assetentities(ASST) - 2024 Q4 - Annual Report

Part I Business The company specializes in social media marketing and content delivery for Gen Z on platforms like Discord and TikTok Overview and Background The company provides social media marketing and content services, focusing on investment education for Gen Z on Discord - The company offers three primary services: Discord investment education, social media/marketing services, and AE.360.DDM brand services for Discord server management[24] - Founded in 2020, the company's vision was to bring investment education to Gen Z through social media, leading to the creation of educational Discord servers for stocks, crypto, NFTs, and real estate[25][26] - The company's social media presence grew from under 50,000 followers in August 2020 to over 2 million by December 31, 2024, with over 1 billion interactions across all platforms[28] Our Current Business and Fiscal Year 2024 Highlights Key 2024 initiatives included new media launches, significant financing, strategic acquisitions, and celebrity partnerships - Launched "The Lounge" YouTube channel featuring interviews with celebrities and business professionals[33] - Completed a $3.0 million financing transaction through the sale of Series A Preferred Stock in two closings (May and July 2024)[33][35] - Commenced an "at the market offering" (ATM Financing) in September 2024, raising net proceeds of $4,830,648 as of March 31, 2025[35] - Acquired the assets of TommyBoyTV in June 2024 and the TikTok Money Machine in November 2024 to expand its Discord community market share and enter the TikTok Shop space[35] - Became an approved TikTok Shop Partner in December 2024[35] Our Historical Performance The company has a history of net losses and relies on capital raises to fund its operations Financial Position as of Dec 31, 2024 | Metric | Value (USD) | | :--- | :--- | | Accumulated Deficit | $12,006,357 | | Cash Balance | $2,660,624 | Net Loss Comparison | Year Ended Dec 31 | Net Loss (USD) | | :--- | :--- | | 2024 | $6,393,932 | | 2023 | $4,931,197 | - The company has financed operations through capital raises, including a Shelf Registration Statement for up to $100 million, a $3.0 million Series A Preferred Stock placement, and an ATM Financing program[34] Industry Overview The market for social media financial education is expanding, driven by Gen Z demand on platforms like TikTok and Discord - There is a growing demand for financial information among young, inexperienced investors (Gen Z) due to a lack of formal personal-finance education in the U.S[37][38] - The social media influencer market exceeded $13 billion globally, with Gen Z influencers gaining significant sway over consumer spending and financial interests[39] - Discord has grown rapidly, reaching over 259 million monthly active users, up from 56 million in 2019[42][43] Our Services The company offers Discord community management, social media marketing, and a SaaS payment processing platform - Discord Communities: Operates ten servers with ~206,899 members as of Dec 31, 2024, with subscription fees from $4.99 to $120.00 for premium content[46] - Social Media and Marketing: Provides marketing and content creation services for clients, with fees from $2,000 to $50,000 per campaign, utilizing its 'Social Influencer Network' (SiN)[49][50] - AE.360.DDM (Design Develop Manage): A suite of services for creating and managing Discord servers for individuals and companies, with project fees from $497 to $5,000+, or based on a revenue-share model[53] - Ternary v2: A cloud-based subscription management and payment processing solution with CRM tools for Discord communities, partnered with Stripe[32][56] Competition The company competes with other large Discord servers and social media influencers in the investment education space Competitor Analysis (as of March 2025) | Competitor | Service | Members/Users | Pricing | | :--- | :--- | :--- | :--- | | Xtrades Discord Server | Stock/Options Trading | ~110,000 | $38/month | | WallStreetBets | High-Risk Investing | ~484,305 (Discord) | Generally Free | | Eagle Investors | Investment Education | ~156,000 (Discord) | $67-$140/month (premium) | | @Fourtoeight (Wiseguyinvesting) | Investment Education | Similar to Asset Entities | $25/week to $800/year | | @moneylinemark (StockVIP) | Investment Education | ~254,000 (Discord) | Subscription-based | - The company states it is not aware of any direct competitors for its AE.360.DDM suite of services[75] Corporate History and Structure The company utilizes a dual-class stock structure that concentrates significant voting power with its officers and directors - The company has a dual-class stock structure: Class A (10 votes/share) and Class B (1 vote/share)[96] - As of March 25, 2025, all 1,000,000 outstanding shares of Class A Common Stock are held by Asset Entities Holdings, LLC (AEH)[98] - Company officers and directors collectively control approximately 43.6% of the total voting power through their holdings and control of AEH[98] Risk Factors The company faces significant risks related to its operating history, industry reliance, regulatory compliance, and concentrated ownership - Business Risks: The company has a limited operating history, experiences negative cash flow, and may need to raise additional capital, with high dependency on social media platforms like TikTok which faces a potential U.S. ban[103][104][108][110] - Regulatory Risks: The company may be subject to the Investment Advisers Act of 1940 and faces costly compliance with numerous data privacy laws like GDPR and CCPA[147][148][153][154] - Operational Risks: The business depends on the continued performance and social media following of its senior management and co-founders, and faces risks from cyberattacks and infrastructure challenges[124][125][138] - Ownership & Market Risks: Voting control is concentrated with officers and directors through a dual-class stock structure, and the company has received Nasdaq non-compliance notifications[174][180][184] Unresolved Staff Comments This item is not applicable as the company has no unresolved staff comments - Not applicable[205] Cybersecurity The company manages cybersecurity risk through an integrated strategy overseen by the Board and key technology officers - The company has implemented security measures including two-factor authentication (2FA) for eData access and a unique four-factor authentication (4FA) process for banking and application systems[208] - Cybersecurity risk management is overseen by the Board of Directors, with day-to-day management handled by the Chief Technology Officer, Chief Operating Officer, and a Technology Consultant[213][214] - The company has not encountered any cybersecurity challenges that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[212] Properties The company operates as a remote-first business but maintains a central office in Dallas, Texas under lease agreements - The company is remote-first but leases its headquarters at 100 Crescent Court, 7th Floor, Dallas, Texas[217] - Multiple lease agreements are in place with Regus Management, with monthly payments ranging from $1,228 to $5,329 for different office spaces, with terms extending into 2025[217] Legal Proceedings The company is not currently involved in any material legal proceedings or claims - The company is not currently involved in any material legal proceedings[219] Mine Safety Disclosures This item is not applicable to the company - Not applicable[220] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class B Common Stock trades on Nasdaq, and proceeds from its IPO have been used for working capital - Class B Common Stock is listed on Nasdaq under the symbol "ASST" since February 3, 2023[222] Use of IPO Proceeds (as of Dec 31, 2024) | Use of Proceeds | Amount (USD) | | :--- | :--- | | Acquisition of assets of other businesses | ~$0.3 million | | Working capital | ~$6.3 million | | Other uses | None | - The company has never paid cash dividends and does not anticipate paying them in the near future, with prohibitions related to its Series A Preferred Stock[234] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew significantly in FY2024, but rising operating expenses led to a larger net loss, with operations funded by recent financing Results of Operations Revenue grew 128.7% in FY2024, but a 35.1% increase in operating expenses widened the company's net loss Consolidated Operations Data (Fiscal Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $633,489 | $277,038 | | Total operating expenses | $7,037,517 | $5,208,235 | | Loss from operations | ($6,404,028) | ($4,931,197) | | Net loss | ($6,393,932) | ($4,931,197) | - The 128.7% increase in revenue was primarily due to a higher number of Discord server paying subscribers, including those from recent acquisitions[253] - The 35.1% increase in operating expenses was mainly due to a ~$1.1 million rise in advertising, marketing, and payroll, and a ~$0.7 million increase in management compensation[254] Liquidity and Capital Resources The company has financed its negative operating cash flow through significant capital raises, ensuring liquidity for the next year Summary of Cash Flow (Fiscal Year Ended Dec 31) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,900,057) | ($3,807,623) | | Net cash used in investing activities | ($400,000) | ($113,559) | | Net cash provided by financing activities | $5,036,358 | $6,708,328 | | Net change in cash | ($263,699) | $2,787,146 | | Cash at end of year | $2,660,624 | $2,924,323 | - The company completed a two-part private placement of Series A Preferred Stock in May and July 2024, raising gross proceeds of $3.0 million[256][288][289] - An "at the market" (ATM) financing program commenced in September 2024 has raised net proceeds of $4,830,648 as of March 31, 2025[256] Critical Accounting Estimates Key accounting estimates involve significant judgment in valuing intangible assets, recognizing revenue, and expensing stock-based compensation - Intangible Assets: Acquired intangible assets are recorded at fair value and tested for impairment, with no impairment charges recorded in 2023 or 2024[320] - Revenue Recognition: Subscription revenue is recognized over the service period, while marketing and AE.360.DDM revenues are recognized upon completion of short-duration contracts[330][331][332][333] - Stock-Based Compensation: Awards are measured at grant-date fair value and expensed on a straight-line basis over the requisite service period[327] Key Expense Policies | Expense Type | 2024 Expense | 2023 Expense | Accounting Policy | | :--- | :--- | :--- | :--- | | Advertising | $944,635 | $436,066 | Expensed as incurred | | Research & Development | $423,299 | $18,935 | Expensed as incurred | Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and accompanying notes for fiscal years 2024 and 2023 Financial Statements Audited statements show total assets of $3.22 million, a net loss of $6.39 million, and a net loss per share of ($1.70) for 2024 Consolidated Balance Sheet Highlights (as of Dec 31, 2024) | Metric | Value (USD) | | :--- | :--- | | Total Assets | $3,217,466 | | Total Liabilities | $430,895 | | Total Stockholders' Equity | $2,786,571 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2024) | Metric | Value (USD) | | :--- | :--- | | Revenue | $633,489 | | Loss from operations | ($6,404,028) | | Net loss | ($6,393,932) | | Net loss attributable to common stockholders | ($6,448,042) | | Loss per share (basic and diluted) | ($1.70) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31, 2024) | Metric | Value (USD) | | :--- | :--- | | Net cash used in operating activities | ($4,900,057) | | Net cash provided by financing activities | $5,036,358 | | Net change in cash | ($263,699) | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2024 - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective[347] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[349][350] - An attestation report on internal control from the independent auditor is not included, as the company is not an "accelerated filer" or "large accelerated filer"[351] Other Information The company entered into new two-year employment and consulting agreements with its key executives in March 2025 - On March 27, 2025, new two-year employment agreements were executed for CEO Arshia Sarkhani (annual salary $240,000), CFO Matthew Krueger ($180,000), and CMO Kyle Fairbanks ($240,000)[356][357][358] - A new two-year consulting agreement was executed for Executive Chairman Michael Gaubert with a monthly fee of $20,000 (annualized to $240,000)[359] - The agreements include immediate cash bonuses and eligibility for future restricted stock awards, which are subject to shareholder approval of an increase to the 2022 Equity Incentive Plan[356][357][358][359] Part III Directors, Executive Officers and Corporate Governance The company details its board and executive team, committee structures, and governance policies, noting one late insider filing - The company's board consists of seven directors, and the executive team includes key co-founders Arshia Sarkhani (CEO) and Kyle Fairbanks (CMO)[363] - The Board has established Audit, Compensation, and Nominating and Corporate Governance Committees, with charters available on the company website[377] - A Code of Ethics and Business Conduct has been adopted and applies to all directors, officers, and employees[381] - There was one instance of delinquent Section 16(a) filings by AEH and several officers and directors, who filed a late Form 4 on September 16, 2024[385] Executive Compensation Executive and director compensation for 2024 consisted of base salaries, cash fees, and stock awards from its equity plan 2024 Summary Compensation Table (Named Executive Officers) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Arshia Sarkhani, CEO & President | 2024 | 240,000 | 75,000 | 6,174 | 12,864 | 334,038 | | Michael Gaubert, Executive Chairman | 2024 | 240,000 | 75,000 | 9,549 | 12,864 | 334,038 | | Kyle Fairbanks, Exec. Vice-Chairman & CMO | 2024 | 240,000 | - | 4,658 | 12,864 | 334,038 | 2024 Director Compensation | Name | Fees Earned in Cash ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Richard A. Burton | 49,000 | 6,544 | 55,544 | | John A. Jack II | 44,500 | 6,544 | 51,044 | | Scott K. McDonald | 49,000 | 6,544 | 55,544 | | David Reynolds | 20,000 | 5,231 | 25,231 | - The 2022 Equity Incentive Plan has a maximum of 550,000 shares of Class B Common Stock available for issuance, and as of March 31, 2025, all 550,000 shares have been granted as awards[407][408] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Company insiders collectively control approximately 43.6% of the total voting power through their ownership of Class A and B stock Beneficial Ownership as of March 25, 2025 | Name / Group | Class A Stock (%) | Class B Stock (%) | Total Voting Power (%) | | :--- | :--- | :--- | :--- | | Arshia Sarkhani (CEO) | 100.0% (via AEH) | 2.2% | 42.7% | | Kyle Fairbanks (CMO) | 100.0% (via AEH) | 2.1% | 42.7% | | Michael Gaubert (Exec. Chairman) | 100.0% (via AEH) | 2.2% | 42.8% | | All directors and executive officers as a group (10 persons) | 100.0% | 3.8% | 43.6% | | Asset Entities Holdings, LLC | 100.0% | 1.9% | 41.5% | - The company's 2022 Equity Incentive Plan has 550,000 shares authorized for issuance, and as of December 31, 2024, all 550,000 shares had been granted and were outstanding[443] Certain Relationships and Related Transactions, and Director Independence The company discloses several related-party transactions, including an asset purchase and a complex share exchange involving insiders - In November 2023, the company acquired assets from Ternary Inc. and OptionsSwing Inc. for $100,000 cash and 60,000 shares of Class B Common Stock, appointing the seller's principal as CTO[445] - In February 2024, the company facilitated a series of Cancellation and Exchange Agreements involving Asset Entities Holdings, LLC (AEH) and its members, converting Class A Common Stock into Class B Common Stock[446] - Executive officers, who are also significant shareholders, received substantial compensation in 2023 and 2024, including salaries, bonuses, and stock awards[446] - The board has four independent directors out of seven, and its key committees are composed entirely of independent directors[449][450][452][453] Principal Accountant Fees and Services The principal accountant billed $65,500 in 2024 and $44,500 in 2023, exclusively for audit services pre-approved by the Audit Committee Independent Auditor Fees | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $65,500 | $44,500 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total | $65,500 | $44,500 | - All fees paid to the principal accountant in 2024 and 2023 were for audit services, with no other services provided[454] - The Audit Committee has pre-approval policies and procedures in place and approved all services and fees provided by the principal accountant[459][461] Part IV Exhibit and Financial Statement Schedules This section lists the financial statements and all exhibits filed with the Annual Report, including key corporate documents - This section provides an index to the company's financial statements (pages F-2 to F-7) and a list of all exhibits filed with the 10-K[465][467] - Key exhibits filed include the Articles of Incorporation, Bylaws, various warrant agreements, executive employment agreements, the 2022 Equity Incentive Plan, and the Code of Ethics[469][470][471][472] Form 10-K Summary This item is not applicable as the company has not provided a Form 10-K summary - None[473]