Business Context and Reporting Period
The filing is an unaudited Form 10-Q for the quarter and six months ended June 30, 2023, filed August 14, 2023. The filing identifies the registrant as Asset Entities Inc., not Strive, Inc.; investors should verify the company identity and ticker. Asset Entities provides Discord-based investment education and entertainment, social media marketing, and Discord server design, development, and management services under AE.360.DDM. Its combined server membership was approximately 260,000 as of June 30, 2023.
Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 |
|---|---|---|
| Revenue | $74,912 | $136,047 |
| Operating expenses | $1,395,969 | $2,528,355 |
| Loss from operations | $(1,321,057) | $(2,392,308) |
| Net loss | $(1,321,057) | $(2,392,308) |
| Loss per share, basic and diluted | $(0.10) | $(0.18) |
| Weighted-average shares | 13,712,648 | 13,091,901 |
- Net loss margins were approximately negative 1,763% for the quarter and negative 1,758% for the six-month period.
- Cash was $5.0 million at June 30, 2023, compared with $137,177 at December 31, 2022. Total assets were $5.1 million and total liabilities were $181,385.
- Stockholders’ equity was $4.9 million, while accumulated deficit was $3.0 million.
- The company reported no debt, no interest expense, and no investing cash flows in the six-month periods presented.
- Operating cash flow was $(1,966,045), compared with $(293,702) in the prior-year period. Financing cash flow was $6,845,050, principally from the February 2023 IPO.
- Approximately $4.8 million of cash exceeded FDIC insurance limits at June 30, 2023.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue increased 3.1% from $72,664 to $74,912, while six-month revenue decreased 31.5% from $198,723 to $136,047.
- Six-month subscription revenue declined approximately $73,000, partially offset by an approximately $11,000 increase in contract revenue. Second-quarter contract revenue increased approximately $37,000, offset by an approximately $35,000 decline in Discord subscriber revenue.
- Paying Discord subscribers declined to 348 in the second quarter from 723 in the prior-year quarter.
- Operating expenses increased 339.3% in the quarter and 378.8% for the six-month period, primarily due to higher public-company and offering-related costs and management compensation.
- Six-month management compensation increased to $1.6 million from $206,341, and general and administrative expense increased to $843,654 from $239,637.
- Net loss increased from $245,139 to $1.3 million for the quarter and from $329,339 to $2.4 million for the six-month period.
- The February 2023 IPO generated $7.5 million of gross proceeds and approximately $6.6 million of net proceeds. The company issued 1.5 million Class B shares and 105,000 representative warrants exercisable at $6.25 per share.
- The company granted 1.511 million Class B restricted stock awards during the six-month period and recorded $603,925 of stock-based compensation expense.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management states that existing cash resources are expected to fund planned operations for at least the next 12 months, but acknowledges that additional financing may be needed for expansion, acquisitions, or changing business conditions.
- Management describes initiatives including a new AE.360.DDM website, a ChatGPT customer-service bot, entertainment and A&R services, new personnel, and promotional engagements. The filing does not provide quantified revenue or earnings guidance.
- The company attributes lower subscription demand in part to the reversal of COVID-19-related behavior changes and warns that competition, customer retention, pricing, market acceptance, staffing, technology, regulation, and economic conditions could materially affect results.
- On August 1, 2023, the company amended its agreement with Triton Funds LP. The company may elect by September 30, 2023 to sell up to $1.0 million of securities at a price generally based on 85% of a specified lowest volume-weighted average price. The arrangement could result in substantial dilution and includes pre-funded warrants with a $0.01 exercise price and no expiration date.
- A Triton closing is subject to conditions including an effective resale registration statement and continued Nasdaq listing. If completed, Boustead may receive an estimated $70,000 cash fee, a $10,000 expense allowance, and additional warrants.
- The company has 157,500 outstanding warrants as of June 30, 2023, all exercisable at $6.25 per share; their reported intrinsic value was zero.
- No material legal proceedings were identified, no significant contractual cash requirements were reported, and management reported effective disclosure controls with no material changes in internal control over financial reporting.
Most Important Facts to Verify
- Confirm whether this filing pertains to Asset Entities Inc. or Strive, Inc., including the issuer name, ticker, and reporting entity.
- Assess the sustainability of the business given declining subscriptions, very low revenue, substantial operating losses, and significant negative operating cash flow.
- Review the use of IPO proceeds, including the reported $1.3 million used for working capital and the remaining cash balance.
- Evaluate dilution from restricted stock awards, existing warrants, and the potential $1.0 million Triton financing.
- Verify the company’s ability to maintain Nasdaq listing requirements and satisfy the conditions of the Triton agreement.
- Review management compensation, public-company expenses, and stock-based compensation, which drove much of the year-over-year expense increase.
- Assess concentration and credit risk associated with approximately $4.8 million of uninsured cash deposits.