| The Company, Basis of Presentation and Summary of Significant Accounting Policies | NOTE 1 – THE COMPANY, BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The
Company BIGToken (“We”, “Our”,
or the “Company”) 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 Los Angeles, 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. The Company 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 the Company
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, the Company did not operate as a separate stand-alone entity but, rather as a business of the SRAX. Consequently,
stand-alone financial statements were not historically prepared for the Company. 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 the Company, adjusted as necessary to conform to U.S. GAAP. The Carve-Out
Financial Statements present the assets, liabilities, revenues, and expenses directly attributed to the Company as well as certain
allocations from the SRAX. Intercompany balances and transactions between the Company 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 the Company is not the legal obligor of the debt
and SRAX’s borrowings were not directly attributable to the Company’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 the Company
been operated as a separate entity. Cash
management Historically, the Company 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
the Company and SRAX that were not historically cash settled are included in net parent investment. Balances between the Company
and SRAX that would historically be cash settled are included in prepaid expenses and other current assets and accrued liabilities
on the . 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. Cost
allocation and attribution The Carve-Out Statements of Operations include
all costs directly attributable to the Company, as well as costs for certain functions and services used by the Company 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 the Company 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 the Company’s behalf. Liquidity
and Going Concern The Company 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 the Company’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 the Company is unable to continue as a going concern. Accordingly, the
Carve-Out 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 at September 30, 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, the Company 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. 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 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 September 30, 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 September 30, 2020 (unaudited), December 31, 2019 and 2018, 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. Accounts
Receivable Credit is extended to customers based on an
evaluation of their financial condition and other factors. Management periodically assesses the Company’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. The Company usually does not require collateral. Concentration
of Credit Risk, Significant Customers and Supplier Risk Financial instruments that potentially subject
the Company 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 more than the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any loss on these
accounts. As of September 30, 2020 (unaudited), the Company
had three customers with accounts receivable balances of approximately 23.7%, 19.2% and 17.1% of total accounts receivable. At
December 31, 2019, the Company had three customers with accounts receivable balances of approximately 25.9%, 16.4% and 15.0%. At
December 31, 2018, the Company had two customers with accounts receivable balances of approximately 42.9% and 10.5%. For the period ended September 30, 2020 (unaudited),
the Company had one customer that account for approximately 19.1% of total revenue. For the year ended December 31, 2019, the Company
had two customers that account for approximately 19.3% and 14.1% of total revenue. For the year ended December 31, 2018, the Company
had three customers that accounted for 21.0%, 14.1% and 10.3%. PREPAID EXPENSES Prepaid expenses are assets held by the Company,
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, 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 nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) and the years ended December 31, 2019 or 2018,
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 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. For the nine months ended September 30, 2020 (unaudited) and 2019 (unaudited) there has been no
impairment associated with internal use software. For the years ended December 31, 2019, and 2018 there has been no impairment
associated with internal use software. For the nine months ended September 30, 2020 and years ended December 31, 2019, and 2018,
the Company capitalized software development costs of $435,000 (unaudited) and $748,000 and $444,000, respectively. During 2016, the Company began capitalizing
the costs of developing internal-use computer software, including directly related payroll costs. The Company amortizes costs associated
with its internally developed software over periods up to three years, beginning when the software is ready for its intended use. 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 The Company had historically performed its
annual goodwill and impairment assessment on st 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, then the amount of impairment to be recognized. 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 The Company adopted Accounting Standards Codification
(“ASC”) Topic 606, Revenue from Contracts with Customers 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 us 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 historically low historically 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 applied the transitional guidance to contracts that were not complete at the date of our initial application of ASC Topic 606 on January 1, 2018.
● 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. The Company 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 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 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 Standards Changes to accounting principles are established
by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial
position, results of operations, cash flows, or presentation thereof. Described below are ASUs that are not yet effective, but
may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below
were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation
thereof. 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 |
