - - - Operating expense General and administrative expenses 18,115 1,374 25,820 1,374 Total operating expenses 18,115 1,374 25,820 1,374 Other income / (expense) - - - - Interest income - - - - Interest expense - - - - Other income / (expense) - - - - Total other income (expense) - - - - Net (loss) $ ( 18,115 ) $ ( 1,374 ) $ ( 25,820 ) $ ( 1,374 ) Net (loss) per share: Basic $ ( 0.01 ) $ ( 0.00 ) $ ( 0.02 ) $ ( 0.00 ) Weighted average number of shares Basic 1,700,000 1,700,000 1,700,000 1,700,000 The accompanying notes are an integral part of these unaudited financial statements. F- 3 Table of Contents SRM Entertainment, Inc. Condensed Statements of Changes in Shareholders’ Deficit For the Three and Six Months Ended June 30, 2023 and the Period from Inception (April 22, 2022) to June 30, 2022 (Unaudited) Shares Amount Receivable Deficit Total Common Stock Subscriptions Shares Amount Receivable Deficit Total Inception, April 22, 2022 - $ - $ - $ - $ - Issuance of Founder shares 1,700,000 170 ( 170 ) - - Operation for the Period from Inception (April 22, 2022) to June 30, 2022 - - - ( 1,374 ) ( 1,374 ) Balance, June 30, 2022 1,700,000 $ 170 $ ( 170 ) $ ( 1,374 ) $ ( 1,374 ) Common Stock Subscriptions Shares Amount Receivable Deficit Total Balance December 31, 2022 1,700,000 $ 170 $ ( 20 ) $ ( 1,573 ) $ ( 1,423 ) Subscription payment - - 20 - 20 Operation for the three months ended March 31, 2023 - - - ( 7,705 ) ( 7,705 ) Balance, March 31, 2023 1,700,000 170 - ( 9,278 ) ( 9,108 ) Balance 1,700,000 170 - ( 9,278 ) ( 9,108 ) Operation for the three months ended June 30, 2023 - - - ( 18,115 ) ( 18,115 ) Balance, June 30, 2023 1,700,000 $ 170 $ - $ ( 27,393 ) $ ( 27,223 ) Balance 1,700,000 $ 170 $ - $ ( 27,393 ) $ ( 27,223 The accompanying notes are an integral part of these financial statements. F- 4 Table of Contents SRM Entertainment, Inc. Condensed Statement of Cash Flows For the Six Months Ended June 30, 2023 and the Period from Inception (April 22, 2022) to June 30, 2022 (Unaudited) Six months ended Inception (April 22) to June 30, 2023 June 30, 2022 Cash flows from operating activities: Net (loss) $ ( 25,820 ) $ ( 1,374 ) Adjustment to reconcile net loss to operating activities Prepaid expenses ( 92,219 ) - Accounts payable 133 - Accounts payable to Jupiter Wellness ( 576 ) 1,374 Net cash (used in) operating activities ( 118,482 ) - Cash flows from investing activities: - - Financing activities: Loan from S.R.M. Entertainment Limited: 125,750 - Cash from subscriptions receivable 20 - Cash flows from financing activities: 125,770 - Net increase in cash and cash equivalents 7,288 - Cash and cash equivalents at the beginning of the period 7,650 - Cash and cash equivalents at the end of the period $ 14,938 $ - SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash items Issuance of Founder shares $ - $ 170 The accompanying notes are an integral part of these unaudited financial statements. F- 5 Table of Contents SRM Entertainment, Inc. Notes to Financial Statements For the Six Months Ended June 30, 2023 and the Period from Inception (April 22, 2022) to December 31, 2022 (Unaudited) Note 1 - Organization and Business Operations SRM Entertainment, Inc. (the “Company”) is a Nevada corporation and was incorporated on April 22, 2022 . To date the Company has had no operations. The Company’s principal business will be 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”). 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. Going Concern We have incurred losses since inception and have funded our operations primarily with loans from affiliates. As of June 30, 2023, we had a stockholders’ deficit of approximately $ 27,223 . At June 30, 2023, we had short-term outstanding loans from affiliates of $ 134,247 . As of June 30, 2023, we had cash of $ 14,938 and a working capital deficit of $ 27,223 . On August 14, 2023, the Company consummated its initial public offering (the “IPO”), pursuant to which it 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, were approximately $ 5.3 million. EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) acted as lead book-running manager for the offering and Dominari Securities LLC acted as co-manager for the offering. The underwriters did not exercise their option to purchase up to an additional 187,500 shares of common stock. It is management’s opinion that with the addition of the $ 5.3 million, the Company has sufficient working capital to cover its operational needs through December 31, 2024 and beyond. See Note 7 Subsequent Events. F- 6 Table of Contents 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. 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. Net Loss Per Share of Common Stock 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. 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- 7 Table of Contents Accounts Receivable and Credit Risk Accounts receivable are generated from sales of the Company’s products. The Company provides an allowance, if applicable, for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. 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. F- 8 Table of Contents 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 – Prepaid Expenses At June 30, 2023, the Company had a total of $ 92,219 of prepaid expenses, consisting of; (i)Annual Stock Transfer and Nasdaq fees of $ 9,788 less amortization of $ 1,197 leaving a balance of $ 8,591 ; (ii) Insurance (D&O, General liability and Cyber Security & Crime) of $ 80,321 less amortization of $ 6,693 and (iii) Legal fees of $ 10,000 . The total balance of prepaid insurance at June 30, 2023 was $ 73,628 . There were no prepaid expenses at December 31, 2022. Note 4 – Accounts Payable to Affiliates During the period from the Company’s inception to December 31, 2022, Jupiter Wellness, Inc., a Delaware corporation (“Jupiter Wellness”) advanced the Company $ 1,374 , of which $ 576 has been repaid during the six months ended June 30, 2023 leaving a balance of $ 798 at June 30, 2023. These advances were used for incorporation and formation fees of the Company. S.R.M. Entertainment Limited, a limited company established in 1981 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China and a wholly-owned subsidiary of Jupiter Wellness (“SRM Limited”) advanced the Company $ 7,699 during the period from the Company’s inception to December 31, 2022 and an additional $ 125,750 during the six months ended June 30, 2023. SRM Limited’s loan balance at June 30, 2023 is $ 133,449 . These advances were used for general working capital. The advances are non-interest bearing and no interest was imputed as the imputed interest was not material to the financial statements. Note 5 - Capital Structure Common Stock – The Company has 100,000,000 shares of Common Stock, par value $ 0.0001 authorized. On April 22, 2022, the Company recorded the issuance of 1,700,000 founder shares issued at par and subscription receivables totaling $ 170 as per verbal agreements with Richard Miller, Chief Executive Officer & Director; Brian S. John, Secretary and Chairman; Taft Flittner, President; Douglas McKinnon, Chief Financial Officer; Markita Russell; and Deborah McDaniel-Hand, Vice President of Production Development and Operations (each individually referred as a “Founder”). Formal subscription agreements were executed on November 28, 2022 and $ 150 funds were paid by each respective Founder. As of December 31, 2022, the Company had recorded $ 170 as common stock and the balance of $ 20 for subscription’s receivable related to the common stock issued. The balance of $ 20 was paid in the first quarter of 2023. Preferred Stock – The Company has 10,000,000 shares of preferred stock, par value $ 0.0001 authorized and has issued no preferred shares. F- 9 Table of Contents Note 6 - 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 7 – Subsequent Events The Company evaluated subsequent events through the date of issuance. The following changes occurred subsequent to June 30, 2023: Initial Public Offering On August 14, 2023, the Company consummated its IPO, pursuant to which it 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, were approximately $ 5.3 million. All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333-272250), as amended (the “Registration Statement”), declared effective by the SEC on August 14, 2023. EF Hutton acted as lead book-running manager for the offering and Dominari Securities LLC acted as co-manager for the offering. The underwriters did not exercise their option to purchase up to an additional 187,500 shares of common stock. The Company paid the underwriters an underwriting discount of eight percent ( 8 %) of the amount raised in the offering. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued EF Hutton warrants to purchase an aggregate of 57,500 shares of Company common stock, representing 4.0 % of the aggregate shares sold in the offering. The warrants are exercisable at $ 6.00 per share, which represents 120 % of the initial public offering price per share in the IPO, at any time and from time to time, in whole or in part, commencing on February 10, 2024, 180 days from the effective date of the Registration Statement, and expiring on August 14, 2028 . Merger with SRM Entertainment Limited . On December 8, 2022, the Company entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Jupiter Wellness to govern the separation of the Company’s business from Jupiter Wellness. On May 26, 2023, the parties entered into the Amended and Restated Exchange Agreement to include additional information regarding the distribution and separation of our business from Jupiter Wellness under the terms of which, Jupiter Wellness acquired 6,500,000 shares of common stock on May 31, 2023 (the “New Shares”), in exchange for all of the issued and outstanding ordinary shares of SRM Limited, an entity formed in Hong Kong in 1981 and acquired by Jupiter Wellness in 2020. The effective date for the issuance of the New Shares occurred on the effective date of the Company’s Form S-1 Registration Statement for the IPO but immediately prior to the closing of the IPO. The 6.5 million New Shares of the common stock represented approximately 79.3 % of the outstanding shares post-issuance. Jupiter Wellness distributed 2,000,000 shares of the Company’s common stock to Jupiter Wellness’s stockholders and certain warrant holders (out of the 6.5 million New Shares issued in May 2023) and this occurred on the effective date of the Registration Statement but immediately prior to the closing of the IPO. Following such distribution, Jupiter Wellness owns 4.5 million of the 9,450,000 shares of common stock outstanding and SRM Entertainment Limited is a wholly owned subsidiary of the Company. F- 10 Table of Contents