Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.46pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.03pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.95pp
Lean +
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Risk Factors (Item 1A)
11,838 words
Item 1A. Risk Factors
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
Our business, results of operations, and our financial condition may be further impacted by the outbreak of COVID-19 and such impact could be materially adverse.
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The extent to which the coronavirus pandemic impacts our business, operations, and financial results is uncertain and will depend on numerous evolving factors that we may not be able to accurately predict, including:
the duration and scope of the pandemic;
governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;
the actions taken in response to economic disruption;
the impact of business ;
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
the increase in business failures that we may utilize as industry partners and the customers we serve;
uncertainty as to the impact or staff availability during and post the pandemic; and
our ability to provide our services, including as a result of our employees or our customers and suppliers working remotely and/or closures of offices and facilities.
We have a history of operating losses and expect to incur significant additional operating losses in the future if we fail to execute our strategy.
We were incorporated on July 15, 2015 , and we have a limited operating history. We recognized no revenue during the years ended December 31, 2021 and 2020, and continue to incur operating losses. At December 31, 2021, we had $12,353 in cash. We had negative working capital as of December 31, 2021 of $10,960,574.
The amount of future losses and when, if ever, we will achieveprofitability are uncertain.
Our registered public accounting firm has expressed substantial doubt about the Company’s ability to continue as a going concern in their audit report.
We were incorporated on July 15, 2015 and we do not have a history of profitable operations. As a result, our registered public accounting firm in their audit report has expressed substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to generate profitable operations. Furthermore, we have incurred an accumulated deficit of $ 10,022,162 as of December 31, 2021.
We have contingent liabilities of an uncertain amount related to our ICO.
In conjunction with our ICO, we have contingent liabilities to purchasers who acquired BCOT Security Tokens from us and who properly make a claim to our Company. These claimants may be entitled to a refund in the amount of the consideration paid to us in exchange for the BCOT Security Tokens, plus interest, less the amount of any income received thereon. Even though the Claims Process has completed, the Claimants may still be legally entitled to seek the return of the full amount they received plus interest, subject to certain adjustments, making us potentially liable to the claimants for up to approximately $12 million.
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We could be subject to additional civil or criminalpenalties and sanctions if we violate the terms of settlements with the SEC.
In connection with our ICO, we entered into a settlement Order with the SEC. While we have already paid the $250,000 of the penalties imposed by the Order, it contains ongoing and continuing requirements that we refrain from violating the Securities Act. Any future violation of applicable securities laws by us could result in harsher sanctions and fines, which would have a material adverse effect on our ability to implement our business plans. The SEC Order requires, among other things, that we conduct the Claims Process in accordance with those requirements generally described elsewhere in this Registration Statement. In addition to requiring us to provide regular written updates regarding the Claims Process and a final certification, SEC staff can make reasonable requests from us for further evidence of compliance, and we are required to retain all records and communications relating to the ICO and the Claims Process for at least one year subsequent to the delivery of the certification to the SEC. Such requests for further information, record-keeping requirements and managing the Claims Process generally could divert management’s attention from implementing its business plans (including those aimed at increasing the utility, acceptance or value of the BCOT Security Tokens) and could require additional material expenditures by us to legal counsel or other advisors and service providers. A copy of the SEC Order can be found at https://www.sec.gov/litigation/admin/2019/33-10736.pdf.
We will need to secure financing in the future and our ability to secure future financing is uncertain.
We anticipate that we will continue to incur operating losses for the foreseeable future. We may also be required to pay additional fines or penalties or rescission offers in other jurisdictions, all of which could have a material adverse impact on our financial condition, results of operations and cash flows. As a result, we will require additional financing to fund for our current and anticipated operations and if we are not successful in securing additional financing, we may need to curtail our business operations.
We will require substantial additional capital during the next 12 months to continue to fund our current and anticipated operations, and we may seek such additional funding through public or private financings, collaborative arrangements, or other arrangements with third parties. Additionally, we received a waiver from the Division of Corporation Finance at the SEC of the disqualification provisions of Regulation D. As a result, we are permitted to use Regulation D as an exemption from registration in future offerings. We may need to seek additional waivers if we choose another offering exemption to raise money, such as Regulation A. The process involves a request for the waiver and the SEC providing that relief. We can provide no assurance that the SEC will provide us a waiver for other offering types.
Even after receiving the requisite waivers, we cannot assure you that additional funds will be available on acceptable terms, if at all. If additional funds are raised by us pursuant to another coin offering, the value of existing BCOT Security Tokens may decline materially. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more segments of our business operations or curtail our business operations in their entirety. If we obtain funds by entering into arrangements with collaborative partners or others, we may be required to relinquish rights to certain of our products, services or technologies that we would not otherwise relinquish.
We expect our business model to continue to evolve.
As digital asset and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. Thus, in order to stay current with the industry, our business model may need to evolve as well. From time to time, we may materially modify aspects of our business model relating to our product and service offerings. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business. Such circumstances would have a material adverse effect on our ability to continue as a going concern, which would harm our business, prospects or operations and potentially the value of BCOT Security Tokens.
We are in an early stage of development and we may not be able to develop our business as anticipated.
We were incorporated on July 15, 2015, and since inception we have generated a limited amount of revenue from licensing sales as well as professional services assisting corporate clients with our technology. Our business prospects are difficult to predict because of our limited operating history, early stage of development, and unproven business strategy. Although our management believes that our current business plan has significant potential, we may never attainprofitable operations and our management may not succeed in realizing our business objectives. If we are not able to execute our business plan as anticipated, we may not be able to achieveprofitability, and the BCOT Security Tokens may experience a material reduction in value.
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We may not successfully implement our business lines, which would adversely affect our operating results and the value of our BCOT Security Tokens.
All of our past revenue was derived from licensing sales, as well as professional services assisting corporate clients with our technology. The BCOT Security Tokens is the utility token that powers functionality in Catenis Enterprise, a Blockchain of Things, Inc. product, which is both a new and unproven business line, and it is uncertain whether this business line will ever be successfully implemented and result in significant revenue for us. If we cannot successfully implement our new business lines as anticipated, our operating results will be adversely affected and the BCOT Security Tokens may experience a material reduction in value.
We are subject to the risks frequently experienced by early-stage companies .
The likelihood of our success must be considered in light of the risks frequently encountered by early-stage companies, especially those formed to develop and market new technologies. These risks include our potential inability to:
Establish product sales and marketing capabilities;
Establish and maintain markets for our services products;
Identify, attract, retain and motivate qualified personnel;
Continue to develop and upgrade our technologies to keep pace with changes in technology and the growth of markets using digital asset and blockchain technologies;
Develop outside contractor relationships;
Maintain our reputation and build trust with customers;
Scale up from small initial operations to larger scale operations on a consistent basis;
Contract for or develop the internal skills needed to master larger operational scales; and
Sufficiently fund the capital expenditures required to scale up from small initial operations to larger operations.
If we fail to effectively manage our growth our business could suffer .
We anticipate that a period of significant expansion will be required to achieve the objectives set forth in our current business plan. This expansion will place a significant strain on our management, operational and financial resources. To manage the expected growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures and controls, and we must continue to establish qualified finance, administrative and operations staff. As a reporting company, our company and our management will have to implement internal controls to comply with government-mandated regulations. Our management may be unable to hire, train, retain, motivate and manage the necessary personnel or to identify, manage and exploit potential strategic relationships and market opportunities. Our failure to manage growth effectively could have a material and adverse effect on our business, results of operations and financial condition, including the value of the BCOT Security Tokens.
Our plan to develop relationships with strategic partners may not be successful.
Part of our business strategy is to maintain and develop strategic relationships with various third parties, such as companies in the retail, telecom, transportation, power and utilities, entertainment, and online/digital sectors. For these efforts to be successful, we must successfully enter into agreements with these third parties on terms that are attractive to us and integrate and coordinate their resources and capabilities with our own. We may be unsuccessful in entering into agreements with acceptable partners or negotiating favorable terms in these agreements. Also, we may be unsuccessful in integrating the resources or capabilities of these partners. If we are unsuccessful in our collaborative efforts, our ability to develop and market our products and services could be severely limited.
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Our quarter-to-quarter performance may vary substantially, and this variance, as well as general market conditions, may cause the value of the BCOT Security Tokens to vary greatly and even potentially expose us to litigation.
We cannot accurately estimate future quarterly revenue and operating expenses based on historical performance. Our quarterly operating results may vary significantly based on many factors, including:
Fluctuating demand for our potential products;
Announcements or implementation by our competitors of new products;
Amount and timing of our costs related to our marketing efforts or other initiatives;
Timing and amounts relating to the expansion of our operations;
Our ability to enter into, renegotiate or renew key agreements;
Timing and amounts relating to the expansion of our operations;
Developing regulations relating to digital assets and blockchain technology; or
Economic conditions specific to our industry, as well as general economic conditions
Pandemic Economic Recovery
Our current and future expense estimates are based, in large part, on estimates of future revenue, which is difficult to predict. We expect to make significant operating and capital expenditures in connection with the development of our plan of business. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If our increased expenses were not accompanied by increased revenue in the same quarter, our quarterly operating results would be harmed. Additionally, unexpected costs associated with the Claims Process may have a material negative impact on our financial performance and negatively affect the utility, acceptance and value of the BCOT Security Tokens.
Since there has been limited precedents set for financial accounting of Bitcoin, Ether, and other cryptocurrencies, it is unclear how we will be required to account for our BCOT Security Tokens transactions in the future.
Since there has been limited precedence set for the financial accounting of cryptocurrencies, the way that we will be required to account for BCOT Security Tokens transactions may change drastically in the future. Furthermore, a change in regulatory or financial accounting standards could result in the necessity to restate our financial statements. Such a restatement could negatively impact our financial condition and results of operation. Such circumstances could have a material adverse effect on our plan of business and the value of BCOT Security Tokens.
If we cannot keep pace with rapid technological developments to provide new and innovative products and services and address the rapidly evolving market for transactions on mobile devices, the use of our products and services and, consequently, our revenues could decline.
Rapid, significant, and disruptive technological changes continue to impact the industries in which we operate, including with respect to e-commerce through social networks, authentication, virtual currencies, distributed ledger or blockchain technologies, near field communication, and other proximity or contactless payment methods, virtual reality, machine learning, and artificial intelligence. For instance, we expect our customers will be using mobile devices for their transactions and payments. We may lose customers if we are not able to continue to meet our customers’ blockchain integration experience expectations.
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We cannot predict the effects of technological changes on our business. We expect that new services and technologies applicable to our industry will continue to emerge and may be superior to, or render obsolete, the technologies we currently use or are developing in our products and services. Developing and incorporating new technologies into our products and services may require substantial expenditures, take considerable time, and ultimately may not be successful. In addition, our ability to adopt new products and services and develop new technologies may be inhibited by industry-wide standards, payment networks, changes to laws and regulations, resistance to change from consumers or merchants, third-party intellectual property rights, or other factors beyond management’s control. Our success will depend on our ability to develop and incorporate new technologies, address the challenges posed by the rapidly evolving market for blockchain integration through our platforms and adapt to technological changes and evolving industry standards. If we are unable to do so in a timely or cost-effective manner, our business and any future value of BCOT Security Tokens could be harmed.
Our ability to further develop our business depends on our ability to build a strong and trusted brand.
We cannot assure you that we will be able to successfully build our reputation or brand. Building, maintaining, protecting and enhancing our reputation brand are critical to expanding our customer base, as well as increasing strategic partnerships and developing new products. Harm to our brand can arise from many sources, including failure by us or our partners to satisfy expectations of service and quality; inadequate protection of sensitive information; compliance failures and claims; litigation and other claims; employee misconduct; and misconduct by our partners, service providers or other counterparties. Our brand may already have experienced damage as a result of our settlement with the SEC relating to the ICO (Initial Coin Offering) and could experience additional harm depending on the results of the Claims Process. If we do not successfully maintain a strong and trusted brand, our business could be harmed, which could adversely affect the utility, acceptance or value of the BCOT Security Tokens.
Customer complaints or negative publicity about our customer service could reduce usage of our products and, as a result, our business could suffer.
Our ability to successfully address customer complaints or negative publicity about us could severelydiminish consumer confidence in and use of our products and services. Breaches of our customers’ privacy and our security measures could have the same effect. We expect to take certain measures to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the need for prompt and accurate customer service to resolveirregularities. Effective customer service requires significant expenses, which, if not managed properly, could impact our profitability significantly. Any inability by us to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer, and we may lose our customers’ confidence.
Failure to attract customers, customer attrition or a decline in our customers’ growth rate could adversely affect our revenues.
As we expand our services, we will need customers to join our platform. We may not be able to get customers to join, or if we do, we may experience customer attrition resulting from several factors, including transfers of customer accounts to our competitors, and account closures that we may initiate due to heightened credit risks relating to contract breaches by customers. We cannot predict the level of acceptance or attrition in the future and our revenues could decline as a result of higher-than-expected attrition, which could have a material adverse effect on our business, financial condition, results of operations, or the value of the BCOT Security Tokens.
Any acquisitions, partnerships or joint ventures that we make or enter into could disrupt our business and harm our financial condition.
Acquisitions, partnerships and joint ventures are part of our growth strategy. We evaluate, and expect in the future to evaluate, potential acquisitions of, and partnerships or joint ventures with, complementary businesses, services or technologies. We may not be successful in identifying acquisition, partnership, and joint venture targets. In addition, we may not be able to successfully finance or integrate any businesses, services, or technologies that we acquire or with which we form a partnership or joint venture, and we may lose merchants and customers as a result of any acquisition, partnership, or joint venture. Furthermore, the integration of any acquisition, partnership, or joint venture may divert management’s time and resources from our core business and disrupt our operations. We may spend time and money on projects that do not increase our revenue or impinge on our current business plans aimed at promoting the utility and acceptance of the BCOT Security Tokens.
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We rely on third parties in many aspects of our business, which creates additional risk.
We rely on third parties in many aspects of our business, including:
Networks, banks, payment processors, and payment gateways that link us to the payment card and bank clearing networks to process transactions;
Third parties that provide certain outsourced customer support and product development functions, which are critical to our operations; and
Third parties that provide facilities, infrastructure, components and services, including data center facilities and cloud computing.
The third parties that we rely on to process transactions may fail or refuse to process transactions adequately. Any of the third parties we use may breach their agreements with us, refuse to renew these agreements on commercially reasonable terms, take actions that degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competing services. Financial or regulatory issues, labor issues, or other problems that prevent these third parties from providing services to us or our customers could harm our business. If our service providers do not perform satisfactorily, our operations could be disrupted, which could result in customer dissatisfaction, damage our reputation, harm our business or reduce the value of the BCOT Security Tokens.
We are dependent upon our key executives for future success and our failure to retain and attract qualified personnel could harm our business.
Our Company depends greatly on our Chief Executive Officer, Andre De Castro, and our CFO and VP of Operations, Deborah de Castro. Our success will depend, in part, upon our ability to attract and retain additional skilled personnel, which will require substantial additional funds. We cannot assure you that we will be able to find, attract and retain additional qualified employees, directors, and advisors having the skills necessary to operate, develop and grow our business. Our inability to hire qualified personnel, the loss of services of Mr. De Castro or Mrs. de Castro, or the loss of services of other executive officers, key employees, or advisors that may be hired in the future, may have a material and adverse effect on our business. We currently do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other officers or employees.
In the future, we could experience difficulties attracting and retaining qualified employees. Competition for qualified personnel in our industry is intense. We may need to hire additional personnel as we expand our development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms or at all.
Furthermore, we have limited resources and as such we may not able to provide an employee with the same amount of compensation that he or she would likely receive at a larger company and as a result we may face difficulty in finding qualified employees. Additionally, we can only afford a limited amount of director and officers’ insurance coverage, making it more likely that we would be unable to attract or retain experienced business executives. The inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our planned activities, could have a materially adverse effect on our ability to conduct our business and as such can impair our operations.
Our Company may receive, store, process and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy. Our Company’s actual or perceived failure to comply with such obligations could harm its business.
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We may receive, store, process and use personal information and other user data, including credit card information for certain users. There are numerous federal, state and local laws in regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and we are subject to the terms of our privacy policies and privacy-related obligations to third parties. It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or practices. Any failure or perceived failure by us to comply with our privacy policies, its privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or negative publicity and could cause users and advertisers to lose trust in our company, which could have an adverse effect on our business or any acceptance of BCOT Security Tokens. Additionally, if third parties with whom we work, such as advertisers, vendors or developers, violate applicable laws or our policies, such violations may also put our users’ information at risk and could have an adverse effect on our ability to implement our business plans to promote the utility and acceptance of the BCOT Security Tokens.
Current and future litigation could adversely affect our Company.
We are currently involved in a lawsuit in New York titled Rahul Manchanda v. Blockchain of Things, Inc. The Plaintiff, Rahul Manchanda, has allegedclaims for breach of contract, the covenant of good faith and fair dealing, and requested an accounting from BCoT. We may become involved in other legal proceedings in our ordinary course of business. Additionally, the Securities Act does not expressly provide that the Claims Process will terminate a purchaser's right to rescind a sale of stock that was not registered or exempt from the registration requirements of the Securities Act. As a result, even if we abide by all terms of the SEC Settlement Agreement Order related to the offer and sale of our BCOT Security Tokens, which we have not done to date, we may nevertheless continue to have potential liability even after this Claims Process is complete due to our previous issuance of BCOT Security Tokens in violation of the federal and state securities laws. Lawsuits and other legal proceedings can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. As a smaller company, the collective costs of litigation proceedings can represent a drain on our cash resources, as well as an inordinate amount of management’s time and attention. Moreover, an adverse ruling in respect of certain litigation could have a material adverse effect on our results of operation and financial condition, which could have a material adverse effect on the utility, acceptance or value of the BCOT Security Tokens.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
We are subject to income taxes in the United States and other foreign jurisdictions. Our effective income tax rate could be adversely affected in the future by a number of factors, including: changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws (including changes to the tax treatment of digital assets). We intend to regularly assess all of these matters to determine the adequacy of our tax provision, but changes in applicable tax regulations or unanticipated tax-related liabilities and costs could have a material adverse effect on our ability to implement our business plans with a corresponding negative impact on the utility, acceptance or value of the BCOT Security Tokens.
We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to SaaS products or digital assets in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus vary significantly and are complex. As such, we could face possible tax assessments and audits or increased costs associated with compliance. A successful assertion, by any of these taxing authorities, that we should be collecting additional sales, use, value added or other taxes in jurisdictions where we have not historically done so and do not accrue for such taxes could result in tax liabilities and related penalties for past sales, discourage customers from purchasing our products or otherwise harm our business and operating results or the value of the BCOT Security Tokens.
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Currency exchange rate fluctuations may disrupt our business and make our products less competitive, having a material adverse impact on our business.
We expect a substantial amount of our future revenue to arise from foreign net sales. This is due to the majority of BCOT Security Tokens and license sales occurring outside of the United States during the token’s presale phase. Blockchain of Things, Inc. had approximately 1,384 BCOT Security Tokens buyers and 378 individuals who purchased and are entitled to use the Catenis Product on an annual license. Products and services sold by our Company and the cost of these products may be affected by relative changes in the value of the local currencies of our subsidiaries. Price increases caused by currency exchange rate fluctuations may make our products and services less competitive or have an adverse effect on our net revenues, margins and operating results. As a result, currency fluctuations may have a material adverse effect on our financial condition.
Our management team has limited experience managing a reporting company, and regulatory compliance may divert its attention from the day-to-day management of our business.
The individuals who now constitute our management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to reporting companies. Our management team may not successfully or efficiently manage a reporting company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business.
Because we do not have nomination and corporate governance, audit or compensation committees, you will have to rely on the board of directors to perform these functions.
Our Company does not have a nomination and corporate governance, audit or compensation committee and these functions are performed by the board of directors as a whole. Thus, there is a potential conflict in that the board member who is also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions. These decisions may not be in your best interests.
Our Company has limited the liability of its board of directors and management.
Our Articles of Incorporation limit the liability of our directors generally provides that directors shall have no personal liability to us or its stockholders (which likely would include BCOT Security Tokens holders) for monetary damages for breaches of their fiduciary duties as directors, except pursuant to applicable Delaware law. Our bylaws provide for indemnification by us of our officers and directors to the fullest extent permitted by Delaware corporate law. Such provisions substantially limit BCOT Security Tokens holders’ ability to hold directors liable for breaches of fiduciary duty. Additionally, it is unclear if an issuer of digital tokens would owe any fiduciary obligations to its token holders.
We will incur increased costs as a result of operating as a reporting company, and our management will be required to devote substantial time to new compliance initiatives.
We will incur certain costs of compliance with applicable SEC reporting rules and regulations including, but not limited to attorneys’ fees, accounting and auditing fees, other professional fees and Sarbanes-Oxley Act of 2002 (“ SOX ”) compliance costs. However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, our Company intends to take advantage of certain exemptions from various reporting requirements that are applicable to other reporting companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of SOX, reduced disclosure obligations regarding executive compensation in our Company’s periodic reports and other SEC filings, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an “emerging growth company.”
We will remain an “emerging growth company” for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 31. After, and if ever, the Company is no longer an “emerging growth company,” it expects to incur significant additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not “emerging growth companies,” including Section 404 of SOX.
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Our internal controls over financial reporting may not be effective and its independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on the Company’s business and reputation.
Pursuant to Section 404 of SOX, the Company will be required to furnish a report by its management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. To achieve compliance with Section 404 of SOX within the prescribed period, we will be engaged in a process to document and evaluate its internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and counsel and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that it will be able to conclude within the prescribed timeframe that its internal control over financial reporting is effective as required by Section 404 of SOX. As a result, BCOT Security Tokens could decline in value due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving its internal control system and the hiring of additional personnel. Any such action could negatively affect the Company’s results of operations and cash flows.
Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected, including our ability to promote the utility and acceptance of the BCOT Security Tokens.
RISKS RELATED TO OUR INFORMATION TECHNOLOGY
Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.
Our success and ability to process transactions and provide high quality customer service depend on the efficient and uninterrupted operation of our computer server and information technology systems. The failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy, or breach in security may cause interruptions in the availability of our platform, functionality of the BCOT Security Tokens wallet, delays in product fulfillment, and reduced efficiency of our operations as well as reputational harm. Any failures, problems, or security breaches may mean that fewer customers are willing to use and purchase the services and products we offer. Factors that could occur and significantly disrupt our operations include: system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failuresabotage, terrorist attacks and similar events, software errors, computer viruses, physical or electronic break-ins, and breaches of our customers’ personal information such as credit card numbers, passwords, or other personal information. Also, if too many customers attempt to use the Catenis platform within a short period of time due to any reason, we may experience system interruptions that make our services unavailable or prevent us from efficiently completing webservices transactions, which will harm our reputation and adversely affect our operations.
Any disruptions or service interruptions that affect our existing and planned platform could damage our reputation, require us to spend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. Any of the above disruptions could harm our results of operations or the utility, acceptance or value of the BCOT Security Tokens.
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Unauthorized disclosure, destruction or modification of data, through cybersecurity breaches, computer viruses or otherwise or disruption of our services could expose us to liability, protracted and costlylitigation and damage our reputation.
Our business involves the collection, storage, processing, and transmission of customers’ personal data, including names, addresses, identification numbers, credit or debit card numbers, expiration dates, and bank account numbers. An increasing number of organizations, including large merchants and businesses, other large technology companies, financial institutions and government institutions, have disclosedbreaches of their information technology systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure. We could also be subject to breaches of security by hackers. Threats may occur by human error, fraud, or malice on the part of employees or third parties, or may result from accidental technological failure. Concerns about security are increased when we transmit information. Electronic transmissions can be subject to attack, interception or loss. Also, computer viruses and malware can be distributed and spread rapidly over the internet and could infiltrate our systems or those of our associated participants, which can impact the confidentiality, integrity and availability of information, and the integrity and availability of our products, services and systems, among other effects. Denial of service or other attacks could be launched against us for a variety of purposes, including interfering with our services or creating a diversion for other malicious activities. These types of actions and attacks could disrupt our delivery of products and services or make them unavailable, which could damage our reputation, force us to incur significant expenses in remediating the resulting impacts, expose us to uninsured liability, subject us to lawsuits, fines or sanctions, distract our management, or increase our costs of doing business and thereby reduce the value of the BCOT Security Tokens.
As part of our business operations, we share information with third parties, including commercial partners, third-party service providers and other agents, who collect, process, store, and transmit sensitive data. Given the rules established by the payment scheme settlors, and applicable regulations, we may be held responsible for any failure or cybersecurity breaches attributed to these third parties insofar as they relate to the information, we share with them. The loss, destruction, or unauthorized modification of data of the end users of payment services (e.g., payers, receivers, cardholders, merchants, and those who may hold funds and balance in their accounts) by us or our third-party service providers and other agents or through systems we provide could result in significant fines, sanctions, and proceedings or actions against us by the payment systems, governmental bodies or third parties, which could have a material adverse effect on our business, financial condition, and results of operations. Any such proceeding or action, and any related indemnification obligation, could damage our reputation, force us to incur significant expenses in defense of these proceedings, distract our management, increase our costs of doing business, or result in the imposition of financial liability.
Our encryption of data and other protective measures may not prevent unauthorized access or use of sensitive data. A breach of our system or that of one of our associated participants may subject us to material losses or liability, including payment scheme fines, assessments and claims for unauthorized purchases with misappropriated credit, debit or card information, impersonation, or other similar fraudclaims. A misuse of such data or a cybersecurity breach could harm our reputation and deter merchants from using electronic payments generally and our products and services specifically, thus reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, result in the imposition of material penalties and fines under state and federal laws or regulations or by the payment systems.
We cannot assure that there are written agreements in place with every associated participant or that such written agreements will prevent the unauthorized use, modification, destruction or disclosure of data or enable us to obtain reimbursement from associated participants in the event we should sufferincidents resulting in unauthorized use, modification, destruction or disclosure of data. In addition, many of our associated participants are small- and medium-sized agents that have limited competency regarding data security and handling requirements and may thus experience data losses. Any unauthorized use, modification, destruction or disclosure of data could result in protracted and costlylitigation, which could have a material adverse effect on our business, financial condition, results of operations and the value of the BCOT Security Tokens.
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Cybersecurity incidents are increasing in frequency and evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information technology disruptions, there can be no assurance that the procedures and controls we employ will be sufficient to prevent security breaches from occurring and we could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our business, financial condition, results of operations and the value of the BCOT Security Tokens.
Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could harm our business and standing with our customers.
We collect, store, process, and use certain personal information and other user data in our business operations. A significant risk associated with payment processing, e-commerce and communications is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may harm our business and results of operations. We must ensure that all processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. The protection of our customer, employee and our data are critical to us. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential customer information, such as credit card and other personal information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or our vendors, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. Our security measures may fail to prevent security breaches, which could harm our business.
We have business systems that do not have full redundancy.
While much of our processing infrastructure is located in multiple, redundant data centers, we have some core business systems that are located in only one facility and do not have redundancy. An adverse event, such as damage or interruption from natural disasters, power or telecommunications failures, cybersecurity breaches, criminal acts and similar events, with respect to such systems or the facilities in which they are located could impact our ability to conduct business and perform critical functions, which could negatively impact our financial condition and results of operations.
Administration and accounting functions of the business mostly rely on both the CEO and CFO who manage and maintain the company’s records on computers along with backup drives. These administrative functions are located in a single facility without any external redundancy beyond those locations. Additionally, being a smaller company much of the intellectual knowledge of running the company’s everyday tasks is concentrated with both of these individuals. If one of these individuals suffered from a health risk or death it could significantly impact the ability of the company to remain viable.
We have only a limited ability to protect our intellectual property rights, which are important to our success.
The Blockchain of Things and BCOT Security Tokens brands are critically important to our business. The protection of our intellectual property, including our trademarks, any future patents, copyrights, domain names, trade dress, and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality agreements with parties with whom we conduct business.
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The contractual provisions that we enter into with employees, consultants, vendors, and customers may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, services and intellectual property is difficult, expensive and time consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States, and where mechanisms for enforcement of intellectual property rights may be weak. We may be unable to determine the extent of any unauthorized use or infringement of the Blockchain of Things or BCOT Security Tokens brands, our technologies or our intellectual property rights. Any failure to protect or enforce our intellectual property rights adequately, or significant costs incurred in doing so, could materially harm our business.
As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringementclaims, including patent, copyright, and trademark infringementclaims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costlylitigation, divert management’s time and attention from our business, require us to stop selling, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may materially harm our business or affect the utility, acceptance or value of the BCOT Security Tokens.
A loss of confidence in our security system, or a breach of our security system, may adversely affect us and the value of our BCOT Security Tokens.
We plan to take measures to protect us and BCOT Security Tokens and other cryptocurrency assets owned or held by us from unauthorized access, damage or theft. However, regulations and commercial best practices for the storage and safeguarding of digital assets are ill-defined. Therefore, it is possible that our security measures or digital asset custody procedures may not prevent the improper access to, or damage or theft of BCOT Security Tokens and other cryptocurrency assets held by us. A security breach could harm our reputation or result in the loss of some or all of the BCOT Security Tokens and other cryptocurrency assets owned by us. A resulting perception that our measures do not adequately protect our cryptocurrency assets could adversely affect us and the value of BCOT Security Tokens generally .
GENERAL RISKS RELATED TO OWNING BCOT SECURITY TOKENS
The prices of cryptocurrencies are extremely volatile.
Fluctuations in the price of cryptocurrencies could subject BCOT Security Tokens to significant price volatility. The price of cryptocurrencies, including BCOT Security Tokens, is affected by many factors beyond our control including global supply and demand, the expected future price, inflation expectations, interest rates, currency exchange rates, fiat currency withdrawal and deposit policies at virtual token exchanges, interruptions in service or failures of such exchanges, investment and trading activities of large holders of cryptocurrencies, government monetary policies, regulatory measures that restrict the use of cryptocurrencies and global political, economic or financial events. In addition, a decrease in the price of one cryptocurrency may cause volatility in the entire cryptocurrency industry, including the BCOT Security Tokens. For example, a security breach that affects investor or user confidence in Bitcoin may affect the industry as a whole and may also cause the price of BCOT Security Tokens and cryptocurrencies to fluctuate dramatically.
The regulatory regime governing cryptocurrencies is still developing, and regulatory changes or actions may alter the nature of an investment in BCOT Security Tokens or restrict the use of BCOT Security Tokens in a manner that adversely affects holders and our business plans.
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The regulation of cryptocurrencies and cryptocurrency exchanges are currently under-developed and likely to rapidly evolve and vary significantly among U.S. and non-U.S. jurisdictions, and are subject to significant uncertainty. As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies, with certain governments deeming them illegal while others have allowed their use and trade. Various legislative and executive bodies in the United States, and other countries, are, or are considering, enacting laws, regulations, guidance, or other actions, which could adversely impact us and the value of BCOT Security Tokens. Our failure to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including criminal and civil penalties and finesagainst us. The variation among applicable laws and regulations across multiple jurisdictions may result in materially different consequences to holders of BCOT Security Tokens based upon their respective country of residence. New or changing laws and regulations or interpretations of existing laws and regulations (whether in the U.S. or elsewhere) could have material adverse consequences to you and us, including, but not limited to: our ability to issue BCOT Security Tokens and utilize BCOT Security Tokens as part of our business plan, the transferability of BCOT Security Tokens, the value of BCOT Security Tokens, the liquidity and market price of BCOT Security Tokens, and your ability to access marketplaces that trade BCOT Security Tokens.
The development and acceptance of transactions in cryptocurrencies are subject to a variety of factors that are difficult to evaluate.
The use of cryptocurrencies to buy and sell goods and services and complete transactions is part of a new and rapidly evolving industry, and the continued growth of this industry and the use of cryptocurrencies is subject to a high degree of uncertainty. The slowing or stopping of the development or acceptance of cryptocurrencies could have a material adverse effect on our plan of business, and we cannot assure you this will not occur. Factors that could affect the expansion or contraction of the use of cryptocurrencies and our related business plans, but are not limited to:
Continued worldwide growth in the adoption and use of cryptocurrencies;
Governmental and quasi-governmental regulation of cryptocurrencies and their use, or restrictions on or regulation of access to and operation of cryptocurrency systems;
The maintenance and development of the open-source software protocol on which many cryptocurrencies are dependent;
The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
General economic conditions and the regulatory environment relating to cryptocurrencies (whether in the U.S. or elsewhere); and
Negative consumer sentiment and perception of cryptocurrencies in general.
We cannot predict with certainty any outcome regarding use of cryptocurrencies, and any of the above factors may have a material adverse effect on our business and the price of BCOT Security Tokens.
BCOT Security Tokens might be used for illegal or improper purposes, which could expose us to additional liability and harm our business.
BCOT Security Tokens may be susceptible to potentially illegal or improper uses as criminals are using increasingly sophisticated methods to engage in illegal activities involving internet services, such as money laundering, terrorist financing, drug trafficking, other online misconduct. BCOT Security Token holders may also encourage, promote, facilitate, or instruct others to engage in illegal activities or improper conduct. Despite measures we intend to take to detect and lessen the risk of this kind of conduct, we cannot assure you that these measures will stop all illegal or improper uses of BCOT Security Tokens. Our or the value of BCOT Security Tokens business could be harmed if customers use our platform for illegal or improper purposes.
Incorrect or fraudulent BCOT Security Token transactions may be irreversible.
BCOT Security Token transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. In theory, BCOT Security Token and other cryptocurrency transactions may be reversible with the control or consent of a majority of processing power on the network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of a BCOT Security Token or other cryptocurrency or the theft of a BCOT Security Token or other cryptocurrency generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, BCOT Security Tokens could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Such events on a large enough scale would have a material adverse effect on our operations and the value of BCOT Security Tokens.
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BCOT Security Tokens may be subject to loss, damage, theft or restriction on access, which could decrease the value of BCOT Security Tokens.
A private key, or a combination of private keys, will be necessary to control the BCOT Security Tokens stored in a digital wallet. Accordingly, any loss of the requisite private keys will result in loss of the BCOT Security Tokens, and they likely would not be recoverable. Moreover, any third party that gains access to such private keys, including by gaining access to login credentials of a hosted wallet service, could steal the BCOT Security Tokens. Any errors or malfunctions caused by or otherwise related to your digital wallet to receive and store BCOT Security Tokens, including failure to properly maintain or secure such digital wallet, may also result in your complete loss of BCOT Security Tokens. If you lose access to your BCOT Security Tokens, you could suffer a complete loss and would have no rights to seek any recovery from us.
If part or all of the BCOT Security Tokens are lost, stolen or destroyed under circumstances rendering a party liable to us, the responsible party may not have the financial resources sufficient to satisfy our claim. For example, as to a particular event of loss, the only source of recovery for us might be the responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim of our company. Furthermore, we are not aware of any U.S. or foreign governmental, regulatory, investigative, or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen cryptocurrencies. Consequently, we may be unable to replace missing BCOT Security Tokens or seek reimbursement for any erroneous transfer or theft of BCOT Security Tokens. To the extent that we are unable to seek redress for such action, error or theft, such loss could decrease the value of BCOT Security Tokens.
The BCOT Security Tokens are subject to risks of uninsuredlosses.
Unlike bank accounts or accounts at some other financial institutions, BCOT Security Tokens are uninsured unless you specifically obtain private insurance to insure them. Thus, in the event of loss or loss of utility value, there is no public insurer, such as the Federal Deposit Insurance Corporation, or private insurance arranged by us, to offer recourse to you.
Trading or holding BCOT Security Tokens could expose you to various cyber security risks.
Trading platforms and third-party service providers may be vulnerable to hacking or other malicious activity. As with any computer code generally, flaws in cryptocurrency codes, such as BCOT Security Tokens, may be exposed to such negative activities. Several errors and defects have been found previously, including those that disabled some functionality for users of cryptocurrency trading platforms and exposed such users’ personal information. Flaws in and exploitations of the source code allowing malicious actors to take or create money have previously occurred. While we have taken steps to protect BCOT Security Tokens from hacks and have actively engaged in the development of the backup systems for BCOT Security Tokens, we are not immune to changes that effect the entire blockchain ecosystem or industry. Such changes as being subject to a hacking event could adversely affect us in unpredictable ways, including adversely affecting the utility, acceptance and value of the BCOT Security Tokens.
Neither you, as a holder of BCOT Security Tokens, nor our Company, will have control over the Bitcoin blockchain framework.
BCOT Security Tokens are comprised of technologies that depend on the Bitcoin blockchain protocol to run certain software programs to process transactions. Because of this decentralized model, we and holders of BCOT Security Tokens have limited or no control over the Bitcoin network, which has its independent and separate governance protocols and rules. Changes to the protocol governing the Bitcoin network or its declining use or acceptance may have a material adverse effect on the utility, acceptance and value of BCOT Security Tokens.
The open-source structure of portions of the Bitcoin blockchain protocol means that our network may be susceptible to developments by users or contributors who could damage our network and our reputation and could affect the utilization of the network and the BCOT Security Tokens.
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Our network operates based on the Bitcoin blockchain protocol, portions of which are open-source. Our network will not be represented, maintained or monitored by an official organization or authority. The open-source nature of portions of the Bitcoin protocol means that it may be difficult for our company or contributors to maintain or develop our network, and we may not have adequate resources to address emerging issues or malicious programs that develop within the network adequately or in a timely manner. Third parties not affiliated with our company may introduce weaknesses or bugs into the core infrastructure elements of the network and open-source code which may negatively impact the network. Such events may result in a loss of trust in the security and operation of our network and a decline in user activity and could negatively impact the market price of the BCOT Security Tokens. Additionally, because the protocol and other portions of our network’s technology is open-source, anyone can copy and disseminate the source code either in the same form or with modifications as a “fork.”
The tax treatment of BCOT Security Tokens is uncertain, and developments in tax laws could impact the tax treatment of BCOT Security Tokens .
The tax characterization of BCOT Security Tokens is uncertain, and you must seek your own tax advice in connection with your purchase, holding, use, sale or exchange of BCOT Security Tokens or the consequences of participating in the Claims Process. You should consult with and must rely upon the advice of your own professional tax advisors with respect to the United States and non-U.S. tax treatment of your purchase, holding, use, sale or exchange of BCOT Security Tokens. Transactions involving digital currencies or tokens, are relatively new. It is possible that the Internal Revenue Service (“IRS”) may challenge Company’s intended treatment of the BCOT Security Tokens, and that the tax consequences of purchasing or holding BCOT Security Tokens could differ materially from those anticipated by our Company. We are providing no assurances or representations of any kind regarding any potential tax consequences related to purchasing, holding, using, selling or exchanging BCOT Security Tokens. Federal or state legislation may be enacted, or guidance may be issued, by the IRS (or other governmental authorities), possibly with retroactive effect, impacting your tax obligations with respect to the BCOT Security Tokens. Future changes in the tax laws (or future administrative or judicial interpretations) could materially and negatively impact your tax treatment with respect to the BCOT Security Tokens . We make no representation or warranty as to the applicability of any particular tax regime to the BCOT Security Tokens, to the timing of any taxable event with respect to the BCOT Security Tokens or to the method of calculation of any such taxes.
SPECIFIC RISKS RELATED TO OWNING BCOT SECURITY TOKENS
The BCOT Security Tokens have negligible utility.
Today beyond the use of the token to purchase a Catenis license and Catenis credits the tokens can also be used in peer-to-peer transferring amongst owners of the tokens and potential buyers. Aside from these utilities, the BCOT Security Tokens have negligible utility. For additional information please see the section titled: “Description of Registrant’s Securities to be Registered.
Holders of BCOT Security Tokens do not have rights as stockholders of our Company
BCOT Security Tokens are not capital stock, and do not currently provide holders with any type of (i) dividend rights; (ii) equity or debt conversion; (iii) sinking fund provisions; (iv) redemption provisions; (v) voting rights (vi) liquidation rights; or (vii) preemption rights, that are typically conferred upon the holders of capital stock. See “Description of Registrant’s Securities to be Registered.”
BCOT Security Tokens are subject to transfer restrictions .
BCOT Security Tokens are subject to restrictions on their transfer, including restrictions imposed by the Securities Act or similar state securities laws, therefore, they cannot be sold unless they are subsequently registered under the Securities Act and other applicable securities laws or an exemption from registration is available. If we determine to register your BCOT Security Tokens under the Securities Act, significant delays in the transferability of BCOT Security Tokens could occur, and we likely would incur additional material expenses. Also, if we issue additional BCOT Security Tokens under our reward program, we would be required to comply with an exemption from registration under the Securities Act, which contains a number of transfer and other restrictions that will be imposed on the BCOT Security Tokens. Any restrictions on BCOT Security Tokens, regardless of form, could have an adverse effect on our ability to issue BCOT Security Tokens and utilize BCOT Security Tokens as part of our business plan, the transferability of BCOT Security Tokens, the value of BCOT Security Tokens, the liquidity and market price of BCOT Security Tokens, and your ability to access marketplaces that trade BCOT Security Tokens.
Further, the market price of BCOT Security Tokens may decline when the transfer restrictions or other restrictions on of BCOT Security Tokens lapse. Also, if you are not a participant in our rewards program, the additional BCOT Security Tokens issued could dilute your BCOT Security Tokens ownership interest.
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There is currently no public trading market for BCOT Security Tokens and an active and liquid trading market for BCOT Security Tokens may take long to develop.
BCOT Security Tokens are not listed on any securities or, to our knowledge, any cryptocurrency exchange or other established public trading market. Currently, BCOT Security Tokens have not been accepted for listing on any securities or cryptocurrency exchange or other established public trading market. Due to the rapidly evolving regulatory climate regarding cryptocurrencies that are securities, we cannot estimate when BCOT Security Tokens will be listed on any securities or cryptocurrency exchange or other established public trading market within the U.S., or if listed, an active and liquid trading market for BCOT Security Tokens will ever develop or be sustained.
Currently, many crypto sector platforms have designs to be approved as “alternative trading systems” or ATSs. An ATS can be very similar to an exchange with a different set of reporting requirements which are not quite as stringent. Periodically, the SEC updates the list of ATSs’ with a form ATS on file. As we understand it, there is a backlog of broker dealer platforms seeking ATS licenses. We have plans to secure a secondary trading market for our BCOT Security Tokens, perhaps on one of these ATS platforms. However, some of these ATSs require an issuer to pay material fees to list their tokens. These ATSs are in the beginning stages, and we are mindful that this industry is developing and it may be some time before we find an approved platform to use. If we elect in the future to be listed on such exchanges, the applicable listing fees could have a material adverse impact on our revenues or our ability to implement our business plans. The lack of an active and liquid trading market may impair your ability to sell your BCOT Security Tokens at the time you wish to sell them or at a price that you consider reasonable.
Our BCOT Security Tokens network may not be widely adopted and may have limited number of active users.
It is possible that our network may not become popular or be used by a large number of individuals, companies and other entities or that there will be limited public interest in the creation and development of its ecosystems. Such lack of use or interest could negatively impact the growth and development of the network and the potential value of BCOT Security Tokens. Additionally, existing and future regulations, whether in the U.S. or elsewhere, may materially hinder the launch of such application or constrain its adoption.
Alternative networks may be established that compete with or are more widely used than our network.
It is possible that alternative networks could be established that utilize the same or similar proprietary code and protocol underlying our network and attempt to facilitate services that are materially similar to our platform. Our network may compete with, or be surpassed or superseded by, these alternative networks, which could negatively impact our network, our platform and the value of the BCOT Security Tokens.
BCOT Security Tokens may be subject to rules related to low-priced equity securities, which may make it harder for you to sell your BCOT Security Tokens.
The regulation of cryptocurrencies and cryptocurrency exchanges are currently under-developed and likely to rapidly evolve and are subject to significant uncertainty. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks,” and it is possible that BCOT Security Tokens may become subject to penny stock rules in the future. Penny stocks are defined by law generally as equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules place additional responsibilities on broker-dealers effecting transaction in such securities. If BCOT Security Tokens become subject to the penny stock rules in the future, these requirements may have the effect of reducing the level of trading activity in BCOT Security Tokens on any securities or cryptocurrency exchange that list the BCOT Security Tokens, which could reduce the value of the BCOT Security Tokens.
Use of BCOT Security Tokens is governed by our BCOT Security Tokens Terms & Conditions, which may be amended by our Company at any time in our sole discretion.
The use of BCOT Security Tokens is governed by our BCOT Security Tokens Terms & Conditions, and we may amend or revise the BCOT Security Tokens Terms & Conditions at any time without your consent. Amendments may include imposing restrictions on the transfer or use of the BCOT Security Tokens, which could have a material adverse effect on the value of the BCOT Security Tokens or may result in the BCOT Security Tokens not having the functional utility described in our current business plan.
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RISKS RELATED TO OUR CLAIMS PROCESS
We may continue to have potential liability even after this Claims Process is made due to our issuances of securities in possible violation of the federal and state securities laws.
We have concluded the Claims Process and paid out the claimants in connection with our ICO settlement with the SEC. However, the Securities Act does not expressly provide that our Claims Process will terminate a purchaser's right to rescind a sale of stock that was not registered or exempt from the registration requirements of the Securities Act. Accordingly, if you affirmatively reject or fail to accept the Claims Process, you may have a right of rescission under the Securities Act after the expiration of the Claims Process. SEC staff takes the position that a person's federal right of rescission may survive the Claims Process. Should any offerees reject the Claims Process, expressly or by failing to timely and properly return a claim form, we may continue to be potentially liable under the Securities Act for the purchase price or for certain losses if the BCOT Security Tokens have been sold.
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MD&A (Item 7)
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Plan of Operation
Our plan of operation is as follows:
Market Our Product and Website
Our website contains the 2 Product offerings: Developer and Enterprise. The Developer account is self-service registration that allows users to have access to the Catenis Platform in the TestNet environment with a limited quantity of credits at no charge. The Enterprise account is the full Catenis platform using the production environment requiring an annual license fee. The Startup offering is the same as the Enterprise offering with a special annual license pricing for startups, independent developers, and educational institutions with revenue under $3 million. Through these offerings, we will target different segments of the market and have a mix of customer that will give the company agility to mold as the industry matures.
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We are now focusing our efforts on raising capital for the rest of 2022. Our operations will be limited due to the limited amount of funds on hand. Now that we have completed the Claims Process, our specific goal is to profitably sell our product and raise funds to continue our operations.
Office Establishing, Furnishing and Accounting and Legal Fees (Duration 4 th – 12 th Month, Approximate Cost $1,700,000)
As we are at the initial stage of product relaunch and have been caught in the middle of the pandemic with our headquarters recently moved to Miami, Florida, we had to delay the plan to rent office space that can accommodate our CEO, staff, and some room to receive our customers and partners. As of February 15, 2022, however, we have located and leased office space in Florida which is now the new Headquarter.
Our new location at 3401 North Miami Avenue, Suite 230 in Miami Florida offers a professional environment to accommodate our relocation and afford us to plan for a new headquarters that will house our management and staff, and have added space to for customers and partners.
We have hired a Marketing Manager and a VP of Business Development. We will also need to bring on sales help: one employee for each role will be sufficient while continuing with our present staff of four. We will also need sufficient money for SEC compliance, which includes legal and accounting fees. We estimate these expenses will add an additional cost of $242,000 in the next 12 months.
We will also need to have funding for a marketing campaign that we estimate to be $44,000 and additionally travel, meal, events, and administrative expenses which would also add an additional $44,000 of expense. To meet this basic requirement, we will need to raise approximately $1,700,000 in equity or debt offerings. In case we succeed to raise $2,000,000 we may rent or obtain an office with better facilities, attend conventions and trade shows, expand our marketing reach to obtain diverse clients and partnerships. We would also increase our engineering team by an additional head count having a total of 6 employees and be able to add new features to our product offerings.
At the initial stage the Company is at now, we do not require any special equipment above the servers required to run both our sandbox and production environments. Both of these environments are externally hosted. Our basic needs are as follows: 3 servers for the sandbox environment and 5 servers for the production environment. Additionally, each staff member will need a computer and mobile phone. As we expect to expand our product offering to attract customers worldwide, we will have to rent or lease additional server to store website and platform and in-application data. As we expect business to grow, we might need additional data storage for the server and increased server footprint. To complete this stage, we need to sell at least $ 1,700,000 in funds. For far better operation we need to raise $ 2,000,000 to lease a more robust server environment and add additional engineering staff, which we expect to need as our customer base grows. Increasing our engineering team will also be a key component to staying competitive and addressing software functionality and bugs that will appear. With the money gained we can modestly increase our engineering team to two additional people.
Our primary services are software sales and consulting of individuals, so our Company requires additional personnel only as it grows. At the initial stage, we expect that most of the jobs are due to be executed by our CEO, CFO and external consulting partners. To increase sales, we will need a VP of Business Development and a sales professional. If we hit our projection of raising $1,700,000, we might afford to hire, the VP of Sales and sales professional to run and maintain the sales operation. For operation of higher standard, we need to raise $2,000,000. We will use the additional funds to hire an additional engineer to build product enhancements and support maintenance of the product. To stay relevant and competitive we will need additional engineering staff. If we succeed in raising $1,700,000, we plan to hire 2 engineers to help on a regular basis as technicians to maintain the website, the server, and enhance the product.
Our President and CEO, Andre De Castro will be in charge of our web domain and front-end shopping cart system. An outside consulting firm Hiades Tecnologia LTDA, which we have been using for several years will take the lead on product enhancements until additional help is needed. Once we increase our sales, we plan to hire a web developer and a web designer to help us with the design and development of our website. We do not have any written agreements with any web developers or web designers at current time. Updating and improving our platform product and website will continue throughout the lifetime of our operations. We intend to employ the functions which we find useful, such as an automated system for our regular customers or subscribers, and product enhancements to stay competitive.
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Advertising and Marketing Strategy and Administration (Duration 4 th -12 th Month, Approximate Cost $ 188,000)
To get into focus of our potential customers we intend to use the marketing strategies, such as web advertisements, social web communities marketing, sponsoring of events, event speaking and having booths at major industry trade shows. The plan of our active marketing campaign to promote our platform services includes attending and speaking at various events, including blockchain and cryptocurrency events, webinars, and podcasts. Also, joining Associations that focuses on Blockchain verticals. Additionally, we will do online marketing via search engines and social media. Our market goes beyond domestic boarders, therefor marketing efforts for each country will be tailored to each individual market we decide to focus on.
Estimated Expenses for the Next 12 Months
The following provides an overview of our estimated expenses to fund our plan of operation over the next twelve months.
Results of Operations for the Years Ended December 31, 2021 and 2020
Revenues
We are a start-up company and have not generated any significant revenues for the year ended December 31, 2021 and 2020. We can provide no assurance that we will generate sufficient revenues from our Catenis platform to sustain a viable business operation. In order to generate revenues, we must first continue to sell our platform and market our services.
Operating Expenses
We incurred operating expenses in the amount of $1,256,478 for the year ended December 31, 2021, as compared with $926,041 for the year ended 2020. Our operating expenses for all periods consisted of selling, general and administrative expenses. The detail by major category within selling, general and administrative expenses is reflected in the table below.
Year Ended December 31,
Salaries, Wages, & Benefits
Stock-based Compensation
Professional Fees
Board Fees
Investor Relations
Consultants
Advertising and Promotion
Depreciation and Amortization
Development and Maintenance
Office, Facility, and Other
Travel and Entertainment
Selling, General and Administrative
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The increase of $ 330,437 in our selling, general and administrative expenses for the year ended December 31, 2021 versus the same period ended 2020 is largely the result of an increase in spending on employees and office expenses, offset by decreased spending on professional fees and consultants.
Other Income
We had other income, net of $2,024,137 for the year ended December 31, 2021, as compared with other income of $483,872 for the same period ended 2020.
As of December 31, 2020, the Company estimated the amount of refunds to be paid to claimants in our Claims Process at $12,982,170, which included $547,853 of accrued interest that is included in Accounts Payable and Accrued Expenses. Accrued interest of $537,300 previously accrued was released upon the conclusion of the Rescission Offer and it, along with a $1,444,358 gain on the sale of Digital Assets, is the primary reason for our other income for the year ended December 31, 2021. Our other income for the year ended December 31, 2020 is the result of a $531,155 gain on the sales of Digital Assets, offset by interest expense of $47,283.
Net Income (Loss)
We recorded net income in the amount of $1,706,912 for the year ended December 31, 2021, as compared with a net loss of $443,171 for the same period ended 2020. Our net income for the year ended December 31, 2021 is attributable to other income of $2,024,137 and an income tax benefit of $939,253, offset by an operating loss of $1,256,478, which is attributable to operating expenses together with no revenue. Our net loss for the year ended December 31, 2020 is attributable to an operating loss of $926,041, which is attributable to operating expenses together with no revenue, and income tax expense of $1,002, offset by other income of $483,872.
Liquidity and Capital Resources
As of December 31, 2021, we had total current assets of $1,316,306, mainly consisting of digital assets, compared with current liabilities of $12,276,880, resulting in a working capital deficit of $10,960,574. This represents a decrease from our working capital deficit of approximately $11,686,278 at December 31, 2020.
Operating activities used $1,529,375 in cash for the year ended December 31, 2021, as compared with $1,069,854 for the same period ended 2020. Our negative operating cash flow for both periods was mainly the result of our losses from operations and the changes in assets and liabilities.
Investing activities provided $1,521,471 in cash for the year ended December 31, 2021, as compared with $1,032,077 for the same period ended 2020. Our positive investing cash flow for both periods is the result of proceeds from the disposal of digital assets.
Financing activities provided $0.00 in cash for the year ended December 31, 2021, as compared with $27,900 provided for the same period ended 2020. Our positive financing cash flows for the same period ended 2020 was mainly the result of PPL loans.
All expenditures discussed above in this section have been paid for by the proceeds of the original sale of the BCOT Security Tokens. There is no assurance that we will be successful in obtaining funding or generating revenues sufficient to fund our operations.
We have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.
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Financial Condition and Management’s Plans
We believe that our ability to continue operations depends on our ability to obtain funding that will be sufficient to sustain our operations until we have significant and sustainable revenues on our core product offerings with the goal of and achievingprofitability and positive cash flows from operating activities.
The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results. The accompanying consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.
The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.
The Company’s management has taken several actions in an effort to secure funding and generate revenue streams including:
Added two offerings to the product line making the platform more robust and providing diversified options to the marketplace
Added NFT functionality to its product to attract new market segmentation
Relaunched a new website and marketed to various different segments of the industry verticals
Prepared offering documents for a potential offshore offering under Regulation S, promulgated under the Securities Act of 1933, as amended (the “Securities Act”)
Added a Director to the Company’s Board of Directors with fundraising experience to lead our efforts
Discussed with broker ways to raise additional capital
Hired a marketing manager and launched a marketing campaign to acquire customers
Added an additional development language to Catenis to facilitate the programming of integration
Hired a VP of Business Development
Appointed a New Board Member with Financial and Business M&A Experiences
Hired Landmark Ventures as a Sales Arm for the Company
Identified a lead generating company to help with the sales efforts
Any securities offered will not be or have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. There is no assurance that the Company will be successful in obtaining funding or generating revenues sufficient to fund operations.
As mentioned previously, we have estimated expenditures for the next 12 months will be approximate $1,700,000 without considering the expenditures related to the Claims Process. As of Q3 of 2021, we have concluded the Claims Process and paid out the claims. After our distribution of the notice and claim forms, twenty (20) eligible claimants responded and we provided each with a rescission payment plus interest. Eighteen (18) of these claims were paid in US Dollars totaling $196,272.53 and two (2) claims valued at $29,984.64 USD were paid with 13.05741 in Ethereum cryptocurrency, which amounted to $29,984.64 USD at the applicable rate.
The conclusion of the Claims Process has been helpful in assessing our capital requirements going forward. As a result of the payouts made in the Claims Process, we have less assets available for current and future expenditures, and thus less available to meet expenditures, which in turn creates more urgency to raise capital. We plan to continue our efforts at raising capital and to sell our product offerings. However, there is no assurance that we will be successful in obtaining funding or generating revenues sufficient to fund operations.
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Off Balance Sheet Arrangements
As of December 31, 2021, there were no off-balance sheet arrangements.
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate our continuation as a going concern. However, we have limited revenues from inception through December 31, 2021. We currently have negative working capital, and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.
Management anticipates that we will be dependent, for the near future, on additional investment capital to fund operating expenses. We intend to position the company so that we may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our critical accounting policies are set forth in Note 3 to the financial statements and include our accounting for revenue, income taxes, and intangible assets.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
