BAM Management US Holdings Inc.
Consolidated Financial Statements
As of December 31, 2019 and for the Period from
February 4, 2019 (Inception) through December 31, 2019Page 3 BTS
Notes to Consolidated Financial Statements
7 - 19Page 4 BTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
BAM Management US Holdings Inc.
San Francisco, California
We have audited the accompanying consolidated financial statements of BAM Management US Holdings
Inc. (a Delaware corporation) (the ''Company''), which comprise the consolidated balance sheet as of
December 31, 2019, and the related consolidated statements of operations, stockholders' equity, and cash
flows for the period from February 4, 2019 (inception) through December 31, 2019, and the related notes
to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
1Page 5 BTS
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of BAM Management US Holdings Inc. as of December 31, 2019, and the
results of their operations and their cash flows for the period from February 4, 2019 (inception) through
December 31, 2019, in accordance with accounting principles generally accepted in the United States of
America.
Emphasis of Matter
As discussed in Note 10 to the consolidated financial statements, on March 11, 2020, the World Health
Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended
containment and mitigation measures worldwide. The ultimate financial impact and duration of these
events cannot be reasonably estimated at this time. Our opinion is not modified with respect to that
matter.
Armanino LLP
ArmaninoLLP
San Jose, California
March 30,
2Page 6 BTS
BAM Management US Holdings Inc.
Consolidated Balance Sheet
December 31,
ASSETS
Current assets
Cash and cash equivalents
Digital assets held
Prepaid expenses and other current assets
Customer funds receivable
Customer custodial funds
Total current assets
$
4,252,136,312,179,6,217,11,098,
Property and equipment, net
Security deposits
Restricted cash
Total assets
16,13,238,$
11,367,
$
139,381,6,217,6,739,
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses
Customer funds payable
Total current liabilities
Commitment and contingencies (Note 6)
Stockholders' equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, 750 shares issued
and outstanding
Common stock, $0.00001 par value, 10,000,000 shares authorized, 1,000 shares
issued and outstanding
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
7,461,(2,833,274)
4,627,$
11,367,
The accompanying notes are an integral part of these consolidated financial statements.
3Page 7 BTS
BAM Management US Holdings Inc.
Consolidated Statement of Operations
For the Period from February 4, 2019 (inception) through December 31,
Revenue
$
3,031,
Operating costs and expenses
(2,777,733)
Loss from operations
Other expense
Loss on digital assets
Total other expense
Net loss
254,
(19,697)
(19,697)
$
(2,797,430)
The accompanying notes are an integral part of these consolidated financial statements.
4Page 8 BTS
BAM Management US Holdings Inc.
Consolidated Statement of Stockholders' Equity
For the Period from February 4, 2019 (inception) through December 31,
Common Stock
Shares
Amount
Balance, February 4, (inception)
1,
-
-
-
-
-
Issuance of Series A preferred stock
at $10,000 per share, net of
issuance costs of $39,
-
-
1,
$
$
$
-
7,461,
$
$
-
Total
-
Balance, December 31,
$
Preferred Stock Series A
Shares
Amount
-
Issuance of common stock at
$0.0001 per share
-
Retained
Earnings
(Accumulated
Deficit)
$
-
(2,833,274) $ 4,627,
The accompanying notes are an integral part of these consolidated financial statements.
5Page 9 BTS
BAM Management US Holdings Inc.
Consolidated Statement of Cash Flows
For the Period from February 4, 2019 (inception) through December 31, Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation
Provision for transaction losses
Unrealized loss on digital assets
Changes in operating assets and liabilities
Customer custodial funds
Digital assets held
Prepaid expenses and other current assets
Customer funds receivable
Accounts payable
Accrued expenses
Customer funds payable
Net cash used in operating activities
$
(2,797,430)
1,70,19,(6,217,882)
(155,916)
(312,747)
(179,317)
139,275,6,217,(2,938,153)
Cash flows from investing activities
Purchase of property and equipment
Security deposits
Net cash used in investing activities
(18,625)
(13,695)
(32,320)
Cash flows from financing activities
Proceeds from issuance of Series A preferred stock, net of issuance costs
Net cash provided by financing activities
7,461,7,461,
Net increase in cash, cash equivalents and restricted cash
4,490,-
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
$
4,490,
Cash, cash equivalents and restricted cash consisted of the following:
Cash and cash equivalents
Restricted cash
$
4,252,238,
$
4,490,
The accompanying notes are an integral part of these consolidated financial statements.
6Page 10 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 1.
NATURE OF OPERATIONS
BAM Management US Holdings Inc. (the "Company"), a Delaware corporation, commenced
operations on February 4, 2019 ("inception") and is headquartered in San Francisco, California.
In September 2019, the Company, through its wholly-owned subsidiary BAM Trading Services,
Inc., launched Binance.US, a digital asset trading platform for the United States market, through
a licensing arrangement with Binance Holdings Limited, which operates a global digital asset
trading platform under the name Binance.com (see Note 9). Binance.US is powered by matching
engine and wallet technologies licensed from Binance Holdings Limited and provides secure and
reliable digital asset trading and a hosted wallet service to its users. As of December 31, 2019,
Binance.US supported 29 digital assets and 50 trading pairs, with plans for adding more digital
assets in the future.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting and financial statement presentation
The Company's financial statements have been prepared using accounting principles generally
accepted in the United States of America ("U.S. GAAP").
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Risks and uncertainties
The Company's future results of operations involve a number of risks and uncertainties that could
have a material adverse affect on its business, prospects, financial condition, cash flows, liquidity
and results of operations. The risk factors set forth below are cautionary statements identifying
important factors that could cause our actual results for various financial reporting periods to
differ materially from those expressed in any forward-looking statements made by or on the
Company's behalf.
The Company's business is dependent on the availability and use of digital assets, and their
respective protocol networks. Although many governments have begun to license or have
otherwise announced their intention to regulate digital asset businesses, digital assets are not
currently considered legal tender in most jurisdictions worldwide, including the United States.
7Page 11 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and uncertainties (continued)
Federal, state or local governments may restrict the use and exchange of digital assets in the
future. There is also uncertainty regarding the current and future accounting, tax, and legal
treatment, as well as regulatory requirements relating to digital assets or transactions utilizing
digital assets. There is currently no authoritative guidance on the accounting for digital assets.
Governmental regulations, or any adverse accounting, tax, legal or regulatory treatment of digital
assets or transactions could materially and adversely affect the manner in which the Company
conducts its business and could result in heightened regulation, oversight, increased costs and
potential litigation.
Digital assets and their respective protocol networks are exposed to risks due to fraud,
technological glitches, hackers or malware and various law enforcement and regulatory
interventions. The loss of digital assets, the Company's ability to manage fraud, or the application
of new laws and regulations, could materially and adversely, affect its reputation, business,
financial condition, prospects, liquidity, and/or results of operations.
The Company's revenues are primarily derived from transaction fees on sales and purchases of
digital assets. The market price of digital assets has been and may continue to be volatile, which
could materially and adversely affect the Company's results of operations.
Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the reporting period.
These estimates include, but are not limited to, digital asset valuation, provision for transaction
losses, reserves against receivables, and accounting for income taxes. To the extent that there are
material differences between these estimates and results, the Company's consolidated financial
statements will be affected.
Cash and cash equivalents
The Company considers all highly liquid financial instruments purchased and cash on hand that
is not restricted as to withdrawal with original maturities of three months or less to be cash and
cash equivalents.
Restricted cash
The Company has restricted cash deposits at a financial institution related to an irrevocable
standby letter of credit in connection with an office lease arrangement.
8Page 12 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Digital assets held
The Company enters into transactions with users that are denominated in digital assets and earns
transaction fee revenue denominated in digitals assets which it holds in inventory. The Company
assigns costs to digital asset transactions in its inventory on a first-in, first-out basis. The
Company does not hold digital assets for speculative purposes.
As of December 31, 2019, all Company owned digital assets were held in custody accounts with
Binance Holdings Limited (see Note 9). The Company accounts for its digital assets held under
custody with Binance Holdings Limited as receivables, which is presented as digital assets held
in the accompanying consolidated balance sheet. The Company initially records digital asset
receipts at cost and subsequently marks its digital asset holdings (that have an active market) to
market at each reporting date. Current fair value is determined based on quoted market exchange
prices as of the reporting date. Unrealized gains and losses arising from changes in the fair value
of digital assets, as well as gains and losses realized from differences in prices in which digital
assets are purchased compared to digital assets sold, are recognized net, in loss on digital assets
in the accompanying consolidated statement of operations.
For the period from February 4, 2019 (inception) through December 31, 2019, the Company
recognized a net unrealized loss which consisted of $19,697 of unrealized loss related to digital
assets held. There were no realized gains or losses for the period from February 4, (inception) through December 31, 2019.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line method over the
following estimated useful lives:
Computer equipment
Software
3 years
3 years
Expenditures for repairs and maintenance are expensed as incurred. Upon disposition, the cost
and related accumulated depreciation are removed from the accounts, and the resulting gain or
loss is recognized or charged to other expense in the accompanying consolidated statement of
operations.
9Page 13 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets on an annual basis, or more
frequently whenever the circumstances indicate a long-lived asset may be impaired. When
indicators of impairment exist, the Company estimates future undiscounted cash flows
attributable to such assets. In the event cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated fair value. There were
no asset impairments for the period from February 4, 2019 (inception) through December 31,
2019.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer funds receivable consist of funds advanced to customer accounts upon initiation of an
ACH or debit card deposit and arise due to the time it takes to settle the deposit.
Customer funds payable arise due to the time it takes to settle a customer sell transaction. When
a customer sells digital assets using their bank account or internal payment methods, there is a
clearing period before the cash is settled. These funds are treated as a payable until the clearing
period closes. During this clearing period, the associated legal tender held by the Company is
segregated from Company-owned funds and separately classified as customer custodial funds in
the accompanying consolidated balance sheet.
Fair value measurements
The Company applies fair value accounting for all digital and financial assets and liabilities. The
Company defines fair value as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to
measure fair value into three levels and bases the categorization within the hierarchy upon the
lowest level of input that is available and significant to the fair value measurement:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and
liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or
their inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management's estimate
of assumptions that market participants would use in pricing the asset or liability.
10Page 14 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurements (continued)
The fair value of digital asset denominated assets and liabilities are based on published exchange
rates, which are determined to be "Level 1" inputs, as the digital assets are traded in active
exchange markets. The Company monitors the exchange rates against various third-party
exchanges.
Revenue recognition
The Company recognizes revenue when it transfers control of promised goods or services to its
customers in an amount that reflects the consideration to which it expects to be entitled to in
exchange for those goods or services. The Company derives substantially all of its revenue from
digital asset transaction services, where users can buy and sell digital assets for an exchange
service fee. The Company uses the following steps to determine revenue recognition:
Identification of the contract, or contracts, with the customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of the revenue when, or as, the Company satisfies a performance obligation
The service (performance obligation) is considered to be rendered and the risk of loss has been
transferred to the customer upon the transfer of the digital assets to the customer or receipt of
digital assets purchased from the customer.
Digital asset transactions occur in multiple time zones, some of which differ from the time zone
of the Company's headquarter location. The Company uses coordinated universal time ("UTC")
as time basis for revenue recognition cut-off.
Transaction losses
The Company is exposed to losses primarily due to fraudulent payment methods used to purchase
digital assets. The Company establishes a provision for estimated losses incurred as of the
reporting date, including those of which the Company has not yet be notified. The estimate is
based on historical loss payment patterns. The Company recorded a provision for transaction
losses of $70,000 as of December 31, 2019, which is included in accrued expenses in the
accompanying consolidated balance sheet.
11Page 15 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes using the asset and liability method whereby deferred
tax asset and liability account balances are determined based on temporary differences between
the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to affect taxable income. A valuation allowance is
established when management estimates that it is more likely than not that deferred tax assets
will not be realized. Realization of deferred tax assets is dependent upon future pretax earnings,
the reversal of temporary differences between book and tax income, and the expected tax rates in
future periods.
The Company is required to evaluate the tax positions taken in the course of preparing its tax
returns to determine whether tax positions are more likely than not of being sustained by the
applicable tax authority. Tax benefits of positions not deemed to meet the "more-likely-than-not"
threshold would be recorded as a tax expense in the current year. The amount recognized is
subject to estimate and management judgment with respect to the likely outcome of each
uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax
position or for all uncertain tax positions in the aggregate could differ from the amount that is
initially recognized. It is the Company's practice to recognize interest and penalties related to
income tax matters in income tax expense.
For federal tax purposes, digital asset transactions are treated on the same tax principles as
property transactions. The Company recognizes a gain or loss when digital assets are exchanged
for other property, in the amount of the difference between the fair market value of the property
received and the tax basis in the digital asset. Receipts of digital assets in exchange for goods or
services are included in taxable income at the fair market value on the date of receipt.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash and cash equivalents, restricted cash and digital assets held. Cash and cash
equivalents and restricted cash are deposited at high quality financial institutions. Periodically,
such balances may be in excess of federally insured limits. To date, the Company has not
incurred any losses on its deposits of cash and cash equivalents or restricted cash.
3.
FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy, the Company's assets at
fair value as of December 31, 2019:
Level Digital assets
$
136,
Level $
Level -
$
Fair Value
-
$
136,219Page 16 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 4.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2019:
Computer equipment
Software
$
13,5,18,(1,984)
$
16,
Accumulated depreciation and amortization
Depreciation expense was $1,984 for the period from February 4, 2019 (inception) through
December 31, 2019.
5.
ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2019:
Accrued legal expenses
Provision for transaction losses
Franchise fee payable
Accrued bank expenses
Dividend payable
Taxes payable
6.
$
146,70,100,28,35,
$
381,
COMMITMENTS AND CONTINGENCIES
Customer digital asset wallets
Under a Wallet Custody Agreement (see Note 9), Binance Holdings Limited (BHL) has custody
and control of customers' private keys, or components to cryptographic signatures necessary to
transfer associated customer digital assets. For security reasons, BHL uses consolidated
addresses to pool customer digital assets but maintains separate ledger entries to designate each
customer's digital asset balance.
13Page 17 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 6.
COMMITMENTS AND CONTINGENCIES (continued)
Customer digital asset wallets (continued)
The Company has committed to securely store all digital assets it holds on behalf of customers.
As such, the Company may be liable to its customers for losses arising from theft or loss of
customer private keys. The Company has no reason to believe it will incur any expense
associated with such potential liability because (i) the Company has no known or historical
experience of claims to use as a basis of measurement, (ii) BHL accounts for and continually
verifies the amount of digital assets within its control, and such verification is subject to audit by
the Company under the terms of the Wallet Custody Agreement, (iii) BHL has established
security around custodial private keys to minimize the risk of theft or loss, and (iv) the
aforementioned Wallet Custody Agreement with BHL contains an indemnification provision that
provides for indemnification of the Company for any losses as a result of BHL breach of duty.
Therefore, the Company has not recorded a liability as of December 31, 2019 for such potential
losses. As of December 31, 2019, the aggregate U.S. Dollar value of digital assets held in
customer wallets was $46 million.
Lease commitments
For the period from February 4, 2019 (inception) through December 31, 2019, the Company
entered into month-to-month lease arrangements and incurred rent expense totaling $35,199.
In November 2019, the Company entered into an operating lease agreement for office space in
San Francisco, California. The lease commenced in January 2020 and expires in May 2023. The
monthly base rent under the lease agreement is approximately $36,300 for the first year and
increases by 3% annually thereafter over the lease term.
The scheduled minimum lease payments under the lease terms are as follows:
Year ending December 31,
$
435,448,462,198,
$
1,544,
Legal proceedings
The Company could be subject to various legal proceedings and claims arising in the ordinary
course of business. Although occasional adverse decisions or settlements may occur,
management believes that the final disposition of such matters will not have a material adverse
effect on the Company's business, financial position, results of operations or cash flows. The
Company is not aware of any existing or threatened proceedings or claims that could have a
material impact on its financial position or results of operations.
14Page 18 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 7.
STOCKHOLDERS' EQUITY
Common stock
The Company is authorized to issue up to 10,000,000 shares of common stock, par value of
$0.00001 per share. As December 31, 2019, 1,000 shares of authorized common stock were
issued and outstanding. Holders of each share of common stock have one vote for each share
held.
Preferred stock
The Company is authorized to issue up to 100,000 shares of preferred stock, $0.00001 par value
per share, of which 1,500 shares have been designated as Series A preferred stock.
A summary of the preferred stock shares authorized, issued, and outstanding is as follows as of
December 31, 2019:
Original Issue
Price
Series A
$
10,
Shares
Designated
1,
Shares Issued
and
Outstanding
Liquidation
Preference
$
7,500,
A complete description of the rights, preferences, privileges and restrictions of the Series A
preferred stock are in the Amended and Restated Certificate of Incorporation.
Liquidation preference - In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of the then outstanding Series A
preferred stock, are entitled to receive an amount equal to the original issue price per share,
plus any accruing dividends accrued but unpaid thereon, whether or not declared, and in
preference to any distributions made to the holders of common stock or other junior stock. If
the assets and funds distributed among the holders of the Series A preferred stock are
insufficient to permit payment to such holders of the full preferential amount, then the entire
assets and funds of the Company legally available for distribution shall be distributed ratably
among the holders of the Series A preferred stock. After the full preferential distribution to
holders of Series A preferred stock, payments and distributions shall be paid to the holders of
common stock and other junior stock, if any, pro rata based on the number of shares held by
each such holder.
15Page 19 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 7.
STOCKHOLDERS' EQUITY (continued)
Preferred stock (continued)
Dividends - The holders of Series A preferred stock, in preference to the holders of common
stock or other junior stock, are entitled to receive cumulative dividends, whether or not
declared by the Board of Directors. Dividends shall accrue at 2% per annum on the sum of the
Series A original issue price, initially $10,000, subject to adjustment for stock splits, stock
dividends or similar transactions. and the amount of any previously accrued and unpaid
dividends. To the extent not paid, dividends on the Series A preferred stock shall compound
quarterly (on March 31, June 30, September 30 and December 31), whether or not declared.
Such dividends may be paid in cash out of legally available funds or in additional shares of
Series A preferred stock.
Redemption - The Company, at the election of the Board of Directors, may redeem all or part
of the outstanding shares of the Series A preferred stock at a redemption price equal to the
Series A preferred stock original issue price per share, together with all accrued and unpaid
dividends, whether or note declared, to and including the redemption date ("Series A
Redemption Price). Such notice of redemption may only be made if the Company, on a
consolidated basis, for the 12 consecutive month period ending on the last day of the month
immediately prior to such notice, has income before interest, taxes, depreciation and
amortization of not less than $2 million, which shall be calculated from the Company's
regularly prepared consolidated financial statements.
At any time after the closing of a qualified public offering, upon the delivery of written
notice, the holders of a majority of the Series A preferred stock may require the Company to
redeem all or any portion of their then outstanding Series A preferred stock at the Series A
Redemption Price. A qualified public offering shall mean the close of the sale of shares of
common stock to the public at a price of at least $10,00 per share, in a firm-commitment
underwritten public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, following which such common stock shall be listed for
trading on a national securities exchange, and resulting in at least $50 million of gross
process, net of underwriting discount and commissions.
8.
Voting - The holders of the Series A preferred stock shall have no voting rights, except in the
case of certain protective provisions.
Conversion - Series A preferred stock shall not be convertible.
INCOME TAXES
The Company incurred $750 in state income tax for the period from February 4, 2019 (inception)
through December 31, 2019, which is included in operating costs and expenses in the
accompanying consolidated statement of operations.
16Page 20 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 8.
INCOME TAXES (continued)
Significant components of the Company's deferred income tax assets and liabilities are as follows
as of December 31, 2019:
Deferred tax assets
Net operating losses
Other
Total current
Valuation allowance
$
$
Total net deferred tax asset
627,27,655,(655,620)
-
The Company assesses the available positive and negative evidence to estimate whether
sufficient future taxable income will be generated to permit use of the existing deferred tax
assets. A significant piece of objective negative evidence is the cumulative earnings or losses
incurred over a three-year period. This objective evidence limits the ability to consider other
subjective evidence such as our projections for future growth. On the basis of this evaluation, as
of December 31, 2019, the Company determined that its federal and state net deferred tax assets
of approximately $656,000 are subject to full valuation allowance as it is more likely than not
that the net deferred tax assets will be not be realized.
As of December 31, 2019, the differences between income taxes expected at the U.S. Federal
statutory income tax rate of 21% and the reported income tax expense are primarily related to
state taxes, net of federal benefit, various permanent items, and change in federal and state
valuation allowances.
As of December 31, 2019, the Company had federal and state net operating losses of
approximately $2,679,000 and $935,000, respectively. The Company does not expect to fully
utilize these federal and state net operating loss carryforwards on a stand-alone or consolidated
(combined) basis. The federal net operating losses have an indefinite carryover period. The state
net operating loss carryforwards, if not utilized, will expire in 2039.
As of December 31, 2019, the Company had no unrecognized tax benefits. The Company does
not expect any material changes to its unrecognized tax benefits within the next twelve months.
As a result, the Company did not recognize any interest and penalties related to uncertain tax
positions for the period from February 4, 2019 (inception) through December 31, 2019.
The Company is filing C Corporation federal and state corporation income and franchise tax
returns in the United States on the consolidated or combined basis. The Company's 2019 tax
returns are subject to examination by federal and state taxing authorities.
17Page 21 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 8.
INCOME TAXES (continued)
The Company's transactions with a related foreign affiliate are subject to transfer pricing
considerations. Generally, a transfer price is the price charged between related parties in an
intercompany transaction. Transfer prices affect the allocation of taxable income across national
tax jurisdictions. The Company is currently in the process of conducting its United States
transfer pricing study (the "Study") with respect to its foreign affiliates' intercompany
transactions. The Company expects to complete its Study for the initial year of operations on or
before the extended due date of the U.S. corporation income tax return. The results of the Study,
based on its initial estimates, are not expected to have significant or material impact on the initial
year of operations.
9.
RELATED PARTY TRANSACTIONS
The Company has entered into certain agreements with Binance Holdings Limited (aka
"Binance"), an entity which is affiliated with the Company's sole shareholder. The agreements
relate to the licensing and support of services as follows:
Software License Agreement - Whereas Binance owns a digital currency trading platform
which it operates in multiple countries, Binance has granted the Company a worldwide,
nonexclusive, perpetual, irrevocable, non-transferable, fully paid-up, royalty-free license to
the licensed software in order to allow the Company to operate a digital currency trading
platform in the U.S. market.
Master Services Agreement - This agreement dictates the terms of use and access in relation
to the licensed software. Additionally, it denotes the hosting and support services which will
be offered by Binance to the Company and the Company's end users as well as the
development and implementation of Company specific enhancements.
Trademark License Agreement - Binance has granted the Company a nonexclusive, nontransferable, non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up, worldwide
license to use certain trademarks owned by Binance.
Wallet Custody Agreement - The Company selected Binance to serve as a custodian to the
Company with respect to the digital assets in any custody account. This agreement specifies
the terms of the relationship the Company will have with the custodian.
There were no expenses incurred or obligations due for the period from February 4, (inception) through December 31, 2019 related to these services
10.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 30, 2020, the date the
consolidated financial statements were available to be issued.
18Page 22 BTS
BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 10.
SUBSEQUENT EVENTS (continued)
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus
(COVID-19) a global pandemic and recommended containment and mitigation measures
worldwide. The COVID-19 outbreak in the United States has caused business disruption through
mandated and voluntary closings of businesses and shelter in place orders and resulted in market
instability. While the disruption is currently expected to be temporary, there is considerable
uncertainty around the duration of the closings and shelter in place orders. As of the date the
financial statements were available to be issued, the Company has experienced minimal
operational effects due to being a decentralized software platform in a decentralized market.
However, due to the widespread uncertainty over the macroeconomic factors and sovereign
monetary policies which could impact consumer demand for our services, the financial impact
cannot be reasonably estimated at this time.
19
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Case 1:23-cv-01599-ABJ Document 19-11 Filed 06/06/23 Page 1 of 22
EXHIBIT A-75
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BAM Management US Holdings Inc.
Consolidated Financial Statements
As of December 31, 2019 and for the Period from
February 4, 2019 (Inception) through December 31, 2019
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TABLE OF CONTENTS
Page No.
Independent Auditor's Report
1-2
Consolidated Balance Sheet
3
Consolidated Statement of Operations
4
Consolidated Statement of Stockholders' Equity
5
Consolidated Statement of Cash Flows
6
Notes to Consolidated Financial Statements
7 - 19
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
BAM Management US Holdings Inc.
San Francisco, California
We have audited the accompanying consolidated financial statements of BAM Management US Holdings
Inc. (a Delaware corporation) (the ''Company''), which comprise the consolidated balance sheet as of
December 31, 2019, and the related consolidated statements of operations, stockholders' equity, and cash
flows for the period from February 4, 2019 (inception) through December 31, 2019, and the related notes
to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
1
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Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of BAM Management US Holdings Inc. as of December 31, 2019, and the
results of their operations and their cash flows for the period from February 4, 2019 (inception) through
December 31, 2019, in accordance with accounting principles generally accepted in the United States of
America.
Emphasis of Matter
As discussed in Note 10 to the consolidated financial statements, on March 11, 2020, the World Health
Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended
containment and mitigation measures worldwide. The ultimate financial impact and duration of these
events cannot be reasonably estimated at this time. Our opinion is not modified with respect to that
matter.
Armanino LLP
ArmaninoLLP
San Jose, California
March 30, 2020
2
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BAM Management US Holdings Inc.
Consolidated Balance Sheet
December 31, 2019
ASSETS
Current assets
Cash and cash equivalents
Digital assets held
Prepaid expenses and other current assets
Customer funds receivable
Customer custodial funds
Total current assets
$
4,252,628
136,219
312,747
179,317
6,217,882
11,098,793
Property and equipment, net
Security deposits
Restricted cash
Total assets
16,641
13,695
238,001
$
11,367,130
$
139,706
381,714
6,217,882
6,739,302
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses
Customer funds payable
Total current liabilities
Commitment and contingencies (Note 6)
Stockholders' equity
Preferred stock, $0.0001 par value, 100,000 shares authorized, 750 shares issued
and outstanding
Common stock, $0.00001 par value, 10,000,000 shares authorized, 1,000 shares
issued and outstanding
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
7,461,102
(2,833,274)
4,627,828
$
11,367,130
The accompanying notes are an integral part of these consolidated financial statements.
3
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BAM Management US Holdings Inc.
Consolidated Statement of Operations
For the Period from February 4, 2019 (inception) through December 31, 2019
Revenue
$
3,031,916
Operating costs and expenses
(2,777,733)
Loss from operations
Other expense
Loss on digital assets
Total other expense
Net loss
254,183
(19,697)
(19,697)
$
(2,797,430)
The accompanying notes are an integral part of these consolidated financial statements.
4
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BAM Management US Holdings Inc.
Consolidated Statement of Stockholders' Equity
For the Period from February 4, 2019 (inception) through December 31, 2019
Common Stock
Shares
Amount
Balance, February 4, 2019
(inception)
1,000
-
-
-
-
-
Issuance of Series A preferred stock
at $10,000 per share, net of
issuance costs of $39,398
-
-
750
7,461,102
-
7,461,102
Preferred stock dividend
-
-
-
-
(35,844)
(35,844)
Net loss
-
-
-
-
(2,797,430)
(2,797,430)
-
750
1,000
$
$
$
-
7,461,102
$
$
-
Total
-
Balance, December 31, 2019
$
Preferred Stock Series A
Shares
Amount
-
Issuance of common stock at
$0.0001 per share
-
Retained
Earnings
(Accumulated
Deficit)
$
-
(2,833,274) $ 4,627,828
The accompanying notes are an integral part of these consolidated financial statements.
5
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BAM Management US Holdings Inc.
Consolidated Statement of Cash Flows
For the Period from February 4, 2019 (inception) through December 31, 2019
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation
Provision for transaction losses
Unrealized loss on digital assets
Changes in operating assets and liabilities
Customer custodial funds
Digital assets held
Prepaid expenses and other current assets
Customer funds receivable
Accounts payable
Accrued expenses
Customer funds payable
Net cash used in operating activities
$
(2,797,430)
1,984
70,000
19,697
(6,217,882)
(155,916)
(312,747)
(179,317)
139,706
275,870
6,217,882
(2,938,153)
Cash flows from investing activities
Purchase of property and equipment
Security deposits
Net cash used in investing activities
(18,625)
(13,695)
(32,320)
Cash flows from financing activities
Proceeds from issuance of Series A preferred stock, net of issuance costs
Net cash provided by financing activities
7,461,102
7,461,102
Net increase in cash, cash equivalents and restricted cash
4,490,629
-
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
$
4,490,629
Cash, cash equivalents and restricted cash consisted of the following:
Cash and cash equivalents
Restricted cash
$
4,252,628
238,001
$
4,490,629
The accompanying notes are an integral part of these consolidated financial statements.
6
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
1.
NATURE OF OPERATIONS
BAM Management US Holdings Inc. (the "Company"), a Delaware corporation, commenced
operations on February 4, 2019 ("inception") and is headquartered in San Francisco, California.
In September 2019, the Company, through its wholly-owned subsidiary BAM Trading Services,
Inc., launched Binance.US, a digital asset trading platform for the United States market, through
a licensing arrangement with Binance Holdings Limited, which operates a global digital asset
trading platform under the name Binance.com (see Note 9). Binance.US is powered by matching
engine and wallet technologies licensed from Binance Holdings Limited and provides secure and
reliable digital asset trading and a hosted wallet service to its users. As of December 31, 2019,
Binance.US supported 29 digital assets and 50 trading pairs, with plans for adding more digital
assets in the future.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting and financial statement presentation
The Company's financial statements have been prepared using accounting principles generally
accepted in the United States of America ("U.S. GAAP").
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Risks and uncertainties
The Company's future results of operations involve a number of risks and uncertainties that could
have a material adverse affect on its business, prospects, financial condition, cash flows, liquidity
and results of operations. The risk factors set forth below are cautionary statements identifying
important factors that could cause our actual results for various financial reporting periods to
differ materially from those expressed in any forward-looking statements made by or on the
Company's behalf.
The Company's business is dependent on the availability and use of digital assets, and their
respective protocol networks. Although many governments have begun to license or have
otherwise announced their intention to regulate digital asset businesses, digital assets are not
currently considered legal tender in most jurisdictions worldwide, including the United States.
7
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and uncertainties (continued)
Federal, state or local governments may restrict the use and exchange of digital assets in the
future. There is also uncertainty regarding the current and future accounting, tax, and legal
treatment, as well as regulatory requirements relating to digital assets or transactions utilizing
digital assets. There is currently no authoritative guidance on the accounting for digital assets.
Governmental regulations, or any adverse accounting, tax, legal or regulatory treatment of digital
assets or transactions could materially and adversely affect the manner in which the Company
conducts its business and could result in heightened regulation, oversight, increased costs and
potential litigation.
Digital assets and their respective protocol networks are exposed to risks due to fraud,
technological glitches, hackers or malware and various law enforcement and regulatory
interventions. The loss of digital assets, the Company's ability to manage fraud, or the application
of new laws and regulations, could materially and adversely, affect its reputation, business,
financial condition, prospects, liquidity, and/or results of operations.
The Company's revenues are primarily derived from transaction fees on sales and purchases of
digital assets. The market price of digital assets has been and may continue to be volatile, which
could materially and adversely affect the Company's results of operations.
Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the reporting period.
These estimates include, but are not limited to, digital asset valuation, provision for transaction
losses, reserves against receivables, and accounting for income taxes. To the extent that there are
material differences between these estimates and results, the Company's consolidated financial
statements will be affected.
Cash and cash equivalents
The Company considers all highly liquid financial instruments purchased and cash on hand that
is not restricted as to withdrawal with original maturities of three months or less to be cash and
cash equivalents.
Restricted cash
The Company has restricted cash deposits at a financial institution related to an irrevocable
standby letter of credit in connection with an office lease arrangement.
8
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Digital assets held
The Company enters into transactions with users that are denominated in digital assets and earns
transaction fee revenue denominated in digitals assets which it holds in inventory. The Company
assigns costs to digital asset transactions in its inventory on a first-in, first-out basis. The
Company does not hold digital assets for speculative purposes.
As of December 31, 2019, all Company owned digital assets were held in custody accounts with
Binance Holdings Limited (see Note 9). The Company accounts for its digital assets held under
custody with Binance Holdings Limited as receivables, which is presented as digital assets held
in the accompanying consolidated balance sheet. The Company initially records digital asset
receipts at cost and subsequently marks its digital asset holdings (that have an active market) to
market at each reporting date. Current fair value is determined based on quoted market exchange
prices as of the reporting date. Unrealized gains and losses arising from changes in the fair value
of digital assets, as well as gains and losses realized from differences in prices in which digital
assets are purchased compared to digital assets sold, are recognized net, in loss on digital assets
in the accompanying consolidated statement of operations.
For the period from February 4, 2019 (inception) through December 31, 2019, the Company
recognized a net unrealized loss which consisted of $19,697 of unrealized loss related to digital
assets held. There were no realized gains or losses for the period from February 4, 2019
(inception) through December 31, 2019.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is computed using the straight-line method over the
following estimated useful lives:
Computer equipment
Software
3 years
3 years
Expenditures for repairs and maintenance are expensed as incurred. Upon disposition, the cost
and related accumulated depreciation are removed from the accounts, and the resulting gain or
loss is recognized or charged to other expense in the accompanying consolidated statement of
operations.
9
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets on an annual basis, or more
frequently whenever the circumstances indicate a long-lived asset may be impaired. When
indicators of impairment exist, the Company estimates future undiscounted cash flows
attributable to such assets. In the event cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated fair value. There were
no asset impairments for the period from February 4, 2019 (inception) through December 31,
2019.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer funds receivable consist of funds advanced to customer accounts upon initiation of an
ACH or debit card deposit and arise due to the time it takes to settle the deposit.
Customer funds payable arise due to the time it takes to settle a customer sell transaction. When
a customer sells digital assets using their bank account or internal payment methods, there is a
clearing period before the cash is settled. These funds are treated as a payable until the clearing
period closes. During this clearing period, the associated legal tender held by the Company is
segregated from Company-owned funds and separately classified as customer custodial funds in
the accompanying consolidated balance sheet.
Fair value measurements
The Company applies fair value accounting for all digital and financial assets and liabilities. The
Company defines fair value as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to
measure fair value into three levels and bases the categorization within the hierarchy upon the
lowest level of input that is available and significant to the fair value measurement:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and
liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or
their inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management's estimate
of assumptions that market participants would use in pricing the asset or liability.
10
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurements (continued)
The fair value of digital asset denominated assets and liabilities are based on published exchange
rates, which are determined to be "Level 1" inputs, as the digital assets are traded in active
exchange markets. The Company monitors the exchange rates against various third-party
exchanges.
Revenue recognition
The Company recognizes revenue when it transfers control of promised goods or services to its
customers in an amount that reflects the consideration to which it expects to be entitled to in
exchange for those goods or services. The Company derives substantially all of its revenue from
digital asset transaction services, where users can buy and sell digital assets for an exchange
service fee. The Company uses the following steps to determine revenue recognition:
Identification of the contract, or contracts, with the customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of the revenue when, or as, the Company satisfies a performance obligation
The service (performance obligation) is considered to be rendered and the risk of loss has been
transferred to the customer upon the transfer of the digital assets to the customer or receipt of
digital assets purchased from the customer.
Digital asset transactions occur in multiple time zones, some of which differ from the time zone
of the Company's headquarter location. The Company uses coordinated universal time ("UTC")
as time basis for revenue recognition cut-off.
Transaction losses
The Company is exposed to losses primarily due to fraudulent payment methods used to purchase
digital assets. The Company establishes a provision for estimated losses incurred as of the
reporting date, including those of which the Company has not yet be notified. The estimate is
based on historical loss payment patterns. The Company recorded a provision for transaction
losses of $70,000 as of December 31, 2019, which is included in accrued expenses in the
accompanying consolidated balance sheet.
11
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes using the asset and liability method whereby deferred
tax asset and liability account balances are determined based on temporary differences between
the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to affect taxable income. A valuation allowance is
established when management estimates that it is more likely than not that deferred tax assets
will not be realized. Realization of deferred tax assets is dependent upon future pretax earnings,
the reversal of temporary differences between book and tax income, and the expected tax rates in
future periods.
The Company is required to evaluate the tax positions taken in the course of preparing its tax
returns to determine whether tax positions are more likely than not of being sustained by the
applicable tax authority. Tax benefits of positions not deemed to meet the "more-likely-than-not"
threshold would be recorded as a tax expense in the current year. The amount recognized is
subject to estimate and management judgment with respect to the likely outcome of each
uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax
position or for all uncertain tax positions in the aggregate could differ from the amount that is
initially recognized. It is the Company's practice to recognize interest and penalties related to
income tax matters in income tax expense.
For federal tax purposes, digital asset transactions are treated on the same tax principles as
property transactions. The Company recognizes a gain or loss when digital assets are exchanged
for other property, in the amount of the difference between the fair market value of the property
received and the tax basis in the digital asset. Receipts of digital assets in exchange for goods or
services are included in taxable income at the fair market value on the date of receipt.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash and cash equivalents, restricted cash and digital assets held. Cash and cash
equivalents and restricted cash are deposited at high quality financial institutions. Periodically,
such balances may be in excess of federally insured limits. To date, the Company has not
incurred any losses on its deposits of cash and cash equivalents or restricted cash.
3.
FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy, the Company's assets at
fair value as of December 31, 2019:
Level 1
Digital assets
$
136,219
12
Level 2
$
Level 3
-
$
Fair Value
-
$
136,219
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
4.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2019:
Computer equipment
Software
$
13,625
5,000
18,625
(1,984)
$
16,641
Accumulated depreciation and amortization
Depreciation expense was $1,984 for the period from February 4, 2019 (inception) through
December 31, 2019.
5.
ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2019:
Accrued legal expenses
Provision for transaction losses
Franchise fee payable
Accrued bank expenses
Dividend payable
Taxes payable
6.
$
146,334
70,000
100,486
28,300
35,844
750
$
381,714
COMMITMENTS AND CONTINGENCIES
Customer digital asset wallets
Under a Wallet Custody Agreement (see Note 9), Binance Holdings Limited (BHL) has custody
and control of customers' private keys, or components to cryptographic signatures necessary to
transfer associated customer digital assets. For security reasons, BHL uses consolidated
addresses to pool customer digital assets but maintains separate ledger entries to designate each
customer's digital asset balance.
13
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
6.
COMMITMENTS AND CONTINGENCIES (continued)
Customer digital asset wallets (continued)
The Company has committed to securely store all digital assets it holds on behalf of customers.
As such, the Company may be liable to its customers for losses arising from theft or loss of
customer private keys. The Company has no reason to believe it will incur any expense
associated with such potential liability because (i) the Company has no known or historical
experience of claims to use as a basis of measurement, (ii) BHL accounts for and continually
verifies the amount of digital assets within its control, and such verification is subject to audit by
the Company under the terms of the Wallet Custody Agreement, (iii) BHL has established
security around custodial private keys to minimize the risk of theft or loss, and (iv) the
aforementioned Wallet Custody Agreement with BHL contains an indemnification provision that
provides for indemnification of the Company for any losses as a result of BHL breach of duty.
Therefore, the Company has not recorded a liability as of December 31, 2019 for such potential
losses. As of December 31, 2019, the aggregate U.S. Dollar value of digital assets held in
customer wallets was $46 million.
Lease commitments
For the period from February 4, 2019 (inception) through December 31, 2019, the Company
entered into month-to-month lease arrangements and incurred rent expense totaling $35,199.
In November 2019, the Company entered into an operating lease agreement for office space in
San Francisco, California. The lease commenced in January 2020 and expires in May 2023. The
monthly base rent under the lease agreement is approximately $36,300 for the first year and
increases by 3% annually thereafter over the lease term.
The scheduled minimum lease payments under the lease terms are as follows:
Year ending December 31,
2020
2021
2022
2023
$
435,610
448,678
462,139
198,333
$
1,544,760
Legal proceedings
The Company could be subject to various legal proceedings and claims arising in the ordinary
course of business. Although occasional adverse decisions or settlements may occur,
management believes that the final disposition of such matters will not have a material adverse
effect on the Company's business, financial position, results of operations or cash flows. The
Company is not aware of any existing or threatened proceedings or claims that could have a
material impact on its financial position or results of operations.
14
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
7.
STOCKHOLDERS' EQUITY
Common stock
The Company is authorized to issue up to 10,000,000 shares of common stock, par value of
$0.00001 per share. As December 31, 2019, 1,000 shares of authorized common stock were
issued and outstanding. Holders of each share of common stock have one vote for each share
held.
Preferred stock
The Company is authorized to issue up to 100,000 shares of preferred stock, $0.00001 par value
per share, of which 1,500 shares have been designated as Series A preferred stock.
A summary of the preferred stock shares authorized, issued, and outstanding is as follows as of
December 31, 2019:
Original Issue
Price
Series A
$
10,000
Shares
Designated
1,500
Shares Issued
and
Outstanding
750
Liquidation
Preference
$
7,500,500
A complete description of the rights, preferences, privileges and restrictions of the Series A
preferred stock are in the Amended and Restated Certificate of Incorporation.
Liquidation preference - In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of the then outstanding Series A
preferred stock, are entitled to receive an amount equal to the original issue price per share,
plus any accruing dividends accrued but unpaid thereon, whether or not declared, and in
preference to any distributions made to the holders of common stock or other junior stock. If
the assets and funds distributed among the holders of the Series A preferred stock are
insufficient to permit payment to such holders of the full preferential amount, then the entire
assets and funds of the Company legally available for distribution shall be distributed ratably
among the holders of the Series A preferred stock. After the full preferential distribution to
holders of Series A preferred stock, payments and distributions shall be paid to the holders of
common stock and other junior stock, if any, pro rata based on the number of shares held by
each such holder.
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
7.
STOCKHOLDERS' EQUITY (continued)
Preferred stock (continued)
Dividends - The holders of Series A preferred stock, in preference to the holders of common
stock or other junior stock, are entitled to receive cumulative dividends, whether or not
declared by the Board of Directors. Dividends shall accrue at 2% per annum on the sum of the
Series A original issue price, initially $10,000, subject to adjustment for stock splits, stock
dividends or similar transactions. and the amount of any previously accrued and unpaid
dividends. To the extent not paid, dividends on the Series A preferred stock shall compound
quarterly (on March 31, June 30, September 30 and December 31), whether or not declared.
Such dividends may be paid in cash out of legally available funds or in additional shares of
Series A preferred stock.
Redemption - The Company, at the election of the Board of Directors, may redeem all or part
of the outstanding shares of the Series A preferred stock at a redemption price equal to the
Series A preferred stock original issue price per share, together with all accrued and unpaid
dividends, whether or note declared, to and including the redemption date ("Series A
Redemption Price). Such notice of redemption may only be made if the Company, on a
consolidated basis, for the 12 consecutive month period ending on the last day of the month
immediately prior to such notice, has income before interest, taxes, depreciation and
amortization of not less than $2 million, which shall be calculated from the Company's
regularly prepared consolidated financial statements.
At any time after the closing of a qualified public offering, upon the delivery of written
notice, the holders of a majority of the Series A preferred stock may require the Company to
redeem all or any portion of their then outstanding Series A preferred stock at the Series A
Redemption Price. A qualified public offering shall mean the close of the sale of shares of
common stock to the public at a price of at least $10,00 per share, in a firm-commitment
underwritten public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, following which such common stock shall be listed for
trading on a national securities exchange, and resulting in at least $50 million of gross
process, net of underwriting discount and commissions.
8.
Voting - The holders of the Series A preferred stock shall have no voting rights, except in the
case of certain protective provisions.
Conversion - Series A preferred stock shall not be convertible.
INCOME TAXES
The Company incurred $750 in state income tax for the period from February 4, 2019 (inception)
through December 31, 2019, which is included in operating costs and expenses in the
accompanying consolidated statement of operations.
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
8.
INCOME TAXES (continued)
Significant components of the Company's deferred income tax assets and liabilities are as follows
as of December 31, 2019:
Deferred tax assets
Net operating losses
Other
Total current
Valuation allowance
$
$
Total net deferred tax asset
627,961
27,659
655,620
(655,620)
-
The Company assesses the available positive and negative evidence to estimate whether
sufficient future taxable income will be generated to permit use of the existing deferred tax
assets. A significant piece of objective negative evidence is the cumulative earnings or losses
incurred over a three-year period. This objective evidence limits the ability to consider other
subjective evidence such as our projections for future growth. On the basis of this evaluation, as
of December 31, 2019, the Company determined that its federal and state net deferred tax assets
of approximately $656,000 are subject to full valuation allowance as it is more likely than not
that the net deferred tax assets will be not be realized.
As of December 31, 2019, the differences between income taxes expected at the U.S. Federal
statutory income tax rate of 21% and the reported income tax expense are primarily related to
state taxes, net of federal benefit, various permanent items, and change in federal and state
valuation allowances.
As of December 31, 2019, the Company had federal and state net operating losses of
approximately $2,679,000 and $935,000, respectively. The Company does not expect to fully
utilize these federal and state net operating loss carryforwards on a stand-alone or consolidated
(combined) basis. The federal net operating losses have an indefinite carryover period. The state
net operating loss carryforwards, if not utilized, will expire in 2039.
As of December 31, 2019, the Company had no unrecognized tax benefits. The Company does
not expect any material changes to its unrecognized tax benefits within the next twelve months.
As a result, the Company did not recognize any interest and penalties related to uncertain tax
positions for the period from February 4, 2019 (inception) through December 31, 2019.
The Company is filing C Corporation federal and state corporation income and franchise tax
returns in the United States on the consolidated or combined basis. The Company's 2019 tax
returns are subject to examination by federal and state taxing authorities.
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
8.
INCOME TAXES (continued)
The Company's transactions with a related foreign affiliate are subject to transfer pricing
considerations. Generally, a transfer price is the price charged between related parties in an
intercompany transaction. Transfer prices affect the allocation of taxable income across national
tax jurisdictions. The Company is currently in the process of conducting its United States
transfer pricing study (the "Study") with respect to its foreign affiliates' intercompany
transactions. The Company expects to complete its Study for the initial year of operations on or
before the extended due date of the U.S. corporation income tax return. The results of the Study,
based on its initial estimates, are not expected to have significant or material impact on the initial
year of operations.
9.
RELATED PARTY TRANSACTIONS
The Company has entered into certain agreements with Binance Holdings Limited (aka
"Binance"), an entity which is affiliated with the Company's sole shareholder. The agreements
relate to the licensing and support of services as follows:
Software License Agreement - Whereas Binance owns a digital currency trading platform
which it operates in multiple countries, Binance has granted the Company a worldwide,
nonexclusive, perpetual, irrevocable, non-transferable, fully paid-up, royalty-free license to
the licensed software in order to allow the Company to operate a digital currency trading
platform in the U.S. market.
Master Services Agreement - This agreement dictates the terms of use and access in relation
to the licensed software. Additionally, it denotes the hosting and support services which will
be offered by Binance to the Company and the Company's end users as well as the
development and implementation of Company specific enhancements.
Trademark License Agreement - Binance has granted the Company a nonexclusive, nontransferable, non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up, worldwide
license to use certain trademarks owned by Binance.
Wallet Custody Agreement - The Company selected Binance to serve as a custodian to the
Company with respect to the digital assets in any custody account. This agreement specifies
the terms of the relationship the Company will have with the custodian.
There were no expenses incurred or obligations due for the period from February 4, 2019
(inception) through December 31, 2019 related to these services
10.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 30, 2020, the date the
consolidated financial statements were available to be issued.
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BAM Management US Holdings Inc.
Notes to Consolidated Financial Statements
December 31, 2019
10.
SUBSEQUENT EVENTS (continued)
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus
(COVID-19) a global pandemic and recommended containment and mitigation measures
worldwide. The COVID-19 outbreak in the United States has caused business disruption through
mandated and voluntary closings of businesses and shelter in place orders and resulted in market
instability. While the disruption is currently expected to be temporary, there is considerable
uncertainty around the duration of the closings and shelter in place orders. As of the date the
financial statements were available to be issued, the Company has experienced minimal
operational effects due to being a decentralized software platform in a decentralized market.
However, due to the widespread uncertainty over the macroeconomic factors and sovereign
monetary policies which could impact consumer demand for our services, the financial impact
cannot be reasonably estimated at this time.
19
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