Item 1. Business
ITEM
1. BUSINESS
General
Overview
Tron
Inc. (formerly SRM Entertainment, Inc.), is a publicly traded company pioneering blockchain-integrated treasury strategies. As the public
company with the largest TRON (TRX) tokens holdings, the Company is committed to transparency, long-term value creation and the adoption
of decentralized financial tools. In addition, through our wholly owned subsidiary, the Company designs, develops, and manufactures custom
merchandise which includes toys and souvenirs for the world’s largest theme parks and other entertainment venues. Many of the Company’s
products are based on award winning multi-billion-dollar entertainment franchises that are featured in popular movies and books. The
products are distributed worldwide at Walt Disney Parks and Resorts, Universal Parks and Destinations, United Parks and Resorts –
SeaWorld, Six Flags and other attractions.
Tron
Inc. is a Nevada corporation and was incorporated on April 22, 2022. SRM Entertainment Limited (“SRM Ltd”), a wholly
owned subsidiary, is a limited company incorporated in the Hong Kong Special Administrative Region of the People’s Republic of
China on January 23, 1981, and was acquired by the Company on August 14, 2023. The consolidated companies are collectively referred
to as the Company.
On
June 16, 2025, we entered into the June Securities Purchase Agreement (as defined below) with Bravemorning (as defined below). On
August 29, 2025, Bravemorning acquired 220,000,000 shares of the Company’s common stock, par value $0.0001 (the “Common
Stock”), via its exercise of June PIPE Warrants (as defined below) with total dollar amount of $110,000,000, and upon such
acquisition, Bravemorning became the owner of approximately 86.6% of the Company’s outstanding shares of Common Stock. Mr.
Weike Sun, who is a director of the Company, is the sole shareholder of Bravemorning. Upon the August Warrant Exercise (as defined
below) in connection with the June Securities Purchase Agreement (as defined below), Bravemorning also held 100,000 Preferred Stock
Shares (as defined below), which are convertible into an additional 200,000,000 shares of Common Stock and which vote on an
as-converted basis with the Common Stock; and Bravemorning’s ownership of Common Stock and Preferred Stock Shares gave it an
aggregate voting power of approximately 92.5%. As of March 18, 2026, Bravemorning holds an aggregate voting power of
approximately 88.5%. Mr. Weike Sun, who is a director of the Company, is the sole shareholder of Bravemorning. See “ Recent
Developments ” for more information on these transactions and also on the Employment Agreement Amendments, the Name Change,
the Symbol Change and the Charter Amendment (all as defined below). These moves reflect the Company’s broader strategic
transformation and its commitment to aligning more closely with the TRON blockchain ecosystem, following the launch of its
Tron-focused treasury strategy. The Company’s ticker change to “TRON” reinforces its brand identity and positions
it as a key corporate player in the rapidly evolving blockchain and digital asset economy.
On December 24, 2025,
the Company entered into a Stock Purchase Agreement (the “December Investment”) for $18 million of our restricted common
stock with Black Anthem Limited owned by Justin Sun. The closing of the December Investment occurred on January 8, 2026. See
“ Recent Developments ” for more information on this transaction.
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”).
Business
Toy
and Souvenir
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.
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, United Parks and Resorts (f/k/a SeaWorld), Cedar Fair, Six Flags and 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.
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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.
TRX
Tokens Treasury
The
TRX token is the governance token of the TRON network, which is used to pay for on-chain transaction fees, participate in network governance
and incentivize validators who generate transaction blocks for the network. Users can also stake TRX tokens to vote for validators who
facilitate the block validation process and receive staking rewards.
We
believe that the TRX token is an attractive digital asset which can create long-term value for our shareholders by capitalizing on the
global adoption of blockchain and digital innovation.
The
Company has adopted a Treasury Reserve Policy (“Treasury Reserve Policy”) which set out our treasury management and capital
allocation strategies, under which our treasury reserve assets will consist of:
●
cash and cash equivalents
and short-term investments (“Cash Assets”) held by us that exceed working capital requirements; and
●
TRX tokens held by us,
as the primary treasury holding asset on an ongoing basis, subject to market conditions and anticipated needs of the business for
Cash Assets.
The
TRX token is the native token of the TRON blockchain. As of March 18, 2026, the TRX token ranked number 6 by market valuation
among all non-stablecoin crypto tokens globally. The Company’s plan is to accumulate and hold TRX tokens in its treasury and
stake substantially all TRX tokens to earn yield. The Company has been engaging primarily in liquid staking activities by staking
TRX tokens in its treasury through JustLend DAO (“JustLend”), the leading decentralized finance (“DeFi”)
protocol on the TRON blockchain, whereby it stakes its digital assets (TRX tokens) into the JustLend protocol to support network
operations and, in return, accrued network rewards. The JustLend platform generates yield through a combination of standard
staking rewards (i.e. token rewards derived from delegating to super representative nodes) and “energy” rental income on
the TRON blockchain (i.e. renting to other users the idle TRON “energy” resources entitled by TRX staking).
Under standard TRX staking mechanism,
TRX stakers are able to participate in community governance by voting for super representatives. Yield from standard TRX staking generally
refers to (1) energy and bandwidth obtained by users after staking TRX on the TRON blockchain and (2) the voting rewards in the form of
TRX tokens obtained by users after voting for the super representatives. Energy rental generally refers to users earning rent by renting
out the energy that is obtained by staking TRX on the TRON blockchain. According to the mechanism of the TRON blockchain, deploying or
triggering smart contracts consumes energy; and if energy is insufficient, TRX token(s) will be burned to make up for the missing resources.
Energy could be obtained by either staking TRX tokens or burning TRX tokens. Given the market demands, there are energy rental protocols
in the market (such as JustLend Energy Rental), such that users can borrow energy without staking nor burning TRX tokens. Users who already
have staked their TRX tokens on the TRON blockchain have the ability to lend their energy out to earn additional income.
The
use cases of the TRX token include (but are not limited to):
(i)
Governance of TRON blockchain : By staking their TRX token holdings, TRX token holders will be able to vote for super representative
candidates. The top 27 super representative candidates with the highest votes will become the super representative nodes (the “SR”)
and be able to participate in validation and block production. The super representative candidates who rank 28th to 127th are called
super representative partners (the “SR Partners”). Each of the SRs, SR Partners and other super representative candidates
may initiate community proposals, but only SRs are entitled to vote for the proposals. As of March 18, 2026, the SRs of TRON blockchain
include, among others, Google Cloud, Binance, HTX, Kraken, OKX, OKCoin Japan, Kiln, P2P.org, Nansen, and Abra Capital.
(ii)
Transaction fees on TRON blockchain : TRX token is primarily used to pay transaction fees on the TRON blockchain. Generally speaking,
users of the TRON blockchain are required to utilize token resources (namely “bandwidth” and “energy”) in their
wallets to process transactions. Users can obtain such resources by either burning or staking TRX tokens.
(iii)
Incentivizing SRs to maintain security and functionality of TRON blockchain: Block generation rewards and voting rewards on the
TRON blockchain are issued in the form of TRX token. An SR is entitled to block generation rewards, and voting rewards are distributed
to both SRs and SR Partners.
The
genesis supply of the TRX token was 100 billion. New tokens are generated currently at the rate of approximately 1.5% per annum as governance
and block validation rewards. On the offsetting side, TRX token is burned by the users to pay transaction fees for on-chain activities.
Consequently, the supply change of TRX token depends on how active the blockchain is. During the period from January 1, 2022 to March 18, 2026, TRX token
has been in deflation at approximately 1.7% per annum. As of March 18, 2026, the supply of TRX token is approximately
94.8 billion. Currently there is no lock-up, and substantially all the TRX tokens are in circulation.
The
TRON protocol, one of the largest blockchain-based operating systems in the world, offers public blockchain support of high throughput,
high scalability, and high availability for all decentralized applications (DApps) in the TRON ecosystem.
The
TRON mainnet was launched in June 2018. It marked the transition of TRX token from being an ERC-20 token on the Ethereum blockchain to
the native governance token of TRON blockchain, an independent and standalone network.
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Through
years of development, TRON blockchain has been uniquely positioned as the dominant settlement protocol for on-chain stablecoin payment.
As of March 18, 2026, TRON had over 371 million in total user wallets globally, hosting approximately 86.4 billion in TRC-20 USDT (Tether)
accounting for approximately 46.9% of total USDT circulation.
TRON
block generation is secured and validated by a diverse group of super representative nodes globally including major industry players
such as Google Cloud, Binance, HTX, Kraken, OKX, OKCoin Japan, Kiln, P2P.org, Nansen, and Abra Capital.
The
Company holds the treasury tokens in a self-managed wallet (the “Treasury Wallet”). The board of directors of the Company (the “Board”) has
full control and access to the wallet, which was set up by BiT Global Trust Limited (“BiT Global”). BiT Global is a
licensed Trust or Company Service Provider under the licensing regime administered by the Companies Registry of Hong Kong and a
trust company registered under section 78(1) of the Trustee Ordinance (Cap. 29) of Hong Kong, and is therefore a regulated
custodian.
The
Treasury Wallet is safely kept in a secure location in Hong Kong controlled by BiT Global. It utilizes the proprietary technology
and on-chain compliance monitoring services provided by BiT Global. Pursuant to the Self-Managed Wallet Services Agreement (the
“BiT Global Services Agreement”) entered into by the Company and BiT Global on June 26, 2025, BiT Global has set up the
Treasury Wallet for the Company, licenses certain BiT Global technology, and provides monitoring services relating to on-chain
wallet activities. The Company retains sole control of the Treasury Wallet and private keys in Hong Kong. Mr. Weike Sun and Mr. Zi
Yang, our Directors, are authorized by the Board to make the arrangement for safeguarding and operating the private keys of the
Treasury Wallet. Due to security considerations, the details of the private key arrangement are highly confidential and not for
public disclosure. The Board is primarily responsible for verifying the existence of treasury token holdings. The Company’s
auditors also have inspected and verified the Treasury Wallet operations and the existence of the treasury token holdings. There
currently is no insurance coverage on the treasury tokens.
The
BiT Global Services Agreement contains customary provisions relating to fees, confidentiality, compliance with applicable law,
indemnification, limitations of liability, and termination. The foregoing description of the BiT Global Services Agreement does not
purport to be complete and is qualified in its entirety by reference to the full text of the BiT Global Services Agreement, which is
incorporated herein by reference as Exhibit 10.30.
The
Company has staked and plans to continue to stake TRX tokens in its treasury into Staked TRX (sTRX) tokens through JustLend, the leading
DeFi protocol on the TRON blockchain which executes transactions through smart contracts, to accrue enhanced staking yield from both standard
TRX staking and energy rental. JustLend is the DeFi staking platform designated by the Company to generate enhanced staking yield via
the staked TRX token (sTRX). The Company has currently staked nearly 100% of the TRX tokens in its treasury into sTRX tokens. See “Our
TRX Tokens Holdings” below. By holding sTRX tokens, the Company is able to accrue enhanced yields from both standard TRX staking
and energy rental.
The
staking rewards generated from staking TRX tokens into sTRX via JustLend are distributed according to the protocol’s rules. Currently,
20% of the rewards are retained by the JustLend protocol as protocol revenue, while the remaining 80% are allocated to sTRX token holders
on a pro-rata basis. BiT Global does not receive any portion of the staking rewards.
The
staking of TRX tokens into sTRX tokens through JustLend was executed on the JustLend webpage. JustLend is a
decentralized finance protocol, and the staking is governed by the Terms of Service of JustLend. There is no separate agreement between the Company and JustLend. The
Company has not engaged in offline staking.
The
TRX token is the native token of the TRON blockchain, and it serves as the utility token for various scenarios. The staked TRX token
(sTRX) is a derivative token issued by the JustLend DAO protocol that represents the “staked” TRX tokens, and provides
holders exposure to automatically accruing yield through standard TRX staking rewards and energy renting. Users can obtain sTRX
tokens by staking TRX tokens on JustLend. The sTRX token is not fixed at a 1:1 conversion ratio with the TRX token; instead, the
number of TRX tokens which can be exchanged from one sTRX token increases over time as rewards accumulate in the overall pool of staked tokens. As the voting rewards
and energy rent accrue, the conversion ratio of the TRX token to the sTRX token increases gradually, so that the number of TRX
tokens which can be obtained by users by unstaking and swapping from sTRX tokens back to TRX tokens increases accordingly. By
holding sTRX tokens, the Company is able to accrue enhanced yields from both standard TRX staking and energy rental. For the avoidance
of doubt, the sTRX token does not generate discrete staking rewards. Instead, the economic benefit of staking is reflected through a
floating conversion rate between TRX and sTRX, which increases over time based on accrued protocol rewards. For comparison, the TRX
token remains the native token of the TRON blockchain, and which can be used directly for transaction fee payments and community
governance; whereas the sTRX token functions as a staking and yield-bearing certificate. On June 28, 2025 and August 28, 2025,
365,096,800 and 312,500,000 TRX tokens were converted into approximately 297,543,246 and approximately 252,133,646 sTRX tokens
respectively, based on the real-time conversion ratio according to the JustLend webpage.
According to the JustLend DAO documentation, users who unstake their sTRX must wait 14 days before they can withdraw the unstaked
TRX by clicking “Withdraw” on the same page.
As of the date of this Annual Report, the Company does not have any material
agreements with counterparties relating to the purchase or sale of TRX tokens. To date, the TRX tokens held in the Company’s treasury
were received (i) as payment in kind from the Company’s controlling shareholder in connection with the issuance of Series B Preferred
Stock and warrant shares in connection with the June Securities Purchase Agreement (as defined below); and (ii) as a result of the token
sale and purchase transactions under the BGDL Token S&P Agreement (as defined below).
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Our
TRX token strategy generally involves from time to time, subject to market conditions, (i) issuing debt or equity securities or engaging
in other capital raising transactions with the objective of using the proceeds to purchase TRX tokens, and (ii) acquiring TRX tokens
with our liquid assets that exceed working capital requirements. We intend to fund further TRX token acquisitions primarily through issuances
of common stock and a variety of fixed-income instruments, including debt, convertible notes and preferred stock. As of March 18, 2026, our authorized
capital stock consists of 1,000,000,000 shares of Common Stock, and 10,000,000 shares of preferred stock, par value $0.0001 per share
(the “Preferred Stock”), of which 1,000,000 shares are designated as Series A Preferred Stock and 5,000 shares of the Series
A Preferred Stock are designated as convertible, and 100,000 shares are designated as Series B Preferred Stock, of which 100,000, are designated as convertible
We
view our TRX tokens holdings as long-term holdings and expect to continue to accumulate TRX tokens. We have not set any specific target
for the amount of TRX tokens we seek to hold, and we will continue to monitor market conditions in determining whether to engage in additional
financings to purchase additional TRX tokens. This overall strategy also contemplates that we may (i) enter into additional capital raising
transactions that are collateralized by our TRX tokens holdings, and (ii) consider pursuing strategies to create income streams or otherwise
generate funds using our TRX tokens holdings.
The
primary focus of the business of the Company is the accumulation of TRX tokens with the goal to realize long-term value creation
through price appreciation and staking yield. The sTRX token, being a derivative token that represents the “staked”
TRX token, provides exposure to additional yield from standard TRX staking rewards and energy renting. The Company currently has no
intention to use its TRX token reserve to support or finance its operating activities. However, the Company will not rule out the
possibility of doing so in the future, subject to its business or financing needs. Further, save for the USDT (Tether) stablecoins
received by the Company under the December Investment (as defined below), the Company currently does not plan to hold any crypto
assets other than TRX tokens and sTRX tokens which were obtained from TRX staking.
TRON
Blockchain
Founded
in 2017 by Justin Sun, TRON is an open blockchain network that supports smart contracts and decentralized applications. Justin Sun oversaw
development of the TRON blockchain prior to the establishment of TRON DAO in 2021.
The
TRON blockchain is a public blockchain with high throughput, cost-efficient capacity which is widely used as decentralized infrastructure
by stablecoins, decentralized finance (DeFi), and other decentralized applications (DApp). The TRON Virtual Machine (TVM) supports the
deployment and execution of smart contracts, with the network operating under a Delegated Proof-of-Stake (DPoS) consensus mechanism which
allows the holders of the blockchain’s native tokens to participate in community governance by staking, voting and election of
validators.
The
latest major developments of the TRON blockchain include:
-
In August 2025, the TRON community voted and approved the energy price amendment proposal, lowering the unit price of energy from 0.00021
TRX to 0.00010 TRX in August 2025 (Proposal #104), further reducing the transaction fees of the TRON blockchain. See “ Recent
Developments – Lowering of Transaction Fees ” and “ Risk Factors - The price decrease of energy, a type of system
resources on the TRON blockchain, could negatively affect the Company. ”
-
In May 2025, TRON blockchain completed the GreatVoyage-v4.8.0 (Kant) upgrade. It aims at enhancing the blockchain’s compatibility
with Ethereum (following the Cancun upgrade) to make it easier for developers to migrate applications from Ethereum to TRON blockchain.
Justin
Sun does not serve as an executive officer of the Company. More specifically, Justin Sun does not hold any officer position for the Company
or any subsidiary thereof, he is not in charge of any business unit, and he does not perform any policy making functions. He acts solely
in an advisory role as an independent contractor, pursuant to the terms of the Sun Advisory Agreement, as defined and further described
below.
Our
TRX Tokens Holdings
Upon
completion of the June PIPE Offering (as defined below), the Company received 365,096,845 TRX tokens, being part of the Consideration
Tokens (as defined below) from Bravemorning (as defined below). Upon completion of the August Warrant Exercise (as defined below), the
Company received an additional 312,500,100 TRX tokens, being the Warrant Exercise Tokens (as defined below) from Bravemorning. As of
March 18, 2026, the Company holds approximately 9,769,626 TRX tokens and approximately 549,676,892 sTRX tokens.
An
aggregate of 365,096,800 TRX tokens of the Consideration Tokens held by the Company have been “staked” on JustLend, a decentralized
finance (DeFi) protocol, on June 28, 2025 in exchange for approximately 297,543,246 Staked TRX (sTRX) tokens. 312,500,000 TRX tokens
of the Warrant Exercise Tokens held by the Company have been “staked” on JustLend on August 28, 2025 in exchange for approximately
252,133,646 sTRX tokens. “Staking” is a process commonly used in the blockchain industry that allows network participants
to earn rewards by locking their tokens in wallets. The sTRX token is a derivative token that represents the “staked” TRX
tokens, which can automatically generate yield (through the combination of standard TRX staking rewards and energy renting) for the token
holders. The sTRX token does not generate discrete staking rewards. Instead, the economic benefit of staking is reflected through a floating
conversion rate between TRX and sTRX, which increases over time based on accrued protocol rewards.
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Therefore,
out of the 677,596,945 TRX tokens received by the Company from the June PIPE Offering and the August Warrant Exercise, the Company has staked 677,596,800 TRX tokens (which is nearly 100% of the TRX tokens received) into approximately 549,676,892 sTRX tokens.
It is necessary for the Company to retain a small portion of TRX tokens for the on-chain transaction fees payment.
As
of March 18, 2026, the Company has not yet had any TRX token dispositions.
The
Company intends to substantially utilize its excess cash to accumulate TRX tokens, and execute the relevant
transactions (including potential future disposals) through a variety of leading global trading platforms to ensure the execution
quality. The Company’s digital asset treasury (DAT) strategy is to buy and hold TRX tokens without hedging, as we believe that
market timing generally is counter productive longer term.
The
Company and the TRON Ecosystem
While
there are crossover relationships between certain directors of the Company and the TRON blockchain ecosystem (Weike Sun is the father
of Justin Sun, the founder of TRON, Zhihong Liu has been a senior advisor to TRON DAO, and Zi Yang is associated with Tronscan, the official
internet explorer for the TRON blockchain), there is no direct relationship between the Company and the TRON DAO. The Company’s
name merely recognizes that it has adopted a treasury strategy focused on TRX, the native token of the TRON blockchain. The TRON DAO,
by contrast, is the decentralized autonomous organization that, since 2021, facilitates the development of the TRON blockchain network.
Justin Sun, our advisor, founded TRON in 2017 and oversaw its development prior to the establishment of TRON DAO in 2021. Super Representatives,
elected by the community of TRX holders and acting by consensus are the sole decision makers for TRON DAO. While it is possible that
developments to the TRON blockchain, as directed and agreed by TRON DAO, could affect consumer use of or market perception about TRX,
and thus impact our business, the relationship to the Company is incidental.
Recent
Developments
May
2025 PIPE Offering
On
May 21, 2025, the Company entered into a Securities Purchase Agreement (the “May Securities Purchase Agreement”) with an
institutional investor for a private investment in public equity (the “May PIPE Offering”) of 5,000 shares of its Series
A Convertible Preferred Stock par value $0.0001 per share (the “Series A Preferred Stock”), convertible into 8,928,571 shares
of Common Stock, at a conversion price of $0.56 per share of Series A Preferred Stock, and an aggregate of 8,928,571 warrants (the “May
PIPE Warrants”) to acquire up to 8,928,571 shares of Common Stock, subject to beneficial ownership limitations set by the holder.
The purchase price for one unit (consisting of one share of Series A Convertible Preferred Stock convertible into approximately 1,785
shares and the same number of warrants) was $1,000. The May PIPE Warrants issued in the May PIPE Offering are exercisable immediately
upon issuance at an exercise price of $0.65 per share and will expire two years from the date of issuance.
The
May PIPE Offering closed on May 27, 2025, with aggregate gross proceeds totaling approximately $5 million, before deducting placement
agent fees and other expenses. The Company intends to use the proceeds from the May PIPE Offering for general corporate and working capital
purposes.
The
exercise price and number of shares of Common Stock issuable upon exercise of the May PIPE Warrants is subject to appropriate adjustment
in the event of stock dividends, stock splits, reorganizations or similar events affecting the Common Stock and the exercise price. Subject
to limited exceptions, the investor may not exercise any portion of the May PIPE Warrants to the extent that the investor would beneficially
own more than 4.99% (or, at the election of the holder prior to the date of issuance, 9.99%) of the outstanding Common Stock after exercise.
In the event of certain fundamental transactions, the holder of the May PIPE Warrants will have the right to receive the Black Scholes
Value (as defined in the May PIPE Warrants) of its May PIPE Warrants calculated pursuant to a formula set forth in the May PIPE Warrants,
payable in cash. There is no trading market available for the May PIPE Warrants on any securities exchange or nationally recognized trading
system. The Company does not intend to list the May PIPE Warrants on any securities exchange or nationally recognized trading system.
Pursuant
to the May Securities Purchase Agreement, for a period of eighteen (18) months after the closing date, the investor shall have the right
of first refusal to participate with respect to any offering involving (i) future equity or equity-linked securities of the Company or
(ii) debt of the Company, which is convertible into equity or in which there is an equity component.
Pursuant
to the May PIPE Offering, on May 22, 2025, the Company filed a Certificate of Designation of Series A Preferred Stock with the Secretary
of State of the State of Nevada and subsequently, on May 23, 2025 the Company filed an Amended & Restated Certificate of Designation
to correct the conversion price of the Series A Preferred Stock from $0.50 per share to $0.56 per share.
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Dominari
Securities, LLC acted as placement agent (the “Placement Agent”) in connection with the May PIPE Offering, pursuant to that
certain Placement Agency Agreement, dated as of May 21, 2025, between the Company and the Placement Agent, pursuant to which the Company
paid the Placement Agent (i) a cash fee equal to 6.00% of the aggregate gross proceeds from the sale of the shares of Common Stock in
the May PIPE Offering and (ii) reimbursement for certain of out-of-pocket expenses, including for reasonable expenses and legal fees
of $100,000. In addition, we issued to the Placement Agent or its designees the placement agent warrants (the “May Placement Agent
Warrants”) to purchase up to an aggregate of 535,714 shares of Common Stock (6.0% of the Common Stock sold in the May PIPE Offering).
The Placement Agent Warrants have identical terms as the May PIPE Warrants.
While
the securities offered and sold by the Company in the May PIPE Offering were not registered under the Securities Act prior to issuance,
they were registered in a resale registration statement on Form S-3 declared effective by the SEC on June 16, 2025. As of July 24, 2025,
all of the Series A Preferred Stock shares sold pursuant to the May Securities Purchase Agreement were converted into shares of Common
Stock.
June
2025 PIPE Offering
On
June 16, 2025, the Company entered into a Securities Purchase Agreement (the “June Securities Purchase Agreement”) with Bravemorning
for a private investment in public equity (the “June PIPE Offering”) of 100,000 shares of its Series B Convertible Preferred
Stock par value $0.0001 per share (the “Series B Preferred Stock”), convertible into 200,000,000 shares of common stock,
at a conversion price of $0.50 per share of Common Stock, and warrants (the “June PIPE Warrants”) to acquire up to 220,000,000
shares of Common Stock. The June PIPE Warrants issued in the June PIPE Offering are exercisable immediately upon issuance at an exercise
price of $0.50 per share and set to expire two years from the date of issuance. The 100,000 shares of Series B Preferred Stock are referred
to herein as the “Preferred Stock Shares.”
The
issuance of the Preferred Stock Shares and the June PIPE Warrants occurred on June 16, 2025.
On
June 28, 2025, Bravemorning paid the $100 million purchase price for the Preferred Stock Shares and Warrants (based on the closing price
of TRX tokens on June 15, 2025), and on August 28, 2025, Bravemorning paid the $110 million exercise price for the August Warrant Exercise
(based on the closing price of TRX tokens on August 26, 2025), in the form of TRX tokens (the “Consideration Tokens”). The
Consideration Tokens are held in the custodian wallet account (“Treasury Wallet”) designated and controlled by the Board.
The Treasury Wallet is set up by BiT Global, a licensed Trust or Company Service Provider and registered trust company in Hong Kong.
BiT Global provides on-chain monitoring services for the Treasury Wallet while the Board has full control and access to the Treasury
Wallet. Our director, Zhihong Liu, is one of the directors of BiT Global.
The
Preferred Stock Shares cannot be converted into more than 19.99% of the currently outstanding shares of Common Stock until stockholder
approval of such an issuance is obtained and becomes effective. Shareholder approval of such issuance was obtained and became effective
on August 11, 2025; and therefore the 19.99% limitation was no longer applicable as of such date.
The
Company entered into an Advisory Agreement (the “Sun Advisory Agreement”) with Justin Sun on June 16, 2025 along with
the issuance of the Preferred Stock Shares and the June PIPE Warrants. Pursuant to the Sun Advisory Agreement, Justin Sun will
provide strategic business advisory and brand consulting services to the Company as an independent contractor. The scope of such
services shall be as directed from time to time by the Board of Directors or the Chief Executive Officer of the Company. No payment
is required to be made and, as of the date of this Form 10-K, no payment has been made by the Company to Justin Sun in
consideration of the services provided by him to the Company under the Sun Advisory Agreement. The Sun Advisory Agreement has a
one-year term, subject to renewal, and may be terminated by either party on 30 days’ notice. Work product developed under the
agreement will be owned by the Company, subject to Mr. Sun’s retention of certain pre-existing intellectual property. The Sun
Advisory Agreement also includes customary confidentiality, indemnification, non-disparagement, and arbitration provisions. The
foregoing description of the Sun Advisory Agreement does not purport to be complete and is qualified in its entirety by reference to
the full text of the Sun Advisory Agreement, which is incorporated herein by
reference as Exhibit 10.24.
Justin
Sun’s father, Weike Sun, is the sole shareholder of Bravemorning and was appointed as a member of the Board in connection with
the June PIPE Offering.
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The
conversion price and exercise price and number of shares of Common Stock issuable upon conversion or exercise of the Preferred Stock
Shares and the June PIPE Warrants, as the case may be is subject to appropriate adjustment in the event of stock dividends, stock splits,
reorganizations or similar events affecting the Common Stock and the conversion price or exercise price. In the event of certain fundamental
transactions, the holder of the June PIPE Warrants will have the right to receive the Black Scholes Value (as defined in the June PIPE
Warrants) of its June PIPE Warrants calculated pursuant to a formula set forth in the June PIPE Warrants, payable in cash. There is no
trading market available for the Preferred Stock Shares or the June PIPE Warrants on any securities exchange or nationally recognized
trading system. The Company does not intend to list the Preferred Stock Shares or June PIPE Warrants on any securities exchange or nationally
recognized trading system.
Dominari
Securities, LLC acted as placement agent (the “Placement Agent”) in connection with the June PIPE Offering, pursuant to that
certain Placement Agency Agreement, dated as of June 16, 2025, between the Company and the Placement Agent, pursuant to which the Company
paid the Placement Agent for certain out-of-pocket expenses, including for reasonable expenses and legal fees of $50,000.
On
June 16, 2025, the Company also entered into a Financial Advisory Agreement (the “AV Advisory Agreement”) with American Ventures
LLC (the “Advisor”), under which the Advisor will provide non-exclusive financial advisory services to the Company in connection
with its blockchain-related initiatives, including exploring opportunities involving holding tokens, primarily TRX Tokens, the governance
token of TRON blockchain, and identifying additional revenue-generating verticals within that ecosystem, and as otherwise consistent
with the Company’s strategy and policies. As compensation, the Company agreed to issue the Advisor 5,360,000 warrants (the “American
Ventures Warrants”) to purchase shares of common stock at $0.50 per share, exercisable for five (5) years, which were fully earned
upon execution of the agreement. The AV Advisory Agreement includes customary confidentiality, indemnification, and termination provisions,
and confirms that the Advisor will act as an independent contractor without access to material non-public information absent prior written
consent. The foregoing description of the AV Advisory Agreement does not purport to be complete and is qualified in its entirety by reference
to the full text of the AV Advisory Agreement, which is incorporated herein by reference as Exhibit 10.25.
The
securities offered and sold by the Company in the June PIPE Offering and the American Ventures Warrants were not registered under the
Securities Act, and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from
such registration requirements. The securities were offered only to accredited investors.
Pursuant
to the June PIPE Offering, on June 16, 2025, the Company filed a Certificate of Designation of Series B Preferred Stock with the Secretary
of State of the State of Nevada (the “Series B Certificate of Designation”).
The
stated value of the Series B Preferred Stock is $1,000 per share.
Holder
of the Preferred Stock Shares is entitled to cast the number of votes equal to the number of whole shares of Common Stock into which
the shares of Series B Preferred Stock are convertible on the basis of a conversion price of $0.50. The Holder shall vote together with
the holders of shares of Common Stock as a single class. The Preferred Stock Shares cannot be voted on an “as converted basis”
of more than 19.99% of the currently outstanding shares of Common Stock until shareholder approval of such voting rights is obtained
and becomes effective. Shareholder approval of such issuance was obtained and became effective on August 11, 2025; and therefore the
19.99% limitation was no longer applicable as of such date.
Holder
shall be entitled to receive, and the Company shall pay, dividends on Preferred Stock Shares equal (on an as-if-converted-to-Common-Stock
basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares
of the Common Stock.
Upon
any liquidation, dissolution or winding-up of the Company, the holder of Preferred Stock Shares have a preference for the distribution
of the entire remaining assets and funds of the Company legally available for distribution over any holders of other series of preferred
stock or of the Common Stock.
If,
as of December 31, 2025, a Triggering Event (as defined in the Series B Certificate of Designation) has occurred, the holder of the Preferred
Stock Shares shall have the right to request the Company redeem all or any of portion of the Preferred Stock Shares then held by the
holder for a redemption price equal to the full (for fully redemption) or pro rata (for portion redemption) Triggering Redemption Amount
as specified in the Series B Certificate of Designation. On August 7, 2025, Bravemorning issued a waiver waiving its right under Section
8(b) of the Series B Certificate of Designation to require Tron Inc. to redeem any or all its Series B Convertible Preferred Stock for
the Triggering Redemption Amount upon the occurrence of a Triggering Event. No Triggering Event occurred.
August
2025 Warrant Exercise
On
August 25, 2025, the Board (other than Mr. Weike Sun who recused himself from this decision) authorized the Company to enter into an
amendment to the June PIPE Warrants, which permitted the exercise price of the PIPE Warrants to be paid, at the warrant holder’s
election, in TRX tokens in addition to the existing methods of cash or cashless exercise. All other terms of the PIPE Warrants remained
unchanged.
On
August 27, 2025, Bravemorning exercised the PIPE Warrants in full and, on August 29, 2025, the Company issued 220,000,000 shares of Common
Stock to Bravemorning. Bravemorning paid $110,000,000 to the Company in the form of 312,500,100 TRX as consideration for the issuance
of these Common Stock shares (the “August Warrant Exercise”). These shares of Common Stock were issued to Bravemorning in
reliance upon an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
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Immediately
after giving effect to the June Securities Purchase Agreement and the August Warrant exercise, Mr. Weike Sun, via his control of
Bravemorning, owned approximately 86.6% of the Company’s outstanding shares of Common Stock, resulting in a change of control
of the Company. Upon the August Warrant Exercise in connection with the June Securities Purchase Agreement, Bravemorning also held
100,000 Preferred Stock Shares, which are convertible into an additional 200,000,000 shares of Common Stock and which vote on an
as-converted basis with the Common Stock; and Bravemorning’s ownership of Common Stock and Preferred Stock gave it an
aggregate voting power of approximately 92.5%. As of March
18, 2026, Bravemorning holds an aggregate voting power of approximately 88.5% . Mr. Weike Sun is a director of the Company
and the father of Mr. Justin Sun.
December
Investment
On
December 24, 2025, the Company entered into a Stock Purchase Agreement for the purchase of $18,000,000 of the Company’s restricted
common stock at a price of $1.3775 per share (13,067,151 restricted shares), payable in stablecoins (the “December Investment”).
The $18,000,000 was been recorded as Common Stock Payable at December 31, 2025. The closing of the December Investment occurred on January
8, 2026, at which 18 million USDT (Tether) stablecoins were transferred by Black Anthem Limited to the Treasury Wallet. The Company intends
to deploy the proceeds to materially expand its TRX treasury portfolio. The securities offered and sold by the Company to Black Anthem
Limited were not registered under the Securities Act, and may not be offered or sold in the United States absent registration with the
SEC or an applicable exemption from such registration requirements.
Upon
the closing of the December Investment, Black Anthem Limited held approximately 4.76% of the Company’s outstanding Common Stock,
such that Black Anthem Limited’s aggregate voting power was approximately 2.75%.
With
respect to the December Investment, the Company entered into a token sale and purchase agreement dated January 6, 2026 (“BGDL Token
S&P Agreement”) with BiT Global Digital Limited (“BGDL”), a British Virgin Islands Business Company, pursuant to
which the Company will purchase from BGDL US$18,000,000 worth of TRX tokens (the “Sale Tokens”). Based on the terms of the
BGDL Token S&P Agreement, the price calculation mechanism and the delivery mechanism of the Sale Tokens will be solely and reasonably
determined by the authorized person(s) of the Company, and that the Sale Tokens will be acquired by the Company from BGDL at cost with
no fees or charges. Commencing January 22, 2026, 50,000 USDT worth of TRX tokens (price of which shall be reasonably determined with
reference to the market price of TRX token on a global cryptocurrency trading platform on each day) have been and will be delivered daily
to the Treasury Wallet for 360 consecutive days. This dollar cost averaging mechanism will help mitigate TRX’s price volatility
and reduce the average acquisition cost per TRX token.
Director
Resignations
In
connection with the June PIPE Offering, on June 16, 2025, Hans Haywood and Gary Herman resigned as members of the Board. These resignations
were not a result of any disagreements with the Company on any matter relating to the Company’s operations, policies, or practices.
In
connection with the June PIPE Offering, Douglas McKinnon resigned as a member of the Board. Mr. McKinnon remains the Company’s
Chief Financial Officer. Mr. McKinnon’s resignation as a member of the Board was not a result of any disagreements with the Company
on any matter relating to the Company’s operations, policies, or practices.
Director
Appointments
In
connection with the June PIPE Offering, on June 16, 2025, Weike Sun, Zhihong Liu, and Zi Yang were appointed as members of the Board.
Mr. Sun was named Chairman of the Board. Messrs. Liu and Yang have been appointed to each of the Audit, Compensation, and Nominating
and Corporate Governance Committees of the Board. Mr. Liu serves as chair of the Compensation Committee and Mr. Yang serves as chair
of the Nominating and Corporate Governance Committee.
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Weike
Sun, age 66, began his career in journalism and public infrastructure administration in China. Following his extensive experience in
the public sector, Mr. Sun transitioned to the private sector holding senior management and advisory role to several fintech companies
since 2016, including Ruibo (Beijing) Technology and Peiwo Huanle (Beijing) Technology. He was the Chairman of Guangzhou Keyhiway Printing
Technology, a listed company on China’s National Equities Exchange and Quotations (NEEQ) from March 2022 to July 2023. Mr. Sun
holds a bachelor’s degree from Qinghai Normal College. Mr. Weike Sun is the sole shareholder of Bravemorning.
Zhihong
Liu, age 60, has been the senior advisor to TRON DAO since 2021, leading its strategic investment activities. Previously, Mr. Liu served
as the board director of Valkyrie Investment helping to launch one of the first Bitcoin future ETFs in the US. Prior to joining the blockchain
industry in 2021, he had held senior positions in the financial industry for over 20 years working for leading global firms including
Ant Financial, NOMURA, Salomon Smith Barney and Fidelity Investment. Mr. Liu holds an MBA from Columbia University and a bachelor’s
degree from Zhejiang University in China.
Zi
Yang, age 27, has been active in the blockchain industry for over 5 years. Mr. Yang currently holds senior positions for several leading
blockchain projects including Tronscan, the official blockchain explorer for Tron protocol. Mr. Yang holds a bachelor’s degree
in Human Resource Management from Guangdong University of Foreign Studies in China.
Amendments
to Employment Agreements with Officers
In
connection with the June PIPE Offering, on June 16, 2025, the Company entered into amendments to the employment agreements of each of
Richard Miller (the Company’s Chief Executive Officer), Mr. McKinnon (the Company’s Chief Financial Officer), Taft Flittner
(the Company’s President), and Deborah McDaniel-Hand (the Company’s Vice President of Production, Development, and Operations)
(collectively, the “Employment Agreement Amendments”).
Pursuant
to each of the Employment Agreement Amendments, the executives agreed (a) not to terminate their employment and not to seek any compensation
for any termination of their employment in connection with the June PIPE Offering and (b) that any incentive or bonus payments related
to the Company’s performance would only be measured against the Company’s business of developing and marketing licensed consumer
products, including children’s toys and entertainment merchandise. Such compensation would not be related to the Company’s
TRON (TRX) tokens-related operations.
In
addition, Messrs. Miller and McKinnon agreed that equity awards issued to them pursuant to the Company’s Equity Incentive Plans
would, going forward, be solely determined by the Compensation Committee of the Board. The foregoing description of the Employment Agreement
Amendments does not purport to be a complete description and is qualified in its entirety by reference to the individual Employment Agreement
Amendments which are filed with the Form 8-K of the Company filed with the SEC on June 16, 2025 as Exhibits 10.4 (Miller), 10.5 (McKinnon),
10.6 (Flittner), and 10.7 (McDaniel-Hand) and incorporated by reference into Item 5.02 therein.
On
July 11, 2025, the Board approved the change in the name of the Company to “Tron Inc.” (the “Name Change”) and
the change in the trading symbol of the Company to “TRON” on the Nasdaq Capital Market (the “Symbol Change”)
to align with its major transformation into a TRON treasury strategy company.
On
July 11, 2025, to effectuate the Name Change, the Company filed a Certificate of Amendment to the Articles of Incorporation of the Company,
as amended (the “Charter Amendment”) with the Secretary of State of the State of Nevada. The Name Change and the Symbol Change
took effect on the Nasdaq Capital Market on July 17, 2025.
These
moves reflect the Company’s broader strategic transformation and its commitment to aligning more closely with the TRON blockchain
ecosystem, following the launch of its Tron-focused treasury strategy. The Company’s ticker change to “TRON” reinforces
its brand identity and positions it as a key corporate player in the rapidly evolving blockchain and digital asset economy.
Lowering
of Transaction Fees
According
to committee proposals history available on Tronscan, the proposal #104 which proposed the modification of transaction fee of 1 unit
of energy from 0.00021 TRX token to 0.0001 TRX token was approved by the SR and became effective on August 29, 2025. The reduction of
this fee means that less TRX is required to be burned (from 0.00021 TRX token to 0.0001 TRX token) to obtain a unit of energy; as a result,
the cost for users to obtain energy through TRX burning decreases significantly, and therefore there will be less demand for energy rental.
See “ Risk Factors - The price decrease of energy, a type of system resources on the TRON blockchain, could negatively affect
the Company. ”
Regulatory
Developments in the PRC
We
do not have any operations in Mainland China and currently do not have or intend to have any operating subsidiary established in Mainland
China or any contractual arrangement to establish a variable interest entity (“VIE”) structure with any entity in Mainland
China.
SRM
Ltd, our wholly-owned subsidiary incorporated in Hong Kong, provides administrative support for the procurement and delivery process
of our custom merchandise business. We directly control our procurement of the custom merchandize with our PRC suppliers. SRM Ltd is
not involved in our TRX treasury holding activities. See “Business – Toy and Souvenir” for more information.
As
to our TRX treasury business, our Treasury Wallet is located in Hong Kong. See “Business – TRX Tokens Treasury”
for more information.
Because
of the certain connections we have in Hong Kong, and because Hong Kong is a Special Administrative Region of China, there is uncertainty
as to whether, in the event that the Chinese government does exercise additional oversight and discretion over the conduct of our business
in the future, our existing connections to Hong Kong would be significant enough to trigger any new governmental actions that would apply
to us, which could affect our operations and/or the value of our Common Stock or other securities. Because the nature of any such additional
oversight and discretion cannot be known presently, the resulting uncertainty presents a potential risk to investors.
We
are subject to unique risks due to uncertainty of the interpretation and the application of the PRC laws and regulations. We are also
subject to the risks of uncertainty about any future actions of the Chinese government or authorities in Hong Kong in this regard.
We
are aware that recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in
certain areas in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas using a VIE structure, adopting new measures to extend the scope of cybersecurity
reviews, and expanding its efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly
uncertain how soon the legislative or administrative regulation making bodies will respond and what existing or new laws or regulations
or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what the potential
impact such modified or new laws and regulations will have on our Hong Kong subsidiary or on our TRX treasury business. These actions
could potentially interfere with, alter, limit or hinder our current presence in Hong Kong. See “Risk Factors — Certain
of our operations are conducted in Hong Kong. It is possible that the Chinese government may exercise significant oversight and discretion
over the conduct of such business and may influence such operations, which could potentially significantly interfere with, alter, limit
or hinder our current presence in Hong Kong, and certain scenarios possibly affect the value of our Common Stock or other securities.
Changes in the policies, regulations, rules, and the enforcement of laws of the Chinese government may also occur quickly and our assertions
and beliefs of the risk imposed by the PRC legal and regulatory system cannot be certain. There are uncertainties regarding the enforcement
of PRC laws, and rules and regulations in China can change quickly with little advance notice. The Chinese government may intervene or
influence the Hong Kong aspects of our operations, which could interfere with our operations and/or affect the value of the Common Stock
or other securities we are registering for sale.” for further information.
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Recent
statements by the PRC government have indicated an intent to exert more oversight and control over offerings that are conducted overseas
and/or foreign investments in China based issuers. On July 6, 2021, the General Office of the Communist Party of China Central Committee
and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities markets and
promote the high-quality development of the capital markets, which, among other things, requires the relevant governmental authorities
to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed
overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.
On
December 24, 2021, the China Securities Regulatory Commission (the “CSRC”) released the Draft Administrative Provisions and
the Draft Filing Measures, both of which had a comment period that expired on January 23, 2022. The Draft Administrative Provisions and
Draft Filing Measures regulate the administrative system, record-filing management, and other related rules in respect of the direct
or indirect overseas issuance of listed and traded securities by “domestic enterprises”. The Draft Administrative Provisions
specify that the CSRC has regulatory authority over the “overseas securities offering and listing by domestic enterprises”,
and requires “domestic enterprises” to complete filing procedures with the CSRC if they wish to list overseas. On February
17, 2023, the CSRC released the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. According to
the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the
filing procedures and report relevant information to the CSRC; any failure to comply with such filing procedures may result in administrative
penalties, such as an order to rectify, warnings, and fines. On April 2, 2022, the CSRC published the Draft Archives Rules, for public
comment. These rules state that in the overseas listing activities of domestic companies, domestic companies, as well as securities companies
and securities service institutions providing relevant securities services thereof, should establish a sound system of confidentiality
and archival work, shall not disclose state secrets, or harm the state and public interests.
Under
the Trial Measures and the Guidance Rules and Notice, Chinese domestic companies conducting overseas securities offering and listing
activities, either in direct or indirect form, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial
Measures within three working days following their submission of initial public offerings or listing application. The companies that
have already been listed on overseas stock exchanges or have obtained the approval from overseas supervision administrations or stock
exchanges for its offering and listing and will complete their overseas offering and listing prior to September 30, 2023 are not required
to make immediate filings for its listing, yet need to make filings for subsequent offerings in accordance with the Trial Measures. Companies
that have already submitted an application for an initial public offering to overseas supervision administrations prior to the effective
date of the Trial Measures but have not yet obtained the approval from overseas supervision administrations or stock exchanges for the
offering and listing, shall arrange for the filing within a reasonable time period and shall complete the filing procedure before such
companies’ overseas issuance and listing.
Our
management understands that as of the date of this Form 10-K, the Company has no operations in Mainland China and is not required to
complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures. While the Company has no current operations
in Mainland China, should we have any future operations in Mainland China and should we (i) fail to receive or maintain such permissions
or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations,
or interpretations change and require us to obtain such permissions or approvals in the future, we may face sanctions by the CSRC, the
Cyberspace Administration of China (the “CAC”) or other PRC regulatory agencies. These regulatory agencies may also impose
fines and penalties on our potential operations in Mainland China, as well as limit our ability to pay dividends outside of Mainland
China, limit our operations in Mainland China, delay or restrict the repatriation of the proceeds from our offerings into Mainland China
or take other actions that could have an adverse effect on our business as well as the trading price of our Common Stock or other securities.
If
we have PRC operations in the future, we may be required to restructure our operations to comply with such regulations or potentially
cease operations in the PRC entirely. The CSRC, the CAC or other PRC regulatory agencies also may take actions requiring us, or making
it advisable for us, to halt offerings before settlement and delivery of our Common Stock or other securities. In addition, if the CSRC,
the CAC or other regulatory PRC agencies later promulgate new rules requiring that we obtain their approvals for our offerings, we may
be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. If we have
PRC operations in the future, any action taken by the PRC government could significantly limit or completely hinder our operations in
the PRC and our ability to offer or continue to offer securities to investors, and could cause the value of such securities to decline.
Furthermore,
on July 10, 2021, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comment, which required that, among
others, in addition to any “operator of critical information infrastructure”, any “data processor” controlling
personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity
review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities. On
December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly
issued the revised Measures for Cybersecurity Review, which became effective and replaced the existing Measures for Cybersecurity Review
on February 15, 2022. According to the Revised Review Measures, if an “online platform operator” that is in possession of
personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on
a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised
Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review
prior to the submission of its listing application with non-PRC securities regulators. Moreover, the CAC released the draft of the Regulations
on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor
listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the
annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year.
Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance
and substantial uncertainties exist with respect to their interpretation and implementation. It remains unclear whether a Hong Kong company
which collects personal information from PRC individuals shall be subject to the Revised Review Measures. We do not currently expect
the Revised Review Measures to have an impact on our business, our operations or our offerings as we do not believe that our subsidiary
would be deemed to be an “operator of critical information infrastructure” or a “data processor” controlling
personal information of no less than one million users, that would be required to file for cybersecurity review before listing in the
U.S.. However, there remains uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations. If
the Revised Review Measures are adopted into law in the future and if our subsidiary is deemed to be an “operator of critical information
infrastructure” or a “data processor” controlling personal information of no less than one million users, our operation
and the listing of our Common Stock or other securities in the U.S. could be subject to CAC’s cybersecurity review.
As
of the date of hereof, Hong Kong does not have similar regulations as of the PRC to extend oversight and control over offerings that
are conducted overseas. Hong Kong does not have similar regulation as of the Trial Measures and the Guidance Rules and Notice, and Measures
for Cybersecurity Review of the PRC. However, the legal and operational risks associated in Mainland China also apply to operations in
Hong Kong, and we face the risks and uncertainties associated with the complex and evolving PRC laws and regulations and as to whether
and how the recent PRC government statements and regulatory developments, such as those relating to data and cyberspace security and
anti-monopoly concerns, would be applicable to a company such as our subsidiary and our Company, given the Hong Kong aspects of our subsidiary
in Hong Kong and the possibility that the Chinese government may exercise significant oversight over the conduct of business in Hong
Kong. In the event we or our subsidiary were to become subject to PRC laws and regulations, we could incur material costs to ensure compliance,
and we or our subsidiary might be subject to fines, experienced evaluation of securities or delisting, restrictions on securities offerings,
and/or no longer be permitted to continue business operations as presently conducted. In the event that (i) the PRC government expands
the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC or if applicable
laws, regulations or interpretations change and we are required to obtain such permissions or approvals, (ii) we inadvertently conclude
that relevant permissions or approvals were not required, or (iii) we did not receive or maintain relevant permissions or approvals required,
any action taken by the PRC government could significantly limit or completely hinder our operations in Hong Kong and our ability to
offer or continue to offer securities to investors and could cause the value of our Common Stock or other securities to decline.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.