DECLARATION of Sachin Verma (Ex. C) by SECURITIES AND EXCHANGE COMMISSION re [8] MOTION for Leave to File Excess Pages filed by SECURITIES AND EXCHANGE COMMISSION. (Scarlato, Matthew)
Page 1 UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
Civil Action No. 1:23-cv-)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES, INC.,
)
BAM MANAGEMENT US HOLDINGS,
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
DECLARATION OF SACHIN VERMA
I, Sachin Verma, declare the following pursuant to Title 28, United States Code, Section
1746:
1.
I submit this declaration in support of the Securities and Exchange Commission’s
“SEC” Motion for Temporary Restraining Order and Preliminary Injunctions
2.
I have personal knowledge of the matters set forth in this declaration, except as
otherwise noted, and, if called as a witness, I could and would competently testify under oath to
the facts stated herein.
3.
I am an active Certified Public Accountant with over 20 years of experience. I am
currently employed by the United States Securities and Exchange Commission (“SEC”) in
Washington, DC, as an Assistant Chief Accountant in the Division of Enforcement. As part of
my daily activities, I have performed numerous calculations using financial records in
connection with SEC investigations.Page 2 I. ASSIGNMENT AND DATA
4.
I have been asked to summarize certain financial information produced by BAM
Trading Services Inc. related to their total capital raised, total revenue, and gross profit derived
during the time period February 4, 2019 through April 30, 2023. 5.
I was provided an excel workbook containing various financial information and
financial statements from 2019 through April 2023 I understand was produced by BAM Trading
Services Inc. I was also provided 2 PDF files containing financial statements for the years through 2022. In addition, I reviewed the Form D – Notice of Exempt Offering of Securities filed
by BAM Management US Holdings Inc. 2 with the SEC on April 8, 2022. Copies of these
documents are attached hereto as Exhibits C-1 to C-4.
II. TOTAL CAPITAL RAISED
6.
Based on my review of the Form D filed by BAM Management US Holdings Inc.,
it appears that starting on or about March 25, 2022, BAM Management US Holdings Inc. sold
equity interests raising a total of $216,772,488 that I understand was for capitalizing the
Binance.US crypto asset trading platform. Ex C-1.
7.
Applying the Internal Revenue Service underpayment penalty rate as set forth in
26 U.S.C. § 6621(a)(2) to above amount from March 25, 2022, the date of the first sale the
equity to the date of the Complaint filed in this action results in an estimated prejudgment
interest amount of $14,836,224.
III. TOTAL REVENUE
February 4, 2019 is the inception date of BAM Trading Services.
I understand that BAM Management US Holdings Inc. is the parent company of BAM Trading Services, Inc. Page 3 8.
From the file labeled BTS00833796, I obtained revenue figures for BAM Trading
for the year 2019 beginning on February 4, the full years 2020, 2021, and 2022, and for the
partial year 2023 through April 30. Ex. C-2. The total revenue for this time period is
$410,901,585.
IV. GROSS PROFIT
9.
I was also asked to calculate gross profit for BAM Trading for the same time
period, February 2019 through April 2023. Gross profit is defined as the amount of total revenue
minus cost of revenue. I obtained these numbers for the years 2020, 2021, and 2022 from the
files labeled BTS00833764-BTS00833785 and BTS00833798-BTS00833823. 3 Ex. C-3 and Ex.
C-4.
10.
For the years 2020 through 2022, I calculate gross profit of $203,643,597.
Because this data is missing for 2019 and 2023, I calculated the average gross profit margin for
the years 2020 through 2022 and applied that gross profit margin to the years with missing data.
I calculate the average gross profit margin for the years 2020 through 2022 at 54.68%. 4 I then
multiply this percentage and the total revenue numbers to get gross profit numbers for the years
2019 and 2023.
11.
I calculate total gross profit for BAM Trading for the time period February
through April 2023 at $224,674,408.
12.
Applying the Internal Revenue Service underpayment penalty rate as set forth in
26 U.S.C. § 6621(a)(2) to these amounts from the applicable year end to the date of the
Complaint filed in this action results in an estimated prejudgment interest of $13,455,870.
Gross profit numbers can be located on page 6 of each PDF.
$203,643,597/$372,438,844. Page 4 13.
A summary chart of my calculations for total revenue, gross profit, and
prejudgment interest is provided at Ex. C-5.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct.
Executed on June 5, 2023 in Washington, DC.
______________________
Sachin Verma Page 5 FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
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The Securities and Exchange Commission has not necessarily reviewed the information in this filing and has
not determined if it is accurate and complete.
The reader should not assume that the information is accurate and complete.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM D
OMB APPROVAL
OMB Number:
Estimated average burden
hours per
response:
Notice of Exempt Offering of Securities
4.
1. Issuer's Identity
Previous
Names
CIK (Filer ID Number)
X None
Entity Type
X Corporation
Name of Issuer
BAM Management US Holdings Inc.
Limited Partnership
Jurisdiction of
Incorporation/Organization
DELAWARE
General Partnership
Limited Liability Company
Business Trust
Year of Incorporation/Organization
Other (Specify)
Over Five Years Ago
X Within Last Five Years (Specify Year) Yet to Be Formed
2. Principal Place of Business and Contact Information
Name of Issuer
BAM Management US Holdings Inc.
Street Address ONE LETTERMAN DRIVE
City
SAN FRANSISCO
Street Address BUILDING C SUITE C3-State/Province/Country
CALIFORNIA
ZIP/PostalCode
Phone Number of Issuer
(628) 200-
3. Related Persons
Last Name
Shroder
First Name
Brian
Street Address One Letterman Drive
Street Address Building C, Suite C3-
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship: X Executive Officer X Director
Middle Name
ZIP/PostalCode
Promoter
Clarification of Response (if Necessary):
Last Name
Zhao
First Name
Changpeng
Street Address
Street Address
Middle Name
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D
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One Letterman Drive
Building C, Suite C3-
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship:
Executive Officer X Director
ZIP/PostalCode
Promoter
Clarification of Response (if Necessary):
Last Name
Chao
First Name
Gin
Street Address One Letterman Drive
Street Address Building C, Suite C3-
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship:
Executive Officer X Director
Middle Name
ZIP/PostalCode
Promoter
Clarification of Response (if Necessary):
4. Industry Group
Health Care
Agriculture
Banking & Financial Services
Commercial Banking
Biotechnology
Health Insurance
Insurance
Retailing
Restaurants
Technology
Hospitals & Physicians
Computers
Investment Banking
Pharmaceuticals
Telecommunications
Pooled Investment Fund
Other Health Care
Investing
Is the issuer registered as
an investment company under
the Investment Company
Act of 1940?
Yes
No
Other Banking & Financial Services
Business Services
Manufacturing
Travel
Airlines & Airports
Real Estate
Commercial
Lodging & Conventions
Construction
Tourism & Travel Services
REITS & Finance
Other Travel
Residential
Energy
X Other Technology
Other
Other Real Estate
Coal Mining
Electric Utilities
Energy Conservation
Environmental Services
Oil & Gas
Other Energy
5. Issuer Size
Revenue Range
No Revenues
OR
Aggregate Net Asset Value Range
No Aggregate Net Asset Value
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FORM
D
Case 1:23-cv-01599 Document 22 SEC
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$1 - $1,000,$1,000,001 $5,000,$5,000,001 $25,000,$25,000,001 $100,000,
$1 - $5,000,$5,000,001 - $25,000,$25,000,001 - $50,000,$50,000,001 - $100,000,
Over $100,000,
Over $100,000,
X Decline to Disclose
Decline to Disclose
Not Applicable
Not Applicable
6. Federal Exemption(s) and Exclusion(s) Claimed (select all that apply)
Investment Company Act Section 3(c)
Rule 504(b)(1) (not (i), (ii) or (iii))
Section 3(c)(1)
Section 3(c)(9)
Rule 504 (b)(1)(i)
Section 3(c)(2)
Section 3(c)(10)
Section 3(c)(3)
Section 3(c)(11)
Section 3(c)(4)
Section 3(c)(12)
Section 3(c)(5)
Section 3(c)(13)
Section 3(c)(6)
Section 3(c)(14)
Rule 504 (b)(1)(ii)
Rule 504 (b)(1)(iii)
Rule 506(b)
X Rule 506(c)
Securities Act Section 4(a)(5)
Section 3(c)(7)
7. Type of Filing
X New Notice Date of First Sale 2022-03-
First Sale Yet to Occur
Amendment
8. Duration of Offering
Does the Issuer intend this offering to last more than one year?
Yes X No
9. Type(s) of Securities Offered (select all that apply)
X Equity
Pooled Investment Fund Interests
Debt
Tenant-in-Common Securities
Option, Warrant or Other Right to Acquire Another Security
Mineral Property Securities
Security to be Acquired Upon Exercise of Option, Warrant
or Other Right to Acquire Security
Other (describe)
10. Business Combination Transaction
Is this offering being made in connection with a business combination transaction,
such as a merger, acquisition or exchange offer?
Yes X No
Clarification of Response (if Necessary):
11. Minimum Investment
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D
Case 1:23-cv-01599 Document 22 SEC
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Minimum investment accepted from any outside investor $0 USD
12. Sales Compensation
Recipient
Recipient CRD Number X None
(Associated) Broker or Dealer X None
(Associated) Broker or Dealer CRD
Number
Street Address
Street Address
City
State/Province/Country
State(s) of Solicitation (select all that
apply)
Check “All States” or check individual
States
All
States
X None
ZIP/Postal
Code
Foreign/non-US
13. Offering and Sales Amounts
USD or X Indefinite
Total Offering Amount
$216,772,488 USD
Total Amount Sold
USD or X Indefinite
Total Remaining to be Sold
Clarification of Response (if Necessary):
14. Investors
Select if securities in the offering have been or may be sold to persons who do not qualify as accredited
investors, and enter the number of such non-accredited investors who already have invested in the
offering.
Regardless of whether securities in the offering have been or may be sold to persons who do not
qualify as accredited investors, enter the total number of investors who already have invested in the
offering:
15. Sales Commissions & Finder's Fees Expenses
Provide separately the amounts of sales commissions and finders fees expenses, if any. If the amount of an expenditure is
not known, provide an estimate and check the box next to the amount.
Sales Commissions $0 USD
Estimate
Finders' Fees $0 USD
Estimate
Clarification of Response (if Necessary):
16. Use of Proceeds
Provide the amount of the gross proceeds of the offering that has been or is proposed to be used for payments to any of the
persons required to be named as executive officers, directors or promoters in response to Item 3 above. If the amount is
unknown, provide an estimate and check the box next to the amount.
$0 USD
Estimate
Clarification of Response (if Necessary):
Signature and Submission
Please verify the information you have entered and review the Terms of Submission below before signing and
clicking SUBMIT below to file this notice.
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FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
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Terms of Submission
In submitting this notice, each issuer named above is:
Notifying the SEC and/or each State in which this notice is filed of the offering of securities described and undertaking
to furnish them, upon written request, in the accordance with applicable law, the information furnished to offerees.*
Irrevocably appointing each of the Secretary of the SEC and, the Securities Administrator or other legally designated
officer of the State in which the issuer maintains its principal place of business and any State in which this notice is
filed, as its agents for service of process, and agreeing that these persons may accept service on its behalf, of any
notice, process or pleading, and further agreeing that such service may be made by registered or certified mail, in any
Federal or state action, administrative proceeding, or arbitration brought against the issuer in any place subject to the
jurisdiction of the United States, if the action, proceeding or arbitration (a) arises out of any activity in connection with
the offering of securities that is the subject of this notice, and (b) is founded, directly or indirectly, upon the provisions
of: (i) the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment
Company Act of 1940, or the Investment Advisers Act of 1940, or any rule or regulation under any of these statutes, or
(ii) the laws of the State in which the issuer maintains its principal place of business or any State in which this notice is
filed.
Certifying that, if the issuer is claiming a Regulation D exemption for the offering, the issuer is not disqualified from
relying on Rule 504 or Rule 506 for one of the reasons stated in Rule 504(b)(3) or Rule 506(d).
Each Issuer identified above has read this notice, knows the contents to be true, and has duly caused this notice to be signed
on its behalf by the undersigned duly authorized person.
For signature, type in the signer's name or other letters or characters adopted or authorized as the signer's signature.
Issuer
BAM Management US Holdings Inc.
Signature
/s/ Brian Shroder
Name of Signer
Brian Shroder
Title
Chief Executive Officer
Date
2022-04-
Persons who respond to the collection of information contained in this form are not required to
respond unless the form displays a currently valid OMB number.
* This undertaking does not affect any limits Section 102(a) of the National Securities Markets Improvement Act of 1996 ("NSMIA") [Pub. L. No. 104-290, 110 Stat. 3416 (Oct. 11,
1996)] imposes on the ability of States to require information. As a result, if the securities that are the subject of this Form D are "covered securities" for purposes of NSMIA, whether
in all instances or due to the nature of the offering that is the subject of this Form D, States cannot routinely require offering materials under this undertaking or otherwise and can
require offering materials only to the extent NSMIA permits them to do so under NSMIA's preservation of their anti-fraud authority.
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5/5Page 10 BAM Trading Services Inc.
Income Statement Details as of April 30th,
Audited
Figures in USD 000s
Revenue
Crypto Trading Network Fees
Royalty Expense - BHL
IT Support - BHL
Fiat Rail Costs
Transaction Monitoring
Web Hosting and Other Exchange Costs
Chargebacks
Compensation and benefits
Advertising and marketing
Professional services
Legal and compliance fees
Travel
Software tools and licenses
Transaction Loss - HNT
Other business expenses
Insurance
Rent and utilities
Depreciation
Taxes and licenses
Crypto assets impairment
Total operating expenses
Operating Income (Loss)
$
$
1,2,(2,662)
Note
Note Note Note
Note
Gain (Loss) on crypto assets
Other income, net
Total other income (expense), net
(20)
(20)
Income (loss) before provision for taxes
Provision (benefit) for income taxes
Net income (loss)
50,
(37,640)
(8,213)
4,
(2,681) $
(399) $
149,
$
(181,350) $
(22,945) $
(57,795)Page 11 BAM Trading Services Inc.
Financial Statements
December 31, 2021 and
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833764Page 12 TABLE OF CONTENTS
Page No.
Independent Auditor's Report
1-
Balance Sheets
Statements of Operations
Statements of Stockholder's Equity
Statements of Cash Flows
Notes to Financial Statements
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
7 -
BTS00833765Page 13 INDEPENDENT AUDITOR'S REPORT
Board of Directors
BAM Trading Services Inc.
San Francisco, California
Opinion
We have audited the accompanying financial statements of BAM Trading Services Inc. (a Delaware
corporation) (the ''Company''), which comprise the balance sheets as of December 31, 2021 and 2020, and
the related statements of income, stockholder's equity, and cash flows for the years then ended, and the
related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of BAM Trading Services Inc. as of December 31, 2021 and 2020, and the results of its operations
and its cash flows for the years then ended in accordance with accounting principles generally accepted in
the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Our responsibilities under those standards are further described in the Auditor's Responsibilities
for the Audit of the Financial Statements section of our report. We are required to be independent of BAM
Trading Services Inc. and to meet our other ethical responsibilities in accordance with the relevant ethical
requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about BAM Trading Services Inc.'s ability
to continue as a going concern within one year after the date that the financial statements are available to
be issued.
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833766Page 14 Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is
not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the
United States of America will always detect a material misstatement when it exists. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control. Misstatements are considered material if there is a substantial likelihood that, individually or in
the aggregate, they would influence the judgment made by a reasonable user based on the financial
statements.
In performing an audit in accordance with auditing standards generally accepted in the United States of
America, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, and design and perform audit procedures responsive to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit 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 BAM Trading Services Inc.'s internal control. Accordingly, no such opinion is
expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the financial
statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about BAM Trading Services Inc.'s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control related matters
that we identified during the audit.
ArmaninoLLP
San Jose, California
March 30,
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833767Page 15 BAM Trading Services Inc.
Balance Sheets
December 31, 2021 and
ASSETS
Current assets
Cash and cash equivalents
Digital assets
Prepaid expenses
Customer funds receivable
Customer custodial funds
Income tax receivable
Right-of-use asset, current portion
Total current assets
Right-of-use asset, net of current portion
Property and equipment, net
Security deposits
Restricted cash
Total assets
$
28,613,151,840,8,598,13,432,250,600,8,839,613,462,537,
559,420,238,$ 463,756,
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
$
8,072,Accrued expenses
3,646,Deferred revenue
398,Due to Parent
3,342,Due to Binance Holdings Limited
11,509,Customer funds payable
264,032,Lease liability, current portion
651,Total current liabilities
291,653,Customer deposits
Deferred income tax liability
Lease liability, net of current portion
Total liabilities
$
$
$
1,426,17,500,310,580,
15,076,7,118,1,311,2,480,64,269,448,90,705,613,61,4,238,91,622,
856,712,312,16,454,554,66,749,435,86,074,1,301,651,88,027,
Commitments and contingencies (Note 9)
Stockholder's equity
Common stock, $0.00001 par value, 10,000,000 shares
authorized; 7,500,000 shares issued and outstanding
Additional paid-in capital
Stockholder receivable
Accumulated equity (deficit)
Total stockholder's equity
Total liabilities and stockholder's equity
6,675,(75)
146,500,153,175,$ 463,756,
$
6,675,(75)
(3,080,285)
3,594,91,622,
The accompanying notes are integral part of these financial statements.
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833768Page 16 BAM Trading Services Inc.
Statements of Operations
For the Years Ended December 31, 2021 and
Revenue
$ 265,850,
$
11,002,
Cost of revenue
118,671,
5,650,
Gross profit
147,178,
5,352,
Operating expenses
84,421,
8,711,
Operating income (loss)
62,757,
(3,358,875)
Other income
Gain on digital assets
Total other income
137,068,137,068,
2,979,2,979,
Income (loss) before provision for income taxes
199,825,
(379,542)
50,244,
19,
Provision for income taxes
Net income (loss)
$ 149,581,
$
(398,888)
The accompanying notes are integral part of these financial statements.
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833769Page 17 7,500,
Issuance of common stock in
exchange for stockholder's
receivable
Net loss
Balance, December 31,
Net income
Balance, December 31,
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
$
6,675,
6,675,
Additional Paid-In
Capital
$
6,675,
$
(75)
(75)
(75)
Stockholder's
Receivable
$
-
149,581,$ 146,500,
(398,888)
(3,080,285)
Accumulated
Equity (Deficit)
$ (2,681,397)
The accompanying notes are integral part of these financial statements.
$
7,499,7,500,
Balance, January 1,
Common Stock
Shares
Amount
1,$
-
BAM Trading Services Inc.
Statements of Stockholder's Equity
For the Years Ended December 31, 2021 and
(398,888)
3,594,
Total
3,993,
149,581,$ 153,175,
$
BTS00833770Page 18 BAM Trading Services Inc.
Statements of Cash Flows
For the Years Ended December 31, 2021 and
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
$
Depreciation and amortization
Provision for transaction losses
Gain on digital assets
Digital assets received as revenue
Digital assets payments for expenses
Non-cash lease expense
Deferred income tax liability
Changes in operating assets and liabilities
Prepaid expenses and other current assets
Income tax receivable
Customer funds receivable
Accounts payable
Accrued expenses
Deferred revenue
Due to Parent
Due to Binance Holdings Ltd
Customer funds payable
Customer deposits
Net cash provided by operating activities
149,581,
$
(398,888)
95,1,460,(137,068,243)
(170,354,675)
30,605,13,17,500,
17,178,(2,979,333)
(9,407,432)
1,141,24,-
(7,286,258)
(8,839,040)
(10,951,853)
7,216,1,472,86,(13,111,413)
10,954,197,283,125,68,783,
(999,065)
(2,301,060)
716,239,312,16,157,554,60,531,1,301,65,089,
Cash flows from investing activities
Purchase of property and equipment
Security deposits
Proceeds from sale of digital assets
Net cash provided by investing activities
(593,664)
(416,613)
132,095,131,085,
(62,907)
9,4,263,4,209,
Net increase in cash and cash equivalents and restricted cash
199,868,
69,299,
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
$
79,583,279,452,
$
10,284,79,583,
Cash and cash equivalents and restricted cash consisted of the following:
Cash and cash equivalents
$
28,613,
$
15,076,
$
238,250,600,279,452,
$
238,64,269,79,583,
$
$
3,435,
$
$
1,505,
Restricted cash
Customer custodial funds
Supplemental disclosures of cash flow information
Cash paid for income taxes
$
34,465,Operating cash outflows for amounts included in the measurement of
$
448,operating lease liabilities
Supplemental schedule of noncash investing and financing transactions
Right-of-use assets obtained in exchange for lease liabilities
$
Issuance of stock in exchange for stockholder receivable
$
The accompanying notes are integral part of these financial statements.
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833771Page 19 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 1. NATURE OF OPERATIONS
BAM Trading Services Inc. (the "Company" or "BAM Trading"), a Delaware corporation, commenced
operations on February 4, 2019 ("inception") and is headquartered in San Francisco, California. The
Company is a wholly-owned subsidiary of BAM Management US Holdings Inc. (the "Parent").
In September 2019, the Company 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, 2021,
Binance.US supported 77 digital assets and 135 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"). The accompanying financial statements include
transactions between the Company and its Parent (see Note 9).
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.
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.
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BTS00833772Page 20 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and uncertainties (continued)
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.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus ("COVID19") a global pandemic and recommended containment and mitigation measures worldwide. The COVID19 outbreak in the United States has caused business disruption through mandated and voluntary closings
of business and shelter in place orders. There is considerable uncertainty around the duration of the
closings and shelter in place orders. For the years ended December 31, 2021 and 2020 and through 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.
Use of estimates
The preparation of 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 financial statements, and the reported amounts of
revenues and expenses during the reporting periods. These estimates include, but are not limited to, useful
lives of property and equipment, valuation of digital assets, determination of the Company's incremental
borrowing rate, 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
financial statements will be affected.
Reclassifications
As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on the reported results of operations.
Cost of revenue
Cost of revenue includes direct costs related to revenue recognition, such as crypto trading network fee,
fiat rail fees, royalty, ACH and debit card return charges, web hosting and compliance costs.
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BTS00833773Page 21 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising cost
The Company expenses advertising and marketing expenses as incurred. Marketing and advertising
include general marketing, digital marketing, referral, swags and public relations agency fees.
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.
Cash and cash equivalents excludes customer legal tender, which is reported separately as customer
custodial funds in the accompanying balance sheets.
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.
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, 2021 and 2020, 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 in the accompanying
balance sheets. 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 gain
on digital assets in the accompanying statements of operations.
For the years ended December 31, 2021 and 2020, the Company recognized a net unrealized gain of
$76,882,152 and $1,441,435 related to digital assets held, respectively. For the years ended December 31,
2021 and 2020, the Company recognized a net realized gain of $60,186,091 and $1,537,898 related to the
liquidation of digital assets, respectively.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer custodial funds represent cash and cash equivalents held in Company controlled bank accounts
that are held for the exclusive benefit of customers.
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BTS00833774Page 22 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 receivable are
typically received within one or two business days of the transaction date. The Company establishes limits
on withdrawals in order to mitigate potential losses by preventing customers from withdrawing the digital
asset to an external blockchain address until the payment settles.
Customer funds payable represent unsettled withdrawals, which 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 method, 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 funds payable
in the accompanying balance sheets.
Leases
In February 2016, the Financial Accounting Standards Board issued Accounting Standard Update 201602, Leases, ("ASU 2016-02") in order to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating
leases under prior generally accepted accounting principles. ASU 2016-02 requires that a lessee should
recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its
right to use the underlying asset for the lease term on the balance sheet.
The Company adopted ASU 2016-02 on January 1, 2020, using the modified retrospective method,
resulting in the recognition of right-of-use assets of approximately $1.0 million and lease liabilities for
operating leases of approximately $1.0 million on the Company's balance sheet, with no impact to its
statement of operations. The Company did not elect to apply the hindsight practical expedient when
determining lease term and assessing impairment of right-of use assets.
The Company determines if an arrangement is a lease at inception. For leases where the Company is the
lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying asset for the term
of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease.
Lease liabilities are recognized at the lease commencement date based on the present value of the future
lease payments over the lease term. Most leases do not provide an implicit rate, so the Company uses its
incremental borrowing rate based on the information available at the commencement date of the
underlying lease arrangement to determine the present value of lease payments. The ROU asset is
determined based on the lease liability initially established and reduced for any prepaid lease payments
and any lease incentives received. The lease term to calculate the ROU asset and related lease liability
includes options to extend or terminate the lease when it is reasonably certain that the Company will
exercise the option. The Company's lease agreements generally do not contain any material variable lease
payments, residual value guarantees or restrictive covenants.
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BTS00833775Page 23 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
The Company has made the policy election to account for short-term leases by recognizing the lease
payments in the statements of operations on a straight-line basis over the lease term and not recognizing
these leases on the Company's balance sheets.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating
expense while expense for financing leases is recognized as depreciation expense and interest expense
using the accelerated interest method of recognition. The Company accounts for lease components and
non-lease components as a single lease component.
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
Furniture and fixtures
Leasehold improvements
Software
3 years
5 years
Lesser of 5 years or lease term
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 income in the accompanying statements of operations.
Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets, including right-of-use 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 years
ended December 31, 2021 and 2020.
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:
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BTS00833776Page 24 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurements (continued)
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.
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 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 Company derives revenue from various digital asset transaction services. The Company derives a
majority of its revenue from exchange transactions, where users can buy, sell or convert digital assets on
the platform for an exchange service fee. The Company also derives revenue from deposit fees when
customers use credit cards to deposit funds into their platform account and withdrawals fees when a
customer requests a transfer of their funds out of their platform account. Fees are charged at the transaction
level and represents a single performance obligation. The Company has determined it is an agent in the
transaction between customers and presents revenue for the fees earned on a net basis. This determination
required judgment and was based on the fact that the Company does not control the digital asset being
provided before it is transferred to the buyer, does not have inventory risk related to the digital asset and
does not set the price for the digital asset as the price is a market rate established by the platform.
The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time
the transaction is processed, which is either upon the transfer of the digital assets to the customer, receipt
of digital assets purchased from the customer, or transfer of funds on or off the platform.
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BTS00833777Page 25 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
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.
From time to time, the Company enters into arrangements with token partners for inclusion of the partner's
token onto the Company's platform. These arrangements generally include a technical integration fee
("TIF") and a marketing fee which are deemed to be distinct performance obligations. Fees are due up
front and are not refundable. The transaction price is allocated between these performance obligations
using the standalone selling price. TIF revenue is recognized on the date the token becomes available for
trading on the Company's platform. Marketing fees are recognized as the related fees are consumed in
marketing campaigns. The Company also requires a refundable deposit from the token partners which is
not considered a component of the transaction price and is recorded as customer deposit in the
accompanying balance sheets.
Deferred revenue
Deferred revenue reflects the amount received from token partners in advance of revenue recognition and
is recognized when all revenue recognition criteria are met. The Company's deferred revenue as of
December 31, 2021 and 2020 consists of marketing fees that have not yet been delivered.
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 been notified. The estimate is based on historical loss
payment patterns. The Company recorded a provision for transaction losses of $1,708,835 and $248,as of December 31, 2021 and 2020, respectively, which is included in accrued expenses in the
accompanying balance sheets.
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 effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date. In making
such a determination, management considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, and results of recent operations. If management determines that the Company would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would
make an
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BTS00833778Page 26 BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes (continued)
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
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 customer custodial funds. Cash and cash equivalents, restricted
cash and customer custodial funds 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, restricted cash or customer custodial funds.
3. FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy,
fair value on a recurring basis as of December 31, 2021:
Level Digital assets held
$ 151,840,
Level $
-
Level $
-
Fair Value
$ 151,840,
fair value on a recurring basis as of December 31, 2020:
Level Digital assets held
$
7,118,
Level $
-
Level $
-
Fair Value
$
7,118,
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Notes to Financial Statements
December 31, 2021 and 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31:
Computer equipment
Furniture and fixtures
Leasehold improvements
Software
$
Less: accumulated depreciation
$
232,26,15,149,423,216,639,
$
$
4,6,2,14,19,33,
Depreciation expense was $95,785 and $17,890 for the years ended December 31, 2021 and 2020,
respectively.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31:
Accrued legal expenses
Accrued risk and compliance expenses
Provision for transaction losses
State income taxes payable
Credit card payables
Other
$
$
1,554,293,1,708,29,60,3,646,
$
$
415,248,20,28,712,
6. 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.
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.
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Notes to Financial Statements
December 31, 2021 and 6. COMMITMENTS AND CONTINGENCIES (continued)
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, 2021 and 2020 for such potential losses. As
of December 31, 2021 and 2020, the aggregate U.S. Dollar value of digital assets held in customer wallets
was $6,432.4 million and $704.9 million, respectively.
Leases
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 discount rate for the Company's operating lease was 1.54%. The
Company also leases office space under month-to-month lease arrangements.
The table below presents the Company's right-of-use assets and lease liabilities as of December 31:
Right-of-use assets:
Right-of-use assets, current portion
$
Right-of-use assets, net of current portion
$
Lease liabilities:
Lease liabilities, current portion
Lease liabilities, net of current portion
$
$
613,613,
$
651,651,
$
$
$
448,613,1,061,
435,651,1,086,
The scheduled minimum lease payments under the lease terms are as follows:
Year ending December 31,
Less: imputed interest
Present value of lease liability
$
660,(9,035)
651,
$
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Notes to Financial Statements
December 31, 2021 and 6. COMMITMENTS AND CONTINGENCIES (continued)
Leases (continued)
The components of lease costs were as follows for the years ended December 31:
Operating lease costs
Short-term lease costs
$
$
452,681,1,133,
$
$
452,42,495,
Legal proceedings
The Company is 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.
7. STOCKHOLDER'S EQUITY
The Company is authorized to issue up to 10,000,000 shares of common stock, with a par value of
$0.00001 per share. As of December 31, 2021 and 2020, 7,500,000 shares of authorized common stock
were issued and outstanding to the Parent.
8. INCOME TAXES
The Company and its Parent, together with other affiliated group members of the Parent, authorized and
consented to be included in a consolidated income tax return for federal (United States) income tax return
reporting purposes; and, report combined corporate tax liability on a single return. In addition, the Parent
and its wholly-owned subsidiaries, including BAM Trading, are subject to unitary combined
income/franchise tax reporting requirements in certain state jurisdictions. BAM Trading may be required
to file separate state corporation tax returns in jurisdictions that require such separate filings, including
those jurisdictions where the Company may be subject to market-based sourcing rules or regulatory or
state registration requirements.
Generally, the amount of current and deferred tax expense for an income tax return group that files a
consolidated income tax return is allocated among the members of that group when those members issue
separate financial statements but does not establish a mandatory method of allocation. BAM Trading is
not subject to a tax sharing agreement with its Parent or any affiliated company. The Company elected to
compute its federal state and local income tax provisions as if it was a separate taxpayer. Under this
method, the sum of the amounts allocated to individual members of the income tax return group may not
equal the consolidated amount.
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Notes to Financial Statements
December 31, 2021 and 8. INCOME TAXES (continued)
The provision for income taxes consisted of the following for the years ended December 31:
Current:
Federal
State
Total
$ 25,745,6,998,32,743,
Deferred:
Federal
State
Total
Total provision for income taxes
$
19,19,
14,313,3,186,17,500,$ 50,244,
$
19,
Significant components of the Company's deferred income tax assets and liabilities are as follows as of
December 31, 2021:
Net operating losses
Unrealized gain on digital assets
Lease liability
Other
Total current
Valuation allowance
$
148,1,546,1,695,-
$
330,346,255,78,1,011,(735,430)
Property and equipment
Unrealized loss on digital assets
(68,412)
(18,969,372)
(157,813)
(19,195,597)
$ (17,500,572)
(14,600)
(261,496)
(276,096)
-
Total deferred tax liabilities
Total net deferred tax asset
$
The effective income tax rate differs from the statutory federal income tax rate as follows for the years
ended December 31:
Tax at federal statutory rate
State taxes, net of federal benefit
Other permanent items
Change in valuation allowance
21.0 %
4.0.(0.4)
25.1 %
21.0 %
3.(1.0)
(28.3)
(5.1) %
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Notes to Financial Statements
December 31, 2021 and 8.
INCOME TAXES (continued)
Management assesses all available positive and negative evidence to estimate whether sufficient future
taxable income will be generated to permit use of the existing deferred tax assets. Primarily based upon
historical results of operations, estimates of future taxable income and positive evidence in the form of
cumulative losses no longer being present and additional weight given to subjective evidence such as our
projections for growth, we believe our deferred tax assets are realizable on a more likely than not basis
resulting in a $954,000 recognized tax benefit and reduction to the valuation allowance reduction.
At December 31, 2021 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, federal income tax withholding accrual, various permanent items, and a release of federal and
state valuation allowances. At December 31, 2020, 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.
tax measures, provides for a three-year suspension of the use of NOLs for medium and large businesses
and a three-year limit on the use of business incentive tax credits to offset no more than $5 million of tax
per year. The three-year term was subsequently revised to a two-year term and has been accounted for in
deferred tax assets.
The Company and its affiliates are computing their respective tax obligation on a stand-alone basis. The
Company, together with its Parent and an affiliate company, files U.S. Corporation federal, and state
income and franchise tax returns in jurisdictions with varying statutes of limitations. Currently these
statutes of limitations are open from 2019 forward for the U.S. and various states. As of December 31,
2021, the Company has a state net operating losses of approximately $1,420,000 on a stand-alone basis.
The state net operating loss carryforwards, if not utilized, expires in 2039. All filing statutes are open and
the Company is currently not under audit.
As of December 31, 2021, 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 interest and penalties related to uncertain tax positions as a component of
income tax expense.
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.
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Notes to Financial Statements
December 31, 2021 and 9. RELATED PARTY TRANSACTIONS
The Company receives advances from and makes payments on behalf of the Parent in the ordinary course
of business. These payments made on behalf of the Company's Parent result in intercompany receivables
and payables. As of December 31, 2021 and 2020, the unsettled intercompany payables Due to Parent
was $1,289,892 and $16,454,045, respectively.
The Company has entered into certain agreements with BHL, 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 BHL owns a digital currency trading platform which it
operates in multiple countries, BHL 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 BHL to the Company and the Company's end users as well as the development and
implementation of Company specific enhancements.
Trademark License Agreement - BHL has granted the Company a nonexclusive, non transferable,
non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to use
certain trademarks owned by BHL.
Wallet Custody Agreement - The Company selected BHL 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.
In accordance with the terms of these agreements, for the years ended December 31, 2021 and 2020, the
Company incurred expenses totaling $10,954,647 and $554,500, respectively, which is included in cost
of revenue in the accompanying statements of operations and had a payable due to BHL of $11,509,and $554,500 as of December 31, 2021 and 2020, respectively.
10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 3 , 2022, the date the financial statements
were available to be issued.
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833785Page 33 BAM Trading Services Inc.
Financial Statements and Independent Auditor’s Report
December 31,
Confidential Treatment Requested by
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TABLE OF CONTENTS
Page No.
Independent Auditor's Report
1-
Balance Sheet
Statement of Operations
Statement of Stockholder's Equity
Statement of Cash Flows
Notes to the Financial Statements
Confidential Treatment Requested by
BAM Trading Services Inc.
6-8 -
BTS00833799Page 35 INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of
BAM Trading Services Inc. d/b/a Binance.US
Opinion
We have audited the accompanying financial statements of BAM Trading Services Inc. d/b/a Binance.US (the “Company”), which
comprise the balance sheet as of December 31, 2022, and the related statements of operations, stockholder’s equity, and cash
flows for the year then ended, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events considered in
the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the
date that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance
with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is
a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user
based on the financial statements.
FGMK, LLC
333 W. Wacker Drive, 6th Floor | Chicago, IL 2801 Lakeside
Drive, 3rd Floor
| Bannockburn,
IL 60015 by
Confidential
Treatment
Requested
17W110 22nd Street, 3rd Floor | Oakbrook Terrace, IL
BAM Trading Services Inc.
Bannockburn | Chicago | Cleveland
Dubuque | Indianapolis | Oakbrook Terrace
BTSOrange County | Santa Fe | SarasotaPage 36 In performing an audit in accordance with generally accepted auditing standards, we:
o
o
o
o
o
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit 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
Company’s internal control. Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Bannockburn, Illinois
May 10,
Confidential Treatment Requested by
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BTS00833801Page 37 BAM Trading Services Inc.
Balance Sheet
December 31,
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS
3Page 38 BAM Trading Services Inc.
Statement of Operations
For the Year Ended December 31,
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833803Page 39 BAM Trading Services Inc.
Statement of Stockholder's Equity
For the Year Ended December 31,
Confidential Treatment RequestedThe
by accompanying notes are an integral part of these financial statements.
BAM Trading Services Inc.
BTS
5Page 40 BAM Trading Services Inc.
Statement of Cash Flows
For the Year Ended December 31,
(Continued)
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS
6Page 41 BAM Trading Services Inc.
Statement of Cash Flows (continued)
For the Year Ended December 31,
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
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7Page 42 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 1. NATURE OF OPERATIONS
BAM Trading Services Inc. d/b/a Binance.US (the "Company" or "BAM Trading"), a Delaware
corporation, commenced operations on February 4, 2019 and is headquartered in Miami, Florida. The
Company is a wholly-owned subsidiary of BAM Management U.S. Holdings Inc. (“BAM Management”).
In September 2019, the Company launched Binance.US, a crypto asset trading platform for the United
States market, through a licensing arrangement with Binance Holdings Limited (“BHL”), which operates
a global crypto asset trading platform under the name Binance.com (Note 3). Binance.US is powered by
matching engine and wallet technologies licensed from BHL and provides secure and reliable crypto asset
trading and a hosted wallet service to its users. As of December 31, 2022, Binance.US supported crypto assets and 324 trading pairs, with plans for adding more crypto 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").
Risks and uncertainties
The Company's future results of operations involve a number of risks and uncertainties that could have a
material adverse effect 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 the Company’s 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.
Compliance risk
BAM Trading is registered with the U.S. Department of Treasury’s Financial Crimes Enforcement
Network (“FinCEN”) as a Money Services Business (“MSB”). The federal Bank Secrecy Act, also known
as the Currency and Foreign Transactions Reporting Act, and its implementing regulations (collectively,
the “BSA”) is a compendium of federal statutes which serve as the United States’ principal anti-money
laundering (“AML”) and anti-terrorist financing statutes. FinCEN is responsible for promulgating
regulations that implement the BSA. The Company currently operates its platform to facilitate the
exchange of crypto assets. By facilitating the exchange of crypto assets through its platform, the Company
believes it is acting as an “exchanger” of virtual currency under FIN-2013-G001, Application of FinCEN's
Regulations to Persons Administering, Exchanging, or Using Virtual Currencies issued by FinCEN on
March 18, 2013 (“FinCen’s 2013 Guidance”). This is because the Company is facilitating the exchange of
crypto currency for other crypto currency (or fiat currency held by the Company or Prime Trust, LLC
(“Prime Trust”)) and charges users a fee to facilitate such trades through the Company’s platform, by
which it believes it is “engaged as a business in exchanging virtual currency” for other virtual currency or
fiat currency. The over-the-counter desk and convert features of the Company’s platform would likewise
fall into this category. FinCEN’s 2013 Guidance provides that “exchangers” are to be classified as money
transmitters, a type of MSB, under the BSA. This designation also covers the Company’s provision of the
remittance services, which are either the transmittal of fiat currency or crypto assets from point A to point
B.
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8Page 43 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, Forty-nine states, the District of Columbia, the Federated States of Micronesia, Guam, the Marshall
Islands, the Northern Mariana Islands, Palau, Puerto Rico, and the U.S. Virgin Islands have money
transmission statutes that require an entity to obtain a license in order to engage in certain regulated
activities. While these statutes vary by state, in general the activities which typically require an entity to
seek licensure as a money transmitter are: (i) the sale or issuance of money orders or traveler’s checks; (ii)
the sale or issuance of open-loop stored value; and (iii) the transmission of money or monetary value,
either electronically or otherwise, from point A to point B, including bill payment (this subsection (iii)
mirrors the definition of “money transmission” under the BSA set forth above). Generally, any entity
engaging in any of the three activity categories must be licensed under the relevant state laws as a money
transmitter, be appointed and serve as the authorized agent of a licensed money transmitter, or be an entity
which is exempt from the scope of the money transmitter statutes, such as a federally-insured financial
institution. The reason for this construct is to ensure that each entity engaging in money transmission either
is regulated as a licensee or is exempt because it is already subject to regulation (e.g., banks). Some
jurisdictions such as California have money transmission statutes but have taken the position that BAM
Trading’s products do not require a license, thereby authorizing the Company to operate in those
jurisdictions without a license. The Company is licensed in 43 jurisdictions and authorized to operate in
an additional 6 jurisdictions.
Regulation risk
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. Current promulgated tax rules related to
digital assets are unclear and require significant judgments to be made in interpretation of the law,
including but not limited to the areas of income tax, information, reporting, transaction level taxes and the
withholding of tax at source. Additional legislation or guidance may be issued by U.S. governing bodies
that may differ significantly from the Company’s practice or interpretation of the law. 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.
Market risk
Digital assets and their respective protocol networks are exposed to risks due to fraud, technological
glitches, hackers or malware. 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.
While the Company is continuing to diversify its revenue sources, its current revenues are primarily
derived from transaction fees on sales and purchases of digital assets by its customers.
Market risk arises primarily from changes in the market value of digital assets, which is influenced by a
number of factors, including the volatility and liquidity in the marketplace, which could materially and
adversely affect the Company's results of operations.
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 customer custodial funds. Cash and cash equivalents, restricted
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9Page 44 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, cash and customer custodial funds are deposited at financial institutions. Periodically, such balances may
be in excess of federally insured limits. The Company has not incurred any significant losses on its deposits
of cash and cash equivalents, restricted cash or customer custodial funds as of the date these financial
statements were available to be issued. The Company maintains relationships with numerous banking
partners to ensure adequate redundancies across its operations and to minimize concentration risks. As of
December 31, 2022, the Company had $143,298,844 and $37,911,076 of cash and cash equivalents,
restricted cash and customer custodial funds held at Silvergate Capital Corp. and Signature Bank,
respectively. Both banks have experienced liquidity issues and were seized by the Federal Deposit
Insurance Corporation (“FDIC”) subsequent to December 31, 2022. The Company’s funds are protected
by the FDIC up to the FDIC limit and the Company is transitioning to other financial institutions. The
Company did not experience material interruptions in its operations due to the bank takeovers and does
not expect future material interruptions.
Indemnifications
In the normal course of business, the Company enters into contracts that contain a variety of representations
and warranties that provide indemnifications under certain circumstances. The Company’s maximum
exposure under these arrangements is unknown, as this would involve future claims that may be made
against the Company that have not yet occurred. The Company expects the risk of future financial
obligations under these indemnifications to be remote.
Liquidity
The Company has incurred significant losses and negative cash flows from operations for the year ended
December 31, 2022 due to the current market conditions. Management does not believe there is substantial
doubt over the Company's ability to continue as a going concern. However, if the Company needs to
increase its liquidity condition in the future, management may plan to seek to obtain additional capital
contributions from BAM Management, issue additional debt securities or obtain a credit facility. Without
additional funds, the Company may choose to delay or reduce its operating or investment expenditures.
Use of estimates
The preparation of 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 financial statements, and the reported amounts of revenues
and expenses during the reporting periods. These estimates include, but are not limited to, valuation of
crypto assets, provision for transaction losses, accounting for income taxes, assessing the likelihood of
adverse outcomes from claims and disputes, and the Company’s assessment of its ability to maintain
compliance with laws and regulations that currently apply or become applicable given the highly evolving
and uncertain regulatory landscape. To the extent that there are material differences between these
estimates and results, the Company's financial statements will be affected.
Fair value measurements
The Company applies fair value accounting for all 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:
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Notes to the Financial Statements
December 31, ●
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.
The fair value of crypto asset denominated assets and liabilities are based on published exchange rates,
which are determined to be Level 1 inputs, as the crypto assets are traded in active exchange markets. The
Company monitors the exchange rates against various third-party exchanges.
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.
Cash and cash equivalents exclude customer fiat, which is reported separately as customer custodial funds
in the accompanying balance sheet.
Restricted cash
The Company has restricted cash deposits at financial institutions as cash collateral for potential
chargeback losses and related to an escrow deposit for the transaction with Voyager Digital, LLC
(“Voyager”) which has been terminated as discussed below.
On December 18, 2022, the Company entered into an agreement to acquire certain assets and assume
certain liabilities of Voyager which included a required escrow deposit of $10,000,000. The Company
terminated the transaction on April 25, 2023 in accordance with termination clauses within the agreement
and is pursuing the return of the escrow deposit.
USDC and BUSD
USD Coin (“USDC”) and Binance USD (“BUSD”) are accounted for as financial instruments subject to
fair value measurement; one USDC or one BUSD can each be redeemed for one U.S. dollar on demand
from the respective issuer. While USDC and BUSD are not accounted for as cash and cash equivalents,
the Company treats USDC and BUSD as liquidity resources.
Crypto assets
The Company facilitates transactions between users and earns fee revenue on transactions that are
denominated in crypto assets. The Company assigns costs to crypto asset transactions in its inventory on
a first-in, first-out basis. The Company does not hold crypto assets for speculative purposes.
Through December 1, 2022, all Company-owned crypto assets were held in custody accounts through the
Wallet Custody Agreement with BHL (Note 3). Per the agreement, BHL held all of the Company’s
customers’ assets in custody. Prior to December 1, 2022, the Company accounted for its crypto assets
under custody with BHL as receivables subject to fair value measurement. The Company initially recorded
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Notes to the Financial Statements
December 31, crypto asset receipts at cost and subsequently marked its crypto asset holdings to market at each reporting
date. Fair value was determined based on quoted market exchange prices as of the reporting date.
Unrealized gains and losses arising from changes in the fair value of crypto assets, as well as gains and
losses realized from differences in prices in which crypto assets were purchased compared to crypto assets
sold, were recognized net, in loss on crypto assets in the accompanying statement of operations.
Effective December 1, 2022, following the termination of the Wallet Custody Agreement with BHL, the
Company’s crypto assets that were previously carried as receivables were derecognized at fair value. Any
gain or loss recorded on this derecognition was recorded as realized gain or loss on the accompanying
statement of operations. These crypto assets were then recorded as intangible assets with indefinite useful
lives in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 350, Intangibles - Goodwill and Other.
These intangible assets are initially measured at cost and are subject to impairment losses if the fair value
of the crypto assets decreases below the carrying value at any time during the period in which the Company
holds the crypto assets. The fair value is measured using the quoted price of the crypto assets at the time
its fair value is being measured on a weighted average basis, based on exchange activities which
approximate the assets’ principal market. The Company recorded impairment charges of $16,849,related to its crypto assets during the year ended December 31, 2022.
The Company classifies its crypto assets as current assets on the accompanying balance sheet as its crypto
assets are highly liquid and can be consumed in the normal course of business or converted to cash within
12 months.
The Company has a crypto loan agreement with a staking partner that was funded by Company-owned
crypto assets. The Company concluded that control of the underlying crypto assets was not transferred to
the borrower and therefore, it did not derecognize the loaned crypto assets from its balance sheet.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer custodial funds represent cash and cash equivalents held in segregated Company controlled bank
accounts that are held for the exclusive benefit of customers.
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 receivable are
typically received within one or two business days of the transaction date.
Customer funds payable represent the obligation to return customer custodial funds, customer funds
receivables and unsettled withdrawals.
The Company establishes withdrawal-based limits in order to mitigate potential losses by preventing
customers from withdrawing funds until the deposit settles.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization.
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Notes to the Financial Statements
December 31, Depreciation and amortization of property and equipment is computed using the straight-line method over
the following estimated useful lives:
Computer equipment
Furniture and fixtures
Leasehold improvements
3 years
5 years
Lesser of 5 years or lease term
Expenditures for repairs and maintenance are expensed as incurred. Upon disposition, the cost and related
accumulated depreciation and amortization are removed from the accounts, and the resulting gain or loss
is recognized or charged to other income in the accompanying statement of operations.
Leases
The Company determines if an arrangement is a lease at inception. For operating leases where the
Company is the lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying
asset for the term of the lease and the lease liabilities represent an obligation to make lease payments
arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present
value of the future lease payments over the lease term. Most leases do not provide an implicit rate, so the
Company uses its incremental borrowing rate based on the information available at the commencement
date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset
is determined based on the lease liability initially established and reduced for any prepaid lease payments
and any lease incentives received. The lease term to calculate the ROU asset and related lease liability
includes options to extend or terminate the lease when it is reasonably certain that the Company will
exercise the option. The Company's lease agreements generally do not contain any material variable lease
payments, residual value guarantees or restrictive covenants.
The Company has made the policy election to account for short-term leases by recognizing the lease
payments in the statements of operations on a straight-line basis over the lease term and not recognizing
these leases on the Company's balance sheet.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating
expense while expense for finance leases is recognized as depreciation expense and interest expense using
the accelerated interest method of recognition. The Company accounts for lease components and non-lease
components as a single lease component.
As of December 31, 2022, the Company did not have any significant operating or finance leases.
Deferred acquisition costs
The Company incurred costs related to professional fees for the Voyager asset acquisition transaction.
Certain transaction costs such as legal, accounting, and consulting expenses of $2,641,012 as of December
31, 2022 were deferred and capitalized in other non-current assets on the accompanying balance sheet as
they would not have been incurred by the Company had it not pursued the transaction.
The Company terminated the asset acquisition transaction on April 25, 2023. Accordingly, capitalized
deferred acquisition costs through the termination date will be expensed during the second quarter of 2023.
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Notes to the Financial Statements
December 31, Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets, including property and equipment, 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 long-lived asset impairments
for the year ended December 31, 2022.
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 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
Exchange transactions
The Company derives a majority of its revenue from exchange transactions, where users can buy, sell or
convert crypto assets on the platform for an exchange service fee. The Company also derives revenue from
deposit fees when customers use debit cards to deposit funds into their platform account and withdrawal
fees when a customer requests a transfer of their funds out of their platform account. Fees are charged and
collected at the transaction level and represent a single performance obligation. The Company has
determined it is an agent in the transaction between customers and presents revenue for the fees earned on
a net basis. This determination requires judgment and is based on the fact that the Company does not
control the crypto asset being provided before it is transferred to the buyer, does not have inventory risk
related to the crypto asset and does not set the price for the crypto asset as the price is a market rate
established by users of the platform.
The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time
the transaction is processed, which is either upon the transfer of the crypto assets to the customer, receipt
of crypto assets purchased from the customer, or transfer of funds on or off the platform.
Crypto 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.
Staking rewards
The Company also engages in staking of tokens on proof-of-stake networks. These networks use a
variation of the proof-of-stake protocol that allows entities to delegate their stake to another party that acts
as a validator. The delegating entity is commonly referred to as the delegator, and the other party is
commonly referred to as the validator. The Company retains control of the stake via the delegation process
through the use of third-party validators. These third-party validators are technology service providers that
perform routine functions. The crypto assets at stake are earmarked on the blockchain and cannot be used
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Notes to the Financial Statements
December 31, for any other purpose in the period during which they are staked. The crypto assets are not transferred on
the blockchain to another public address when staked (or delegated). These blockchain protocols, or the
participants that form the protocol networks, reward users for performing various activities on the
blockchain, such as participating in proof-of-stake networks and other consensus algorithms. The
Company considers itself the principal in transactions with the blockchain networks, and therefore presents
such blockchain rewards earned on a gross basis. In exchange for participating in the consensus mechanism
of these networks, the Company earns rewards in the form of the native token of the network. Each block
creation or validation is a performance obligation. Revenue is recognized at the point in time when the
block creation or validation is complete and the reward is received on the blockchain. Revenue is measured
based on the number of tokens earned and the fair value of the token. The Company’s staking rewards are
recorded within the respective blockchains and the Company will claim such rewards.
Integration fees and token listing deposits
From time to time and following approval from the listings committee, the Company enters into contracts
with token projects to list the project's token on the Company's platform. These contracts generally include
a technical integration fee ("TIF") and a marketing fee which are deemed to be distinct performance
obligations. Fees are due up front and are not refundable. The transaction price is allocated between these
performance obligations using the standalone selling price. TIF revenue is recognized on the date (point
in time) the token becomes available for trading on the Company's platform. Marketing fees are recognized
over time as revenue as the related fees are consumed in marketing campaigns. The Company also requires
a refundable deposit from the token projects which is not considered a component of the transaction price
and is recorded as token listing deposits in the accompanying balance sheet.
For the year ended December 31, 2022, the Company collected approximately 75% of its revenue in crypto
assets. Substantially all of the Company’s revenues are recognized at a point in time.
Provision for transaction losses
The Company is exposed to losses primarily due to fraudulent payment methods used to purchase crypto
assets on its platform. The Company establishes a provision for estimated losses incurred as of the
reporting date, including those which the Company has not yet been notified. The estimate is based on
historical loss payment patterns. The Company recorded a net recovery of chargeback losses on its accrual
of $1,145,128 in cost of revenue in the accompanying statement of operations for the year ended December
31, 2022, and an accrued provision for transaction losses of $563,707 in accrued expenses in the
accompanying balance sheet as of December 31, 2022. Cumulative recoveries exceeded chargeback losses
by $3,485,115 for the year ended December 31, 2022.
Deferred revenue
Deferred revenue reflects the amount received from token partners in advance of revenue recognition and
is recognized when all revenue recognition criteria are met. The Company's deferred revenue as of
December 31, 2022 consists of integration and marketing services for token listings that have not yet been
delivered. Deferred revenue is recorded in other current liabilities on the accompanying balance sheet.
Cost of revenue
Cost of revenue includes direct costs related to revenue recognition, such as crypto trading network fees,
fiat rail fees, royalty, staking rewards expense, ACH and debit card transaction losses, web hosting and
compliance costs.
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Notes to the Financial Statements
December 31, Advertising cost
The Company expenses advertising and marketing expenses as incurred. Marketing and advertising
include general marketing, crypto marketing, referral, promotional products and public relations agency
fees. For the year ended December 31, 2022, the Company recognized advertising expenses of $8,149,569.
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 effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date. In making
such a determination, management considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, and results of recent operations. If management determines that the Company would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would
make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for
income taxes.
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 to be 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 an estimation 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 U.S. federal tax purposes, digital asset transactions are treated on the same tax principles as property
transactions. The Company recognizes a gain or loss when crypto 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 of
the exchanged crypto 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standard Updates (“ASU”) No. 2016-13, Financial
Instruments — Credit Losses (Topic 326). ASU 2016-13 changes how companies measure credit losses on
most financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity
debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been
incurred, the revised guidance requires companies to recognize an allowance for credit losses for the
difference between the amortized cost basis of a financial instrument and the amount of amortized cost
that the company expects to collect over the instrument’s contractual life. ASU No. 2016-13 is effective
for fiscal periods beginning after December 15, 2022 for nonpublic entities, and must be adopted as a
cumulative effect adjustment to retained earnings. Early adoption is permitted. This standard is effective
for the Company on January 1, 2023. The Company does not expect the adoption of this ASU to have a
material impact on the financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833815 16Page 51 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting
for Income Taxes, which removes specific exceptions to the general principles in Topic 740 and simplifies
the accounting for income taxes. Following adoption of the ASU, entities are no longer required to
consider: the exception to intraperiod tax allocation when there is a loss in continuing operations and
income in other components, the exception in interim period income tax accounting that limits the benefit
for year-to-date losses that exceed anticipated losses for the year, and exceptions to accounting for outside
basis differences of equity method investments and foreign subsidiaries. This update also simplifies the
accounting for: a franchise tax (or similar tax) that is partially based on income, tax rate changes in an
interim period, the allocation of taxes to separate company financial statements for entities both not subject
to tax and disregarded by the taxing authority, and when a step-up in the tax basis of goodwill should be
considered part of a business combination versus a separate transaction. This guidance is effective for
annual reporting periods beginning after December 15, 2022 for nonpublic entities; and, early adoption is
permitted. This standard is effective for the Company on January 1, 2023. The Company is currently
evaluating the impact of the guidance on the financial statements.
On March 31, 2022, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No.
121 (“SAB 121”). SAB 121 provides interpretive guidance for entities that have obligations to safeguard
customer crypto assets. The guidance requires an entity to recognize a liability to reflect its obligation to
safeguard the users’ assets, and recognize a corresponding safeguarding asset. Both the liability and asset
should be measured initially and subsequently at the fair value of the crypto assets being safeguarded. The
guidance also requires additional disclosures related to the nature and amount of crypto assets that the
entity is responsible for holding for its customers, with separate disclosure for each significant crypto asset,
and the vulnerabilities the entity has due to any concentration in such activities. The guidance in SAB is effective for public entities for interim or annual periods ending after June 15, 2022, with retrospective
application as of the beginning of the fiscal year to which the interim or annual period relates. Nonpublic
business entities are not required to adopt SAB 121, but may voluntarily elect to do so. The Company is
currently evaluating the impact of the guidance on the financial statements.
3. RELATED-PARTY TRANSACTIONS
The Company receives advances from and makes payments on behalf of BAM Management and its
subsidiaries, and receives allocations for labor and related charges for ongoing personnel support in the
ordinary course of business. These payments made on behalf of and allocations charged by BAM
Management and its subsidiaries result in intercompany receivables and payables. As of December 31,
2022, the unsettled intercompany payables due to BAM Management and its subsidiaries was $68,142,763.
These amounts are unsecured, noninterest bearing and due on demand.
The Company has entered into certain agreements with BHL, an entity which is affiliated with BAM
Management through common ownership. The agreements relate to the licensing and support of services
as follows:
●
●
Software License Agreement - Whereas BHL owns a digital currency trading platform which it
operates in multiple countries, BHL has granted the Company a 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 BHL to the Company and the Company's users as well as the development and implementation
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833816 17Page 52 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, ●
●
of Company specific enhancements.
Trademark License Agreement - BHL has granted the Company a nonexclusive, non-transferable,
non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up license to use certain
trademarks owned by BHL.
Wallet Custody Agreement - The Company selected BHL to serve as a custodian to the Company
with respect to the crypto assets in any custody account. This agreement specified the terms of the
relationship the Company would have with BHL as the custodian. This agreement was terminated
as of December 1, 2022. Effective December 1, 2022, the Company is the custodian of its crypto
assets and continues to license the wallet custody software under the Software License Agreement
following the termination of the Wallet Custody Agreement.
In accordance with the terms of these agreements, for the year ended December 31, 2022, the Company
incurred expenses totaling $3,805,102, which are included in cost of revenue in the accompanying
statement of operations and had no balance due to BHL as of December 31, 2022.
In September 2022, the Company entered into a note payable agreement with BHL to borrow certain crypto
assets with a value of $25,952,841. The note was repaid with the same quantity of crypto assets in October
2022.
4. CRYPTO ASSETS
The following table presents additional information on the Company’s crypto assets of December 31,
2022:
The fair value of crypto assets is based on quoted market prices for one unit of each crypto asset at 11:pm UTC on the last day of the year multiplied by the quantity of each crypto asset.
5. CUSTOMER ASSETS AND LIABILITIES
The Company includes customer custodial funds and customer funds receivable with a corresponding
offset in customer funds payable in the accompanying balance sheet. Customer custodial funds do not
include approximately $279 million of customer funds, as of December 31, 2022, that were directly
custodied by Prime Trust under separate contractual arrangements between Prime Trust and the customer.
These funds are considered off-balance sheet arrangements.
As of December 31, 2022, the Company stored and custodied an aggregate U.S. Dollar value of
approximately $1.778 billion in crypto assets held in customer wallets on behalf of its customers, as offbalance sheet arrangements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833817 18Page 53 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, The following table presents customers’ cash and crypto positions as of December 31, 2022:
Customer custodial funds
Customer fiat assets (off-balance sheet)
Customer crypto assets (off-balance sheet)
$
146,995,278,790,1,778,308,2,204,094,3,007,$ 2,207,101,
Customer funds receivable
Total customer assets
Customer funds liability
Customer fiat liability (off-balance sheet)
Customer crypto liability (off-balance sheet)
Total customer liabilities
$
150,002,278,790,1,778,308,$ 2,207,101,
6. FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at
fair value on a recurring basis as of December 31, 2022:
Level USDC and BUSD
Level
$ 3,273,201 $ -
Level $-
Fair Value
$ 3,273,
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following as of December 31:
Loss recovery receivable (Note 9)
Income tax receivable
Prepaid expenses
$
$
13,187,597,10,027,23,812,
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31:
Computer equipment
Accumulated depreciation
$
$
Confidential Treatment Requested by
BAM Trading Services Inc.
1,543,(501,016)
1,042,
BTS00833818 19Page 54 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 9. COMMITMENTS AND CONTINGENCIES
Customer crypto asset wallets
Under a Wallet Custody Agreement (Note 3), BHL had custody and control of customers' private keys, or
components to cryptographic signatures necessary to transfer associated customer crypto assets. For
security reasons, BHL used consolidated addresses to pool customer crypto assets but maintains separate
ledger entries to designate each customer's crypto asset balance. The Wallet Custody Agreement was
terminated as of December 1, 2022.
The Company stores and safeguards crypto assets for its platform customers in digital wallets and portions
of cryptographic key information necessary to access crypto assets on the Company’s platform. The
Company stores and safeguards these assets and/or key information and is obligated to safeguard them
from loss, theft, or other misuse. The Company may be liable to its customers for losses arising from theft
or loss of private keys. The Company has no reason to believe it will incur any expense associated with
such potential liability because (i) it has no known or historical experience of claims to use as a basis of
measurement, (ii) it accounts for and continually verifies the amount of crypto assets on its platform, (iii)
it has established security around private key management to minimize the risk of theft or loss, (iv) the
Company's commercial agreements and user agreements broadly disclaim the Company from liability
resulting from network failures or wallet service provider failures except in limited circumstances. The
Company has adopted a number of measures to safeguard crypto assets it secures including, but not limited
to, holding customer crypto assets on a 1:1 basis and strategically storing custodied assets offline using the
Company’s cold storage process. The Company also does not sell, lend, seize or rehypothecate customer
crypto assets nor grant security interests in customer crypto assets, in each case unless required by law
enforcement or agreed to by the customer. Any loss or theft would impact the measurement of the customer
crypto assets. During 2022, the Company identified unauthorized transactions related to a crypto token
and recorded a $4,178,489 loss, after considering probable loss recovery from customer assets seized by
the U.S. government, in operating expenses on the accompanying statement of operations for the year
ended December 31, 2022 as further discussed below under legal proceedings. No other significant losses
have been incurred in connection with customer crypto assets for the year ended December 31, 2022.
Leases
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 discount rate for the Company's operating lease was 1.54%. In February
2022, the Company early terminated this operating lease for a termination fee of $163,412 recorded in
operating expenses on the accompanying statement of operations.
The Company also leases office space under month-to-month and short-term lease arrangements of months or less.
The components of lease costs were as follows for the year ended December 31:
Operating lease costs
Short-term lease costs
$
$
Confidential Treatment Requested by
BAM Trading Services Inc.
57,937,995,
BTS00833819 20Page 55 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, Legal proceedings
The Company is subject to various legal proceedings and claims arising in the ordinary course of business.
As of December 31, 2022, the Company is a party to the following legal matters of potential material
consequences:
The Company is the plaintiff in claims related to customer assets seized by the U.S. government as a result
of identified unauthorized transactions under investigation related to a crypto token. As of December 31,
2022 and through the date of the issuance of the financial statements, the Company is waiting for the U.S.
government enforcement officials to complete the process of recovering and returning assets
misappropriated by certain individuals. Based on discussions with the U.S. government, the Company
believes that the assets seized are solely attributable to BAM Trading and collection of the claim for loss
recovery is probable. As such, the Company recorded a loss recovery receivable of $13,187,699 in prepaid
expenses and other current assets on the accompanying balance sheet as of December 31, 2022 as the
likelihood of such recovery is probable and recognized a $4,178,489 loss in operating expenses on the
accompanying statement of operations for the year ended December 31, 2022 for related amounts that are
not expected to be recovered. The Company expects to collect the loss recovery receivable amount in
2023.
The Company is in dispute over the contract terms of an indemnity deposit received related to a crypto
token. As of December 31, 2022 and through the date of the issuance of the financial statements, the
Company has not reached a settlement through mediation and is expecting to resolve the matter in
arbitration. The Company recorded a loss contingency of $17,330,368 as of December 31, 2022 in token
listing deposits - current and operating expenses on the accompanying balance sheet and statement of
operations, respectively. The Company has retained crypto assets in excess of the loss contingency in case
such assets are required to resolve the dispute.
The Company is a named defendant in a data privacy/collection putative class action under the Illinois
Biometric Information Privacy Act. The Company was named because it used Jumio Corporation’s
identity verification software during the onboarding process for Illinois users. If the plaintiffs prevail and
damages are awarded, the Company contends that Jumio Corporation is solely liable for any damages.
Jumio Corporation contends that it is entitled to indemnification from the Company. It is currently too
early in the litigation to accurately quantify the potential damages.
10. STOCKHOLDER’S EQUITY
The Company is authorized to issue up to 10,000,000 shares of common stock, with a par value of
$0.00001 per share. As of December 31, 2022, 7,500,000 shares of authorized common stock were issued
and outstanding to BAM Management.
BAM Trading operates as an MSB under money transmitter licenses and is subject to the oversight of, and
inspection by the statutes and regulatory bodies of the jurisdictions it operates in. Certain jurisdictions have
minimum capital adequacy requirements. As such, the Company received $132,000,000 from BAM
Management during the year ended December 31, 2022 in order to maintain minimum capital adequacy
requirements.
11. INCOME TAXES
The Company and BAM Management, together with other affiliated group members of BAM
Management, authorized and consented to be included in a consolidated income tax return for federal
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833820 21Page 56 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, (United States) income tax return reporting purposes; and, report combined corporate tax liability on a
single return. In addition, BAM Management and its wholly-owned subsidiaries, including BAM Trading,
are subject to unitary combined income/franchise tax reporting requirements in certain state jurisdictions.
BAM Trading may be required to file separate state corporation tax returns in jurisdictions that require
such separate filings, including those jurisdictions where the Company may be subject to market-based
sourcing rules or regulatory or state registration requirements.
Generally, the amount of current and deferred tax expense for an income tax return group that files a
consolidated income tax return is allocated among the members of that group when those members issue
separate financial statements. The Company elected to compute its federal state and local income tax
provisions as if it was a separate taxpayer by using a “separate return” method. Under this method, the
Company is assumed to file a separate return with the tax authority, thereby reporting its taxable income
or loss and paying the applicable tax to or receiving the appropriate refund from BAM Management. The
current provision is the amount of tax payable or refundable on the basis of a hypothetical, current-year
separate return. The Company provides deferred taxes on temporary differences and on any carryforwards
that it could claim on its hypothetical return and assess the need for a valuation allowance on the basis of
its projected separate return results. The sum of the amounts allocated to individual members of the income
tax return group may or may not equal the consolidated amount under this method.
The benefit from income taxes consisted of the following for the year ended December 31:
Current:
Federal
State
Total current
Deferred
Federal
State
Total current
Total benefit from income taxes
Confidential Treatment Requested by
BAM Trading Services Inc.
$
$
(817,869)
196,(621,341)
$ (28,628,238)
(8,390,660)
$ (37,018,898)
$ (37,640,239)
BTS00833821 22Page 57 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, Significant components of the Company's deferred income tax assets and liabilities are as follows as of
December 31:
Deferred tax assets:
Net operating losses
Unrealized loss/impairment on crypto assets
Other
Capital loss
Capitalized research and development expenses
Total deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities
Property and equipment
Total deferred tax liabilities
Total net deferred tax asset
$
11,398,7,493,4,893,8,283,3,373,35,442,(15,776,807)
19,665,
(147,394)
(147,394)
$ (19,518,326)
The effective income tax rate differs from the statutory federal income tax rate as follows for the year
ended December 31:
Tax at federal statutory rate
State taxes, net of federal benefit
Other permanent items
Change in valuation allowance
21.0 %
4.(0.6)
(7.2)
17.2 %
Management assesses all 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 the Company's
projections for future growth. On the basis of this evaluation, as of December 31, 2022, the Company
determined that it has federal and state net deferred tax assets of $19,518,326. The net deferred tax assets
as of December 31, 2022 are subject to a valuation allowance on the combined unrealized loss/impairment
on crypto assets and capital losses of $15,776,807 as it is more likely than not that those net deferred tax
assets will not be realized. The change in the valuation allowance was $15,776,807 for the year ended
December 31, 2022. However, should there be a change in the Company’s ability to recover its deferred
tax assets, it would recognize a benefit to its tax provision in the period in which it determines that it is
more likely than not that it will recover its deferred tax assets.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833822 23Page 58 BAM Trading Services Inc.
Notes to the Financial Statements
December 31, As of December 31, 2022, the differences between income taxes expected at the U.S. federal statutory
income tax rate of 21.0% and the reported income tax expense are primarily related to state taxes, net of
federal benefit, stock compensation, various permanent items, and a valuation allowance from capital
losses.
The Company and its affiliates are computing their respective tax obligation on a stand-alone basis. The
Company, together with BAM Management and an affiliate company, files U.S. Corporation federal and
state income and franchise tax returns in jurisdictions with varying statutes of limitations. Currently these
statutes of limitations are open from 2018 forward for the U.S., and 2017 forward for California.
As of December 31, 2022, the Company had federal and state net operating losses of approximately
$44,622,000 and $32,630,000 on a standalone basis. The federal net operating loss carryforwards will
carry forward indefinitely and the state carryforwards, if not utilized, will start to expire in 2039. The
Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations.
The Company is not currently under audit.
12. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 10, 2023, the date the financial statements
were available to be issued, and is not aware of any material subsequent events that have not been disclosed
in the notes to the financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833823 24Page 59 Exhibit C-
Revenue, Gross Profit, and PJI Calculations February 2019 - April Year
Total Feb 2019-Apr
Total Revenue
$254,$11,002,$265,850,$95,585,$38,208,
Gross Profit
$138,$5,352,$147,178,$51,112,$20,891,
PJI
$21,$583,$11,236,$1,490,$124,
$410,901,
$224,674,
$13,455,
Notes:
2019 data is from February 4 through December 31.
2023 data is from January 1 through April 30.
PJI Calculations assume violation date for each year is December Gray cells denote assumptions.
PDF Page 1
PlainSite Cover Page
PDF Page 2
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 1 of 59
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________________
SECURITIES AND EXCHANGE
)
COMMISSION,
)
)
Plaintiff,
)
)
v.
)
Civil Action No. 1:23-cv-01599
)
BINANCE HOLDINGS LIMITED,
)
BAM TRADING SERVICES, INC.,
)
BAM MANAGEMENT US HOLDINGS,
)
INC., AND CHANGPENG ZHAO,
)
)
Defendants.
)
__________________________________________)
DECLARATION OF SACHIN VERMA
I, Sachin Verma, declare the following pursuant to Title 28, United States Code, Section
1746:
1.
I submit this declaration in support of the Securities and Exchange Commission’s
“SEC” Motion for Temporary Restraining Order and Preliminary Injunctions
2.
I have personal knowledge of the matters set forth in this declaration, except as
otherwise noted, and, if called as a witness, I could and would competently testify under oath to
the facts stated herein.
3.
I am an active Certified Public Accountant with over 20 years of experience. I am
currently employed by the United States Securities and Exchange Commission (“SEC”) in
Washington, DC, as an Assistant Chief Accountant in the Division of Enforcement. As part of
my daily activities, I have performed numerous calculations using financial records in
connection with SEC investigations.
PDF Page 3
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 2 of 59
I. ASSIGNMENT AND DATA
4.
I have been asked to summarize certain financial information produced by BAM
Trading Services Inc. related to their total capital raised, total revenue, and gross profit derived
during the time period February 4, 2019 through April 30, 2023. 1
5.
I was provided an excel workbook containing various financial information and
financial statements from 2019 through April 2023 I understand was produced by BAM Trading
Services Inc. I was also provided 2 PDF files containing financial statements for the years 2020
through 2022. In addition, I reviewed the Form D – Notice of Exempt Offering of Securities filed
by BAM Management US Holdings Inc. 2 with the SEC on April 8, 2022. Copies of these
documents are attached hereto as Exhibits C-1 to C-4.
II. TOTAL CAPITAL RAISED
6.
Based on my review of the Form D filed by BAM Management US Holdings Inc.,
it appears that starting on or about March 25, 2022, BAM Management US Holdings Inc. sold
equity interests raising a total of $216,772,488 that I understand was for capitalizing the
Binance.US crypto asset trading platform. Ex C-1.
7.
Applying the Internal Revenue Service underpayment penalty rate as set forth in
26 U.S.C. § 6621(a)(2) to above amount from March 25, 2022, the date of the first sale the
equity to the date of the Complaint filed in this action results in an estimated prejudgment
interest amount of $14,836,224.
III. TOTAL REVENUE
1
2
February 4, 2019 is the inception date of BAM Trading Services.
I understand that BAM Management US Holdings Inc. is the parent company of BAM Trading Services, Inc.
2
PDF Page 4
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 3 of 59
8.
From the file labeled BTS00833796, I obtained revenue figures for BAM Trading
for the year 2019 beginning on February 4, the full years 2020, 2021, and 2022, and for the
partial year 2023 through April 30. Ex. C-2. The total revenue for this time period is
$410,901,585.
IV. GROSS PROFIT
9.
I was also asked to calculate gross profit for BAM Trading for the same time
period, February 2019 through April 2023. Gross profit is defined as the amount of total revenue
minus cost of revenue. I obtained these numbers for the years 2020, 2021, and 2022 from the
files labeled BTS00833764-BTS00833785 and BTS00833798-BTS00833823. 3 Ex. C-3 and Ex.
C-4.
10.
For the years 2020 through 2022, I calculate gross profit of $203,643,597.
Because this data is missing for 2019 and 2023, I calculated the average gross profit margin for
the years 2020 through 2022 and applied that gross profit margin to the years with missing data.
I calculate the average gross profit margin for the years 2020 through 2022 at 54.68%. 4 I then
multiply this percentage and the total revenue numbers to get gross profit numbers for the years
2019 and 2023.
11.
I calculate total gross profit for BAM Trading for the time period February 2019
through April 2023 at $224,674,408.
12.
Applying the Internal Revenue Service underpayment penalty rate as set forth in
26 U.S.C. § 6621(a)(2) to these amounts from the applicable year end to the date of the
Complaint filed in this action results in an estimated prejudgment interest of $13,455,870.
3
4
Gross profit numbers can be located on page 6 of each PDF.
$203,643,597/$372,438,844.
3
PDF Page 5
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 4 of 59
13.
A summary chart of my calculations for total revenue, gross profit, and
prejudgment interest is provided at Ex. C-5.
I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct.
Executed on June 5, 2023 in Washington, DC.
______________________
Sachin Verma
4
PDF Page 6
FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
06/07/23
Page 5 of 59
6/4/23, 6:11 PM
The Securities and Exchange Commission has not necessarily reviewed the information in this filing and has
not determined if it is accurate and complete.
The reader should not assume that the information is accurate and complete.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM D
OMB APPROVAL
OMB Number:
32350076
Estimated average burden
hours per
response:
Notice of Exempt Offering of Securities
4.00
1. Issuer's Identity
Previous
Names
CIK (Filer ID Number)
X None
Entity Type
0001875947
X Corporation
Name of Issuer
BAM Management US Holdings Inc.
Limited Partnership
Jurisdiction of
Incorporation/Organization
DELAWARE
General Partnership
Limited Liability Company
Business Trust
Year of Incorporation/Organization
Other (Specify)
Over Five Years Ago
X Within Last Five Years (Specify Year) 2019
Yet to Be Formed
2. Principal Place of Business and Contact Information
Name of Issuer
BAM Management US Holdings Inc.
Street Address 1
ONE LETTERMAN DRIVE
City
SAN FRANSISCO
Street Address 2
BUILDING C SUITE C3-800
State/Province/Country
CALIFORNIA
ZIP/PostalCode
94129
Phone Number of Issuer
(628) 200-0787
3. Related Persons
Last Name
Shroder
First Name
Brian
Street Address 1
One Letterman Drive
Street Address 2
Building C, Suite C3-800
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship: X Executive Officer X Director
Middle Name
ZIP/PostalCode
94129
Promoter
Clarification of Response (if Necessary):
Last Name
Zhao
First Name
Changpeng
Street Address 1
Street Address 2
Middle Name
https://www.sec.gov/Archives/edgar/data/1875947/000095017222000066/xslFormDX01/primary_doc.xml
1/5
PDF Page 7
FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
06/07/23
Page 6 of 59
6/4/23, 6:11 PM
One Letterman Drive
Building C, Suite C3-800
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship:
Executive Officer X Director
ZIP/PostalCode
94129
Promoter
Clarification of Response (if Necessary):
Last Name
Chao
First Name
Gin
Street Address 1
One Letterman Drive
Street Address 2
Building C, Suite C3-800
City
San Francisco
State/Province/Country
CALIFORNIA
Relationship:
Executive Officer X Director
Middle Name
ZIP/PostalCode
94129
Promoter
Clarification of Response (if Necessary):
4. Industry Group
Health Care
Agriculture
Banking & Financial Services
Commercial Banking
Biotechnology
Health Insurance
Insurance
Retailing
Restaurants
Technology
Hospitals & Physicians
Computers
Investment Banking
Pharmaceuticals
Telecommunications
Pooled Investment Fund
Other Health Care
Investing
Is the issuer registered as
an investment company under
the Investment Company
Act of 1940?
Yes
No
Other Banking & Financial Services
Business Services
Manufacturing
Travel
Airlines & Airports
Real Estate
Commercial
Lodging & Conventions
Construction
Tourism & Travel Services
REITS & Finance
Other Travel
Residential
Energy
X Other Technology
Other
Other Real Estate
Coal Mining
Electric Utilities
Energy Conservation
Environmental Services
Oil & Gas
Other Energy
5. Issuer Size
Revenue Range
No Revenues
OR
Aggregate Net Asset Value Range
No Aggregate Net Asset Value
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FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
06/07/23
Page 7 of 59
$1 - $1,000,000
$1,000,001 $5,000,000
$5,000,001 $25,000,000
$25,000,001 $100,000,000
$1 - $5,000,000
$5,000,001 - $25,000,000
$25,000,001 - $50,000,000
$50,000,001 - $100,000,000
Over $100,000,000
Over $100,000,000
X Decline to Disclose
Decline to Disclose
Not Applicable
Not Applicable
6. Federal Exemption(s) and Exclusion(s) Claimed (select all that apply)
Investment Company Act Section 3(c)
Rule 504(b)(1) (not (i), (ii) or (iii))
Section 3(c)(1)
Section 3(c)(9)
Rule 504 (b)(1)(i)
Section 3(c)(2)
Section 3(c)(10)
Section 3(c)(3)
Section 3(c)(11)
Section 3(c)(4)
Section 3(c)(12)
Section 3(c)(5)
Section 3(c)(13)
Section 3(c)(6)
Section 3(c)(14)
Rule 504 (b)(1)(ii)
Rule 504 (b)(1)(iii)
Rule 506(b)
X Rule 506(c)
Securities Act Section 4(a)(5)
Section 3(c)(7)
7. Type of Filing
X New Notice Date of First Sale 2022-03-25
First Sale Yet to Occur
Amendment
8. Duration of Offering
Does the Issuer intend this offering to last more than one year?
Yes X No
9. Type(s) of Securities Offered (select all that apply)
X Equity
Pooled Investment Fund Interests
Debt
Tenant-in-Common Securities
Option, Warrant or Other Right to Acquire Another Security
Mineral Property Securities
Security to be Acquired Upon Exercise of Option, Warrant
or Other Right to Acquire Security
Other (describe)
10. Business Combination Transaction
Is this offering being made in connection with a business combination transaction,
such as a merger, acquisition or exchange offer?
Yes X No
Clarification of Response (if Necessary):
11. Minimum Investment
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FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
06/07/23
Page 8 of 59
6/4/23, 6:11 PM
Minimum investment accepted from any outside investor $0 USD
12. Sales Compensation
Recipient
Recipient CRD Number X None
(Associated) Broker or Dealer X None
(Associated) Broker or Dealer CRD
Number
Street Address 1
Street Address 2
City
State/Province/Country
State(s) of Solicitation (select all that
apply)
Check “All States” or check individual
States
All
States
X None
ZIP/Postal
Code
Foreign/non-US
13. Offering and Sales Amounts
USD or X Indefinite
Total Offering Amount
$216,772,488 USD
Total Amount Sold
USD or X Indefinite
Total Remaining to be Sold
Clarification of Response (if Necessary):
14. Investors
Select if securities in the offering have been or may be sold to persons who do not qualify as accredited
investors, and enter the number of such non-accredited investors who already have invested in the
offering.
Regardless of whether securities in the offering have been or may be sold to persons who do not
30
qualify as accredited investors, enter the total number of investors who already have invested in the
offering:
15. Sales Commissions & Finder's Fees Expenses
Provide separately the amounts of sales commissions and finders fees expenses, if any. If the amount of an expenditure is
not known, provide an estimate and check the box next to the amount.
Sales Commissions $0 USD
Estimate
Finders' Fees $0 USD
Estimate
Clarification of Response (if Necessary):
16. Use of Proceeds
Provide the amount of the gross proceeds of the offering that has been or is proposed to be used for payments to any of the
persons required to be named as executive officers, directors or promoters in response to Item 3 above. If the amount is
unknown, provide an estimate and check the box next to the amount.
$0 USD
Estimate
Clarification of Response (if Necessary):
Signature and Submission
Please verify the information you have entered and review the Terms of Submission below before signing and
clicking SUBMIT below to file this notice.
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FORM
D
Case 1:23-cv-01599 Document 22 SEC
Filed
06/07/23
Page 9 of 59
Terms of Submission
In submitting this notice, each issuer named above is:
Notifying the SEC and/or each State in which this notice is filed of the offering of securities described and undertaking
to furnish them, upon written request, in the accordance with applicable law, the information furnished to offerees.*
Irrevocably appointing each of the Secretary of the SEC and, the Securities Administrator or other legally designated
officer of the State in which the issuer maintains its principal place of business and any State in which this notice is
filed, as its agents for service of process, and agreeing that these persons may accept service on its behalf, of any
notice, process or pleading, and further agreeing that such service may be made by registered or certified mail, in any
Federal or state action, administrative proceeding, or arbitration brought against the issuer in any place subject to the
jurisdiction of the United States, if the action, proceeding or arbitration (a) arises out of any activity in connection with
the offering of securities that is the subject of this notice, and (b) is founded, directly or indirectly, upon the provisions
of: (i) the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment
Company Act of 1940, or the Investment Advisers Act of 1940, or any rule or regulation under any of these statutes, or
(ii) the laws of the State in which the issuer maintains its principal place of business or any State in which this notice is
filed.
Certifying that, if the issuer is claiming a Regulation D exemption for the offering, the issuer is not disqualified from
relying on Rule 504 or Rule 506 for one of the reasons stated in Rule 504(b)(3) or Rule 506(d).
Each Issuer identified above has read this notice, knows the contents to be true, and has duly caused this notice to be signed
on its behalf by the undersigned duly authorized person.
For signature, type in the signer's name or other letters or characters adopted or authorized as the signer's signature.
Issuer
BAM Management US Holdings Inc.
Signature
/s/ Brian Shroder
Name of Signer
Brian Shroder
Title
Chief Executive Officer
Date
2022-04-08
Persons who respond to the collection of information contained in this form are not required to
respond unless the form displays a currently valid OMB number.
* This undertaking does not affect any limits Section 102(a) of the National Securities Markets Improvement Act of 1996 ("NSMIA") [Pub. L. No. 104-290, 110 Stat. 3416 (Oct. 11,
1996)] imposes on the ability of States to require information. As a result, if the securities that are the subject of this Form D are "covered securities" for purposes of NSMIA, whether
in all instances or due to the nature of the offering that is the subject of this Form D, States cannot routinely require offering materials under this undertaking or otherwise and can
require offering materials only to the extent NSMIA permits them to do so under NSMIA's preservation of their anti-fraud authority.
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 10 of 59
BAM Trading Services Inc.
Income Statement Details as of April 30th, 2023
Audited
2019
Figures in USD 000s
Revenue
Crypto Trading Network Fees
Royalty Expense - BHL
IT Support - BHL
Fiat Rail Costs
Transaction Monitoring
Web Hosting and Other Exchange Costs
Chargebacks
Compensation and benefits
Advertising and marketing
Professional services
Legal and compliance fees
Travel
Software tools and licenses
Transaction Loss - HNT
Other business expenses
Insurance
Rent and utilities
Depreciation
Taxes and licenses
Crypto assets impairment
Total operating expenses
Operating Income (Loss)
$
$
14
216
1,070
294
260
187
296
27
155
257
51
37
2
51
2,916
(2,662)
Note 1
Note 2
Note 1
Note 4
Note 5
Gain (Loss) on crypto assets
Other income, net
Total other income (expense), net
(20)
(20)
Income (loss) before provision for taxes
Provision (benefit) for income taxes
Net income (loss)
254
Audited
2020
$
11,003
Audited
2021
$
265,850
Audited
2022
$
95,586
Unaudited
YTD 2023
$
38,209
Grand Total
$
410,902
630
427
127
1,160
2,083
2,777
978
2,655
1,224
48
868
556
345
506
18
(41)
14,362
(3,359)
35,150
10,827
127
31,165
12,892
8,876
19,816
24,747
23,968
12,208
18,164
611
1,291
1,358
460
1,189
96
147
203,093
62,757
6,287
3,805
127
7,748
6,186
23,799
(3,393)
43,650
8,150
24,911
39,520
1,331
4,419
4,178
1,450
685
1,110
399
298
16,850
191,509
(95,924)
840
1,527
42
1,549
1,257
11,916
1,422
20,341
1,946
8,545
16,905
188
2,044
1,221
458
283
177
65
750
71,478
(33,269)
42,920
16,587
424
40,462
20,335
45,967
20,998
91,809
35,302
48,506
76,108
2,205
8,776
4,178
4,842
1,999
3,126
691
520
17,600
483,358
(72,456)
2,979
2,979
137,068
137,068
(123,083)
17
(123,067)
2,040
71
2,111
18,984
88
19,072
(2,681)
(380)
199,826
(218,991)
(31,158)
(53,384)
-
19
50,244
(37,640)
(8,213)
4,411
(2,681) $
(399) $
149,581
$
(181,350) $
(22,945) $
(57,795)
PDF Page 12
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 11 of 59
BAM Trading Services Inc.
Financial Statements
December 31, 2021 and 2020
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833764
PDF Page 13
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 12 of 59
TABLE OF CONTENTS
Page No.
Independent Auditor's Report
1-2
Balance Sheets
3
Statements of Operations
4
Statements of Stockholder's Equity
5
Statements of Cash Flows
6
Notes to Financial Statements
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
7 - 20
BTS00833765
PDF Page 14
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 13 of 59
INDEPENDENT AUDITOR'S REPORT
Board of Directors
BAM Trading Services Inc.
San Francisco, California
Opinion
We have audited the accompanying financial statements of BAM Trading Services Inc. (a Delaware
corporation) (the ''Company''), which comprise the balance sheets as of December 31, 2021 and 2020, and
the related statements of income, stockholder's equity, and cash flows for the years then ended, and the
related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of BAM Trading Services Inc. as of December 31, 2021 and 2020, and the results of its operations
and its cash flows for the years then ended in accordance with accounting principles generally accepted in
the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Our responsibilities under those standards are further described in the Auditor's Responsibilities
for the Audit of the Financial Statements section of our report. We are required to be independent of BAM
Trading Services Inc. and to meet our other ethical responsibilities in accordance with the relevant ethical
requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about BAM Trading Services Inc.'s ability
to continue as a going concern within one year after the date that the financial statements are available to
be issued.
1
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 14 of 59
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is
not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the
United States of America will always detect a material misstatement when it exists. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control. Misstatements are considered material if there is a substantial likelihood that, individually or in
the aggregate, they would influence the judgment made by a reasonable user based on the financial
statements.
In performing an audit in accordance with auditing standards generally accepted in the United States of
America, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, and design and perform audit procedures responsive to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit 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 BAM Trading Services Inc.'s internal control. Accordingly, no such opinion is
expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the financial
statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about BAM Trading Services Inc.'s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control related matters
that we identified during the audit.
ArmaninoLLP
San Jose, California
March 30, 2022
2
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BTS00833767
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 15 of 59
BAM Trading Services Inc.
Balance Sheets
December 31, 2021 and 2020
2021
2020
ASSETS
Current assets
Cash and cash equivalents
Digital assets
Prepaid expenses
Customer funds receivable
Customer custodial funds
Income tax receivable
Right-of-use asset, current portion
Total current assets
Right-of-use asset, net of current portion
Property and equipment, net
Security deposits
Restricted cash
Total assets
$
28,613,940
151,840,798
8,598,070
13,432,230
250,600,508
8,839,040
613,124
462,537,710
559,537
420,888
238,001
$ 463,756,136
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
$
8,072,332
Accrued expenses
3,646,085
Deferred revenue
398,836
Due to Parent
3,342,632
Due to Binance Holdings Limited
11,509,147
Customer funds payable
264,032,738
Lease liability, current portion
651,438
Total current liabilities
291,653,208
Customer deposits
Deferred income tax liability
Lease liability, net of current portion
Total liabilities
$
$
$
1,426,450
17,500,572
310,580,230
15,076,318
7,118,585
1,311,812
2,480,377
64,269,333
448,749
90,705,174
613,124
61,658
4,275
238,001
91,622,232
856,186
712,773
312,393
16,454,045
554,500
66,749,710
435,008
86,074,615
1,301,450
651,439
88,027,504
Commitments and contingencies (Note 9)
Stockholder's equity
Common stock, $0.00001 par value, 10,000,000 shares
authorized; 7,500,000 shares issued and outstanding
Additional paid-in capital
Stockholder receivable
Accumulated equity (deficit)
Total stockholder's equity
Total liabilities and stockholder's equity
75
6,675,013
(75)
146,500,893
153,175,906
$ 463,756,136
$
75
6,675,013
(75)
(3,080,285)
3,594,728
91,622,232
The accompanying notes are integral part of these financial statements.
3
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 16 of 59
BAM Trading Services Inc.
Statements of Operations
For the Years Ended December 31, 2021 and 2020
2021
Revenue
$ 265,850,337
2020
$
11,002,836
Cost of revenue
118,671,366
5,650,419
Gross profit
147,178,971
5,352,417
Operating expenses
84,421,617
8,711,292
Operating income (loss)
62,757,354
(3,358,875)
Other income
Gain on digital assets
Total other income
137,068,243
137,068,243
2,979,333
2,979,333
Income (loss) before provision for income taxes
199,825,597
(379,542)
50,244,419
19,346
Provision for income taxes
Net income (loss)
$ 149,581,178
$
(398,888)
The accompanying notes are integral part of these financial statements.
4
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833769
PDF Page 18
7,500,000
Issuance of common stock in
exchange for stockholder's
receivable
Net loss
Balance, December 31, 2020
Net income
Balance, December 31, 2021
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
75
$
6,675,013
6,675,013
Additional Paid-In
Capital
$
6,675,013
$
(75)
(75)
(75)
Stockholder's
Receivable
$
-
149,581,178
$ 146,500,893
(398,888)
(3,080,285)
Accumulated
Equity (Deficit)
$ (2,681,397)
The accompanying notes are integral part of these financial statements.
5
$
7,499,000
7,500,000
Balance, January 1, 2020
75
75
Common Stock
Shares
Amount
1,000
$
-
BAM Trading Services Inc.
Statements of Stockholder's Equity
For the Years Ended December 31, 2021 and 2020
(398,888)
3,594,728
Total
3,993,616
149,581,178
$ 153,175,906
$
Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 17 of 59
BTS00833770
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 18 of 59
BAM Trading Services Inc.
Statements of Cash Flows
For the Years Ended December 31, 2021 and 2020
2021
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
$
Depreciation and amortization
Provision for transaction losses
Gain on digital assets
Digital assets received as revenue
Digital assets payments for expenses
Non-cash lease expense
Deferred income tax liability
Changes in operating assets and liabilities
Prepaid expenses and other current assets
Income tax receivable
Customer funds receivable
Accounts payable
Accrued expenses
Deferred revenue
Due to Parent
Due to Binance Holdings Ltd
Customer funds payable
Customer deposits
Net cash provided by operating activities
149,581,178
2020
$
(398,888)
95,785
1,460,834
(137,068,243)
(170,354,675)
30,605,239
13,740
17,500,572
17,890
178,001
(2,979,333)
(9,407,432)
1,141,045
24,574
-
(7,286,258)
(8,839,040)
(10,951,853)
7,216,146
1,472,478
86,443
(13,111,413)
10,954,647
197,283,028
125,000
68,783,609
(999,065)
(2,301,060)
716,480
239,672
312,393
16,157,586
554,500
60,531,828
1,301,450
65,089,641
Cash flows from investing activities
Purchase of property and equipment
Security deposits
Proceeds from sale of digital assets
Net cash provided by investing activities
(593,664)
(416,613)
132,095,465
131,085,188
(62,907)
9,420
4,263,354
4,209,867
Net increase in cash and cash equivalents and restricted cash
199,868,797
69,299,508
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
$
79,583,652
279,452,449
$
10,284,144
79,583,652
Cash and cash equivalents and restricted cash consisted of the following:
Cash and cash equivalents
$
28,613,940
$
15,076,318
$
238,001
250,600,508
279,452,449
$
238,001
64,269,333
79,583,652
$
$
3,870
435,610
$
$
1,505,425
75
Restricted cash
Customer custodial funds
Supplemental disclosures of cash flow information
Cash paid for income taxes
$
34,465,308
Operating cash outflows for amounts included in the measurement of
$
448,678
operating lease liabilities
Supplemental schedule of noncash investing and financing transactions
Right-of-use assets obtained in exchange for lease liabilities
$
Issuance of stock in exchange for stockholder receivable
$
The accompanying notes are integral part of these financial statements.
6
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833771
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 19 of 59
BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
1. NATURE OF OPERATIONS
BAM Trading Services Inc. (the "Company" or "BAM Trading"), a Delaware corporation, commenced
operations on February 4, 2019 ("inception") and is headquartered in San Francisco, California. The
Company is a wholly-owned subsidiary of BAM Management US Holdings Inc. (the "Parent").
In September 2019, the Company 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, 2021,
Binance.US supported 77 digital assets and 135 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"). The accompanying financial statements include
transactions between the Company and its Parent (see Note 9).
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.
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.
7
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833772
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Case 1:23-cv-01599 Document 22 Filed 06/07/23 Page 20 of 59
BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and uncertainties (continued)
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.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus ("COVID19") a global pandemic and recommended containment and mitigation measures worldwide. The COVID19 outbreak in the United States has caused business disruption through mandated and voluntary closings
of business and shelter in place orders. There is considerable uncertainty around the duration of the
closings and shelter in place orders. For the years ended December 31, 2021 and 2020 and through 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.
Use of estimates
The preparation of 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 financial statements, and the reported amounts of
revenues and expenses during the reporting periods. These estimates include, but are not limited to, useful
lives of property and equipment, valuation of digital assets, determination of the Company's incremental
borrowing rate, 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
financial statements will be affected.
Reclassifications
As a result of changes in presentation, certain prior year amounts have been reclassified to conform to the
current presentation. These reclassifications had no effect on the reported results of operations.
Cost of revenue
Cost of revenue includes direct costs related to revenue recognition, such as crypto trading network fee,
fiat rail fees, royalty, ACH and debit card return charges, web hosting and compliance costs.
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising cost
The Company expenses advertising and marketing expenses as incurred. Marketing and advertising
include general marketing, digital marketing, referral, swags and public relations agency fees.
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.
Cash and cash equivalents excludes customer legal tender, which is reported separately as customer
custodial funds in the accompanying balance sheets.
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.
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, 2021 and 2020, 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 in the accompanying
balance sheets. 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 gain
on digital assets in the accompanying statements of operations.
For the years ended December 31, 2021 and 2020, the Company recognized a net unrealized gain of
$76,882,152 and $1,441,435 related to digital assets held, respectively. For the years ended December 31,
2021 and 2020, the Company recognized a net realized gain of $60,186,091 and $1,537,898 related to the
liquidation of digital assets, respectively.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer custodial funds represent cash and cash equivalents held in Company controlled bank accounts
that are held for the exclusive benefit of customers.
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 receivable are
typically received within one or two business days of the transaction date. The Company establishes limits
on withdrawals in order to mitigate potential losses by preventing customers from withdrawing the digital
asset to an external blockchain address until the payment settles.
Customer funds payable represent unsettled withdrawals, which 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 method, 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 funds payable
in the accompanying balance sheets.
Leases
In February 2016, the Financial Accounting Standards Board issued Accounting Standard Update 201602, Leases, ("ASU 2016-02") in order to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating
leases under prior generally accepted accounting principles. ASU 2016-02 requires that a lessee should
recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its
right to use the underlying asset for the lease term on the balance sheet.
The Company adopted ASU 2016-02 on January 1, 2020, using the modified retrospective method,
resulting in the recognition of right-of-use assets of approximately $1.0 million and lease liabilities for
operating leases of approximately $1.0 million on the Company's balance sheet, with no impact to its
statement of operations. The Company did not elect to apply the hindsight practical expedient when
determining lease term and assessing impairment of right-of use assets.
The Company determines if an arrangement is a lease at inception. For leases where the Company is the
lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying asset for the term
of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease.
Lease liabilities are recognized at the lease commencement date based on the present value of the future
lease payments over the lease term. Most leases do not provide an implicit rate, so the Company uses its
incremental borrowing rate based on the information available at the commencement date of the
underlying lease arrangement to determine the present value of lease payments. The ROU asset is
determined based on the lease liability initially established and reduced for any prepaid lease payments
and any lease incentives received. The lease term to calculate the ROU asset and related lease liability
includes options to extend or terminate the lease when it is reasonably certain that the Company will
exercise the option. The Company's lease agreements generally do not contain any material variable lease
payments, residual value guarantees or restrictive covenants.
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases (continued)
The Company has made the policy election to account for short-term leases by recognizing the lease
payments in the statements of operations on a straight-line basis over the lease term and not recognizing
these leases on the Company's balance sheets.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating
expense while expense for financing leases is recognized as depreciation expense and interest expense
using the accelerated interest method of recognition. The Company accounts for lease components and
non-lease components as a single lease component.
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
Furniture and fixtures
Leasehold improvements
Software
3 years
5 years
Lesser of 5 years or lease term
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 income in the accompanying statements of operations.
Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets, including right-of-use 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 years
ended December 31, 2021 and 2020.
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:
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurements (continued)
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.
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 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 Company derives revenue from various digital asset transaction services. The Company derives a
majority of its revenue from exchange transactions, where users can buy, sell or convert digital assets on
the platform for an exchange service fee. The Company also derives revenue from deposit fees when
customers use credit cards to deposit funds into their platform account and withdrawals fees when a
customer requests a transfer of their funds out of their platform account. Fees are charged at the transaction
level and represents a single performance obligation. The Company has determined it is an agent in the
transaction between customers and presents revenue for the fees earned on a net basis. This determination
required judgment and was based on the fact that the Company does not control the digital asset being
provided before it is transferred to the buyer, does not have inventory risk related to the digital asset and
does not set the price for the digital asset as the price is a market rate established by the platform.
The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time
the transaction is processed, which is either upon the transfer of the digital assets to the customer, receipt
of digital assets purchased from the customer, or transfer of funds on or off the platform.
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
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.
From time to time, the Company enters into arrangements with token partners for inclusion of the partner's
token onto the Company's platform. These arrangements generally include a technical integration fee
("TIF") and a marketing fee which are deemed to be distinct performance obligations. Fees are due up
front and are not refundable. The transaction price is allocated between these performance obligations
using the standalone selling price. TIF revenue is recognized on the date the token becomes available for
trading on the Company's platform. Marketing fees are recognized as the related fees are consumed in
marketing campaigns. The Company also requires a refundable deposit from the token partners which is
not considered a component of the transaction price and is recorded as customer deposit in the
accompanying balance sheets.
Deferred revenue
Deferred revenue reflects the amount received from token partners in advance of revenue recognition and
is recognized when all revenue recognition criteria are met. The Company's deferred revenue as of
December 31, 2021 and 2020 consists of marketing fees that have not yet been delivered.
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 been notified. The estimate is based on historical loss
payment patterns. The Company recorded a provision for transaction losses of $1,708,835 and $248,001
as of December 31, 2021 and 2020, respectively, which is included in accrued expenses in the
accompanying balance sheets.
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 effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date. In making
such a determination, management considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, and results of recent operations. If management determines that the Company would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would
make an
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes (continued)
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
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 customer custodial funds. Cash and cash equivalents, restricted
cash and customer custodial funds 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, restricted cash or customer custodial funds.
3. FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy,
fair value on a recurring basis as of December 31, 2021:
Level 1
Digital assets held
$ 151,840,798
Level 2
$
-
Level 3
$
-
Fair Value
$ 151,840,798
fair value on a recurring basis as of December 31, 2020:
Level 1
Digital assets held
$
7,118,585
Level 2
$
-
Level 3
$
-
Fair Value
$
7,118,585
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31:
Computer equipment
Furniture and fixtures
Leasehold improvements
Software
$
Less: accumulated depreciation
$
2021
232,669
26,190
15,203
149,363
423,425
216,110
639,535
2020
$
$
4,446
6,519
974
2,145
14,084
19,245
33,329
Depreciation expense was $95,785 and $17,890 for the years ended December 31, 2021 and 2020,
respectively.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31:
Accrued legal expenses
Accrued risk and compliance expenses
Provision for transaction losses
State income taxes payable
Credit card payables
Other
$
$
2021
1,554,571
293,093
1,708,835
29,095
60,491
3,646,085
$
$
2020
415,877
248,001
20,396
28,498
1
712,773
6. 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.
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.
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
6. COMMITMENTS AND CONTINGENCIES (continued)
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, 2021 and 2020 for such potential losses. As
of December 31, 2021 and 2020, the aggregate U.S. Dollar value of digital assets held in customer wallets
was $6,432.4 million and $704.9 million, respectively.
Leases
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 discount rate for the Company's operating lease was 1.54%. The
Company also leases office space under month-to-month lease arrangements.
The table below presents the Company's right-of-use assets and lease liabilities as of December 31:
2021
Right-of-use assets:
Right-of-use assets, current portion
$
Right-of-use assets, net of current portion
$
Lease liabilities:
Lease liabilities, current portion
Lease liabilities, net of current portion
$
$
2020
613,124
613,124
$
651,438
651,438
$
$
$
448,749
613,124
1,061,873
435,008
651,439
1,086,447
The scheduled minimum lease payments under the lease terms are as follows:
Year ending December 31,
2022
2023
Less: imputed interest
Present value of lease liability
$
660,473
(9,035)
651,438
$
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BAM Trading Services Inc.
Notes to Financial Statements
December 31, 2021 and 2020
6. COMMITMENTS AND CONTINGENCIES (continued)
Leases (continued)
The components of lease costs were as follows for the years ended December 31:
Operating lease costs
Short-term lease costs
$
$
2021
452,125
681,328
1,133,453
$
$
2020
452,125
42,970
495,095
Legal proceedings
The Company is 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.
7. STOCKHOLDER'S EQUITY
The Company is authorized to issue up to 10,000,000 shares of common stock, with a par value of
$0.00001 per share. As of December 31, 2021 and 2020, 7,500,000 shares of authorized common stock
were issued and outstanding to the Parent.
8. INCOME TAXES
The Company and its Parent, together with other affiliated group members of the Parent, authorized and
consented to be included in a consolidated income tax return for federal (United States) income tax return
reporting purposes; and, report combined corporate tax liability on a single return. In addition, the Parent
and its wholly-owned subsidiaries, including BAM Trading, are subject to unitary combined
income/franchise tax reporting requirements in certain state jurisdictions. BAM Trading may be required
to file separate state corporation tax returns in jurisdictions that require such separate filings, including
those jurisdictions where the Company may be subject to market-based sourcing rules or regulatory or
state registration requirements.
Generally, the amount of current and deferred tax expense for an income tax return group that files a
consolidated income tax return is allocated among the members of that group when those members issue
separate financial statements but does not establish a mandatory method of allocation. BAM Trading is
not subject to a tax sharing agreement with its Parent or any affiliated company. The Company elected to
compute its federal state and local income tax provisions as if it was a separate taxpayer. Under this
method, the sum of the amounts allocated to individual members of the income tax return group may not
equal the consolidated amount.
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Notes to Financial Statements
December 31, 2021 and 2020
8. INCOME TAXES (continued)
The provision for income taxes consisted of the following for the years ended December 31:
2021
Current:
Federal
State
Total
$ 25,745,097
6,998,750
32,743,847
Deferred:
Federal
State
Total
Total provision for income taxes
2020
$
19,346
19,346
14,313,993
3,186,579
17,500,572
$ 50,244,419
$
19,346
Significant components of the Company's deferred income tax assets and liabilities are as follows as of
December 31, 2021:
2021
Net operating losses
Unrealized gain on digital assets
Lease liability
Other
Total current
Valuation allowance
$
148,531
1,546,494
1,695,025
-
2020
$
330,658
346,937
255,581
78,350
1,011,526
(735,430)
Property and equipment
Unrealized loss on digital assets
(68,412)
(18,969,372)
(157,813)
(19,195,597)
$ (17,500,572)
(14,600)
(261,496)
(276,096)
-
Total deferred tax liabilities
Total net deferred tax asset
$
The effective income tax rate differs from the statutory federal income tax rate as follows for the years
ended December 31:
2021
Tax at federal statutory rate
State taxes, net of federal benefit
Other permanent items
Change in valuation allowance
21.0 %
4.1
0.4
(0.4)
25.1 %
2020
21.0 %
3.2
(1.0)
(28.3)
(5.1) %
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Notes to Financial Statements
December 31, 2021 and 2020
8.
INCOME TAXES (continued)
Management assesses all available positive and negative evidence to estimate whether sufficient future
taxable income will be generated to permit use of the existing deferred tax assets. Primarily based upon
historical results of operations, estimates of future taxable income and positive evidence in the form of
cumulative losses no longer being present and additional weight given to subjective evidence such as our
projections for growth, we believe our deferred tax assets are realizable on a more likely than not basis
resulting in a $954,000 recognized tax benefit and reduction to the valuation allowance reduction.
At December 31, 2021 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, federal income tax withholding accrual, various permanent items, and a release of federal and
state valuation allowances. At December 31, 2020, 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.
tax measures, provides for a three-year suspension of the use of NOLs for medium and large businesses
and a three-year limit on the use of business incentive tax credits to offset no more than $5 million of tax
per year. The three-year term was subsequently revised to a two-year term and has been accounted for in
deferred tax assets.
The Company and its affiliates are computing their respective tax obligation on a stand-alone basis. The
Company, together with its Parent and an affiliate company, files U.S. Corporation federal, and state
income and franchise tax returns in jurisdictions with varying statutes of limitations. Currently these
statutes of limitations are open from 2019 forward for the U.S. and various states. As of December 31,
2021, the Company has a state net operating losses of approximately $1,420,000 on a stand-alone basis.
The state net operating loss carryforwards, if not utilized, expires in 2039. All filing statutes are open and
the Company is currently not under audit.
As of December 31, 2021, 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 interest and penalties related to uncertain tax positions as a component of
income tax expense.
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.
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Notes to Financial Statements
December 31, 2021 and 2020
9. RELATED PARTY TRANSACTIONS
The Company receives advances from and makes payments on behalf of the Parent in the ordinary course
of business. These payments made on behalf of the Company's Parent result in intercompany receivables
and payables. As of December 31, 2021 and 2020, the unsettled intercompany payables Due to Parent
was $1,289,892 and $16,454,045, respectively.
The Company has entered into certain agreements with BHL, 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 BHL owns a digital currency trading platform which it
operates in multiple countries, BHL 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 BHL to the Company and the Company's end users as well as the development and
implementation of Company specific enhancements.
Trademark License Agreement - BHL has granted the Company a nonexclusive, non transferable,
non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to use
certain trademarks owned by BHL.
Wallet Custody Agreement - The Company selected BHL 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.
In accordance with the terms of these agreements, for the years ended December 31, 2021 and 2020, the
Company incurred expenses totaling $10,954,647 and $554,500, respectively, which is included in cost
of revenue in the accompanying statements of operations and had a payable due to BHL of $11,509,147
and $554,500 as of December 31, 2021 and 2020, respectively.
10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 3 , 2022, the date the financial statements
were available to be issued.
20
FOIA CONFIDENTIAL TREATMENT REQUESTED BY BAM
BTS00833785
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BAM Trading Services Inc.
Financial Statements and Independent Auditor’s Report
December 31, 2022
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833798
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BAM Trading Services Inc.
TABLE OF CONTENTS
Page No.
Independent Auditor's Report
1-2
Balance Sheet
3
Statement of Operations
4
Statement of Stockholder's Equity
5
Statement of Cash Flows
Notes to the Financial Statements
Confidential Treatment Requested by
BAM Trading Services Inc.
6-7
8 - 24
BTS00833799
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INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of
BAM Trading Services Inc. d/b/a Binance.US
Opinion
We have audited the accompanying financial statements of BAM Trading Services Inc. d/b/a Binance.US (the “Company”), which
comprise the balance sheet as of December 31, 2022, and the related statements of operations, stockholder’s equity, and cash
flows for the year then ended, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events considered in
the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the
date that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance
with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is
a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user
based on the financial statements.
FGMK, LLC
333 W. Wacker Drive, 6th Floor | Chicago, IL 60606
2801 Lakeside
Drive, 3rd Floor
| Bannockburn,
IL 60015 by
Confidential
Treatment
Requested
17W110 22nd Street, 3rd Floor | Oakbrook Terrace, IL 60181
BAM Trading Services Inc.
Bannockburn | Chicago | Cleveland
Dubuque | Indianapolis | Oakbrook Terrace
BTS00833800
Orange County | Santa Fe | Sarasota
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In performing an audit in accordance with generally accepted auditing standards, we:
o
o
o
o
o
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit 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
Company’s internal control. Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Bannockburn, Illinois
May 10, 2023
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833801
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BAM Trading Services Inc.
Balance Sheet
December 31, 2022
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833802
3
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BAM Trading Services Inc.
Statement of Operations
For the Year Ended December 31, 2022
The accompanying notes are an integral part of these financial statements.
4
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833803
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BAM Trading Services Inc.
Statement of Stockholder's Equity
For the Year Ended December 31, 2022
Confidential Treatment RequestedThe
by accompanying notes are an integral part of these financial statements.
BAM Trading Services Inc.
BTS00833804
5
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BAM Trading Services Inc.
Statement of Cash Flows
For the Year Ended December 31, 2022
(Continued)
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833805
6
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BAM Trading Services Inc.
Statement of Cash Flows (continued)
For the Year Ended December 31, 2022
The accompanying notes are an integral part of these financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833806
7
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
1. NATURE OF OPERATIONS
BAM Trading Services Inc. d/b/a Binance.US (the "Company" or "BAM Trading"), a Delaware
corporation, commenced operations on February 4, 2019 and is headquartered in Miami, Florida. The
Company is a wholly-owned subsidiary of BAM Management U.S. Holdings Inc. (“BAM Management”).
In September 2019, the Company launched Binance.US, a crypto asset trading platform for the United
States market, through a licensing arrangement with Binance Holdings Limited (“BHL”), which operates
a global crypto asset trading platform under the name Binance.com (Note 3). Binance.US is powered by
matching engine and wallet technologies licensed from BHL and provides secure and reliable crypto asset
trading and a hosted wallet service to its users. As of December 31, 2022, Binance.US supported 150
crypto assets and 324 trading pairs, with plans for adding more crypto 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").
Risks and uncertainties
The Company's future results of operations involve a number of risks and uncertainties that could have a
material adverse effect 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 the Company’s 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.
Compliance risk
BAM Trading is registered with the U.S. Department of Treasury’s Financial Crimes Enforcement
Network (“FinCEN”) as a Money Services Business (“MSB”). The federal Bank Secrecy Act, also known
as the Currency and Foreign Transactions Reporting Act, and its implementing regulations (collectively,
the “BSA”) is a compendium of federal statutes which serve as the United States’ principal anti-money
laundering (“AML”) and anti-terrorist financing statutes. FinCEN is responsible for promulgating
regulations that implement the BSA. The Company currently operates its platform to facilitate the
exchange of crypto assets. By facilitating the exchange of crypto assets through its platform, the Company
believes it is acting as an “exchanger” of virtual currency under FIN-2013-G001, Application of FinCEN's
Regulations to Persons Administering, Exchanging, or Using Virtual Currencies issued by FinCEN on
March 18, 2013 (“FinCen’s 2013 Guidance”). This is because the Company is facilitating the exchange of
crypto currency for other crypto currency (or fiat currency held by the Company or Prime Trust, LLC
(“Prime Trust”)) and charges users a fee to facilitate such trades through the Company’s platform, by
which it believes it is “engaged as a business in exchanging virtual currency” for other virtual currency or
fiat currency. The over-the-counter desk and convert features of the Company’s platform would likewise
fall into this category. FinCEN’s 2013 Guidance provides that “exchangers” are to be classified as money
transmitters, a type of MSB, under the BSA. This designation also covers the Company’s provision of the
remittance services, which are either the transmittal of fiat currency or crypto assets from point A to point
B.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833807
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Forty-nine states, the District of Columbia, the Federated States of Micronesia, Guam, the Marshall
Islands, the Northern Mariana Islands, Palau, Puerto Rico, and the U.S. Virgin Islands have money
transmission statutes that require an entity to obtain a license in order to engage in certain regulated
activities. While these statutes vary by state, in general the activities which typically require an entity to
seek licensure as a money transmitter are: (i) the sale or issuance of money orders or traveler’s checks; (ii)
the sale or issuance of open-loop stored value; and (iii) the transmission of money or monetary value,
either electronically or otherwise, from point A to point B, including bill payment (this subsection (iii)
mirrors the definition of “money transmission” under the BSA set forth above). Generally, any entity
engaging in any of the three activity categories must be licensed under the relevant state laws as a money
transmitter, be appointed and serve as the authorized agent of a licensed money transmitter, or be an entity
which is exempt from the scope of the money transmitter statutes, such as a federally-insured financial
institution. The reason for this construct is to ensure that each entity engaging in money transmission either
is regulated as a licensee or is exempt because it is already subject to regulation (e.g., banks). Some
jurisdictions such as California have money transmission statutes but have taken the position that BAM
Trading’s products do not require a license, thereby authorizing the Company to operate in those
jurisdictions without a license. The Company is licensed in 43 jurisdictions and authorized to operate in
an additional 6 jurisdictions.
Regulation risk
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. Current promulgated tax rules related to
digital assets are unclear and require significant judgments to be made in interpretation of the law,
including but not limited to the areas of income tax, information, reporting, transaction level taxes and the
withholding of tax at source. Additional legislation or guidance may be issued by U.S. governing bodies
that may differ significantly from the Company’s practice or interpretation of the law. 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.
Market risk
Digital assets and their respective protocol networks are exposed to risks due to fraud, technological
glitches, hackers or malware. 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.
While the Company is continuing to diversify its revenue sources, its current revenues are primarily
derived from transaction fees on sales and purchases of digital assets by its customers.
Market risk arises primarily from changes in the market value of digital assets, which is influenced by a
number of factors, including the volatility and liquidity in the marketplace, which could materially and
adversely affect the Company's results of operations.
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 customer custodial funds. Cash and cash equivalents, restricted
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833808
9
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
cash and customer custodial funds are deposited at financial institutions. Periodically, such balances may
be in excess of federally insured limits. The Company has not incurred any significant losses on its deposits
of cash and cash equivalents, restricted cash or customer custodial funds as of the date these financial
statements were available to be issued. The Company maintains relationships with numerous banking
partners to ensure adequate redundancies across its operations and to minimize concentration risks. As of
December 31, 2022, the Company had $143,298,844 and $37,911,076 of cash and cash equivalents,
restricted cash and customer custodial funds held at Silvergate Capital Corp. and Signature Bank,
respectively. Both banks have experienced liquidity issues and were seized by the Federal Deposit
Insurance Corporation (“FDIC”) subsequent to December 31, 2022. The Company’s funds are protected
by the FDIC up to the FDIC limit and the Company is transitioning to other financial institutions. The
Company did not experience material interruptions in its operations due to the bank takeovers and does
not expect future material interruptions.
Indemnifications
In the normal course of business, the Company enters into contracts that contain a variety of representations
and warranties that provide indemnifications under certain circumstances. The Company’s maximum
exposure under these arrangements is unknown, as this would involve future claims that may be made
against the Company that have not yet occurred. The Company expects the risk of future financial
obligations under these indemnifications to be remote.
Liquidity
The Company has incurred significant losses and negative cash flows from operations for the year ended
December 31, 2022 due to the current market conditions. Management does not believe there is substantial
doubt over the Company's ability to continue as a going concern. However, if the Company needs to
increase its liquidity condition in the future, management may plan to seek to obtain additional capital
contributions from BAM Management, issue additional debt securities or obtain a credit facility. Without
additional funds, the Company may choose to delay or reduce its operating or investment expenditures.
Use of estimates
The preparation of 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 financial statements, and the reported amounts of revenues
and expenses during the reporting periods. These estimates include, but are not limited to, valuation of
crypto assets, provision for transaction losses, accounting for income taxes, assessing the likelihood of
adverse outcomes from claims and disputes, and the Company’s assessment of its ability to maintain
compliance with laws and regulations that currently apply or become applicable given the highly evolving
and uncertain regulatory landscape. To the extent that there are material differences between these
estimates and results, the Company's financial statements will be affected.
Fair value measurements
The Company applies fair value accounting for all 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:
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833809 10
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
●
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.
The fair value of crypto asset denominated assets and liabilities are based on published exchange rates,
which are determined to be Level 1 inputs, as the crypto assets are traded in active exchange markets. The
Company monitors the exchange rates against various third-party exchanges.
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.
Cash and cash equivalents exclude customer fiat, which is reported separately as customer custodial funds
in the accompanying balance sheet.
Restricted cash
The Company has restricted cash deposits at financial institutions as cash collateral for potential
chargeback losses and related to an escrow deposit for the transaction with Voyager Digital, LLC
(“Voyager”) which has been terminated as discussed below.
On December 18, 2022, the Company entered into an agreement to acquire certain assets and assume
certain liabilities of Voyager which included a required escrow deposit of $10,000,000. The Company
terminated the transaction on April 25, 2023 in accordance with termination clauses within the agreement
and is pursuing the return of the escrow deposit.
USDC and BUSD
USD Coin (“USDC”) and Binance USD (“BUSD”) are accounted for as financial instruments subject to
fair value measurement; one USDC or one BUSD can each be redeemed for one U.S. dollar on demand
from the respective issuer. While USDC and BUSD are not accounted for as cash and cash equivalents,
the Company treats USDC and BUSD as liquidity resources.
Crypto assets
The Company facilitates transactions between users and earns fee revenue on transactions that are
denominated in crypto assets. The Company assigns costs to crypto asset transactions in its inventory on
a first-in, first-out basis. The Company does not hold crypto assets for speculative purposes.
Through December 1, 2022, all Company-owned crypto assets were held in custody accounts through the
Wallet Custody Agreement with BHL (Note 3). Per the agreement, BHL held all of the Company’s
customers’ assets in custody. Prior to December 1, 2022, the Company accounted for its crypto assets
under custody with BHL as receivables subject to fair value measurement. The Company initially recorded
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833810 11
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
crypto asset receipts at cost and subsequently marked its crypto asset holdings to market at each reporting
date. Fair value was determined based on quoted market exchange prices as of the reporting date.
Unrealized gains and losses arising from changes in the fair value of crypto assets, as well as gains and
losses realized from differences in prices in which crypto assets were purchased compared to crypto assets
sold, were recognized net, in loss on crypto assets in the accompanying statement of operations.
Effective December 1, 2022, following the termination of the Wallet Custody Agreement with BHL, the
Company’s crypto assets that were previously carried as receivables were derecognized at fair value. Any
gain or loss recorded on this derecognition was recorded as realized gain or loss on the accompanying
statement of operations. These crypto assets were then recorded as intangible assets with indefinite useful
lives in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 350, Intangibles - Goodwill and Other.
These intangible assets are initially measured at cost and are subject to impairment losses if the fair value
of the crypto assets decreases below the carrying value at any time during the period in which the Company
holds the crypto assets. The fair value is measured using the quoted price of the crypto assets at the time
its fair value is being measured on a weighted average basis, based on exchange activities which
approximate the assets’ principal market. The Company recorded impairment charges of $16,849,604
related to its crypto assets during the year ended December 31, 2022.
The Company classifies its crypto assets as current assets on the accompanying balance sheet as its crypto
assets are highly liquid and can be consumed in the normal course of business or converted to cash within
12 months.
The Company has a crypto loan agreement with a staking partner that was funded by Company-owned
crypto assets. The Company concluded that control of the underlying crypto assets was not transferred to
the borrower and therefore, it did not derecognize the loaned crypto assets from its balance sheet.
Customer custodial funds, Customer funds receivable and Customer funds payable
Customer custodial funds represent cash and cash equivalents held in segregated Company controlled bank
accounts that are held for the exclusive benefit of customers.
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 receivable are
typically received within one or two business days of the transaction date.
Customer funds payable represent the obligation to return customer custodial funds, customer funds
receivables and unsettled withdrawals.
The Company establishes withdrawal-based limits in order to mitigate potential losses by preventing
customers from withdrawing funds until the deposit settles.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833811 12
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Depreciation and amortization of property and equipment is computed using the straight-line method over
the following estimated useful lives:
Computer equipment
Furniture and fixtures
Leasehold improvements
3 years
5 years
Lesser of 5 years or lease term
Expenditures for repairs and maintenance are expensed as incurred. Upon disposition, the cost and related
accumulated depreciation and amortization are removed from the accounts, and the resulting gain or loss
is recognized or charged to other income in the accompanying statement of operations.
Leases
The Company determines if an arrangement is a lease at inception. For operating leases where the
Company is the lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying
asset for the term of the lease and the lease liabilities represent an obligation to make lease payments
arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present
value of the future lease payments over the lease term. Most leases do not provide an implicit rate, so the
Company uses its incremental borrowing rate based on the information available at the commencement
date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset
is determined based on the lease liability initially established and reduced for any prepaid lease payments
and any lease incentives received. The lease term to calculate the ROU asset and related lease liability
includes options to extend or terminate the lease when it is reasonably certain that the Company will
exercise the option. The Company's lease agreements generally do not contain any material variable lease
payments, residual value guarantees or restrictive covenants.
The Company has made the policy election to account for short-term leases by recognizing the lease
payments in the statements of operations on a straight-line basis over the lease term and not recognizing
these leases on the Company's balance sheet.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating
expense while expense for finance leases is recognized as depreciation expense and interest expense using
the accelerated interest method of recognition. The Company accounts for lease components and non-lease
components as a single lease component.
As of December 31, 2022, the Company did not have any significant operating or finance leases.
Deferred acquisition costs
The Company incurred costs related to professional fees for the Voyager asset acquisition transaction.
Certain transaction costs such as legal, accounting, and consulting expenses of $2,641,012 as of December
31, 2022 were deferred and capitalized in other non-current assets on the accompanying balance sheet as
they would not have been incurred by the Company had it not pursued the transaction.
The Company terminated the asset acquisition transaction on April 25, 2023. Accordingly, capitalized
deferred acquisition costs through the termination date will be expensed during the second quarter of 2023.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833812 13
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Impairment of long-lived assets
The Company evaluates the carrying value of long-lived assets, including property and equipment, 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 long-lived asset impairments
for the year ended December 31, 2022.
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 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
Exchange transactions
The Company derives a majority of its revenue from exchange transactions, where users can buy, sell or
convert crypto assets on the platform for an exchange service fee. The Company also derives revenue from
deposit fees when customers use debit cards to deposit funds into their platform account and withdrawal
fees when a customer requests a transfer of their funds out of their platform account. Fees are charged and
collected at the transaction level and represent a single performance obligation. The Company has
determined it is an agent in the transaction between customers and presents revenue for the fees earned on
a net basis. This determination requires judgment and is based on the fact that the Company does not
control the crypto asset being provided before it is transferred to the buyer, does not have inventory risk
related to the crypto asset and does not set the price for the crypto asset as the price is a market rate
established by users of the platform.
The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time
the transaction is processed, which is either upon the transfer of the crypto assets to the customer, receipt
of crypto assets purchased from the customer, or transfer of funds on or off the platform.
Crypto 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.
Staking rewards
The Company also engages in staking of tokens on proof-of-stake networks. These networks use a
variation of the proof-of-stake protocol that allows entities to delegate their stake to another party that acts
as a validator. The delegating entity is commonly referred to as the delegator, and the other party is
commonly referred to as the validator. The Company retains control of the stake via the delegation process
through the use of third-party validators. These third-party validators are technology service providers that
perform routine functions. The crypto assets at stake are earmarked on the blockchain and cannot be used
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833813 14
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
for any other purpose in the period during which they are staked. The crypto assets are not transferred on
the blockchain to another public address when staked (or delegated). These blockchain protocols, or the
participants that form the protocol networks, reward users for performing various activities on the
blockchain, such as participating in proof-of-stake networks and other consensus algorithms. The
Company considers itself the principal in transactions with the blockchain networks, and therefore presents
such blockchain rewards earned on a gross basis. In exchange for participating in the consensus mechanism
of these networks, the Company earns rewards in the form of the native token of the network. Each block
creation or validation is a performance obligation. Revenue is recognized at the point in time when the
block creation or validation is complete and the reward is received on the blockchain. Revenue is measured
based on the number of tokens earned and the fair value of the token. The Company’s staking rewards are
recorded within the respective blockchains and the Company will claim such rewards.
Integration fees and token listing deposits
From time to time and following approval from the listings committee, the Company enters into contracts
with token projects to list the project's token on the Company's platform. These contracts generally include
a technical integration fee ("TIF") and a marketing fee which are deemed to be distinct performance
obligations. Fees are due up front and are not refundable. The transaction price is allocated between these
performance obligations using the standalone selling price. TIF revenue is recognized on the date (point
in time) the token becomes available for trading on the Company's platform. Marketing fees are recognized
over time as revenue as the related fees are consumed in marketing campaigns. The Company also requires
a refundable deposit from the token projects which is not considered a component of the transaction price
and is recorded as token listing deposits in the accompanying balance sheet.
For the year ended December 31, 2022, the Company collected approximately 75% of its revenue in crypto
assets. Substantially all of the Company’s revenues are recognized at a point in time.
Provision for transaction losses
The Company is exposed to losses primarily due to fraudulent payment methods used to purchase crypto
assets on its platform. The Company establishes a provision for estimated losses incurred as of the
reporting date, including those which the Company has not yet been notified. The estimate is based on
historical loss payment patterns. The Company recorded a net recovery of chargeback losses on its accrual
of $1,145,128 in cost of revenue in the accompanying statement of operations for the year ended December
31, 2022, and an accrued provision for transaction losses of $563,707 in accrued expenses in the
accompanying balance sheet as of December 31, 2022. Cumulative recoveries exceeded chargeback losses
by $3,485,115 for the year ended December 31, 2022.
Deferred revenue
Deferred revenue reflects the amount received from token partners in advance of revenue recognition and
is recognized when all revenue recognition criteria are met. The Company's deferred revenue as of
December 31, 2022 consists of integration and marketing services for token listings that have not yet been
delivered. Deferred revenue is recorded in other current liabilities on the accompanying balance sheet.
Cost of revenue
Cost of revenue includes direct costs related to revenue recognition, such as crypto trading network fees,
fiat rail fees, royalty, staking rewards expense, ACH and debit card transaction losses, web hosting and
compliance costs.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833814 15
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Advertising cost
The Company expenses advertising and marketing expenses as incurred. Marketing and advertising
include general marketing, crypto marketing, referral, promotional products and public relations agency
fees. For the year ended December 31, 2022, the Company recognized advertising expenses of $8,149,569.
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 effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date. In making
such a determination, management considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, and results of recent operations. If management determines that the Company would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would
make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for
income taxes.
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 to be 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 an estimation 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 U.S. federal tax purposes, digital asset transactions are treated on the same tax principles as property
transactions. The Company recognizes a gain or loss when crypto 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 of
the exchanged crypto 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standard Updates (“ASU”) No. 2016-13, Financial
Instruments — Credit Losses (Topic 326). ASU 2016-13 changes how companies measure credit losses on
most financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity
debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been
incurred, the revised guidance requires companies to recognize an allowance for credit losses for the
difference between the amortized cost basis of a financial instrument and the amount of amortized cost
that the company expects to collect over the instrument’s contractual life. ASU No. 2016-13 is effective
for fiscal periods beginning after December 15, 2022 for nonpublic entities, and must be adopted as a
cumulative effect adjustment to retained earnings. Early adoption is permitted. This standard is effective
for the Company on January 1, 2023. The Company does not expect the adoption of this ASU to have a
material impact on the financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833815 16
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting
for Income Taxes, which removes specific exceptions to the general principles in Topic 740 and simplifies
the accounting for income taxes. Following adoption of the ASU, entities are no longer required to
consider: the exception to intraperiod tax allocation when there is a loss in continuing operations and
income in other components, the exception in interim period income tax accounting that limits the benefit
for year-to-date losses that exceed anticipated losses for the year, and exceptions to accounting for outside
basis differences of equity method investments and foreign subsidiaries. This update also simplifies the
accounting for: a franchise tax (or similar tax) that is partially based on income, tax rate changes in an
interim period, the allocation of taxes to separate company financial statements for entities both not subject
to tax and disregarded by the taxing authority, and when a step-up in the tax basis of goodwill should be
considered part of a business combination versus a separate transaction. This guidance is effective for
annual reporting periods beginning after December 15, 2022 for nonpublic entities; and, early adoption is
permitted. This standard is effective for the Company on January 1, 2023. The Company is currently
evaluating the impact of the guidance on the financial statements.
On March 31, 2022, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No.
121 (“SAB 121”). SAB 121 provides interpretive guidance for entities that have obligations to safeguard
customer crypto assets. The guidance requires an entity to recognize a liability to reflect its obligation to
safeguard the users’ assets, and recognize a corresponding safeguarding asset. Both the liability and asset
should be measured initially and subsequently at the fair value of the crypto assets being safeguarded. The
guidance also requires additional disclosures related to the nature and amount of crypto assets that the
entity is responsible for holding for its customers, with separate disclosure for each significant crypto asset,
and the vulnerabilities the entity has due to any concentration in such activities. The guidance in SAB 121
is effective for public entities for interim or annual periods ending after June 15, 2022, with retrospective
application as of the beginning of the fiscal year to which the interim or annual period relates. Nonpublic
business entities are not required to adopt SAB 121, but may voluntarily elect to do so. The Company is
currently evaluating the impact of the guidance on the financial statements.
3. RELATED-PARTY TRANSACTIONS
The Company receives advances from and makes payments on behalf of BAM Management and its
subsidiaries, and receives allocations for labor and related charges for ongoing personnel support in the
ordinary course of business. These payments made on behalf of and allocations charged by BAM
Management and its subsidiaries result in intercompany receivables and payables. As of December 31,
2022, the unsettled intercompany payables due to BAM Management and its subsidiaries was $68,142,763.
These amounts are unsecured, noninterest bearing and due on demand.
The Company has entered into certain agreements with BHL, an entity which is affiliated with BAM
Management through common ownership. The agreements relate to the licensing and support of services
as follows:
●
●
Software License Agreement - Whereas BHL owns a digital currency trading platform which it
operates in multiple countries, BHL has granted the Company a 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 BHL to the Company and the Company's users as well as the development and implementation
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833816 17
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
●
●
of Company specific enhancements.
Trademark License Agreement - BHL has granted the Company a nonexclusive, non-transferable,
non-sublicensable, perpetual, irrevocable, royalty-free, fully paid-up license to use certain
trademarks owned by BHL.
Wallet Custody Agreement - The Company selected BHL to serve as a custodian to the Company
with respect to the crypto assets in any custody account. This agreement specified the terms of the
relationship the Company would have with BHL as the custodian. This agreement was terminated
as of December 1, 2022. Effective December 1, 2022, the Company is the custodian of its crypto
assets and continues to license the wallet custody software under the Software License Agreement
following the termination of the Wallet Custody Agreement.
In accordance with the terms of these agreements, for the year ended December 31, 2022, the Company
incurred expenses totaling $3,805,102, which are included in cost of revenue in the accompanying
statement of operations and had no balance due to BHL as of December 31, 2022.
In September 2022, the Company entered into a note payable agreement with BHL to borrow certain crypto
assets with a value of $25,952,841. The note was repaid with the same quantity of crypto assets in October
2022.
4. CRYPTO ASSETS
The following table presents additional information on the Company’s crypto assets of December 31,
2022:
The fair value of crypto assets is based on quoted market prices for one unit of each crypto asset at 11:59
pm UTC on the last day of the year multiplied by the quantity of each crypto asset.
5. CUSTOMER ASSETS AND LIABILITIES
The Company includes customer custodial funds and customer funds receivable with a corresponding
offset in customer funds payable in the accompanying balance sheet. Customer custodial funds do not
include approximately $279 million of customer funds, as of December 31, 2022, that were directly
custodied by Prime Trust under separate contractual arrangements between Prime Trust and the customer.
These funds are considered off-balance sheet arrangements.
As of December 31, 2022, the Company stored and custodied an aggregate U.S. Dollar value of
approximately $1.778 billion in crypto assets held in customer wallets on behalf of its customers, as offbalance sheet arrangements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833817 18
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
The following table presents customers’ cash and crypto positions as of December 31, 2022:
Customer custodial funds
Customer fiat assets (off-balance sheet)
Customer crypto assets (off-balance sheet)
$
146,995,183
278,790,229
1,778,308,784
2,204,094,196
3,007,427
$ 2,207,101,623
Customer funds receivable
Total customer assets
Customer funds liability
Customer fiat liability (off-balance sheet)
Customer crypto liability (off-balance sheet)
Total customer liabilities
$
150,002,610
278,790,229
1,778,308,784
$ 2,207,101,623
6. FAIR VALUE MEASUREMENTS
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at
fair value on a recurring basis as of December 31, 2022:
Level 1
USDC and BUSD
Level 2
$ 3,273,201 $ -
Level 3
$-
Fair Value
$ 3,273,201
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following as of December 31:
Loss recovery receivable (Note 9)
Income tax receivable
Prepaid expenses
$
$
2022
13,187,699
597,001
10,027,547
23,812,247
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of December 31:
Computer equipment
Accumulated depreciation
$
$
Confidential Treatment Requested by
BAM Trading Services Inc.
2022
1,543,895
(501,016)
1,042,879
BTS00833818 19
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
9. COMMITMENTS AND CONTINGENCIES
Customer crypto asset wallets
Under a Wallet Custody Agreement (Note 3), BHL had custody and control of customers' private keys, or
components to cryptographic signatures necessary to transfer associated customer crypto assets. For
security reasons, BHL used consolidated addresses to pool customer crypto assets but maintains separate
ledger entries to designate each customer's crypto asset balance. The Wallet Custody Agreement was
terminated as of December 1, 2022.
The Company stores and safeguards crypto assets for its platform customers in digital wallets and portions
of cryptographic key information necessary to access crypto assets on the Company’s platform. The
Company stores and safeguards these assets and/or key information and is obligated to safeguard them
from loss, theft, or other misuse. The Company may be liable to its customers for losses arising from theft
or loss of private keys. The Company has no reason to believe it will incur any expense associated with
such potential liability because (i) it has no known or historical experience of claims to use as a basis of
measurement, (ii) it accounts for and continually verifies the amount of crypto assets on its platform, (iii)
it has established security around private key management to minimize the risk of theft or loss, (iv) the
Company's commercial agreements and user agreements broadly disclaim the Company from liability
resulting from network failures or wallet service provider failures except in limited circumstances. The
Company has adopted a number of measures to safeguard crypto assets it secures including, but not limited
to, holding customer crypto assets on a 1:1 basis and strategically storing custodied assets offline using the
Company’s cold storage process. The Company also does not sell, lend, seize or rehypothecate customer
crypto assets nor grant security interests in customer crypto assets, in each case unless required by law
enforcement or agreed to by the customer. Any loss or theft would impact the measurement of the customer
crypto assets. During 2022, the Company identified unauthorized transactions related to a crypto token
and recorded a $4,178,489 loss, after considering probable loss recovery from customer assets seized by
the U.S. government, in operating expenses on the accompanying statement of operations for the year
ended December 31, 2022 as further discussed below under legal proceedings. No other significant losses
have been incurred in connection with customer crypto assets for the year ended December 31, 2022.
Leases
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 discount rate for the Company's operating lease was 1.54%. In February
2022, the Company early terminated this operating lease for a termination fee of $163,412 recorded in
operating expenses on the accompanying statement of operations.
The Company also leases office space under month-to-month and short-term lease arrangements of 12
months or less.
The components of lease costs were as follows for the year ended December 31:
Operating lease costs
Short-term lease costs
$
$
Confidential Treatment Requested by
BAM Trading Services Inc.
2022
57,768
937,636
995,404
BTS00833819 20
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Legal proceedings
The Company is subject to various legal proceedings and claims arising in the ordinary course of business.
As of December 31, 2022, the Company is a party to the following legal matters of potential material
consequences:
The Company is the plaintiff in claims related to customer assets seized by the U.S. government as a result
of identified unauthorized transactions under investigation related to a crypto token. As of December 31,
2022 and through the date of the issuance of the financial statements, the Company is waiting for the U.S.
government enforcement officials to complete the process of recovering and returning assets
misappropriated by certain individuals. Based on discussions with the U.S. government, the Company
believes that the assets seized are solely attributable to BAM Trading and collection of the claim for loss
recovery is probable. As such, the Company recorded a loss recovery receivable of $13,187,699 in prepaid
expenses and other current assets on the accompanying balance sheet as of December 31, 2022 as the
likelihood of such recovery is probable and recognized a $4,178,489 loss in operating expenses on the
accompanying statement of operations for the year ended December 31, 2022 for related amounts that are
not expected to be recovered. The Company expects to collect the loss recovery receivable amount in
2023.
The Company is in dispute over the contract terms of an indemnity deposit received related to a crypto
token. As of December 31, 2022 and through the date of the issuance of the financial statements, the
Company has not reached a settlement through mediation and is expecting to resolve the matter in
arbitration. The Company recorded a loss contingency of $17,330,368 as of December 31, 2022 in token
listing deposits - current and operating expenses on the accompanying balance sheet and statement of
operations, respectively. The Company has retained crypto assets in excess of the loss contingency in case
such assets are required to resolve the dispute.
The Company is a named defendant in a data privacy/collection putative class action under the Illinois
Biometric Information Privacy Act. The Company was named because it used Jumio Corporation’s
identity verification software during the onboarding process for Illinois users. If the plaintiffs prevail and
damages are awarded, the Company contends that Jumio Corporation is solely liable for any damages.
Jumio Corporation contends that it is entitled to indemnification from the Company. It is currently too
early in the litigation to accurately quantify the potential damages.
10. STOCKHOLDER’S EQUITY
The Company is authorized to issue up to 10,000,000 shares of common stock, with a par value of
$0.00001 per share. As of December 31, 2022, 7,500,000 shares of authorized common stock were issued
and outstanding to BAM Management.
BAM Trading operates as an MSB under money transmitter licenses and is subject to the oversight of, and
inspection by the statutes and regulatory bodies of the jurisdictions it operates in. Certain jurisdictions have
minimum capital adequacy requirements. As such, the Company received $132,000,000 from BAM
Management during the year ended December 31, 2022 in order to maintain minimum capital adequacy
requirements.
11. INCOME TAXES
The Company and BAM Management, together with other affiliated group members of BAM
Management, authorized and consented to be included in a consolidated income tax return for federal
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833820 21
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
(United States) income tax return reporting purposes; and, report combined corporate tax liability on a
single return. In addition, BAM Management and its wholly-owned subsidiaries, including BAM Trading,
are subject to unitary combined income/franchise tax reporting requirements in certain state jurisdictions.
BAM Trading may be required to file separate state corporation tax returns in jurisdictions that require
such separate filings, including those jurisdictions where the Company may be subject to market-based
sourcing rules or regulatory or state registration requirements.
Generally, the amount of current and deferred tax expense for an income tax return group that files a
consolidated income tax return is allocated among the members of that group when those members issue
separate financial statements. The Company elected to compute its federal state and local income tax
provisions as if it was a separate taxpayer by using a “separate return” method. Under this method, the
Company is assumed to file a separate return with the tax authority, thereby reporting its taxable income
or loss and paying the applicable tax to or receiving the appropriate refund from BAM Management. The
current provision is the amount of tax payable or refundable on the basis of a hypothetical, current-year
separate return. The Company provides deferred taxes on temporary differences and on any carryforwards
that it could claim on its hypothetical return and assess the need for a valuation allowance on the basis of
its projected separate return results. The sum of the amounts allocated to individual members of the income
tax return group may or may not equal the consolidated amount under this method.
The benefit from income taxes consisted of the following for the year ended December 31:
2022
Current:
Federal
State
Total current
Deferred
Federal
State
Total current
Total benefit from income taxes
Confidential Treatment Requested by
BAM Trading Services Inc.
$
$
(817,869)
196,528
(621,341)
$ (28,628,238)
(8,390,660)
$ (37,018,898)
$ (37,640,239)
BTS00833821 22
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
Significant components of the Company's deferred income tax assets and liabilities are as follows as of
December 31:
2022
Deferred tax assets:
Net operating losses
Unrealized loss/impairment on crypto assets
Other
Capital loss
Capitalized research and development expenses
Total deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities
Property and equipment
Total deferred tax liabilities
Total net deferred tax asset
$
11,398,983
7,493,174
4,893,541
8,283,633
3,373,196
35,442,527
(15,776,807)
19,665,720
(147,394)
(147,394)
$ (19,518,326)
The effective income tax rate differs from the statutory federal income tax rate as follows for the year
ended December 31:
Tax at federal statutory rate
State taxes, net of federal benefit
Other permanent items
Change in valuation allowance
2022
21.0 %
4.0
(0.6)
(7.2)
17.2 %
Management assesses all 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 the Company's
projections for future growth. On the basis of this evaluation, as of December 31, 2022, the Company
determined that it has federal and state net deferred tax assets of $19,518,326. The net deferred tax assets
as of December 31, 2022 are subject to a valuation allowance on the combined unrealized loss/impairment
on crypto assets and capital losses of $15,776,807 as it is more likely than not that those net deferred tax
assets will not be realized. The change in the valuation allowance was $15,776,807 for the year ended
December 31, 2022. However, should there be a change in the Company’s ability to recover its deferred
tax assets, it would recognize a benefit to its tax provision in the period in which it determines that it is
more likely than not that it will recover its deferred tax assets.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833822 23
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BAM Trading Services Inc.
Notes to the Financial Statements
December 31, 2022
As of December 31, 2022, the differences between income taxes expected at the U.S. federal statutory
income tax rate of 21.0% and the reported income tax expense are primarily related to state taxes, net of
federal benefit, stock compensation, various permanent items, and a valuation allowance from capital
losses.
The Company and its affiliates are computing their respective tax obligation on a stand-alone basis. The
Company, together with BAM Management and an affiliate company, files U.S. Corporation federal and
state income and franchise tax returns in jurisdictions with varying statutes of limitations. Currently these
statutes of limitations are open from 2018 forward for the U.S., and 2017 forward for California.
As of December 31, 2022, the Company had federal and state net operating losses of approximately
$44,622,000 and $32,630,000 on a standalone basis. The federal net operating loss carryforwards will
carry forward indefinitely and the state carryforwards, if not utilized, will start to expire in 2039. The
Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations.
The Company is not currently under audit.
12. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 10, 2023, the date the financial statements
were available to be issued, and is not aware of any material subsequent events that have not been disclosed
in the notes to the financial statements.
Confidential Treatment Requested by
BAM Trading Services Inc.
BTS00833823 24
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Exhibit C-5
Revenue, Gross Profit, and PJI Calculations February 2019 - April 2023
Year
2019
2020
2021
2022
2023
Total Feb 2019-Apr 2023
Total Revenue
$254,184
$11,002,835
$265,850,338
$95,585,671
$38,208,558
Gross Profit
$138,983
$5,352,417
$147,178,971
$51,112,209
$20,891,828
PJI
$21,397
$583,416
$11,236,377
$1,490,474
$124,206
$410,901,585
$224,674,408
$13,455,870
Notes:
2019 data is from February 4 through December 31.
2023 data is from January 1 through April 30.
PJI Calculations assume violation date for each year is December 31
Gray cells denote assumptions.
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