SRAX: Upcoming Distribution to Enable Investor Participation in BIG Platform

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NASDAQ:SRAX

Los Angeles, California-based Social Reality, Inc. (NASDAQ:SRAX) is a technology company focused on the digital advertising market, which Adweek pegs at $83 billion, including aggregating consumer data to facilitate online marketing. Leveraging its technology, the company is developing a new technology platform, BIG (Blockchain Identification Graph), to enable consumers to own and monetize their personal digital data. The company can use the proceeds from its recent sale of SRAXmd – about $33.5 million in cash plus an additional up to $19 million depending on SRAXmd’s performance – to continue the development and launch of BIG, which it is beta-testing.

Upcoming Distribution: Right to Receive BIGtoken Securities

The company recently announced that it will issue a right to receive securities of its wholly owned subsidiary BIGtoken Inc. to SRAX Class A common stockholders of record as of Monday, September 17, 2018. Thus, today likely will be the last trading day to purchase Class A common shares of Social Reality in order to obtain the right on Monday to receive BIGtoken securities. BIGtoken’s board of directors will determine the rights and preferences that BIGtoken securities will have and when they will be distributed, if BIGtoken meets all regulatory requirements.

The BIG Ecosystem – Blockchain Enabled

Reflecting the disruption of often unwanted digital ads, the use of ad-blocking software in the U.S. and worldwide has climbed, as illustrated in the figure below. However, enabling consumers to retain ownership of their own data implies that marketers will have to pay to acquire the data in order to advertise to these consumers, creating an incentive to make the data available. As part of its strategy, Social Reality is developing a data marketplace in which consumers can sell access to their data and be compensated by brands across a broad range of sectors, including CPG, automotive, sports and lifestyle, among others. Because consumers can choose which data to share and which brands can purchase the data, as well as how it can be used, the company believes that they will be more receptive to advertisers that reach out under this model. The company views BIG as an open source platform that provides transparency, authentication, and a compensation model for consumers through the use of BIGtoken cryptocurrency. Participating consumers will be rewarded with BIGtokens and advertisers and media companies will be able to obtain verified consumer data to enhance their ability to reach and market to appropriate consumers.


View Exhibit I

Specifically, BIGtoken digital tokens will incentivize consumers to share and verify their data. Consumers will be awarded BIGtokens when they register to participate in the BIG ecosystem and provide their data. They will be paid in BIGtokens when marketers buy their data. Social Reality intends to deliver a consumer data ecosystem that enables the sale of data through a secure blockchain platform. “Blockchain is a public ledger technology that uses digital signatures and cryptographic hashing to provide a record of secure transactions that cannot be altered,” according to TechRepublic.

Each block in the blockchain contains a hash – a digital fingerprint or unique identifier – and timestamped batches of prior transactions, as well as the hash of the previous block. The hash connects the blocks and prevents any block from being altered or inserted between two existing blocks. Each new block reinforces the verification of the previous block and therefore the overall blockchain. Within the BIG ecosystem, consumers will verify their proprietary data.

Market Opportunity, Potential Risks

The company believes the market opportunity for its BIG platform and BIGtoken cryptocurrency is sizable. For example, IDC forecasts that revenues for big data and business analytics (BDA) solutions will be roughly $260 billion globally in 2022, up from an estimated $166 billion this year. This anticipated growth is also expected to drive increased demand for data protection services, which market research firm Markets and Markets forecasts will reach approximately $120 billion in revenue by 2022.

Introduced in 2009, Bitcoin was the first decentralized digital currency. Subsequently, other cryptocurrencies such as Litecoin, Ethereum and Dash emerged. At this point, there are more than 1,000 cryptocurrencies, according to Coinmarketcap.com.

One Bitcoin was worth roughly $0.003 in early 2010, according to Coinmarketcap.com data. Currently, the Bitcoin / dollar exchange rate has climbed to about $6,500. However, the cryptocurrency market is extremely volatile. For example, Bloomberg notes that the recent decline in the value of Bitcoin and other cryptocurrencies is “worse than the dot-com crash.”

Given the expanding cryptocurrency market and its volatility, it is generally expected that a growing number of countries will impose greater regulatory oversight on cryptocurrencies. In 2017, for example, the Internal Revenue Service brought suit against Coinbase, which could be an early step. Thus, we believe SRAX faces regulatory, competitive and other risks. The company intends to register BIGtokens with the SEC.

Summary

Technology company Social Reality is developing a new online platform to enable consumers to own and monetize their personal digital data. The strategy is that marketers will pay using BIGtoken cryptocurrency to acquire the data in order to advertise to these consumers. The company believes the market opportunity for its BIG platform is sizable, with revenues for big data and business analytics solutions forecast to reach roughly $260 billion globally by 2022.

The company recently announced that it will issue a right to receive securities of its wholly owned subsidiary BIGtoken Inc. to SRAX Class A common stockholders of record as of September 17, 2018. Given the expanding cryptocurrency market and its volatility, a growing number of countries are expected to increase their regulatory oversight of cryptocurrencies, which we believe implies that SRAX faces regulatory, competitive and other risks.

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