SRM Entertainment(SRM) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for June 30, 2025, and December 31, 2024, including balance sheets, operations, equity, cash flows, and notes Consolidated Balance Sheets Snapshot of assets, liabilities, and equity as of June 30, 2025, and December 31, 2024, showing increased total assets from digital asset investment Consolidated Balance Sheets | Metric | June 30, 2025 (Unaudited) | December 31, 2024 (Audited) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Cash | $5,298,142 | $1,352,373 | | Total current assets | $7,295,518 | $3,462,457 | | Investment in digital assets – Related Party | $102,198,840 | - | | Total assets | $112,196,561 | $6,307,303 | | Total Liabilities | $751,576 | $1,016,352 | | Total Shareholders' Equity (Deficit) | $111,444,985 | $5,290,951 | Consolidated Statements of Operations Details revenues, costs, and net income/loss, shifting from loss to income due to unrealized digital asset gains Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales | $1,342,929 | $1,507,927 | $2,432,563 | $2,514,284 | | Gross profit | $292,203 | $324,666 | $558,738 | $488,213 | | Operating loss | $(744,203) | $(526,476) | $(1,391,578) | $(2,241,482) | | Unrealized gain on digital asset investment | $2,154,071 | - | $2,154,071 | - | | Net income (loss) | $1,467,855 | $(520,971) | $821,269 | $(2,230,975) | | Basic Net (loss) per share | $0.07 | $(0.05) | $0.04 | $(0.22) | | Fully diluted Net (loss) per share | $0.01 | $(0.05) | $0.00 | $(0.22) | Consolidated Statements of Changes in Shareholders' Equity (Deficit) Outlines equity changes, reflecting increased paid-in capital from preferred stock and digital asset investments Consolidated Statements of Changes in Shareholders' Equity (Deficit) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Series B Preferred Stock (Shares) | 100,000 | - | | Series B Preferred Stock (Amount) | $10 | - | | Common Stock (Shares) | 27,425,983 | 15,956,477 | | Common Stock (Amount) | $2,743 | $1,596 | | Additional Paid-In Capital | $115,996,204 | $10,195,598 | | Accumulated earnings (deficit) | $(4,875,972) | $(5,697,241) | | Total Shareholders' Equity (Deficit) | $111,444,985 | $5,290,951 | - Issuance of 100,000 Series B Preferred Stock shares for $100,000,000 in digital assets (TRX tokens) significantly increased additional paid-in capital[72][82] Consolidated Statements of Cash Flows Presents cash flows from operating, investing, and financing activities, showing a net cash increase from financing Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net Income (loss) | $821,269 | $(2,230,975) | | Net cash provided by (used in) operating activities | $(165,653) | $(1,504,704) | | Cash flows (used in) investing activities | - | $(23,264) | | Cash (used in) financing activities | $4,111,422 | - | | Net increase (decrease) in cash and cash equivalents | $3,945,769 | $(1,527,968) | | Cash and cash equivalents at the end of the period | $5,298,142 | $1,452,773 | | Fair value of preferred shares issued for digital assets | $100,000,000 | - | Notes to the Financial Statements Provides detailed information on organization, accounting policies, financial items, capital structure, and subsequent events Note 1 - Organization and Business Operations Tron Inc. is a NASDAQ-listed Nevada corporation with a Hong Kong subsidiary, focusing on merchandise and TRX token holdings - Tron Inc. (formerly SRM Entertainment, Inc.) is a Nevada corporation, listed on NASDAQ, incorporated on April 22, 2022. Its wholly-owned subsidiary, SRM Ltd, was incorporated in Hong Kong on January 23, 1981[28] - The company's business operations include designing, developing, and manufacturing custom merchandise (toys and souvenirs) for theme parks and entertainment venues, and holding TRON (TRX tokens), which constitutes the largest public ownership of TRX tokens[29] Note 2 - Significant Accounting Policies Outlines policies for emerging growth company status, recent accounting pronouncements, revenue, digital assets, and related parties - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, which may affect comparability with other public companies[31][32] - The Company adopted ASU 2023-07 (Segment Reporting) for fiscal years beginning after December 15, 2023, and ASU 2023-08 (Accounting for and Disclosure of Crypto Assets) effective January 1, 2025, requiring crypto assets to be recognized at fair value with changes in net income[36][37] - Digital assets (TRX tokens) are accounted for at fair value, with changes recognized in net income, and are classified as current or noncurrent based on intended holding period and liquidity. Staking activities with JustLend DAO result in sTRX liquid staking tokens, measured at fair value, with appreciation considered unrealized staking income[42][43][59] - The Company operates two operating segments: (i) the design, manufacture, and sale of toys to premier theme parks and (ii) a Digital Asset Treasury Strategy using TRX Tokens[66] Note 3 – Inventory Provides inventory balances for finished goods at reporting periods Inventory | Metric | June 30, 2025 | December 31, 2024 | | :------- | :------------ | :---------------- | | Inventory | $731,934 | $783,800 | Note 4 - Accounts Receivable Details accounts receivable balances at reporting periods Accounts Receivable | Metric | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Accounts receivable | $637,013 | $794,158 | Note 5 – Prepaid Expenses Outlines the composition and balances of prepaid expenses and deposits Prepaid Expenses | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- |\n| Total prepaid expenses | $318,669 | $488,746 | | Deposits on orders | $128,769 | $396,489 | | Prepaid insurance | $116,968 | $33,382 | | Other expenses | $72,932 | $58,875 | Note 6 - Investment in digital assets – held by an Affiliate Describes significant TRX token investment, acquired via preferred stock, staked, and generating unrealized gains - On June 16, 2025, the Company acquired 365,096,845 TRX tokens for $100,000,000 by issuing Series B Convertible Preferred Stock and warrants[72] - The TRX tokens were staked through an affiliate, resulting in 297,543,246 sTRX liquid staking tokens[72] Investment in Digital Assets | Metric | Fair Value | | :-------------------------------- | :--------- | | Balance at December 31, 2024 | $ - | | Receipt of TRX tokens | $100,000,000 | | Change in fair value | $2,154,071 | | Unrealized income from staking TRX | $44,769 | | Balance at June 30, 2025 | $102,198,840 | - Potential conflicts of interest exist due to directors' affiliations with BiT Global (custodian of Treasury Wallet) and the TRON blockchain ecosystem (e.g., Weike Sun is father of Justin Sun, founder of TRON; Mr. Liu is senior advisor to Tron DAO; Mr. Yang holds senior positions for Tronscan)[76] Note 7 - Investment in Gameverse Interactive Corp Details the company's equity investment in Gameverse Interactive Corp through a stock exchange - On January 24, 2025, the Company exchanged 500,000 shares of its restricted common stock for 132,000 shares of Gameverse Interactive Corp's restricted common stock, valued at $190,500[74] Note 8 – Fixed Assets and Other Assets Provides a breakdown of fixed assets, net of depreciation, including tooling, molds, and computer equipment Fixed Assets and Other Assets | Asset Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Tooling and Molds | $73,325 | $56,425 | | Computer equipment and software | $21,285 | $21,285 | | Total | $94,610 | $77,710 | | Accumulated depreciation | $(44,322) | $(29,431) | | Net Fixed Assets | $50,288 | $48,279 | Note 9 – Intangible Assets and Secured Note – Related Party Details intangible asset acquisition and secured note repayment, including waived interest - On September 3, 2024, the Company acquired assets related to the movie 'The Kid' from Suretone Entertainment, Inc. (a related party) for $2,893,000, paid via cash, restricted common stock, and a $1,500,000 secured promissory note[78][79] - The secured note was fully paid off by June 14, 2025, and $41,877 in accrued interest was waived and recorded as an adjustment to additional paid-in capital[79] Amortization Expense | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :------------------- | :----------------------------- | :--------------------------- | | Amortization expense | $144,650 | $96,433 | Note 10 - Capital Structure Describes authorized and outstanding stock, recent issuances, conversions, and capital structure impact - As of June 30, 2025, the Company had 10,000,000 authorized preferred shares ($0.0001 par value), with 1,000,000 designated as Series A and 100,000 as Series B[80] - In May 2025, 5,000 Series A Preferred shares were issued for $5,000,000 (net $4,591,392) and subsequently converted into 8,928,571 common shares[81] - On June 16, 2025, 100,000 Series B Preferred shares were issued for $100,000,000 in digital assets, convertible into 200,000,000 common shares, and warrants for 220,000,000 common shares[82] - The issuances of Series A and B Preferred Stock resulted in a change of control of the Company[85] Capital Structure | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Common Stock Issued and Outstanding | 27,425,983 | 15,956,977 | | Common Stock Payable | $322,000 | $790,998 | Note 11 – Options Details stock options granted to officers, directors, and employees, including exercise prices, terms, and compensation expense - During the six months ended June 30, 2025, the Company granted 2,025,000 options to Directors with exercise prices ranging from $0.56 to $0.68, resulting in an expense of $460,821[100] - The fair value of options was measured using the Black-Scholes valuation model[101] Stock Options Granted | Reporting Date | Number of Options | Term (Years) | Exercise Price | Market Price on Grant Date | Volatility Percentage | Fair Value | | :------------- | :---------------- | :----------- | :------------- | :------------------------- | :-------------------- | :--------- | | 02/21/2024 | 995,000 | 2.5 | $1.21 | $1.21 | 62.6% | $573,548 | | 12/31/2024 | 25,000 | 5.0 | $0.63 | $0.63 | 86.4% | $11,045 | | 01/07/2025 | 375,000 | 2.5 | $0.68 | $0.68 | 75.0% | $119,635 | | 5/22/2025 | 1,650,000 | 2.5 | $0.56 | $0.52 | 64.5% | $341,186 | Note 12 - Segment Reporting Identifies two reportable segments: toy business and digital assets, with respective revenues and gross profits - The Company has two reportable segments: (i) the toy business (design, development, and manufacture of toys and souvenir items) and (ii) digital assets (investing for growth and staking tokens for income)[103] - Gross profit (loss) is the segment performance measure used by the CODM (CEO, Richard Miller)[104] Segment Performance | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Revenue from Toy sales | $2,432,563 | $2,514,284 | | Cost of sales | $1,873,825 | $2,026,071 | | Gross profit (Toy segment) | $558,738 | $488,213 | | Unrealized Gain on digital asset investments | $2,154,071 | - | | Unrealized income from staking activities | $44,769 | - | | Total income from digital assets | $2,198,840 | - | | Operating (expenses) | $(1,950,316) | $(2,729,695) | | Net interest income | $14,007 | $10,507 | | Net Income (loss) | $821,269 | $(2,230,975) | Note 13 - Commitments and Contingencies States no material legal proceedings or claims are known that could adversely affect financial position - Management is not aware of any pending or threatened litigation that could have a material adverse effect on the company's financial position, results of operations, or liquidity[107] Note 14 – Subsequent Events Discloses post-June 30, 2025 events, including warrant exercises, S-3 filing, and stockholder approvals - Subsequent to June 30, 2025, 5,678,000 warrants were exercised, generating $3,690,700 in proceeds[108] - On July 28, 2025, the Company filed an S-3 Registration Statement to offer and sell up to $1,000,000,000 in various securities[108][109] - Stockholders approved a change in control via the issuance of Series B Preferred Stock and warrants to an institutional investor (making them the largest shareholder with over 20% of common stock) and an amendment to increase authorized common stock from 100,000,000 to 1,000,000,000 shares, effective August 14, 2025[110][111][114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition, operations, business segments, strategic developments, and performance General Overview Tron Inc. is a NASDAQ-listed Nevada corporation; recent PIPE offerings and name change reflect a TRON blockchain treasury strategy - Tron Inc. (formerly SRM Entertainment, Inc.) is a Nevada corporation, listed and traded on NASDAQ, incorporated on April 22, 2022, with SRM Entertainment Limited as a wholly-owned subsidiary[121] - Recent May and June 2025 PIPE Offerings, name change to 'Tron Inc.', and ticker change to 'TRON' signify a strategic transformation to align with the TRON blockchain ecosystem and a Tron-focused treasury strategy[122][165][166] Business Operates a TRX Tokens Treasury strategy for long-term holdings and staking, plus a traditional toy and souvenir business - The TRX Tokens Treasury strategy involves acquiring TRX tokens through debt/equity issuances or liquid assets, viewing them as long-term holdings, and potentially generating income streams through staking[125][126] - The company currently holds 365,096,845 TRX tokens with no dispositions to date[127] - The toy and souvenir business designs and develops custom merchandise for major theme parks (e.g., Walt Disney Parks, Universal Studios) and entertainment venues, leveraging pop culture trends and licensed intellectual property[128][129][133] Recent Developments Two significant PIPE offerings in May and June 2025 led to board changes, executive agreement amendments, and a name/ticker symbol change - May 2025 PIPE Offering: Issued 5,000 Series A Convertible Preferred Stock shares (convertible into 8,928,571 common shares) and warrants for $5 million gross proceeds, used for general corporate and working capital purposes[136][137] - June 2025 PIPE Offering: Issued 100,000 Series B Convertible Preferred Stock shares (convertible into 200,000,000 common shares) and warrants for $100 million, paid in TRX tokens, with the investor's sole shareholder (Weike Sun) appointed to the Board[143][144][145] - Board Changes: Hans Haywood, Gary Herman, and Douglas McKinnon resigned from the Board. Weike Sun (Chairman), Zhihong Liu (senior advisor to Tron DAO), and Zi Yang (senior positions for Tronscan) were appointed[156][157][158][159][160][161] - Employment Agreement Amendments: Executive compensation for incentive/bonus payments will now be measured solely against the licensed consumer products business, not TRON (TRX tokens)-related operations[163] - Name and Symbol Change: Effective July 17, 2025, the company changed its name to 'Tron Inc.' and its NASDAQ ticker symbol to 'TRON' to reflect its strategic transformation into a TRON treasury strategy company[165][166] Significant Accounting Policies and Estimates Reiterate key policies, including emerging growth company status, revenue recognition, and recent pronouncements - The Company is an 'emerging growth company' and has elected to use the extended transition period for new accounting standards, which may impact financial statement comparability[167][168] - Revenue is recognized when control of goods or products is transferred to a customer, typically upon FOB shipping point, with no specific right of return, refund, or warranty[174][175] - The Company adopted ASU 2023-07 (Segment Reporting) for fiscal years beginning after December 15, 2023, and ASU 2023-08 (Accounting for and Disclosure of Crypto Assets) effective January 1, 2025[183][185] Results of Operations Shift from net loss in 2024 to net income in 2025, driven by unrealized digital asset gains despite slightly lower sales Three Months Ended June 30, 2025 vs. 2024 | Metric | 2025 | 2024 | Change | | :---------------------- | :----------- | :----------- | :------- | | Sales Revenue | $1,342,929 | $1,507,927 | -11.07% | | Gross profit | $292,203 | $324,666 | -10.00% | | Operating (expense) | $(1,036,406) | $(851,142) | +21.76% | | Total other income | $2,212,058 | $5,505 | +40,100% | | Net income (loss) | $1,467,855 | $(520,971) | N/A (swing to profit) | Six Months Ended June 30, 2025 vs. 2024 | Metric | 2025 | 2024 | Change | | :---------------------- | :----------- | :----------- | :------- | | Sales Revenue | $2,432,563 | $2,514,284 | -3.25% | | Gross profit | $558,738 | $488,213 | +14.44% | | Operating (expense) | $(1,950,316) | $(2,729,695) | -28.55% | | Total other income | $2,212,847 | $10,507 | +20,961% | | Net income (loss) | $821,269 | $(2,230,975) | N/A (swing to profit) | - The decrease in sales revenue for both periods is primarily attributed to the expansion of a major theme park opening in Orlando in 2025, with an expectation of future benefit from associated publicity[189][196] - Significant unrealized gain on digital asset investment ($2,154,071) and unrealized income from staking activities ($44,769) were key drivers for the positive net income in 2025[191][198] Impact of Inflation Management believes inflation has had a negligible effect, offset by increasing sales and improving operating efficiency - Inflation has had a negligible effect on operations since inception, and the company aims to offset it by increasing sales and improving operating efficiency[200] Off Balance Sheet Arrangements The company has no off-balance sheet arrangements, financings, or relationships with unconsolidated entities - The Company has no off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or variable interest entities[201] Liquidity and Capital Resources Liquidity significantly improved by June 30, 2025, with increased cash and working capital from private placements and warrants Liquidity and Capital Resources | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :------- | | Cash and cash equivalents | $5,298,142 | $1,352,373 | +$3,945,769 | | Working capital | $6,543,942 | $2,446,105 | +$4,097,837 | - Net cash used in operating activities decreased significantly to $165,653 for the six months ended June 30, 2025, compared to $1,504,704 in the prior year[202] - Financing activities generated $4,111,422 in cash, including $4,592,344 net proceeds from the May PIPE Offering and $341,186 from stock option exercises, partially offset by $500,000 promissory note payment and $325,000 legal fees for the June PIPE transaction[203][205][206] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Tron Inc. is exempt from market risk disclosures - As a 'smaller reporting company,' Tron Inc. is not required to provide quantitative and qualitative disclosures about market risk[207] Item 4. Controls and Procedures Management deems disclosure controls effective, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures are designed to provide reasonable assurance and are deemed effective by certifying officers[208] - No material changes in internal control over financial reporting were identified during the six months ended June 30, 2025, and the year ended December 31, 2024[209] - Management acknowledges that control systems provide only reasonable, not absolute, assurance due to inherent limitations and resource constraints[210] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports no material legal proceedings - There are no legal proceedings[212] Item 1A. Risk Factors As a smaller reporting company, Tron Inc. is not required to provide risk factor disclosures - As a 'smaller reporting company,' Tron Inc. is not required to provide risk factors[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered equity sales for services and an equity investment during H1 2025 - During the six months ended June 30, 2025, the Company issued 75,000 shares of common stock for services rendered, valued at $44,387[214] - The Company also issued 500,000 shares of common stock as an equity investment in Gameverse Inc., valued at $190,500[214] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - There are no defaults upon senior securities[215] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[216] Item 5. Other Information Updates on capital structure, including preferred stock filings, increased authorized common stock, and change of control approval - The Company filed Amended & Restated Certificate of Designation of Series A Preferred Stock (May 23, 2025) and Certificate of Designation of Series B Preferred Stock (June 16, 2025)[217] - As of July 30, 2025, authorized capital includes 100,000,000 common shares and 10,000,000 preferred shares (1,000,000 Series A, 100,000 Series B). Outstanding shares: 33,468,011 common, no Series A preferred, 100,000 Series B preferred[218] - Stockholders approved a potential change in control via a $100,000,000 PIPE Offering to an institutional investor, involving Series B Preferred Stock convertible into 200,000,000 common shares and warrants for 220,000,000 common shares[219] - Stockholders also approved an amendment to increase authorized common stock from 100,000,000 to 1,000,000,000 shares[219] - Common Stock holders have dividend rights (subject to preferred stock), one vote per share, no preemptive rights, and liquidation distribution rights after preferred stock[224][225][226][227] - Series A Preferred Stock has a stated value of $1,000 per share, dividend rights equal to common stock on an as-if-converted basis, and voting rights based on a $0.56 conversion price[228][229][230] - Series B Preferred Stock has a stated value of $1,000 per share, voting rights based on a $0.50 conversion price (limited to 19.99% of outstanding common stock without further approval), dividend rights equal to common stock on an as-if-converted basis, and liquidation preference over other preferred and common stock[231][232][233][234] Item 6. Exhibits Lists all exhibits filed with Form 10-Q, including certificates, warrants, agreements, and certifications - Exhibits include Amended and Restated Certificate of Designation of Series A Preferred Stock, Certificate of Designation of Series B Preferred Stock, various forms of Common Stock Purchase Warrants and Placement Agent Warrants[235] - Also included are Securities Purchase Agreements, Placement Agency Agreement, Registration Rights Agreement, Sun Advisory Agreement, American Ventures Agreement, and Amendment No. 1 to Employment Agreements for key officers[235] - Certifications required by Rule 13a-14(d)/15d-14(d) and Section 906 of the Sarbanes-Oxley Act of 2002 are attached as Exhibits 31.1, 31.2, 32.1, and 32.2[235][236] SIGNATURES SIGNATURES The report is duly signed on behalf of Tron Inc. by its Principal Executive Officer, Richard Miller - The report is signed by Richard Miller, Chief Executive Officer and Principal Executive Officer, on August 08, 2025[239][240]