UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
____________
Commission File Number: 001-13387
![](https://www.sec.gov/Archives/edgar/data/1036848/000121390024070723/image_001.jpg)
Mega Matrix Corp.
(Exact name of Registrant as Specified in Its Charter)
Delaware | | 94-3263974 |
(State or Other Jurisdiction of
Incorporation or Organization) | | (IRS Employer
Identification No.) |
3000 El Camino Real,
Bldg. 4, Suite 200, Palo Alto, CA 94306
(Address of Principal Executive Offices)
Registrant’s telephone number, including
area code: (650) 340-1888
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | MPU | | NYSE American Exchange LLC |
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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.
Yes ☒ No ☐
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 (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
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 | ☐ |
Non-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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant
has filed all documents and reports required to be fi led by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
The
aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2023, the last business day
of the registrant’s most recently completed second fiscal quarter (based upon the closing sale price of the registrant’s
common stock as of such date, as reported by the NYSE American Exchange) was $33,970,210. Shares of common stock held by the
registrant’s officers and directors and beneficial owners of 10% or more of the outstanding shares of the registrant’s
common stock have been excluded from the calculation of this amount because such persons may be deemed to be affiliates of the
registrant; however, the treatment of these persons as affiliates of the registrant for purposes of this calculation is not, and
shall not be considered, a determination as to whether any such person is an affiliate of the registrant for any other
purpose.
The number of shares of the registrant’s common stock outstanding
as of March 1, 2024 was 35,874,631.
Documents incorporated by reference: None.
EXPLANATORY NOTE
We are filing this
Amendment No. 1 on Form 10-K/A (the “Amendment”) to amend our Annual Report on Form 10-K for the year ended December 31,
2023 (the “Original Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 18, 2024
(the “Original Filing Date”). We are filing this Amendment to reflect changes made in response to certain comments raised
by the staff of the SEC in connection with our wholly owned subsidiary Mega Matrix Inc.’s filing of a Registration Statement on
Form F-4 related to our proposed redomicile from Delaware to the Cayman Islands.
As a result of
the above, we are filing this Amendment to amend and restate in their entirety the following Items: (i) Part I, Item 1. Business,
(ii) Part I, Item 1A. Risk Factors, (iii) Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, and (iv) Part IV Item 15. Exhibits, Financial Statements Schedules. In addition, pursuant to Rule 12b-15
under the Securities Exchange Act of 1934 (the “Exchange Act”), this Form 10-K/A also includes as exhibits the
certifications of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Except for the foregoing,
all other disclosures in the Original Form 10-K remain unchanged. We have not modified or updated disclosures presented in the Original
Form 10-K, except as required to reflect the effects of the revisions in this Amendment. Accordingly, this Amendment should be read in
conjunction with the Original Form 10-K and does not reflect events occurring after the Original Filing Date of the Original Form 10-K
other than as described herein and no attempt has been made in this Amendment to modify or update other disclosures as presented in the
Original Form 10-K except as specifically referenced herein. Accordingly, this Amendment and the Original Form 10-K should be read in
conjunction with our filings with the SEC subsequent to the filing of the Original Form 10-K.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statement in this report other than
statements of historical fact may be a forward-looking statement for purposes of these provisions, including any statements of our plans
and objectives for future operations, our future financial condition or economic performance (including known or anticipated trends),
and the assumptions underlying or related to the foregoing. Statements that include the use of terminology such as “may,”
“will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,”
“projected,” “intends,” “believes,” or “continue,” or the negative thereof, or other comparable
terminology, are forward-looking statements.
Forward-looking statements in this report include
statements about the following matters, although this list is not exhaustive:
| ● | the possibility that our new
lines of businesses do not perform or operate as anticipated |
| ● | the impact of certain industry
trends on our performance; |
| ● | our ability and our customers’
ability to comply with applicable government and regulatory requirements in the numerous jurisdictions in which we and our customers
operate; |
| ● | our cyber vulnerabilities and
the anticipated effects on us if a cybersecurity threat or incident were to materialize; |
| ● | general economic, market, political
and regulatory conditions, including anticipated changes in these conditions and the impact of such changes on customer demand and other
facets of our business; |
| ● | the impact of any of the foregoing
on the prevailing market price and trading volume of our common stock; |
| ● | the ongoing development of our short drama streaming business
and our ability to continue development of short drama streaming business model outside of the United States; |
| ● | our ability to continue to be in compliance with the development
of applicable regulatory regulations in connection with data, intellectual property and short video industry; |
| ● | our ability and our film makers’ ability to comply
with applicable government and regulatory requirements in the numerous jurisdictions in which we and our film makers operate. |
All of our forward-looking statements involve
risks and uncertainties that could cause our actual results to differ materially from those projected or assumed by such forward-looking
statements. Among others, the factors that could cause such differences include: our ability to raise debt or equity financing when needed
on acceptable terms and in desired amounts, or at all; any noncompliance by our customers, including payment obligations; any economic
downturn or other financial crisis; any inability to compete effectively with our better capitalized competitors; limited trading volume
in our stock; potential changes in the legislative and regulatory environment; the occurrence of any event, change or other circumstances
that could affect our ability to continue successful development of our short drama streaming business; the possibility that we may not
succeed in developing our new lines of businesses due to, among other things, changes in the business environment, competition, changes
in regulation, or other economic and policy factors; and the possibility that the Company’s new lines of business may be adversely
affected by other economic, business, and/or competitive factors. In addition, we operate in a competitive and evolving industry in which
new risks emerge from time to time, and it is not possible for us to predict all of the risks it may face, nor can it assess the impact
of all factors on its business or the extent to which any factor or combination of factors could cause actual results to differ from expectations.
As a result of these and other potential risks and uncertainties, our forward-looking statements should not be relied on or viewed as
predictions of future events.
This cautionary statement should be read as
qualifying all forward-looking statements included in this report, wherever they appear. We urge you to consider the limitations on,
and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. All forward-looking
statements and descriptions of risks included in this report are made as of the date hereof based on information available to us as of
the date hereof, and except as required by applicable law, we assume no obligation to update any such forward-looking statement or risk
for any reason. You should, however, consult the risks and other disclosures described in the reports we file from time to time with
the SEC after the date of this report for updated information.
Use of Certain Defined
Terms
On March 25, 2022, the Company changed its name
from “AeroCentury Corp” to “Mega Matrix Corp.” All references to the “Company,” or “AeroCentury”
refers to AeroCentury Corp. together with its consolidated subsidiaries prior to March 25, 2022 and renamed “Mega Matrix Corp.”
commencing on March 25, 2022.
Except where the context otherwise requires and
for the purposes of this report only, references to:
| ● | the “Company,” “we,” “us,” and
“our” refer to the combined business of Mega Matrix Corp., formerly known as AeroCentury Corp, a Delaware corporation and
its consolidated subsidiaries (including its majority-owned subsidiary, FunVerse), except where expressly noted otherwise or the context
otherwise requires; |
| ● | “Exchange
Act” refers the Securities Exchange Act of 1934, as amended; |
| ● | “digital
asset” refers to any computer-generated math-based and/or cryptographic protocol that may, among other things, be used to buy and
sell goods or pay for services. Cryptocurrency represent one type of digital asset. |
| ● | “FunVerse”
refers to the Company’s 60% majority-owned subsidiary FunVerse Holding Limited, a company incorporated under the laws of British
Virgin Islands company. |
| ● | “JetFleet”
refers to the Company’s majority-owned subsidiary JetFleet Management Corp., a California corporation and formerly known as JetFleet
Holding corporation. |
| ● | “MTP”
refers to the Company’s wholly-owned subsidiary Marsprotocol Technologies Pte. Ltd., a Singapore exempt private company limited
by shares. |
| ● | “SEC”
refers to the Securities and Exchange Commission; |
| ● | “Securities
Act” refers to the Securities Act of 1933, as amended; |
| ● | “SDP”
refers to the Company’s wholly-owned subsidiary Saving Digital Pte. Ltd., a Singapore exempt private company limited by shares; |
| ● | “StaaS”
refers to staking as a service; and |
| ● | “Yuder”
refers to FunVerse wholly-owned subsidiary Yuder Ptd, Ltd. a Company incorporated under the laws of Singapore. |
Discrepancies
in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 10-K includes
our audited consolidated financial statements for the fiscal years ended December 31, 2022 and 2023.
PART I
Item 1. Business.
Overview
We are a holding company located in Palo Alto, California. Since January
2024, we hold 60% of the voting securities of FunVerse Holding Limited, a British Virgin Islands company (“FunVerse”) which
directly owns Yuder Pte, Ltd., a Singapore corporation (“Yuder”).. Yuder operates FlexTV, a short drama streaming platform
based in Singapore that produces English and Thai dramas that are also translated into different languages for our users that are spread
across various parts of the world such as Europe, America, and Southeast Asia. In addition to creating original dramas, Yuder also acquires
third party content licenses which it then translates and distributes on its FlexTV platform. To deliver diverse and international content
to our users, Yuder’s produces film in various parts of the world, including, but not limited to, the United States, Mexico, Australia,
Thailand, and Philippines
Corporate History
Historically, we have provided leasing and financing
services to regional airlines worldwide and have been principally engaged in leasing mid-life regional aircraft to customers worldwide
under operating leases and finance leases. In addition to leasing activities, we have also sold aircraft from our operating lease portfolio
to third parties, including other leasing companies, financial services companies, and airlines. Our operating performance was driven
by the composition of its aircraft portfolio, the terms of its leases, and the interest rate of its debt, as well as asset sales.
Since September 30, 2021, our former substantially controlled subsidiary, JetFleet Management Corp, a California corporation and formerly
known as JetFleet Holding Corporation (“JetFleet”) limited its services to providing aircraft advisory and management service.
On August 24, 2023, per the recommendation of JetFleet’s board of directors, we, as a holder of a majority of the voting stock of
JetFleet, elected to approve the winding up and dissolution of Jetfleet. As part of the winding up process, Jetfleet ceased providing
of aircraft advisory and management services. On December 14, 2023, Jetfleet was formally dissolved.
Our wholly-owned subsidiary, Mega Metaverse Corp.
(“Mega”) launched its non-fungible token (NFT) business in December 2021 and released its NFT game “Mano” on March
25, 2022. Mano was a competitive idle role-playing game (RPG) deploying the concept of NFTs based on blockchain technology, with a “Play-to-earn”
business model that the players can earn while they play in Mega’s metaverse universe “alSpace”. Due to business reasons,
the Company suspended the Mano game and the alSpace platform, and on November 4, 2022, the Company discontinued the Mano game and the
alSpace platform. As the game was newly launched and not yet widely adopted by players, the discontinuance of the game did not materially
impact on our business activities.
On August 31, 2022, we acquired all of the
equity interest in Saving Digital Pte. Ltd., a Singapore exempt private company limited by shares (“SDP”) with no operations
and approximately $3,800 in cash, from our chairman Yucheng Hu for a nominal consideration of $10,000. Prior to March 5, 2024, SDP engaged
in solo-staking and, prior to July 1, 2023, provided proof-of-staking technology tools. As of the date of this report, SDP has no customers.
On March 1, 2023, SDP and Bit Digital Singapore
Pte. Ltd. (“Bit Digital”), entered into a shareholders’ agreement (the “Shareholders Agreement”) with Marsprotocol
Technologies Pte. Ltd. (“MTP”), to provide proof-of-stake technology tools for digital assets through the staking platform
“MarsProtocol”, an institutional grade non-custodial staking technology. Pursuant to the Shareholders Agreement, SDP owned
60% and Bit Digital owned 40% of MTP. On August 4, 2023, Bit Digital terminated its investment in MTP and withdrew its capital
contribution of SGD$120,000 from MTP. As a result of the transaction, SDP owns all outstanding ordinary shares of MTP. As of July 2023,
MTP ceased providing non-custodial staking tools to third parties.
On April 25, 2023, SDP, invested $300,000
in MarsLand Global Limited (“MarsLand”), a BVI company and held 30% interest in MarsLand. The other shareholders of MarsLand
are non-affiliated. MarsLand will provide staking services to institutional clients such as Bit Digital. On July 1, 2023, MarsLand and
SDP entered into a Master Right of Use and Services Agreement for a term of 12 months, pursuant to which MarsLand commits to use commercially
reasonable efforts to provide SDP access to the Right of Use, including the use of Node(s) as mutually agreed, exclusively for SDP’s
business purposes. In return, SDP will compensate MarsLand with a certain percentage of Net Revenue (as defined in the agreement), which
percentage will be mutually agreed upon periodically. Fees could be made in U.S. dollars, USDC, USDT or ETH. Either party has the right
to terminate by providing a 30-day advance notice, and on March 5, 2024, the Master Right of Use and Service Agreement was terminated
by us. As of March 31, 2024, SPD did not have any amounts payable due to Marsland. Further, SDP has successfully applied for and registered
the trademark “MarsProtocol” in Singapore and has entered into a trademark license agreement with MarsLand authorizing MarsLand
the right to use the MarsProtocol trademark in connection with its staking as a service (“StaaS”) business. SDP was conducting
Ethereum solo-staking in Singaporethe Company decided to focus entirely on its short drama streaming platform business, and as of March
5, 2024, it has ceased its solo-staking activities.
On
December 26, 2023, we entered into a Second Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”),
amending and restating the original agreement and plan of merger, dated December 7, 2022, as amended, with Mega Matrix Inc., an
exempted company incorporated under the laws of the Cayman Islands and our wholly-owned subsidiary (“MPU Cayman”) and
MPU Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of MPU Cayman (“MPU Merger Sub”) for the
purpose of redomiciling the corporation from Delaware to the Cayman Islands. The Merger Agreement provides that, upon the terms and
subject to the conditions set forth therein, the MPU Merger Sub will merge with and into the Company, with the Company as the
surviving entity (“Redomicile Merger”). Following the Redomicile Merger, the Company will become a wholly-owned
subsidiary of MPU Cayman, and MPU Cayman, together with its subsidiaries, will own and continue to conduct our business in
substantially the same manner as is currently being conducted by us and our subsidiaries. The Merger Agreement has been approved by
the Boards of Directors of each of the Company, MPU Merger Sub and MPU Cayman. The completion of the proposed transaction is subject
to the required approval of the Company’s stockholders, requisite regulatory approvals, the effectiveness of the registration
statement on Form F-4 filed by MPU Cayman related thereto, and other customary closing conditions. Pursuant to the Merger Agreement,
the Board of Directors of the Company may exercise its discretion to terminate the Merger Agreement, and therefore abandon the
Redomicile Merger contemplated therein, at any time prior to the Effective Time (as defined in Merger Agreement), including after
the adoption of the Merger Agreement by the Company’s stockholders. As of the date of this report, the Merger Agreement has
not been adopted by our stockholders and we have not yet set a date for a special meeting of stockholders seeking such
approval.
On
January 7, 2024, we entered into and closed a definitive Share Exchange Agreement with FunVerse,
a company incorporated under the laws of the British Virgin Islands and the sole parent company
of Yuder Pte, Ltd., and the shareholders of FunVerse. Following the transaction, the Company
now owns sixty percent (60%) of capital stock of FunVerse. Yuder operates FlexTV, a short
drama streaming platform based in Singapore that produces English and Thai dramas that are
also translated into different languages for our users that are spread across various parts
of the world such as Europe, America, and Southeast Asia. In addition to creating original
dramas, Yuder also acquires third party content licenses which it then translates and distributes
on its FlexTV platform. To deliver diverse and international content to our users, Yuder’s
produces film in various parts of the world, including, but not limited to, the United States,
Mexico, Australia, Thailand, and Philippines.
Recent Events – Subsequent to Year End.
New Direction of the Company-Short Drama
Industry
During the past year, the Company expended considerable
efforts in conducting research into the short video drama industry that is very popular in Asia, carrying out market research in different
geographical areas, and in conducting research into the most efficient means of entering into this market. On January 7, 2024, we entered
into and closed a definitive Share Exchange Agreement with FunVerse, a company incorporated under the laws of the British Virgin Islands
and the sole parent company of Yuder Pte, Ltd. (“Yuder”), and the shareholders of FunVerse. Following the transaction, the
Company now owns sixty percent (60%) of capital stock of FunVerse.
Through Yuder, FunVerse now operates FlexTV, a short drama streaming
platform based in Singapore that produces English and Thai dramas that are also translated into different languages for our users that
are spread across various parts of the world such as Europe, America, and Southeast Asia. In addition to creating original dramas, Yuder
also acquires third party content licenses which it then translates and distributes on is FlexTV platform.
![](https://www.sec.gov/Archives/edgar/data/1036848/000121390024070723/image_002.jpg)
![](https://www.sec.gov/Archives/edgar/data/1036848/000121390024070723/image_003.jpg)
Our focus is to be a leading short drama streaming
platform in the global streaming video industry. FlexTV stands out as an innovative force, introducing short dramas as a unique form of
storytelling, committed to leading vertical screen entertainment globally.
Short dramas aim to capture the essence of narratives
within concise time frames, typically formatted vertically for optimal viewing on mobile phones, ranging from 1 to 3 minutes per episode.
Each episode seamlessly integrates into a series, where complete storylines unfold across 40 to over 100 episodes. Short dramas usually
offer users a virtual escape, presenting narratives that resonate with emotions, fostering a sense of connection, and serving as a wellspring
of comfort or inspiration in the digital realm.
The
move from conventional TV streaming to short drama streaming is a worldwide shift, offering
users enhanced options and increased flexibility in their entertainment choices. We acknowledge
the significant and profound impact of short video platforms on viewer behaviors, characterized
by shorter attention spans, vertical screen viewing, and increased multitasking. We leverage
the substantial void between the long-form dramas provided by entities like Netflix and the
predominantly influencer-created short videos.
The content characteristics of short dramas determine that they can
be produced in quick batches and monetized rapidly. Users are used to scrolling through videos, movie narrations and at a faster pace.
The threshold for short drama production has lowered, with lower costs, shorter cycles, and higher operational efficiency. Short dramas
are more attractive, more direct, faster-paced, and better suited for mobile entertainment.
We recognize the significant impact of short video
platforms like Facebook Reels, Instagram Reels, YouTube Shorts, TikTok, and others on user behaviors. Our dedication to innovative short
dramas stems from a deep understanding of evolving viewing habits influenced by shorter attention spans and increased multitasking.
We are steadfast in delivering innovative content
that connects with diverse audiences worldwide, promoting cultural appreciation and entertainment on a global scale, and bringing joy
to the lives of users worldwide. The content characteristics of short dramas determine that they can be produced in quick batches and
monetized rapidly.
Our Business Model
FlexTV
has already formed a mature content business model that integrates content production, distribution,
and operation. Short drama content on the FlexTV platform is divided into two categories:
one category consists of dramas in which we participate in production, primarily in English
and Thai, and the other category consists of translated dramas, where we purchase the copyrights
of completed high-quality short dramas from third parties and then translate them into multiple
languages, including but not limited to English, Spanish, Portuguese, Japanese, Korean, and
Thai. A typical timeline for launching one
short drama product is divided into three stages. The first stage is the script polishing period, which lasts approximately 15-30 days.
The second stage is the filming and post-production stage, which lasts around 14-30 days. The third stage is the release stage, primarily
lasting within 30-60 days.
To acquire the best
scripts, FlexTV pioneered the adoption of studios nurturing and supporting content production partners. We have strict criteria for selecting
short drama studios and their scripts. First, we integrate user research in the topic and script stages with internal original production
and external procurement. Then, in the matching production studios and evaluation stage, we establish a stable producing process, efficient
editing, and a hit production experience. This approach ensures a stable industrialized supply of content.
We generate platform
revenue primarily through top-up and membership fees for services related to streaming content to our users and advertisements presented
on our streaming service.
We offer a variety of
streaming top-up and membership plans, the price of which varies by country and the features of the plan. Users typically can watch about
five to ten episodes of each short drama on our platform for free. To continue watching, they will need to become subscription members
or top up their account to acquire in-app coins on our platform, which are then used to continue viewing the short dramas. Users can
also earn in-app coins to watch short dramas by completing daily and new user tasks, such as watching ads, inviting friends, and sharing
FlexTV on Facebook and TikTok. The in-app coins can only be used on our platform and are not transferrable. Users can subscribe to FlexTV
memberships on a weekly, monthly, or annual basis, and during the membership subscription period, users will have unlimited access to
view any short drama on FlexTV. We measure monetization of our platform by calculating the average revenue per active user (“ARPU”),
which we believe represents the inherent value of our business model.
Competitive Strengths
We believe that FlexTV
has the following competitive advantages:
Content barrier:
We continuously nurture and incubate studios that supply content to our platform, assisting them in establishing industrialized production
processes. In the short term, we provide funding for studio content production. FlexTV encourages healthy competition, and we anticipate
more studios shifting towards producing short-form content in the future. As the number of studios on the platform increases and their
capabilities improve, studios will raise funds independently to produce content. FlexTV provides more traffic and distribution resources
for good content, significantly reducing the risk of platform investment in content production.
Network effects:
As the platform’s content library accumulates, it attracts more users to watch content for longer durations, generating more revenue
for the platform. This, in turn, attracts more studios to create content for the platform, resulting in a positive feedback loop.
Global distribution
resources: We own the rights to series, translating them into various languages for global distribution. Through our proprietary
advertising placement system, KOL distribution, and media copyright cooperation resources, we can rapidly increase the series’
influence and generate substantial revenue within a short period. Outstanding distribution capabilities are a key reason why studios
choose to collaborate with our streaming platform.
User Growth Strengths
Major social media
traffic distribution: We achieve user growth by advertising on mainstream social media channels such as Facebook, TikTok, and Google.
We edit highlights of our series into clips to attract users to download the FlexTV app.
KOL marketing:
We invite Key Opinion Leaders (KOLs) to market our series on their social media accounts. When users download FlexTV and make deposits,
KOLs can share in the deposit revenue. Through this way, we attract a large number of KOLs to proactively share content related to our
series.
International Markets
FlexTV is available in more than 100 countries.
Our production teams film in various locations including, but not limited to, United States, Mexico, Australia, Thailand, and Philippines.
We will continue to expand our international markets and collaborate with local partners in each major market.
Our Industry
The
short drama industry experienced explosive growth in 2023. According to China Securities
Report, dated November 7, 2023, the total market size of short dramas in China in 2023 was
expected to reach $5 billion and monthly active users exceeding 100 million, fully validating
the product. In addition, the market size of global short dramas will reach $36 billion in
3 years. With short video platforms like TikTok cultivating user habits for fragmented and
concise entertainment videos, the global short drama market is expected to continue growing.
The vertical screen era is likely to give birth to emerging streaming media giants, and there
are still opportunities for global large-scale streaming platforms similar to Netflix and
Roku.
The short drama industry is likely to extensively incorporate the latest AI technologies, with the potential to integrate high-recognition
IPs with short dramas. This includes AI-enabled face swapping, voice changing, and scene and content creation using verbal descriptions
which could revolutionize content creation by significantly reducing production time and costs, enabling more creative freedom, and potentially
democratizing access to high-quality video production for creators worldwide.
Emergence from Chapter 11 Bankruptcy
On March 29, 2021, the Company and its then subsidiaries,
JetFleet Holdings Corp., a California corporation (“JHC”), and JetFleet Management Corp. (“JMC” along with JHC,
collectively, “Debtors”), filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
On August 16, 2021, in the Bankruptcy Court, the Debtors filed unexecuted drafts of its Plan Sponsor Agreement to be entered into between
us, Yucheng Hu, TongTong Ma, Qiang Zhang, Yanhua Li, Yiyi Huang, Hao Yang, Jing Li, Yeh Cheng and Yu Wang, and identifying such individuals,
collectively, as “Plan Sponsors” (the “Plan Sponsor Agreement”), and related agreements and documents required
thereunder (collectively, with the Plan Sponsor Agreement, the “Plan Sponsor Documents”). The Plan Sponsor Documents were
intended to cover the transactions contemplated by an investment term sheet entered into with Yucheng Hu and are part of the Debtors’
plan of reorganization as reflected in the Combined Disclosure Statement and Plan filed with the Bankruptcy Court as amended and supplemented
from time to time (the “Plan”). On August 31, 2021, the Bankruptcy Court entered an order, Docket No. 0296 (the “Confirmation
Order”), confirming the Plan as set forth in the Combined Plan Statement and Plan Supplement.
On September 30, 2021, we emerged from Chapter
11 and pursuant to the Plan Sponsor Agreement, the Company entered into and consummated the transactions contemplated by a Securities
Purchase Agreement with the Plan Sponsor, and Yucheng Hu, in the capacity as the representative for the Plan Sponsor thereunder, pursuant
to which the Company issued and sold, and the Plan Sponsor purchased, 14,354,635 (adjusted for the Forward Stock Split) shares of our
common stock at $0.77 (adjusted for the Forward Stock Split) for each share of common stock for an aggregate purchase price of approximately
$11,053,069.
Also on September 30, 2021, and pursuant to the
Plan Sponsor Agreement, the Company entered into and consummated the transactions contemplated by a Series A Preferred Stock Purchase
Agreement (the “JHC Series A Agreement”) with JHC, pursuant to which JHC issued and sold, and the Company purchased, 104,082
shares of Series A Preferred Stock, no par value, at $19.2156 per share of JHC Series A Preferred Stock, for an aggregate purchase price
of $2 million.
Each share of JHC Series A Preferred Stock shall
be entitled to one (1) vote on any matter that is submitted to a vote or for the consent of the shareholders of JHC. The JHC Series A
Preferred Stock provides the Company with 74.83% voting control over JHC immediately following its issuance.
On
January 1, 2022, JMC, a wholly-owned subsidiary of JHC, was merged with and into JHC, with JHC being the surviving entity. As part
of the merger, JHC changed its name to JetFleet Management Corp. On August 24, 2023, per the recommendation of JMC’s board of
directors, the Company, as a holder of a majority of the voting stock of JMC, elected to approve the winding up and dissolution of
JMC. JMC ceased providing aircraft advisory and management services upon winding up and the Company deconsolidated JMC and its
subsidiaries in December 2023. On December 14, 2023, JMC was formally dissolved.
Government Regulation
Yuder’s operations as a Singapore-based company are subject to
the regulatory environments of Singapore and each jurisdiction where our services are available. These regulations encompass a wide range
of aspects related to our streaming service operations, including but not limited to:
Content regulation and licensing: Compliance with specific licensing
requirements in each country such as the Over-the-Top (OTT) Niche Television Service License in Singapore and equivalent regulations in
other jurisdictions where our services are available. This includes adherence to content codes for OTT, video on demand, and niche services
to align with public interest and decency standards.
Age restriction and content classification: Implementing systems for
age verification and content classification in line with local requirements in Singapore and similar mandates globally to restrict access
to age-sensitive content.
Digital and cybersecurity regulations: Meeting international standards
for data protection, privacy laws, and cybersecurity measures to safeguard user data and ensure the integrity of our platform against
unauthorized access and cyber threats.
Consumer protection laws: Adherence to consumer rights and protection
laws, ensuring transparency, fairness, and accountability in our service delivery, subscription models, and user data handling practices.
International taxation: Navigation of digital service taxes and VAT
obligations relevant to the digital streaming industry, ensuring compliance with fiscal regulations in jurisdictions where our service
is offered.
Intellectual Property
The protection of our technology and intellectual
property is an important aspect of our business. We currently rely upon a combination of trademarks, trade secrets, copyrights, nondisclosure
contractual commitments, and other legal rights to establish and protect our intellectual property.
As
of March 9, 2024, we held ten (10) pending trademark applications in the United States, three (3) pending ones in Singapore, two (2)
pending ones in Hong Kong, four (4) pending ones in British Virgin Islands, four (4) pending ones in Thailand and three (3) completed
trademark applications in Singapore. We will evaluate our development efforts to assess the existence and patentability of new
intellectual property. To the extent that it is feasible, we will file new patent applications with respect to our technology and
trademark applications with respect to our brands.
Human Capital Resources
As of March
9, 2024, we had 11 full-time employees, including CEO, CFO and COO in Singapore. None of our employees are represented by labor unions
or covered by collective bargaining agreements. We consider our relationship with our employees to be good.
Corporate Office
Our headquarters are located at 3000 El Camino
Real, Bldg. 4, Suite 200, Palo Alto, CA. Our main telephone number is (650) 340-1888.
Other Information
Our website is located at: https://www.megamatrix.io/.
We make available on our website our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not
part of this annual report. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements,
and other information regarding issuers, such as us, that file electronically with the SEC.
We use our website, our corporate Facebook page
(facebook.com/megamatrixmpu or facebook.com/flextvus), our corporate X (f/k/a Twitter) account (twitter.com/MegaMatrixMPU), our corporate
LinkedIn account (linkedin.com/company/megamatrixmpu), our corporate TikTok channel (tiktok.com/@flextv_english), and our YouTube channel
(youtube.com/@FlexTV_English) as channels of distribution of material company information. For example, financial and other material
information regarding our company is routinely posted on and accessible at www.megamatrix.io. Accordingly, investors should monitor these
channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website
and social media channels are not, however, a part of this Annual Report on Form 10-K and are not incorporated by reference herein.
Item 1A. Risk Factors.
An investment in our common stock involves risks.
Prior to making a decision about investing in our common stock, you should consider carefully the risks together with all of the other
information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in our subsequent filings with
the SEC. Each of the referenced risks and uncertainties could adversely affect our business, operating results and financial condition,
as well as adversely affect the value of an investment in our securities. Additional risks not known to us or that we believe are immaterial
may also adversely affect our business, operating results and financial condition and the value of an investment in our securities.
Risks Related to our Business
Expansion of the
Company’s operations into new products, services and technologies, including content categories, is inherently risky and may subject
it to additional business, legal, financial and competitive risks.
Historically, the Company’s operations have been focused on third-party
management service contracts for aircraft operations, NFT gaming, StaaS and solo-staking, which operations have ceased. Expansion of the
Company’s operations and its marketplace into additional products and services, such as short video drama involve numerous risks
and challenges, including potential new competition, increased capital requirements and increased marketing spent to achieve customer
awareness of these new products and services. Growth into additional content, product and service areas may require changes to the Company’s
existing business model and cost structure and modifications to its infrastructure and may expose the Company to new regulatory and legal
risks, any of which may require expertise in areas in which the Company has little or no experience. There is no guarantee that the Company
will be able to generate sufficient revenue from sales of such products and services to offset the costs of developing, acquiring, managing
and monetizing such products and services and the Company’s business may be adversely affected.
If our efforts to attract and retain users
are not successful, our business will be adversely affected.
Our future revenue will be derived for subscriber
based fees. We must continually add users and convert them to fee-based subscribers both to replace canceled fee-based subscribers and
to grow our business beyond our current fee-based subscriber base. The video streaming business is new to us and our ability to penetration
and growth our user base have fluctuated and vary across the jurisdictions where we provide our service. Our ability to attract and retain
users and convert them to fee-based subscribers will depend in part on our ability to consistently provide our users in countries around
the globe with compelling content choices that keep our users engaged with our service, effectively drive conversation around our content
and service, as well as provide a quality experience for choosing and enjoying our short video dramas. Furthermore, the relative service
levels, content offerings, pricing and related features of competitors to our service may adversely impact our ability to attract and
retain users. Competitors include other entertainment video providers, such as linear television, and streaming entertainment providers
(including those that provide pirated content), video gaming providers, as well as user-generated content, and more broadly other sources
of entertainment that our users could choose in their moments of free time.
Our users and fee-based subscribers cancel our
service for many reasons, including a perception that they do not use the service sufficiently, that they need to cut household expenses,
dissatisfaction with content, a preference for competitive services and customer service issues that they believe are not satisfactorily
resolved. Fee-based subscribers growth is also impacted by adverse macroeconomic conditions, including inflation, may also adversely impact
our ability to attract and retain users and fee-based subscribers. If we do not grow as expected or be able to increase our fee-based
subscriber revenue, including by adjusting subscription pricing, liquidity and results of operations may be adversely impacted. If we
are unable to successfully compete with current and new competitors in providing compelling content, retaining our existing users and
attracting new users, our business will be adversely affected.
If we do not continuously provide value
to our users, including making improvements to our service in a manner that is favorably received by them, our revenue, results of operations
and business will be adversely affected.
If consumers do not perceive our service offering
to be of value, including if we introduce new or adjust existing features, adjust pricing or service offerings, or change the mix of
content in a manner that is not favorably received by them, we may not be able to attract and retain users and fee-based subscribers,
and accordingly, our revenue, including revenue per paying subscribers, and results of operations may be adversely affected. The video
streaming business and the production of short video dramas is new to us. If our efforts to develop and offer short video dramas are
not valued by our current and future users and fee-paying subscribers, our ability to attract and retain users and fee-paying subscribers
may be negatively impacted. We may also seek to extend our business into new products and services to help drive growth. For example,
we are expanding our offering of consumer products and live experiences. To the extent we cannot successfully find and develop new products
and services to help drive growth, our future results of operations and growth may be adversely impacted.
We may, from time to time, have to adjust our
subscription pricing, or our pricing model itself. Any adjustments we make may not be well-received by our users and could negatively
impact our ability to attract and retain users and fee-paying subscribers, revenue per fee-paying subscribers, revenue and our results
of operations. If our efforts to satisfy our existing users or adjustments to our service are not successful, we may not be able to attract
or retain users and fee-paying subscribers, and as a result, our ability to grow our business will be adversely affected.
If we fail to grow and maintain our active
user base, our business, financial condition and operating results may be materially and adversely affected.
The size of our active user base with our products
are critical to our success. We are a new business and focused on attracting and maintaining an active user base. Our financial performance
has been and will continue to be significantly affected by our ability to grow and engage our active user base. In addition, we may fail
to maintain or increase our user base or our users’ engagement if, among other things:
|
● |
we fail to innovate or develop new products
and services that provide relevant content and satisfactory experience to, or are favorably received by, our users; |
|
|
|
|
● |
we fail to produce new dramas that are attractive
to our users; |
|
● |
we fail to respond
to or adopt evolving technologies for product development on a timely and cost-effective basis; |
|
● |
we fail to successfully
market and monetize our existing and new mobile applications throughout their life cycles; |
|
● |
we fail to develop
products that are compatible with existing or new mobile devices, mobile operating systems or their respective upgrades; |
|
● |
we fail to maintain
or improve our technology infrastructure and security measures designed to protect our users’ personal privacy and cyber security; |
|
● |
we lose users to
competing products and services or due to concerns related to personal privacy and cyber security or other reasons; |
|
● |
we fail to successfully
implement our strategies related to the continued expansion of our global user base; or |
|
● |
we are required by existing or new laws,
regulations or government policies to implement changes to our products or services that are adverse to our business. |
If we are unable to maintain or increase our
user base, our advertising services may become less attractive to our advertising customers, which may have a material and adverse impact
on our business, financial condition and operating results.
Our advertising offering is new and subject
to various risks and uncertainties, which may adversely affect our business.
We have limited experience and operating history
offering advertising on our video streaming service, and our advertising revenue may not grow as we expect. Advertisers purchase advertising
services either directly from us or through third-party advertising exchanges and advertising agencies. Our advertising customers, including
advertisers and advertising exchanges and agencies, typically do not have long-term contractual arrangements with us. They may be dissatisfied
with our advertising services or perceive our advertising services as ineffective. Potential new customers may view our advertising services
as unproven, and we may need to devote additional time and resources to convince them. In addition, new advertising formats emerge from
time to time and customer preferences can change. We may not be able to adapt our products and services to future advertising formats
or changing customer preferences on a timely and cost-effective basis, and any such adaption failure could materially and adversely affect
our financial conditions, results of operations and prospects.
We compete for advertising customers not only
with other providers of digital advertising spaces, but also with other types of platforms and advertising service providers such as
newspapers, magazines, billboards, television and radio stations. Some of our competitors have access to considerably greater financial
and other resources for expanding their product offerings and present considerable challenges to gaining and maintaining additional market
share.
If we fail to deliver advertising services in
an effective manner, or if our advertising customers believe that placing advertisements on our platform and in our short dramas do not
generate a competitive return when compared to placing advertisements through our competitors’ products, they may not continue
to do business with us or they may only be willing to advertise with us at reduced prices. If our existing advertising customers reduce
or discontinue their advertising spending with us, or if we fail to attract new advertising customers, our business, financial condition
and results of operations could be materially and adversely affected.
We rely on our business collaborations
with third parties, including major digital distribution platforms and mobile device manufacturers, to maintain and expand our user base.
Our failure to maintain good relationships with these business partners may materially and adversely affect our business and operating
results.
We collaborate with various business partners to promote our products
and enlarge our user base. We use third-party digital distribution platforms such as Apple App Store and Google Play to distribute
our mobile applications to users. We also advertise on third-party platforms, such as Facebook and TikTok to acquire users. The promotion
and distribution of our mobile applications are subject to such digital distribution platforms’ standard terms and policies for
application developers, which are subject to the interpretation of, and frequent changes by, these platforms. In addition, our applications
may be suspended by or removed from such platforms as a result of allegations or claims by third parties regardless of their merits. If
we are unable to maintain good relationships with our business partners or the business of our business partners declines, the reach of
our products and services may be adversely affected and our ability to maintain and expand our user base may decrease. Most of the agreements
with our business partners, including mobile device manufacturers and digital distribution platforms, do not prohibit them from working
with our competitors or from offering competing services. If our partner distribution platforms change their standard terms and conditions
in a manner that is detrimental to our business, or if our business partners decide not to continue working with us or choose to devote
more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially
favorable terms, or at all, and our competitive advantages may be diminished.
We may be subject to notices or complaints
alleging, among other things, our infringement of copyrights and delivery of illegal or inappropriate content through our products, which
could lead to suspension or removal of such products from digital distribution platforms, a decrease of our user base, and a significantly
adverse impact on our financial results and our reputation.
We use third-party digital distribution platforms such as Apple App
Store and Google Play to distribute our mobile applications to users. In the ordinary course of our business, we and the digital distribution
platforms may from time to time receive, notices or complaints from third parties alleging that certain of our contents infringe copyrights,
deliver illegal, fraudulent, pornographic, violent, bullying or other inappropriate content, or otherwise fail to comply with applicable
policies, rules and regulations. Upon receipt of such notices or complaints, those digital distribution platforms may suspend or
remove such products from such platforms. The processes for appealing such suspensions and removals with those platforms could be time-consuming,
and we cannot guarantee that our appeals will always prevail or that any such suspended or removed application will be made available
again. Such suspensions and removals of our products could lead to a decrease of our user base and, if they occur frequently and/or in
a large scale, could significantly adversely affect our reputation, business operation and financial performance. In addition, these digital
distribution platforms and third-party platforms may also receive, from time to time, notices or complaints from third parties alleging
that certain of our products infringe copyrights, deliver illegal, fraudulent, pornographic, violent, bullying or other inappropriate
content, or otherwise fail to comply with applicable policies, rules and regulations, consequently those digital distribution platforms
may suspend or remove such products from their platforms and those third-party platforms may terminate their collaboration with us.
We have international operations and plan
to continue expanding our operations globally. We may face challenges and risks presented by our growing global operations, which may
have a material and adverse impact on our business and operating results.
Yuder is headquartered in Singapore and provide
its products and services to a global user base. We intend to continue the international expansion of our business operations and grow
our user base globally. We believe the sustainable growth of our business depends on our ability to increase the penetration of our products
in both developed and emerging markets. Our continued international operations and global expansion may expose us to a number of challenges
and risks, including:
| ● | challenges in developing successful
products and localized adaptions, and implementing effective marketing strategies that respectively target mobile internet users and
advertising customers from various countries and with a diverse range of preferences and demands; |
| ● | difficulties in managing and
overseeing global operations and in affording increased costs associated with doing business in multiple international locations; |
|
● |
difficulties in
integrating and managing potential foreign acquisitions or investments; |
|
|
|
|
● |
compliance with applicable laws
and regulations in various countries worldwide, including, but not limited to, internet content requirements, cyber security and
data privacy requirements, intellectual property protection rules, exchange controls, and cash repatriation restrictions; |
|
● |
fluctuations in
currency exchange rates; |
|
● |
political, social
or economic instability in markets or regions in which we operate; and |
|
● |
compliance with statutory equity requirements
and management of tax consequences. |
Our business, financial condition and results
of operations may be materially and adversely affected by these challenges and risks associated with our global operations.
Our product development and monetization
strategies are highly dependent on our technology capabilities and infrastructure. If the amount of user data generated on our products
declines, or if we fail to enhance or upgrade our technologies at a competitive pace, the effectiveness of our business model may be
harmed and our operating results may be materially and severely affected.
We depend on our technological capabilities and
infrastructure to analyze our users’ preferences and needs and to generate valuable user insights. Active users of our products
generate a large amount of data across our applications and in a variety of use cases on a daily basis. The data generated by our users
lays the foundation for us to build our user profiles. By analyzing such user data with our big data analytics and other relevant technologies,
we aim to understand our users’ interests and needs for content in order to develop products that deliver relevant content catering
to their interests and needs. Therefore, the effectiveness of our product development and monetization strategies is dependent on our
ability to obtain and process data and to refine the algorithms used in processing such data. If we fail to maintain and expand the user
base of our products to continually generate large amounts of user data, or if we fail to keep up with the rapid development and upgrade
of big data analytics and other relevant technologies on a timely and cost-effective basis, we may not be able to effectively grow and
monetize our products, and our business and operating results may be materially and adversely affected.
If we fail to correctly anticipate user
preferences and develop and commercialize new products and services, we may fail to attract or retain existing users, the lifecycles
of our mobile applications may end prematurely and our operating results may be materially and adversely affected.
Our success depends on our ability to maintain, grow and monetize our
user base, which in turn depends on our ability to continually develop and commercialize new mobile applications, introduce new features
or functions to our existing mobile applications and provide users with high-quality content and an enjoyable user experience. This is
particularly important since the mobile internet industry is characterized by fast and frequent changes, including rapid technological
evolution, shifting user demands, frequent introductions of new products and services, and constantly evolving industry standards, operating
systems and practices. FlexTV APP was launched in 2023 and over 150 short video drama have been released since October 2023. We
intend to continue to produce new short video drama and other contents and services to enlarge our active user base. Our ability to roll
out new short video dramas and services depends on a number of factors, including engaging new talents, High-quality contents, as well
as correctly analyzing and predicting users’ interests and demands for content using our big data analytical capabilities. If we
fail to correctly analyze and predict users’ interests and demands for content, fail to cater to the anticipated needs and preferences
of users, or fail to provide a superior user experience, our existing and new mobile applications may suffer from reduced user traffic
or be unsuccessful in the market and our user base may decrease, which in turn may impact our fee-based subscription and our ability to
earn advertising revenue. There can be no assurance that our new products and services will generate revenues or profits and we may not
be able to recoup the investments and expenditure involved in such development. Our quarterly results may also experience significant
fluctuations as we continue to invest in the development of new products and services.
In addition, as a result of rapidly evolving
user preferences, our existing mobile applications may reach the end of their lifecycles prematurely. There can be no assurance that
we will be able to correctly predict the lifecycles of our new mobile applications, our estimates regarding the lifecycles of our existing
mobile applications may turn out to be incorrect, and our business, financial condition and results of operations may be materially and
adversely affected.
We may be held liable for information or
content displayed on, distributed by, retrieved from or linked to the mobile applications integrated into our products, which may adversely
impact our brand image and materially and adversely affect our business and operating results.
We may display third-party content, such as videos,
pictures, books, articles and other works, on our mobile applications without the explicit consent from such third party, and we may
further explore market opportunities in the content-related business. Our users may misuse our products to disseminate content that contains
inappropriate, fraudulent or illegal information or that infringes the intellectual property rights of third parties. We have implemented
control measures and procedures to detect and block inappropriate, fraudulent or illegal content uploaded to or disseminated through
our products, particularly those that violate our user agreements or applicable laws and regulations. However, such procedures may not
be sufficient to block all such content due to the large volume of third-party content. Despite the procedures and measures we have taken,
if the content displayed on our products are found to be fraudulent, illegal or inappropriate, we may suffer a loss of users and damage
to our reputation. In response to any allegations of fraudulent, illegal or inappropriate activities conducted through our mobile applications
or any negative media coverage about us, government authorities may intervene and hold us liable for non-compliance with laws and regulations
concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring
us to restrict or discontinue certain features and services provided by our mobile applications or to temporarily or permanently disable
such mobile applications. If any of such events occurs, our reputation and business may suffer and our operating results may be materially
and adversely affected.
We may not be able to prevent unauthorized
use of our intellectual property, which could harm our business and competitive position.
We regard our patents, copyrights, trademarks,
trade secrets, and other intellectual property as critical to our business. Unauthorized use of our intellectual property by third parties
may adversely affect our business and reputation. We rely on a combination of intellectual property laws and contractual arrangements
to protect our proprietary rights. It is often difficult to register, maintain, and enforce intellectual property rights in countries
with less developed regulatory regimes or inconsistent and unreliable enforcement mechanisms. Sometimes laws and regulations are subject
to interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation.
In addition, our contractual agreements may be breached by our counterparties, and there may not be adequate remedies available to us
for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual
rights in China and other jurisdictions in which we operate. Detecting and preventing any unauthorized use of our intellectual property
is difficult and costly and the steps we have taken may be inadequate to prevent infringement or misappropriation of our intellectual
property. In the event that we resort to litigation to enforce or protect our intellectual property rights, such litigation could result
in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such
litigation.
We may be subject to intellectual property
infringement lawsuits which could be expensive to defend and may result in our payment of substantial damages or licensing fees, disruption
to our product and service offerings, and reputational harm.
The success of our business relies on the quality
of our products, which in turn depends on the underlying software and related technology, such as big data analytics. The protection
of such software and related technologies primarily relies on intellectual property rights including patents and trade secrets. Meanwhile,
for the purpose of our business expansion, we may from time to time display third-party content, such as videos, pictures, books, articles
and other works, on our mobile applications without acquiring the explicit consent from such third party. Third parties, including our
competitors, may assert claims against us for alleged infringements of their patents, copyrights, trademarks, trade secrets and internet
content.
Intellectual property claims against us, whether
meritorious or not, are time consuming and costly to resolve, could divert management attention away from our daily business, could require
changes of the way we do business or develop our products, could require us to enter into costly royalty or licensing agreements or to
make substantial payments to settle claims or satisfy judgments, and could require us to cease conducting certain operations or offering
certain products in certain areas or generally. We do not conduct comprehensive patent searches to determine whether the technologies
used in our products infringe upon patents held by others. In addition, product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with
regard to similar technologies. While we believe that our products do not infringe in any material respect upon any intellectual property
rights of third parties, we cannot be certain that this is the case.
In addition, in any potential dispute involving
our patents or other intellectual property, our advertising customers and business partners could also become the target of litigation.
We have certain contractual obligations to indemnify our advertising customers and the mobile device manufacturers that pre-install our
products on their devices for liability that they may incur based on third-party claims of intellectual property infringement for the
use of our products or technology. Many of our collaboration contracts with mobile device manufacturers provide for a cap on our indemnity
obligations. In addition, in the event of any such claims, our advertising customers or business partners may decide not to use our products
in the future, which could harm our financial condition and operating results.
Finally, we may also face infringement claims
from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to
protect ourselves against such claims through contractual means, there can be no assurance that such contractual provisions are adequate,
and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged
to develop for us.
Yuder, as a Singapore-based company, is
subject to laws and regulations of Singapore and each jurisdiction where our services are offered. Our operations require us to apply
for specific licenses with Singapore authorities.
Yuder’s operations as a Singapore-based
company are subject to the regulatory environments of Singapore and each jurisdiction where our services are available. In Singapore,
Yuder is actively assessing the need for specific licenses such as an Over-the-Top (OTT) Niche Television Service License and, for age-restricted
content, a Film Exhibition License. Moreover, we may need to comply with the Content Code for OTT, Video on Demand, and Niche Services
in Singapore to ensure our content aligns with public interest and decency standards. Additionally, as our service is accessible over
the internet to users worldwide, we are subject to a wide array of international laws and regulations, which vary significantly across
different jurisdictions.
Our efforts to secure necessary licenses
and comply with regulatory standards are facing challenges, including the possibility that licenses may not be granted, or could be revoked
or not renewed by regulatory authorities.
The complexity of obtaining necessary licenses
and maintaining compliance with regulatory standards presents a risk that licenses may not be granted or could be revoked or not renewed
by regulatory authorities. This includes both the specific licenses required for operations in Singapore and potentially different or
additional licenses needed in other countries. Such outcomes could prevent us from offering certain services or content, thus significantly
impacting our operations and financial condition.
Information technology
and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
We receive, process,
store and use personal information and other customer data. There are numerous federal, state and local laws regarding privacy and the
storing, sharing, use, processing, disclosure and protection of personal information and other data. Any failure or perceived failure
by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or our privacy-related
legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information
or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy
groups or others and could cause our customers to lose trust in us which could have an adverse impact on our business. The costs of compliance
with these types of laws may increase in the future as a result of changes in interpretation or changes in law. Any failure on our part
to comply with these types of laws may subject us to significant liabilities.
Third parties we work
with may violate applicable laws or our policies, and such violations may also put our customers’ information at risk and could
in turn have an adverse impact on our business. We will also be subject to payment card association rules and obligations under each association’s
contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment
card issuers for the associated expense and penalties. If we fail to follow payment card industry security standards, even if no customer
information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.
Security breaches, computer
malware and computer hacking attacks have become more prevalent. Any security breach caused by hacking which involves efforts to gain
unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware
or other computer equipment, and the inadvertent transmission of computer viruses could harm our business. Though it is difficult to determine
what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and
availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing
players and attract new players.
Because the techniques
used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until
launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Our compliance with regulatory requirements
demands significant operational and financial resources.
Compliance with regulatory requirements in Singapore
and internationally may require significant operational and financial resources. This includes the potential need to furnish security
deposits, adhere to content classification requirements, and ensure ongoing compliance with varied regulatory standards across jurisdictions.
The financial burden and operational constraints imposed by these regulatory requirements could negatively affect our profitability and
operational efficiency.
We face challenges in continuously monitoring
and adapting to the varied regulatory environments across the various jurisdictions where we operate.
Navigating the regulatory landscapes of multiple
jurisdictions increases the risk of inadvertent non-compliance due to the dynamic nature of laws and regulations governing online streaming
services. Continuous adjustments to our operational practices and content offerings may be necessary, requiring substantial resources
and potentially leading to penalties, restrictions, or the cessation of our services in certain territories.
We may encounter restrictions or outright
bans in certain jurisdictions if we fail to comply with local regulations or content standards.
Given the global accessibility of our service,
there is a risk that certain jurisdictions may impose restrictions or outright bans on our operations due to non-compliance with local
regulations or content standards. Such actions could limit our market presence and negatively impact our growth prospects and profitability.
Risk Related to Digital Assets
Previously, we held stable coins such as USDC
and/or USDT which exposed us to various risks associated with cryptocurrencies, including the following:
Custody Service Risks: We do not use any
cryptocurrencies as collateral or have them used by other institutions as collateral because our cryptocurrencies are held in custody
on the blockchain and not stored on centralized exchanges. However, despite storing our cryptocurrencies on a decentralized custody chain,
there are still risks associated with the custody service provider. These risks may include security, availability, and reliability. We
seek to choose a trusted and secure custody service provider to protect our cryptocurrencies.
On-Chain Risks: Storing cryptocurrencies
on a custody chain does not eliminate all risks. The underlying blockchain may still face risks related to technology, network security,
and potential attacks. Understanding the security measures and vulnerability mitigation capabilities of the underlying blockchain protocol
is crucial.
As of May 5, 2024, management
decided not to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024, we have completed
the process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started the process of exchanging
all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the process of converting all
of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received for the conversion of
our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any USDC, USDT or ETH, and
we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
If
we hold stable coins, the value of stable coins that we hold may be subject to volatility and risk of loss.
Previously and as of
March 31, 2024, we held approximately $3.1 million in USDC issued by Circle Internet Financial Public Limited Company (“Circle”).
Stable coins are cryptocurrencies designed to have a stable value over time as compared to typically volatile cryptocurrencies, and are
typically marketed as being pegged to a fiat currency, such as the U.S. dollar. For example, stable coins such as USDC are usually backed
by the U.S. Dollar and other short-dated U.S. government obligations and are usually pegged to the U.S. dollar. On March 9, 2023, as
a result of the bankruptcy of Silicon Valley Bank (“SVB”), Circle announced that $3.3 billion of its roughly $40 billion
USDC reserves were held at SVB. As a result, Circle depegged the USDC from its $1.00 peg, trading as low as $0.87. This risk may result
in the sell-off of USDC and volatility as to the value of stable coins, which would expose us to risk of potential loss and could have
a material adverse effect on our ability to raise new funding and on our business, financial condition, and results of operations and
prospects.
As of May 5, 2024, management
decided not to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024, we have completed
the process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started the process of exchanging
all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the process of converting all
of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received for the conversion of
our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any USDC, USDT or ETH, and
we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
Our Board and
our management have identified certain material gaps with respect to risk management related to the holding of cryptocurrencies, if any,
that if not adequately addressed, could negatively impact our operations and adversely affect the value of our shares.
Our Board and our management have identified
the following material gaps with respect to risk management related to the holding of cryptocurrencies:
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Inadequate Measures for High Volatility. Cryptocurrencies are known for
their high price volatility. If an organization’s risk management strategies are not equipped to handle such fluctuations,
this would be a significant gap. |
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Lack of Preparedness for Regulatory Changes: The regulatory landscape for
cryptocurrencies is evolving rapidly. An organization that is not prepared for potential regulatory changes may face compliance risks. |
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Insufficient Cybersecurity Measures: Given the digital nature of cryptocurrencies,
they are particularly susceptible to online frauds, scams, and hacking attempts. Inadequate cybersecurity measures to protect against
these threats would be a critical risk management gap. |
We have made the following changes to address
these gaps:
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Revising Investment Strategies: We have diversified our investments, setting more stringent risk limits, or employing hedging strategies to mitigate potential losses. |
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Enhancing Cybersecurity tools: We included the implementation of advanced security software, regular security audits, and the establishment of robust mechanisms for transaction handling and data protection. |
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Providing Specialized Training: Offering specialized training to management and staff is essential to improve their understanding and ability to manage crypto-related risks. This training covered the basics of cryptocurrency, blockchain technology, risk management strategies specific to cryptocurrency, and the latest trends and developments in the crypto market. |
While we believe
that these changes adequately address these gaps, there can be no assurance that these changes will be effective or adequate. If we fail
to adequately address these gaps, the value of our cryptocurrencies may go down which could negatively impact or operations and adversely
affect the value of our shares.
As of May 5, 2024,
management decided not to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024,
we have completed the process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started
the process of exchanging all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the
process of converting all of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received
for the conversion of our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any
USDC, USDT or ETH, and we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
If we hold
stable coins, we will be subject to risks related to holding cryptocurrencies.
Cryptocurrencies are
not considered legal tender or backed by any government and have experienced price volatility, technological glitches and various law
enforcement and regulatory interventions. The use of cryptocurrency such as Bitcoin has been prohibited or effectively prohibited in
some countries. If we fail to comply with any such prohibitions that may be applicable to us, we could face regulatory or other enforcement
actions and potential fines and other consequences.
Cryptocurrencies have in the past and may in the
future experience periods of extreme volatility. Fluctuations in the value of any cryptocurrencies that we hold may also lead to fluctuations
in the value of our common stock. In addition, there is substantial uncertainty regarding the future legal and regulatory requirements
relating to cryptocurrency or transactions utilizing cryptocurrency. For instance, governments may in the near future curtail or outlaw
the acquisition, use or redemption of cryptocurrencies. In such cases, ownership of, holding or trading in cryptocurrencies may then be
considered illegal and subject to sanction. These uncertainties, as well as future accounting and tax developments, or other requirements
relating to cryptocurrency, could have a material adverse effect on our business.
Previously, we used hot custodian, Matrix
Trust Company Limited (“Matrixport”), a third party to store our cryptocurrencies such as USDC and/or USDT, if any. We selected
Matrixport as our custodian due to its strong security measures and risk management practices, crucial for digital asset safety; its
commitment to compliance with regulatory standards across various regions within the crypto industry; its diverse range of services,
including trading, custody, and OTC transactions for both fiat and digital assets; and its solid market reputation in the crypto space
in both the U.S. and Asia. The material terms of our custody agreement with Matrixport are as follows:
| (a) | Matrixport will act as the custodian for our digital assets
and hold such digital assets in trust in accordance with the agreement. Matrixport does not have the authority to exercise any investment
or tax planning discretion regarding our digital assets, and will not act as an advisor, broker or agent when executing our instructions. |
| (b) | Matrixport is only responsible for the safekeeping of our
digital assets which are delivered into its possession and control by us. |
| (c) | For any transfer of our digital assets from our account,
Matrixport will hold such proceeds for transfer until receipt of written disbursement instructions from us. |
| (d) | To the extent permitted by applicable laws and regulations
and Matrixport’s internal policies and procedures, Matrixport shall transfer our digital assets in accordance with our instructions,
provided that sufficient digital assets are available to effect the instructions and for paying any outstanding amounts owing to Matrixport. |
| (e) | Our custody account at Matrixport is not a deposit account
and will not accrue interest. Further our custody account is not insured by FDIC. |
| (f) | Our executive officer has access to our custody account at
Matrixport, however, only our chief executive officer and chief financial officer, acting jointly, have the authority to release our
digital assets from custody. |
Matrixport bought $50
million insurance from OneInfinity by OneDegree, including specie and crime that cover both cold and warm storage. We have no insurance
policies covering our digital assets.
We do not anticipate
we will acquire or use digital assets or cryptocurrencies in the future.
We may be exposed
to various risks associated with the failure to safeguard our cryptocurrencies, such as USDC and/or USDT, if any.
We are exposed to
following risks relating to the safeguarding of our cryptocurrencies such as USDC and/or USDT, if any:
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Security Breaches: Digital assets are stored in digital wallets or on exchanges,
and they are vulnerable to security breaches, hacks, and unauthorized access. If adequate security measures are not in place, digital
assets can be stolen or lost, leading to financial losses for the holders. |
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Third-Party Risks: Entrusting digital assets to third-party service providers,
such as custodians or exchanges, introduces additional risks. These providers may face security vulnerabilities, operational risks,
or even fraudulent activities, which can result in the loss or compromise of the digital assets held with them. |
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Regulatory Compliance: Safeguarding digital assets often involves complying
with regulatory requirements, such as implementing appropriate know-your-customer (KYC) and anti-money laundering (AML) procedures.
Failure to comply with these regulations can lead to legal consequences, fines, reputational damage, and potential disruptions to
business operations. |
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Operational Risks: Inadequate internal controls, poor infrastructure, or
human errors can pose operational risks. Mistakes in handling private keys, mismanagement of wallets, or technological failures can
result in the loss or inaccessibility of digital assets. |
In the event of security breaches or loss of
our digital assets, we may face significant financial losses. The value of the lost assets may not be recoverable, and liability for
the losses may rest with the business, impacting its financial condition and operations.
In addition, inadequate safeguarding of digital
assets can result in legal and regulatory consequences which may lead to fines, penalties, legal disputes, or even the suspension of
business operations, affecting our business’s reputation and financial stability.
Also inadequate safeguarding practices may result
in increased legal and compliance costs. We may need to invest in legal representation, investigations, audits, or remediation efforts
to address any deficiencies, which can strain our financial resources.
As of May 5, 2024,
management decided not to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024,
we have completed the process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started
the process of exchanging all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the
process of converting all of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received
for the conversion of our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any
USDC, USDT or ETH, and we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
Cryptocurrency such as USDC and/or USDT
may be stored in hot wallets such as Matrix Trust Company Limited (“Matrixport”), a third party, and may be subject to loss,
theft or restriction on access.
Cryptocurrency such as USDC and USDT are stored
in and accessed by cryptocurrency sites commonly referred to as “wallets.” A hot wallet refers to any cryptocurrency wallet
that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in cold storage, but they are
also more susceptible to hackers and other technical vulnerabilities. Cold storage refers to any cryptocurrency wallet that is not connected
to the Internet. Cold storage is generally more secure than hot storage, but is not ideal for quick or regular transactions. Historically,
we keep all of our cryptocurrency in a hot wallet maintained by Matrixport which may be subject to loss, theft or restriction on access.
Hackers or malicious actors may launch attacks to steal, compromise or secure cryptocurrencies, such as by attacking Matrixport.
As such, cryptocurrencies stored in “hot wallets” may be more susceptible to theft or compromise than cryptocurrencies stored
in cold storage. There can be no assurance that our hot wallet will not be compromised.
As of May 5, 2024,
management decided not to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024,
we have completed the process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started
the process of exchanging all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the
process of converting all of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received
for the conversion of our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any
USDC, USDT or ETH, and we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
Potential that, in the event of a bankruptcy
filing by a custodian, cryptocurrency held in custody could be determined to be property of a bankruptcy estate and we could be considered
a general unsecured creditor thereof.
All of the cryptocurrencies custodied with
Matrixport are held in segregated accounts such that they are segregated from the property of Matrixport and the assets of other Matrixport
customers. The treatment of cryptocurrencies held by custodians that file for bankruptcy protection is uncharted territory in U.S. Bankruptcy
law. We cannot say with certainty whether our cryptocurrencies held in custody by Matrixport, should it declare bankruptcy, would be
treated as property of the bankruptcy estate and, accordingly, whether we would be treated as a general unsecured creditor with respect
of our cryptocurrencies held in custody by Matrixport. If we are treated as a general unsecured creditor, we may not be able to recover
our cryptocurrencies in the event of a Matrixport bankruptcy or a bankruptcy of any other custodian we may use in the future.
Risks Related to our Company
The
ownership of our stock is highly concentrated in our chairman, and we have one controlling stockholder.
As of March 1, 2024,
our Mr. Yucheng Hu, our chairman and chief executive officer beneficially owned approximately 15.87% of our outstanding common stock.
As a result of his ownership, Mr. Yu is able to significantly influence all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying
or preventing a change in control.
Our filing of bankruptcy may adversely
affect our business and relationships.
On August 31, 2021, the Bankruptcy Court entered
its Findings of Fact, Conclusions of Law and Order Approving and Confirming the Combined Disclosure Statement and Joint Chapter 11 Plan
of AeroCentury Corp., and its Affiliated Debtors. The Effective Date of the Plan occurred on September 30, 2021. Each condition precedent
to consummation of the Plan has been satisfied and/or waived.
As a result of our bankruptcy
filing:
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suppliers,
vendors or other contract counterparties may require additional financial assurances or enhanced performance from us; |
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our
ability to compete for new business may be adversely affected; |
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our
ability to attract, motivate and retain key executives and employees may be adversely affected; |
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our
employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and |
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we
may have difficulty obtaining the capital we need to operate and grow our business. |
The occurrence of one
or more of these events could have a material adverse effect on our business, financial condition, results of operations and reputation.
Certain information contained in our historical
financial statements are not comparable to the information contained in our financial statements after the adoption of new business.
Upon our emergence from Chapter 11, we adopted
fresh start accounting in accordance with ASC Topic 852 and became a new entity for financial reporting purposes. As a result, we revalued
our assets and liabilities based on our estimate of our enterprise value and the fair value of each of our assets and liabilities. These
estimates, projections and enterprise valuation were prepared solely for the purpose of the bankruptcy proceedings and should not be
relied upon by investors for any other purpose. At the time they were prepared, the determination of these values reflected numerous
estimates and assumptions, and the fair values recorded based on these estimates may not be fully realized in periods subsequent to our
emergence from Chapter 11.
The consolidated financial statements after our
emergence from bankruptcy will not be comparable to the consolidated financial statements on or before that date. This will make it difficult
for stockholders to assess our performance in relation to prior periods.
We have a limited operating history in
new short video drama business, so there is a limited track record on which to judge our business prospects and management.
We are currently focusing on short video streaming
platform or producing short video dramas which is very different from our prior staking business, NFT gaming, and aircraft leasing business.
As such, our historical financial results should not be considered indicative of our future performance. In addition, we have a limited
operating history in providing short video streaming platform or producing short video dramas upon which to base an evaluation of our
business and prospects. You must consider the risks and difficulties we face as a small operating company with limited operating history.
User metrics and other estimates are
subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and
financial results.
We intend to regularly review our metrics,
including the number of our active users, paying users, and other measures to evaluate growth trends, measure our performance and make
strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party.
While these numbers are based on what we currently believe to be reasonable estimates for the applicable period of measurement, there
are inherent challenges in measuring how our FlexTV platform is used across large populations globally. Our metrics calculations may
be inaccurate, and we may not be able to identify those inaccuracies. In addition, from time to time, we may implement new methodologies
for calculating these metrics, which may result in the metrics changing or decreasing from prior periods or not being comparable to prior
periods. If our metrics provide us with incorrect or incomplete information about our users and their behavior, we may make inaccurate
conclusions about our business which could harm our business, revenue and financial results.
We will need to
raise additional capital or financing to continue to execute and expand our business.
We will need to raise
additional capital to support our new operations and execute on our business plan by issuing equity or convertible debt securities. In
the event we are required to obtain additional funds, there is no guarantee that additional funds will be available on a timely basis
or on acceptable terms. To the extent that we raise additional funds by issuing equity or convertible debt securities, our shareholders
may experience additional dilution and such financing may involve restrictive covenants. Newly issued securities may include preferences,
superior voting rights, and the issuance of warrants or other convertible securities that will have additional dilutive effects. We cannot
assure that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable
to us. Further, we may incur substantial costs in pursuing future capital and/or financing. We may also be required to recognize non-cash
expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our
financial condition and results of operations. Our ability to obtain needed financing may be impaired by such factors as the weakness
of capital markets, and the fact that we have not been profitable, which could impact the availability and cost of future financings.
If such funds are not available when required, management will be required to curtail investments in additional sales and marketing and
product development, which may have a material adverse effect on future cash flows and results of operations.
Our business depends on the continuing
efforts of our management. If it loses their services, our business may be severely disrupted.
Our business operations depend on the efforts
of our new management, particularly the executive officers named in this document. If one or more of our management were unable or unwilling
to continue their employment with us, it might not be able for us to replace them in a timely manner, or at all. We may incur additional
expenses to recruit and retain qualified replacements. Our business may be severely disrupted, and our financial condition and results
of operations may be materially and adversely affected. In addition, our management may join a competitor or form a competing company.
As a result, our business may be negatively affected due to the loss of one or more members of our management.
We may not be able to prevent or timely
detect cyber security breaches and may be subject to data, security and/or system breaches which could adversely affect our business
operations and financial conditions.
We rely on information
technology networks and systems, including the use of third-party communications systems over the Internet, to process, transmit and
store electronic information, and to manage or support our business activities. These information technology networks and systems may
be subject to security breaches, hacking, phishing, or spoofing attempts by others to gain unauthorized access to our business information
and financial accounts. A cyberattack, unauthorized intrusion, or theft of personal, financial or sensitive business information could
have a material adverse effect of on our business operations or our clients’ information, and could harm our operations, reputation
and financial situation. In addition, due to an increase in the types of cyberattacks, our employees could be victim to such scams designed
to trick victims into transferring sensitive company data or funds, that could compromise and/or disrupt our business operations.
We were a victim of
a business email compromise scam (BEC) in December 2021. BEC scams involve using social engineering to cause employees to wire funds
to the perpetrators in the mistaken belief that the requests were made by a company executive or established vendor. As a result of the
BEC scam, we have enhanced BEC awareness within our organization, established additional controls to help detect BEC scams when they
occur, and require additional confirmations for large money transactions. In addition, we seek to detect and investigate all cybersecurity
incidents and to prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude, duration, and effects.
While we take every effort to train our employees to be cognizant of these types of attacks and to take appropriate precautions, and
have taken actions and implemented controls to protect our systems and information, the level of technological sophistication being used
by attackers has increased in recent years, and may be insufficient to protect our systems or information. Any successful cyberattack
against us could lead to the loss of significant company funds or result in in potential liability, including litigation or other legal
actions against us, or the imposition of penalties, which could cause us to incur significant remedial costs. Further, we cannot ensure
that our efforts and measures taken will be sufficient to prevent or mitigate any damage caused by a cybersecurity incident, and our
networks and systems may be vulnerable to security breaches, hacking, phishing, spoofing, BEC, employee error or manipulation, or other
adverse events.
Due to the evolving
nature and increased sophistication of these cybersecurity threats, the potential impact of any future incident cannot be predicted with
certainty; however, any such incidents could have a material adverse effect on our results of operations and financial condition, especially
if we fail to maintain sufficient insurance coverage to cover liabilities incurred or are unable to recover any funds lost in data, security
and/or system breaches, and could result in a material adverse effect on our business and results of operations.
We do not maintain commercial insurance to
cover loss of digital assets.
We do not carry any insurance that covers the
loss of our digital assets held by our custodian and its affiliates. As such, we may not be able to recover any funds lost in data, security
and/or system breaches.
We are subject
to various laws relating to foreign corrupt practices, the violation of which could adversely affect its operations, reputation, business,
prospects, operating results and financial condition.
We are subject to risks
associated with doing business outside of the United States, including exposure to complex foreign and U.S. regulations such as the Foreign
Corrupt Practices Act (the “FCPA”) and other anti-corruption laws which generally prohibit U.S. companies and their intermediaries
from making improper payments to foreign officials for the purpose of obtaining or retaining business. Violations of the FCPA and other
anti-corruption laws may result in severe criminal and civil sanctions and other penalties. It may be difficult to oversee the conduct
of any contractors, third-party partners, representatives or agents who are not our employees, potentially exposing us to greater risk
from their actions. If our employees or agents fail to comply with applicable laws or company policies governing our international operations,
we may face legal proceedings and actions which could result in civil penalties, administration actions and criminal sanctions. Any determination
that we have violated any anti-corruption laws could have a material adverse impact on our business.
Violations of these laws
and regulations could result in significant fines, criminal sanctions against us, our officers or our employees. Additionally, any such
violations could materially damage our reputation, brand, international expansion efforts, ability to attract and retain employees and
our business, prospects, operating results and financial condition.
Historically, we have dealt with significant amounts
of cash in our operations, which have subjected us to various reporting and anti-money laundering regulations. Any violation of anti-money
laundering laws or regulations by us could have a material adverse impact on our business.
As of December 31, 2023, our internal control
over financial reporting was ineffective, and if we continue to fail to improve such controls and procedures, investors could lose confidence
in our financial and other reports, the price of our common stock may decline, and we may be subject to increased risks and liabilities.
As a public company, we are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and the Sarbanes-Oxley Act of 2002. The
Exchange Act requires, among other things, that we file annual reports with respect to our business and financial condition. Section
404 of the Sarbanes-Oxley Act requires, among other things, that we include a report of our management on our internal control over financial
reporting. We are also required to include certifications of our management regarding the effectiveness of our disclosure controls and
procedures. We previously identified a material weakness in our internal control over financial reporting relating to our tax review
control for complex transactions. We are in the process of enhancing our tax review control related to unusual transactions that we may
encounter, but that control has not operated for a sufficient time to determine if the control was effective as of December 31, 2023.
If we cannot effectively maintain our controls and procedures, we could suffer material misstatements in our financial statements and
other information we report which would likely cause investors to lose confidence. This lack of confidence could lead to a decline in
the trading price of our common stock.
Compliance with the Sarbanes-Oxley Act
of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002
requires that we evaluate and report on our system of internal controls and may require us to have such system audited by an independent
registered public accounting firm. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny,
civil or criminal penalties and/or shareholder litigation. Any inability to provide reliable financial reports could harm our business.
Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate
controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting
obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of our securities.
The trading prices of our common stock
could be volatile, which could result in substantial losses to our shareholders and investors.
The trading prices of our common stock could
be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors,
like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other similarly
situated companies that have listed their securities in the U.S. in recent years. The securities of some of these companies have experienced
significant volatility including, in some cases, substantial price declines in the trading prices of their securities. In addition, securities
markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance,
such as the large decline in share prices in the United States and other jurisdictions.
In addition to market and industry factors, the
price and trading volume for our common stock may be highly volatile for factors specific to our own operations including the following:
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variations in our revenue, earnings and cash flow; |
| ● | announcements of new product
and service offerings, investments, acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; |
| ● | changes in the performance or
market valuation of our company or our competitors; |
| ● | changes in financial estimates
by securities analysts; |
| ● | changes in the number of our
users and customers; |
| ● | fluctuations in our operating
metrics; |
| ● | failures on our part to realize
monetization opportunities as expected; |
| ● | additions or departures of our
key management and personnel; |
| ● | detrimental negative publicity
about us, our competitors or our industry; |
| ● | market conditions or regulatory
developments affecting us or our industry; and |
| ● | potential litigations or regulatory
investigations. |
Any of these factors may result in large and
sudden changes in the trading volume and the price at which our common stock will trade. In the past, shareholders of a public company
often brought securities class action suits against the listed company following periods of instability in the market price of that company’s
securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and
other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses
to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise
capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which
could have a material adverse effect on our financial condition and results of operations.
If our common stock becomes subject to
the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions, and trading activity
in our securities may be adversely affected.
If at any time we have net tangible assets of
$5,000,001 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock may be subject
to the “penny stock” rules promulgated under the Exchange Act. Under these rules, broker-dealers who recommend such securities
to persons other than institutional accredited investors must:
| ● | make a special written suitability
determination for the purchaser; |
| ● | receive the purchaser’s
written agreement to the transaction prior to sale; |
| ● | provide the purchaser with risk
disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market
for these “penny stocks” as well as a purchaser’s legal remedies; and |
| ● | obtain a signed and dated acknowledgment
from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction
in a “penny stock” can be completed. |
If our common stock becomes subject to these
rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely
affected. As a result, the market price of our common stock may be depressed, and you may find it more difficult to sell our common stock.
An active trading market for our common
stock may not develop, and you may not be able to easily sell your common stock.
An active trading market for shares of our common
stock following our emergence from bankruptcy may never develop or be sustained. If an active trading market does not develop, you may
have difficulty selling your shares of common stock or at all. An inactive market may also impair our ability to raise capital by selling
our common stock, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability
to acquire other companies by using our common stock as consideration.
If we do not continue to satisfy the NYSE
American continued listing requirements, our common stock could be delisted.
The listing of our common stock on NYSE American
is contingent on our compliance with the NYSE American’s conditions for continued listing.
Should we fail to meet the NYSE American’s
continuing listing requirements, we may be subject to delisting by the NYSE America. In the event our common stock is no longer listed
for trading on the NYSE American, our trading volume and share price may decrease and we may experience difficulties in raising capital
which could materially affect our operations and financial results. Further, delisting from the NYSE American could also have other negative
effects, including potential loss of confidence by partners, lenders, suppliers and employees. Finally, delisting could make it harder
for us to raise capital and sell securities.
Sales of a significant number of our common
stock in the public market, or the perception that such sales could occur, could depress the market price of our common stock.
On October 7, 2022, we registered 2,397,305 shares
of the Company’s common stock for resale by selling stockholder. The sales of those shares of common stock in the public market
could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.
We cannot predict the effect that future sales of our common stock would have on the market price of our common stock.
If we acquire digital assets that are securities,
even unintentionally, we may violate the Investment Company Act of 1940 and incur potential third-party liabilities.
As of December 31, 2023, we held approximately
$0.6 million in USDT, $0.2 million in USDC, and $7.1 million in ETH. The Company intends to comply with the Investment Company Act of
1940 (the “1940 Act”) in all respects. To that end, if holdings of cryptocurrencies are determined to constitute investment
securities of a kind that subject the Company to registration and reporting under the 1940 Act, the Company will limit its holdings to
less than 40% of its assets. Section 3(a)(1)(C) of the 1940 Act defines “investment company” to mean any issuer that is engaged
or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire
investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of Government securities
and cash items) on an unconsolidated basis. Section 3(a)(2) of the 1940 Act defines “investment securities” to include all
securities except (A) Government securities, (B) securities issued by employees’ securities companies, and (C) securities issued
by majority-owned subsidiaries which (i) are not investment companies and (ii) are not relying on the exception from the definition of
investment company in section 3(c)(1) or 3(c)(7) of the 1940 Act. As noted above, the SEC has not stated whether stablecoins such as USDC
and USDT and other cryptocurrency such as ETH is an investment security, as defined in the 1940 Act.
As of May 5, 2024, management decided not
to hold ETH and converted all of its remaining 200 ETH into 635,864 USDT through Matrixport. As of May 6, 2024, we have completed the
process of converting all of our ETH into USDT, and we currently do not hold any ETH. In March 2024, we started the process of exchanging
all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21, 2024, we have completed the process of converting all
of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the gross proceeds that we received for the conversion of
our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively. We currently do not own any USDC, USDT or ETH, and
we do not anticipate that we will acquire, accept, hold, or use digital assets or cryptocurrencies in the future.
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion and analysis should
be read together with the Company’s audited consolidated financial statements and the related notes included in this report. This
discussion and analysis contains forward-looking statements. Please see the cautionary note regarding these statements at the beginning
of this report.
Historically, we have provided leasing and financing
services to regional airlines worldwide and have been principally engaged in leasing mid-life regional aircraft to customers worldwide
under operating leases and finance leases. In addition to leasing activities, we have also sold aircraft from our operating lease portfolio
to third parties, including other leasing companies, financial services companies, and airlines. Our operating performance was driven
by the composition of its aircraft portfolio, the terms of its leases, and the interest rate of its debt, as well as asset sales.
Since September 30, 2021, our former substantially controlled subsidiary, JetFleet Management Corp, a California corporation and formerly
known as JetFleet Holding Corporation (“JetFleet”) limited its services to providing aircraft advisory and management service.
On August 24, 2023, per the recommendation of JetFleet’s board of directors, we, as a holder of a majority of the voting stock of
JetFleet, elected to approve the winding up and dissolution of Jetfleet. As part of the winding up process, Jetfleet ceased providing
aircraft advisory and management services. On December 14, 2023, Jetfleet was formally dissolved.
Since
January 7, 2024, through Yuder, we operate FlexTV, a short drama streaming platform based in Singapore that produces English and
Thai dramas that are also translated into different languages for our users that are spread across various parts of the world such
as Europe, America, and Southeast Asia. In addition to creating original dramas, Yuder also acquires third party content licenses
which it then translates and distributes on its FlexTV platform. To deliver diverse and international content to our users,
Yuder’s produces film in various parts of the world, including, but not limited to, the United States, Mexico, Australia,
Thailand, and Philippines
Prior to FlexTV, we, through our wholly-owned
subsidiary, Savings Digital Pte. Ltd, a Singapore corporation (“SDP”), conducted solo-staking of our own cryptocurrency.
The management has made the strategic decision to terminate the solo-staking business and focus on short drama streaming platform development.
In March 2024, we started the process of exchanging all of our USDC and USDT into U.S. dollars through Matrixport, and as of June 21,
2024, we have completed the process of converting all of our USDC and USDT into U.S. dollars. From March 2024 through June 2024, the
gross proceeds that we received for the conversion of our USDC and USDT into U.S. dollars were $1,498,150 and $12,287,013, respectively.
As of May 6, 2024, we have completed the process of converting all of our ETH into USDT, and we currently do not hold any ETH. As of
June 21, 2024, we do not own any USDC, USDT or ETH, and we do not anticipate that we will acquire, accept, hold, or use digital assets
or cryptocurrencies in the future.
Corporate Developments
On October 20, 2021, the Company set up Mega Metaverse
Corp. (“Mega”), a wholly owned subsidiary incorporated in California. In December 2021, the Company launched the NFT business
in the metaverse ecosystem through Mega, and released the first NFT game “Mano” on March 25, 2022. Mano is a competitive idle
role-playing game (RPG) deploying the concept of NFTs based on blockchain technology, with a “Play-to-earn” business model
that the players can earn while they play in Mega’s metaverse universe “alSpace”.
For the year ended December 31, 2022, the Company
received $326,800 of BNB in revenue for the services. Due to business reasons, the Company decided to suspend the Mano game and the alSpace
platform, and on November 4, 2022, the Company discontinued the Mano game and the alSpace platform. As the game was newly launched and
not yet widely adopted by players, the discontinuance of the game did not materially impact on our business activities.
On August 31, 2022, the Company acquired all of
the equity interest in Saving Digital Pte. Ltd., a Singapore exempt private company limited by shares (“SDP”) with no operations
and approximately $3,800 in cash, from the chairman Yucheng Hu for a nominal consideration of $10,000. Through SDP, we have engaged in
Ethereum solo-staking utilizing the Marsland staking platform.
For the period from September 19, 2022 through
December 31, 2023, through SDP, the Company purchased 3,102.40 Ether (ETH) on Matrixport Cactus Custody, our principal market for ETH,
at an aggregated cost of approximately $5.41 million, for the purpose of exploring Ethereum staking opportunities following the transition
by Ethereum on September 15, 2022 from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism referred to as the “Merge.”
Prior to the Merge, Ethereum utilized a PoW validation method for digital asset transactions. Following the Merge, Ethereum shifted to
a PoS validation system where validators stake their ETH into a smart contract on Ethereum to serve as collateral that can be destroyed
if the validator behaves dishonestly or lazily. The validator (selected randomly) is then responsible for processing the blockchain transactions,
storing data and adding new blocks to the blockchain. Validators receive transaction fee on their staked coins in ETH as a reward for
their active participation in the network. To become a validator on Ethereum, a participant must stake 32 ETH. As of December 31, 2023,
SDP explored the Solo-Staking by staking 1600 ETH to become fifty (50) validators to Ethereum to earn ETH rewards and yield. Solo-Staking
enables SDP to utilize its ETH treasury to stake on the Ethereum beacon chain and to earn ETH-denominated rewards directly from the Ethereum
protocol. For the year ended December 31, 2023, the Company earned 19.5 ETH from solo-staking services and 1.9 ETH from provision of staking
technology tools.
The Company recognized revenues from solo-staking,
in the form of ETH, on a daily basis. The Company recognized the revenue by reference to the number of ETH we earned and the closing
price published by Matrixport Cactus Custody. The staked ETH cannot also be used and allocated. The Company’s staking expenses
are primarily service fees charged by Matrixport Cactus Custody (“cactus fees”). The Company recognized the expenses on a
daily basis, referring to the number of ETH charged by Matrixport Cactus and the closing price of the day. For the years ended December
31, 2023 and 2022, we recognized cactus fees of approximately $17,200 and $17,400, respectively.
On September 29, 2022, the Company entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors named in the Purchase Agreement
(collectively, the “Purchasers”), pursuant to which the Company agreed to sell an aggregate of 4,400,000 shares of the Company’s
common stock, $0.001 par value per share (the “Common Stock”) at a purchase price of $1.00 per share (the “Private Placement”).
The gross proceeds of the Private Placement were $4.4 million, before deducting offering expenses payable by the Company. The Purchase
Agreement contains customary representations, warranties and covenants of the parties, and the closing is subject to customary closing
conditions. The closing of the Private Placement occurred on October 18, 2022. As of September 30, 2022, the Company received advanced
subscription fees of $2.2 million from certain Purchasers, among which $2.2 million were in cash and $0.75 million were in USDC. The closing
of the Private Placement occurred on October 18, 2022.
On December 23, 2022, the Company entered into
another Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors named in the Purchase Agreement
(collectively, the “Purchasers”), pursuant to which the Company agreed to sell up to an aggregate of 5,280,000 shares of the
Company’s common stock, $0.001 par value per share (the “Common Stock”) at a purchase price of $1.30 per share, or $6.9
million (the “Private Placement”). On January 20, 2023, the Company completed an initial sale of 4,314,615 shares of Common
Stock pursuant to the Private Placement to certain Purchasers for an aggregate purchase price of $5.6 million, or $1.30 per share. On
February 15, 2023, the Company completed the final sale of 765,384 shares of Common Stock pursuant to the Private Placement to a Purchaser
for an aggregate purchase price of $1.0 million, or $1.30 per share, for combined total issuance of 5,079,999 shares of Common Stock for
gross proceeds of approximately $6.6 million to the Company under the Private Placement, before deducting estimated offering expenses
payable by the Company.
On March 1, 2023, SDP and Bit Digital Singapore
Pte. Ltd. (“Bit Digital”), entered into a shareholders’ agreement (the “Shareholders Agreement”) with Marsprotocol
Technologies Pte. Ltd. (“MTP”), to provide proof-of-stake technology tools for digital assets through the staking platform
“MarsProtocol”, an institutional grade non-custodial staking technology. Pursuant to the Shareholders Agreement, SDP owned
60% and Bit Digital owned 40% of MTP.
On
August 4, 2023, Bit Digital exited its investment in MTP and withdrew its capital contribution of SGD$120,000 from MTP. As a result of
the transaction, SDP owns all outstanding ordinary shares of MTP. As of July 2023, MTP ceased providing non-custodial staking tools to
third parties. MTP no longer provides non-custodial staking tools to third parties from July 2023.
On April 25, 2023, SDP, invested $300,000
in MarsLand Global Limited (“MarsLand”), a BVI company and held 30% interest in MarsLand. The other shareholders of MarsLand
are non-affiliated. MarsLand will provide staking services
to institutional clients, including us and Bit Digital. Further, SDP has successfully applied for and registered the trademark “MarsProtocol”
in Singapore and has entered into a license agreement with MarsLand authorizing MarsLand the right to use the MarsProtocol trademark
in connection with its staking as a service (“StaaS”) business. As of March 2024, SDP has stopped Ethereum solo-staking business
to focus on FlexTV.
On August 24, 2023, per the recommendation
of the board of directors of JetFleet Management Corp.(“JMC”), the Company, as a holder of a majority of the voting stock
of JMC, elected to approve the winding up and dissolution of JMC. In December 2023, JMC ceased providing aircraft advisory and management
services upon winding up and the Company deconsolidated JMC and its subsidiaries.
On January 7, 2024, the Company entered into and
closed a definitive Share Exchange Agreement (“Exchange Agreement”) with FunVerse Holding Limited (“FunVerse”),
a company incorporated under the laws of the British Virgin Islands and the sole parent company of Yuder, and the shareholders of FunVerse
(collectively, “Sellers”). Before the closing of the Exchange Agreement, the Sellers held 85,625,000 ordinary shares of FunVerse,
$0.0001 par value per share, which represents all of the issued and outstanding shares of FunVerse. Under the Exchange Agreement, Sellers
will exchange 51,375,000 of their FunVerse’s shares for 1,500,000 shares of common stock of the Company, par value $0.001 (“Common
Stock”), as per terms and conditions set forth in the Exchange Agreement (the “Share Exchange”), free and clear of all
liens (other than potential restrictions on resale under applicable securities laws), which the parties agreed is valued at $2,175,000,
or $1.45 per share of Common Stock. Following the Share Exchange, the Company owned sixty percent (60%) of capital stock of FunVerse.
On January 12, 2024, the Company entered into
a Unit Subscription Agreement (the “Agreement”) with certain investors (collectively the “Subscribers”), pursuant
to which the Subscribers agreed, subject to certain terms and conditions of the Agreement, to purchase an aggregate of 2,490,000 units
(the “Units”) for an aggregate purchase price of $3,735,000, or $1.50 per unit (the “Offering Purchase Price”).
Each Unit consists of one (1) share of common stock of the Company, $0.001 par value, and one (1) warrant (the “Warrant”),
with each Warrant entitling the holder to purchase one share of common stock at an exercise price of $1.50 per share at any time for a
period of up to five (5) years starting six (6) months from the issuance date at which time the Warrant will expire (“Offering”).
The Agreement contains customary representations, warranties and covenants of the parties, and the closing is subject to customary closing
conditions. The closing of the Offering occurred on January 17, 2024.
Ethereum Rewards
During the year ended December 31, 2023, we earned
an aggregate of 19.5 ETH as rewards from our solo-staking and 1.9 ETH in fees generated from our proof-of-stake technology tools for digital
assets through the staking platform “MarsProtocol”. The Company early adopted ASU 2023-08 on January 1, 2023, to measure digital
assets using fair value. The new guidance requires entities to subsequently measure certain cryptocurrency at fair value, with changes
in fair value recorded in net income in each reporting period. Retrospective restatement would not be required or allowed for prior periods.
The following table presents our ETH activities for the year ended December 31, 2023:
| |
Number of
ETH | | |
Amount (1) | |
| |
| | |
| |
Balance at December 31, 2022 | |
| 334.2 | | |
$ | 369,200 | |
Cumulative-effect adjustment of opening balance due to adoption of fair value measurement | |
| - | | |
| 30,600 | |
Addition of ETH staking reward and other services | |
| 21.4 | | |
| 41,000 | |
Purchases of ETH from exchange of USDC | |
| 1,567.6 | | |
| 2,894,400 | |
Purchases of ETH from exchange of USDT | |
| 1,234.1 | | |
| 2,119,500 | |
Return of ETH to a third party | |
| (32.0 | ) | |
| (48,500 | ) |
Payment of ETH for other services | |
| (2.8 | ) | |
| (4,800 | ) |
Changes in fair value of ETH | |
| - | | |
| 1,721,900 | |
Balance at December 31, 2023 | |
| 3,122.5 | | |
$ | 7,123,300 | |
(1) |
Receipt of digital assets from staking reward are the product of the number of ETH received multiplied by the ETH price obtained from Matrixport Cactus Custody, calculated on a daily basis. Sales of digital assets are the actual amount received from sales. |
The Company believes that the ETH and other digital
assets that the Company hold are not securities is a risk-based assessment and not a legal standard or binding on the SEC, courts or any
other regulators. If USDC, USDT, or ETH are deemed to be securities under the laws of any U.S. federal, state, or foreign jurisdiction,
or in a proceeding in a court of law or otherwise, it may have adverse consequences for such digital asset. See “Risk Factors
– Risks Related to our Business – A particular digital asset’s status, such as an ETH, as a “security” in
any relevant jurisdiction is subject to a high degree of uncertainty and if a regulator disagrees with our characterization of the ETH
and other stablecoins, the Company may be subject to regulatory scrutiny, investigation, fines and penalties, which may adversely affect
our business, operating results and financial condition. A determination that an ETH or stablecoin is a “security” may adversely
affect the value of those ETH, stablecoins and our business.”
For the year ended December 31, 2023 and 2022,
the Company purchased USDC of approximately $734,900 and $nil, respectively, in cash or USDT. For the same period, the Company also purchased
USDT of approximately $3,146,600 and $nil, respectively, in cash. The Company records unit price of US$1.0 for acquisition of each unit
of USDC or USDT. For the year ended December 31, 2023 and 2022, all of the Company’s digital assets are stored in hot custodian,
Matrix Trust Company Limited (“Matrixport”), a third party. The material terms of its custody agreement with Matrixport are
as follows:
(a) Matrixport will act
as the custodian for the Company’s digital assets and hold such digital assets in trust in accordance with the agreement. Matrixport
does not have the authority to exercise any investment or tax planning discretion regarding the Company’s digital assets, and will
not act as an advisor, broker or agent when executing our instructions.
(b) Matrixport is only
responsible for the safekeeping of the Company’s digital assets which are delivered into its possession and control by the Company.
(c) For any transfer of
the Company’s digital assets from its account, Matrixport will hold such proceeds for transfer until receipt of written disbursement
instructions from the Company.
(d) To the extent permitted
by applicable laws and regulations and Matrixport’s internal policies and procedures, Matrixport shall transfer our digital assets
in accordance with our instructions, provided that sufficient digital assets are available to effect the instructions and for paying
any outstanding amounts owing to Matrixport.
(e) The Company’s
custody account at Matrixport is not a deposit account and will not accrue interest. Further the Company’s custody account is not
insured by FDIC.
(f) The Company’s
executive officer has access to the Company’s custody account at Matrixport, however, only the Company’s chief executive
officer and chief financial officer, acting jointly, have the authority to release the Company’s digital assets from custody.
The Company currently does not have insurance
covering our loss of digital assets. As such, no insurance providers have inspection rights.
As of the date of this report, we did not
and have no plans to collateralize any of these digital assets for any loan, margin, rehypothecation, or other similar activities to
which we or our affiliates are a party. In addition, we have not issued any digital assets or held any digital assets on behalf of third
parties. We have not experienced any excessive redemption or withdrawals, or have suspended redemptions or withdrawals, of digital assets.
Segment and Related Information
Due to business reasons, the Company, on November
4, 2022, discontinued the Mano game and the alSpace platform. In December 2023, JMC, which operated the leasing of regional aircraft to
foreign and domestic regional airlines, closed its dissolution. Accordingly as of December 31, 2023, the Company had one business segment,
which was the ETH staking business. However, as of the date of this report, the Company has stopped ETH solo-staking and will focus
on operating FlexTV, a leading short drama streaming platform based in Singapore, and producer of English and Thai dramas that are also translated into different languages for our users that
are spread across various parts of the world such as Europe, America, and Southeast Asia. In addition to creating original dramas, Yuder
also acquires third party content licenses which it then translates and distributes on its FlexTV platform.
For the year ended December 31, 2023, the Company
had two business segments which were comprised of 1) the ETH staking business, and 2) the leasing of regional aircraft to foreign and
domestic regional airlines.
For the year ended December 31, 2022, the Company
had three business segments which were comprised of 1) the ETH staking business, 2) the GameFi business, and 3) the leasing of regional
aircraft to foreign and domestic regional airlines.
The following tables present summary information
of operations by segment for the years ended December 31, 2023 and 2022.
| |
For the Year Ended December 31, 2023 | |
| |
Staking | | |
Leasing | | |
| |
| |
Business | | |
Business | | |
Total | |
Revenue | |
$ | 47,800 | | |
$ | - | | |
$ | 47,800 | |
Gross loss | |
$ | (233,300 | ) | |
$ | - | | |
$ | (233,300 | ) |
Total operating expenses | |
$ | (1,972,100 | ) | |
$ | (1,289,800 | ) | |
$ | (3,261,900 | ) |
Loss before income tax provision | |
$ | (3,313,500 | ) | |
$ | (1,279,600 | ) | |
$ | (4,593,100 | ) |
Net loss | |
$ | (3,315,100 | ) | |
$ | (1,365,100 | ) | |
$ | (4,680,200 | ) |
| |
For the Year Ended December 31, 2022
(As Restated) | |
| |
Staking | | |
GameFi | | |
Leasing | | |
| |
| |
Business | | |
Business | | |
Business | | |
Total | |
Revenue | |
$ | 1,800 | | |
$ | 326,800 | | |
$ | 120,000 | | |
$ | 448,600 | |
Gross (loss) profit | |
$ | (219,700 | ) | |
$ | (234,300 | ) | |
$ | 120,000 | | |
$ | (334,000 | ) |
Total operating expenses | |
$ | (1,455,600 | ) | |
$ | (2,407,100 | ) | |
$ | (6,629,200 | ) | |
$ | (10,491,900 | ) |
Loss before income tax provision | |
$ | (1,675,300 | ) | |
$ | (2,641,400 | ) | |
$ | (5,030,400 | ) | |
$ | (9,347,100 | ) |
Net loss | |
$ | (1,675,700 | ) | |
$ | (2,642,600 | ) | |
$ | (4,979,900 | ) | |
$ | (9,298,200 | ) |
Results of Operations
The following table represents our consolidated statement of operations for the years ended December 31, 2023 and 2022.
| |
For the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Revenues | |
$ | 47,800 | | |
$ | 448,600 | |
Cost of revenues | |
| (281,100 | ) | |
| (782,600 | ) |
Gross loss | |
| (233,300 | ) | |
| (334,000 | ) |
| |
| | | |
| | |
Operating expenses (income): | |
| | | |
| | |
Professional fees, general and administrative and other | |
| 3,087,900 | | |
| 2,179,200 | |
Salaries and employee benefits | |
| 1,509,700 | | |
| 2,027,500 | |
Insurance | |
| 345,700 | | |
| 371,800 | |
Marketing expenses | |
| 28,000 | | |
| - | |
IT expenses | |
| 12,500 | | |
| 431,000 | |
Impairment of digital assets | |
| - | | |
| 78,900 | |
Changes in fair value of digital assets | |
| (1,721,900 | ) | |
| - | |
Interest | |
| - | | |
| 120,000 | |
Other taxes | |
| - | | |
| 6,000 | |
Impairment of intangible assets | |
| - | | |
| 888,900 | |
Impairment of goodwill | |
| - | | |
| 4,688,600 | |
Reversal of bad debt expense | |
| - | | |
| (300,000 | ) |
Total operating expenses | |
| 3,261,900 | | |
| 10,491,900 | |
| |
| | | |
| | |
Loss from operations | |
| (3,495,200 | ) | |
| (10,825,900 | ) |
| |
| | | |
| | |
Other income (expenses): | |
| | | |
| | |
Share of equity loss in an equity method investee | |
| (75,200 | ) | |
| - | |
Other income | |
| 10,400 | | |
| 1,478,800 | |
Loss from dissolution of subsidiaries | |
| (1,033,100 | ) | |
| - | |
Total other (expenses) income, net | |
| (1,097,900 | ) | |
| 1,478,800 | |
| |
| | | |
| | |
Loss from operations before income tax | |
| (4,593,100 | ) | |
| (9,347,100 | ) |
Income tax (expenses) benefits | |
| (87,100 | ) | |
| 48,900 | |
Net loss and comprehensive loss | |
$ | (4,680,200 | ) | |
$ | (9,298,200 | ) |
Revenues
For the year ended December 31, 2023, the Company
generated revenue of $37,800 from solo-staking and revenues of $10,000 from provision of staking technology tools. Both solo-staking services
and provision of staking technology tools were just launched in the fourth quarter of 2022. Effective July 1, 2023, we do not provide
non-custodial staking tools to third parties.
For
the year ended December 31, 2022, the Company generated revenues of $326,800 from GameFi business and revenues of $120,000 from operating
lease business. However, we discontinued our Mano game and the alSpace platform in November 2022 due to business reasons. As the game
was newly launched and not yet widely adopted by players, the discontinuance of the game did not impact on our business activities. The
Company did not generate revenues from operating lease business for the year ended December 31, 2023. Accordingly the board approved
dissolution of the subsidiaries which operated operating lease business in August 2023, and these subsidiaries closed dissolution in
December 2023.
Cost of Sales
Cost of revenues decreased by $501,500, or 64%,
from $782,600 for the year ended December 31, 2022 to $281,100 for the year ended December 31, 2023.
For the year ended December 31, 2023, the cost
of revenues primarily consisted of IT expenses which were incurred to support our solo staking business. While for the year ended December
31, 2022, the cost of revenue primarily consisted of expenses which were incurred to design and develop our Mano game and the alSpace
platform.
Gross Loss
Gross loss for the year ended December 31, 2023
decreased by $100,700 or 30%, to $233,300 compared to gross loss of $334,000 for the year ended December 31, 2022 as a result of changes
in our operating business from operating Mano game to staking services.
Total Operating Expenses
Total operating expenses for the year ended December
31, 2023 decreased by $7,230,000 or 69%, to $3,261,900 from $10,491,900 for the year ended December 31, 2022. The changes in expenses
were primarily caused by impairment of goodwill, impairment of intangible assets, changes in fair value of digital assets, salary and
employee benefits and professional fees and other general and administrative expenses.
Impairment of goodwill. For
the year ended December 31, 2022, the Company provided full impairment against goodwill arising from fresh accounting because of the underperformance
of the aircraft leasing business.
Impairment of intangible assets. For
the year ended December 31, 2022, we recognized full impairment of $888,900 against intangible assets as we have discontinued the Mano
game and the alSpace platform, and we abandoned the related software in November 2022.
Changes in fair value of digital assets.
Effective on January 1, 2023, the Company early adopted ASU 2023-08 to measure digital assets at fair value. The Company refers
to the daily closing price published by Matrixport Cactus Custody as fair value. For the year ended December 31, 2023, the Company recorded
an increase of fair value of $1,721,900 in digital assets.
Professional fees, general and administrative
and other expenses. The breakdown of Professional fees, general and administrative and other expenses was as the following
table:
| |
For the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Consulting expenses | |
$ | 1,547,400 | | |
$ | 560,400 | |
Legal expenses | |
| 351,800 | | |
| 777,800 | |
Audit fee | |
| 220,400 | | |
| 220,800 | |
Rent | |
| 94,000 | | |
| 147,600 | |
Travel expenses | |
| 205,800 | | |
| 188,600 | |
Others | |
| 668,500 | | |
| 284,000 | |
Professional fees, general and administrative and other | |
$ | 3,087,900 | | |
$ | 2,179,200 | |
Professional fees, general and administrative
and other expenses increased by $908,700, or 42% to $3,087,900 in the year ended December 31, 2023 from $2,179,200 in the year ended December
31, 2022. The increase was primarily caused by (i) an increase of consulting expenses of $987,000 to support the solo-staking service
which was launched in the fourth quarter of 2022, and (ii) a decrease in legal expenses because the Company incurred higher legal expenses
in the year of 2022 for launch and discontinue of Mano game and the alSpace platform.
Salaries and employee benefits. Salary
and employee benefits decreased by $517,800, or 26% to $1,509,700 in the year ended December 31, 2023 from $2,027,500 in the year ended
December 31, 2022. The decrease was primarily caused by resignation of management in aircraft operating lease business which did not generate
revenues in the year of 2023.
Other income
For the year ended December 31, 2022, we reported other income of $1,478,800
from reversal of accounts and other payable, which the Company expected it would not make payments. We reported minimal other income of
$10,400 for the same period ended December 31, 2023.
Loss
from dissolution of subsidiaries
On
August 24, 2023, per the recommendation of JMC’s board of directors, the Company, as
a holder of a majority of the voting stock of JMC, elected to approve the winding up and
dissolution of JMC. JMC ceased providing aircraft advisory and management services upon winding
up and the Company deconsolidated JMC and its subsidiaries in December 2023. On December
14, 2023, JMC was formally dissolved. The Company recorded a loss from dissolution of subsidiaries
of $1,033,100 from deconsolidation of the subsidiaries.
Income tax (expenses) benefits
The Company recorded income tax expenses of $87,100 in the year ended December 31, 2023, or negative 1.90% of pre-tax loss, compared to
income tax benefits of $48,900, or 0.52% of pre-tax loss in the year ended December 31, 2022. The difference in the effective federal
income tax rate from the normal statutory rate in the year ended December 31, 2023 was primarily because the decrease in foreign income
tax receivable, the uncertain tax benefit reserve release due to the expiration of Statute of Limitations, and the full valuation allowance
on its deferred tax assets.
In assessing the valuation of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income or availability to carry back the losses to taxable income
during periods in which those temporary differences become deductible. The Company considered several factors when analyzing the need
for a valuation allowance including the Company’s current three-year cumulative loss through December 31, 2023, the current year
operation forecast, the Company’s recent filing for protection under Chapter 11 of the bankruptcy code, the operation uncertainty
of the Company’s new business. Based on this analysis, the Company has concluded that a valuation allowance is necessary for its
U.S. and foreign deferred tax assets not supported by either future taxable income or availability of future reversals of existing taxable
temporary differences and has recorded a full valuation allowance on its deferred tax assets.
In addition, the Company has closely monitored
the development of Pillar Two – Global Minimum Tax- introduced by the Organization for Economic Co-operation and Development (“OECD”)
and the impact on the Company’s effective tax rate. As of December 31, 2023, the Company expects no impact from the Pillar Two as
the Company’s worldwide revenue is below the revenue threshold.
Net Loss
As a result of the foregoing, net loss for the
year ended December 31, 2023 decreased by $4,618,000 or 50%, to $4,680,200 from $9,298,200 for the year ended December 31, 2022.
Liquidity and Capital Resources
To date, we have financed our operating and investing
activities primarily through cash generated from operating activities and equity financing through private placements. As of December
31, 2023, the Company held cash of approximately $3.1 million, stable coins of approximately $0.3 million and digital assets of approximately
$7.7 million, which were easily convertible into cash over the market.
On October 18, 2022, the Company closed a private
placement by offering 4,400,000 shares of common stock, at per share price of $1.0. The Company received gross proceeds of $4.4 million
from the private placement.
On January 20, 2023 and February 15, 2023, the
Company closed private placements by offering 4,314,615 shares of common stock and 765,384 shares of common stock, respectively. The per
share price was $1.30. The received gross proceeds aggregating $6.6 million.
For the year ended December 31, 2023 and 2022,
the Company reported net losses of approximately $4.7 million and $9.3 million, respectively, and cash flows of approximately $3.0 million
and $5.9 million used in operating activities. In addition, the Company had accumulated deficits of approximately $17.5 million and $13.4
million as of December 31, 2023 and 2022, respectively. These conditions raised substantial doubt about the Company’s ability to
continue as a going concern.
The Company’s liquidity is based on its
ability to generate cash from operating activities and obtain financing from investors to fund its general operations and capital expansion
needs. The Company’s ability to continue as a going concern is dependent on management’s ability to successfully execute its
business plan, which includes increasing revenue while controlling operating cost and expenses to generate positive operating cash flows
and obtain financing from outside sources.
As of December 31, 2023, the Company had working
capital of approximately $8.6 million, which is expected to support our operating and investing activities for the next 12 months.
Given the financial condition of the Company and
its operating performance, the Company assesses current working capital is sufficient to meet its obligations for the next 12 months from
the issuance date of this report. Accordingly, management continues to prepare the Company’s consolidated financial statements on
going concern basis.
The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets
and liabilities at the date of the financial statements, (ii) the disclosure of contingent assets and liabilities, and (iii) the reported
amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Estimates and judgments are
used when accounting for the application of current value of the Company’s assets held for sale, the amount and timing of future
cash flows associated with each asset that are used to evaluate whether assets are impaired, accounting for income taxes, and the amounts
recorded as allowances for doubtful accounts.
Cash Flow
The following table sets forth a summary of our
cash flows for the years ended December 31, 2023 and 2022 presented:
| |
For the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Net cash used in operating activities | |
$ | (3,001,400 | ) | |
$ | (5,855,600 | ) |
Net cash used in investing activities | |
| (4,832,500 | ) | |
| (52,500 | ) |
Net cash provided by financing activities | |
| 3,700,100 | | |
| 5,791,000 | |
Net decrease in cash and cash equivalents | |
| (4,133,800 | ) | |
| (117,100 | ) |
Cash, cash equivalents, beginning of year | |
| 7,263,600 | | |
| 7,380,700 | |
Cash, cash equivalents, end of year | |
$ | 3,129,800 | | |
$ | 7,263,600 | |
Operating activities
Net
cash used in operating activities for the year ended December 31, 2023 was $3,001,400, primarily attributable to net loss of
$4,680,200, adjusted for (a) non-cash items including an increase in fair value of $1,721,900 in digital assets, loss of $1,033,100
from dissolution of subsidiaries and share-based compensation expenses to one non-employee of $237,700, and (b) changes in operating
assets and liabilities including (i) a decrease of tax receivable of $1,095,600 as the Company received tax refund from tax
authorities, and (ii) a decrease of prepaid expenses and other current assets because of amortization of directors’ and
officers’ insurance.
Net
cash used in operating activities for the year ended December 31, 2022 was $5,855,600, primarily attributable to net loss of $9,298,200,
adjusted for (a) non-cash items including impairment of digital assets of $4,688,600, impairment of intangible assets of $888,900, and
gain of $1,478,800 from reversal of accounts and other payables, and (b) changes in operating assets and liabilities including (i) a
decrease of stable coins of $821,000, and (ii) a decrease of accounts and accrued expenses of $1,391,100.
Investing activities
For the year ended December 31, 2023, the cash
flow used in investing activities was $4,832,500, which was primarily attributable to purchase of digital assets of $3,146,600, purchase
of stablecoins of $139,900, and investment in equity investees of $1,546,000.
For the year ended December 31, 2022, the cash
flow used in investing activities was $52,500, which was primarily attributable to purchase of digital assets of $46,300 and acquisition
of a subsidiary at cost of $10,000.
Financing activities
For the year ended December 31, 2023, the cash
flow provided by financing activities was $3,700,100, which was primarily attributable to proceeds of $1,420,000 collected from investors
for subscription for the private placement that closed in February 2023, and proceeds of $2,280,100 advanced from investors for subscription
for the private placement closed in January 2024.
For the year ended December 31, 2022, the cash
flow provided by financing activities was $5,791,000, which was primarily attributable to proceeds of $2,350,000 collected from investors
for subscription for the private placement that closed in October 2022, and proceeds of $3,441,000 advanced from investors for subscription
for the private placement closed in January and February 2023.
Critical Accounting Policies, Judgments
and Estimates
We prepare our consolidated financial statements
in accordance with U.S. GAAP, which requires our management to make estimates that affect the reported amounts of assets, liabilities
and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses
during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial
condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that
we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We
evaluate these estimates on an ongoing basis.
Our expectations regarding the future are based
on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters
that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process,
our actual results could differ from those estimates. When reading our consolidated financial statements, you should consider our selection
of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of
reported results to changes in conditions and assumptions. Out of our significant accounting policies, which are described in Note 2—Summary
of Significant Accounting Policies of our consolidated financial statements included elsewhere in this Form F-4, certain accounting policies
are deemed “critical”, as they require management’s highest degree of judgment, estimates and assumptions, including
(i) digital assets, (ii) revenue recognition, and (iii) income tax.
We consider an accounting estimate to be critical
if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate
was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that
we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
We believe the following accounting estimates
involve the most significant judgments used in the preparation of our financial statements.
Valuation allowance for deferred tax assets
We account for income taxes using the liability
method in accordance with ASC 740, Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be
in effect when the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred
tax assets are reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not
that a portion of or all of the deferred tax assets will not be realized.
The valuation allowance is considered on an individual
entity basis. As of December 31, 2023 and 2022, valuation allowances on deferred tax assets are provided because we believe that it is
more-likely-than-not that certain of the subsidiaries will not be able to generate sufficient taxable income in the near future, to realize
the deferred tax assets carried-forwards.
As of December 31, 2023 and 2022, the total valuation
allowance for deferred tax assets was approximately $12.2 million and $10.9 million, respectively.
PART IV
Item 15. Exhibits, Financial Statements
Schedules.
(a) The following documents are filed as part
of this annual report on Form 10-K:
(1) Financial Statements
The following financial statements of the Company,
and the Reports of Independent Registered Public Accounting Firms, are included at the end of this report beginning on page F-1:
(2) Financial Statement Schedules
All schedules have been omitted because the required
information is included in the financial statements or notes thereto or because they are not required.
(3) Exhibits
The exhibits required by Item 601 of Regulation
S-K are listed in subparagraph (b) below.
(b) Exhibits:
The following exhibits are filed as part of this report:
Exhibit No. |
|
Description |
2.1 |
|
Joint Chapter 11 Plan of Reorganization of AeroCentury Corp. and Its Debtor Affiliates. (Incorporated by reference to Exhibit A of the Order of the Bankruptcy Court, as incorporated herein by reference to Exhibit 2.1 to the registrant’s Report on Form 8-K filed with the SEC on August 31, 2021). |
2.2 |
|
Agreement and Plan of Merger by and between Mega Matrix Corp. and MarsProtocol Inc., dated December 7, 2022 (Incorporated by reference to Exhibit 2.1 to the registrant’s Report on Form 8-K filed with the SEC on December 7, 2022). |
2.3 |
|
Amended and Restated Agreement and Plan of Merger by and between Mega Matrix Corp. and MarsProtocol Inc., dated April 14, 2023 (Incorporated by reference to Exhibit 2.1 to the registrant’s Report on Form 8-K filed with the SEC on April 17, 2023). |
2.4 |
|
Second Amended and Restated Agreement and Plan of Merger by and between Mega Matrix Corp., Mega Matrix Inc. and MPU Merger Sub, Inc., dated December 26, 2023 (Incorporated by reference to Exhibit 2.1 to the registrant’s Report on Form 8-K filed with the SEC on December 27, 2023). |
3.1.1 |
|
Second Amended and Restated Certificate of Incorporation of AeroCentury Corp (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
3.1.2 |
|
Certificate of Amendment to the Certificate of Incorporation of AeroCentury Corp. (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Report on Form 8-K filed with the SEC on December 29, 2021). |
3.1.3 |
|
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of AeroCentury Corp. (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Report on Form 8-K filed with the SEC on March 25, 2022) |
3.2 |
|
Third Amended and Restated Bylaws of AeroCentury Corp (Incorporated herein by reference to Exhibit 3.2 to the registrant’s Report on Form 8-K filed with the SEC on March 25, 2022). |
3.3 |
|
Fourth Amended and Restated Bylaws of Mega Matrix Corp. (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Report on Form 8-K filed with the SEC on December 18, 2023). |
4(vi) |
|
Description of Securities (Incorporated by reference to Exhibit 4(vi) to the registrant’s Report on Form 10-K filed with the SEC on March 30, 2022). |
4.1 |
|
Form of Warrant Certificate (Incorporated herein by reference to Exhibit 4.1 to the registrant’s Report on Form 8-K filed with the SEC on January 18, 2024). |
10.1§ |
|
Plan Sponsor Agreement, dated as of August 16, 2021, by and among AeroCentury Corp., JetFleet Holding Corp., and JetFleet Management Corp. and Yucheng Hu, Hao Yang, Jing Li, Yeh Cheng, Yu Wang, TongTong Ma, Qiang Zhang, Yanhua Li, and Yiyi Huang. (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.2§ |
|
Securities Purchase Agreement, dated as of September 30, 2021, by and among AeroCentury Corp, the Plan Sponsor, and Yucheng Hu, in the capacity as the representative for the Plan Sponsor. (Incorporated herein by reference to Exhibit 10.2 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.3§ |
|
Series A Preferred Stock Purchase Agreement, dated as of September 30, 2021, by and between JetFleet Holding Corp. and AeroCentury Corp. (Incorporated herein by reference to Exhibit 10.3 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.4 |
|
Form of Independent Director Agreement (Incorporated herein by reference to Exhibit 10.4 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.5+ |
|
Form of Employment Agreement (Incorporated herein by reference to Exhibit 10.5 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.6+ |
|
Employment Agreement by and between AeroCentury Corp and Florence Ng, dated as of October 1, 2021 (Incorporated herein by reference to Exhibit 10.6 to the registrant’s Report on Form 8-K filed with the SEC on October 1, 2021). |
10.7† |
|
Alspace Metaverse Project Entrusted Development Agreement between Feng Yue Technology Limited and AeroCentury Corp., dated as of October 1, 2021 (Incorporated herein by reference to Exhibit 10.10 to the registrant’s Report on Form 10-K filed with the SEC on March 30, 2022). |
10.8+ |
|
Amendment to Employment Agreement by and between AeroCentury Corp. and Florence Ng, dated as of November 1, 2021 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on November 4, 2021). |
10.9+ |
|
Amendment to Employment Agreement by and between AeroCentury Corp and Yucheng Hu, dated as of December 16, 2021 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on December 17, 2021). |
10.10 |
|
2021 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on January 3, 2022). |
10.11+ |
|
Second Amendment to Employment Agreement by and between AeroCentury Corp. and Florence Ng, dated as of March 25, 2022 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on March 25, 2022). |
10.15+ |
|
Termination Agreement by and between Mega Matrix Corp. and Florence Ng, dated September 16, 2022 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on September 21, 2022). |
10.16 |
|
Consulting Agreement by and between Mega Matrix Corp. and Florence Ng, dated September 16, 2022 (Incorporated herein by reference to Exhibit 10.2 to the registrant’s Report on Form 8-K filed with the SEC on September 21, 2022). |
10.17 |
|
Consulting Agreement by and between Mega Matrix Corp. and FNC Advisory Limited, dated September 16, 2022 (Incorporated herein by reference to Exhibit 10.3 to the registrant’s Report on Form 8-K filed with the SEC on September 21, 2022). |
10.18 |
|
Form of Securities Purchase Agreement, dated September 29, 2022 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on September 30, 2022). |
10.19 |
|
Form of Securities Purchase Agreement, dated December 23, 2022 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on December 27, 2022). |
10.20 |
|
Shareholders Agreement dated March 1, 2023 (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Report on Form 8-K filed with the SEC on March 7, 2023). |
10.21 |
|
Termination Agreement between Bit Digital Singapore Pte Ltd., Saving Digital Pte Ltd., and Marsprotocol Technologies Pte Ltd. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 9, 2023). |
10.22 |
|
Share Exchange Agreement dated January 7, 2024 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 8, 2024). |
10.23 |
|
Shareholders Agreement dated January 7, 2024 (Incorporated by reference to Exhibit 10.2 to Form 8-K filed on January 8, 2024). |
10.24 |
|
Form of Unit Subscription Agreement (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 18, 2024). |
10.25+ |
|
Termination Agreement between the Company and Yunheng (Brad) Zhang, dated as of January 15, 2024 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 19, 2024). |
10.26+ |
|
Form of Restricted Stock Unit Award Agreement under the 2021 Amended and Restated Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to Form 8-K filed on January 19, 2024). |
21.1 |
|
Subsidiaries of Mega
Matrix Corp. (Incorporated by reference to Exhibit 21.1 to Form 10-K originally filed on March 18, 2024 with the SEC). |
23.1 |
|
Consent of Audit Alliance LLP, Independent Registered Public Accounting Firm |
31.1 |
|
Certification of Yucheng Hu, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
|
Certification of Qin (Carol) Wang, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* |
|
Certification of Yucheng Hu, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification of Qin (Carol) Wang, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
97 |
|
Clawback
Policy (Incorporated by reference to Exhibit 97 to Form 10-K originally filed on March 18, 2024 with the SEC). |
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | These certificates are furnished
to, but shall not be deemed to be filed with, the SEC. |
§ | Schedules and other similar
attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC. The signatory hereby undertakes to
furnish supplemental copies of any of the omitted schedules and attachments upon request by the SEC. |
+ | Management contract or compensatory
plan or arrangement. |
† | In accordance with Item 601
of Regulation S-K, certain portions of this exhibit will be omitted because they are not material and would likely cause competitive
harm to the registrant if disclosed. The registrant agrees to provide an unredacted copy of the exhibit on a supplemental basis to the
SEC or its staff upon request. |
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Mega Matrix Corp. |
|
|
Dated: August 19, 2024 |
By: |
/s/ Yucheng Hu |
|
|
Yucheng Hu |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
By: |
/s/ Qin (Carol) Wang |
|
|
Qin (Carol) Wang |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
INDEX
TO FINANCIAL STATEMENTS
AUDITED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2023 AND 2022
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Mega
Matrix Corp.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Mega Matrix Corp. and its subsidiaries (collectively, the “Company”)
as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’
equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United
States of America.
Restatements
of Previously Issued Financial Statements
As
discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of December
2022 and for the year ended December 31, 2022 to correct certain classifications.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matter
Critical
audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
Audit Alliance LLP
Audit
Alliance LLP (PCAOB ID 3487)
Singapore,
March 18, 2024
We
have served as the Company’s auditor since 2021.
MEGA
MATRIX CORP.
CONSOLIDATED
BALANCE SHEETS
(Rounded
to the Nearest Hundred US Dollar, except for share and per share data, unless otherwise stated)
| |
December 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
As Restated | |
ASSETS | |
| | |
| |
Current
Assets: | |
| | |
| |
Cash
and cash equivalents | |
$ | 3,129,800 | | |
$ | 7,263,600 | |
Stable
coins | |
| 254,400 | | |
| 2,972,000 | |
Digital
assets | |
| 7,696,700 | | |
| 459,300 | |
Taxes
receivable | |
| - | | |
| 1,095,600 | |
Prepaid
expenses and other assets | |
| 489,700 | | |
| 761,300 | |
Total
current assets | |
| 11,570,600 | | |
| 12,551,800 | |
| |
| | | |
| | |
Non-current
Assets: | |
| | | |
| | |
Long-term
investments | |
| 1,770,800 | | |
| - | |
Total
non-current assets | |
| 1,770,800 | | |
| - | |
| |
| | | |
| | |
Total
assets | |
$ | 13,341,400 | | |
$ | 12,551,800 | |
| |
| | | |
| | |
LIABILITIES
AND EQUITY | |
| | | |
| | |
Current
liabilities: | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 185,400 | | |
$ | 254,700 | |
Accrued
payroll | |
| - | | |
| 132,700 | |
Income
taxes payable | |
| 1,100 | | |
| 18,500 | |
Subscription
advanced from the shareholders | |
| 2,755,100 | | |
| 5,184,000 | |
Total
liabilities | |
| 2,941,600 | | |
| 5,589,900 | |
| |
| | | |
| | |
Commitments
and contingencies (Note 11) | |
| | | |
| | |
| |
| | | |
| | |
Equity: | |
| | | |
| | |
Preferred stock, $0.001 par value, 2,000,000 shares authorized, no shares issued and outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value, 40,000,000 and 40,000,000 shares authorized, 31,724,631 and 26,484,055 shares outstanding at December 31, 2023 and 2022, respectively | |
| 31,800 | | |
| 26,500 | |
Paid-in
capital | |
| 27,822,200 | | |
| 21,372,100 | |
Accumulated
deficit | |
| (17,454,200 | ) | |
| (13,420,400 | ) |
Total
Mega Matrix Corp. Stockholders’ Equity | |
| 10,399,800 | | |
| 7,978,200 | |
Non-controlling
interests | |
| - | | |
| (1,016,300 | ) |
Total
equity | |
| 10,399,800 | | |
| 6,961,900 | |
Total
liabilities and equity | |
$ | 13,341,400 | | |
$ | 12,551,800 | |
The
accompanying notes are an integral part of these consolidated financial statements.
MEGA
MATRIX CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Rounded
to the Nearest Hundred US Dollar, except for share and per share data, unless otherwise stated)
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
As Restated | |
Revenues: | |
| | |
| |
Revenue
from solo staking | |
$ | 37,800 | | |
$ | 1,800 | |
Revenue
from provision of staking technology tools | |
| 10,000 | | |
| - | |
Gamefi
revenue | |
| - | | |
| 326,800 | |
Operating
lease revenue | |
| - | | |
| 120,000 | |
| |
| 47,800 | | |
| 448,600 | |
Cost
of revenues | |
| (281,100 | ) | |
| (782,600 | ) |
Gross
loss | |
| (233,300 | ) | |
| (334,000 | ) |
| |
| | | |
| | |
Operating
expenses (income): | |
| | | |
| | |
Professional
fees, general and administrative and other | |
| 3,087,900 | | |
| 2,179,200 | |
Salaries
and employee benefits | |
| 1,509,700 | | |
| 2,027,500 | |
Insurance | |
| 345,700 | | |
| 371,800 | |
Marketing
expenses | |
| 28,000 | | |
| - | |
IT
expenses | |
| 12,500 | | |
| 431,000 | |
Impairment
of digital assets | |
| - | | |
| 78,900 | |
Changes
in fair value of digital assets | |
| (1,721,900 | ) | |
| - | |
Interest | |
| - | | |
| 120,000 | |
Other
taxes | |
| - | | |
| 6,000 | |
Impairment
of intangible assets | |
| - | | |
| 888,900 | |
Impairment
of goodwill | |
| - | | |
| 4,688,600 | |
Reversal
of bad debt expense | |
| - | | |
| (300,000 | ) |
Total
operating expenses | |
| 3,261,900 | | |
| 10,491,900 | |
| |
| | | |
| | |
Loss
from operations | |
| (3,495,200 | ) | |
| (10,825,900 | ) |
| |
| | | |
| | |
Other
income (expenses): | |
| | | |
| | |
Share
of equity loss in an equity method investee | |
| (75,200 | ) | |
| - | |
Other
income | |
| 10,400 | | |
| 1,478,800 | |
Loss
from dissolution of subsidiaries | |
| (1,033,100 | ) | |
| - | |
Total
other (expenses) income, net | |
| (1,097,900 | ) | |
| 1,478,800 | |
| |
| | | |
| | |
Loss
from operations before income tax | |
| (4,593,100 | ) | |
| (9,347,100 | ) |
| |
| | | |
| | |
Income
tax (expenses) benefits | |
| (87,100 | ) | |
| 48,900 | |
Net
loss and comprehensive loss | |
$ | (4,680,200 | ) | |
$ | (9,298,200 | ) |
Less:
Net loss and comprehensive loss attributable to non-controlling interests | |
| 615,800 | | |
| 832,200 | |
Net
loss and comprehensive loss attributable to Mega Matrix Corp.’s shareholders | |
$ | (4,064,400 | ) | |
$ | (8,466,000 | ) |
Loss
per share: | |
| | | |
| | |
Basic | |
$ | (0.13 | ) | |
$ | (0.37 | ) |
Diluted | |
$ | (0.13 | ) | |
$ | (0.37 | ) |
| |
| | | |
| | |
Weighted
average shares used in loss per share computations: | |
| | | |
| | |
Basic | |
| 31,323,124 | | |
| 22,988,165 | |
Diluted | |
| 31,323,124 | | |
| 22,988,165 | |
The
accompanying notes are an integral part of these consolidated financial statements.
MEGA
MATRIX CORP.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
| |
Mega
Matrix Corp. Stockholder’s Equity | | |
| | |
| |
| |
Common
Stock | | |
| | |
| | |
Non- | | |
| |
| |
Number
of Stocks | | |
Amount | | |
Paid-in
Capital | | |
Accumulated
Deficits | | |
Controlling
Interests | | |
Total | |
Balance,
December 31, 2021 | |
| 22,084,055 | | |
$ | 22,100 | | |
$ | 16,982,700 | | |
$ | (4,954,400 | ) | |
$ | (237,100 | ) | |
$ | 11,813,300 | |
Issuance
of common stocks pursuant to private placement | |
| 4,400,000 | | |
| 4,400 | | |
| 4,395,600 | | |
| - | | |
| - | | |
| 4,400,000 | |
Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 53,000 | | |
| 53,000 | |
Acquisition
of a subsidiary under common control | |
| - | | |
| - | | |
| (6,200 | ) | |
| - | | |
| - | | |
| (6,200 | ) |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (8,466,000 | ) | |
| (832,200 | ) | |
| (9,298,200 | ) |
Balance, December 31,
2022 | |
| 26,484,055 | | |
$ | 26,500 | | |
$ | 21,372,100 | | |
$ | (13,420,400 | ) | |
$ | (1,016,300 | ) | |
$ | 6,961,900 | |
Cumulative-effect
adjustment of opening balance due to adoption of fair value measurement of digital assets | |
| - | | |
| - | | |
| - | | |
| 30,600 | | |
| - | | |
| 30,600 | |
Issuance
of common stocks pursuant to private placement | |
| 5,079,999 | | |
| 5,100 | | |
| 6,598,900 | | |
| - | | |
| - | | |
| 6,604,000 | |
Issuance
of common stocks to a service provider | |
| 160,577 | | |
| 200 | | |
| 237,500 | | |
| - | | |
| - | | |
| 237,700 | |
Capital
injection from a non-controlling shareholder | |
| - | | |
| - | | |
| - | | |
| - | | |
| 88,900 | | |
| 88,900 | |
Withdrawal
of capital by a non-controlling shareholder | |
| - | | |
| - | | |
| - | | |
| - | | |
| (88,900 | ) | |
| (88,900 | ) |
Dissolution of subsidiaries | |
| - | | |
| - | | |
| (386,300 | ) | |
| - | | |
| 1,632,100 | | |
| 1,245,800 | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (4,064,400 | ) | |
| (615,800 | ) | |
| (4,680,200 | ) |
Balance,
December 31, 2023 | |
| 31,724,631 | | |
$ | 31,800 | | |
$ | 27,822,200 | | |
$ | (17,454,200 | ) | |
$ | - | | |
$ | 10,399,800 | |
The
accompanying notes are an integral part of these consolidated financial statements.
MEGA
MATRIX CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Rounded
to the Nearest Hundred US Dollar, unless otherwise stated)
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
As Restated | |
Operating
activities: | |
| | |
| |
Net
loss | |
$ | (4,680,200 | ) | |
$ | (9,298,200 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Share-based
compensation for employees | |
| - | | |
| 53,000 | |
Share-based
compensation for a non-employee | |
| 237,700 | | |
| - | |
Gain
of digital assets from revenues | |
| (47,800 | ) | |
| (328,600 | ) |
Gain
from exchange of digital assets | |
| 900 | | |
| - | |
Changes
in fair value of digital assets | |
| (1,721,900 | ) | |
| - | |
Share
of equity loss in an equity method investee | |
| 75,200 | | |
| - | |
Loss
from dissolution of subsidiaries | |
| 1,033,100 | | |
| - | |
Depreciation
and amortization | |
| - | | |
| 111,100 | |
Impairment
of intangible assets | |
| - | | |
| 888,900 | |
Impairment
of digital assets | |
| - | | |
| 78,900 | |
Impairment of
goodwill | |
| - | | |
| 4,688,600 | |
Gain
from reversal of accounts and other payables | |
| - | | |
| (1,478,800 | ) |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Stable coins | |
| - | | |
| 821,000 | |
Prepaid
expenses and other current assets | |
| 324,400 | | |
| (116,200 | ) |
Taxes
receivable | |
| 1,095,600 | | |
| 139,600 | |
Accounts
payable and accrued expenses | |
| 659,900 | | |
| (1,391,100 | ) |
Accrued
payroll | |
| (102,500 | ) | |
| (28,600 | ) |
Income
taxes payable | |
| 124,200 | | |
| 4,800 | |
Net
cash used in operating activities | |
| (3,001,400 | ) | |
| (5,855,600 | ) |
| |
| | | |
| | |
Investing
activities: | |
| | | |
| | |
Purchases
of digital assets | |
| (3,146,600 | ) | |
| (46,300 | ) |
Purchases
of stable coins | |
| (139,900 | ) | |
| - | |
Investment
in equity investees | |
| (1,546,000 | ) | |
| - | |
Proceeds
paid to acquire a subsidiary under common control | |
| - | | |
| (10,000 | ) |
Acquisition
of net assets of a subsidiary | |
| - | | |
| 3,800 | |
Net
cash used in investing activities | |
| (4,832,500 | ) | |
| (52,500 | ) |
| |
| | | |
| | |
Financing
activities: | |
| | | |
| | |
Subscription
fee advanced from investors | |
| 2,280,100 | | |
| 3,441,000 | |
Proceeds
from issuance of common stocks pursuant to private placements | |
| 1,420,000 | | |
| 2,350,000 | |
Capital
injection from a non-controlling shareholder | |
| 88,900 | | |
| - | |
Capital
withdrawal by a non-controlling shareholder | |
| (88,900 | ) | |
| - | |
Net
cash provided by financing activities | |
| 3,700,100 | | |
| 5,791,000 | |
Net
decrease in cash and cash equivalents | |
| (4,133,800 | ) | |
| (117,100 | ) |
Cash,
cash equivalents, beginning of year | |
| 7,263,600 | | |
| 7,380,700 | |
Cash,
cash equivalents, end of year | |
$ | 3,129,800 | | |
$ | 7,263,600 | |
| |
| | | |
| | |
Supplemental
Cash Flow Information | |
| | | |
| | |
Payment
of interest expenses | |
$ | - | | |
$ | 120,000 | |
Payment
of income tax expenses | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non-cash
Investing and Financing activities | |
| | | |
| | |
Subscription
fee advanced from investors in the form of USDC | |
$ | 475,000 | | |
$ | 1,743,000 | |
Proceeds
from private placements in the form of USDC | |
$ | - | | |
$ | 2,050,000 | |
Issuance
of common stocks to settle subscription fee advanced from investors | |
$ | 6,604,000 | | |
$ | - | |
The
accompanying notes are an integral part of these consolidated financial statements.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Mega
Matrix Corp. (the “Company”, formerly “AeroCentury Corp.” and “ACY”) is a Delaware corporation incorporated
in 1997. Through the Company’s emergence from bankruptcy on September 30, 2021, and new investors and management, the Company became
a holding company located in Palo Alto, California, with two subsidiaries: Mega Metaverse Corp., a California corporation (“Mega”)
and JetFleet Holdings Corp., a California corporation (“JHC”). On January 1, 2022, JetFleet Management Corp. (“JMC”),
a wholly-owned subsidiary of JHC, was merged with and into JHC, with JHC being the surviving entity. As part of the merger, JHC changed
its name to JetFleet Management Corp.
On
March 25, 2022, the Company changed its name from “AeroCentury Corp” to “Mega Matrix Corp.” (“Name Change”)
to better reflect its expansion into Metaverse and GameFi business. In connection with the Name Change, the Company changed its ticker
symbol from “ACY” to “MTMT” on the NYSE American, effective on March 28, 2022. All references to the “Company,”
or “AeroCentury” refers to AeroCentury Corp. together with its consolidated subsidiaries prior to March 25, 2022 and renamed
“Mega Matrix Corp.” commencing on March 25, 2022. Effective on February 6, 2023, the Company changed its ticker symbol from
“MTMT” to “MPU” on the NYSE American.
On
August 31, 2022, we acquired all of the equity interest in Saving Digital Pte, Ltd., a Singapore corporation (“SDP”) with
no operations and approximately $3,800 in cash, from our chairman Yucheng Hu for a nominal consideration of $10,000. On September 19,
2022, through SDP, we purchased 37 Ethereum (ETH) for the purpose of exploring Ethereum staking opportunities following the transition
by Ethereum on September 15, 2022 from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism referred to as the “Merge.”
Prior to the Merge, Ethereum utilized a PoW validation method for digital asset transactions. Following the Merge, Ethereum shifted to
a PoS validation system where validators stake their ETH into a smart contract on Ethereum to serve as collateral that can be destroyed
if the validator behaves dishonestly or lazily. The validator (selected randomly) is then responsible for processing the blockchain transactions,
storing data and adding new blocks to the blockchain. Validators receives a transaction fee on their staked coins in ETH as a reward
for their active participation in the network. To become a validator on Ethereum, a participant must stake 32 ETH. As of December 31,
2023, SDP staked 1,600 ETH to become fifty (50) validators to Ethereum to earn ETH rewards and yield. Solo-Staking enables SDP to utilize
its ETH treasury to stake on the Ethereum beacon chain and to earn ETH-denominated rewards directly from the Ethereum protocol.
On
March 1, 2023, SDP and Bit Digital Singapore Pte. Ltd. (“Bit Digital”), entered into a shareholders’ agreement (the
“Shareholders Agreement”) with Marsprotocol Technologies Pte. Ltd. (“MTP”), to provide proof-of-stake technology
tools for digital assets through the staking platform “MarsProtocol”, an institutional grade non-custodial staking technology.
Pursuant to the Shareholders Agreement, SDP will own 60% and Bit Digital will own 40% of MTP. Through the MarsProtocol platform, MTP
planned to provide non-custodial staking tools. On April 25, 2023, we, through our 100% controlled Singapore subsidiary SDP, invested
$300,000 in MarsLand Global Limited (“MarsLand”), a BVI company and held 30% interest in MarsLand. The other shareholders
of MarsLand are non-affiliated. MarsLand provides staking services to institutional clients, including us and Bit Digital. Further, Saving
Digital is applying for the trademark “MarsProtocol”. After the successful application, Saving Digital will authorize MarsLand
to use the trademark MarsProtocol to conduct MarsLand’s staking as a service (“StaaS”) business. MarsLand will provide
StaaS business of which we may utilize their services. SDP was conducting Ethereum solo-staking in Singapore, but as discussed, the Company
decided to focus entirely on its short drama streaming platform business, and as of March 5, 2024, it has ceased its solo-staking activities.
From
the end of April to the end of June 2023, which was a transition period, we terminated cooperation with an outsourced third-party IT
company to develop and maintain our MarsProtocol staking platform. There are no penalties or contingencies arising from the termination
of cooperation. As a result, effective July 1, 2023, we will not provide non-custodial staking tools to third parties. On August 4, 2023,
Bit Digital exited its investment in MTP and withdrew its capital contribution of SGD$120,000 from MTP. As a result of the transaction,
SDP owns all outstanding ordinary shares of MTP.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
On
April 14, 2023, we entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) with MarsProtocol
Inc., an exempted company incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company (“MPU
Cayman”), amending and restating the Agreement and Plan of Merger, dated December 7, 2022. The Merger Agreement provides that,
upon the terms and subject to the conditions set forth therein, the Company will merge with and into MPU Cayman (the “Redomicile
Merger”), with MPU Cayman being the surviving company in the Redomicile Merger. Upon the effectiveness of the Redomicile Merger,
(i) MPU Cayman will change its name from MarsProtocol Inc. to Mega Matrix Inc., and (ii) MPU Cayman, together with its subsidiaries,
will own and continue to conduct the Company’s business in substantially the same manner as is currently being conducted by the
Company and its subsidiaries. The consent of the holders of a majority of the outstanding shares of the Company’s common stock
entitled to vote is required to approve and adopt the Merger Agreement.
On
August 24, 2023, per the recommendation of JMC’s board of directors, the Company, as a holder of a majority of the voting stock
of JMC, elected to approve the winding up and dissolution of JMC. JMC ceased providing aircraft advisory and management services upon
winding up and the Company deconsolidated JMC and its subsidiaries in December 2023.
On
January 7, 2024, we entered into and closed a definitive Share Exchange Agreement with FunVerse Holding Limited, a British Virgin Islands
company (“FunVerse”), a company incorporated under the laws of the British Virgin Islands and the sole parent company of
Yuder Pte, Ltd. (“Yuder”), and the shareholders of FunVerse. Following the transaction, the Company now owns sixty percent
(60%) of capital stock of FunVerse. Through Yuder, FunVerse now operates FlexTV, a short drama streaming platform based in Singapore
that produces English and Thai dramas that are also translated into different languages for our users that are spread across various
parts of the world such as Europe, America, and Southeast Asia. In addition to creating original dramas, Yuder also acquires third party
content licenses which it then translates and distributes on its FlexTV platform. To deliver diverse and international content to our
users, Yuder produces film in various parts of the world, including, but not limited to, the United States, Mexico, Australia, Thailand,
and Philippines
Upon the deconsolidation of JMC and its subsidiaries,
the Company would focus on its short drama streaming platform business. We have ceased our staking activities and decided to dispose
all of our Ethereum holdings. The management believed the deconsolidation does not represent a strategic shift, in both operating and
financing aspects, because it is not changing the way it is running its business. The Company has not shifted the nature of its operations
or the major geographic market area. The management believed the deconsolidation of does not represent a strategic shift that has (or
will have) a major effect on the Company’s operations and financial results. The deconsolidation is not accounted as discontinued
operations in accordance with ASC 205-20.
2.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The
Company has noted the following errors in relation to its consolidated financial statements for the year ended December 31, 2022 that
had been filed on March 31, 2023. The errors related to the reclassification digital assets and stable coins, and reclassification of
other income and impairment of goodwill.
a. |
Reclassification
of digital assets and stable coins |
As
Tether reserves the right under its user agreement to redeem USDT by in-kind redemptions of other assets it holds in its reserves and
as Tether has held precious metals and other non-financial assets in its reserves, it does not appear that USDT meets the definition
of a financial instrument under ASC 825-10-20. The Company reclassified USDT, amounting $90,100 as of December 31, 2022, from stable
coins to digital assets. The reclassification had no impact on net assets as of December 31, 2022, and revenues and net loss for the
year ended December 31, 2022.
b. |
Reclassification
of other income |
For
the year ended December 31, 2022, the other income of $1,478,800, resulted from results from the reversal of accounts and other payables
which is not an income generated from the Company’s primary operations of the business. The Company reclassified the other income
under the line of “loss from operations” on the consolidated statements of operations and comprehensive loss. The reclassification
had no impact on total assets and net assets as of December 31, 2022.
c. |
Reclassification
of impairment of goodwill |
For
the year ended December 31, 2022, the Company provided impairment of goodwill of $4,688,600 arising from fresh start adjustment, which
should be presented above the line of “loss from operations”. The Company reclassified the impairment of goodwill from below
the line of “loss from operations” to above the line. The reclassification had no impact on total assets and net assets as
of December 31, 2022.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
2.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The
following tables present the effects of correcting this error on the Company’s financial statements as of December 31, 2022, and
for the year ended December 31, 2022:
| |
December
31, 2022 | |
Consolidated
balance sheet | |
As
previously reported | | |
Adjustments | | |
As
Restated | |
Stable coins | |
| 3,062,100 | | |
| (90,100 | ) | |
| 2,972,000 | |
Digital assets | |
| 369,200 | | |
| 90,100 | | |
| 459,300 | |
| |
For
the year ended December 31, 2022 | |
Consolidated
statements of operations | |
As
previously reported | | |
Adjustments | | |
As
Restated | |
| |
| | |
| | |
| |
Other income | |
| 1,478,800 | | |
| (1,478,800 | ) | |
| - | |
Gross (loss) profit | |
| 1,144,800 | | |
| (1,478,800 | ) | |
| (334,000 | ) |
Impairment of goodwill | |
| - | | |
| 4,688,600 | | |
| 4,688,600 | |
Total operating expenses | |
| 5,803,300 | | |
| 4,688,600 | | |
| 10,491,900 | |
Loss from operations | |
| (4,658,500 | ) | |
| (6,167,400 | ) | |
| (10,825,900 | ) |
Impairment of digital assets | |
| (4,688,600 | ) | |
| 4,688,600 | | |
| - | |
Other income | |
| - | | |
| 1,478,800 | | |
| 1,478,800 | |
| |
For
the year ended December 31, 2022 | |
Consolidated
statements of cash flows | |
As
previously reported | | |
Adjustments | | |
As
Restated | |
| |
| | |
| | |
| |
Changes in operating assets and liabilities: | |
| | |
| | |
| |
Stable coins | |
| 730,900 | | |
| 90,100 | | |
| 821,000 | |
Accounts payable and accrued expenses | |
| (1,301,000 | ) | |
| (90,100 | ) | |
| (1,391,100 | ) |
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Basis
of presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally
accepted in the United States of America (“US GAAP”).
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction
of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to generate cash flows
from operations, and the Company’s ability to arrange adequate financing arrangements to support its working capital requirements.
Non-controlling
interests
Non-controlling
interests represent the equity interests of MTP and JMC that are not attributable, either directly or indirectly, to the Company. In
the July 2023, the non-controlling equity holder exited its investment in MTP. In December 2023, JMC closed dissolution.
As
of December 31, 2023 and 2022, non-controlling equity holders held nil and 45.81% equity interest in JMC, respectively.
Going
concern
For the year ended December 31, 2023 and 2022, the Company reported net losses of approximately $4.7 million and $9.3 million, respectively, and cash flows of approximately $3.0 million and $5.9 million used in operating activities. In addition, the Company had accumulated deficits of approximately $17.5 million and $13.4 million as of December 31, 2023 and 2022, respectively. These conditions raised substantial doubt about the Company’s ability to continue as a going concern.
The
Company’s liquidity is based on its ability to generate cash from operating activities and obtain financing from investors to fund
its general operations and capital expansion needs. The Company’s ability to continue as a going concern is dependent on management’s
ability to successfully execute its business plan, which includes increasing revenue while controlling operating cost and expenses to
generate positive operating cash flows and obtain financing from outside sources.
As of December 31, 2023, the Company had working capital of approximately $8.6 million, among which the Company held cash of approximately $3.1 million, stable coins of approximately $0.3 million and digital assets of approximately $7.7 million, which were easily convertible into cash over the market.
Given
the financial condition of the Company and its operating performance, the Company assesses current working capital is sufficient to meet
its obligations for the next 12 months from the issuance date of this report. Accordingly, management continues to prepare the Company’s
consolidated financial statements on going concern basis.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Use
of Estimates
The
Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its
estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments that are
not readily apparent from other sources.
The
most significant estimates with regard to these consolidated financial statements are accounting for the application of the amount and
timing of future cash flows associated with each asset that are used to evaluate whether assets are impaired, accounting for income taxes,
and the amounts recorded as allowances for doubtful accounts.
Cash
and Cash Equivalents
The
Company considers highly liquid investments readily convertible into known amounts of cash, with original maturities of 90 days or less
from the date of acquisition, as cash equivalents.
Stable coins
The Company’s stable coins primarily
consist of USD Coin (“USDC”). USDC is issued by Circle Internet Financial Public Limited Company (“Circle”) that
is backed by dollar denominated assets held by the issuer in segregated accounts with U.S. regulated financial institutions. The
Company generally redeem one USDC for one U.S. dollar from Matrixport Cactus Custody, its principal market for ETH. Pursuant to definition
of financial assets in ASC Master Glossary, USDC is accounted for as a financial instrument because it conveys to the Company a right
to receive cash. Because one USDC is pegged to one U.S. dollar, the Company recognized and measured USDC at unit price of US$1.00.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Digital
assets
Digital
assets (including Ethereum (ETH) and Tether USD (USDT)) are included in current assets in the accompanying consolidated balance sheets.
Digital assets purchased are recorded at cost and digital assets awarded to the Company through its GameFi and Solo-Staking business
are accounted for in connection with the Company’s revenue recognition policy disclosed below.
On
December 13, 2023, the FASB issued ASU 2023-08, which addresses the accounting
and disclosure requirements for certain cryptocurrencies. The new guidance requires entities
to subsequently measure certain cryptocurrencies at fair value, with changes in fair value
recorded in net income in each reporting period. Retrospective restatement would not be required
or allowed for prior periods. The amendments are effective for all entities for fiscal years
beginning after December 15, 2024, including interim periods within those years. Early adoption
is permitted. The Company early adopted ASU 2023-08 on January 1, 2023.
ASC
820 defines “principal market” as the market with the greatest volume and level of activity for the asset or liability. The
determination of the principal market (and, as a result, the market participants in the principal market) is made from the perspective
of the reporting entity. The Company determines Matrixport Cactus Custody as its principal market, as it is one of the earliest and the
most trusted sources by users, institutions, and media for comparing thousands of digital assets.
The
Company measures the fair value of digital assets on a daily basis, and refers to the daily closing prices published by Matrixport Cactus
Custody as the fair value. Gains or losses on exchange of digital assets were computed at the difference of fair value of digital assets
on exchange dates and payable due to vendors. For the year ended December 31, 2023, the Company recorded an increase in fair value of
digital assets of $1,721,900. As of January 1, 2023, the Company recorded a cumulative-effect adjustment of $30,600 to accumulated deficits.
The Company tracks its cost basis of digital assets in accordance with the first-in-first-out (“FIFO”) method of accounting.
Refer to Note 5 – Digital Assets, for further information regarding the Company’s impact of the adoption
of ASU 2023-08.
Before
adoption of ASU 2023-08, digital assets were classified as an intangible asset. An intangible asset with an indefinite useful life is
not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that
it is more likely than not that the indefinite-lived asset is impaired. Digital assets are measured on a first-in-first-out (“FIFO”)
basis and measured for impairment whenever indicators of impairment are identified based on the intraday low quoted price of digital
assets. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the digital assets. Subsequent reversal
of impairment losses is not permitted. Digital assets are classified on our balance sheet as a current asset because the Company reasonably
assesses that it would sell or exchange digital assets within one year. Impairment of $78,900 of digital assets was recognized for the
year ended December 31, 2022.
Purchases
of digital assets by the Company, if any, will be included within investing activities in the accompanying consolidated statements of
cash flows, while digital assets awarded to the Company through its GameFi and Solo-staking business are non-cash operating activities
on the accompanying consolidated statements of cash flows. The sales of digital assets are included within investing activities in the
accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in “realized gain
(loss) on exchange of digital assets” in the consolidated statements of operations and comprehensive loss. The Company accounts
for its gains or losses in accordance with the first-in first-out method of accounting. As of December 31, 2023 and 2022, the Company
did not sell its digital assets for cash.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Long-term
investments
As
of December 31, 2023, long-term investments represent the Company’s investment in one equity method investee over which the Company
has significant influence, and investment in two privately held companies over which the Company neither has control nor significant
influence through investments in ordinary shares.
Investment
in equity method investee
In
accordance with ASC 323, Investments - Equity Method and Joint Ventures, the Company accounts for the investment in
privately held companies using equity method, because the Company has significant influence but does not own a majority equity interest
or otherwise control over the equity investees.
Under
the equity method, the Company initially records its investment at cost and prospectively recognizes its proportionate share of each
equity investee’s net income or loss into its consolidated statements of operations. When the Company’s share of losses in
the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the
Company has incurred obligations or made payments or guarantees on behalf of the equity investee.
The
Company continually reviews its investment in the equity investee to determine whether a decline in fair value below the carrying value
is other-than-temporary. The primary factors the Company considers in its determination include the financial condition, operating performance
and the prospects of the equity investee; other company specific information such as recent financing rounds; the geographic region,
market and industry in which the equity investee operates; and the length of time that the fair value of the investment is below its
carrying value. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written
down to fair value.
Investment
in privately held companies
Equity
investments not accounted for using the equity method are carried at fair value with unrealized gains and losses recorded in the consolidated
statements of operations, according to ASC 321, Investments - Equity Securities. The Company elected to record the equity
investments in privately held companies using the measurement alternative at cost, less impairment, with subsequent adjustments for observable
price changes resulting from orderly transactions for identical or similar investments of the same issuer.
Equity
investments in privately held companies accounted for using the measurement alternative are subject to periodic impairment reviews. The
Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair
value of these equity securities, including consideration of the impact of the COVID-19 pandemic. In computing realized gains and losses
on equity securities, the Company calculates cost based on amounts paid using the average cost method. Dividend income is recognized
when the right to receive the payment is established.
Intangible
assets
Purchased
intangible assets primarily consist of software, which are recognized and measured at fair value upon acquisition. Separately identifiable
intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method
based on their estimated useful lives.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-lived Assets
The
Company reviews assets for impairment when there has been an event or a change in circumstances indicating that the carrying amount of
a long-lived asset may not be recoverable. In addition, the Company routinely reviews all long-lived assets for impairment semi-annually.
Recoverability of an asset is measured by comparison of its carrying amount to the future estimated undiscounted cash flows (without
interest charges) that the asset is expected to generate. Estimates are based on currently available market data and independent appraisals
and are subject to fluctuation from time to time. If these estimated future cash flows are less than the carrying value of an asset at
the time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its
fair value. Fair value is determined by reference to independent appraisals and other factors considered relevant by management.
Significant management judgment is required in the forecasting of future operating results that are used in the preparation of estimated
future undiscounted cash flows and, if different conditions prevail in the future, material write-downs may occur.
The Company recorded impairment losses of approximately $0.9 million in 2022, as a result of the Company’s determination that the carrying value for intangible assets were not recoverable.
Revenue
Recognition
Revenue
from Solo-Staking business
The
Company generates revenue through staking rewards.
The
Company staked its own digital assets validating nodes on the Ethereum chain. Through the contracts with Ethereum chain, the Company
provides Ethereum (“ETH”) to stake on a node for the purpose of validating transactions and adding blocks to a respective
blockchain network. The Company’s enforceable right to compensation begins when, and lasts for as long as, the Company provides
staking services to the ETH chain; the Company’s performance obligation extends over the contract term given its continuous provision
of staking services. This period of time corresponds with the period of service for which the ETH chain determines compensation due to
us. Given cancellation terms of the contract, and the Company’s customary business practice, the contract effectively provides
the option to renew for successive contract terms daily.
The
Company is entitled to terminate its contract with ETH chain at any time at its own discretion. In exchange for staking the ETH and validating
transactions on blockchain networks, the Company is entitled to all of the fixed ETH award for running the Company’s own node,
for successfully validating or adding a block to the blockchain.
The
provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation
or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives
ETH awards is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the ETH award
received is determined using the quoted price of the related cryptocurrency at the time of receipt. The satisfaction of the performance
obligation for transaction verification services occurs at a point in time when confirmation is received from the network indicating
that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. As of March 5, 2024,
the Company has ceased its solo-staking activities.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition (continued)
Revenue
from provision of staking technology tools
The
Company charged its customers at a fixed fee rate on each unit of digital assets earned from staking business. The Company identified
one performance obligation from the staking services. Because the customers simultaneously receive and consumes the services provided
by the Company, the Company recognized the revenue over period using output method as measurement.
Commencing
in March 2023, the Company, through MTP, provides its customers with proof-of-stake technology tools for digital assets through the staking
platform “MarsProtocol”
Revenue
from GameFi business
In late March 2022, the Company released its
first NFT game “Mano” in the Mega’s metaverse universe platform “alSpace”. Mano is a competitive idle role-playing
game (RPG) deploying the concept of GameFi in the innovative application of NFTs (non-fungible token) based on blockchain technology,
with a “Play-to-earn” business model that the players can earn while they play in the alSpace.
The
Company earns transaction fees from players based on a fixed number of Binance Coin (BNB) of each transaction when they want to upgrade
or reset their NFT in Mano. When a player executes a game transaction through Binance Smart Chain (“BSC”), transaction fee
is recognized upon the completion of this game transaction. Only a single performance obligation is identified for each game transaction,
and the performance obligation is satisfied on the trade date because that is when the underlying game service is identified, the pricing
of transaction fee is agreed upon and the promised services are delivered to customers. All of the Company’s revenue from contracts
with customers are recognized at a point in time. The game service could not be cancelled once it’s executed and is not refundable,
so returns and allowances are not applicable. The Company recognizes revenues on a gross basis as the Company is determined to be the
primary obligor in fulfilling the trade order initiated by the player.
The
revenue is in the form of BNB, which is a cryptocurrency that is primarily used in payment
of transactions and trading fees through BSC. BNB is convertible to cash or other digital
assets. Due to business reasons, the Company decided to suspend the Mano game and the
alSpace platform, and on November 4, 2022, the Company discontinued the Mano game and the
alSpace platform.
Revenue
from leasing of aircraft assets
Revenue
from leasing of aircraft assets pursuant to operating leases is recognized on a straight-line basis over the terms of the applicable
lease agreements. Deferred payments are recorded as accrued rent when the cash rent received is lower than the straight-line revenue
recognized. Such receivables decrease over the term of the applicable leases. Interest income is recognized on finance leases based on
the interest rate implicit in the lease and the outstanding balance of the lease receivable. Maintenance reserves retained by the Company
at lease-end are recognized as maintenance reserves revenue.
In
instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are received. The Company estimates
and charges to income a provision for bad debts based on its experience with each specific customer, the amount and length of payment
arrearages, and its analysis of the lessee’s overall financial condition. If the financial condition of any of the Company’s
customers deteriorates, it could result in actual losses exceeding any estimated allowances.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Taxes
As
part of the process of preparing the Company’s consolidated financial statements, management estimates income taxes in each of
the jurisdictions in which the Company operates. This process involves estimating the Company’s current tax exposure under the
most recent tax laws and assessing both permanent and temporary differences resulting from differing treatment of items for tax and US
GAAP purposes. The temporary differences result in deferred tax assets and liabilities, which are included in the balance sheet. In assessing
the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
or availability to carry back the losses to taxable income during periods in which those temporary differences become deductible. The
Company considered several factors when analyzing the need for a valuation allowance including the Company’s three-year book cumulative
loss through December 31, 2023, the financial forecast, the Company’s recent filing for protection under Chapter 11 of the bankruptcy
code and the operation uncertainty of the Company’s new business. Based on this analysis, the Company has concluded that a valuation
allowance is necessary for its U.S. and foreign deferred tax assets not supported by either future taxable income or availability of
future reversals of existing taxable temporary differences and has recorded a full valuation allowance on its deferred tax assets.
Fair
value Measurement
The
Company applies ASC Topic 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring
fair value and expands financial statement disclosure requirements for fair value measurements.
ASC
Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price)
on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset
or liability.
ASC
Topic 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable
or unobservable. The hierarchy is as follows:
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value. Unobservable inputs are valuation technique
inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset
or liability.
Management of the Company considers the carrying
amount of cash and cash equivalents, stable coins, taxes receivables, other receivables, other payables and other taxes payable based
on the short-term maturity of these instruments to approximate their fair values because of their short-term nature.
Digital
assets are classified as level 1 financial assets because the fair value of digital assets is quoted priced in active markets.
Recent
accounting pronouncements
On
December 13, 2023, the FASB issued ASU 2023-08 “Accounting for and Disclosure of Crypto Assets”, which addresses
the accounting and disclosure requirements for certain cryptocurrencies. The new guidance requires entities to subsequently measure certain
cryptocurrencies at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are
required to provide additional disclosures about the holdings of certain cryptocurrencies. When adopting the final standard, entities
are required to record a cumulative-effect adjustment to retained earnings (or other appropriate components of equity or net assets)
as of the beginning of the annual period of adoption. Retrospective restatement would not be required or allowed for prior periods. For
all entities, the ASU’s amendments are effective for fiscal years beginning after December 15, 2024, including interim periods
within those years. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the
beginning of the fiscal year that includes that interim period. The Company early adopted ASU 2023-08 on January 1, 2023. As of
January 1, 2023, the Company recorded a cumulative-effect adjustment of $30,600 to accumulated deficits.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
4.
STABLE COINS
Stable
coins were comprised of the following:
| |
December 31,
2023 | | |
December
31,
2022 | |
| |
| | |
As Restated | |
USDC | |
$ | 254,400 | | |
$ | 2,972,000 | |
As of December 31, 2023 and 2022, the Company
held 254,400 and 2,972,000 USDC, respectively. The fair value of USDC were kept at $1.00 because one USDC is pegged to one U.S. dollar.
The
following table presents additional information about USDC for the years ended December 31, 2023 and 2022:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | | |
| As Restated | |
Opening
balance | |
$ | 2,972,000 | | |
$ | - | |
Collection
of USDC from subscription fee from investors | |
| 300,000 | | |
| 3,093,000 | |
Collection
of USDC from other services | |
| 6,800 | | |
| - | |
Purchases
of USDC | |
| 139,900 | | |
| - | |
Collection
of USDC from exchange of USDT | |
| 595,000 | | |
| - | |
Collection
of USDC from exchange of ETH and BNB | |
| - | | |
| 446,600 | |
Investment
in an equity-method investee in USDC | |
| (300,000 | ) | |
| - | |
Exchange
of USDC into ETH | |
| (2,894,400 | ) | |
| - | |
Payment
of service fees and other expenses | |
| (564,900 | ) | |
| (567,600 | ) |
Ending
balance | |
$ | 254,400 | | |
$ | 2,972,000 | |
5.
DIGITAL ASSETS
Digital
asset holdings were comprised of the following:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | | |
| As Restated | |
ETH | |
$ | 7,123,300 | | |
$ | 369,200 | |
USDT | |
| 573,400 | | |
| 90,100 | |
| |
$ | 7,696,700 | | |
$ | 459,300 | |
The
following table presents the Company’s ETH and USTD holdings as of December 31, 2023:
| |
Quantity | | |
Cost Basis | | |
Fair Value | |
ETH | |
| 3,122.48 | | |
$ | 5,978,300 | | |
$ | 7,123,300 | |
USDT | |
| 573,400 | | |
$ | 573,400 | | |
$ | 573,400 | |
As
of December 31, 2023, the Company held 3,122.48 ETH, with fair value price of $2,281.32 per unit. For the year ended December 31, 2023,
the Company recognized an increase in fair value of ETH of $1,721,900. As of December 31, 2022, the Company held 334.13 ETH, with fair
value price of $1,196.77 per unit. As of January 1, 2023, the Company recorded a cumulative-effect adjustment of $30,600 to accumulated
effective.
For
the year ended December 31, 2022, the Company recognized impairment loss of $70,600 on ETH.
As
of December 31, 2023 and 2022, the Company held 573,400 and 90,100 USDT, respectively. The fair value of USDT were kept at $1.00 because
one USDT is pegged to one U.S. dollar.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
5.
DIGITAL ASSETS (CONTINUED)
Additional
information about digital assets
The
following table presents additional information about ETH for the years ended December 31, 2023 and 2022:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Opening
balance | |
$ | 369,200 | | |
$ | - | |
Cumulative-effect
adjustment of opening balance due to adoption of fair value measurement | |
| 30,600 | | |
| | |
Addition
of ETH staking reward and other services | |
| 41,000 | | |
| 1,800 | |
Purchases
of ETH in cash | |
| - | | |
| 46,300 | |
Purchases
of ETH from exchange of USDC | |
| 2,894,400 | | |
| - | |
Purchases
of ETH from exchange of USDT | |
| 2,119,500 | | |
| 350,200 | |
Borrowings
of ETH from a third party | |
| - | | |
| 41,600 | |
Return
of ETH to a third party | |
| (48,500 | ) | |
| - | |
Payment
of ETH for other services | |
| (4,800 | ) | |
| (100 | ) |
Changes
in fair value of ETH | |
| 1,721,900 | | |
| - | |
Impairment
of ETH | |
| - | | |
| (70,600 | ) |
Ending
balance | |
$ | 7,123,300 | | |
$ | 369,200 | |
The
following table presents additional information about USDT for the years ended December 31, 2023 and 2022:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | | |
| As Restated | |
Opening
balance | |
$ | 90,100 | | |
$ | - | |
Purchase
of USDT in cash | |
| 3,146,600 | | |
| - | |
Collection
of USDC from subscription advance from investors | |
| 175,000 | | |
| 700,000 | |
Exchange
of USDT into ETH | |
| (2,119,500 | ) | |
| (350,200 | ) |
Exchange
of USDT into USDC | |
| (595,900 | ) | |
| (149,000 | ) |
Collection
of USDT from exchange of BNB | |
| - | | |
| 10,200 | |
Payment
of service fees | |
| (122,900 | ) | |
| (120,900 | ) |
Ending
balance | |
$ | 573,400 | | |
$ | 90,100 | |
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
6.
LONG-TERM INVESTMENTS
Long-term
investments were comprised of the following:
| |
December 31,
2023 | | |
December 31,
2022 | |
Investment
in MarsLand Global Limited (“MarsLand”) (a) | |
$ | 224,800 | | |
| - | |
Investment
in Quleduo Technology Co., (“Quleduo”) (b) | |
| 1,000,000 | | |
| - | |
Investment
in DaoMax Technology Co., Ltd, (“DaoMax”) (c) | |
| 546,000 | | |
| - | |
Total | |
$ | 1,770,800 | | |
| - | |
(a)
Investment in MarsLand
MarsLand
is a privately held company. In May 2023, the Company, through Saving Digital Pte. Ltd. (“Saving Digital”), its wholly owned
subsidiary, invested consideration of $300,000 in USDC, which represents 30% of equity interest in MarsLand. The Company used equity
method to measure the investment in MarsLand. For the year ended December 31, 2023, the Company recorded a share equity loss of $75,200
for its share of the results of MarsLand. As of December 31, 2023, the Company did not recognize impairment against the investment in
MarsLand.
(b)
Investment in Quleduo
Quleduo
is a privately held company which is engaged in software design and development. In May and September 2023, the Company made a total
cash consideration of $1,000,000 in two instalments to acquire 18.2% of equity interest in Quleduo. Quleduo is a privately held
company, over which the Company neither has control nor significant influence through investment in ordinary shares. The Company accounted
for the investment in Quleduo using the measurement alternative at cost, less impairment, with subsequent adjustments for observable
price changes resulting from orderly transactions for identical or similar investments of the same issuer.
Quleduo
just commenced its operations in July 2023, and incurred minimal losses for the year of 2023. For the year ended December 31, 2023, the
Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of December
31, 2023, the Company did not recognize impairment against the investment security.
(c)
Investment in DaoMax
In
June 2023, October 2023 and December 2023, the Company, through Saving Digital, invested an aggregated cash consideration of $546,000
in DaoMax in exchange for a total of 7.6% equity interest in the investee. DaoMax is a privately held company, over which the Company
neither has control nor significant influence through investment in ordinary shares. The Company accounted for the investment in DaoMax
using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly
transactions for identical or similar investments of the same issuer.
DaoMax
just commenced its operations in October 2023, and incurred minimal losses for the year of 2023. For the year ended December 31, 2023,
2023, the Company did not record upward adjustments or downward adjustments on the investment. The Company’s impairment analysis
considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. As of
December 31, 2023, the Company did not recognize impairment against the investment security.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
7.
OPERATING LEASES
As
of December 31, 2023 and 2022, the Company leases office spaces in the United States and
Singapore under non-cancelable operating leases, with terms ranging within 12 months. The
Company considers those renewal or termination options that are reasonably certain to be
exercised in the determination of the lease term and initial measurement of right of use
assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line
basis over the lease term.
The
Company determines whether a contract is or contain a lease at inception of the contract and whether that lease meets the classification
criteria of a finance or operating lease. For operating leases that include rent holidays and rent escalation clauses, the Company recognizes
lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. The Company records
the straight-line lease expense and any contingent rent, if applicable, in the account of “professional fees, general and administrative
and other expenses” on the consolidated statements of operations and comprehensive losses.
The
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The
Company applied practical expedient to account for short-term leases with a lease term within 12 months. The Company records operating
lease expense in its consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and record
variable lease payments as incurred. For the years ended December 31, 2023 and 2022, the Company recorded rent expenses of $94,000 and
$147,600, respectively.
8.
COMMON STOCK
As
of December 31, 2022, the Company authorized 40,000,000 shares of common stocks, and had 26,484,055 shares issued and outstanding.
On
December 23, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited
investors named in the Purchase Agreement (collectively, the “Purchasers”), pursuant to which the Company agreed to sell
up to an aggregate of 5,280,000 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”)
at a purchase price of $1.30 per share, or $6.9 million (the “Private Placement”).
On
January 20, 2023, the Company completed an initial sale of 4,314,615 shares of Common Stock pursuant to the Private Placement to certain
Purchasers for an aggregate purchase price of $5.6 million, or $1.30 per share.
On
February 15, 2023, the Company completed the final sale of 765,384 shares of Common Stock pursuant to the Private Placement to a Purchaser
for an aggregate purchase price of $1.0 million, or $1.30 per share, for combined total issuance of 5,079,999 shares of Common Stock
for gross proceeds of approximately $6.6 million to the Company under the Private Placement, before deducting estimated offering expenses
payable by the Company.
On
June 5, 2023, the Company issued 160,577 Common Stock to a third-party provider which provided network security services to the Company.
The service fee was agreed at $237,500.
As
of December 31, 2023, the Company authorized 40,000,000 shares of common stocks, and had 31,724,631 shares issued and outstanding.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
9.
INCOME TAXES
Income
tax provision (benefit) were comprised of the following:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Current income tax
provision (benefits) | |
| | |
| |
Federal | |
$ | - | | |
$ | - | |
State | |
| 4,000 | | |
| 4,800 | |
Foreign | |
| 83,100 | | |
| (53,700 | ) |
| |
| 87,100 | | |
| (48,900 | ) |
Deferred income tax
provision (benefits) | |
| | | |
| | |
Federal | |
| (1,155,800 | ) | |
| 1,692,300 | |
State | |
| 27,100 | | |
| (283,800 | ) |
Valuation allowance | |
| 1,128,700 | | |
| (1,408,400 | ) |
| |
| - | | |
| - | |
Income
tax provision (benefits) | |
$ | 87,100 | | |
$ | (48,900 | ) |
Total
income tax provision (benefit) differs from the amount that would be provided by applying the statutory federal income tax rate to pretax
earnings as illustrated below:
| |
For
the Years Ended December 31, | |
| |
2023 | | |
2022 | |
Income
tax benefits at statutory federal income tax rate | |
$ | (976,100 | ) | |
$ | (1,290,800 | ) |
State
tax expense, net of federal benefit | |
| 4,000 | | |
| 4,800 | |
Foreign
tax expenses (benefit) | |
| 54,700 | | |
| (38,900 | ) |
Impairment
of intangible assets | |
| - | | |
| 13,300 | |
Non-taxable
income | |
| (284,600 | ) | |
| (35,100 | ) |
Other
non-deductible expenses | |
| 2,900 | | |
| - | |
Global intangible
low tax income | |
| 173,700 | | |
| - | |
Valuation
allowance | |
| 1,112,500 | | |
| 1,297,800 | |
Income
tax provision (benefits) | |
$ | 87,100 | | |
$ | (48,900 | ) |
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
9.
INCOME TAXES (CONTINUED)
Temporary
differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2023
and 2022 were as follows:
| |
December 31,
2023 | | |
December
31, 2022 | |
Deferred
tax assets: | |
| | |
| |
Current
and prior year tax losses | |
$ | 7,125,100 | | |
| 6,169,300 | |
Deferred
interest expense | |
| 3,991,300 | | |
| 3,991,300 | |
Foreign
tax credit | |
| - | | |
| 705,600 | |
Basis
in deductible goodwill | |
| 853,300 | | |
| - | |
Deferred
maintenance, bad debt allowance and other | |
| 210,000 | | |
| - | |
Accrued
vacation and others | |
| - | | |
| 28,500 | |
| |
| 12,179,700 | | |
| 10,894,700 | |
Valuation
allowance | |
| (12,179,700 | ) | |
| (10,889,000 | ) |
Deferred
tax assets, net of valuation allowance | |
$ | - | | |
$ | 5,700 | |
Deferred
tax liabilities: | |
| | | |
| | |
Others | |
| - | | |
| (5,700 | ) |
Deferred
tax liabilities | |
| - | | |
| (5,700 | ) |
Deferred
tax assets, net of valuation allowance and deferred tax liabilities | |
$ | - | | |
$ | - | |
Reported
as:
| |
December 31,
2023 | | |
December
31, 2022 | |
Deferred
tax assets | |
$ | 12,179,700 | | |
| 10,894,700 | |
Deferred
tax liabilities | |
| - | | |
| (5,700 | ) |
Valuation
allowance | |
| (12,179,700 | ) | |
| (10,889,000 | ) |
Net
deferred tax assets | |
$ | - | | |
$ | - | |
Consolidated
deferred federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial
reporting purposes and federal income tax purposes and are measured at enacted tax rates. The Company’s deferred tax items are
measured at an effective tax rate (federal and state blended rate net of federal benefit) of 21.00% and 21.05% respectively as of December
31, 2023 and 2022.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
9.
INCOME TAXES (CONTINUED)
The current year federal operating loss carryovers of approximately $2.5 million will be available to offset 80% of annual taxable income in future years. Approximately $3.2 million of federal net operating loss carryovers may be carried forward through 2037 and the remaining $23.7 million federal net operating loss carryovers may be carried forward indefinitely. The current year California operating loss carryovers of approximately $0.4 million will be available to offset taxable income in future years through 2042. As discussed below, the Company does not expect to utilize the net operating loss carryovers remaining at December 31, 2023 in future years.
During the year ended December 31, 2023, the Company had pre-tax loss from domestic sources of approximately $5.6million and pre-tax loss from foreign sources of approximately $0.7 million. The Company had pre-tax loss from domestic sources of approximately $8.9 million and pre-tax loss from foreign sources of approximately $0.4 million for the year ended December 31, 2022. The year-over-year decrease in profit before taxes is mostly driven by the reduction in the Company’s restructuring costs and employee salaries.
As of December 31, 2023, the Company has a full valuation allowance of approximately $12.2 million against its net deferred tax assets not supported by either future taxable income or availability of future reversals of existing taxable temporary differences, for which realization cannot be considered more likely than not at this time. In assessing the need for a valuation allowance, the Company considered all positive and negative evidence, including taxable loss occurred in recent years, scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Recent negative operating result has caused the Company to be in a cumulative loss position as of December 31, 2023.
As
of December 31, 2022, the Company had a valuation allowance of approximately $10.9 million, which fully offsets its net deferred tax
assets.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. At December 31, 2023 and 2022, the Company had a balance of accrued tax, penalties and interest totaling $44,600 and $56,100 related to unrecognized tax benefits on its non-U.S. operations included in the Company’s accounts and taxes payable. The Company anticipates decreases of approximately $14,100 to the unrecognized tax benefits within twelve months of this reporting date. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| |
December
31, 2023 | | |
December
31, 2022 | |
Balance
at January 1 | |
$ | 56,100 | | |
| 66,200 | |
Additions
for prior years’ tax positions | |
| 2,700 | | |
| 2,700 | |
Reductions
from expiration of statute of limitations | |
| (14,200 | ) | |
| (12,800 | ) |
Balance
at December 31 | |
$ | 44,600 | | |
$ | 56,100 | |
The
Company accounts for interest related to uncertain tax positions as interest expense, and for income tax penalties as tax expense.
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
10.
OPERATING SEGMENTS
ASC
280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organizational structure as well as information about geographical areas, business segments and major
customers in financial statements for details on the Company’s business segments. The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s
reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different
services.
Due
to business reasons, the Company, on November 4, 2022, discontinued the Mano game and the alSpace platform. In December 2023, JMC, which
operated the leasing of regional aircraft to foreign and domestic regional airlines, closed its dissolution. Accordingly as of December
31, 2023, the Company had one business segment, which was the ETH staking business.
For
the year ended December 31, 2023, the Company had two business segments which were comprised of 1) the ETH staking business, and 2) the
leasing of regional aircraft to foreign and domestic regional airlines.
For
the year ended December 31, 2022, the Company had three business segments which were comprised of 1) the ETH staking business, 2) the
GameFi business, and 3) the leasing of regional aircraft to foreign and domestic regional airlines.
The
following tables present summary information of operations by segment for the years ended December 31, 2023 and 2022.
| |
For
the Year Ended December 31, 2023 | |
| |
Staking | | |
Leasing | | |
| |
| |
Business | | |
Business | | |
Total | |
Revenue | |
$ | 47,800 | | |
$ | - | | |
$ | 47,800 | |
Gross loss | |
$ | (233,300 | ) | |
$ | - | | |
$ | (233,300 | ) |
Total operating expenses | |
$ | (1,972,100 | ) | |
$ | (1,289,800 | ) | |
$ | (3,261,900 | ) |
Loss before income tax provision | |
$ | (3,313,500 | ) | |
$ | (1,279,600 | ) | |
$ | (4,593,100 | ) |
Net loss | |
$ | (3,315,100 | ) | |
$ | (1,365,100 | ) | |
$ | (4,680,200 | ) |
| |
For
the Year Ended December 31, 2022
(As Restated)
| |
| |
Staking | | |
GameFi | | |
Leasing | | |
| |
| |
Business | | |
Business | | |
Business | | |
Total | |
Revenue | |
$ | 1,800 | | |
$ | 326,800 | | |
$ | 120,000 | | |
$ | 448,600 | |
Gross (loss) profit | |
$ | (219,700 | ) | |
$ | (234,300 | ) | |
$ | 120,000 | | |
$ | (334,000 | ) |
Total operating expenses | |
$ | (1,455,600 | ) | |
$ | (2,407,100 | ) | |
$ | (6,629,200 | ) | |
$ | (10,491,900 | ) |
Loss before income tax provision | |
$ | (1,675,300 | ) | |
$ | (2,641,400 | ) | |
$ | (5,030,400 | ) | |
$ | (9,347,100 | ) |
Net loss | |
$ | (1,675,700 | ) | |
$ | (2,642,600 | ) | |
$ | (4,979,900 | ) | |
$ | (9,298,200 | ) |
MEGA
MATRIX CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Rounded
to the Nearest Hundred US Dollar, except for share data, unless otherwise stated)
10.
OPERATING SEGMENTS (CONTINUED)
The
following tables present total assets by segment as of December 31, 2023 and 2022:
| |
December 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
ETH
Staking Business | |
$ | 13,341,400 | | |
$ | 11,120,100 | |
Lease
Business | |
| - | | |
| 1,431,700 | |
| |
$ | 13,341,400 | | |
$ | 12,551,800 | |
11.
COMMITMENTS AND CONTINGENCIES
In
the ordinary course of the Company’s business, the Company may be subject to lawsuits, arbitrations and administrative proceedings
from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely,
should not have a material adverse effect on the Company’s business, financial condition, liquidity or results of operations.
12.
SUBSEQUENT EVENTS
On
January 12, 2024, the Company entered into a Unit Subscription Agreement (the “Agreement”) with certain investors (collectively
the “Subscribers”), pursuant to which the Subscribers agreed, subject to certain terms and conditions of the Agreement, to
purchase an aggregate of 2,490,000 units (the “Units”) for an aggregate purchase price of $3,735,000, or $1.50 per unit (the
“Offering Purchase Price”). Each Unit consists of one (1) share of common stock of the Company, $0.001 par value, and one
(1) warrant (the “Warrant”), with each Warrant entitling the holder to purchase one share of common stock at an exercise
price of $1.50 per share at any time for a period of up to five (5) years starting six (6) months from the issuance date at which time
the Warrant will expire (“Offering”). The Agreement contains customary representations, warranties and covenants of the parties,
and the closing is subject to customary closing conditions. The closing of the Offering occurred on January 17, 2024.
On
November 15, 2023, the Company entered into a non-binding letter of intent to acquire sixty percent (60%) of the voting capital stock
of Yuder Pte, Ltd. (“Yuder”), a company that operates FlexTV, a streaming platform specializing in short dramas, in exchange
for 1,500,000 shares of the Company’s common stock, par value $0.001.
On January 7, 2024,
the Company entered into and closed a definitive Share Exchange Agreement (“Exchange Agreement”) with FunVerse Holding Limited
(“FunVerse”), a company incorporated under the laws of the British Virgin Islands and the sole parent company of Yuder, and
the shareholders of FunVerse (collectively, “Sellers”). Before the closing of the Exchange Agreement, the Sellers held 85,625,000
ordinary shares of FunVerse, $0.0001 par value per share, which represents all of the issued and outstanding shares of FunVerse. Under
the exchange Agreement, Sellers will exchange 51,375,000 of their FunVerse’s shares for 1,500,000 shares of common stock of the
Company, par value $0.001 (“Common Stock”), as per terms and conditions set forth in the Exchange Agreement (the “Share
Exchange”), free and clear of all liens (other than potential restrictions on resale under applicable securities laws), which the
parties agreed is valued at $2,175,000, or $1.45 per share of Common Stock. Following the Share Exchange, the Company owned sixty percent
(60%) of capital stock of FunVerse.
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We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-1 (No. 333-262217) and S-8 (No. 333-277227) of our report dated March 18, 2024, relating to the consolidated financial
statements of Mega Matrix Corp. in this Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2023. Our report
includes an explanatory paragraph regarding restatements of previously issued financial statement.
We also consent to the reference to us under the caption “Experts”
in the Registration Statements.
In connection with the Annual Report of Mega Matrix
Corp. (the “Company”) on Form 10-K/A for the year ended December 31, 2023, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Yucheng Hu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
In connection with the Annual Report of Mega Matrix
Corp. (the “Company”) on Form 10-K/A for the year ended December 31, 2023, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Qin (Carol) Wang, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: