UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
[X] |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the fiscal year ended December 31, 2020
or
|
[ ] |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the transition period from _______________ to _______________
Force
Protection Video Equipment Corp.
(Exact
name of registrant as specified in its charter)
|
Florida |
|
000-55519 |
|
45-1443512 |
(State
or other jurisdiction of
incorporation or organization) |
|
(Commission
File
Number)
|
|
(IRS
Employer
Identification
No.)
|
2629
Townsgate Road, Suite 215
Westlake
Village, CA 91361
(Address
of principal executive offices)
(714)
312-6844
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Act:
|
Title
of Class |
|
Trading
Symbol |
|
Name
of Each Exchange on Which Registered |
|
N/A |
|
N/A |
|
N/A |
Securities
registered under Section 12(g) of the Act:
None
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act. [ ] Yes [X] 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 [X] 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. [X] 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). [X] Yes [ ]
No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
|
Large
accelerated filer [ ] |
|
Accelerated
filer [ ] |
|
Non-accelerated
filer [X] |
|
Smaller
reporting company [X] |
|
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.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). [ ] Yes [X]
No
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked
prices of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter.
$2,018,842 based on the closing price of $0.002 on October 31,
2020.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date.
158,244,935,162 shares of Class A common stock are outstanding as
of April 14, 2021.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement relating to its 2021
annual meeting of shareholders (the “2021 Proxy Statement”) are
incorporated by reference into Part III of this Annual Report on
Form 10-K where indicated. The 2021 Proxy Statement will be filed
with the U.S. Securities and Exchange Commission within 120 days
after the end of the fiscal year to which this report
relates.
TABLE
OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except
for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements involve risks and uncertainties,
including, among other things, statements regarding our business
strategy, future revenues and anticipated costs and expenses. Such
forward-looking statements include, among others, those statements
including the words “expects,” “anticipates,” “intends,” “believes”
and similar language. Our actual results may differ significantly
from those projected in the forward-looking statements. Factors
that might cause or contribute to such differences include, but are
not limited to, those discussed in the sections “Description of
Business,” “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” You should
carefully review the risks described in this Annual Report on Form
10-K and in other documents we file from time to time with the
Securities and Exchange Commission including and our Quarterly
Reports on Form 10-Q. You are cautioned not to place undue reliance
on the forward-looking statements, which speak only as of the date
of this report. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.
Although
we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there are a number
of risks and uncertainties that could cause actual results to
differ materially from such forward-looking statements.
All
references in this Annual to the “Company,” “we,” “us” or “our”
refer to Force Protection Video Equipment Corporation and our
wholly owned subsidiary BIG Token, Inc. on a consolidated basis.
All references to “Common Stock” or “Common Shares” refers to the
common stock, $0.00000001 par value (upon effectiveness of our
amendment to the articles of incorporation filed on April 15,
2021), of Forced Protection Video Equipment. All references to “BIG
Token”, “BIG Token Application” or “BIG Token business” refers to
our wholly owned subsidiary and corresponding operations that
consist of a consumer based platform, technologies offer and
services used to identify and reach target consumers which we
purchased from SRAX, Inc. (“SRAX”) on February 4, 2021.
As
used herein, references to (i) “Exchange Agreement” refer to that
certain share exchange agreement entered into by and between the
Company, SRAX, and Paul Feldman (the Company’s prior CEO) on
September 30, 2020, (ii) “Exchange Amendment” refer to the
amendment to the Exchange Agreement entered into by between the
Company, SRAX, and Paul Feldman on January 27, 2021, (iii) “TSA”
refer to the transition services agreement entered into by and
between SRAX and BIGtoken on January 27, 2021, (iv) “MSA” refer to
the master separation agreement entered into by BIGtoken and SRAX
on January 27, 2021, (v) “FPVD Warrants” refer to the common stock
purchase warrants the Company issued as a result of SRAX’s June 30,
2020 convertible debt offering whereby we assumed the obligation to
issue 25,568,064,462 Common Stock purchase warrants, and (vi) “Debt
Exchange Agreement” refer to the debt exchange agreement the
Company entered into with Red Diamond Partners, LLC pursuant to
which Red Diamond exchanged an aggregate of $815,520 of principal
plus accrued interest for (i) 7,000,000,000 shares of unrestricted
Common Stock and (ii) 8,313 shares of Series C Convertible
Preferred Stock, convertible into approximately 12,864,419,313
shares of common Stock.
Our
Business
Prior
to the completion of the Share Exchange, BIG Token was an operating
segment of SRAX. On February 4, 2021 we completed the Share
Exchange. As a result, BIG Token became our wholly owned subsidiary
and we adopted BIG Token’s business plan. We anticipate formally
changing our name to BIG Token in the future. In connection with
the Share Exchange, we also entered into certain agreements with
SRAX including but not limited to the TSA and MSA, as more fully
described below. The terms of these agreements may be more or less
favorable to us than if they had been negotiated with unaffiliated
third parties.
We
were initially incorporated as M Street Gallery, Inc. in March of
2011, in the state of Florida. On September 25, 2013, we changed
our name to Enhance-Your-Reputation.com, Inc. On February 1, 2015,
we changed our name to Force Protection Video Equipment
Corporation. Our headquarters are located in Westlake Village,
California, but we work as a virtually distributed organization. On
February 4, 2021 we completed a share exchange with BIG Token,
Inc., a wholly owned subsidiary of SRAX. As a result of the
exchange, BIG Token became our wholly owned subsidiary.
Additionally, simultaneous with the exchange, we adopted BIG
Token’s business plan.
Company
Overview
We
are a data technology company offering a consumer based mobile
application that allows consumers to own and earn from their
digital data. We generate revenue by anonymizing the data, and
using it to extract consumer insights that we sell to brand
advertisers. Our consumer- based platform and technologies offer
tools and services to identify and reach the target consumers of
our brand advertisers. Our technologies assist our clients to
identify their core consumers and such consumers’ characteristics
across various channels in order to discover new and measurable
opportunities that amplify the performance of marketing campaigns
and maximize a return on marketing spend.
When consumers download our app, we ask them some questions, engage
them with surveys, and ask them to connect their various online
accounts including their bank accounts, credit card accounts, and
social media accounts. Based on the amount of information they
provide directly by answering questions or taking surveys, or
passively, by connecting accounts, we’re able to track more than
4,000 attributes per consumer.
We derive our revenues from applying the data we collect, and
deriving insights and audiences that we use to increase the
efficiency of the online advertising of our clients. We then share
the revenue generated with our consumers based on their activity
and various other parameters.
To date, there have been more than 16 million accounts registered
on BIG Token. The vast majority of our registrations have been
driven by referrals from existing users who get rewards for driving
new users. Of the 16 million, we’ve “verified” over 9 million
through emails and bot detection techniques.
Our
Market Opportunity – Data Economy
The
global big data market is forecasted to grow to $103B by 2027, more
than double its market size in 2018. A consumer’s digital footprint
includes everything they search for, view, read, listen to,
purchase, like or comment on.
Data
spending keeps rising - The majority of survey respondents (69.2%)
said their organizations increased spending on data and related
services in 2018 (relative to 2017), while over three-fourths
(78.2%) anticipate investing even more in the coming
year.
Companies
are prioritizing data-driven insights in order to develop marketing
strategy and allocate marketing spend.
Government
Regulation On Data Privacy Is Driving Major Tech Companies To
Restrict Or Eliminate Traditional Data Collection
Techniques
Regulation
is changing the way businesses and tech can use data. In 2016, the
European Union (EU) passed the General Data Protection Regulation
(GDPR) to give individuals control over their personal data and to
unify regulations within the EU. Other seminal regulatory events
include the 2018 passage of the California Consumer Privacy Act
(CCPA) intended to enhance privacy rights and consumer protection
for Californians.
In response to the changing global regulatory environment around
data privacy, major tech companies are changing how they allow
their customers to collect user data. Notably, the major browsers,
including Google’s Chrome and Apple’s Safari, are eliminating, or
severely restricting, the use of 3rd party cookies. Those cookies
have been a principal way that brands have been able to identify
and market to consumers. In addition, in iOS 14, Apple is
changing the
Identifier For Advertiser
(IDFA) tags used by mobile apps to identify users from opt out, to
opt-in.
As a result of the intensifying regulatory landscape, and the tech
industry’s response, first-party
opt-in data, like that collected by BIGtoken, is becoming
increasingly valuable. As we scale our compliant first party data
set, BIGtoken will be strongly positioned to capitalize on the
rapidly evolving data marketplace. We are currently focused on
increasing registered users on the platform, increasing the
engagement of our users, monetizing our data driven insights, and
rewarding our users for sharing their data.
Given
the massive tailwinds in data privacy, and our focus on first-party
opt-in data, we believe BIGtoken is well positioned to accelerate
growth as we play an increasingly larger role in ensuring data
privacy is treated as a human right.
For
additional information about government regulation applicable to
our business, see Risk Factors in Part I, Item 1A.
Our
Competitive Advantages — What Sets Us Apart
With
the changing data privacy landscape, BIGtoken’s product offering
is well positioned to provide marketing solutions compliant
with these new and evolving regulations. BIGtoken’s product
offering provides marketers with data solutions that traditional
data providers cannot:
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Data
accuracy for research and ad targeting |
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Manage
reach and frequency with greater accuracy across multiple media
platforms |
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Access
to consumers at scale for research, measurement, and
attribution |
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● |
Speed
of execution for research and new targeting cohorts |
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● |
Ability
to target advertising to consumers based on identity without
cookies |
Consumers
are increasingly demanding data privacy, compensation for their
data, and transparency and choice of how their data is used. The
BIGtoken platform is focused on providing consumers with the tools
and preferences they need to achieve their unique data
requirements, including:
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● |
Compensation |
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Consumers
earn when they opt-in to sharing their data and when that data is
purchased. |
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Choice |
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Consumers
decide what data is shared & who can buy it. |
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Transparency |
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Consumers
are fully aware of how their data is used. |
Our
Growth Strategy
Our
business is currently based on using our mobile app to aggregate
users who opt-in to provide us their data via direct and passive
actions, anonymizing that data, and using that data to provide
unique consumer insights that enable marketers to advertise more
efficiently. We believe that as the information gathered through
the BIGtoken platform scales, we will be able to introduce new
products, and monetize our growing user base at increasingly higher
rates.
We
are currently focused on increasing registered users on the
platform, increasing the engagement of our users, monetizing our
data driven insights, and rewarding our users for sharing their
data. As part of this strategy, we continue to explore partnership
opportunities that would allow us to leverage the capabilities of
the BIGtoken platform to effectively grow the platform and increase
and enhance our user experience and user rewards /
compensation.
Examples
of how we plan to use BIGtoken and the proprietary consumer data
derived therefrom include:
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● |
The
use of BIGtoken user surveys and the sale of such information
received from surveys. |
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The
creation and management of targeted rewards and loyalty programs
based on information and buying trends ascertained by data captured
on our BIGtoken platform. We
offer this solution both on and off the BIGtoken
app. |
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● |
The
ability to assist our customers in conducting market research based
on analytics received from users of the BIGtoken
platform. |
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The
ability to identify specific audiences for our customers and to
target questions, surveys and data analytics geared toward our
customers’ products / industries. Additionally, if we are unable to
scale the needed information for a customer’s target audience, we
may utilize our proprietary analytics to gain insight to further
focus and refine user segments that need to be targeted in order to
optimize data and media spend. |
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The
use of Lightning Insights that allow our customers to conduct
research around specific audience groups through both long and
short research studies. |
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The
creation of customized loyalty programs that utilize rewards to
drive consumer purchasing habits. |
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We
plan to increasingly embrace crypto-currencies, including, but
limited to, offering to reward our users with Bitcoin and other
cryptocurrency, offering to pay our employees and vendors with such
currency. offering our users digital wallets to store their crypto,
enabling our users to store rewards in interest bearing
stablecoins, holding cryptocurrency in our Treasury, developing our
own Layer One Protocol optimized for users to own and monetize
data, developing our own cryptocurrency to be used as
rewards. |
Marketing
and sales
We
market our services through our in-house sales team, with a focus
today on the largest brand advertisers with the biggest advertising
budgets. Our customers include 8 of the 10 largest brand
advertisers, each poised to dramatically increase their spend with
BIGtoken in 2021. We believe that our focus on the largest brand
advertisers will not only drive meaningful revenue growth but will
help build the BIGtoken brand as the leader in privacy focused, opt
in, first-party data, positioning us well when we expand our focus
to mid-market agencies and brands.
On
the client side, our in-house marketing is focused on positioning
BIGtoken as a thought leader in data privacy, via social media,
including Facebook, LinkedIn and Twitter, public relations (PR),
industry events and the creation of white papers which assist in
our marketing efforts and are used as lead generation tools for our
sales team.
On
the consumer side, we are focused on marrying our privacy
leadership, with a reward system that provides meaningful value to
our users who provide us with meaningful data.
Intellectual
property
We
currently rely on a combination of trade secret laws and
restrictions on disclosure to protect our intellectual property
rights. Our success depends on the protection of the proprietary
aspects of our technology as well as our ability to operate without
infringing on the proprietary rights of others. We also enter into
proprietary information and confidentiality agreements with our
employees, consultants and commercial partners and control access
to, and distribution of, our software documentation and other
proprietary information. We have one Trademark,
“BIGtoken.”
Competition
We
operate in a highly competitive digital media and ad tech
environment. We compete based on our ability to: assist our
customers in obtaining the best available prices, data, and
analytics, our customer service and, the quality and accessibility
of our innovative products and service offerings. We believe our
platform provides for a competitive advantage. We expect an
increasing number of other companies to provide similar services,
leading to an increasingly competitive landscape.
Government
Regulations
We
are subject to a variety of laws and regulations in the United
States and abroad that involve matters central to our business.
Many of these laws and regulations are still evolving and being
tested in courts and could be interpreted in ways that could harm
our business. These may involve privacy, data protection and
personal information, rights of publicity, content, intellectual
property, advertising, marketing, distribution, data security, data
retention and deletion, electronic contracts and other
communications, competition, protection of minors, consumer
protection, product liability, taxation, economic or other trade
prohibitions or sanctions, anti-corruption law compliance,
securities law compliance, and online payment services. In
particular, we are subject to federal, state, and foreign laws
regarding privacy and protection of people’s data. Foreign data
protection, privacy, content, competition, and other laws and
regulations can impose different obligations or be more restrictive
than those in the United States. U.S. federal and state and foreign
laws and regulations, which in some cases can be enforced by
private parties in addition to government entities, are constantly
evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and
regulations are often uncertain, particularly in the new and
rapidly evolving industry in which we operate, and may be
interpreted and applied inconsistently from country to country and
inconsistently with our current policies and practices.
Proposed
or new legislation and regulations could also significantly affect
our business. For example, the European General Data Protection
Regulation (GDPR) took effect in May 2018 and applies to all of our
products and services used by people in Europe. The GDPR includes
operational requirements for companies that receive or process
personal data of residents of the European Union that are different
from those previously in place in the European Union and includes
significant penalties for non-compliance. The California Consumer
Privacy Act, which took effect in January 2020, also establishes
certain transparency rules and creates new data privacy rights for
users. Similarly, there are a number of legislative proposals in
the European Union, the United States, at both the federal and
state level, as well as other jurisdictions that could impose new
obligations or limitations in areas affecting our business, such as
liability for copyright infringement. In addition, some countries
are considering or have passed legislation implementing data
protection requirements or requiring local storage and processing
of data or similar requirements that could increase the cost and
complexity of delivering our services.
We
may become the subject of investigations, inquiries, data requests,
requests for information, actions, and audits by government
authorities and regulators in the United States, Europe, and around
the world, particularly in the areas of privacy, data protection,
law enforcement, consumer protection, and competition, as we
continue to grow and expand our operations. We are currently, and
may in the future be, subject to regulatory orders or consent
decrees, including the modified consent order we entered into in
July 2019 with the U.S. Federal Trade Commission (FTC) which is
pending federal court approval and which, among other matters, will
require us to implement a comprehensive expansion of our privacy
program. Orders issued by, or inquiries or enforcement actions
initiated by, government or regulatory authorities could cause us
to incur substantial costs, expose us to unanticipated civil and
criminal liability or penalties (including substantial monetary
remedies), interrupt or require us to change our business practices
in a manner materially adverse to our business, divert resources
and the attention of management from our business, or subject us to
other remedies that adversely affect our business.
We
anticipate embracing crypto and digital assets in the future. The
regulatory regime governing blockchain technologies,
cryptocurrencies, digital assets, utility tokens,
security tokens and offerings of digital assets is
uncertain, and new regulations or policies may materially adversely
affect our development and the value. Regulation of digital
assets, like cryptocurrencies, blockchain technologies and
cryptocurrency exchanges, is currently undeveloped and likely to
rapidly evolve as government agencies take greater interest in
them. Regulation also varies significantly among international,
federal, state and local jurisdictions and is subject to
significant uncertainty. Various legislative and executive bodies
in the United States and in other countries may in the future adopt
laws, regulations, or guidance, or take other actions, which may
severely impact the permissibility of tokens generally and the
technology behind them or the means of transaction or in
transferring them. Failure by us to comply with any laws, rules and
regulations, some of which may not exist yet or are subject to
interpretation and may be subject to change, could result in a
variety of adverse consequences, including civil penalties and
fines.
Employees
and Human Capital Resources
As of
March 26, 2021, we had 86 full-time employees. 7 are engaged in
executive management such as our Chief Executive Officer, 57 in
information technology including those participating in our
research and development efforts, 7 in sales and marketing, 8 in
integration and customer support and 7 in administration. All
employees are employed “at will.” We believe our relations with our
employees are generally positive and we have no collective
bargaining agreements with any labor unions.
Our
human capital resources objectives include, as applicable,
identifying, recruiting, retaining, incentivizing and integrating
our existing and new employees. The principal purposes of our
equity and cash incentive plans are to attract, retain and reward
personnel, whether existing employees or new hires, through the
granting of stock-based and cash-based compensation awards. We
believe that this increases value to our stockholders and the
success of our company by motivating such individuals to perform to
the best of their abilities and achieve our objectives.
As
the success of our business is fundamentally connected to the
well-being of our employees, we are committed to their health,
safety and wellness. We provide our employees and their families
with access to convenient health and wellness programs, including
benefits that provide protection and security giving them peace of
mind concerning events that may require time away from work or that
impact their financial well-being; and that offer choice where
possible so they can customize their benefits to meet their needs
and the needs of their families. In response to the COVID-19
pandemic, we implemented significant changes that we determined
were in the best interest of our employees, as well as the
community in which we operate, and which comply with government
regulations, including working in a remote environment where
appropriate or required.
Relationship
with SRAX
We
have operated as an operating segment of SRAX since April 1, 2020.
SRAX currently provides certain services to us, and costs
associated with these functions are billed to us. These services
relate to: executive management, information technology, legal,
finance and accounting, human resources, tax, treasury, research
and development, sales and marketing, shared facilities and other
services.
On
February 4, 2021, we completed the share exchange transaction
(“Share Exchange”) as described in the share exchange agreement
(“Exchange Agreement”). The Exchange Agreement and proposed Share
Exchange was disclosed in our Current Report on Form 8-K that was
filed with the Securities and Exchange Commission (the “Commission”
or “SEC”)) on October 5, 2020.
Pursuant
to the Share Exchange, we acquired all of the outstanding capital
stock of BIG Token. As a result, we became a majority owned
subsidiary of SRAX, BIG Token became our wholly owned subsidiary
and Force Protection Video Equipment Corporation adopted BIG
Token’s business plan. In connection with the Share Exchange, we
entered into the following agreements:
Transition
Services Agreement
On
January 27, 2021, we entered into the Transition Services Agreement
(“TSA”) with SRAX and BIG Token. Pursuant to the TSA, SRAX will
provide us with certain transitional related services for such
period of time as needed. Pursuant to the TSA, we pay SRAX, on a
monthly basis, for certain services required to run the BIG Token
business and platform, including but not limited to: (i) general
and administrative services, (ii) finance and accounting services,
(iii) technical operations, (iv) software services, (v) human
resources services, (vi) use of facilities, (vii) and other
services on an as needed basis if requested by the
Company.
Master
Separation Agreement
On
January 27, 2021, we entered into a Master Separation Agreement
(“MSA”) with SRAX. Pursuant to the MSA: (a) SRAX transferred all of
the BIG Token assets required to run the BIG Token business
including but not limited to (i) SRAXauto, SRAXcore, and
SRAXshopper advertising tools and software, (ii) the BIG Token
platform, (iii) associated BIG Token software and hardware; (iv)
contracts associated with BIG Token, (v) intellectual property
rights associated with BIG Token, (vi) bank accounts and certain
inventory of BIG Token, and (vii) other assets required in the BIG
Token business; and (b) certain liabilities and obligations related
to the BIG Token business including but not limited to (v)
liabilities related to the BIG Token business, (w) certain BIG
Token accounts payable, (x) liabilities resulting from BIG Token
contracts, (y) liabilities arising out of third-party claims
against the BIG Token business and its assets, and (z) other
liabilities that arise out of or result from the BIG Token business
prior or subsequent to the closing of the Share Exchange. SRAX and
the Company further agreed to take such steps necessary to
facilitate the transfers, including continued efforts on each party
if there is any delay in the assignment of any asset or
liability.
The
MSA also requires, for as long as SRAX is required to consolidate
our results of operations and financial position, that we agree to:
(i) prepare its annual and quarterly financial statements in
accordance with the general accepted accounting principles (GAAP),
(ii) undertake certain internal controls and procedures over
financial reporting, (iii) provide our preliminary financial
statements to SRAX for review, (iv) file all required quarterly and
annual reports with the Commission on a timely basis, (v) provide
SRAX with all annual budgets and periodic financial projections
related to our operations on a consolidated basis, (vi) cooperate
with SRAX on all public filings, press releases, and proxy
statements filed or disseminated by SRAX as needed, and (vii) to
use the same certified public accountant as SRAX.
Provided
that SRAX owns at least fifty percent (50%) of the total voting
power of our capital stock, without the prior consent of SRAX, we
(i) will not restrict the ability of SRAX to sell, transfer or
dispose of the Common Stock, (ii) will not breach certain
contraction obligation to which SRAX is a party to and pursuant to
which we receive a benefit pursuant to the TSA, and (iii) will not
make any acquisitions or dispositions of businesses or assets in
excess of $3,000,000 in the aggregate, or acquire shares, or
interest in any company or partnership or loans in excess of
$3,000,000 in the aggregate.
SRAX
as our Controlling Stockholder
SRAX
currently owns 149,562,566,584 shares of our Common Stock or
approximately 95% of the voting power of the Company. For as long
as SRAX continues to control more than 50% of our outstanding
common stock, SRAX or its successor-in-interest will be able to
direct the election of all the members of our board of directors.
Similarly, SRAX will have the power to determine matters submitted
to a vote of our stockholders without the consent of our other
stockholders, will have the power to prevent a change in control of
us and will have the power to take certain other actions that might
be favorable to SRAX. In addition, the master separation agreement
will provide that, as long as SRAX beneficially owns at least 50%
of the total voting power of our outstanding capital stock entitled
to vote in the election of our board of directors, we will not
(without SRAX’s prior written consent) take certain actions, such
as incurring additional indebtedness and acquiring businesses or
assets or disposing of assets in excess of certain amounts. To
preserve the tax-free treatment of the separation, the master
separation agreement will include certain covenants and
restrictions to ensure that, until immediately prior to the share
exchange, SRAX will retain beneficial ownership of at least 80% of
our carve-out voting power and 80% of each class of nonvoting
capital stock, if any is outstanding. In addition, to preserve the
tax-free treatment of the separation, we will agree in the tax
matters agreement to restrictions, including restrictions that
would be effective during the period following the distribution,
that could limit our ability to pursue certain strategic
transactions, equity issuances or repurchases or other transactions
that we may believe to be in the best interests of our stockholders
or that might increase the value of our business.
Investing
in our Common Stock involves substantial risk. You should carefully
consider the risks and uncertainties described below, together with
all of the other information in this Annual Report, including our
financial statements and the related notes included elsewhere in
this Annual Report, before deciding whether to invest in shares of
our common stock. We describe below what we believe are currently
the material risks and uncertainties we face, but they are not the
only risks and uncertainties we face. Additional risks and
uncertainties that we are unaware of, or that we currently believe
are not material, may also become important factors that adversely
affect our business. If any of the following risks actually occur,
our business, financial condition, results of operations and future
prospects could be materially and adversely affected. In that
event, the market price of our common stock could decline and you
could lose part or all of your investment.
Risks
Related to the COVID-19 Pandemic
The COVID-19 pandemic, or other epidemic and pandemic diseases or
governmental or other actions taken in response to them, could
significantly disrupt our business.
Outbreaks
of epidemic, pandemic or contagious diseases, such as the recent
SARS-CoV-2 virus, or coronavirus, which causes coronavirus disease
2019, or COVID-19, or, historically, the Ebola virus, Middle East
Respiratory Syndrome, Severe Acute Respiratory Syndrome or the H1N1
virus, could significantly disrupt our business. These outbreaks
pose the risk that we or our employees, contractors, and other
partners may be prevented from conducting business activities for
an indefinite period of time due to spread of the disease within
these groups, or due to restrictions that may be requested or
mandated by governmental authorities. Business disruptions could
include disruptions or restrictions on our ability to travel, as
well as temporary closures of all or part of our facilities and the
facilities of our partners. As the COVID-19 pandemic rapidly
evolves and spreads, both across the United States and through much
of the world, we continue to actively monitor the impact that
COVID-19 is having and may have on our business.
As a
result of the COVID-19 pandemic, many states and counties have
issued and may in the future issue orders for all residents to
remain at home, except as needed for essential activities, and have
placed restrictions on the scope and conduct of business
activities. As a result, we have implemented work from home
policies for a majority of our employees that may continue for an
indefinite period. We have taken steps to ensure the safety of our
patients and employees, while working to ensure the sustainability
of our business operations as this unprecedented situation
continues to evolve.
In
addition, a significant outbreak of epidemic, pandemic or
contagious diseases in the human population, such as the global
COVID-19 pandemic, could result in a widespread health crisis and
adversely affect the economies and financial markets of many
countries, resulting in an economic downturn that could affect
demand for our current or future products.
While
the potential economic impact brought by, and the duration of,
COVID-19 may be difficult to assess or predict, a continuing
widespread pandemic could result in significant disruption of
global financial markets, reducing our ability to access capital,
which could in the future negatively affect our liquidity. In
addition, a recession or market correction resulting from the
spread of COVID-19 could materially affect the value of our common
stock.
Risks
Related to Our Business
We have a history of operating losses and there are no assurances
we will report profitable operations in the foreseeable
future.
We
have losses from operations of $8,581,000 and $15,981,000 for the
years ended December 31, 2020 and 2019, respectively. Our future
success depends upon our ability to continue to grow our revenues,
contain our operating expenses and generate profits. We do not have
any long-term agreements with our customers. There are no
assurances that we will be able to increase our revenues and cash
flow to a level which supports profitable operations. We may
continue to incur losses in future periods until such time, if
ever, as we are successful in significantly increasing our revenues
and cash flow beyond what is necessary to fund our ongoing
operations and pay our obligations as they become due. If we are
not able to grow, increase revenue and begin generating consistent
profits, it is unlikely we will be able to generate sufficient cash
from operations to pay our operating expenses and service our debt
obligations, or report profitable operations in future
periods.
We may not be able to continue as a going concern if we do not
obtain additional financing.
We
have incurred losses since our inception and have not demonstrated
an ability to generate revenues from the sales of our proposed
products. Our ability to continue as a going concern is dependent
on raising capital from the sale of our common stock and/or
obtaining debt financing. Our cash, cash equivalents and short-term
investment balance as of December 31, 2020 was approximately
$1,000. On March 12, 2021 we closed on the private placement of our
Series B Preferred Stock. The offering resulted in gross proceeds
of 4,724,827, not including an additional $1,050,000 that we closed
on in October 2020. Based on our cash, cash equivalents and short
term investments, as well as the proceeds from our offering, as
well as our current expected level of operating expenditures, we
expect to be able to fund our operations through the third quarter
of 2021. Our ability to remain a going concern is wholly dependent
upon our ability to continue to obtain sufficient capital to fund
our operations. Accordingly, despite our ability to secure capital
in the past, there can be no assurance that additional equity or
debt financing will be available to us when needed or that we may
be able to secure funding from any other sources. In the event that
we are not able to secure funding, we may be forced to curtail
operations, delay or stop ongoing clinical trials, cease operations
altogether or file for bankruptcy.
We will need to raise additional capital to continue
operations.
We
have historically operated as a business unit of SRAX and
accordingly, SRAX has funded our operations. As of December 31,
2020, we had minimal cash or cash equivalents or short-term
investment. On March 12, 2021, we closed on a private placement of
our Series B Preferred Stock resulting in gross proceeds of
approximately $4.7 million. Based on our cash, cash equivalents and
short term investments, as well as the proceeds from our offering,
as well as our current expected level of operating expenditures, we
expect to be able to fund our operations through the third quarter
of 2021. We cannot assure you that we will be able to secure
additional capital through financing transactions, including
issuance of debt. Our inability to operate profitably, or secure
additional financing will materially impact our ability to fund our
current and planned operations.
We
have spent and expect to continue spending substantial cash in the
execution of our business plan and the development of the BIG Token
platform. We cannot assure you that financing will be available if
needed. If additional financing is not available, we may not be
able to fund our operations, develop or enhance our product
offerings, take advantage of business opportunities or respond to
competitive market pressures. If we exhaust our cash reserves and
are unable to secure additional financing, we may be unable to meet
our obligations which could result in us initiating bankruptcy
proceedings or delaying or eliminating some or all our research and
product development programs.
Our failure to maintain an effective system of internal control
over financial reporting may result in the need for us to restate
previously issued financial statements. As a result, current and
potential stockholders may lose confidence in our financial
reporting, which could harm our business and value of our
stock.
Or
management has determined that, as of December 31, 2020, we did not
maintain effective internal controls over financial reporting based
on criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control-Integrated Framework
as a result of identified material weaknesses in our internal
control over financial reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal control
over financial reporting such that there is a reasonable
possibility that a material misstatement of the company’s annual or
interim financial statements will not be prevented or detected on a
timely basis.
Our auditors have expressed substantial doubt about our ability to
continue as a going concern.
Our
auditors’ report on our December 31, 2020 consolidated financial
statements expresses an opinion that our capital resources as of
the date of their audit report were not sufficient to sustain
operations or complete our planned activities for the upcoming year
unless we raised additional funds. Our current cash level raises
substantial doubt about our ability to continue as a going concern
past the third quarter of 2021. If we do not obtain additional
capital by such time, we may no longer be able to continue as a
going concern and may cease operation or seek bankruptcy
protection.
If we are unable to successfully retain and integrate a new
management team, our business could be harmed.
We have historically operated as a business unit of SRAX. Our
success depends largely on the development and execution of our
business strategy by our senior management team. Effective February
16, 2021, Lou Kerner was appointed Chief Executive Officer. Our
success depends largely on the development and execution of our
business strategy by our senior management team. We currently have
a limited executive team which may adversely affect our business.
Additionally, the loss of any members or key personnel would likely
harm our ability to implement our business strategy and respond to
the rapidly changing market conditions in which we operate. There
may be a limited number of persons with the requisite skills to
serve in these positions, and we cannot assure you that we would be
able to identify or employ such qualified personnel on acceptable
terms, if at all. We cannot assure you that management will succeed
in working together as a team. In the event we are unsuccessful,
our business and prospects could be harmed.
We depend on the services of our executive officers and the loss of
any of their services could harm our ability to operate our
business in future periods.
Our
success largely depends on the efforts and abilities of our or
Chief Executive Officer, Lou Kerner. We are a party to an
employment agreement with Mr. Kerner. Although we do not expect to
lose his services in the foreseeable future, the loss of any of
them could materially harm our business and operations in future
periods until such time as we were able to engage a suitable
replacement.
We have no operating history as a standalone entity or management
team as presently configured which results in a high degree of
uncertainty regarding our ability to effectively operate our
business.
Our
limited staff, operating history as well as our recently appointed
management team means that there is a high degree of uncertainty
regarding our ability to:
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develop
and commercialize our technologies and proposed
products; |
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identify,
hire and retain the needed personnel to implement our business
plan; |
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manage
growth; or |
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respond
to competition. |
No
assurances can be given as to exactly when, if at all, we will be
able to develop our business or take the necessary steps to derive
net income.
The employment contract of Lou Kerner contains anti-termination
provisions which could make changes in management difficult or
expensive.
We
have entered into an employment agreement with Lou Kerner, our
Chief Executive Officer. This agreement may require the payment of
severance in the event he ceases to be employed. The provision
makes the replacement of Mr. Kerner costly and could cause
difficulty in effecting any required changes in management or a
change in control.
We may be required to expend significant capital to redeem BIGtoken
Points which will negatively impact our ability to fund our core
operations.
Users
of BIGtoken receive points for undertaking certain actions on the
platform that may be redeemed directly for cash from us, with such
value as determined by management. Accordingly, we are currently
obligated to redeem users’ points which are earned on BIGtoken. We
are currently redeeming each point for up to $0.01, subject to the
user meeting certain conditions. As of December 31, 2020, we
recorded a contingent liability for future point redemptions equal
to approximately $445,000 and we have redeemed an aggregate amount
of approximately $1,250,000. As of December 31, 2020, we had
approximately 16 million application downloads. If our users
continue to increase, we will be required to have enough cash
reserves to redeem points held by our qualified users for cash.
There can be no assurance that we will have enough cash reserves,
or if we do have sufficient cash, if we will be able to continue to
fund our other business obligations and operational
expenses.
If our efforts to attract and retain BIGtoken users are not
successful, our number of users and the amount of data collected
could fail to reach critical mass, grow or decline and our
potential for BIGtoken to earn revenues may be materially
affected.
We
will be dependent on advertisers to pay us for access to user data.
We must attract users to grow the amount of accessible data and
make it attractive to these third parties. If the public does not
perceive our mission or our services to be reliable, valuable or of
high quality, we may not be able to attract or retain users and
create a critical mass of data which will impact our ability to
earn revenues which could have a materially adversely affected
us.
The regulatory regime governing blockchain technologies,
cryptocurrencies, digital assets, utility tokens, security tokens
and offerings of digital assets is evolving and uncertain, and new
regulations or policies may materially adversely affect our
development.
We
anticipate embracing digital assets and cryptocurrencies in the
future. Regulation of digital assets like, cryptocurrencies,
blockchain technologies and cryptocurrency exchanges, is currently
undeveloped and likely to rapidly evolve as government agencies
take greater interest in them. Regulation also varies significantly
among international, federal, state and local jurisdictions and is
subject to significant uncertainty. Various legislative and
executive bodies in the United States and in other countries may in
the future adopt laws, regulations, or guidance, or take other
actions, which may severely impact the permissibility of tokens
generally and the technology behind them or the means of
transaction or in transferring them. The regulatory regime
governing blockchain technologies, cryptocurrencies, digital
assets, utility tokens, security tokens and offerings of digital
assets is uncertain, and new regulations or policies may materially
adversely affect the development and the value of the Company if we
materially embrace digital assets and cryptocurrencies in the
future.
Natural disasters, epidemic or pandemic disease outbreaks, trade
wars, political unrest or other events could disrupt our business
or operations or those of our development partners, manufacturers,
regulators or other third parties with whom we conduct business now
or in the future.
A
wide variety of events beyond our control, including natural
disasters, epidemic or pandemic disease outbreaks (such as the
recent novel coronavirus outbreak), trade wars, political unrest or
other events could disrupt our business or operations or those of
our manufacturers, regulatory authorities, or other third parties
with whom we conduct business. These events may cause businesses
and government agencies to be shut down, supply chains to be
interrupted, slowed, or rendered inoperable, and individuals to
become ill, quarantined, or otherwise unable to work and/or travel
due to health reasons or governmental restrictions. For example,
California recently ordered most businesses closed, mandating
work-from-home arrangements, where feasible, in response to the
coronavirus pandemic. These limitations could negatively affect our
business operations and continuity and could negatively impact our
ability to timely perform basic business functions, including
making SEC filings and preparing financial reports. If our
operations or those of third parties with whom we have business are
impaired or curtailed as a result of these events, the development
and commercialization of our products and product candidates could
be impaired or halted, which could have a material adverse impact
on our business.
Challenges in acquiring user data could adversely affect our
ability to retain and expand BIGtoken, and therefore could
materially affect our business, financial condition and results of
operations.
In
order to expand BIGtoken, we must continue to expend resources to
make the submission of user data as user-friendly as possible. We,
and our users, may face legal, logistical, cultural and commercial
challenges in procuring user data. Additionally, once such data is
obtained, if the process for validation and collection of rewards
may be perceived as too cumbersome and discourage potential users
from submission. We may need to expend significant resources on
user interfaces for evolving platforms, such as mobile devices.
Inconveniences to our users or potential users at any stage of the
process may materially challenge our growth.
If we fail to ensure that the user data derived from BIGtoken is of
high quality, our ability to attract customers or monetize the data
may be materially impaired.
The
reliability of our user data depends upon the integrity and the
quality of the process of accepting user data into BIGtoken. We
will take certain measures to validate user data submitted by our
users and potential users to assure a high quality of data in
BIGtoken and generally confirming that data is submitted in
accordance with our terms for such data. We must continue to invest
in our quality control measures relating to BIGtoken in order to
provide a high-quality product to potential customers.
If BIGtoken experiences an excessive rate of user attrition, our
ability to attract customers could fail.
Users
may elect to have their data deleted from BIGtoken at any time. We
must continually add new users both to replace users who choose to
delete their data and to increase our user base. Users may choose
to delete their data for many reasons. If users are concerned about
privacy and security and do not perceive BIGtoken to be reliable,
if we fail to keep users engaged and interested in our application,
or if we simply lose our users’ attention, we could fail to gather
sufficient user data and our ability to earn revenues may be
materially affected.
If we are unable to manage our marketing and advertising expenses,
it could materially harm our results of operations and
growth.
We
plan to rely in part on our marketing and advertising efforts to
attract new members. Our future growth and profitability, as well
as the maintenance and enhancement of our brand, will depend in
large part on the effectiveness and efficiency of our marketing and
advertising strategies and expenditures. If we are unable to
maintain our marketing and advertising channels on cost-effective
terms, our marketing and advertising expenses could increase
substantially, and our business, financial condition and results of
operations may suffer. In addition, we may be required to incur
significantly higher marketing and advertising expenses than we
currently anticipate if excessive numbers of members withdraw their
member data from our database.
Failure to comply with federal, state and local laws and
regulations or our contractual obligations relating to data
privacy, protection and security of BIGtoken user data, and civil
liabilities relating to breaches of privacy and security of user
data, could damage our reputation and harm our
business.
A
variety of federal, state and local laws and regulations govern the
collection, use, retention, sharing and security of user data. We
will collect BIGtoken user data from and about our members when
they redeem rewards and maintain that date in our BIGtoken
Application. Claims or allegations that we have violated applicable
laws or regulations related to privacy, data protection or data
security could in the future result in negative publicity and a
loss of confidence in us by our users and potential new users and
may subject us to fines and penalties by regulatory authorities. In
addition, we have privacy policies and practices concerning the
collection, use and disclosure of user data as part of our
agreements with our members, including ones posted on our website.
Several Internet companies have incurred penalties for failing to
abide by the representations made in their privacy policies and
practices. In addition, our use and retention of user data could
lead to civil liability exposure in the event of any disclosure of
such information due to hacking, malware, phishing, inadvertent
action or other unauthorized use or disclosure. Several companies
have been subject to civil actions, including class actions,
relating to this exposure.
We
have incurred, and will continue to incur, expenses to comply with
data privacy, protection and security standards and protocols for
BIGtoken user data imposed by law, regulation, self-regulatory
bodies, industry standards and contractual obligations. Such laws,
standards and regulations, however, are evolving and subject to
potentially differing interpretations, and federal, state and
provincial legislative and regulatory bodies may expand current or
enact new laws or regulations regarding privacy matters.
Additionally, we accept user from foreign countries which subjects
us to the personal and other data privacy, protection and security
laws of those countries, We are unable to predict what additional
legislation, standards or regulation in the area of privacy and
security of personal information could be enacted or its effect on
our operations and business.
If we are unable to satisfy data privacy, protection, security, and
other government- and industry-specific requirements, our growth
could be harmed.
We
need or may in the future need to comply with a number of data
protection, security, privacy and other government- and
industry-specific requirements, including those that require
companies to notify individuals of data security incidents
involving certain types of personal data. Security compromises
could harm our reputation, erode user confidence in the
effectiveness of our security measures, negatively impact our
ability to attract new members, or cause existing users to withdraw
their data from BIGtoken.
Regulatory, legislative or self-regulatory developments regarding
internet privacy matters could adversely affect our ability to
conduct our business.
The
United States and foreign governments have enacted, considered or
are considering legislation or regulations that could significantly
restrict our ability to collect, process, use, transfer and pool
data collected from and about consumers and devices. Trade
associations and industry self-regulatory groups have also
promulgated best practices and other industry standards relating to
targeted advertising. Various U.S. and foreign governments,
self-regulatory bodies and public advocacy groups have called for
new regulations specifically directed at the digital advertising
industry, and we expect to see an increase in legislation,
regulation and self-regulation in this area. The legal, regulatory
and judicial environment we face around privacy and other matters
is constantly evolving and can be subject to significant change.
For example, the General Data Protection Regulation, or GDPR, which
was agreed by E.U. institutions in 2016 and came into effect after
a two-year transition period on May 25, 2018, updated and
modernized the principles of the 1995 Data Protection Directive and
significantly increases the level of sanctions for non-compliance.
Data Protection Authorities will have the power to impose
administrative fines of up to a maximum of €20 million or 4% of the
data controller’s or data processor’s total worldwide turnover of
the preceding financial year. Similarly, the E-Privacy Regulation,
which was launched by the European Parliament in October 2016,
could result in, once enacted, new rules and mechanisms for
“cookie” consent. In addition, the interpretation and application
of data protection laws in the U.S., Europe and elsewhere are often
uncertain and in flux. Legislative and regulatory authorities
around the world may decide to enact additional legislation or
regulations, which could reduce the amount of data we can collect
or process and, as a result, significantly impact our business.
Similarly, clarifications of and changes to these existing and
proposed laws, regulations, judicial interpretations and industry
standards can be costly to comply with, and we may be unable to
pass along those costs to our clients in the form of increased
fees, which may negatively affect our operating results. Such
changes can also delay or impede the development of new solutions,
result in negative publicity and reputational harm, require
significant incremental management time and attention, increase our
risk of non-compliance and subject us to claims or other remedies,
including fines or demands that we modify or cease existing
business practices, including our ability to charge per click or
the scope of clicks for which we charge. Additionally, any
perception of our practices or solutions as an invasion of privacy,
whether or not such practices or solutions are consistent with
current or future regulations and industry practices, may subject
us to public criticism, private class actions, reputational harm or
claims by regulators, which could disrupt our business and expose
us to increased liability. Finally, our legal and financial
exposure often depends in part on our clients’ or other third
parties’ adherence to privacy laws and regulations and their use of
our services in ways consistent with visitors’ expectations. We
rely on representations made to us by clients that they will comply
with all applicable laws, including all relevant privacy and data
protection regulations. We make reasonable efforts to enforce such
representations and contractual requirements, but we do not fully
audit our clients’ compliance with our recommended disclosures or
their adherence to privacy laws and regulations. If our clients
fail to adhere to our contracts in this regard, or a court or
governmental agency determines that we have not adequately,
accurately or completely described our own solutions, services and
data collection, use and sharing practices in our own disclosures
to consumers, then we and our clients may be subject to potentially
adverse publicity, damages and related possible investigation or
other regulatory activity in connection with our privacy practices
or those of our clients.
Privacy concerns
could damage our reputation and deter current and potential users
from contributing additional data through our BIGtoken Application.
If our security measures are breached resulting in the improper use
and disclosure of user data, BIGtoken may be perceived as not being
secure, users and customers may curtail or stop using BIGtoken, and
we may incur significant legal and financial
exposure.
Concerns
about our practices with regard to the collection, use, disclosure,
or security of user data or other privacy related matters, even if
unfounded, could damage our reputation and adversely affect our
operating results. Our services will involve the purchase, storage,
transmission and sale of user data, and theft and security breaches
expose us to a risk of loss of this information, improper use and
disclosure of such information, litigation, and potential
liability. Any systems failure or compromise of our security that
results in the release of user data, or in our or our users’
ability to access such data, could seriously harm our reputation
and brand and, therefore, our business, and impair our ability to
attract and retain users. Additionally, if user data is somehow
made public or made available through a security breach, it may be
used to identify our users and people related thereto. We may
experience cyber attacks of varying degrees. Our security measures
may also be breached due to employee error, malfeasance, system
errors or vulnerabilities, including vulnerabilities of our
vendors, suppliers, their products, or otherwise. Such breach or
unauthorized access, increased government surveillance, or attempts
by outside parties to fraudulently induce employees, users, or
customers to disclose sensitive information in order to gain access
to user data could result in significant legal and financial
exposure, damage to our reputation, and a loss of confidence in the
security of BIGtoken that could potentially have an adverse effect
on our business. Because the techniques used to obtain unauthorized
access, disable or degrade service, or sabotage systems change
frequently, become more sophisticated, and often are not recognized
until launched against a target, we may be unable to anticipate
these techniques or to implement adequate preventative measures.
Additionally, cyber attacks could also compromise trade secrets and
other sensitive information and result in such information being
disclosed to others and becoming less valuable, which could
negatively affect our business. If an actual or perceived breach of
our security occurs, the market perception of the effectiveness of
our security measures could be harmed and we could lose members and
customers.
Our business is subject to complex and evolving U.S. and foreign
laws and regulations regarding privacy, data protection, content,
competition, consumer protection, and other matters. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our business
practices, monetary penalties, increased cost of operations, or
declines in user growth or engagement, or otherwise harm our
business.
We
are subject to a variety of laws and regulations in the United
States and abroad that involve matters central to our business,
such as privacy, data protection and personal information, rights
of publicity, content, intellectual property, advertising,
marketing, distribution, data security, data retention and
deletion, electronic contracts and other communications,
competition, protection of minors, consumer protection, taxation
and securities law compliance. Expansion of our activities in
certain jurisdictions, or other actions that we may take, may
subject us to additional laws, regulations, or other government
scrutiny. In addition, foreign data protection, privacy, content,
competition, and other laws and regulations can impose different
obligations or be more restrictive than those in the United
States.
Additionally,
as we allow European users, we are subject to the European General
Data Protection Regulation (GDPR), effective as of May 2018. The
GDPR increases privacy rights for individuals in Europe, extends
the scope of responsibilities for data controllers and data
processors and imposes increased requirements and potential
penalties on companies offering goods or services to individuals
who are located in Europe or monitoring the behavior of such
individuals (including by companies based outside of Europe).
Noncompliance can result in penalties of up to the greater of €20
million, or 4% of global company revenues.
These
U.S. federal and state and foreign laws and regulations, which in
some cases can be enforced by private parties in addition to
government authorities, are constantly evolving and can be subject
to significant change. As a result, the application,
interpretation, and enforcement of these laws and regulations are
often uncertain, particularly in the newer industry in which we
operate, and may be interpreted and applied inconsistently from
country to country and inconsistently with our current policies and
practices.
These
laws and regulations, as well as any associated inquiries or
investigations or any other government actions, may be costly to
comply with and may delay or impede our international growth,
result in negative publicity, increase our operating costs, require
significant management time and attention, and subject us to
remedies that may harm our business.
Security breaches and improper access to or disclosure of our data
or user data, or other hacking and phishing attacks on our systems,
could harm our reputation and adversely affect our
business.
Our
industry is prone to cyber-attacks by third parties seeking
unauthorized access to our data or users’ data or to disrupt our
ability to provide service. Any failure to prevent or mitigate
security breaches and improper access to or disclosure of our data
or user data, including personal information, content, or payment
information from or to users, or information from marketers, could
result in the loss or misuse of such data, which could harm our
business and reputation and diminish our competitive position. In
addition, computer malware, viruses, social engineering
(predominantly spear phishing attacks), and general hacking have
become more prevalent in our industry. Our BIGtoken platform has
experienced an increase in the occurrence of such attempts and we
cannot be assured that we will be able to prevent a successful
attack on our systems in the future. We also regularly encounter
attempts to create false or undesirable user accounts or take other
actions on our BIGtoken platform for purposes such as spreading
misinformation, attempting to have us improperly purchase user data
or other objectionable ends. As a result of recent attention and
growth of our BIGtoken platform, the size of our user base, and the
types and volume of personal data on our systems, we believe that
we are a particularly attractive target for such breaches and
attacks. Our efforts to address undesirable activity may also
increase the risk of retaliatory attacks. Such attacks may cause
interruptions to the services we provide, degrade the user
experience, cause users or marketers to lose confidence and trust
in our products, impair our internal systems, or result in
financial harm to us. Our efforts to protect our company data or
the information we receive may also be unsuccessful due to software
bugs or other technical malfunctions; employee, contractor, or
vendor error or malfeasance; government surveillance; or other
threats that evolve. In addition, third parties may attempt to
fraudulently induce employees or users to disclose information in
order to gain access to our data or our users’ data. Cyber-attacks
continue to evolve in sophistication and volume, and inherently may
be difficult to detect for long periods of time. Although we are
currently in the process of developing systems and processes that
are designed to protect our data and user data, to prevent data
loss, to disable undesirable accounts and activities on our
BIGtoken platform, and to prevent or detect security breaches, we
cannot assure you that such measures will ultimately become
operational or provide absolute security, and we may incur
significant costs in protecting against or remediating
cyber-attacks.
Affected
users or government authorities could initiate legal or regulatory
actions against us in connection with any actual or perceived
security breaches or improper disclosure of data, which could cause
us to incur significant expense and liability or result in orders
or consent decrees forcing us to modify our business practices,
especially with regard to the BIGtoken platform. Such incidents or
our efforts to remediate such incidents may also result in a
decline in our active user base or engagement levels. Any of these
events could have a material and adverse effect on our business,
reputation, or financial results.
Certain user data must be provided on a recurring basis in order to
provide full value.
Certain
types of user data will need to be contributed by users recurrently
for such data to provide full value to our potential customers. If
users fail to provide us with sufficient recurring data, the value
of the user data may substantially decrease and our ability to earn
revenues may be materially affected.
Unfavorable media coverage could negatively affect our
business.
Unfavorable
publicity regarding, for example, our privacy practices, terms of
service, regulatory activity, the actions of third parties, the use
of our products or services for illicit, objectionable, or illegal
ends or the actions of other companies that provide similar
services to us, could adversely affect our reputation. Such
negative publicity also could have an adverse effect on the size,
engagement, and loyalty of our user base and result in user
attrition which could adversely affect our business and financial
results.
Weak economic conditions may reduce consumer demand for products
and services.
A
weak economy in the United States could adversely affect demand for
advertising products, and services. A substantial portion of our
revenue is derived from businesses that are highly dependent on
discretionary spending by individuals, which typically falls during
times of economic instability. Accordingly, the ability of our
advertisers to increase or maintain revenue and earnings could be
adversely affected to the extent that relevant economic
environments remain weak or decline further. We currently are
unable to predict the extent of any of these potential adverse
effects.
Because we store, process and use data, some of which contain
personal information, we are subject to complex and evolving
federal, state and foreign laws and regulations regarding privacy,
data protection and other matters, which are subject to
change.
We
are subject to a variety of laws and regulations in the United
States and other countries that involve matters central to our
business, including with respect to user privacy, rights of
publicity, data protection, content, protection of minors and
consumer protection. These laws can be particularly restrictive in
countries outside the United States. Both in the United States and
abroad, these laws and regulations constantly evolve and remain
subject to significant change. In addition, the application and
interpretation of these laws and regulations are often uncertain,
particularly in the new and rapidly evolving industry in which we
operate. Because we store, process and use data, some of which
contain personal information, we are subject to complex and
evolving federal, state and foreign laws and regulations regarding
privacy, data protection and other matters. Many of these laws and
regulations are subject to change and uncertain interpretation and
could result in investigations, claims, changes to our business
practices, increased cost of operations and declines in user
growth, retention or engagement, any of which could materially
adversely affect our business, results of operations and financial
condition.
Several
proposals are pending before federal, state and foreign legislative
and regulatory bodies that could significantly affect our business.
For example, a revision to the 1995 European Union Data Protection
Directive is currently being considered by European legislative
bodies that may include more stringent operational requirements for
data processors and significant penalties for non-compliance. In
addition, the EU General Data Protection Regulation 2016/679
(“GDPR”), which came into effect on May 25, 2018, establishes new
requirements applicable to the processing of personal data (
i.e. , data which identifies an individual or from which an
individual is identifiable), affords new data protection rights to
individuals ( e.g. , the right to erasure of personal data)
and imposes penalties for serious data breaches. Individuals also
have a right to compensation under GDPR for financial or
non-financial losses. GDPR will impose additional responsibility
and liability in relation to our processing of personal data. GDPR
may require us to change our policies and procedures and, if we are
not compliant, could materially adversely affect our business,
results of operations and financial condition.
If advertising on the Internet loses its appeal, our revenue could
decline.
Our
business model may not continue to be effective in the future for a
number of reasons, including:
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decline in the rates that we can charge for advertising and
promotional activities; |
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our
inability to create applications for our customers; |
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Internet
advertisements and promotions are, by their nature, limited in
content relative to other media; |
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companies
may be reluctant or slow to adopt online advertising and
promotional activities that replace, limit or compete with their
existing direct marketing efforts; |
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companies
may prefer other forms of Internet advertising and promotions that
we do not offer; |
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the
quality or placement of transactions, including the risk of
non-screened, non-human inventory and traffic, could cause a loss
in customers or revenue; and |
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regulatory
actions may negatively impact our business practices. |
If
the number of companies who purchase online advertising and
promotional services from us does not grow, we may experience
difficulty in attracting publishers, and our revenue could
decline.
Our stock price may be volatile and your investment in our common
stock could suffer a decline in value.
There
has been significant volatility in the market price and trading
volume of securities of technology and other companies, which may
be unrelated to the financial performance of these companies. These
broad market fluctuations may negatively affect the market price of
our common stock.
Some
specific factors that may have a significant effect on the market
price of our common stock include:
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actual
or anticipated fluctuations in our results of operations or our
competitors’ operating results; |
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actual
or anticipated changes in the growth rate of the connected
lifestyle market, our growth rates or our competitors’ growth
rates; |
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conditions
in the financial markets in general or changes in general economic
conditions; |
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changes
in governmental regulation, including taxation and tariff
policies; |
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interest
rate or currency rate fluctuations; |
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our
ability to forecast accurate financial results; and |
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changes
in stock market analyst recommendations regarding our common stock,
other comparable companies or our industry generally |
We rely upon third parties for technology that is critical to our
products, and if we are unable to continue to use this technology
and future technology, our ability to develop, sell, maintain and
support technologically innovative products would be
limited.
We
rely on third parties to obtain non-exclusive patented hardware and
software license rights in technologies that are incorporated into
and necessary for the operation and functionality of most of our
products. In these cases, because the intellectual property we
license is available from third parties, barriers to entry into
certain markets may be lower for potential or existing competitors
than if we owned exclusive rights to the technology that we license
and use. Moreover, if a competitor or potential competitor enters
into an exclusive arrangement with any of our key third-party
technology providers, or if any of these providers unilaterally
decides not to do business with us for any reason, our ability to
develop and sell products and services containing that technology
would be severely limited.
If we
are offering products or services that contain third-party
technology that we subsequently lose the right to license, then we
will not be able to continue to offer or support those products or
services. In addition, these licenses may require royalty payments
or other consideration to the third-party licensor. Our success
will depend, in part, on our continued ability to access these
technologies, and we do not know whether these third-party
technologies will continue to be licensed to us on commercially
acceptable terms, if at all. In addition, if these third-party
licensors fail or experience instability, then we may be unable to
continue to sell products and services that incorporate the
licensed technologies, in addition to being unable to continue to
maintain and support these products and services. We do require
escrow arrangements with respect to certain third-party software
which entitle us to certain limited rights to the source code, in
the event of certain failures by the third party, in order to
maintain and support such software. However, there is no guarantee
that we would be able to fully understand and use the source code,
as we may not have the expertise to do so. We are increasingly
exposed to these risks as we continue to develop and market more
products containing third-party technology and software. If we are
unable to license the necessary technology, we may be forced to
acquire or develop alternative technology, which could be of lower
quality or performance standards. The acquisition or development of
alternative technology may limit and delay our ability to offer new
or competitive products and services and increase our costs of
production. As a result, our business, results of operations and
financial condition could be materially adversely
affected.
The development of our operations and infrastructure in connection
with our separation from SRAX, and any future expansion of such
operations and infrastructure, may not be successful, and may
strain our operations and increase our operating
expenses.
In
connection with our separation from SRAX, we have begun to
implement a new information technology infrastructure for our
business, which includes the creation of management information
systems and operational and financial controls unique to our
business. We may not be able to put in place adequate controls in
an efficient and timely manner in connection with our separation
from SRAX and as our business grows, and our current systems may
not be adequate to support our future operations. The difficulties
associated with installing and implementing new systems, procedures
and controls may place a significant burden on our management and
operational and financial resources. In addition, as we grow
internationally, we will have to expand and enhance our
communications infrastructure. If we fail to continue to improve
our management information systems, procedures and financial
controls, or encounter unexpected difficulties during expansion and
reorganization, our business could be harmed.
For
example, we plan to invest significant capital and human resources
in the design, development and enhancement of our financial and
operational systems. We will depend on these systems in order to
timely and accurately process and report key components of our
results of operations, financial condition and cash flows. If the
systems fail to operate appropriately or we experience any
disruptions or delays in enhancing their functionality to meet
current business requirements, fulfill contractual obligations,
accurately report our financials and otherwise run our business
could be adversely affected. Even if we do not encounter these
adverse effects, the development and enhancement of systems may be
much more costly than we anticipated. If we are unable to continue
to develop and enhance our information technology systems as
planned, our business, results of operations and financial
condition could be materially adversely affected.
As part of growing our business, we may make acquisitions. If we
fail to successfully select, execute or integrate our acquisitions,
then our business, results of operations and financial condition
could be materially adversely affected and our stock price could
decline.
From
time to time, we may undertake acquisitions to add new product and
service lines and technologies, acquire talent, gain new sales
channels or enter into new sales territories. Acquisitions involve
numerous risks and challenges, including relating to the successful
integration of the acquired business, entering into new territories
or markets with which we have limited or no prior experience,
establishing or maintaining business relationships with new
retailers, distributors or other channel partners, vendors and
suppliers and potential post-closing disputes.
We
cannot ensure that we will be successful in selecting, executing
and integrating acquisitions. Failure to manage and successfully
integrate acquisitions could materially harm our business,
financial condition and results of operations. In addition, if
stock market analysts or our stockholders do not support or believe
in the value of the acquisitions that we choose to undertake, our
stock price may decline.
Risks
Related to Our Separation from SRAX
The separation may not be successful.
Pursuant
to the completion of the Share Exchange, we became a stand-alone
public company, although we will continue to be controlled by SRAX.
The process of becoming a stand-alone public company is complex and
may distract our management from focusing on our business and
strategic priorities. Further, although we expect to have direct
access to the debt and equity capital markets following this
offering, we may not be able to issue debt or equity on terms
acceptable to us or at all. Moreover, even with equity compensation
tied to our business, we may not be able to attract and retain
employees as desired.
We
also may not fully realize the intended benefits of being a
stand-alone public company if any of the risks identified in this
“Risk Factors” section, or other events, were to occur.
These intended benefits include improving the strategic and
operational flexibility of both companies, increasing the focus of
the management teams on their respective business operations,
allowing each company to adopt the capital structure, investment
policy and dividend policy best suited to its financial profile and
business needs, and providing each company with its own equity
currency to facilitate acquisitions and to better incentivize
management. If we do not realize these intended benefits for any
reason, our business may be negatively affected. In addition, the
separation could materially adversely affect our business, results
of operations and financial condition.
As long as SRAX controls us, the ability of our other shareholders
to influence matters requiring stockholder approval will be
limited.
As a
result of the Share Exchange, SRAX owns 149,562,566,584 shares of
our common stock and 5,000,000 shares of our Series A Preferred
Stock, representing voting power of approximately 95% of our issued
and outstanding capital stock. For so long as SRAX beneficially
owns shares of our outstanding securities representing at least a
majority of the votes entitled to be cast by the holders of our
outstanding securities, SRAX will be able to elect all of the
members of our board of directors and influence other voting
matters.
SRAX’s ability to control our board of directors may make it
difficult for us to recruit high-quality independent
directors.
So
long as SRAX beneficially owns shares of our outstanding securities
representing at least a majority of the votes entitled to be cast
by the holders of our outstanding shares, SRAX can effectively
control and direct our board of directors. Further, the interests
of SRAX and our other stockholders may diverge. Under these
circumstances, persons who might otherwise accept our invitation to
join our board of directors may decline.
SRAX’s interests may conflict with our interests and the interests
of our other stockholders. Conflicts of interest between us and
SRAX could be resolved in a manner unfavorable to us and our other
stockholders.
Various
conflicts of interest between us and SRAX could arise. The
ownership interest and voting power of SRAX in our capital stock
and ownership interests of our directors and officers in SRAX
capital stock, or service by an individual as either a director
and/or officer of both companies, could create or appear to create
potential conflicts of interest when such individuals are faced
with decisions relating to us. These decisions could
include:
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corporate
opportunities; |
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the
impact that operating or capital decisions (including the
incurrence of indebtedness) relating to our business may have on
SRAX’s consolidated financial statements and/or current or future
indebtedness (including related covenants); |
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business
combinations involving us; |
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our
dividend and stock repurchase policies; |
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compensation
and benefit programs and other human resources policy
decisions; |
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management
stock ownership; |
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the
intercompany agreements and services between us and SRAX, including
the agreements relating to our separation from SRAX; |
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payment of dividends on our common stock; and |
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determinations
with respect to our tax returns. |
Potential
conflicts of interest could also arise if we decide to enter into
new commercial arrangements with SRAX in the future or in
connection with SRAX’s desire to enter into new commercial
arrangements with third parties. Additionally, we may be
constrained by the terms of agreements relating to our indebtedness
or equity securities from taking actions, or permitting us to take
actions, that may be in our best interest.
Furthermore,
disputes may arise between us and SRAX relating to our past and
ongoing relationships, and these potential conflicts of interest
may make it more difficult for us to favorably resolve such
disputes, including those related to:
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tax,
employee benefit, indemnification and other matters arising from
the separation; |
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the
nature, quality and pricing of services SRAX agrees to provide to
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sales
and other disposals by SRAX of all or a portion of its ownership
interest in us. |
We
may not be able to resolve any potential conflicts, and even if we
do, the resolution may be less favorable to us than if we were
dealing with an unaffiliated third party. While we are controlled
by SRAX, we may not have the leverage to negotiate amendments to
our various agreements with SRAX (if any are required) on terms as
favorable to us as those we would negotiate with an unaffiliated
third party.
The terms of the agreements that we expect to enter into with SRAX
in connection with the separation may limit our ability to take
certain actions which may prevent us from pursuing opportunities to
raise capital, acquire other businesses or provide equity
incentives to our employees, which could impair our ability to
grow.
The
terms of the agreements that we expect to enter into with SRAX in
connection with the separation, including the MSA, may limit our
ability to take certain actions, which could impair our ability to
grow. The MSA provides that, as long as SRAX beneficially owns at
least 50% of the total voting power of our outstanding capital
stock entitled to vote in the election of our board of directors,
we will not (without SRAX’s prior written consent) take certain
actions, such as incurring additional indebtedness and acquiring
businesses or assets or disposing of assets in excess of certain
amounts.
We have no operating history as a stand-alone public company and
our historical and carve-out financial information is not
necessarily representative of the results we would have achieved as
a stand-alone public company and may not be a reliable indicator of
our future results.
The
historical financial information we have included in this Annual
Report does not reflect, what our financial condition, results of
operations or cash flows would have been had we been a stand-alone
entity during the historical periods presented, or what our
financial condition, results of operations or cash flows will be in
the future as an independent entity.
In
addition, we have not made pro forma adjustments to reflect many
significant changes that will occur in our cost structure, funding
and operations as a result of our transition to becoming a public
company, including changes in our employee base, potential
increased costs associated with reduced economies of scale and
increased costs associated with being a publicly traded,
stand-alone company.
If SRAX experiences a change in control, our current plans and
strategies could be subject to change.
As
long as SRAX controls us, it will have significant influence over
our plans and strategies, including strategies relating to
marketing and growth. In the event SRAX experiences a change in
control, SRAX’s incumbent owner(s) may attempt to cause us to
revise or change our plans and strategies, as well as the
agreements between SRAX and us, described in this Annual
Report.
The assets and resources that we acquire from SRAX in the
separation may not be sufficient for us to operate as a stand-alone
company, and we may experience difficulty in separating our assets
and resources from SRAX.
Because
we have not operated as an independent company in the past, we will
need to acquire assets in addition to those contributed by SRAX and
its subsidiaries to us and our subsidiaries in connection with our
separation from SRAX. We may also face difficulty in separating our
assets from SRAX’s assets and integrating newly acquired assets
into our business. Our business, financial condition and results of
operations could be harmed if we fail to acquire assets that prove
to be important to our operations or if we incur unexpected costs
in separating our assets from SRAX’s assets or integrating newly
acquired assets.
The services that SRAX provides to us may not be sufficient to meet
our needs, which may result in increased costs and otherwise
adversely affect our business.
Pursuant
to the TSA, we expect SRAX to continue to provide us with corporate
and shared services for a transitional period related to corporate
functions, such as executive oversight, risk management,
information technology, accounting, audit, legal, investor
relations, tax, treasury, shared facilities, operations, customer
support, human resources and employee benefits, sales and sales
operations and other services in exchange for the fees specified in
the TSA between us and SRAX. SRAX will not be obligated to provide
these services in a manner that differs from the nature of the
services provided to the BIGtoken business during the 12-month
period prior to the separation, and thus we may not be able to
modify these services in a manner desirable to us as a stand-alone
public company. Further, if we no longer receive these services
from SRAX due to the termination of the TSA or otherwise, we may
not be able to perform these services ourselves and/or find
appropriate third party arrangements at a reasonable cost (and any
such costs may be higher than those charged by SRAX).
Our ability to operate our business effectively may suffer if we
are unable to cost-effectively establish our own administrative and
other support functions in order to operate as a stand-alone
company after the termination of our shared services and other
intercompany agreements with SRAX.
As an
operating segment of SRAX, we relied on administrative and other
resources of SRAX, including information technology, accounting,
finance, human resources and legal services, to operate our
business. In anticipation of the closing of the Share Exchange, we
have entered into various service agreements to retain the ability
for specified periods to use these SRAX resources. These services
may not be provided at the same level as when we were a business
segment within SRAX, and we may not be able to obtain the same
benefits that we received prior to becoming a stand-alone company.
These services may not be sufficient to meet our needs, and after
our agreements with SRAX terminates, we may not be able to replace
these services at all or obtain these services at prices and on
terms as favorable as we currently have with SRAX. We will need to
create our own administrative and other support systems or contract
with third parties to replace SRAX’s systems. In addition, we have
received informal support from SRAX, which may not be addressed in
the agreements we have entered into with SRAX, and the level of
this informal support may diminish as we become a more independent
company. Any failure or significant downtime in our own
administrative systems or in SRAX’S administrative systems during
the transitional period could result in unexpected costs, impact
our results and/or prevent us from paying our suppliers or
employees and performing other administrative services on a timely
basis.
We are a smaller company relative to SRAX, which could result in
increased costs and decreased revenue due to difficulty maintaining
existing customer relationships and obtaining new
customers.
Prior
to the completion of the Share Exchange with SRAX, we were able to
take advantage of SRAX’s size, technology and services, including
insurance, employee benefit support and audit and other
professional services. We are a smaller company than SRAX and we
cannot assure you that we will have access to financial and other
resources comparable to those available to us prior to this
offering. As a stand-alone company, we may be unable to obtain
office space, goods, technology and services in general, as well as
components and services that are part of our supply chain, at
prices or on terms as favorable as those available to us prior to
this offering, which could increase our costs and reduce our
profitability. Our future success depends on our ability to
maintain our current relationships with existing customers, and we
may have difficulty attracting new customers.
SRAX has agreed to indemnify us for certain liabilities. However,
we cannot assure that the indemnity will be sufficient to insure us
against the full amount of such liabilities, or that SRAX’s ability
to satisfy its indemnification obligation will not be impaired in
the future.
Pursuant
to the MSA and certain other agreements with SRAX, SRAX has agreed
to indemnify us for certain liabilities. The MSA will provide for
cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of our business
with us and financial responsibility for the obligations and
liabilities of SRAX’s business with SRAX.
However,
third parties could also seek to hold us responsible for any of the
liabilities that SRAX has agreed to retain, and we cannot assure
that an indemnity from SRAX will be sufficient to protect us
against the full amount of such liabilities, or that SRAX will be
able to fully satisfy its indemnification obligations in the
future. Even if we ultimately succeed in recovering from SRAX any
amounts for which we are held liable, we may be temporarily
required to bear these losses. Each of these risks could materially
adversely affect our business, results of operations and financial
condition.
Certain contracts used in our business will need to be replaced, or
assigned from SRAX or its affiliates in connection with the
separation, which may require the consent of the counterparty to
such an assignment, and failure to obtain such replacement
contracts or consents could increase our expenses or otherwise
adversely affect our results of operations.
Our
separation from SRAX requires us to replace shared contracts and,
with respect to certain contracts that are to be assigned from SRAX
or its affiliates to us or our affiliates, to obtain consents and
assignments from third parties. It is possible that, in connection
with the replacement or consent process, some parties may seek more
favorable contractual terms from us. If we are unable to obtain
such replacement contracts or consents, as applicable, we may be
unable to obtain some of the benefits, assets and contractual
commitments that are intended to be allocated to us as part of the
separation. If we are unable to obtain such replacement contracts
or consents, the loss of these contracts could increase our
expenses or otherwise materially adversely affect our business,
results of operations and financial condition.
Some of our directors and officers own SRAX common stock,
restricted shares of SRAX common stock or options to acquire SRAX
common stock and hold positions with SRAX, which could cause
conflicts of interest, or the appearance of conflicts of interest,
that result in our not acting on opportunities we otherwise may
have.
Some
of our directors and executive officers own SRAX common stock,
restricted shares of SRAX stock or options to purchase SRAX common
stock.
Ownership
of SRAX common stock, restricted shares of SRAX common stock and
options to purchase SRAX common stock by our directors and
executive officers, and the presence of executive officers or
directors of SRAX on our board of directors could create, or appear
to create, conflicts of interest with respect to matters involving
both us and SRAX that could have different implications for SRAX
than they do for us. For example, potential conflicts of interest
could arise in connection with the resolution of any dispute
between SRAX and us regarding terms of the agreements governing the
separation and the relationship between SRAX and us thereafter,
including the MSA or the transition services agreement. Potential
conflicts of interest could also arise if we enter into commercial
arrangements with SRAX in the future. As a result of these actual
or apparent conflicts of interest, we may be precluded from
pursuing certain growth initiatives.
We may have received better terms from unaffiliated third parties
than the terms we will receive in the agreements that we entered
with SRAX.
The
agreements that we entered into with SRAX in connection with the
separation, including the MSA and the TSA were prepared in the
context of the separation while we were still a wholly owned
subsidiary of SRAX.
Risks
Related to Our
Securities
Sales of a substantial number of shares of our common stock in the
public market could cause our stock price to
fall.
On
January 27, 2021 we entered into the Debt Exchange Agreement with
Red Diamond. Pursuant to the Debt Exchange Agreement, we issued Red
Diamond 7,000,000,000 free trading shares of Common Stock or
approximately 837% of the prior public float of 841,184,289. We
also issued Red Diamond 8,313 shares of Series C Preferred Stock,
convertible into approximately 12,864,419,313 shares of Common
Stock. Although Red Diamond agreed to a leak out of 20% of average
daily volume for the five trading days preceding the sale, this
will still result in a significant number of shares compared to our
prior public float and will be difficult to monitor compliance.
Sales of a substantial number of such shares now and upon
expiration of the leak-out period or the perception that such sales
may occur, could cause our market price to fall or make it more
difficult for you to sell your common stock at a time and price
that you deem appropriate.
If our stock price is extremely volatile and subject to price which
may result in you losing a significant part of your
investment.
The
market price of our common stock will be influenced by many
factors, some of which are beyond our control, including those
described in this Risk Factors section and include the
following:
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the
failure of securities analysts to cover our common stock after this
offering or changes in financial estimates by analysts; |
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the
inability to meet the financial estimates of securities analysts
who follow our common stock or changes in earnings estimates by
analysts; |
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strategic
actions by us or our competitors; |
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● |
announcements
by us or our competitors of significant contracts, acquisitions,
joint marketing relationships, joint ventures or capital
commitments; |
| |
|
|
| |
● |
our
quarterly or annual earnings, or those of other companies in our
industry; |
| |
|
|
| |
● |
actual
or anticipated fluctuations in our operating results and those of
our competitors; |
| |
|
|
| |
● |
general
economic and stock market conditions; |
| |
|
|
| |
● |
the
public reaction to our press releases, our other public
announcements and our filings with the SEC; |
| |
|
|
| |
● |
risks
related to our business and our industry, including those discussed
above; |
| |
|
|
| |
● |
changes
in conditions or trends in our industry, markets or
customers; |
|
|
● |
the
trading volume of our common stock; |
| |
|
|
| |
● |
future
sales of our common stock or other securities; |
| |
|
|
| |
● |
investor
perceptions of the investment opportunity associated with our
common stock relative to other investment alternatives. |
In
particular, the realization of any of the risks described in these
“Risk Factors” could have a material adverse impact on the
market price of our common stock in the future and cause the value
of your investment to decline. In addition, the stock market in
general has experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
These broad market and industry factors may materially reduce the
market price of our common stock, regardless of our operating
performance. In addition, price volatility may be greater if the
public float and trading volume of our common stock is
low.
We have never paid a cash dividend and do not intend to pay cash
dividends on our common stock in the foreseeable
future.
We
have never paid a cash dividend, nor do we anticipate paying cash
dividends in the foreseeable future. Accordingly, any return on
your investment will be as a result of the appreciation of our
common stock if any.
Future sales, or the perception of future sales, of our common
stock, including by SRAX, may depress the price of our common
stock.
The
market price of our common stock could decline significantly as a
result of sales or other distributions of a large number of shares
of our common stock in the market, including shares that might be
offered for sale or distributed by SRAX. The perception that these
sales might occur could depress the market price of our common
stock. These sales, or the possibility that these sales may occur,
also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate. As
a result of the Share Exchange, we issued SRAX 149,562,566,584
shares of common stock. As we are currently not cash flow positive,
we will be required to raise significant capital in the future
through the sale of our debt and equity securities. Also, in the
future, we may issue our securities in connection acquisitions. The
amount of shares of our common stock issued in connection with an
investment or acquisition could constitute a material portion of
our then-outstanding shares of our common stock. The sale of these
shares into the market could greatly depress the market price of
our common stock.
Our costs will increase significantly as a result of operating as a
public company, and our management will be required to devote
substantial time to complying with public company
regulations.
We
have historically operated our business as a segment of a public
company. As a stand-alone public company, we will have additional
legal, accounting, insurance, compliance and other expenses that we
have not incurred historically. After this offering, we will become
obligated to file with the SEC annual and quarterly reports and
other reports that are specified in Section 13 and other sections
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). We will also be required to ensure that we have the ability
to prepare financial statements that are fully compliant with all
SEC reporting requirements on a timely basis. In addition, we will
become subject to other reporting and corporate governance
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley”) and the regulations promulgated
thereunder, which will impose significant compliance obligations
upon us.
Sarbanes-Oxley,
as well as rules subsequently implemented by the SEC, have imposed
increased regulation and disclosure and required enhanced corporate
governance practices of public companies. We are committed to
maintaining a high standard of public disclosure, and our efforts
to comply with evolving laws, regulations and standards in this
regard are likely to result in increased selling and administrative
expenses and a diversion of management’s time and attention from
revenue-generating activities to compliance activities. These
changes will require a significant commitment of additional
resources. We may not be successful in implementing these
requirements and implementing them could materially adversely
affect our business, results of operations and financial condition.
In addition, if we fail to implement the requirements with respect
to our internal accounting and audit functions, our ability to
report our operating results on a timely and accurate basis could
be impaired. If we do not implement such requirements in a timely
manner or with adequate compliance, we might be subject to
sanctions or investigation by regulatory authorities, such as the
SEC. Any such action could harm our reputation and the confidence
of investors and customers in us and could materially adversely
affect our business and cause our share price to fall.
Failure to achieve and maintain effective internal controls in
accordance with Section 404 of Sarbanes-Oxley could materially
adversely affect our business, results of operations, financial
condition and stock price.
As a
public company, we will be required to document and test our
internal control procedures in order to satisfy the requirements of
Section 404 of Sarbanes-Oxley (“Section 404”), which will require
annual management assessments of the effectiveness of our internal
control over financial reporting. Upon loss of emerging growth
company status, an annual report by our independent registered
public accounting firm that addresses the effectiveness of internal
control over financial reporting will be required. During the
course of our testing, we may identify deficiencies which we may
not be able to remediate in time to meet our deadline for
compliance with Section 404. Testing and maintaining internal
control can divert our management’s attention from other matters
that are important to the operation of our business. We also expect
the regulations under Sarbanes-Oxley to increase our legal and
financial compliance costs, make it more difficult to attract and
retain qualified officers and members of our board of directors,
particularly to serve on our audit committee, and make some
activities more difficult, time consuming and costly. We may not be
able to conclude on an ongoing basis that we have effective
internal control over our financial reporting in accordance with
Section 404 or our independent registered public accounting firm
may not be able or willing to issue an unqualified report on the
effectiveness of our internal control over financial reporting. If
we conclude that our internal control over financial reporting is
not effective, we cannot be certain as to the timing of completion
of our evaluation, testing and remediation actions or their effect
on our operations because there is presently no precedent available
by which to measure compliance adequacy. If either we are unable to
conclude that we have effective internal control over our financial
reporting or, if required under SEC rules, our independent auditors
are not engaged to provide us with an unqualified report as
required by Section 404, then investors could lose confidence in
our reported financial information, which could have a negative
effect on the trading price of our stock.
If securities or industry analysts do not publish research or
reports about our business, if they adversely change their
recommendations regarding our stock or if our operating results do
not meet their expectations, our stock price could
decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. If one or more of these analysts cease
coverage of us or fail to publish reports on us regularly, we could
lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline. Moreover, if one or
more of the analysts who cover us downgrades our stock or if our
operating results do not meet their expectations, our stock price
could decline.
We could be subject to securities class action
litigation.
In
the past, securities class action litigation has often been
instituted against companies whose securities have experienced
periods of volatility and decline in market price. Recently, we
have seen the price of our Common Stock decline from approximately
$0.10 to less than $0.02, a decline of approximately 80%.
Securities litigation brought against us following such decline in
the price of our common stock is likely regardless of the merit or
ultimate results of such litigation. Such litigation will result in
substantial costs, which would hurt our financial condition and
results of operations and divert management’s attention and
resources from our business.
Your percentage ownership may be diluted in the
future.
In
the future, your percentage ownership may be diluted because of our
need to raise additional capital, the conversion of outstanding
convertible securities and the granting of equity awards to our
directors, officers and employees or otherwise as a result of
equity issuances for acquisitions or capital market transactions.
In connection with and following the Share Exchange, we anticipate
granting equity awards to our employees and directors. In addition,
following the Share Exchange, we will have outstanding a number of
securities that are convertible into shares of our common stock.
Upon conversion, you will experience substantial
dilution.
In
addition, our Articles of Incorporation authorize us to issue,
without the approval of our stockholders, one or more classes or
series of preferred stock having such designation, powers,
preferences and relative, participating, optional and other special
rights, including preferences over our common stock respecting
dividends and distributions, as our board of directors generally
may determine. The terms of one or more classes or series of
preferred stock could dilute the voting power or reduce the value
of our Common Stock. For example, the Company could grant the
holders of preferred stock the right to elect some number of our
directors in all events or on the happening of specified events or
the right to veto specified transactions.
We are a smaller reporting company and as a result have certain
reduced disclosure requirements.
We
are a “smaller reporting company” as defined in the Securities Act,
as such, we are required to comply with certain reduced disclosure
requirements for public company reporting requirements for future
filings. As a smaller reporting company, we are not required to
disclose certain executive compensation information only two years
of audited financial statements in our public filings.
Our board of directors will have the ability to issue blank check
preferred stock, which may discourage or impede acquisition
attempts or other transactions.
Our
board of directors will have the power, subject to applicable law,
to issue series of preferred stock that could, depending on the
terms of the series, impede the completion of a merger, tender
offer or other takeover attempt. For instance, subject to
applicable law, a series of preferred stock may impede a business
combination by including class voting rights, which would enable
the holder or holders of such series to block a proposed
transaction. Our board of directors will make any determination to
issue shares of preferred stock on its judgment as to our and our
stockholders’ best interests. Our board of directors, in so acting,
could issue shares of preferred stock having terms which could
discourage an acquisition attempt or other transaction that some,
or a majority, of the stockholders may believe to be in their best
interests or in which stockholders would have received a premium
for their stock over the then prevailing market price of the
stock.
Our common stock may be considered a “penny stock,” and may be
subject to additional sale and trading regulations that may make it
more difficult to sell.
Our
common stock may be considered a “penny stock.” The principal
result or effect of being designated a penny stock is that
securities broker-dealers participating in sales of our common
stock may be subject to the penny stock regulations set forth in
Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For
example, Rule 15g-2 requires broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks
of penny stocks and to obtain a manually signed and dated written
receipt of the document at least two business days before effecting
any transaction in a penny stock for the investor’s account.
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure
requires the broker-dealer to (i) obtain from the investor
information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are
suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating
the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv)
receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s
financial situation, investment experience and investment
objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to
resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
|
ITEM 1B. |
UNRESOLVED
STAFF COMMENTS. |
Not
applicable to a smaller reporting company.
|
ITEM 2. |
DESCRIPTION
OF PROPERTY. |
Pursuant
to the TSA with SRAX, we are provided office space at SRAX’s
corporate headquarters in Westlake Village, California and its
engineering facilities in Mexicali, Baja California (Mexico). We
believe both locations are suitable and adequate for our current
levels of operations and anticipated growth.
|
ITEM 3. |
LEGAL
PROCEEDINGS. |
As of
the date of this Annual Report, there are no material pending legal
or governmental proceedings relating to our company or properties
to which we are a party, and to our knowledge there are no material
proceedings to which any of our directors, executive officers or
affiliates are a party adverse to us or which have a material
interest adverse to us.
|
ITEM 4. |
MINE
SAFETY DISCLOSURES. |
Not
applicable.
PART II
|
ITEM 5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES. |
Market for Our Common Equity
Our
Class A common stock is traded on the OTC Market’s Pink sheets
under the symbol “FPVD.”
As of
April 14, 2021, there were approximately 44 holders of record of
our common stock. Because many of our shares of common stock are
held by brokers and other institutions on behalf of stockholders,
we are unable to estimate the total number of beneficial holders
represented by these record holders, but it is well in excess of
the number of record holders.
Dividend policy
We
have never declared or paid any cash dividends on our capital stock
and we do not currently anticipate declaring or paying cash
dividends on our capital stock in the foreseeable future. We
currently intend to retain all of our future earnings, if any, to
finance the operation and expansion of our business. Any future
determination relating to our dividend policy will be made at the
discretion of our board of directors and will depend on a number of
factors, including future earnings, capital requirements, financial
conditions, future prospects, contractual restrictions and
covenants, applicable law and other factors that our board of
directors may deem relevant. If we do not pay dividends, a return
on your investment will occur only if the market price of our
common stock appreciates.
Securities
Authorized for Issuance under Equity Compensation
Plans
None
as of the year end December 31, 2020.
Recent
Sales of Unregistered Securities
The
following information is given with regard to unregistered
securities sold since January 1, 2020 by the Company. The following
securities were issued in private offerings pursuant to the
exemption from registration contained in the Securities Act and the
rules promulgated thereunder in reliance on Section 4(2) thereof,
relating to offers of securities by an issuer not involving any
public offering.
●
During the three months ended July 31, 2020, the Company sold
$36,050 in 8%, convertible notes, under similar terms as its
previous convertible note financings; and an additional $66,859 was
sold during August and September 2020.
●
During the six months ended October 31, 2020, the Company sold
$126,729 in 8%, convertible notes.
● On
October 22, 2020, the Company sold 10,500 shares of Series B
Preferred Stock, with each share having a stated value of $100 for
gross proceeds of $1,050,000. The Series B Preferred Stock is
convertible into Common Stock at any time by the holder at
conversion prices subject to certain adjustments as more fully
described in the Company’s Designation of Preferences Rights and
Limitations of Series B Preferred Stock. As of the date hereof, the
Series B Preferred Shares are convertible into an aggregate of
13,636,906,500 shares of Common Stock.
● As
of February 2021, we are required to issue Lou Kerner, our newly
appointed CEO, options to purchase an aggregate of 13,951,066,447
shares of Common Stock at a weighted average exercise price of
$0.000062719 per share, subject to certain vesting
conditions.
● At
the closing of the Share Exchange, we issued (i) 841,184,289 shares
of Common Stock to Paul Feldman, our former CEO, (ii)
149,562,566,534 shares of Common Stock to SRAX, (iii) 7,000,000,000
shares of unrestricted Common Stock to Red Diamond, (iv) 8,318
shares of Series C Preferred Stock convertible into approximately
12,864,419,306 shares of Common Stock to Red Diamond, and (v) FPVD
Warrants to purchase 25,568,064,453 shares of Common Stock at an
exercise price per share of $0.00005844216 per share.
● On
March 12, 2021, we closed on the private placement of 47,248.27
shares of Series B preferred Stock for an aggregate of $4,724,827
or $100 per share.
●
On April 12, 2021, we closed on an
additional the private placement of 850 shares of Series B
preferred Stock for an aggregate of $$85,000 or $100 per
share.
|
ITEM 6. |
SELECTED
FINANCIAL DATA. |
Not
applicable to a smaller reporting company.
ITEM 7. MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Prior to the
completion of the Share Exchange, BIG Token was an operating
segment of SRAX. On February 4, 2021 we completed the Share
Exchange. As a result, BIG Token became our wholly owned
subsidiary, and we adopted BIG Token’s business plan. We anticipate
formally changing our name to BIG Token in the future. In
connection with the Share Exchange, we also entered into certain
agreements with SRAX including but not limited to the TSA and MSA,
as more fully described in this Annual Report. The terms of these
agreements may be more or less favorable to us than if they had
been negotiated with unaffiliated third parties.
Company
Overview
We
are a data technology company offering a consumer-based application
that allows consumers to own and earn from their digital identity
and data. We generate revenue by providing this data, insights and
the ability to connect with our users, to marketers. Our
consumer-based platform and technologies offer tools and services
to identify and reach their target consumers. Our technologies
assist our clients in: (i) identifying their core consumers and
such consumers’ characteristics across various channels in order to
discover new and measurable opportunities that amplify the
performance of marketing campaign in order to maximize a return on
marketing spend.
Our
Relationship with SRAX
Arrangements Between SRAX and Our Company
Pursuant
to the completion of the Share Exchange, we entered
into:
|
|
● |
a
master separation agreement, or MSA; |
| |
● |
a
transition services agreement, or TSA; |
The
agreements provide a framework for our relationship with SRAX after
the separation and provide for the allocation between us and SRAX
of SRAX’s assets, employees, liabilities and obligations (including
its investments, property and employee benefits assets and
liabilities) attributable to periods prior to, at and after our
separation from SRAX, specifically,
Arrangements Between SRAX and Our Company
SRAX
currently owns 95% of the voting power of our capital stock.
Notwithstanding, pursuant to the sale of our Series B Preferred
Stock on March 12, 2021, we are required to convert an aggregate of
57,748.27 shares of Series B Preferred Stock into approximately
82,343,910,015 shares of Common Stock subsequent to the
effectiveness of the Company’s amendment to its articles of
incorporation decreasing the par value of the Company’s Common
Stock. Subsequent to such conversions, assuming no further
issuances, SRAX will own approximately 64% of the voting power of
our capital stock.
For
as long as SRAX continues to control more than 50% of our
outstanding common stock, SRAX or its successor-in-interest will be
able to direct the election of all the members of our board of
directors. Similarly, SRAX will have the power to determine matters
submitted to a vote of our stockholders without the consent of our
other stockholders, will have the power to prevent a change in
control of us and will have the power to take certain other actions
that might be favorable to SRAX. In addition, the MSA provides
that, as long as SRAX beneficially owns at least 50% of the total
voting power of our outstanding capital stock entitled to vote in
the election of our board of directors, we will not (without SRAX’s
prior written consent) take certain actions, such as incurring
additional indebtedness and acquiring businesses or assets or
disposing of assets in excess of certain
amounts.
Components
of Operating Results
Revenue
Our
revenues consist of the sale of consumer data obtained through the
BIGtoken platform in conjunction with various marketing related
services, such as the following:
|
|
● |
The
use of BIGtoken user surveys and the sale of such information
received from surveys. |
| |
|
|
| |
● |
The
creation and management of targeted rewards and loyalty programs
based on information and buying trends ascertained by data captured
on our BIGtoken platform. |
| |
|
|
| |
● |
The
ability to assist our customers in conducting market research based
on analytics received from users of the BIGtoken
platform |
| |
|
|
| |
● |
The
ability to identify specific audiences for our customers and to
target questions, surveys and data analytics geared toward our
customers’ products / industries. Additionally, if we are unable to
scale the needed information for a customer’s target audience, we
may utilize our proprietary analytics to gain insight to further
focus and refine user segments that need to be targeted in order to
optimize data and media spend |
| |
|
|
| |
● |
The
use of Lightning Insights that allow our customers to conduct
research around specific audience groups through both long and
short research studies |
| |
|
|
| |
● |
The
creation of customized loyalty programs that utilize rewards to
drive consumer purchasing habits. |
Our
revenue can vary based on a number of factors, including changes in
the overall advertising and data markets, user adoption of the
BIGtoken platform, the effectiveness of our audience targeting
abilities; changes in technology; and adoption of our current and
future BIGtoken product offerings.
Cost
of Revenue
Cost
of revenue consists of the costs of media and other third-party
costs incurred in conjunction with the marketing related services
we provide.
Our
cost of revenue as a percentage of revenue can vary based upon a
number of factors, including those that may affect our revenue set
forth above and factors that may affect our cost of revenue,
including, without limitation: the cost of media utilized to
perform our marketing services, the volume of media or the
effectiveness of our services. From time to time, however, we may
experience fluctuations in our gross margin as a result of the
factors discussed above.
Employee
related costs
Employee
related costs consist of salaries other compensation and related
costs paid to our employees and contractors. We expect these costs
to increase in absolute dollars as we invest and expand our
business.
Marketing
and selling expenses
Marketing
and selling expenses consist primarily of advertising, corporate
communications and user acquisition related costs. We expect our
sales and marketing expense to increase in absolute dollars for the
foreseeable future as we continue to invest in brand marketing to
strengthen our competitive position, to accelerate growth and to
raise brand awareness.
Platform
costs
Platform
costs consist the technology and content hosting of our BIGtoken
platform. We expect these costs to increase in absolute dollars for
the foreseeable future as we continue to expand our user
base.
Depreciation
and Amortization
Depreciation
and Amortization cost represent an allocation of the costs incurred
to acquire the long-lived assets used in our business over their
estimated useful lives. Our long-lived assets consist of property
and equipment and internally developed software.
General
and Administrative
General
and administrative expense consists primarily of human resources,
information technology, professional fees, IT and facility
overhead, and other general corporate expense. We expect our
general and administrative expense to increase in absolute dollars
primarily as a result of the increased costs associated with being
a stand-alone public company. However, we also expect our general
and administrative expense to fluctuate as a percentage of our
revenue in future periods based on fluctuations in our revenue and
the timing of such expense.
Covid-19
In December 2019, an outbreak of a novel strain of coronavirus
(COVID-19) originated in Wuhan, China and has since spread to a
number of other countries, including the U.S. On March 11, 2020,
the World Health Organization characterized COVID-19 as a
pandemic. In addition, several states in the U.S., including
California, where the Company is headquartered, have experienced an
increase of new cases of COVID-19. It is uncertain if this
trend will continue into the 2021, as shown by the recent uptick in
reported cases. The COVID-19 outbreak is disrupting supply
chains and affecting production and sales across a wide range of
industries. The extent of the impact of COVID-19 on our
operational and financial performance will depend on certain
developments, including the duration and spread of the outbreak,
impact on our customers, employees and vendors all of which are
uncertain and cannot be predicted. At this point, the extent to
which COVID-19 may impact our financial condition or results
of operations is uncertain.
Results
of Operations
We
operate as one operating and reportable segment. The following
table sets forth, for the periods presented, the combined
statements of operations data, which we derived from the
accompanying financial statements.
| |
|
For the Years Ended
December 31, |
|
|
|
|
| |
|
2020 |
|
2019 |
|
$ CHG |
|
% CHG |
| REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Revenue |
|
$ |
2,168,000 |
|
|
$ |
3,228,000 |
|
|
|
(1,060,000 |
) |
|
|
-33 |
% |
| Cost of
revenue |
|
|
800,000 |
|
|
|
1,613,000 |
|
|
|
(813,000 |
) |
|
|
-50 |
% |
| GROSS
PROFIT |
|
|
1,368,000 |
|
|
|
1,615,000 |
|
|
|
(247,000 |
) |
|
|
-15 |
% |
| Gross profit
margin |
|
|
63 |
% |
|
|
50 |
% |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Employee related
costs |
|
|
4,786,000 |
|
|
|
8,123,000 |
|
|
|
(3,337,000 |
) |
|
|
-41 |
% |
| Marketing and selling
expenses |
|
|
1,167,000 |
|
|
|
2,515,000 |
|
|
|
(1,348,000 |
) |
|
|
-54 |
% |
| Platform
Costs |
|
|
1,157,000 |
|
|
|
1,251,000 |
|
|
|
(94,000 |
) |
|
|
-8 |
% |
| Depreciation and
amortization |
|
|
920,000 |
|
|
|
929,000 |
|
|
|
(9,000 |
) |
|
|
-1 |
% |
| General and
administrative |
|
|
1,919,000 |
|
|
|
4,778,000 |
|
|
|
(2,859,000 |
) |
|
|
-60 |
% |
|
Total
operating expenses |
|
|
9,949,000 |
|
|
|
17,596,000 |
|
|
|
(7,647,000 |
) |
|
|
-43 |
% |
| LOSS FROM
OPERATIONS |
|
|
(8,581,000 |
) |
|
|
(15,981,000 |
) |
|
|
7,400,000 |
|
|
|
-46 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing
Costs |
|
|
(7,421,000 |
) |
|
|
(694,000 |
) |
|
|
(6,727,000 |
) |
|
|
969 |
% |
| Interest
income |
|
|
- |
|
|
|
8,000 |
|
|
|
(8,000 |
) |
|
|
-100 |
% |
| Gains from marketable
securities |
|
|
305,000 |
|
|
|
50,000 |
|
|
|
255,000 |
|
|
|
510 |
% |
| Unrealized loss on
marketable securities |
|
|
- |
|
|
|
(6,000 |
) |
|
|
|
|
|
|
|
|
| Change in fair value
of derivative liabilities |
|
|
196,000 |
|
|
|
1,000,000 |
|
|
|
(804,000 |
) |
|
|
-80 |
% |
| Exchange
gain |
|
|
- |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
| Total other income
(loss) |
|
|
(6,920,000 |
) |
|
|
377,000 |
|
|
|
(7,297,000 |
) |
|
|
-1936 |
% |
| Loss before provision
for income taxes |
|
|
(15,501,000 |
) |
|
|
(15,604,000 |
) |
|
|
103,000 |
|
|
|
-1 |
% |
| Provision for income
taxes |
|
|
(5,000 |
) |
|
|
- |
|
|
|
(5,000 |
) |
|
|
n/a |
|
| Net loss |
|
$ |
(15,506,000 |
) |
|
$ |
(15,604,000 |
) |
|
|
98,000 |
|
|
|
-1 |
% |
BIGtoken revenues
BIGtoken
revenues for
the year-ended December 31, 2020 decreased to $2,168,000 or 33%
compared to $3,228,000 during the year ended December 31, 2019.
This decrease is primarily driven by the suspension of several of
our customer’s marketing campaigns during the end of the first
quarter and through the second quarter.
BIGtoken Profit
Margin
BIGtoken’s
costs of
revenue consist of media acquired from third parties to fulfill the
media and advertising components of our revenues. Profit margin for
the year-ended December 31, 2020 increased to 63% as compared to
50% in 2019. The increase is driven by enhanced operational
execution.
Operating Expenses
BIGtoken Operating Expenses
Our
operating costs for the year-ended December 31, 2020 declined to
$9,949,000 or by 43% as compared to $17,596,000 for the year-ended
December 31, 2019. The decrease in operating expenses were
attributable to the following: to the reductions in staffing
related and other general administrative expenses attributable to
our legacy media verticals, and the reduction of our BIGtoken point
liability.
|
|
Employee
Related Costs. These are the costs we incur to employ our
staff. For the year-ended December 31, 2020 employee related costs
decreased to $4,786,000 from $8,123,000 for the full year period
ending December 31, 2019, representing a decrease of $3,337,000 or
approximately 41%. The decrease is primarily due to a reduction in
employees in our sales and operations departments. |
| |
|
| |
Platform
costs. Consist of the technology and content hosting.
Platform costs for the full year ending December 31, 2020 were
$1,157,000 as compared to $1,251,000 for the year ended December
31, 2019, representing a decrease of $94,000 or 8%. We expect these
costs to continue to increase in absolute dollars as we continue to
grow our user database but expect that they continue to decrease as
a percentage of our revenues. |
| |
|
| |
Marketing,
data services and sales. These are the costs for the full year
ending December 31, 2020 were $1,167,000 as compared to $2,515,000
for the year ended December 31, 2019, representing a decrease of
$1,348,000 or 54%. For the year-ended December 31, 2020 and 2019,
the company incurred $364,000 and $960,000, respectively, in
expenses related to payments to users for point redemptions and
accruals for future redemptions. This represents a decrease of
$596,000 or 62%. |
| |
|
| |
General
and administrative. General and administrative expense consists
primarily of human resources, information technology, professional
fees, IT and facility overhead, and other general corporate
expense. General and Administrative expenses were $1,919,000 and
$4,778,000 for the full years ending December 31, 2020 and 2019,
respectively, which represents a decrease of $2,859,000 or 60%. The
decrease in expense in driven by a decrease in the allocation of
corporate overhead of approximately $2,800,000. |
Interest Expense and Financing Cost
Our
financing cost for the year-ended December 31, 2020 increased to
$7,421,000 compared to $694,000 for 2019 for an increase of
approximately $6,727,000 or 969%. The increase is driven by cost
incurred by our Parent in order to fund operations through the sale
of convertible debentures in June of 2020 as compared to financing
the operations of the business through the sale of assets and
equity securities in 2019.
Change
in the Fair Value our Warrant Liabilities
Income
or loss associated with the changes in the fair value of warrant
liabilities have been recorded in other income for the full years
ended December 31, 2020 and 2019 and represent a proportionate
allocation of the income / (loss) our Parent has incurred
attributable to the changes in the calculated value of warrants it
issued through various financing transactions in 2017 through
2020.
Summary
of Cash Flows
| |
|
Full Year
Ended December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Net cash used in
operating activities |
|
$ |
(4,322,000 |
) |
|
|
(7,484,000 |
) |
| Net cash used in
investing activities |
|
|
(175,000 |
) |
|
|
(748,000 |
) |
| Net cash provided by
financing activities |
|
|
4,497,000 |
|
|
|
8,194,000 |
|
Cash
flows from operating activities
Our
largest source of operating cash is payments from customers. Our
customers typically pay us from 60 to 120 days from the date we
invoice them. The primary use of operating cash is to pay our media
suppliers, employees and our users through point redemptions, and
others for a wide range of services. Cash flows used in our
operating activities decreased by $3,162,000 or 42% in 2020
primarily driven by a reduction in operating expenses.
Cash
flows from investing activities
Our
principal recurring investing activity is the funding of our
internal software development. Expenditures for software
development were $572,000 and $748,000 for the years ended 2020 and
2019, respectively. During the year-ended 2020, the Company
generated $397,000 from the sale of marketable securities it held
in a customer.
Cash
flows from financing activities
Cash
provided by financing activities represents cash contributed by our
Parent to fund our operations. We have accounted for these cash
contributions initially as Net Parent Investment within the equity
section of our Carve-Out Balance Sheets. Upon the Reverse Merger,
the Net Parent Investment has been presented as the par value and
additional paid-in capital for the common stock and series A
preferred stock equivalent number of shares received by SRAX from
the Reverse Merger.
Cash
provided by financing activities for the year ended December 31,
2020 decreased by approximately $3,697,000 or 45%. This decrease
was driven primarily by the decrease in our operating
activities.
Liquidity
and Capital Resources
Historically,
our operations have participated in cash management and funding
arrangements managed by SRAX. Cash flows related to financing
activities primarily reflect changes in Net parent investment.
Other than those that are in BIGtoken designated legal entities,
SRAX’s cash has not been assigned to us for any of the periods
presented because those cash balances are not directly attributable
to us. Cash and cash equivalents presented in the combined balance
sheets represent amounts pertaining to the BIGtoken legal entity
only. Cash used in operations decreased from $7,484,000 for the
year ended December 31, 2019 to $4,322,000 for the year ended
December 31, 2020 due primarily to a reduction in operating
expenses. Prior to the Share Exchange, we were dependent on SRAX
for our continued support to fund our operations. Upon the close of
our Share Exchange, we obtained access to approximately $1,000,000
in cash on hand and have raised an additional $4,500,000 through a
private offering of our Series B Preferred Stock.
Our
capital structure and sources of liquidity will change
significantly from our historical capital structure. Following the
Share Exchange, we expect to use cash flows generated from
operations, together with $1,000,000 in cash on-hand and the
proceeds of $4,500,000 from the sale of preferred stock, as our
primary sources of liquidity. Based on our current plans and market
conditions, we believe that such sources of liquidity will be
sufficient to satisfy our anticipated cash requirements for at
least through the third quarter of 2021. We plan on embracing
digital assets such as cryptocurrencies going forward. At present
we have not finalized any operating plans and accordingly, do not
yet have an estimate of the amount of additional capital that such
initiatives will require or the impact of such initiatives on our
cash burn rate. However, we may require or desire additional funds
to support our operating expenses and capital requirements or for
other purposes, such as acquisitions, and may seek to raise such
additional funds through public or private equity or debt financing
or from other sources. We cannot assure you that additional
financing will be available at all or that, if available, such
financing would be obtainable on terms favorable to us and would
not be dilutive. Our future liquidity and cash requirements will
depend on numerous factors, including the introduction of new
products and potential acquisitions of related businesses or
technology.
Going Concern
The
Company has incurred significant losses since its inception and has
not demonstrated an ability to generate sufficient revenues to
achieved profitable operations. In addition, the Company’s
operations will require significant additional financing. As of the
closing of the Series B offering the Company had cash and cash
equivalents of approximately $5 million which is not sufficient to
fund the Company’s planned operations through one year after the
date the consolidated financial statements are issued, and
accordingly, these factors create substantial doubt about the
Company’s ability to continue as a going concern within one year
after the date that the consolidated financial statements are
issued. The consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern. Accordingly, the consolidated
financial statements have been prepared on a basis that assumes the
Company will continue as a going concern and which contemplates the
realization of assets and satisfaction of liabilities and
commitments in the ordinary course of business.
In
making this assessment we performed a comprehensive analysis of our
current circumstances including: our financial position, our cash
flow and cash usage forecasts, and obligations and debts. Although
our Parent Company’s management has a long history of successful
capital raises, the analysis used to determine the Company’s
ability to continue as a going concern does not include cash
sources outside the Company’s direct control that management
expects to be available within the next 12 months.
Arrangements
Between SRAX and Our Company
We
have entered into certain agreements that will affect the
separation of our business from SRAX, provide a framework for our
relationship with SRAX after the separation and provide for the
allocation between us and SRAX of SRAX’s assets, employees,
liabilities and obligations (including its investments, property
and employee benefits assets and liabilities) attributable to
periods prior to, at and after our separation from SRAX,
specifically:
|
|
● |
the
MSA; and |
| |
|
|
| |
● |
the
TSA. |
The
material terms of each of these agreements are summarized below.
These summaries are qualified in their entirety by reference to the
full text of such agreements, which are filed as exhibits to our
public filings. When used in this section, “separation date” refers
to the date on which SRAX will contribute the BIG Token business to
us, which will occur prior to the completion of this Share
Exchange.
The Master Separation Agreement
The
MSA identifies assets to be transferred, liabilities to be assumed
and contracts to be assigned to each of us and SRAX as part of the
separation of SRAX into two companies, and will provide for when
and how these transfers, assumptions and assignments will occur. In
particular, the MSA provides for, among other things, that, subject
to certain exceptions and the terms and conditions contained
therein:
|
|
● |
the
assets exclusively related to the businesses and operations of
SRAX’s BIG Token business as well as certain other assets mutually
agreed upon by SRAX and BIG Token, which we collectively refer to
as the “BIG Token Assets,” will be transferred to FPVD or one of
our subsidiaries; |
| |
|
|
| |
● |
certain
liabilities (including whether accrued, contingent or otherwise)
arising out of or resulting from the BIG Token Assets, and other
liabilities related to the businesses and operations of SRAX’s BIG
Token business, which we collectively refer to as the “BIG Token
Liabilities,” will be retained by or transferred to us or one of
our subsidiaries; |
| |
|
|
| |
● |
certain
shared contracts will be assigned in part to us or our applicable
subsidiaries or be appropriately amended. |
Except
as may expressly be set forth in the MSA or any other transaction
agreements, all assets will be transferred on an “as is,” “where
is” basis, and the respective transferees will bear the economic
and legal risks that (1) any conveyance will prove to be
insufficient to vest in the transferee good title, free and clear
of any security interest, and (2) any necessary consents or
governmental approvals are not obtained or that any requirements of
laws or judgments are not complied with.
Claims
In
general, each party to the MSA will assume liability for all
pending, threatened and unasserted legal matters related to its own
business or its assumed or retained liabilities and will indemnify
the other party for any liability to the extent arising out of or
resulting from such assumed or retained legal matters.
Intercompany
Accounts
The
MSA provides that, subject to any provisions in the MSA or any
other transaction agreement to the contrary, at or prior to the
separation from SRAX, all intercompany accounts between SRAX and
its subsidiaries, on the one hand, and BIG Token and its
subsidiaries, on the other hand, will be settled.
Further
Assurances
To
the extent that any transfers or assignments contemplated by the
MSA have not been consummated on or prior to the date of the
separation, the parties will agree to cooperate to effect such
transfers as promptly as practicable following the date of the
separation. In addition, each of the parties will agree to
cooperate with the other party and use commercially reasonable
efforts to take or to cause to be taken all actions, and to do, or
to cause to be done, all things reasonably necessary under
applicable law or contractual obligations to consummate and make
effective the transactions contemplated by the MSA and the other
transaction agreements.
Financial
Covenants; Auditors and Audits; Annual Financial Statements and
Accounting
We
have agreed that, for so long as SRAX is required to consolidate
our results of operations and financial position or account for its
investment in our company under the equity method of accounting, we
will, among other things:
|
|
● |
maintain
disclosure controls and procedures and internal control over
financial reporting that will provide reasonable assurance that,
among other things, (1) our annual and quarterly financial
statements are reliable and timely prepared in accordance with GAAP
and applicable law, (2) our transactions are recorded as necessary
to permit the preparation of our financial statements, (3) receipts
and expenditures are authorized at the appropriate level within BIG
Token and (4) unauthorized uses and dispositions of assets that
could have a material effect on our financial statements are
prevented or detected in a timely manner; |
| |
● |
maintain
the same fiscal year as SRAX; |
| |
|
|
| |
● |
establish
a disclosure committee that will review our Forms 10-Q, 10-K and
other significant filings with the SEC, and permit up to three
employees selected by SRAX to attend such committee’s
meetings; |
| |
|
|
| |
● |
not
change our independent auditors without SRAX’s prior written
consent; |
| |
|
|
| |
● |
use
our reasonable best efforts to enable our independent auditors to
complete their audit of our financial statements in a timely manner
so as to permit timely filing of SRAX’s financial
statements; |
| |
|
|
| |
● |
provide
to SRAX and its independent auditors all information required for
SRAX to meet its schedule for the filing and distribution of its
financial statements and to make available to SRAX and its
independent auditors all documents necessary for the annual audit
of our company as well as access to the responsible company
personnel so that SRAX and its independent auditors may conduct
their audits relating to our financial statements; |
| |
|
|
| |
● |
adhere
to certain specified SRAX accounting policies and notify and
consult with SRAX regarding any changes to our accounting
principles and estimates used in the preparation of our financial
statements, and any deficiencies in, or violations of law in
connection with, our internal control over financial
reporting; |
| |
|
|
| |
● |
coordinate
with SRAX regarding the timing and content of our earnings releases
and cooperate fully (and cause our independent auditors to
cooperate fully) with SRAX in connection with any of its public
filings; and |
| |
|
|
| |
● |
promptly
report in reasonable detail to SRAX the following events or
circumstances that we become aware of: (1) significant deficiencies
and material weaknesses which are reasonably likely to adversely
affect our ability to report financial information; (2) any fraud
that involves management or other employees who have a significant
role in our internal control over financial reporting; (3) illegal
acts; and (4) any report of a material violation of law made
pursuant to the SEC’s attorney conduct rules. |
Indemnification
In
addition, the MSA provides for cross-indemnities principally
designed to place financial responsibility for the obligations and
liabilities of our business with us and financial responsibility
for the obligations and liabilities of SRAX’s business with SRAX.
Specifically, each party will indemnify, defend and hold harmless
the other party, its affiliates and subsidiaries and their
respective officers, directors, employees and agents (collectively,
the “indemnified parties”) for any losses arising out of or
otherwise in connection with:
|
|
● |
the
liabilities that each such party assumed or retained pursuant to
the MSA (which, in our case, would include the BIG Token
Liabilities and, in the case of SRAX, would include the SRAX
Liabilities) and the other transaction agreements; |
| |
|
|
| |
● |
the
failure of SRAX or us to pay, perform or otherwise promptly
discharge any of the SRAX Liabilities or the BIG Token Liabilities,
respectively, in accordance with their terms, whether prior to, at
or after the separation; |
| |
|
|
| |
● |
any
breach by such party of the MSA or the other transaction agreements
(other than the intellectual property rights cross-license
agreement, which specifies the parties’ obligations therein);
and |
| |
|
|
| |
● |
except
to the extent relating to a BIG Token Liability, in the case of
SRAX, or a SRAX Liability, in our case, any guarantee,
indemnification or contribution obligation, surety bond or other
credit support agreement or arrangement for the benefit of SRAX or
us, respectively. |
We
will also indemnify, defend and hold harmless the SRAX indemnified
parties for any losses arising out of or otherwise in connection
with any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, with respect to all information (1)
contained in any of our public filings with the SEC following the
Share Exchange or (3) provided by us to SRAX specifically for
inclusion in SRAX’s annual or quarterly or current reports
following the Share Exchange to the extent (A) such information
pertains to us or the BIG Token business or (B) SRAX has provided
prior written notice to us that such information will be included
in one or more annual or quarterly or current reports, specifying
how such information will be presented, and the information is
included in such annual or quarterly or current reports (except, in
the case of clause (B), for liabilities arising out of or resulting
from, or in connection with, any action or inaction of any member
of SRAX, including as a result of any misstatement or omission of
any information by SRAX to us).
SRAX
will also indemnify, defend and hold harmless the BIG Token
indemnified parties for any losses arising out of or otherwise in
connection with any untrue statement or alleged untrue statement of
a material fact or omission or alleged omission to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, with respect to all information
(1) contained in our registration statement on Form S-1, of which
this Form 10 is a part, or any Form 10 provided by SRAX
specifically for inclusion therein to the extent such information
pertains to (A) SRAX or (B) SRAX’s business (for the avoidance of
doubt, other than the BIG Token business) or (2) provided by SRAX
to us specifically for inclusion in our annual or quarterly or
current reports following the Share Exchange to the extent (A) such
information pertains to (x) SRAX or (y) SRAX’s business (for the
avoidance of doubt, other than the BIG Token business) or (B) we
have provided written notice to SRAX that such information will be
included in one or more annual or quarterly or current reports,
specifying how such information will be presented, and the
information is included in such annual or quarterly or current
reports (except, in the case of clause (B), for liabilities arising
out of or resulting from, or in connection with, any action or
inaction of ours, including as a result of any misstatement or
omission of any information by us to SRAX.
The
MSA also specifies procedures with respect to claims subject to
indemnification and related matters.
Other
Provisions
The
master separation agreement will also govern other matters related
to the consummation of this Share Exchange and the distribution,
the provision and retention of records, access to information,
confidentiality, cooperation with respect to governmental filings
and third-party consents and insurance.
Transition
Services Agreement
In
connection with the completion of this Share Exchange we entered
into a TSA with SRAX pursuant to which SRAX will provide us with
specified services for an indefinite period of limited time to help
ensure an orderly transition following the separation. The TSA
specifies the calculation of our costs for these services. The cost
of these services will be negotiated between us and
SRAX.
In
general, the services will begin on the date of the closing of the
Share Exchange and will cover a period generally not expected to
exceed 12 months. We and SRAX have agreed to perform our respective
services with substantially the same nature, quality, standard of
care and service levels at which the same or similar services were
performed by or on behalf of us or SRAX, as applicable, prior to
the separation or, if not so previously provided, then
substantially similar to those which are applicable to similar
services provided to the affiliates or other business components of
us or SRAX, as applicable.
The
TSA generally provides that the applicable service recipient
indemnifies the applicable service provider for liabilities that
such service provider incurs arising from the provision of services
other than liabilities arising from such service provider’s gross
negligence, bad faith or willful misconduct or material breach of
the TSA, and that the applicable service provider indemnifies the
applicable service recipient for liabilities that such service
recipient incurs arising from such service provider’s gross
negligence, bad faith or willful misconduct or material breach of
the TSA.
Employees
and Human Capital Resources
As of
March 26, 2021, we had 59 full-time employees. 2 are engaged in
executive management such as our Chief Executive Officer, 33 in
information technology including those participating in our
research and development efforts, 15 in sales and marketing, 8 in
integration and customer support and 1 in administration. All
employees are employed “at will.” We believe our relations with our
employees are generally positive and we have no collective
bargaining agreements with any labor unions.
Our
human capital resources objectives include, as applicable,
identifying, recruiting, retaining, incentivizing and integrating
our existing and new employees. The principal purposes of our
equity and cash incentive plans are to attract, retain and reward
personnel, whether existing employees or new hires, through the
granting of stock-based and cash-based compensation awards. We
believe that this increases value to our stockholders and the
success of our company by motivating such individuals to perform to
the best of their abilities and achieve our objectives.
As
the success of our business is fundamentally connected to the
well-being of our employees, we are committed to their health,
safety and wellness. We provide our employees and their families
with access to convenient health and wellness programs, including
benefits that provide protection and security giving them peace of
mind concerning events that may require time away from work or that
impact their financial well-being; and that offer choice where
possible so they can customize their benefits to meet their needs
and the needs of their families. In response to the COVID-19
pandemic, we implemented significant changes that we determined
were in the best interest of our employees, as well as the
community in which we operate, and which comply with government
regulations, including working in a remote environment where
appropriate or required.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amount in our carve-out financial statements and
related notes. On an ongoing basis, we evaluate estimates which are
subject to significant judgment. The more critical accounting
estimates include estimates related to revenue recognition and
accounts receivable allowances. We also have other key accounting
policies, which involve the use of estimates, judgments and
assumptions that are significant to understanding our results,
which are described in Note 1 to our carve-out financial statements
for the years ended December 31, 2020 and 2019 appearing elsewhere
in this report.
The
following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our carve-out
financial statements. In addition, you should refer to our
accompanying carve-out balance sheets as of December 31, 2020 and
2019, and the carve-out statements of operations, changes in
stockholders’ equity and cash flows for the fiscal years ended
December 31, 2020 and 2019, and the related notes thereto, for
further discussion of our accounting policies.
On an
ongoing basis, we evaluate our estimates compared to historical
experience and trends, which form the basis for making judgments
about the carrying value of assets and liabilities. To the extent
that there are material differences between our estimates and our
actual results, our future financial statement presentation,
financial condition, results of operations and cash flows will be
affected.
We
believe the assumptions and estimates associated with the following
have the greatest potential impact on our consolidated financial
statements.
Use of Estimates
The
Carve-Out Financial Statements have been prepared in conformity
with U.S. GAAP and requires management of the Company to make
estimates and assumptions in the preparation of these Carve-Out
Financial Statements that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the Carve-Out Financial Statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates and
assumptions.
The
most significant areas that require management judgment and which
are susceptible to possible change in the near term include the
Company’s revenue recognition, provision for bad debts, BIGtoken
point redemption liability, stock-based compensation, income taxes,
goodwill and intangible assets.
As of
December 31, 2020, the impact of COVID-19 continues to unfold and
as a result, certain estimates and assumptions require increased
judgment and carry a higher degree of variability and volatility
that could result in material changes to our estimates in future
periods.
Fair Value of Financial Instruments
The
accounting standard for fair value measurements provides a
framework for measuring fair value and requires disclosures
regarding fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date, based on the Company’s principal or, in
absence of a principal, most advantageous market for the specific
asset or liability.
The
Company uses a three-tier fair value hierarchy to classify and
disclose all assets and liabilities measured at fair value on a
recurring basis, as well as assets and liabilities measured at fair
value on a non-recurring basis, in periods subsequent to their
initial measurement. The hierarchy requires the Company to use
observable inputs when available, and to minimize the use of
unobservable inputs, when determining fair value. The three tiers
are defined as follows:
Level
1—Observable inputs that reflect quoted market prices (unadjusted)
for identical assets or liabilities in active markets;
Level
2—Observable inputs other than quoted prices in active markets that
are observable either directly or indirectly in the marketplace for
identical or similar assets and liabilities; and
Level
3—Unobservable inputs that are supported by little or no market
data, which require the Company to develop its own
assumptions.
The
determination of fair value and the assessment of a measurement’s
placement within the hierarchy requires judgment. Level 3
valuations often involve a higher degree of judgment and
complexity. Level 3 valuations may require the use of various cost,
market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions
could vary depending on the asset or liability valued and the
valuation method used. Such assumptions could include: estimates of
prices, earnings, costs, actions of market participants, market
factors, or the weighting of various valuation methods. The Company
may also engage external advisors to assist us in determining fair
value, as appropriate.
Although
the Company believes that the recorded fair value of our financial
instruments is appropriate, these fair values may not be indicative
of net realizable value or reflective of future fair
values.
The
Company’s financial instruments, including cash and cash
equivalents, net accounts receivable, accounts payable and accrued
expenses, are carried at historical cost. At December 31, 2020 and
2019, the carrying amounts of these instruments approximated their
fair values because of the short-term nature of these instruments.
The Company measures certain non-financial assets, liabilities, and
equity issuances at fair value on a non-recurring basis. These
non-recurring valuations include evaluating assets such as
long-lived assets and goodwill for impairment; allocating value to
assets in an acquired asset group; and applying accounting for
business combinations.
MARKETABLE
SECURITIES
Shares
received will be accounted for in accordance with ASC 320 –
Investments – Debt and Equity Securities, as such the shares will
be classified as available-for-sale securities and will be measured
at each reporting period at fair value with the unrealized gain
(loss) as a component of other income (expense). Upon the sale of
the shares, the Company will record the gain (loss) in the
carve-out statement of operations as a component of other income
(expense).
LONG-LIVED
ASSETS
Management
evaluates the recoverability of the Company’s identifiable
intangible assets and other long-lived assets when events or
circumstances indicate a potential impairment exists. Events and
circumstances considered by the Company in determining whether the
carrying value of identifiable intangible assets and other
long-lived assets may not be recoverable include, but are not
limited to: significant changes in performance relative to expected
operating results; significant changes in the use of the assets;
significant negative industry or economic trends; a significant
decline in the Company’s stock price for a sustained period of
time; and changes in the Company’s business strategy. In
determining if impairment exists, the Company estimates the
undiscounted cash flows to be generated from the use and ultimate
disposition of these assets. If impairment is indicated based on a
comparison of the assets’ carrying values and the undiscounted cash
flows, the impairment loss is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
No impairments have been recorded regarding its identifiable
intangible assets or other long-lived assets during the year ended
December 31, 2020 and 2019, respectively.
Intangible assets
Intangible
assets consist of the Company’s intellectual property of internally
developed software and are stated at cost less accumulated
amortization. Amortization is provided for on the straight-line
basis over the estimated useful lives of the assets of five to nine
years.
Costs
incurred to develop computer software for internal use are
capitalized once: (1) the preliminary project stage is completed,
(2) management authorizes and commits to funding a specific
software project, and (3) it is probable that the project will be
completed and the software will be used to perform the function
intended. Costs incurred prior to meeting the qualifications are
expensed as incurred. Capitalization of costs ceases when the
project is substantially complete and ready for its intended use.
Post-implementation costs related to the internal use computer
software, are expensed as incurred. Internal use software
development costs are amortized using the straight-line method over
its estimated useful life which ranges up to three years. Software
development costs may become impaired in situations where
development efforts are abandoned due to the viability of the
planned project becoming doubtful or due to technological
obsolescence of the planned software product.
During
2018, the Company began to capitalize the costs of developing
internal-use computer software, including directly related payroll
costs.
The
Company capitalizes costs incurred during the application
development stage of internal-use software and amortize these costs
over the estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enable the
software to perform tasks it was previously incapable of
performing. Software maintenance, training, data conversion, and
business process reengineering costs are expensed in the period in
which they are incurred.
Goodwill
Goodwill
is comprised of the purchase price of business combinations in
excess of the fair value assigned at acquisition to the net
tangible and identifiable intangible assets acquired. Goodwill is
not amortized. The Company tests goodwill for impairment for its
reporting units on an annual basis, or when events occur or
circumstances indicate the fair value of a reporting unit is below
its carrying value. If the fair value of a reporting unit is less
than its carrying value, an impairment loss is recorded to the
extent that implied fair value of the goodwill within the reporting
unit is less than its carrying value. The Company performed its
most recent annual goodwill impairment test as of December 31, 2020
using market data and discounted cash flow analysis. Based on this
analysis, it was determined that the fair value exceeded the
carrying value of its reporting units.
The
Company had historically performed its annual goodwill and
impairment assessment on December 31st of each year.
This aligns the Company with other technology companies who also
generally conduct this annual analysis in the fourth
quarter.
When
evaluating the potential impairment of goodwill, management first
assess a range of qualitative factors, including but not limited
to, macroeconomic conditions, industry conditions, the competitive
environment, changes in the market for the Company’s products and
services, regulatory and political developments, entity specific
factors such as strategy and changes in key personnel, and the
overall financial performance for each of the Company’s reporting
units. If, after completing this assessment, it is determined that
it is more likely than not that the fair value of a reporting unit
is less than its carrying value, we then proceed to the impairment
testing methodology primarily using the income approach (discounted
cash flow method).
We
compare the carrying value of the goodwill, with its fair value, as
determined by a combination of the market approach and income
approach, its estimated discounted cash flows. If the carrying
value of goodwill exceeds its fair value, the excess amount will be
recognized as an impairment charge. We operate as one reporting
unit.
When
required, we arrive at our estimates of fair value using a
discounted cash flow methodology which includes estimates of future
cash flows to be generated by specifically identified assets, as
well as selecting a discount rate to measure the present value of
those anticipated cash flows. Estimating future cash flows requires
significant judgment and includes making assumptions about
projected growth rates, industry-specific factors, working capital
requirements, weighted average cost of capital, and current and
anticipated operating conditions. The use of different assumptions
or estimates for future cash flows could produce different
results.
Revenue Recognition
BIGtoken
applies Accounting Standards Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers (“ASC Topic 606”). The core
principle of ASC 606 requires that an entity recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. ASC
606 defines a five-step process to achieve this core principle and,
in doing so, it is possible more judgment and estimates may be
required within the revenue recognition process than required under
existing U.S. GAAP including identifying performance obligations in
the contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction
price to each separate performance obligation.
The
following five steps are applied to achieve that core
principle:
|
|
● |
Step
1: Identify the contract with the customer; |
| |
|
|
| |
● |
Step
2: Identify the performance obligations in the
contract; |
| |
|
|
| |
● |
Step
3: Determine the transaction price; |
| |
|
|
| |
● |
Step
4: Allocate the transaction price to the performance
obligations in the contract; and |
| |
|
|
| |
● |
Step
5: Recognize revenue when the company satisfies a performance
obligation. |
Under
current and prior revenue guidance, revenues are recognized when
control of the promised goods or services are transferred to the
customer, in an amount that reflects the consideration to which the
Company expects to be entitled in exchange for those good or
services.
Stock-Based Compensation
The
Company’s employees have historically participated in SRAX’s
stock-based compensation plans. Stock-based compensation expense
has been allocated to the Company based on the awards and terms
previously granted to the Company’s employees as well as an
allocation of SRAX’s corporate and shared functional employee
expenses.
We
account for our stock-based compensation under ASC 718
“Compensation – Stock Compensation” using the fair
value-based method. Under this method, compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period. This guidance establishes standards for the accounting for
transactions in which an entity exchanges it equity instruments for
goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that
are based on the fair value of the entity’s equity instruments or
that may be settled by the issuance of those equity
instruments.
We
use the fair value method for equity instruments granted to
non-employees and use the Black-Scholes model for measuring the
fair value of options. The stock based fair value compensation is
determined as of the date of the grant or the date at which the
performance of the services is completed (measurement date) and is
recognized over the vesting periods.
Income taxes
The
Company’s operations have historically been included in SRAX’s
combined U.S. income tax returns. Income tax expense included in
the Carve-Out Financial Statements has been calculated following
the separate return method, as if the Company was a stand-alone
enterprise and a separate taxpayer for the periods presented. The
calculation of income taxes on a separate return basis requires
considerable judgment and the use of both estimates and allocations
that affect the calculation of certain tax liabilities and the
determination of the recoverability of certain deferred tax assets,
which arise from temporary differences between the tax and the
Carve-Out Financial Statement recognition of revenues and expenses.
As a result, the Company’s deferred income tax rate and deferred
tax balances may differ from those in SRAX’s historical
results.
The
provision for income taxes is determined using the asset and
liability approach. Deferred taxes represent the future tax
consequences expected when the reported amounts of assets and
liabilities are recovered or paid. Deferred taxes result from
differences between the Carve-Out Financial Statement and tax bases
of the Company’s assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. In evaluating the
Company’s ability to recover our deferred tax assets within the
jurisdiction from which they arise, we consider all available
positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax
planning strategies, and results of operations. Any tax
carryforwards reflected in the Carve-Out Financial Statements have
also been determined using the separate return method. Tax
carryforwards include net operating losses.
The
complexity of tax regulations requires assessments of uncertainties
in estimating taxes the Company will ultimately pay. The Company
recognizes liabilities for anticipated tax audit uncertainties
based on its estimate of whether, and the extent to which
additional taxes would be due on a separate return basis. Tax
liabilities are presented net of any related tax loss
carryforwards.
Recently
Issued Accounting Pronouncements
For
further information on recently issued accounting pronouncements,
see Note 1—Summary of Significant Accounting Policies in the
accompanying notes to consolidated financial statements included in
Part II, Item 8, “Financial Statements and Supplementary Data” of
this Annual Report on Form 10-K.
Off
balance sheet arrangements
As of
the date of this report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to
investors. The term “off-balance sheet arrangement” generally means
any transaction, agreement or other contractual arrangement to
which an entity unconsolidated with us is a party, under which we
have any obligation arising under a guarantee contract, derivative
instrument or variable interest or a retained or contingent
interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support
for such assets.
|
ITEM 7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not
applicable for a smaller reporting company.
|
ITEM 8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA. |
Please
see our consolidated financial statements beginning on page F-1 of
this annual report.
|
ITEM 9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE. |
None.
|
ITEM 9A. |
CONTROLS
AND PROCEDURES. |
Evaluation
of Disclosure Controls and Procedures
Our
management, consisting of our Principal Executive Officer and Chief
Financial Officer has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of December 31, 2020. This
evaluation included consideration of the controls, processes and
procedures that are designed to ensure that information required to
be disclosed by the Company in the reports the Company files or
submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules
and forms, and to provide reasonable assurance that such
information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. Management has identified material
weaknesses in the Company’s internal control over financial
reporting. Based on that evaluation, management concluded that our
disclosure controls and procedures as of December 31, 2020 were
ineffective.
Inherent
Limitations over Internal Controls
The
Company’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles (“GAAP”). The Company’s internal control over financial
reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the Company’s assets;
(ii)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with GAAP, and that the Company’s receipts and
expenditures are being made only in accordance with authorizations
of the Company’s management and directors; and
(iii)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements.
(iv)
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
|
ITEM 9B. |
OTHER
INFORMATION. |
On March
16, 2021, our Board of Directors approved the 2021 Equity Incentive
Plan (“2021 Plan”). The 2021 Plan has not been approved by the
Company’s stockholders, and is administered by our Board or such
committee appointed by the Board. The 2021 Plan provides for the
grant of incentive stock options, nonstatutory stock options,
restricted stock, performance units, performance shares, restricted
stock units, and other stock-based awards to our employees,
directors, and consultants. The purpose of the 2021 Plan is to
attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to our
employees, directors and consultants, and to promote the success of
the Company’s business. Under the terms of the 2021 Plan, the
Company initially reserved 15,824,493,516 shares of Common Stock,
subject to an automatic increase on the first day of each calendar
year such that the number of shares available for issuance under
the 2021 Plan will be 10% of the outstanding shares of Common Stock
of the company. The 2021 Plan further authorizes the administrator
to amend the exercise price and terms of certain awards thereunder.
As of the date of this Annual Report, no awards have been granted
under the 2021 Plan.
PART III
|
ITEM 10. |
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The
information required by this Item is set forth under the heading
“Directors, Executive Officers and Corporate Governance” in our
2021 Proxy Statement to be filed with the SEC in connection with
the solicitation of proxies for our 2021 Annual Meeting of
Shareholders (“2021 Proxy Statement”) and is incorporated herein by
reference. Such Proxy Statement will be filed with the SEC within
120 days after the end of the fiscal year to which this report
relates. The information required by this item regarding delinquent
filers pursuant to Item 405 of Regulation S-K will be included
under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2021 Proxy Statement and is incorporated herein
by reference.
|
ITEM 11. |
EXECUTIVE
COMPENSATION. |
The
information required by this Item is set forth under the headings
“Director Compensation” and “Executive Compensation” of our 2021
Proxy Statement and is incorporated herein by reference.
|
ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS. |
The
information required by this Item is set forth under the headings
“Beneficial Owners of Shares of Common Stock” and “Equity
Compensation Plan Information” of our 2021 Proxy Statement and is
incorporated herein by reference.
|
ITEM 13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. |
The
information required by this Item is set forth under the heading
“Certain Relationships and Related Transactions” of our 2021 Proxy
Statement and is incorporated herein by reference.
|
ITEM 14. |
PRINCIPAL
ACCOUNTING FEES AND SERVICES. |
The
information required by this Item is set forth under the heading
“Independent Registered Public Accounting Firm” of our 2021 Proxy
Statement and is incorporated herein by reference.
PART IV
|
ITEM 15. |
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES. |
Documents
filed as part of this report:
|
|
(1) |
Financial
Statements. See Index to Consolidated Financial Statements
appearing on page F-1. |
| |
|
|
| |
(2) |
Exhibits |
|
ITEM 16. |
FORM
10-K SUMMARY. |
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
Force
Protection Video Equipment, Inc. |
|
|
|
|
| April
15, 2021 |
By: |
/s/
Lou Kerner |
| |
|
Lou
Kerner, Chief Executive Officer |
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and
appoints Christopher Miglino his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments)
and supplements to this report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, and hereby grants to such
attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates
indicated.
|
Name |
|
Positions |
|
Date |
| |
|
|
|
|
|
/s/
Christopher Miglino
Christopher
Miglino
|
|
Chairman
of the Board of Directors |
|
April
15, 2021 |
| |
|
|
|
|
|
/s/
Lou Kerner
Lou
Kerner
|
|
Chief
Executive Officer |
|
April
15, 2021 |
| |
|
|
|
|
|
/s/
Michael Malone
Michael
Malone
|
|
Chief
Financial Officer, principal financial and accounting
officer |
|
April
15, 2021 |
| |
|
|
|
|
|
/s/
Daina Middleton
Daina
Middleton
|
|
Director |
|
April
15, 2021 |
| |
|
|
|
|
|
/s/
Yin Woon Rani
Yin
Woon Rani
|
|
Director |
|
April
15, 2021 |
FORCE PROTECTION VIDEO EQUIPMENT CORP.
BIGtoken
Carve-Out Financial Statements
(A
Business of SRAX, Inc.)
Table
of Contents
FORCE
PROTECTION VIDEO EQUIPMENT CORP.
BIGtoken
Carve-Out
Balance Sheets
(A
Business of SRAX, Inc.)
| |
|
As of
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| Assets |
|
|
|
|
|
|
|
|
| Current
assets |
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
| Accounts receivable,
net |
|
|
1,199,000 |
|
|
|
876,000 |
|
| Prepaid
expenses |
|
|
6,000 |
|
|
|
189,000 |
|
| Marketable
securities |
|
|
− |
|
|
|
64,000 |
|
|
Other
current assets |
|
|
1,000 |
|
|
|
1,000 |
|
| Total current
assets |
|
|
1,207,000 |
|
|
|
1,131,000 |
|
| |
|
|
|
|
|
|
|
|
| Property and
equipment, net |
|
|
1,000 |
|
|
|
3,000 |
|
| Goodwill |
|
|
5,445,000 |
|
|
|
5,445,000 |
|
|
Intangible
assets, net |
|
|
917,000 |
|
|
|
869,000 |
|
|
Total
Assets |
|
$ |
7,570,000 |
|
|
$ |
7,448,000 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities and
Stockholders’ Equity |
|
|
|
|
|
|
|
|
| Accounts payable and
accrued expenses |
|
$ |
853,000 |
|
|
$ |
1,225,000 |
|
|
Other
current liabilities |
|
|
452,000
|
|
|
|
445,000 |
|
| Total current
liabilities |
|
|
1,305,000 |
|
|
|
1,670,000 |
|
| |
|
|
|
|
|
|
|
|
| Series A, redeemable
preferred stock – related party - $0.0001, authorized 20,000,000
shares, 5,000,000 shares issued and outstanding |
|
|
5,000 |
|
|
|
5,000 |
|
| Series B, redeemable
preferred stock – stated value $100 per share, authorized 60,000
shares authorized, no shares issued and outstanding |
|
|
− |
|
|
|
− |
|
| Total
Liabilities |
|
|
1,310,000
|
|
|
|
1,675,000
|
|
| |
|
|
|
|
|
|
|
|
| Commitments and
contingencies (see Note 7) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Common stock,
$0.00000001 par value, authorized 1,000,000,000,000 shares,
149,562,566,584 shares issued and outstanding |
|
|
1,000 |
|
|
|
1,000 |
|
| Additional paid-in
capital |
|
|
42,830,000 |
|
|
|
26,837,000 |
|
| Accumulated
deficit |
|
|
(36,571,000 |
) |
|
|
(21,065,000 |
) |
|
Total
Equity |
|
|
6,260,000 |
|
|
|
5,773,000 |
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
7,570,000 |
|
|
$ |
7,448,000 |
|
The
accompanying notes are an integral part of these Carve-Out
Financial Statements.
FORCE
PROTECTION VIDEO EQUIPMENT CORP.
BIGtoken
Carve-Out
Statements of Operations
(A
Business of SRAX, Inc.)
| |
|
Year ended
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| Revenues |
|
$ |
2,168,000 |
|
|
$ |
3,228,000 |
|
| Cost of
revenues |
|
|
800,000 |
|
|
|
1,613,000 |
|
|
Gross
profit |
|
|
1,368,000 |
|
|
|
1,615,000 |
|
| |
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Employee
related costs |
|
|
4,786,000 |
|
|
|
8,123,000 |
|
|
Marketing
and selling expenses |
|
|
1,167,000 |
|
|
|
2,515,000 |
|
|
Platform
costs |
|
|
1,157,000 |
|
|
|
1,251,000 |
|
|
Depreciation and
amortization |
|
|
920,000 |
|
|
|
929,000 |
|
|
General
and administrative expenses |
|
|
1,919,000 |
|
|
|
4,778,000 |
|
|
Total
operating expenses |
|
|
9,949,000 |
|
|
|
17,596,000 |
|
| |
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(8,581,000 |
) |
|
|
(15,981,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
|
|
|
|
|
|
|
Financing
costs |
|
|
(7,421,000 |
) |
|
|
(694,000 |
) |
|
Interest
income |
|
|
− |
|
|
|
8,000 |
|
|
Change in
fair value of derivative liabilities |
|
|
196,000 |
|
|
|
1,000,000 |
|
|
Realized
gain on marketable securities |
|
|
305,000 |
|
|
|
50,000 |
|
|
Unrealized
loss on marketable securities |
|
|
− |
|
|
|
(6,000 |
) |
|
Other |
|
|
− |
|
|
|
19,000 |
|
|
Total
other income (expense) |
|
|
(6,920,000 |
) |
|
|
377,000 |
|
| |
|
|
|
|
|
|
|
|
| Loss before provision
for income taxes |
|
|
(15,501,000 |
) |
|
|
(15,604,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Provision
for income taxes |
|
|
(5,000 |
) |
|
|
− |
|
| |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(15,506,000 |
) |
|
$ |
(15,604,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Net loss
per share, basic and diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average
shares outstanding, basic and diluted |
|
|
149,562,566,584 |
|
|
|
149,562,566,584 |
|
The
accompanying notes are an integral part of these Carve-Out
Financial Statements.
FORCE PROTECTION VIDEO EQUIPMENT CORP.
BIGtoken
Carve-Out Statements of Changes in
Stockholders’ Equity
(A
Business of SRAX, Inc.)
| |
|
Common
stock |
|
Additional
Paid-in |
|
Accumulated |
|
Total
Stockholders’ |
| |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Deficit |
| Balance,
December 31, 2018 |
|
|
149,562,566,584 |
|
|
$ |
1,000 |
|
|
$ |
11,666,000 |
|
|
$ |
(5,461,000 |
) |
|
$ |
6,206,000 |
|
| Net
transfer from parent |
|
|
- |
|
|
|
- |
|
|
|
15,171,000 |
|
|
|
- |
|
|
|
15,171,000 |
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,604,000 |
) |
|
|
(15,604,000 |
) |
| Balance,
December 31, 2019 |
|
|
149,562,566,584 |
|
|
|
1,000 |
|
|
|
26,837,000 |
|
|
|
(21,065,000 |
) |
|
|
5,773,000 |
|
| Net
transfer from parent |
|
|
- |
|
|
|
- |
|
|
|
15,993,000 |
|
|
|
- |
|
|
|
15,993,000 |
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,506,000 |
) |
|
|
(15,506,000 |
) |
| Balance,
December 31, 2020 |
|
|
149,562,566,584 |
|
|
$ |
1,000 |
|
|
$ |
42,830,000 |
|
|
$ |
(36,571,000 |
) |
|
$ |
6,260,000 |
|
The
accompanying notes are an integral part of these Carve-Out
Financial Statements.
FORCE PROTECTION VIDEO EQUIPMENT CORP.
BIGtoken
Carve-Out Statements of Cash
Flows
(A
Business of SRAX, Inc.)
| |
|
Year ended
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash Flows from
Operating Activities |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(15,506,000 |
) |
|
$ |
(15,604,000 |
) |
| Adjustments to
reconcile net loss to net cash used in operating
activities |
|
|
|
|
|
|
|
|
| Allocations of
corporate overhead |
|
|
11,259,000 |
|
|
|
6,510,000 |
|
| Stock-based
compensation expense |
|
|
237,000 |
|
|
|
467,000 |
|
| Provision for bad
debts |
|
|
47,000 |
|
|
|
440,000 |
|
| Depreciation
expense |
|
|
2,000 |
|
|
|
1,000 |
|
| Amortization of
intangibles |
|
|
524,000 |
|
|
|
348,000 |
|
| Realized gain on
marketable securities |
|
|
(305,000 |
) |
|
|
(50,000 |
) |
| Unrealized loss on
marketable securities |
|
|
- |
|
|
|
6,000 |
|
| Changes in operating
assets and liabilities |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(398,000 |
) |
|
|
(526,000 |
) |
| Prepaid
expenses |
|
|
183,000 |
|
|
|
(56,000 |
) |
| Other current
assets |
|
|
- |
|
|
|
(1,000 |
) |
| Accounts payable and
accrued expenses |
|
|
(372,000 |
) |
|
|
536,000 |
|
|
Other
current liabilities |
|
|
7,000 |
|
|
|
445,000 |
|
| Net Cash Used in
Operating Activities |
|
|
(4,322,000 |
) |
|
|
(7,484,000 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
| Proceeds from the sale
of marketable securities |
|
|
397,000 |
|
|
|
- |
|
| Purchase of
software |
|
|
(572,000 |
) |
|
|
(748,000 |
) |
| Net Cash Used in
Investing Activities |
|
|
(175,000 |
) |
|
|
(748,000 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Financing Activities |
|
|
|
|
|
|
|
|
|
Cash
transfer from parent, net |
|
|
4,497,000 |
|
|
|
8,194,000 |
|
| Net Cash Provided by
Financing Activities |
|
|
4,497,000 |
|
|
|
8,194,000 |
|
| |
|
|
|
|
|
|
|
|
| Net decrease in
Cash |
|
|
- |
|
|
|
(38,000 |
) |
| Cash, Beginning of
Period |
|
|
1,000 |
|
|
|
39,000 |
|
| Cash, End of
Period |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental schedule
of cash flow information |
|
|
|
|
|
|
|
|
|
Cash paid
for interest |
|
$ |
− |
|
|
$ |
− |
|
|
Cash paid
for taxes |
|
$ |
− |
|
|
$ |
− |
|
| |
|
|
|
|
|
|
|
|
| Supplemental schedule
of noncash investing and financing activities |
|
|
|
|
|
|
|
|
| |
|
$ |
− |
|
|
$ |
− |
|
The
accompanying notes are an integral part of these Carve-Out
Financial Statements.
FORCE PROTECTION VIDEO EQUIPMENT CORP.
Notes to BIGtoken Carve-Out Financial
Statements
(A
Business of SRAX, Inc.)
NOTE
1 – THE COMPANY, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company
Force
Protection Video Equipment Corp., (“Company”) was incorporated on
March 11, 2011, under the laws of the State of Florida. On February
4, 2021, the Company entered into a Share Exchange Agreement with
SRAX, Inc. (“SRAX”). Pursuant to the Share Exchange Agreement, the
Company acquired all of the outstanding capital stock of BIG Token,
Inc. (“BIGtoken”) a wholly owned subsidiary and an operating
segment of SRAX. See Note – 11 Subsequent Events “Reverse Merger”
for further information.
BIGtoken
is a data
technology company offering tools and services to identify and
reach consumers for the purpose of marketing and advertising
communication. We are located in Westlake Village, California. Our
technologies assist our clients in: (i) identifying their core
consumers and such consumers’ characteristics across various
channels in order to discover new and measurable opportunities to
maximize profits associated with advertising campaigns and (ii)
gaining insight into the activities of their customers. We derive
our revenues from the sale of proprietary consumer data and sales
of digital advertising campaigns.
BIGtoken
currently
operates as an operating segment of SRAX, Inc. (“SRAX”), as
discussed in the Basis of Presentation, below. On October 1, 2020,
SRAX entered into a share exchange agreement (the “Transaction”)
with Force Protection Video Equipment Corp, a Florida corporation
(“Force”). Prior to the Transactions, SRAX transferred the
component of the BIGtoken operating segment, excluding the accounts
receivable balance (as of the transfer date) that did not reside in
BIGtoken, Inc. SRAX agreed to transfer 100% of the issued and
outstanding common stock of BIGtoken, Inc, for 90% of the issued
and outstanding shares of Force and 100% of the issued and
outstanding shares of Force’s preferred stock.
Basis of Presentation
The
Carve-Out Financial Statements of BIGtoken are presented in
accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
Throughout
the periods covered by the Carve-Out Financial Statements, BIGtoken
did not operate as a separate stand-alone entity but, rather as a
business of SRAX. Consequently, stand-alone financial statements
were not historically prepared for BIGtoken. The Carve-Out
Financial Statements have been prepared in connection with the
Transaction, and are derived from the accounting records of SRAX
using the historical results of operations and the historical bases
of assets and liabilities of BIGtoken, adjusted as necessary to
conform to U.S. GAAP. The Carve-Out Financial Statements present
the assets, liabilities, revenues, and expenses directly attributed
to BIGtoken as well as certain allocations from SRAX. Intercompany
balances and transactions between BIGtoken and SRAX have been
presented in Net Parent investment within the Carve-Out Balance
Sheets. SRAX’s debt, the related interest expense and derivative
liabilities have not been allocated and reflected within the
Carve-Out Financial Statements as BIGtoken is not the legal obligor
of the debt and SRAX’s borrowings were not directly attributable
BIGtoken’s business. The Carve-Out Financial Statements may,
therefore, not reflect the results of operations, financial
position or cash flows that would have resulted had BIGtoken been
operated as a separate entity.
Cash management
Historically,
BIGtoken received funding to cover any shortfalls on operating cash
requirements through a centralized treasury function of
SRAX.
Net Parent investment
As
the Carve-Out Financial Statements are derived from the historical
records of SRAX, the historical equity accounts are eliminated, and
net parent investment is presented in lieu of shareholders’ equity
on the Carve-Out Balance Sheets. The primary components of the net
parent investment are intercompany balances other than related
party payables and the allocation of shared costs. Balances between BIGtoken and SRAX that
were not historically cash settled are included in net parent
investment. Balances between BIGtoken and SRAX that would
historically be cash settled are included in prepaid expenses and
other current assets and accrued liabilities on the
Carve-Out Balance Sheets. Net
parent investment represents SRAX’s interest in the recorded assets
of BIGtoken and represents the cumulative investment by SRAX in
BIGtoken through the dates presented, inclusive of operating
results. Upon the Reverse Merger, the Net Parent Investment has
been presented as the par value and additional paid-in capital for
the common stock and series A preferred stock equivalent number of
shares received by SRAX from the Reverse Merger.
Cost allocation and attribution
The
Carve-Out Statements of Operations include all costs directly
attributable to BIGtoken, as well as costs for certain functions
and services used by BIGtoken that have been allocated from SRAX.
Costs were allocated to the Carve-Out Financial Statements for
certain operating, selling, governance and corporate functions such
as direct labor, overhead, sales and marketing, administration,
legal and information technology. The costs for these services and
support functions were allocated to BIGtoken using either specific
identification or a pro-rata allocation using operating expenses,
labor allocations and other drivers. Management believes the
methodology for cost allocations is a reasonable reflection of
common expenses incurred by SRAX on BIGtoken’s behalf.
Liquidity and Going Concern
BIGtoken
has incurred
significant losses since its inception and has not demonstrated an
ability to generate sufficient revenues from the sales of its goods
and services to achieved profitable operations. There can be no
assurance that profitable operations will ever be achieved, or if
achieved, could be sustained on a continuing basis.
These
factors create substantial doubt about BIGtoken’s ability to
continue as a going concern within one year after the date that the
Carve-Out Financial Statements are issued. The Carve-Out Financial
Statements do not include any adjustments that might be necessary
if BIGtoken is unable to continue as a going concern. Accordingly,
the Carve-Out Financial Statements have been prepared on a basis
that assumes BIGtoken will continue as a going concern and which
contemplates the realization of assets and satisfaction of
liabilities and commitments in the ordinary course of
business.
In
making this assessment we performed a comprehensive analysis of our
current circumstances including: our financial position as of
December 31, 2020 our cash flow and cash usage forecasts for the
period covering one-year from the issuance date of these Carve-Out
Financial Statements and our current capital structure.
We
anticipate raising additional capital through alternative private
and public sales of our equity or debt securities, or a combination
thereof. Although management believes that such capital sources
will be available, there can be no assurance that financing will be
available to us when needed in order to allow us to continue our
operations, or if available, on terms acceptable to us. As our
operations have historically been funded through SRAX’s treasury
program, BIGtoken has minimal cash and cash equivalents and minimal
working capital. If we do not raise sufficient capital in a timely
manner, among other things, we may be forced to scale back our
operations or cease operations all together.
Upon
the close of our Share Exchange, we obtained access to
approximately $1,000,000 in cash on hand and have raised an
additional $4,700,000 through a private offering of our Series B
Preferred Stock.
Currently,
we are dependent on SRAX for our continued support to fund our
operations, without which we would need to curtail our
operations.
Use of Estimates
The
Carve-Out Financial Statements have been prepared in conformity
with U.S. GAAP and requires management of BIGtoken to make
estimates and assumptions in the preparation of these Carve-Out
Financial Statements that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the Carve-Out Financial Statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates and
assumptions.
The
most significant areas that require management judgment and which
are susceptible to possible change in the near term include
BIGtoken’s revenue recognition, provision for bad debts, BIGtoken
point redemption liability, stock-based compensation, income taxes,
goodwill and intangible assets.
As of
December 31, 2020, the impact of COVID-19 continues to unfold and
as a result, certain estimates and assumptions require increased
judgment and carry a higher degree of variability and volatility
that could result in material changes to our estimates in future
periods.
Fair Value of Financial Instruments
The
accounting standard for fair value measurements provides a
framework for measuring fair value and requires disclosures
regarding fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date, based on BIGtoken’s principal or, in absence
of a principal, most advantageous market for the specific asset or
liability.
BIGtoken
uses a
three-tier fair value hierarchy to classify and disclose all assets
and liabilities measured at fair value on a recurring basis, as
well as assets and liabilities measured at fair value on a
non-recurring basis, in periods subsequent to their initial
measurement. The hierarchy requires BIGtoken to use observable
inputs when available, and to minimize the use of unobservable
inputs, when determining fair value. The three tiers are defined as
follows:
Level
1—Observable inputs that reflect quoted market prices (unadjusted)
for identical assets or liabilities in active markets;
Level
2—Observable inputs other than quoted prices in active markets that
are observable either directly or indirectly in the marketplace for
identical or similar assets and liabilities; and
Level
3—Unobservable inputs that are supported by little or no market
data, which require BIGtoken to develop its own
assumptions.
The
determination of fair value and the assessment of a measurement’s
placement within the hierarchy requires judgment. Level 3
valuations often involve a higher degree of judgment and
complexity. Level 3 valuations may require the use of various cost,
market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions
could vary depending on the asset or liability valued and the
valuation method used. Such assumptions could include: estimates of
prices, earnings, costs, actions of market participants, market
factors, or the weighting of various valuation methods. BIGtoken
may also engage external advisors to assist us in determining fair
value, as appropriate.
Although
BIGtoken believes that the recorded fair value of our financial
instruments is appropriate, these fair values may not be indicative
of net realizable value or reflective of future fair
values.
BIGtoken’s
financial
instruments, including cash and cash equivalents, net accounts
receivable, accounts payable and accrued expenses, are carried at
historical cost. At December 31, 2020 and 2019, the carrying
amounts of these instruments approximated their fair values because
of the short-term nature of these instruments. BIGtoken measures
certain non-financial assets, liabilities, and equity issuances at
fair value on a non-recurring basis. These non-recurring valuations
include evaluating assets such as long-lived assets and goodwill
for impairment; allocating value to assets in an acquired asset
group; and applying accounting for business
combinations.
Accounts Receivable
Credit
is extended to customers based on an evaluation of their financial
condition and other factors. Management periodically assesses
BIGtoken’s accounts receivable and, if necessary, establishes an
allowance for estimated uncollectible amounts. Accounts determined
to be uncollectible are charged to operations when that
determination is made. BIGtoken usually does not require
collateral.
Concentration of Credit Risk, Significant Customers and Supplier
Risk
Financial
instruments that potentially subject BIGtoken to concentration of
credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with financial
institutions within the United States. The balances maintained at
these financial institutions are generally less than the Federal
Deposit Insurance Corporation insurance limits.
As of
December 31, 2020, BIGtoken had five customers with accounts
receivable balances of approximately 19.2%, 16.5%, 11.9%, 11.9%,
and 10.1% of total accounts receivable. At December 31, 2019,
BIGtoken had three customers with accounts receivable balances of
approximately 25.9%, 16.4% and 15.0%.
For
the period ended December 31, 2020, BIGtoken had two customers that
account for approximately 17.2% and 10.6% of total revenue. For the
year ended December 31, 2019, BIGtoken had two customers that
account for approximately 19.3% and 14.1% of total
revenue.
PREPAID
EXPENSES
Prepaid
expenses are assets held by BIGtoken, which are expected to be
realized and consumed within twelve months after the reporting
period.
MARKETABLE
SECURITIES
Shares
received will be accounted for in accordance with ASC 320 –
Investments – Debt and Equity Securities, as such the shares will
be classified as available-for-sale securities and will be measured
at each reporting period at fair value with the unrealized gain
(loss) as a component of other income (expense). Upon the sale of
the shares, BIGtoken will record the gain (loss) in the carve-out
statement of operations as a component of other income
(expense).
LONG-LIVED
ASSETS
Management
evaluates the recoverability of BIGtoken’s identifiable intangible
assets and other long-lived assets when events or circumstances
indicate a potential impairment exists. Events and circumstances
considered by BIGtoken in determining whether the carrying value of
identifiable intangible assets and other long-lived assets may not
be recoverable include, but are not limited to: significant changes
in performance relative to expected operating results; significant
changes in the use of the assets; significant negative industry or
economic trends; a significant decline in BIGtoken’s stock price
for a sustained period of time; and changes in BIGtoken’s business
strategy. In determining if impairment exists, BIGtoken estimates
the undiscounted cash flows to be generated from the use and
ultimate disposition of these assets. If impairment is indicated
based on a comparison of the assets’ carrying values and the
undiscounted cash flows, the impairment loss is measured as the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. No impairments have been recorded regarding
its identifiable intangible assets or other long-lived assets
during the years ended December 31, 2020 or 2019,
respectively.
Property and equipment
Property
and equipment is stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line basis over the
estimated useful lives of the assets of three to seven
years.
Expenditures
for repair and maintenance which do not materially extend the
useful lives of property and equipment are charged to operations.
When property or equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the
respective accounts with the resulting gain or loss reflected in
operations. Management periodically reviews the carrying value of
its property and equipment for impairment.
Intangible assets
Intangible
assets consist of BIGtoken’s intellectual property of internally
developed software and are stated at cost less accumulated
amortization. Amortization is provided for on the straight-line
basis over the estimated useful lives of the assets of five to nine
years.
Costs
incurred to develop computer software for internal use are
capitalized once: (1) the preliminary project stage is completed,
(2) management authorizes and commits to funding a specific
software project, and (3) it is probable that the project will be
completed and the software will be used to perform the function
intended. Costs incurred prior to meeting the qualifications are
expensed as incurred. Capitalization of costs ceases when the
project is substantially complete and ready for its intended use.
Post-implementation costs related to the internal use computer
software, are expensed as incurred. Internal use software
development costs are amortized using the straight-line method over
its estimated useful life which ranges up to three years. Software
development costs may become impaired in situations where
development efforts are abandoned due to the viability of the
planned project becoming doubtful or due to technological
obsolescence of the planned software product. For the years ended
December 31, 2020, and 2019 there has been no impairment associated
with internal use software. For the years ended December 31, 2020,
and 2019, BIGtoken capitalized software development costs of
$572,000 and $748,000, respectively.
During
2016, BIGtoken began capitalizing the costs of developing
internal-use computer software, including directly related payroll
costs. BIGtoken amortizes costs associated with its internally
developed software over periods up to three years, beginning when
the software is ready for its intended use.
BIGtoken
capitalizes costs
incurred during the application development stage of internal-use
software and amortize these costs over the estimated useful life.
Upgrades and enhancements are capitalized if they result in added
functionality which enable the software to perform tasks it was
previously incapable of performing. Software maintenance, training,
data conversion, and business process reengineering costs are
expensed in the period in which they are incurred.
Goodwill
Goodwill
is comprised of the purchase price of business combinations in
excess of the fair value assigned at acquisition to the net
tangible and identifiable intangible assets acquired. Goodwill is
not amortized. BIGtoken tests goodwill for impairment for its
reporting units on an annual basis, or when events occur or
circumstances indicate the fair value of a reporting unit is below
its carrying value. If the fair value of a reporting unit is less
than its carrying value, an impairment loss is recorded to the
extent that implied fair value of the goodwill within the reporting
unit is less than its carrying value. BIGtoken performed its most
recent annual goodwill impairment test as of December 31, 2020
using market data and discounted cash flow analysis. Based on this
analysis, it was determined that the fair value exceeded the
carrying value of its reporting units. BIGtoken concluded the fair
value of the goodwill exceed the carrying value accordingly there
were no indicators of impairment for the years ended December 31,
2020 and 2019.
BIGtoken
had
historically performed its annual goodwill and impairment
assessment on December 31st of each year. This aligns
BIGtoken with other advertising sales companies who also generally
conduct this annual analysis in the fourth quarter.
When
evaluating the potential impairment of goodwill, management first
assess a range of qualitative factors, including but not limited
to, macroeconomic conditions, industry conditions, the competitive
environment, changes in the market for BIGtoken’s products and
services, regulatory and political developments, entity specific
factors such as strategy and changes in key personnel, and the
overall financial performance for each of BIGtoken’s reporting
units. If, after completing this assessment, it is determined that
it is more likely than not that the fair value of a reporting unit
is less than its carrying value, we then proceed to the impairment
testing methodology primarily using the income approach (discounted
cash flow method).
We
compare the carrying value of the goodwill, with its fair value, as
determined by a combination of the market approach and income
approach, its estimated discounted cash flows. If the carrying
value of goodwill exceeds its fair value, the excess amount will be
recognized as an impairment charge. We operate as one reporting
unit.
When
required, we arrive at our estimates of fair value using a
discounted cash flow methodology which includes estimates of future
cash flows to be generated by specifically identified assets, as
well as selecting a discount rate to measure the present value of
those anticipated cash flows. Estimating future cash flows requires
significant judgment and includes making assumptions about
projected growth rates, industry-specific factors, working capital
requirements, weighted average cost of capital, and current and
anticipated operating conditions. The use of different assumptions
or estimates for future cash flows could produce different
results.
Revenue Recognition
BIGtoken
applies Accounting Standards
Codification (“ASC”) Topic 606, Revenue from Contracts with
Customers (“ASC Topic 606”). ASC Topic 606 is a comprehensive
revenue recognition model that requires revenue to be recognized
when control of the promised goods or services are transferred to
our customers at an amount that reflects the consideration that we
expect to receive. Application of ASC Topic 606 requires BIGtoken
to use more judgment and make more estimates than under former
guidance. Application of ASC Topic 606 requires a five-step model
applicable to all product offerings revenue streams as
follows:
Identification
of the contract, or contracts, with a customer
A
contract with a customer exists when (i) we enter into an
enforceable contract with a customer that defines each party’s
rights regarding the goods or services to be transferred and
identifies the payment terms related to these goods or services,
(ii) the contract has commercial substance and, (iii) we determine
that collection of substantially all consideration for goods or
services that are transferred is probable based on the customer’s
intent and ability to pay the promised consideration.
We
apply judgment in determining the customer’s ability and intention
to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new
customer, published credit or financial information pertaining to
the customer.
Identification
of the performance obligations in the contract
Performance
obligations promised in a contract are identified based on the
goods or services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit
from the goods or service either on its own or together with other
resources that are readily available from third parties or from us,
and are distinct in the context of the contract, whereby the
transfer of the goods or services is separately identifiable from
other promises in the contract.
When
a contract includes multiple promised goods or services, we apply
judgment to determine whether the promised goods or services are
capable of being distinct and are distinct within the context of
the contract. If these criteria are not met, the promised goods or
services are accounted for as a combined performance
obligation.
Determination
of the transaction price
The
transaction price is determined based on the consideration to which
we will be entitled to receive in exchange for transferring goods
or services to our customer. We estimate any variable consideration
included in the transaction price using the expected value method
that requires the use of significant estimates for discounts,
cancellation periods, refunds and returns. Variable consideration
is described in detail below.
Allocation
of the transaction price to the performance obligations in the
contract
If
the contract contains a single performance obligation, the entire
transaction price is allocated to the single performance
obligation. Contracts that contain multiple performance obligations
require an allocation of the transaction price to each performance
obligation based on a relative Stand-Alone Selling Price (“SSP,”)
basis. We determine SSP based on the price at which the performance
obligation would be sold separately. If the SSP is not observable,
we estimate the SSP based on available information, including
market conditions and any applicable internally approved pricing
guidelines.
Recognition
of revenue when, or as, we satisfy a performance
obligation
We
recognize revenue at the point in time that the related performance
obligation is satisfied by transferring the promised goods or
services to our customer.
Principal
versus Agent Considerations
When
another party is involved in providing goods or services to our
customer, we apply the principal versus agent guidance in ASC Topic
606 to determine if we are the principal or an agent to the
transaction. When we control the specified goods or services before
they are transferred to our customer, we report revenue gross, as
principal. If we do not control the goods or services before they
are transferred to our customer, revenue is reported net of the
fees paid to the other party, as agent. Our evaluation to determine
if we control the goods or services within ASC Topic 606 includes
the following indicators:
We
are primarily responsible for fulfilling the promise to provide the
specified good or service.
When
we are primarily responsible for providing the goods and services,
such as when the other party is acting on our behalf, we have
indication that we are the principal to the transaction. We
consider if we may terminate our relationship with the other party
at any time without penalty or without permission from our
customer.
We
have risk before the specified good or service have been
transferred to a customer or after transfer of control to the
customer.
We
may commit to obtaining the services of another party with or
without an existing contract with our customer. In these
situations, we have risk of loss as principal for any amount due to
the other party regardless of the amount(s) we earn as revenue from
our customer.
The
entity has discretion in establishing the price for the specified
good or service.
We
have discretion in establishing the price our customer pays for the
specified goods or services.
Contract
Liabilities
Contract
liabilities consist of customer advance payments and billings in
excess of revenue recognized. We may receive payments from our
customers in advance of completing our performance obligations. We
record contract liabilities equal to the amount of payments
received in excess of revenue recognized, including payments that
are refundable if the customer cancels the contract according to
the contract terms. Contract liabilities have been low
historically, and recorded as current liabilities on our Carve-Out
Financial Statements when the time to fulfill the performance
obligations under terms of our contracts is less than one year. We
have no Long-term contract liabilities which would represent the
amount of payments received in excess of revenue earned, including
those that are refundable, when the time to fulfill the performance
obligation is greater than one year.
Practical
Expedients and Exemptions
We
have elected certain practical expedients and policy elections as
permitted under ASC Topic 606 as follows:
| |
● |
We
adopted the practical expedient related to not adjusting the
promised amount of consideration for the effects of a significant
financing component if the period between transfer of product and
customer payment is expected to be less than one year at the time
of contract inception. |
| |
● |
We
made the accounting policy election to not assess promised goods or
services as performance obligations if they are immaterial in the
context of the contract with the customer. |
| |
● |
We
made the accounting policy election to exclude any sales and
similar taxes from the transaction price; and |
| |
● |
We
adopted the practical expedient not to disclose the value of
unsatisfied performance obligations for contracts with an original
expected length of one year or less. |
Cost of Revenue
Cost
of revenue consists of payments to media providers that are
directly related to a revenue-generating event and project and
application design costs. BIGtoken becomes obligated to make
payments related to media providers in the period the media is
provided to us. Such expenses are classified as cost of revenue in
the corresponding period in which the revenue is recognized in the
accompanying Carve-Out Statements of Operations.
Stock-Based Compensation
BIGtoken’s
employees
have historically participated in SRAX’s stock-based compensation
plans. Stock-based compensation expense has been allocated to
BIGtoken based on the awards and terms previously granted to
BIGtoken’s employees as well as an allocation of SRAX’s corporate
and shared functional employee expenses.
We
account for our stock-based compensation under ASC 718
“Compensation – Stock Compensation” using the fair
value-based method. Under this method, compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period. This guidance establishes standards for the accounting for
transactions in which an entity exchanges it equity instruments for
goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that
are based on the fair value of the entity’s equity instruments or
that may be settled by the issuance of those equity
instruments.
We
use the fair value method for equity instruments granted to
non-employees and use the Black-Scholes model for measuring the
fair value of options. The stock based fair value compensation is
determined as of the date of the grant or the date at which the
performance of the services is completed (measurement date) and is
recognized over the vesting periods.
Income taxes
BIGtoken’s
operations
have historically been included in SRAX’s combined U.S. income tax
returns. Income tax expense included in the Carve-Out Financial
Statements has been calculated following the separate return
method, as if BIGtoken was a stand-alone enterprise and a separate
taxpayer for the periods presented. The calculation of income taxes
on a separate return basis requires considerable judgment and the
use of both estimates and allocations that affect the calculation
of certain tax liabilities and the determination of the
recoverability of certain deferred tax assets, which arise from
temporary differences between the tax and the Carve-Out Financial
Statement recognition of revenues and expenses. As a result,
BIGtoken’s deferred income tax rate and deferred tax balances may
differ from those in SRAX’s historical results.
The
provision for income taxes is determined using the asset and
liability approach. Deferred taxes represent the future tax
consequences expected when the reported amounts of assets and
liabilities are recovered or paid. Deferred taxes result from
differences between the Carve-Out Financial Statement and tax bases
of BIGtoken’s assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. In evaluating BIGtoken’s
ability to recover our deferred tax assets within the jurisdiction
from which they arise, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning
strategies, and results of operations. Any tax carryforwards
reflected in the Carve-Out Financial Statements have also been
determined using the separate return method. Tax carryforwards
include net operating losses.
The
complexity of tax regulations requires assessments of uncertainties
in estimating taxes BIGtoken will ultimately pay. BIGtoken
recognizes liabilities for anticipated tax audit uncertainties
based on its estimate of whether, and the extent to which
additional taxes would be due on a separate return basis. Tax
liabilities are presented net of any related tax loss
carryforwards.
Earnings Per Share
We use ASC
260, “Earnings Per Share” for calculating the basic and diluted
earnings (loss) per share. We compute basic earnings (loss) per
share by dividing net income (loss) by the weighted average number
of common shares outstanding. Diluted earnings (loss) per share is
computed based on the weighted average number of shares of common
stock plus the effect of dilutive potential common shares
outstanding during the period using the treasury stock method.
Dilutive potential common shares include outstanding stock options
and warrants and stock awards. For periods with a net loss, basic
and diluted loss per share are the same, in that any potential
common stock equivalents would have the effect of being
anti-dilutive in the computation of net loss per share.
Recent
Accounting Updates Not Yet Effective
BIGtoken
considers the applicability and impact of all Accounting Standards
Updates (“ASU”) issued by the Financial Accounting Standards Board.
ASU’s not listed below were assessed and determined to be either
not applicable or expected to have minimal impact on BIGtoken’s
consolidated financial results.
Recently
Adopted Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02 (with amendments issued
in 2018), which changes the accounting for leases and requires
expanded disclosures about leasing activities. This new guidance
also requires lessees to recognize a ROU asset and a lease
liability at the commencement date for all leases with terms
greater than twelve months. Accounting by lessors is largely
unchanged. ASU 2016-02 is effective for fiscal periods beginning
after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019,
as BIGtoken is not an obligator on any lease agreements this
standard did not have a material impact on our Carve-Out Financials
Statements.
In
September 2016, the FASB issued ASU 2016-13, “Measurement of Credit
Losses on Financial Instruments.” This guidance updates existing
guidance for measuring and recording credit losses on financial
assets measured at amortized cost by replacing the “incurred loss”
model with an “expected loss” model. Accordingly, these financial
assets will be presented at the net amount expected to be
collected. ASU 2016-13 is effective for fiscal years beginning
after December 15, 2019. Early adoption is permitted. The adoption
of ASU 2016-13 did not have a material impact on our Carve-Out
Financials Statements.
In
September 2018, the FASB issued ASU 2018-07, “Improvements to
Non-employee Share-Based Payment Accounting.” This guidance expands
the scope of Topic 718 “Compensation - Stock Compensation” to
include share-based payment transactions for acquiring goods and
services from non-employees, but excludes awards granted in
conjunction with selling goods or services to a customer as part of
a contract accounted for under ASC 606, “Revenue from Contracts
with Customers.” The adoption of ASU 2018-07 did not have a
material impact on our Carve-Out Financials Statements.
In
August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract,” which amends ASC 350-40, “Intangibles
- Goodwill and Other - Internal-Use Software.” The ASU aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software and requires the
capitalized implementation costs to be expensed over the term of
the hosting arrangement. The accounting for the service element of
a hosting arrangement that is a service contract is not affected.
ASU 2018-15 is effective for fiscal periods beginning after
December 15, 2019, and interim periods within those fiscal years.
The adoption of ASU 2018-15, effective January 1, 2019, did not
have a material impact on our Carve-Out Financials
Statements.
In
January 2017, the FASB issued ASU 2017-04, “Simplifying the Test
for Goodwill Impairment.” This guidance simplifies how an entity is
required to test goodwill for impairment by eliminating Step 2 from
the goodwill impairment test. Instead, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss will be
recognized in an amount equal to that excess, limited to the total
amount of goodwill allocated to the reporting unit. ASU 2017-04 is
effective for fiscal periods beginning after December 31, 2019.
Early adoption is permitted. We adopted ASU 2017-04 and it did not
have a material impact on our Carve-Out Financials
Statements.
Recent
Accounting Updates Not Yet Effective
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes.” This guidance, among other
provisions, eliminates certain exceptions to existing guidance
related to the approach for intraperiod tax allocation, the
methodology for calculating income taxes in an interim period and
the recognition of deferred tax liabilities for outside basis
differences. This guidance also requires an entity to reflect the
effect of an enacted change in tax laws or rates in its effective
income tax rate in the first interim period that includes the
enactment date of the new legislation, aligning the timing of
recognition of the effects from enacted tax law changes on the
effective income tax rate with the effects on deferred income tax
assets and liabilities. Under existing guidance, an entity
recognizes the effects of the enacted tax law change on the
effective income tax rate in the period that includes the effective
date of the tax law. ASU 2019-12 is effective for interim and
annual periods beginning after December 15, 2020, with early
adoption permitted. We are currently evaluating the impact of this
guidance.
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity”, to reduce complexity in applying GAAP to certain
financial instruments with characteristics of liabilities and
equity. ASU 2020-06 is effective for interim and annual periods
beginning after December 15, 2023, with early adoption permitted.
We are currently evaluating the impact of this guidance.
NOTE
2 – ACCOUNTS RECEIVABLE
| |
|
2020 |
|
|
2019 |
|
| Gross accounts
receivable |
|
$ |
1,675,000 |
|
|
$ |
1,333,000 |
|
| Allowance for bad
debts |
|
|
(476,000 |
) |
|
|
(457,000 |
) |
|
Accounts
receivable, net |
|
$ |
1,199,000 |
|
|
$ |
876,000 |
|
The
carve-out statements of operations include both provision for bad
debts directly identifiable as BIGtoken’s and allocated provision
for bad debts from SRAX, Inc. The following table summarizes
BIGtoken’s provision for bad debts for the periods
indicated:
| |
|
2020 |
|
|
2019 |
|
| Directly identifiable
as BIGtoken’s |
|
$ |
47,000 |
|
|
$ |
440,000 |
|
| Allocated from SRAX,
Inc. |
|
|
− |
|
|
|
10,000 |
|
| Provision for bad
debts |
|
$ |
47,000 |
|
|
$ |
450,000 |
|
NOTE
3 – PROPERTY AND EQUIPMENT
The
components of property and equipment are as follows:
| |
|
2020 |
|
|
2019 |
|
| Computer
Equipment |
|
$ |
4,000 |
|
|
$ |
4,000 |
|
| Accumulated
depreciation |
|
|
(3,000 |
) |
|
|
(1,000 |
) |
|
Property
and equipment, net |
|
$ |
1,000 |
|
|
$ |
3,000 |
|
The
carve-out statements of operations include both depreciation
expense directly identifiable as BIGtoken’s and allocated
depreciation expense from SRAX, Inc. The following table summarizes
BIGtoken’s depreciation expense for the periods
indicated:
| |
|
2020 |
|
|
2019 |
|
| Directly identifiable
as BIGtoken’s |
|
$ |
2,000 |
|
|
$ |
1,000 |
|
| Allocated from SRAX,
Inc. |
|
|
43,000 |
|
|
|
70,000 |
|
| Depreciation
expense |
|
$ |
45,000 |
|
|
$ |
71,000 |
|
NOTE
4 – INTANGIBLE ASSETS
The
components of intangible assets are as follows:
| |
|
2020 |
|
|
2019 |
|
| Software |
|
$ |
1,980,000 |
|
|
$ |
1,408,000 |
|
| Accumulated
amortization |
|
|
(1,063,000 |
) |
|
|
(539,000 |
) |
|
Intangible
assets, net |
|
$ |
917,000 |
|
|
$ |
869,000 |
|
The
carve-out statements of operations include both amortization
expense directly identifiable as BIGtoken’s and allocated
amortization expense from SRAX, Inc. The following table summarizes
BIGtoken’s amortization expense for the periods
indicated:
| |
|
2020 |
|
|
2019 |
|
| Directly identifiable
as BIGtoken’s |
|
$ |
524,000 |
|
|
$ |
348,000 |
|
| Allocated from SRAX,
Inc. |
|
|
349,000 |
|
|
|
510,000 |
|
| Amortization
expense |
|
$ |
873,000 |
|
|
$ |
858,000 |
|
As of
December 31, 2020 estimated amortization expense related to
finite-lived intangibles for future years was as
follows:
| 2021 |
|
|
518,000 |
|
| 2022 |
|
|
312,000 |
|
| 2023 |
|
|
87,000 |
|
|
Total
estimated amortization expense |
|
$ |
917,000 |
|
As of
December 31, 2020 and 2019, goodwill was $5,445,000 and there were
no additions or impairments during the years ended December 31,
2020 and 2019.
NOTE
5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses are comprised of the
following:
| |
|
2020 |
|
|
2019 |
|
| Accounts payable,
trade |
|
$ |
731,000 |
|
|
$ |
911,000 |
|
| Accrued
expenses |
|
|
− |
|
|
|
20,000 |
|
| Accrued
bonus |
|
|
6,000 |
|
|
|
3,000 |
|
| Accrued
commissions |
|
|
48,000 |
|
|
|
125,000 |
|
| Other
accruals |
|
|
68,000 |
|
|
|
166,000 |
|
|
Accounts
payable and accrued liabilities |
|
$ |
853,000 |
|
|
$ |
1,225,000 |
|
NOTE
6 – OTHER CURRENT LIABILITIES
BIGtoken
Point
liability
In
2019, BIGtoken launched the BIGtoken consumer data management
platform, where registered users are rewarded for undertaking
actions and sharing data within the platform. The business is
currently based on a platform of registered users, developed as a
direct to consumer data marketplace where users are paid for their
data.
During
the year ended December 31, 2019 BIGtoken instituted a policy that
allows BIGtoken users to redeem outstanding BIGtoken points for
cash if their account and point balances meet certain criteria. As
of December 31, 2020 and 2019, BIGtoken has estimated the future
liability for point redemptions to be $452,000 and $445,000,
respectively, recorded as other current liabilities. BIGtoken
considered the total number of points outstanding, the conversion
rate in which points are redeemable for cash, and each user’s
redemption eligibility.
BIGtoken
utilizes an
account scoring system that evaluates a number of factors in
determining an account’s redemption eligibility. These factors
include an evaluation of the following: the infrastructure utilized
by the user when engaging with BIGtoken’s systems, the user’s
geographical associations, consistency, and verifiability of the
user’s data.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Other
Commitments
In the
ordinary course of business, BIGtoken may provide indemnifications
of varying scope and terms to customers, vendors, lessors, business
partners, and other parties with respect to certain matters,
including, but not limited to, losses arising out of BIGtoken’s
breach of such agreements, services to be provided by BIGtoken, or
from intellectual property infringement claims made by third
parties. In addition, BIGtoken has entered indemnification
agreements with its directors and certain of its officers and
employees that will require BIGtoken to, among other things,
indemnify them against certain liabilities that may arise due to
their status or service as directors, officers or employees.
BIGtoken has also agreed to indemnify certain former officers,
directors and employees of acquired companies in connection with
the acquisition of such companies. BIGtoken maintains director and
officer insurance, which may cover certain liabilities arising from
its obligation to indemnify its directors and certain of its
officers and employees, and former officers, directors and
employees of acquired companies, in certain
circumstances.
It is
not possible to determine the maximum potential amount of exposure
under these indemnification agreements due to the limited history
of prior indemnification claims and the unique facts and
circumstances involved in each agreement. Such indemnification
agreements may not be subject to maximum loss clauses.
Employment
agreements
BIGtoken
has entered into employment
agreements with key employees. These agreements may include
provisions for base salary, guaranteed and discretionary bonuses
and option grants. The agreements may contain severance provisions
if the employees are terminated without cause, as defined in the
agreements.
Litigation
From
time to time, BIGtoken may become subject to legal proceedings,
claims and litigation arising in the ordinary course of business.
In addition, BIGtoken may receive letters alleging infringement of
patent or other intellectual property rights. BIGtoken is not
currently a party to any material legal proceedings, nor is
BIGtoken aware of any pending or threatened litigation that would
have a material adverse effect on BIGtoken’s business, operating
results, cash flows or financial condition should such litigation
be resolved unfavorably.
Business
Interruption
BIGtoken
may be
impacted by public health crises beyond its control. This could
disrupt its operations and negatively impact sales of its products.
BIGtoken’s customer and, suppliers may experience similar
disruption. In December 2019, a novel strain of the Coronavirus,
COVID-19, was reported to have surfaced in Wuhan, China, which has
evolved into a pandemic. This situation and preventative or
protective actions that governments have taken to counter the
effects of the pandemic have resulted in a period of business
disruption, including delays in shipments of products and raw
materials. COVID-19 has spread to over 175 countries, including the
United States, and efforts to contain the spread of COVID-19 have
intensified. To the extent the impact of COVID-19 continues or
worsens, the demand for BIGtoken’s products may be negatively
impacted. COVID-19 has also impacted BIGtoken’s sales efforts as
its ability to make sales calls is constrained. BIGtoken’s ability
to promote sales through promotional activities has also been
constrained. Trade shows and sales conferences, major events used
to introduce and sell BIGtoken’s products, have been postponed
indefinitely. The length and severity of the pandemic could also
affect BIGtoken’s regular sales, which could in turn result in
reduced sales and a lower gross margin.
NOTE
8 – STOCK OPTIONS AND AWARDS
BIGtoken’s
employees
have historically participated in SRAX’s various stock-based plans,
which are described below. All references to shares in the tables
below refer to shares of SRAX’s common stock and all references to
stock prices in the tables below refer to the price of a share of
SRAX’s common stock.
In
January 2012, SRAX’s board of directors and stockholders authorized
the 2012 Equity Compensation Plan, which SRAX refer to as the 2012
Plan, covering 600,000 shares of SRAX’s Class A common stock. On
November 5, 2014, SRAX’s board of directors approved the adoption
of SRAX 2014 Equity Compensation Plan (the “2014 Plan”) and
reserved 600,000 shares of SRAX’s Class A common stock for grants
under this plan.
On
February 23, 2016, SRAX’s board of directors approved the adoption
of SRAX 2016 Equity Compensation Plan (the “2016 Plan”) and
reserved 600,000 shares of SRAX’s Class A common stock for grants
under this plan.
The
purpose of the 2012, 2014 and 2016 Plans is to attract and retain
the best available personnel for positions of substantial
responsibility, to provide additional incentive to SRAX’s
employees, directors and consultants and to promote the success of
SRAX’s business. The 2012, 2014 and 2016 Plans are administered by
SRAX’s board of directors. Plan options may either be:
|
|
● |
incentive
stock options (ISOs) |
| |
● |
non-qualified
options (NSOs), |
| |
● |
awards
of our common stock, |
| |
● |
stock
appreciation rights (SARs), |
| |
● |
restricted
stock units (RSUs), |
| |
● |
performance
units, |
| |
● |
performance
shares, and |
| |
● |
other
stock-based awards. |
Any
option granted under the 2012, 2014 and 2016 Plans must provide for
an exercise price of not less than 100% of the fair market value of
the underlying shares on the date of grant, but the exercise price
of any ISO granted to an eligible employee owning more than 10% of
SRAX’s outstanding common stock must not be less than 110% of fair
market value on the date of the grant. The plans further provide
that with respect to ISOs the aggregate fair market value of the
common stock underlying the options which are exercisable by any
option holder during any calendar year cannot exceed $100,000. The
exercise price of any NSO granted under the 2012, 2014 or 2016
Plans is determined by SRAX’s board of directors at the time of
grant but must be at least equal to fair market value on the date
of grant. The term of each plan option and the manner in which it
may be exercised is determined by SRAX’s board of directors or
SRAX’s compensation committee, provided that no option may be
exercisable more than 10 years after the date of its grant and, in
the case of an incentive option granted to an eligible employee
owning more than 10% of the common stock, no more than five years
after the date of the grant. The terms of grants of any other type
of award under the 2012, 2014 or 2016 Plans is determined by SRAX’s
board of directors at the time of grant. Subject to the limitation
on the aggregate number of shares issuable under the plans, there
is no maximum or minimum number of shares as to which a stock grant
or plan option may be granted to any person.
Stock
option and common stock award activities specifically identifiable
or allocated to BIGtoken’s employees for the years ended December
31, 2020 and 2019, respectively, were summarized as
follows:
In
March 2019, 388,500 common stock options for SRAX’s common stock
having an exercise price of $3.42 per share with an option value as
of the grant date of $858,000 calculated using the Black-Scholes
option pricing model were granted to several employees and members
of SRAX’s management team. The options were valued using the Black
Scholes option pricing model at a total of $858,000 based on the
three-year term, implied volatility of 102% and a risk-free
equivalent yield of 4.50%, and a stock price of $3.42. The expense
associated with this option award will be recognized in operating
expenses ratably over the vesting period.
In
April 2019, SRAX issued 5,626 options to purchase SRAX’s common
stock at a price of $5.49 to SRAX’s non-executive directors. Each
of SRAX’s four non-executive directors received 1,407 options that
vest 1/4th quarterly over the next year with an expiration date of
April 15, 2026. The options were valued using the Black Scholes
option pricing model at a total of $30,000 based on the seven-year
term, implied volatility of 102% and a risk-free equivalent yield
of 2.46%, stock price of $5.49.
On
May 13, 2019 SRAX entered into a consulting agreement with a
contractor for services related to BIGtoken. The agreement provides
for 300,000 warrants with vesting conditions based on BIGtoken’s
user growth in Asia. The warrants were valued using the Black
Scholes option pricing model at a total of $1,138,000 based on the
five-year term, implied volatility of 101%, a risk-free equivalent
yield of 1.8% and stock price of $4.99.
In
April 2020, BIGtoken issued 4,522 common stock options to each of
our independent directors for their services. The options have a
strike price of $1.95 and vest one year from their issue date or
April 16, 2021. The options have a term of seven years from their
issue date.
In
November 2020, 150,000 common stock options having an exercise
price of $2.97 per share with an option value as of the grant date
of $325,000 calculated using the Black-Scholes option pricing model
were granted to an employee. The expense associated with this
option award will be recognized in operating expenses at date of
grant.
During
the year ended December 31, 2020, 36,454 common stock options were
terminated, and a total of 119,200 common stock options were issued
to its employees. The options have a strike price of $2.70 and vest
five years from their issue date or August 18, 2025. The options
have a term of five years from their issue date.
| |
|
Number of
Shares |
|
|
Weighted
Average Strike Price/Share |
|
|
Weighted
Average Remaining Contractual Term (Years) |
|
|
Aggregate
Intrinsic Value |
|
|
Weighted
Average Grant Date Fair Value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding — December
31, 2018 |
|
|
348,105 |
|
|
|
5.94 |
|
|
|
2.39 |
|
|
|
− |
|
|
|
− |
|
| Granted |
|
|
694,126 |
|
|
|
4.01 |
|
|
|
3.38 |
|
|
|
− |
|
|