UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission File Number:
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code) |
(Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of August 14, 2023, there were a total of
ASSET ENTITIES INC.
Quarterly Report on Form 10-Q
Period Ended June 30, 2023
TABLE OF CONTENTS
PART I | ||
FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 |
Item 4. | Controls and Procedures | 22 |
PART II | ||
OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 23 |
Item 1A. | Risk Factors | 23 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
Item 3. | Defaults Upon Senior Securities | 25 |
Item 4. | Mine Safety Disclosures | 25 |
Item 5. | Other Information | 25 |
Item 6. | Exhibits | 25 |
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ASSET ENTITIES INC.
UNAUDITED FINANCIAL STATEMENTS
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ASSET ENTITIES INC.
Balance Sheets
As of June 30, | As of December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Deferred offering costs | ||||||||
Total Current Assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and credit card liability | $ | $ | ||||||
Contract liabilities | ||||||||
Total Current Liabilities | ||||||||
TOTAL LIABILITIES | ||||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity | ||||||||
Preferred Stock; $ | ||||||||
Common Stock; $ | ||||||||
Class A Common Stock; $ | ||||||||
Additional paid in capital | ||||||||
Subscription receivable | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Equity | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSET ENTITIES INC.
Statements of Operations
(Unaudited)
Three Months Ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Operating expenses | ||||||||||||||||
Contract labor | ||||||||||||||||
General and administrative | ||||||||||||||||
Management compensation | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
$ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSET ENTITIES INC.
Statement of Stockholders’ Equity
(Unaudited)
For the six months ended June 30, 2023:
Additional | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Class A Common Stock | Class B Common Stock | Paid in | Accumulated | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
Balance - December 31, 2022 | - | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
Class B common stock and warrant issued | ||||||||||||||||||||||||||||||||||||
Class B Common stock issued for restricted stock awards | ||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Balance - March 31, 2023 | - | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
Class B Common stock issued for restricted stock awards | - | - | - | - | - | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
Balance - June 30, 2023 | - | $ | - | $ | $ | $ | $ | ( | ) | $ |
For the six months ended June 30, 2022:
Class A | Class B | Additional | Retained earnings | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock | Paid in | Subscription | (Accumulated | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit) | Total | |||||||||||||||||||||||||||||||
Balance – December 31, 2021 | - | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||
Subscription received | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Balance – March 31, 2022 | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
Conversion from Class A Common Stock to Class B Common Stock | - | - | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||
Class B Common Stock issued | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
Subscription received | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance - June 30, 2022 | - | $ | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSET ENTITIES INC.
Statements of Cash Flows
(Unaudited)
Six months ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock based compensation | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | - | ( | ) | |||||
Prepaid expenses | ( | ) | ||||||
Accounts payable and accrued expenses | ( | ) | ||||||
Contract liabilities | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Class B common stock subscription proceeds received, net | ||||||||
Deferred offering costs | - | ( | ) | |||||
Net cash provided by financing activities | ||||||||
Net change in cash | ||||||||
Cash at beginning of period | ||||||||
Cash at end of period | $ | $ | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for income taxes | $ | $ | ||||||
Cash paid for interest | $ | $ | ||||||
NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Conversion from Class A to Class B common stock | $ | - | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ASSET ENTITIES INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 1. Organization, Description of Business and Liquidity
Organization
Asset Entities Inc. (“Asset Entities”, “we”, “us” or the “Company”), began operations as a general partnership in August 2020 and formed Assets Entities Limited Liability Company in the state of California on October 20, 2020. The financial statements reflect the operations of the Company from inception of the general partnership. On March 15, 2022, the Company filed Articles of Merger to register and incorporate with the state of Nevada and changed the company name to Asset Entities Inc.
On March
9, 2022, the Company filed Articles of Incorporation with the state of Nevada to authorize the Company to issue
On March
28, 2022, all
Description of Business
Asset Entities is an Internet company providing social media marketing, content delivery, and development and design services across Discord, TikTok, and other social media platforms. Based on the rapid growth of our Discord servers and social media following, we have developed three categories of services. First, we provide subscription upgrades to premium content on our investment education and entertainment servers on Discord. Second, we codevelop and execute influencer social media and marketing campaigns for clients. Third, we design, develop and manage Discord servers for clients under our “AE.360.DDM” brand. Our AE.360.DDM service was just released in December 2021. All of these services – our Discord investment education and entertainment, social media and marketing, and AE.360.DDM services – are therefore based on our effective use of Discord in combination with ongoing social media outreach on TikTok, Facebook, Twitter, Instagram, and YouTube.
Liquidity
The Company
had an accumulated deficit of $
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company prepares its financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”). The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2023, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended December 31, 2022, contained in the Company’s Form 10-K filed on June 30, 2023.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Cash and Cash Equivalents
For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents at June 30, 2023 and December 31, 2022.
Periodically,
the Company may carry cash balances at financial institutions more than the federally insured limit of $
Accounts Receivable
Accounts receivable are recorded in accordance with ASC 310, “Receivables.” Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company had no accounts receivable of as of June 30, 2023 to account for the delinquency related to one specific transaction. Based on management’s estimate under the expected credit loss model and based on all other accounts being current and settled, the Company has not deemed it necessary to make any additional general provision for doubtful accounts at the time of this report. To measure expected credit losses, accounts receivable are grouped based on shared risk characteristics and days past due.
Deferred Offering Costs
As of December 31, 2022, deferred offering costs represent legal fees for preparation of any securities purchase agreements or current registration statement. The Company records these fees as a current asset that will be netted against gross proceeds received from any offering or placements. In February 2023, the Company issued common stock as initial public offering and recorded offering cost as additional paid in capital.
Fair Value Measurements
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:
● | Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
● | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
● | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The Company’s financial instruments, including cash, accounts receivable, prepaid expense, deferred offering costs and contract liabilities, other current liabilities are carried at historical cost. At June 30, 2023 and December 31, 2022, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
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Revenue Recognition
The Company recognizes revenue utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.
Subscriptions
Subscription revenue is related to a single performance obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability expensed over the contracted service period.
Marketing
Revenue related to marketing campaign contracts with customers are normally of a short duration, typically less than two weeks.
AE.360.DDM Contracts
Revenue related to AE.360.DDM contracts with customers are normally of a short duration, typically less than one week.
Contract Liabilities
Contract
liabilities consist of quarterly and annual subscription revenue that have not been recognized. As of June 30, 2023 and December 31, 2022,
total contract liabilities were $
Earnings per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for warrants and options using the treasury stock method. As of June 30, 2023, dilutive potential common shares include outstanding warrants.
Income Taxes
As described in more detail above, the business now conducted by the Company was operated as a partnership from August 1, 2020 until October 19, 2020, when it was reorganized as a limited liability company, or LLC, and that LLC was merged into the Company on March 28, 2022. Prior to that date, the partnership and the subsequent LLC were not subject to federal income tax and all income, deductions, gains and losses were attributed to the partners or members.
The Company adopted FASB ASC 740, Income Taxes, at its inception. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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Related Parties
The Company follows ASC 850, “Related Party Disclosures”, for the identification of related parties and disclosure of related party transactions and balances.
Commitments and Contingencies
The Company follows ASC 450-20, “Loss Contingencies”, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Recent Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
Note 3. Stockholders’ Equity
Authorized Capital Stock
On March
9, 2022, the Company filed Articles of Incorporation with the state of Nevada to authorize the Company to issue
On March
28, 2022, all
Preferred Stock
The Company shall have the authority to issue the shares of Preferred Stock in one or more series with such rights, preferences and designations as determined by the Board of Directors of the Company.
Class A Common Stock
Each share of Class A Common Stock entitles the holder to ten (10) votes, in person or proxy, on any matter on which an action of the stockholders of the Company is sought and is convertible by the holder into one (1) share of Class B Common Stock.
The Company
had
Class B Common Stock
Each share of Class B Common Stock entitles the holder to one (1) vote, in person or proxy, on any matter on which an action of the stockholders of the Company is sought.
On February
3, 2023, the Company closed an initial public offering of its class B common stock. The Company raised total gross proceeds of $
During the
six months ended June 30, 2023, the Company granted
The Company
had
9
2022 Equity Incentive Plan
The maximum
number of shares of Class B Common Stock that may be issued pursuant to awards granted under the 2022 Plan is
The RSA
shares to directors vest quarterly for one year from the date of grantee’s appointment as a director. The RSA shares to officers
vest annually over three years from the grant date. RSA shares are measured at fair market value on the date of grant and stock-based
compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital. For the six
months ended June 30, 2023, the Company recorded stock-based compensation expense of $
Warrants
On February
7, 2023, the Company issued
Weighted | Weighted | |||||||||||
Number of | Average | Average | ||||||||||
shares | Exercise Price | Life (years) | ||||||||||
Outstanding, December 31, 2022 | $ | |||||||||||
Granted | ||||||||||||
Expired | ||||||||||||
Exercised | ||||||||||||
Outstanding, June 30, 2023 | $ |
All of the
outstanding warrants are exercisable as of June 30, 2023. The intrinsic value of the warrants as of June 30, 2023, is $
Note 4. Subsequent Events
On June 30, 2023, the
Company entered into a Closing Agreement (the “Closing Agreement”) with Triton Funds LP, a Delaware limited partnership (“Triton”).
Subject to the terms of the Closing Agreement, the Company had an option to deliver a closing notice (the “Closing Notice”)
to Triton at any time on or before September 30, 2023, pursuant to which Triton would have been obligated to purchase shares of Class
B Common Stock of the Company with an aggregate value of $
On August 1, 2023, the Company and Triton entered
into an Amended and Restated Closing Agreement (the “Amended and Restated Closing Agreement”). Subject to the terms of the
Amended and Restated Closing Agreement, the Company has an option to deliver the Closing Notice to Triton at any time on or before September
30, 2023, pursuant to which Triton will be obligated to purchase certain securities of the Company with an aggregate value of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our condensed consolidated financial statements and should be read in conjunction with such condensed consolidated financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our,” the “Company,” “Asset Entities,” and “our company” are to Asset Entities Inc., a Nevada corporation. “Class A Common Stock” refers to the Company’s Class A Common Stock, $0.0001 par value per share. “Class B Common Stock” refers to the Company’s Class B Common Stock, $0.0001 par value per share.
Note Regarding Trademarks, Trade Names and Service Marks
We use various trademarks, trade names and service marks in our business, including “AE 360 DDM”, “Asset Entities Where Assets Are Created”, “SiN”, “Social Influencer Network”, and associated marks. For convenience, we may not include the ℠, ® or ™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this report are the property of their respective owners.
Special Note Regarding Forward-Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
● | the potential impact of the COVID-19 pandemic on our operations and financial condition; |
● | our ability to introduce new products and services; |
● | our ability to obtain additional funding to develop additional services and offerings; |
● | anticipated compliance with obligations under intellectual property licenses with third parties; |
● | market acceptance of our new offerings; |
● | competition from existing online offerings or new offerings that may emerge; |
● | our ability to establish or maintain collaborations, licensing or other arrangements; |
● | our ability and third parties’ abilities to protect intellectual property rights; |
● | our ability to adequately support future growth; |
● | our goals and strategies; |
● | our future business development, financial condition and results of operations; |
● | expected changes in our revenue, costs or expenditures; |
● | growth of and competition trends in our industry; |
● | the accuracy and completeness of the data underlying our or third-party sources’ industry and market analyses and projections; |
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● | our expectations regarding demand for, and market acceptance of, our services; |
● | our expectations regarding our relationships with investors, institutional funding partners and other parties with whom we collaborate; |
● | fluctuations in general economic and business conditions in the markets in which we operate; and |
● | relevant government policies and regulations relating to our industry. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Item 1A. Risk Factors” and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
Asset Entities is a technology company providing social media marketing and content delivery services across Discord and other social media platforms. We also design, develop and manage servers for communities on Discord. Based on the rapid growth of our Discord servers and social media following, we have developed three categories of services: (1) our Discord investment education and entertainment services, (2) social media and marketing services, and (3) our AE.360.DDM services. All of our services are based on our effective use of Discord as well as other social media including TikTok, Twitter, Instagram, and YouTube.
Our Discord investment education and entertainment service is designed primarily by and for enthusiastic Generation Z, or Gen Z, retail investors, creators and influencers. Gen Z is commonly considered to be people born between 1997 and 2012. Our investment education and entertainment service focuses on stock, real estate, cryptocurrency, and NFT community learning programs designed for the next generation. While we believe that Gen Z will continue to be our primary market, our recently-expanded Discord server offering features education and entertainment content covering real estate investments, which is expected to appeal strongly to older generations as well. Our combined server user member base was approximately 260,000 as of June 30, 2023. During the quarter ended June 30, 2023, we introduced a line of limited-supply avatars and related merchandise for sale to users of this service.
Our social media and marketing services utilize our management’s social influencer backgrounds by offering social media and marketing campaign services to business clients. Our team of social influencer independent contractors, which we call our “SiN” or “Social Influencer Network”, can perform social media and marketing campaign services to expand our clients’ Discord server bases and drive traffic to their businesses, as well as increase the number members of our own servers.
Our “AE.360.DDM, Design Develop Manage” service, or “AE.360.DDM”, is a suite of services to individuals and companies seeking to create a server on Discord. We believe we are the first company to provide “Design, Develop and Manage,” or DDM, services for any individual, company, or organization that wishes to join Discord and create their own community. With our AE.360.DDM rollout, we are uniquely positioned to offer DDM services in the growing market for Discord servers. During the quarter ended June 30, 2023, we launched a new AE.360.DDM website; engaged music producer Jeff Blue as Head of Entertainment to lead the development of the AE.360.DDM Music and Entertainment Artist and Repertoire (A&R) service; hired a Senior Project Manager for all Discord servers under the AE.360.DDM suite of services; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer service feature; engaged professional golfers Bryson DeChambeau and Scott Verplank to promote the AE.360.DDM service; and engaged Michael Irvin, American sports commentator and former professional football player, to provide marketing services for the AE.360.DDM service.
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We believe that we are a leading provider of all of these services, that we have built a scalable and sustainable business model and that our competitive strengths position us favorably in each aspect of our business.
Our revenue depends in part on the number of paying subscribers to our Discord servers. During the three months ended June 30, 2023 and 2022, we received revenue from 348 and 723 Asset Entities Discord server paying subscribers, respectively. We define “members” as all Discord users who join any of our Discord servers, regardless of whether they subscribe to our premium content, and “paying subscribers” as members who pay a fee to subscribe to our premium Discord content.
As discussed above, we have recently announced a number of initiatives to expand our revenue base, but the extent and timing of any favorable impacts that they may have upon our revenues, income from operations, or other results of operations, are subject to, and may be offset by unfavorable impacts on our results of operations due to, many other factors and uncertainties that are discussed in this report, including under “—Special Note Regarding Forward-Looking Statements” and “—Impact of COVID-19 Pandemic”, and “—Principal Factors Affecting Our Financial Performance”, and “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Impact of COVID-19 Pandemic
The global pandemic of a novel strain of coronavirus, or COVID-19, prompted public health authorities and governments at local, national and international levels to announce various measures to counter the pandemic. Some measures that directly or indirectly impact our business include voluntary or mandatory quarantines, school and workplace closures, restrictions on travel, and limiting gatherings of people in public places.
We believe that we have fully complied with all federal, state and local requirements relating to COVID-19. We have undertaken various measures in an effort to mitigate the spread of COVID-19. From our founding, we have been a highly efficient remote-first company, which has been able to continue to function as normal even with pandemic-related stay-at-home orders and other regulations. We have also exploited certain trends related to the COVID-19 pandemic, including its acceleration of global growth in virtual services.
Conversely, we believe we have experienced a substantial decrease in subscriptions and related revenues compared to those generated during 2021 largely as a result of the reversal of COVID-19-pandemic countermeasures. We believe that the general full reopening of schools, workplaces, social settings, and travel services in most of the United States as of the first quarter of 2022 has reduced demand for online services like ours. The rapid growth of our revenues from 2020 to 2021 as disclosed in previous filings with the SEC is therefore not believed to be indicative of our performance for subsequent periods.
In addition, were the COVID-19 pandemic to resurge in severity, there is no assurance that it would contribute favorably to our results of operations. Pandemic-related effects have included and may in the future include adverse impacts on global economic activity and significant volatility and negative pressure in financial markets. The resulting global deterioration in economic conditions and financial volatility may have an adverse impact on discretionary consumer spending or investing, and could also impact our business and demand for our services. Therefore, the manner and extent to which future pandemic-related measures may impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date of this report. The pandemic and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. See also “Item 1A. Risk Factors – Risks Related to Our Business and Industry – The COVID-19 pandemic may cause a material adverse effect on our business” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1,235,000,000 or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
● | our ability to acquire new customers and users or retain existing customers and users; |
● | our ability to offer competitive pricing; |
● | our ability to broaden product or service offerings; |
● | industry demand and competition; |
● | our ability to leverage technology and use and develop efficient processes; |
● | our ability to attract and retain talented employees and contractors; and |
● | market conditions and our market position. |
Recent Developments
On June 30, 2023, the Company entered into a Closing Agreement (the “Closing Agreement”) with Triton Funds LP, a Delaware limited partnership (“Triton”). Subject to the terms of the Closing Agreement, the Company had an option to deliver a closing notice (the “Closing Notice”) to Triton at any time on or before September 30, 2023, pursuant to which Triton would have been obligated to purchase shares of Class B Common Stock of the Company with an aggregate value of $1,000,000.
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On August 1, 2023, the Company and Triton entered into an Amended and Restated Closing Agreement (the “Amended and Restated Closing Agreement”). Subject to the terms of the Amended and Restated Closing Agreement, the Company has an option to deliver the Closing Notice to Triton at any time on or before September 30, 2023, pursuant to which Triton will be obligated to purchase certain securities of the Company with an aggregate value of $1,000,000 in the following manner. Upon delivery of the Closing Notice, Triton must purchase newly-issued shares of Class B Common Stock of the Company (the “Triton Shares”) in an amount equal to up to 9.99% of the outstanding shares of Class B Common Stock following such purchase, plus pre-funded warrants (the “Triton Pre-Funded Warrants” and together with the Triton Shares, the “Triton Securities”) that may be exercised to purchase an amount of newly-issued shares of Class B Common Stock (the “Triton Warrant Shares”), such that the aggregate price of the Triton Shares and the Triton Pre-Funded Warrants together with the exercise price to be paid upon full exercise of the Triton Pre-Funded Warrants will equal a total gross purchase price of $1,000,000. Upon the Company’s election to deliver the Closing Notice, the price of each of the Triton Shares will be set at 85% of the lowest daily volume-weighted average price of the Class B Common Stock during the five business days before and five business days after the date of the Closing Notice. The anticipated Triton Shares, Triton Pre-Funded Warrant, if required or elected by Triton, or both, will be issued on the date of such notice based on the price per share that is 85% of the lowest daily volume-weighted average price of the Class B Common Stock during the five business days before the date of such notice. If the lowest volume-weighted average price up to five of the trading days following the date of the notice is lower than the lowest volume-weighted average price during the five-trading-day before the date of such notice, then the Company will issue the required additional Triton Shares, a Triton Pre-Funded Warrant, if required or elected by Triton, or both, based on that price. Triton will pay the purchase price no later than five business days after the date of the Closing Notice.
The Triton Pre-Funded Warrants will have an exercise price of $0.01 per share and no expiration date. The Triton Pre-Funded Warrants will also contain cashless exercise provisions. For each of the Triton Warrant Shares that is required to or is elected to be issuable pursuant to the issuance of the Triton Pre-Funded Warrants instead of as Triton Shares, the number of Triton Shares that the Company will issue to Triton at the time of any sale of the Triton Securities will be decreased on a one-for-one basis. The proceeds from a sale under the Amended and Restated Closing Agreement will be reduced by a $25,000 administrative fee.
Triton’s obligation to purchase the Triton Securities under the Amended and Restated Closing Agreement is subject to certain conditions. These conditions include the filing and effectiveness of a registration statement for the resale of the Triton Shares and Triton Warrant Shares. In addition, the Class B Common Stock must remain listed on the Nasdaq Capital Market tier of The Nasdaq Stock Market LLC (“Nasdaq”), and the issuance of the Triton Shares, the Triton Pre-Funded Warrants, or the Triton Warrant Shares must not violate any requirements of Nasdaq.
The Amended and Restated Closing Agreement contains additional requirements, including that, except as disclosed in the Company’s filings with the Securities and Exchange Commission, the Company must maintain the listing of the Class B Common Stock on the Nasdaq Capital Market tier of Nasdaq and provide notice to Triton of certain events affecting the effectiveness of the registration statement filed to register the resale of the Triton Shares and Triton Warrant Shares or the availability of the respective prospectus. The Amended and Restated Closing Agreement also provides for indemnification of Triton against liabilities relating to misrepresentations, breaches of obligations, and third-party claims relating to the Amended and Restated Closing Agreement, with certain exceptions. The Amended and Restated Closing Agreement will expire either upon the date that Triton pays the required purchase price after receiving the Closing Notice, or September 30, 2023.
There is no relationship between the Company or its affiliates and Triton, other than in respect of the Amended and Restated Closing Agreement.
In connection with the Amended and Restated Closing Agreement, pursuant to an engagement letter agreement between the Company and Boustead Securities, LLC, a registered broker-dealer (“Boustead”), dated November 29, 2021 and the underwriting agreement between the Company and Boustead, as representative of the underwriters of the Company’s initial public offering, dated February 2, 2023, upon a closing under the Amended and Restated Closing Agreement, if any, the Company will be required to pay Boustead a cash fee equal to 7% of the gross proceeds to be received from such closing, i.e., $70,000; pay Boustead a non-accountable expense allowance equal to 1% of the gross proceeds to be received from such closing, i.e., $10,000; issue Boustead a warrant with respect to the Triton Shares exercisable for a number of shares of Class B Common Stock equal to 7% of the number of the Triton Shares at an exercise price equal to the price per share for the Triton Shares; and issue Boustead a warrant with respect to the issuance of the Triton Pre-Funded Warrants exercisable for a number of shares of Class B Common Stock equal to 7% of the Triton Warrant Shares at an exercise price equal to $0.01 per share (collectively, the “Tail Warrants”). The Tail Warrants will be exercisable for a period of five years and contain cashless exercise provisions. The Company is also required to reimburse Boustead for all reasonable invoiced out-of-pocket expenses in connection with its performance of any services relating to the Amended and Restated Closing Agreement, regardless of whether a sale under the Amended and Restated Closing Agreement occurs.
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Results of Operations
Comparison of Three Months Ended June 30, 2023 and 2022
Three Months Ended | ||||||||
Consolidated Operations Data | June 30, 2023 | June 30, 2022 | ||||||
Revenues | $ | 74,912 | $ | 72,664 | ||||
Operating expenses | ||||||||
Contract labor | 48,083 | 51,289 | ||||||
General and administrative | 497,713 | 119,027 | ||||||
Management compensation | 850,173 | 147,487 | ||||||
Total operating expenses | 1,395,969 | 317,803 | ||||||
Loss from operations | (1,321,057 | ) | (245,139 | ) | ||||
Net loss | (1,321,057 | ) | (245,139 | ) |
Revenues. Our revenues increased 3.1% to approximately $0.075 million for the three months ended June 30, 2023 from approximately $0.073 million for the three months ended June 30, 2022. This increase was primarily due to an increase in contract revenue of approximately $0.037 for the three months ended June 30, 2023, offset by a decrease in revenue from Discord paying subscribers of approximately $0.035 million for the three months ended June 30, 2023, compared to such revenues for the three months ended June 30, 2022. There was no material difference in the Company’s subscription pricing structure between these periods.
Operating Expenses. Our total operating expenses increased 339.3% to approximately $1.4 million for the three months ended June 30, 2023 from approximately $0.3 million for the three months ended June 30, 2022. This increase was primarily due to an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.4 million and an increase in management compensation costs of approximately $0.8 million for the three months ended June 30, 2023 compared to such costs for the three months ended June 30, 2022.
Loss From Operations. Our loss from operations increased 438.9% to approximately $1.3 million for the three months ended June 30, 2023 from approximately $0.2 million for the three months ended June 30, 2022. This increase was primarily due to an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.4 million and an increase in management compensation costs of approximately $0.8 million for the three months ended June 30, 2023 compared to such costs for the three months ended June 30, 2022.
Net Loss. Our net loss increased 438.9% to approximately $1.3 million for the three months ended June 30, 2023 from approximately $0.2 million for the three months ended June 30, 2023. This increase was primarily due to an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.4 million and an increase in management compensation costs of approximately $0.8 million for the three months ended June 30, 2023 compared to such costs for the three months ended June 30, 2022.
Comparison of Six Months Ended June 30, 2023 and 2022
Six Months Ended | ||||||||
Consolidated Operations Data | June 30, 2023 | June 30, 2022 | ||||||
Revenues | $ | 136,047 | $ | 198,723 | ||||
Operating expenses | ||||||||
Contract labor | 84,664 | 82,084 | ||||||
General and administrative | 843,654 | 239,637 | ||||||
Management compensation | 1,600,037 | 206,341 | ||||||
Total operating expenses | 2,528,355 | 528,062 | ||||||
Loss from operations | (2,392,308 | ) | (329,339 | ) | ||||
Net loss | (2,392,308 | ) | (329,339 | ) |
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Revenues. Our revenues decreased 31.5% to approximately $0.1 million for the six months ended June 30, 2023 from approximately $0.2 million for the six months ended June 30, 2022. This decrease was primarily due to a decrease in subscription revenue of approximately $0.073 million, offset by an increase in contract revenue of approximately $0.011 million for the six months ended June 30, 2023, compared to such revenues for the six months ended June 30, 2022. There was no material difference in the Company’s subscription pricing structure between these periods.
Operating Expenses. Our total operating expenses increased 378.8% to approximately $2.5 million for the six months ended June 30, 2023 from approximately $0.5 million for the six months ended June 30, 2022. This increase was primarily due to an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.6 million and an increase in management compensation costs of approximately $1.4 million for the six months ended June 30, 2023 compared to such costs for the six months ended June 30, 2022.
Loss From Operations. Our loss from operations increased 626.4% to approximately $2.4 million for the six months ended June 30, 2023 from approximately $0.3 million for the six months ended June 30, 2022. This increase was primarily due to a decrease in subscription revenue of approximately $0.073, offset by an increase in contract revenue of approximately $0.011 million; an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.6 million; and an increase in management compensation costs of approximately $1.4 million for the six months ended June 30, 2023, compared to such revenue and costs for the six months ended June 30, 2022.
Net Loss. Our net loss increased 626.4% to approximately $2.4 million for the six months ended June 30, 2023 from approximately $0.3 million for the six months ended June 30, 2023. This increase was primarily due to a decrease in subscription revenue of approximately $0.073, offset by an increase in contract revenue of approximately $0.011 million; an increase in costs associated with the Company’s initial public offering and administrative cost of public filings of approximately $0.6 million; and an increase in management compensation costs of approximately $1.4 million for the six months ended June 30, 2023, compared to such revenue and costs for the six months ended June 30, 2022.
Liquidity and Capital Resources
As of June 30, 2023, we had cash consisting of approximately $5.0 million. To date, we have financed our operations primarily through contributed capital and sales of our services. In February 2023 we raised approximately $6.6 million in net proceeds from the Company’s initial public offering. We believe that our current levels of cash will be sufficient to meet our anticipated cash needs for our operations and cash payment obligations for the 12 months ended June 30, 2024 and in the long-term beyond this period, including our anticipated costs associated with being a public reporting company. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the six months ended June 30, 2023 and 2022.
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Net cash provided by (used in) operating activities | $ | (1,966,045 | ) | $ | (293,702 | ) | ||
Net cash provided by (used in) investing activities | - | - | ||||||
Net cash provided by (used in) financing activities | 6,845,050 | 375,395 | ||||||
Net change in cash | 4,879,005 | 81,693 | ||||||
Cash at beginning of period | 137,177 | 33,731 | ||||||
Cash at end of period | $ | 5,016,182 | $ | 115,424 |
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Net cash used in operating activities was approximately $2.0 million for the six months ended June 30, 2023, as compared to net cash used in operating activities of approximately $0.3 million for the six months ended June 30, 2022. The increase was primarily due to an increase in costs associated with the Company’s February 2023 initial public offering and administrative cost of public filings of approximately $0.6 million and an increase in management compensation costs of approximately $1.4 million compared to such costs for the six months ended June 30, 2022.
Net cash provided by financing activities was approximately $6.8 million for the six months ended June 30, 2023, as compared to approximately $0.4 million net cash provided by financing activities for the six months ended June 30, 2022. The change was primarily due to an increase in financing activities from the Company’s February 2023 initial public offering compared to financing from a private placement conducted during the six months ended June 30, 2022.
Initial Public Offering
On February 2, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC (“Boustead”), as representative of the underwriters named on Schedule 1 thereto, relating to the Company’s initial public offering of 1,500,000 shares of Class B Common Stock (the “IPO Shares”). Pursuant to the Underwriting Agreement, in exchange for Boustead’s firm commitment to purchase the IPO Shares, the Company agreed to sell the IPO Shares to Boustead at a purchase price (the “IPO Price”) of $4.65 (93% of the public offering price per share of $5.00, after deducting underwriting discounts and commissions and before deducting a 0.75% non-accountable expense allowance), and one or more warrants to purchase 7% of the aggregate number of shares of Class B Common Stock sold in the initial public offering, at an exercise price equal to 125% of the public offering price, subject to adjustment (the “Representative’s Warrant”).
On February 3, 2023, the IPO Shares and 1,500,000 outstanding shares of Class B Common Stock that were registered for resale as described below were listed and commenced trading on the Nasdaq Capital Market tier of The Nasdaq Stock Market LLC (“Nasdaq”).
The closing of the initial public offering took place on February 7, 2023. At the closing, the Company sold the IPO Shares for total gross proceeds of $7,500,000. After deducting the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public offering, the Company received net proceeds of approximately $6.6 million. The Company also issued Boustead the Representative’s Warrant exercisable for the purchase of 105,000 shares of Class B Common Stock at an exercise price of $6.25 per share, subject to adjustment. The Representative’s Warrant may be exercised by payment of cash or by a cashless exercise provision, and may be exercised at any time for five years following the date of issuance.
The IPO Shares were offered and sold, and the Representative’s Warrant was issued, pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-267258), as amended, initially filed with the Securities and Exchange Commission (the “SEC”) on September 2, 2022, and declared effective by the SEC on February 2, 2023 (the “Registration Statement”), and the final prospectus, dated February 2, 2023 (the “Final IPO Prospectus”), filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended (the “Securities Act”). In addition, a total of 1,500,000 shares of Class B Common Stock were registered for resale by the selling stockholders named in the Registration Statement, and a final prospectus relating to these shares, dated February 2, 2023 (the “Final Resale Prospectus”), was filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(3) of the Securities Act. As stated in the Final Resale Prospectus, any resales of these shares occurred at a fixed price of $5.00 per share until the Class B Common Stock was listed on Nasdaq. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. The Company would not receive any proceeds from the resale of Class B Common Stock by the selling stockholders.
The Registration Statement also registered for sale shares of Class B Common Stock with a maximum aggregate offering price of $1,125,000 for an additional 225,000 shares of Class B Common Stock at the assumed public offering price of $5.00 per share upon full exercise of the underwriters’ over-allotment option; and up to an additional 15,750 shares of Class B Common Stock underlying the Representative’s Warrant with a maximum aggregate offering price of $98,437.50 at the assumed exercise price of $6.25 per share assuming full exercise of the over-allotment option. As of the date of this report, the underwriters’ over-allotment option had expired unexercised and we have not received any proceeds from the exercise of the Representative’s Warrant because it has not been exercised.
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On April 4, 2023, Post-Effective Amendment No. 1 to the Registration Statement (the “Post-Effective Amendment”) was filed with the SEC and became effective on April 14, 2023. The Post-Effective Amendment was required to be filed to update the Registration Statement’s prospectus to include, among other things, the information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on June 30, 2023. The Post-Effective Amendment maintained the effectiveness of the Registration Statement with respect to the sale of shares of common stock issuable upon exercise of the Representative’s Warrant and the resale of the shares of common stock held by the selling stockholders. Updated prospectuses were included with the Post-Effective Amendment.
As stated in the Final IPO Prospectus, the Company intended to use the net proceeds from the initial public offering for investment in corporate infrastructure, marketing and promotion of Discord communities, social campaigns, and the Company’s “AE.360.DDM” service, expansion of the Company’s “SiN” service, increasing staff and company personnel, and general working capital, operating, and other corporate expenses.
The following is our reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering on February 7, 2023 until June 30, 2023:
● | None was used for construction of plant, building and facilities; |
● | None was used for the purchase and installation of machinery and equipment; |
● | None was used for purchases of real estate; |
● | None was used for the acquisition of other businesses; |
● | None was used for the repayment of indebtedness; |
● | $1.3 million was used for working capital; and |
● | None was used for temporary investments. |
As of the date of this report, none of the proceeds from the initial public offering were used to make direct or indirect payments to
any of our directors or officers, any of their associates, any persons owning 10% or more of any class of our equity securities, or any
of our affiliates, or direct or indirect payments to any others other than for the direct costs of the offering.
There has not been, and we do not expect, any material change in the planned use of proceeds from the initial public offering as described in the Registration Statement, the Final IPO Prospectus, and the Post-Effective Amendment.
Under our engagement letter agreement with Boustead, dated November 29, 2021 (the “Boustead Engagement Letter”), during the 12-month period following the termination or expiration of the Boustead Engagement Letter, which will occur no earlier than February 7, 2024, we must compensate Boustead for any transaction with “any party,” including any investor in a private placement in which Boustead served as placement agent or in the initial public offering, who became aware of the Company or who became known to the Company prior to the termination or expiration of the Boustead Engagement Letter, or any Company officers, directors, employees, consultants, advisors, stockholders, members, or partners (the “Tail Rights”). The Boustead Engagement Letter will expire upon the later to occur of February 7, 2024 (12 months from the completion date of the initial public offering), or mutual written agreement of the Company and Boustead.
We also agreed to provide Boustead a right of first refusal (the “Right of First Refusal”) for two years following the expiration of the Boustead Engagement Letter to act as financial advisor, lead managing underwriter, book runner, placement agent, or to act as joint advisor, managing underwriter, book runner, or placement agent on at least equal economic terms, on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of the Company. In the event that we engage Boustead to provide such services, Boustead will be compensated consistent with the Boustead Engagement Letter, as described below, unless we mutually agree otherwise.
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Under the Boustead Engagement Letter, in connection with a transaction as to which Boustead duly exercises the Right of First Refusal or is entitled to the Tail Rights, Boustead shall receive compensation as follows:
● | other than normal course of business activities, as to any sale, merger, acquisition, joint venture, strategic alliance, license, research and development, or other similar agreements, Boustead will accrue compensation under a percentage fee of the Aggregate Consideration (as defined in the Boustead Engagement Letter) calculated as follows: |
o | 10.0% for Aggregate Consideration of less than $10,000,000; plus |
o | 8.0% for Aggregate Consideration between $10,000,000 - $25,000,000; plus |
o | 6.0% for Aggregate Consideration between $25,000,001 - $50,000,000; plus |
o | 4.0% for Aggregate Consideration between $50,000,001 - $75,000,000; plus |
o | 2.0% for Aggregate Consideration between $75,000,001 - $100,000,000; plus |
o | 1.0% for Aggregate Consideration above $100,000,000; |
● | for any investment transaction including any common stock, preferred stock, ordinary shares, convertible stock, limited liability company or limited partnership memberships, debt, convertible debentures, convertible debt, debt with warrants, stock warrants, stock options (excluding issuances to Company employees), stock purchase rights, or any other securities convertible into common stock, any form of debt instrument involving any form of equity participation, and including the conversion or exercise of any securities sold in any transaction, Boustead shall receive upon each investment transaction closing a success fee, payable in (i) cash, equal to 7% of the gross amount to be disbursed to the Company from each such investment transaction closing, plus (ii) a non-accountable expense allowance equal to 1% of the gross amount to be disbursed to the Company from each such investment transaction closing, plus (iii) warrants equal to 7% of the gross amount to be disbursed to the Company from each such investment transaction closing, including shares issuable upon conversion or exercise of the securities sold in any transaction, and in the event that warrants or other rights are issued in the investment transaction, 7% of the shares issuable upon exercise of the warrants or other rights, and in the event of a debt or convertible debt financing, warrants to purchase an amount of Company stock equal to the 7% of the gross amount or facility received by the Company in a debt financing divided by the warrant exercise share. The warrant exercise price will be the lower of: (i) the fair market value price per share of the Company’s common stock as of each such financing closing date; (ii) the price per share paid by investors in each respective financing; (iii) in the event that convertible securities are sold in the financing, the conversion price of such securities; or (iv) in the event that warrants or other rights are issued in the financing, the exercise price of such warrants or other rights; |
● | any such warrants will be transferable in accordance with rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and SEC regulations, exercisable from the date of issuance and for a term of five years, contain cashless exercise provisions, be non-callable and non-cancelable with immediate piggy-back registration rights, have customary anti-dilution provisions and any future stock issuances, etc., at a price(s) below the exercise price per share, at terms no less favorable than the terms of any warrants issued to participants in the related transaction, and provide for automatic exercise immediately prior to expiration; and |
● | reasonable out-of-pocket expenses in connection with the performance of its services, regardless of whether a transaction occurs. |
Pursuant to the Underwriting Agreement, as of February 3, 2023, we are subject to a lock-up agreement that provides that we may not, for 12 months, subject to certain exceptions, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, change the terms of, or grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company (other than pursuant to a registration statement on Form S-8 for employee benefit plans); or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The Underwriting Agreement and Boustead Engagement Letter contain other customary representations, warranties and covenants by the Company, customary conditions to closing, indemnification obligations of the Company and Boustead, including for liabilities under the Securities Act, other obligations of the parties, and termination provisions. The representations, warranties and covenants contained in the Underwriting Agreement and Boustead Engagement Letter were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties.
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Contractual Obligations
During the six months ended June 30, 2023 and 2022, we had no significant cash requirements for capital expenditures or other cash needs under any contractual or other obligations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included with this report, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. We believe our most critical accounting policies and estimates relate to the following:
Revenue Recognition
The Company recognizes revenue utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.
Subscriptions
Subscription revenue is related to a single performance obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability expensed over the contracted service period.
Marketing
Revenue related to marketing campaign contracts with customers are normally of a short duration, typically less than two (2) weeks.
AE.360.DDM Contracts
Revenue related to AE.360.DDM contracts with customers are normally of a short duration, typically less than one (1) week.
Earnings per Share of Common Stock
The Company has adopted Accounting Standards Codification (“ASC”) Topic 260, “Earnings per Share”, which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for warrants and options using the treasury stock method. As of June 30, 2023, dilutive potential shares of common stock include outstanding warrants.
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Income Taxes
As described in more detail above (see “Part 1. Financial Information – Item 1. Financial Statements – Note 1. Organization, Description of Business and Liquidity – Organization”), the business now conducted by the Company was operated as a partnership from August 1, 2020 until October 19, 2020, when it was reorganized as a limited liability company, or LLC, and that LLC was merged into the Company on March 28, 2022. Prior to that date, the partnership and the subsequent LLC were not subject to federal income tax and all income, deductions, gains and losses were attributed to the partners or members.
The Company adopted Financial Accounting Standards Board (“FASB”) ASC Topic 740, “Income Taxes” (“FASB ASC 740”), at its inception. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Recent Accounting Pronouncements
In June 2022, the FASB issued Accounting Standards Update 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2023. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There have been no changes in our internal control over financial reporting during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are not currently aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Use of Proceeds from Registered Securities
On February 2, 2023, we entered into the Underwriting Agreement with Boustead, as representative of the underwriters named on Schedule 1 thereto, relating to the Company’s initial public offering of the IPO Shares. Pursuant to the Underwriting Agreement, in exchange for Boustead’s firm commitment to purchase the IPO Shares, the Company agreed to sell the IPO Shares to Boustead at the IPO Price as reduced by a 0.75% non-accountable expense allowance, and the Representative’s Warrant.
On February 3, 2023, the IPO Shares and 1,500,000 outstanding shares of Class B Common Stock that were registered for resale as described below were listed and commenced trading on the Nasdaq Capital Market tier of Nasdaq.
The closing of the initial public offering took place on February 7, 2023. At the closing, the Company sold the IPO Shares for total gross proceeds of $7,500,000. After deducting the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public offering, the Company received net proceeds of approximately $6.6 million. The Company also issued Boustead the Representative’s Warrant exercisable for the purchase of 105,000 shares of Class B Common Stock at an exercise price of $6.25 per share, subject to adjustment. The Representative’s Warrant may be exercised by payment of cash or by a cashless exercise provision, and may be exercised at any time for five years following the date of issuance.
The IPO Shares were offered and sold, and the Representative’s Warrant was issued, pursuant to the Registration Statement (File No. 333-267258), initially filed with the SEC on September 2, 2022, and declared effective by the SEC on February 2, 2023, and the Final IPO Prospectus filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(4) of the Securities Act. In addition, a total of 1,500,000 shares of Class B Common Stock were registered for resale by the selling stockholders named in the Registration Statement and the related Final Resale Prospectus. As stated in the Final Resale Prospectus, any resales of these shares occurred at a fixed price of $5.00 per share until the Class B Common Stock was listed on Nasdaq. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. The Company would not receive any proceeds from the resale of Class B Common Stock by the selling stockholders.
The Registration Statement also registered for sale shares of Class B Common Stock with a maximum aggregate offering price of $1,125,000 for an additional 225,000 shares of Class B Common Stock at the assumed public offering price of $5.00 per share upon full exercise of the underwriters’ over-allotment option; and up to an additional 15,750 shares of Class B Common Stock underlying the Representative’s Warrant with a maximum aggregate offering price of $98,437.50 at the assumed exercise price of $6.25 per share assuming full exercise of the over-allotment option. As of the date of this report, the underwriters’ over-allotment option had expired unexercised and we have not received any proceeds from the exercise of the Representative’s Warrant because it has not been exercised.
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On April 4, 2023, the Post-Effective Amendment was filed with the SEC and became effective on April 14, 2023. The Post-Effective Amendment was required to be filed to update the Registration Statement’s prospectus to include, among other things, the information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on June 30, 2023. The Post-Effective Amendment maintained the effectiveness of the Registration Statement with respect to the sale of shares of common stock issuable upon exercise of the Representative’s Warrant and the resale of the shares of common stock held by the selling stockholders. Updated prospectuses were included with the Post-Effective Amendment.
As stated in the Final IPO Prospectus, the Company intended to use the net proceeds from the initial public offering for investment in corporate infrastructure, marketing and promotion of Discord communities, social campaigns, and the Company’s “AE.360.DDM” service, expansion of the Company’s “SiN” service, increasing staff and company personnel, and general working capital, operating, and other corporate expenses.
The following is our reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering on February 7, 2023 until June 30, 2023:
● | None was used for construction of plant, building and facilities; |
● | None was used for the purchase and installation of machinery and equipment; |
● | None was used for purchases of real estate; |
● | None was used for the acquisition of other businesses; |
● | None was used for the repayment of indebtedness; |
● | $1.3 million was used for working capital; and |
● | None was used for temporary investments. |
As of the date of this report, none of the proceeds from the initial public offering were used to make direct or indirect payments to
any of our directors or officers, any of their associates, any persons owning 10% or more of any class of our equity securities, or any
of our affiliates, or direct or indirect payments to any others other than for the direct costs of the offering.
There has not been, and we do not expect, any material change in the planned use of proceeds from the initial public offering as described in the Registration Statement, the Final IPO Prospectus, and the Post-Effective Amendment.
Unregistered Sales of Equity Securities
During the three months ended June 30, 2023, we did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed under Item 3.02 in a Current Report on Form 8-K.
Purchases of Equity Securities
No repurchases of our common stock were made during the three months ended June 30, 2023.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be disclosed in a Current Report on Form 8-K during the three months ended June 30, 2023 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors where those changes were implemented after the Company last provided disclosure of such procedures.
ITEM 6. EXHIBITS.
* | Filed herewith |
** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 14, 2023 |
ASSET ENTITIES INC. | |
/s/ Arshia Sarkhani | ||
Name: | Arshia Sarkhani | |
Title: | Chief Executive Officer and President | |
(Principal Executive Officer) | ||
/s/ Matthew Krueger | ||
Name: | Matthew Krueger | |
Title: | Chief Financial Officer | |
(Principal Accounting and Financial Officer) |
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Exhibit 10.3
Exhibit 10.4
These General Terms and Conditions apply to Office/Co-Working, Virtual Office, and Membership agreements for services We supply to You.
1. | General Agreement |
1.1. | Nature of an agreement: At all times, each Center remains in Our possession and control. YOU ACCEPT THAT AN AGREEMENT CREATES NO TENANCY INTEREST, LEASEHOLD ESTATE, OR OTHER REAL PROPERTY INTEREST IN YOUR FAVOR WITH RESPECT TO THE ACCOMMODATION. |
1.2. | House Rules: The House Rules, which are incorporated into these terms and conditions, are primarily in place and enforced to ensure that all clients have a professional environment to work in. |
1.3. | Company and Contact Information: It is Your responsibility to keep the information and key contact information We use to communicate with You up to date through the App or Online Account (or other customer portal as advised to you from time to time). This includes but is not limited to email addresses, phone numbers, and company address. Your contact address details must be a legitimate business address or residential address of the primary contact; it must not be an IWG Center address (or other business center address). |
1.4. | Availability at the start of an agreement: If for any unfortunate reason We cannot provide the Virtual Office services or Office/Co-Working accommodation in the Center stated in an agreement by the start date, We will have no liability to You for any loss or damage, but You may either move to one of Our other Centers (subject to availability), delay the start of the agreement, or cancel it. |
1.5. | AUTOMATIC RENEWAL: SO THAT WE CAN MANAGE YOUR SERVICES EFFECTIVELY AND TO ENSURE SEAMLESS CONTINUITY OF THOSE SERVICES, ALL AGREEMENTS WILL RENEW AUTOMATICALLY FOR SUCCESSIVE PERIODS EQUAL TO THE CURRENT TERM UNTIL BROUGHT TO AN END BY YOU OR US. ALL PERIODS SHALL RUN TO THE LAST DAY OF THE MONTH IN WHICH THEY WOULD OTHERWISE EXPIRE. THE FEES ON ANY RENEWAL WILL BE AT THE THEN PREVAILING MARKET RATE. IF YOU DO NOT WISH FOR AN AGREEMENT TO RENEW, THEN YOU CAN CANCEL IT EASILY WITH EFFECT FROM THE END DATE STATED IN THE AGREEMENT OR AT THE END OF ANY EXTENSION OR RENEWAL PERIOD BY GIVING US PRIOR NOTICE. NOTICE MUST BE GIVEN THROUGH YOUR ONLINE ACCOUNT OR THROUGH THE APP. THE NOTICE PERIODS REQUIRED ARE AS FOLLOWS: |
Term | Notice Period | ||
Month-to-Month | no less than 1 month's notice from the 1st day of any calendar month | ||
3 months | no less than 2 months’ notice prior to the end of the term | ||
More than 3 months | no less than 3 months’ notice prior to the end of the term |
1.6. | We may elect not to renew an agreement. If so, We will inform You by email, through the App or Your online account, according to the same notice periods specified above. |
1.7. | If the Center is no longer available: In the event that We are permanently unable to provide the services and accommodation at the Center stated in an agreement, We will offer You accommodation in one of Our other centers. In the unlikely event We are unable to find a nearby alternative accommodation, Your agreement will end, and You will only have to pay monthly fees up to that date and for any additional services You have used. |
1.8. | Ending an agreement immediately: We may terminate an agreement immediately by giving You notice if (a) You become insolvent or bankrupt; or (b) You breach one of your obligations which cannot be put right, or which We have given You notice to put right and which You have failed to put right within 14 days of that notice; or (c) Your conduct, or that of someone at the Center with Your permission or invitation, is incompatible with ordinary office use and, (i) that conduct continues despite You having been given notice, or (ii) that conduct is material enough (in Our reasonable opinion) to warrant immediate termination; or (d) You are in breach of the “Compliance With Law” clause below. If We terminate an agreement for any of the reasons referred to in this clause You must, within 30 days of the date of Our notice of termination, pay Us as a lump sum payment all sums that would otherwise have fallen due and payable by you during the remainder of the period for which Your agreement would have lasted if We had not terminated it. You agree that this payment reflects a reasonable estimate of the actual damages that We will sustain in the event of an early termination. |
1.9. | When an Office agreement ends: When an agreement ends You must vacate Your accommodation immediately, leaving it in the same state and condition as it was when You took it. If You leave any property in the Center, We may dispose of it at Your cost in any way We choose without owing You any responsibility for it or any proceeds of sale. If You continue to use the accommodation when an agreement has ended, You are responsible for any loss, claim or liability We may incur as a result of Your failure to vacate on time. |
1.10. | Transferability: Subject to availability (which shall be determined in Our sole discretion) You may transfer Your agreement to alternative accommodation in the IWG network of Centers provided that Your financial commitment remains the same (or increases) and such transfer is not used to extend or renew an existing agreement. Such a transfer may require entry into a new agreement. |
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2. | Use of the Centers: |
2.1. | Business Operations: You may not carry on a business that competes with Our business of providing serviced offices and flexible working. You may not use Our name (or that of Our affiliates) in any way in connection with Your business. You are only permitted to use the address of a Center as Your registered office address if it is permitted by both law and if We have given You prior written consent (given the administration there is an additional fee chargeable for this service). You must only use the accommodation for office business purposes. If We decide that a request for any particular service is excessive, We reserve the right to charge an additional fee. In order to ensure that the Center provides a great working environment for all, We kindly ask you to limit any excessive visits by members of the public. |
2.2. | Accommodation |
2.2.1. | Alterations or Damage: You are liable for any damage caused by You or those in the Center with Your permission, whether express or implied, including but not limited to all employees, contractors and/or agents. |
2.2.2. | IT Installations: We take great pride in Our IT infrastructure and its upkeep and therefore You must not install any cabling, IT, or telecom connections without Our consent, which We may refuse in our absolute discretion. As a condition to Our consent, You must permit Us to oversee any installations (for example, IT or electrical systems) and to verify that such installations do not interfere with the use of the accommodation by other clients or Us or any landlord of the building. Fees for installation and de-installation will be at Your cost. |
2.2.3. | Use of the Accommodation: An agreement will list the accommodation We initially allocate for Your use. You will have a non-exclusive right to the rooms allocated to You. Where the accommodation is a Coworking desk, this can only be used by one individual. It cannot be shared among multiple individuals. Occasionally to ensure the efficient running of the Centre, We may need to allocate different accommodation to You, but it will be of reasonably equivalent size, and We will notify You with respect to such different accommodation in advance. |
2.2.4. | Access to the Accommodation: To maintain a high level of service, We may need to enter Your accommodation and may do so at any time, including and without limitation, in an emergency, for cleaning and inspection or in order to resell the space if You have given notice to terminate. We will always endeavor to respect any of Your reasonable security procedures to protect the confidentiality of Your business. |
2.2.5. | Hybrid Working: You may use Your designated office for hybrid working (excluding Coworking desks). Hybrid working is defined as having more individuals registered with access to Your office than the specified maximum allowable occupants for that office at any one time. The management of individuals accessing your office is Your responsibility and should be managed through Your online account. At no time may the number of individuals working in Your accommodation exceed the maximum number of occupants allowed. A hybrid supplemental monthly fee will be payable by You for each individual registered above the maximum occupants allowed. This fee can be found in the House Rules. |
2.3. | Membership: |
2.3.1. | If You have subscribed to a Membership Agreement, You will have access to all participating centers worldwide during standard business working hours and subject to availability. |
2.3.2. | Membership Usage: Usage is measured in whole days and unused days cannot be carried over to the following month. A membership is not intended to be a replacement for a full-time workspace and all workspaces must be cleared at the end of each day. You are solely responsible for Your belongings at the center at all times. We are not responsible for any property that is left unattended. Should You use more than Your membership entitlement, We will charge You an additional usage fee. You may bring in 1 guest free of charge (subject to fair usage). Any additional guests will be required to purchase a day pass. |
2.3.3. | As a Member, You may not use any Center as Your business address without an accompanying office or virtual office agreement in place. Any use of the Center address in such a way will result in an automatic enrollment in the Virtual Office product for the same term as Your membership and You will be invoiced accordingly. |
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2.4. | Compliance with Law: You must comply with all relevant laws and regulations in the conduct of Your business. You must not do anything that may interfere with the use of the Center by Us or by others (including but not limited to political campaigning or immoral activity), cause any nuisance or annoyance, or cause loss or damage to Us (including damage to reputation) or to the owner of any interest in the building. If We have been advised by any government authority or other legislative body that it has reasonable suspicion that You are conducting criminal activities from the Center, or You are or will become subject to any government sanctions, then We shall be entitled to terminate any and all of Your agreements with immediate effect. You acknowledge that any breach by You of this clause shall constitute a material default, entitling Us to terminate Your agreement without further notice. |
2.5. | Ethical Trading: Both We and You shall comply at all times with all relevant anti-slavery, anti-bribery, and anti-corruption laws. |
2.6. | Data Protection: |
2.6.1. | Each party shall comply with all applicable data protection legislation. The basis on which we will process Your personal data is set out in our privacy policies (available on our website at www.iwgplc.com/clientprivacypolicy.) |
2.6.2. | You acknowledge and accept that we may collect and process personal data concerning You and/or your personnel in the course of our agreement for services with you. Such personal data will be processed in accordance with our privacy policy. Where you provide this data to us, you will ensure that you have the necessary consents and notices in place to allow for this. |
2.7. | Employees: We will both have invested a great deal in training Our staff. Therefore, neither of us may knowingly solicit or offer employment to the other’s staff employed in any Center (or for 3 months after they have left their employment). To recompense the other for staff training and investment costs, if either of us breaches this clause the breaching party will pay upon demand the other the equivalent of 6 months’ salary of any employee concerned. |
2.8. | Confidentiality: The terms of an agreement are confidential. Neither of us may disclose them without the other’s consent unless required to do so by law or an official authority. This obligation continues for a period of 3 years after an agreement ends. |
2.9. | Assignment: An agreement is personal to You and cannot be transferred to anyone else without prior consent from Us unless such transfer is required by law. However, We will not unreasonably withhold our consent to assignment to an affiliate provided that You execute our standard form of assignment. We may transfer any agreement and any and all amounts payable by You under an agreement to any other member of Our group. |
2.10. | Applicable law: An agreement is interpreted and enforced in accordance with the law of the place where the Center is located other than in a few specific jurisdictions which are detailed in the House Rules. We and You both accept the exclusive jurisdiction of the courts of that jurisdiction. If any provision of these terms and conditions is held void or unenforceable under the applicable law, the other provisions shall remain in force. |
3. | Our liability to You and Insurance |
3.1. | The extent of Our liability: To the maximum extent permitted by applicable law, We are not liable to You in respect of any loss or damage You suffer in connection with an agreement, including without limitation any loss or damage arising as a result of our failure to provide a service as a result of mechanical breakdown, strike, or other event outside of Our reasonable control otherwise, unless We have acted deliberately or have been negligent. In no event shall We be liable for any loss or damage until You provide written notice and give Us a reasonable time to put it right. If We are liable for failing to provide You with any service under an agreement, then, subject to the exclusions and limits set out immediately below, We will pay any actual and reasonable additional expense You have incurred in obtaining the same or similar service from elsewhere. |
3.2. | Your Insurance: It is Your responsibility to arrange insurance for property which You bring in to the Center, for any mail You send or receive and for Your own liability to your employees and to third parties. We strongly recommend that You put such insurance in place. |
3.3. | IT Services and Obligations: Whilst We have security internet protocols in place and strive to provide seamless internet connectivity, WE DO NOT MAKE ANY REPRESENTATION AND CANNOT GUARANTEE ANY MAINTAINED LEVEL OF CONNECTIVITY TO OUR NETWORK OR TO THE INTERNET, NOR THE LEVEL OF SECURITY OF IT INFORMATION AND DATA THAT YOU PLACE ON IT. You should adopt whatever security measures (such as encryption) You believe are appropriate to Your business. Your sole and exclusive remedy in relation to issues of reduced connectivity which are within Our reasonable control shall be for Us to rectify the issue within a reasonable time following notice from You to Us. |
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3.4. | EXCLUSION OF CONSEQUENTIAL LOSSES: WE WILL NOT IN ANY CIRCUMSTANCES HAVE ANY LIABILITY TO YOU FOR LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF ANTICIPATED SAVINGS, LOSS OF OR DAMAGE TO DATA, THIRD PARTY CLAIMS OR ANY CONSEQUENTIAL LOSS. WE STRONGLY RECOMMEND THAT YOU INSURE AGAINST ALL SUCH POTENTIAL LOSS, DAMAGE, EXPENSE OR LIABILITY. |
3.5. | Financial limits to our liability: In all cases, our liability to You is subject to the following limits: |
3.5.1. | without limit for personal injury or death; |
3.5.2. | up to a maximum of GBP 1 million (or USD 1.5 million or EUR 1 million or other local equivalent) for any one event or series of connected events for damage to Your personal property; and |
3.5.3. | in respect of any other loss or damage, up to a maximum equal to 125% of the total fees paid between the date services under an agreement commenced and the date on which the claim in question arises; or if higher, for office agreements only, GBP 50,000 / USD 100,000 / EUR 66,000 (or local equivalent). |
4. | Fees |
4.1. | Service Retainer/Deposit: Your service retainer / deposit will be held by Us without generating interest as security for performance of all Your obligations under an agreement. All requests for the return must be made through Your online account or App after which the service retainer/deposit or any balance will be returned within 30 days to You once your agreement has ended and when You have settled Your account. We will deduct any outstanding fees and other costs due to Us before returning the balance to You. We will require You to pay an increased retainer if the monthly office or virtual office fee increases upon renewal, outstanding fees exceed the service retainer/deposit held, and/or You frequently fail to pay invoices when due. |
4.2. | Taxes and duty charges: You agree to pay promptly (i) all sales, use, excise, consumption and any other taxes and license fees which You are required to pay to any governmental authority (and, at Our request, You will provide to Us evidence of such payment) and (ii) any taxes paid by Us to any governmental authority that are attributable to Your accommodation, where applicable, including, without limitation, any gross receipts, rent and occupancy taxes, tangible personal property taxes, duties or other documentary taxes and fees. |
4.3. | Payment: We are continually striving to reduce our environmental impact and support You in doing the same. Therefore, We will send all invoices electronically and You will make payments via an automated method such as Direct Debit or Credit Card (wherever local banking systems permit). If You do not set up an automatic form of payment, You will be charged a refundable payment retainer equal to one time your monthly product fee. Invoices are due and payable on the due date stated in them. |
4.4. | Late payment: If You do not pay fees when due, a fee will be charged on all overdue balances. This fee will differ by country and is listed in the House Rules. If any part of an invoice is legitimately disputed, You shall give immediate written notice to Us, follow the requirements of the Disputes clause in the House Rules, and pay the amount not in dispute by the due date or be subject to late fees. We also reserve the right to withhold services (including for the avoidance of doubt, denying You access to the Center where applicable) while there are any outstanding fees and/or interest or You are in breach of an agreement. |
4.5. | Insufficient Funds: Due to the additional administration We incur, You will pay a fee for any returned or declined payments due to insufficient funds. This fee will differ by country and is listed in the House Rules. |
4.6. | Activation: An activation fee is payable in respect of each agreement You have with Us (including any new agreements entered into under clause 1.10 above). This fee covers the administrative cost of the client onboarding process and account setup. This fee is set out in each Local Services Agreement and is charged on a per occupant basis for Serviced Office and Coworking (dedicated desk), on a per location basis for Virtual Office, and on a per person basis for Membership. Further information is set out in the House Rules. |
4.7. | Indexation: If an agreement, including month to month agreements, continues for more than 12 months, We will increase the monthly fee on each anniversary of the start date in line with the relevant inflation index detailed in the current House Rules. If a country experiences high levels of inflation, indexation could be applied more frequently and is detailed in the current House Rules. |
4.8. | Office Restoration: Upon Your departure or if You choose to relocate to a different room within a Center, We will charge a fixed office restoration service fee to cover normal cleaning and any costs incurred to return the accommodation to its original condition and state. This fee will differ by country and is listed in the House Rules. We reserve the right to charge additional reasonable fees for any repairs needed above and beyond normal wear and tear. |
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4.9. | Standard services: Monthly fees, plus applicable taxes, and any recurring services requested by You are payable monthly in advance. Where a daily rate applies, the charge for any such month will be 30 times the daily fee. For a period of less than one month, the fee will be applied on a daily basis. |
4.10. | Pay-as-you-use and Additional Variable Services: Fees for pay-as-you-use services, plus applicable taxes, are payable monthly in arrears at our standard rates which may change from time to time and are available on request. |
4.11. | Additional Fees: If Your use of the accommodation or treatment of the accommodation requires Us to incur additional costs for the provision of nonstandard service(s), including but not limited to deep cleaning, unusual trash removal, pest remediation, or additional security, We reserve the right to charge You for the cost of these services plus an additional 20% administration fee. |
4.12. | Discounts, Promotions and Offers: If You benefited from a special discount, promotion or offer, We will discontinue that discount, promotion or offer without notice if You materially breach Your agreement. |
Global Terms Feb 2023
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Exhibit 31.1
CERTIFICATIONS
I, Arshia Sarkhani, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Asset Entities Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 14, 2023
/s/ Arshia Sarkhani |
|
Arshia Sarkhani | |
Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Matthew Krueger, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Asset Entities Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 14, 2023
/s/ Matthew Krueger |
|
Matthew Krueger | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Executive Officer of Asset Entities Inc. (the “Company”), DOES HEREBY CERTIFY that to my knowledge:
1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on August 14, 2023.
/s/ Arshia Sarkhani | |
Arshia Sarkhani | |
Chief Executive Officer and President (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Asset Entities Inc. and will be retained by Asset Entities Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Financial Officer of Asset Entities Inc. (the “Company”), DOES HEREBY CERTIFY that to my knowledge:
1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
IN WITNESS WHEREOF, the undersigned has executed this statement on August 14, 2023.
/s/ Matthew Krueger | |
Matthew Krueger | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Asset Entities Inc. and will be retained by Asset Entities Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.