Society Pass rporated(SOPA) - 2022 Q4 - Annual Report

Part I Business Society Pass is building a digital ecosystem and loyalty platform in Southeast Asia across six verticals, connecting millions of consumers and merchants, despite incurring significant net losses - The company operates and acquires fintech and e-commerce platforms in Southeast Asia, focusing on building a next-generation digital ecosystem and loyalty platform across Singapore, Vietnam, Indonesia, Philippines, and Thailand[20] - The business is structured around six key verticals: loyalty, lifestyle, food and beverage delivery, telecommunications, digital media, and travel[21] Key Acquisitions to Date | Date | Acquired Company/Assets | Business Vertical | | :--- | :--- | :--- | | Feb 2021 | Leflair Assets | Lifestyle | | Feb 2022 | NREI (Pushkart) & Dream Space (Handycart) | Food Delivery | | May 2022 | Gorilla Networks Pte Ltd | Telecommunications | | Jul 2022 | Thoughtful Media Group (TMG) | Digital Media | | Jul 2022 | Mangan Assets | Food Delivery | | Aug 2022 | Nusatrip Group | Travel | | Dec 2022 | More Media (via TMG) | Digital Media | - As of March 21, 2023, the platform has onboarded over 3.3 million registered consumers and over 200,000 registered merchants/brands[31] Recent Financial Performance | Fiscal Year Ended | Net Loss | | :--- | :--- | | Dec 31, 2022 | $34,015,022 | | Dec 31, 2021 | $34,864,740 | - The company's growth strategy focuses on acquiring other e-commerce companies in SEA, launching its universal "Society Points" loyalty system in 2023, and forming strategic partnerships to expand its ecosystem[41][42][43] Risk Factors The company faces substantial risks from its limited operating history, capital reliance, intense competition, operational challenges, international market instability, evolving regulations, and significant founder control - Business Risks: The company has a limited operating history, may fail to raise needed capital, relies heavily on internet search engines, and faces a highly competitive e-commerce market[57][60][62][66] - Operational Risks: Delays or lack of consumer acceptance of the "Society Points" loyalty program, inability to scale systems for increased volume, and challenges in integrating acquisitions could adversely affect the business[71][72][86] - International Risks: All operations are in Southeast Asia, exposing the company to economic, political, and legal instability, as well as significant inflationary pressures and foreign exchange risk[91][93][96][98] - Regulatory and Compliance Risks: The business is subject to complex and evolving regulations regarding e-commerce, payment processing, data privacy, and anti-corruption laws like the FCPA, with public company status increasing compliance costs[110][112][120][125] - Ownership Risks: The stock price is likely to be volatile, and the Founder, Chairman, and CEO, Dennis Nguyen, holds 65.7% of the voting power, making the company a "controlled company" under Nasdaq rules[134][141][153] - The company is an "emerging growth company" under the JOBS Act, allowing for reduced disclosure requirements, which may make its common stock less attractive to some investors[148] Unresolved Staff Comments The company reports no unresolved staff comments - None[158] Properties The company does not own any real estate and conducts its operations from various leased offices across Southeast Asia and the US, recording a Right-of-Use (ROU) asset and lease obligation of $1,541,064 as of December 31, 2022 - The company's principal executive offices are located in Carson City, NV, and it does not own any real estate, leasing all its properties[159] Leased Properties Summary (as of Dec 31, 2022) | Country | Number of Leases | | :--- | :--- | | Singapore | 2 | | Vietnam | 2 | | Philippines | 4 | | Thailand | 2 | | Indonesia | 4 | Legal Proceedings The company is involved in three pending New York Supreme Court lawsuits, two employment-related and one contract enforcement, which it intends to vigorously defend without material adverse effect - The company is litigating three cases in the Supreme Court for the State of New York, New York County[162] - Two cases are employment actions from former employees Rahul Narain and Thomas O'Connor, who allege they are due compensation, bonuses, and company stock, with the company asserting counterclaims for breach of contract, unfair competition, and breach of fiduciary duty[163][164][165] - A third case involves a company affiliate seeking specific performance of an agreement to purchase shares from an entity related to former employee Thomas O'Connor[167] - A prior action, SOSV IV LLV v. Society Pass Inc., has been settled and discontinued[168] Mine Safety Disclosures This item is not applicable to the company - Not applicable[169] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "SOPA" with 101 stockholders, and it has never paid cash dividends, intending to retain earnings for business expansion - The company's common stock is traded on the Nasdaq Capital Market under the symbol "SOPA"[171] - As of March 21, 2023, there were 101 stockholders of record[171] - The company has never declared or paid a cash dividend and does not expect to in the foreseeable future, intending to retain earnings for business financing[172] Selected Financial Data As a smaller reporting company, Society Pass is not required to provide the information for this item - The Company is a smaller reporting company and is not required to provide the information under this item[175] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, Society Pass significantly increased revenue to $5.6 million and achieved a gross profit, yet incurred a $34.0 million net loss due to high operating expenses and impairment charges, with cash decreasing to $18.9 million Results of Operations Revenue surged to $5.6 million in 2022, yielding a gross profit of $0.97 million, but high operating expenses and a $3.5 million impairment charge resulted in a $34.0 million net loss Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue, net | $5,635,553 | $519,885 | | Cost of revenue | ($4,668,580) | ($710,683) | | Gross profit/loss | $966,973 | ($190,798) | | Total operating expenses | ($35,123,029) | ($34,021,405) | | Loss from operations | ($34,156,056) | ($34,212,203) | | NET LOSS | ($34,015,022) | ($34,864,740) | - The significant increase in revenue was mainly due to an increase in sales from online platforms and newly acquired subsidiaries[200] - Revenue from the e-Commerce segment grew to $2,118,191 in 2022 from $482,002 in 2021, with newly acquired Digital Marketing and Online Ticketing segments contributing $2,593,674 and $724,991 respectively[201] - A goodwill impairment charge of $3,499,881 was incurred in 2022, primarily related to the acquisitions of NREI, Gorilla, TMG, and Nusatrip[209] Liquidity and Capital Resources Cash decreased to $18.9 million by year-end 2022 due to $14.5 million in operating cash outflow, partially offset by $10.2 million from financing, with management asserting sufficient liquidity for over one year Cash and Cash Equivalents | Date | Amount | | :--- | :--- | | Dec 31, 2022 | $18,930,986 | | Dec 31, 2021 | $23,264,777 | Consolidated Cash Flow Summary | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($14,453,759) | ($10,813,938) | | Net cash provided by (used in) investing activities | $177,393 | ($246,837) | | Net cash provided by financing activities | $10,182,905 | $33,823,757 | - Net cash used in operating activities in 2022 was $14.5 million, primarily consisting of a net loss of $34.0 million, offset by non-cash items like stock-based compensation ($8.3 million) and goodwill impairment ($3.5 million)[217] - Net cash from financing activities in 2022 was $10.2 million, mainly from a public offering and warrant exercises, partially offset by loan repayments[222] Critical Accounting Policies and Estimates The company's US GAAP financial statements rely on significant estimates for revenue recognition, business combinations, asset impairment, and share-based compensation across its six reportable segments - The company is an "emerging growth company" but has irrevocably opted out of the extended transition period for complying with new or revised accounting standards[223] - Significant estimates are used for allowance for doubtful accounts, useful lives of intangible assets, impairment of goodwill, valuation of stock options and warrants, and the allocation of purchase consideration in business combinations[223][332] - Business combinations are accounted for using the acquisition method under ASC 805, requiring assets and liabilities to be recorded at fair value[224] - Revenue is recognized under ASC 606 based on a five-step model, with revenue streams including online ordering (lifestyle), software/hardware sales (POS), grocery/food delivery, telecommunications, digital marketing, and online ticketing[228][229][230] - Share-based compensation is accounted for under ASC 718, with awards measured at grant-date fair value, and the Black-Scholes model used for stock options[268] Quantitative and Qualitative Disclosures About Market Risk As a "Smaller Reporting Company," this item and its related disclosures are not required - Disclosure for this item is not required as the company qualifies as a "Smaller Reporting Company"[282] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2022 and FY2021, including balance sheets, statements of operations, changes in equity, cash flows, and detailed notes Consolidated Balance Sheet Summary | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $32,698,742 | $35,176,357 | | Total Current Assets | $22,996,945 | $29,632,687 | | Total Liabilities | $12,687,425 | $2,850,674 | | Total Current Liabilities | $11,614,299 | $2,439,621 | | Total Equity | $20,011,317 | $32,325,683 | Consolidated Statement of Operations Summary | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Total Revenue | $5,635,553 | $519,885 | | Gross Income (Loss) | $966,973 | ($190,798) | | Loss from Operations | ($34,156,056) | ($34,212,203) | | Net Loss | ($34,015,022) | ($34,864,740) | | Net Loss Per Share (Basic & Diluted) | ($1.38) | ($3.68) | Consolidated Statement of Cash Flows Summary | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($14,453,759) | ($10,813,938) | | Net Cash Provided by (Used in) Investing Activities | $177,393 | ($246,837) | | Net Cash Provided by Financing Activities | $10,182,905 | $33,823,757 | | Net Change in Cash | ($4,261,441) | $22,758,111 | | Cash at End of Year | $19,003,336 | $23,264,777 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[602] Controls and Procedures Management concluded the company's disclosure controls were effective as of December 31, 2022, with no material changes to internal controls, and a management report on internal control over financial reporting is not yet required - Management concluded that as of the end of the period covered by the report, the company's disclosure controls and procedures were effective[604] - A report of management's assessment regarding internal control over financial reporting is not included due to a transition period for newly public companies[605] Other Information The company reports no other information - None[607] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[608] Part III Directors, Executive Officers and Corporate Governance The company's governance is led by CEO Dennis Nguyen, with a five-member Board including three independent directors and four established committees, operating under a Code of Ethics Key Executive Officers and Directors | Name | Position | | :--- | :--- | | Dennis Nguyen | Founder, Chairman and Chief Executive Officer | | Raynauld Liang | Group Chief Financial Officer | | Tan Bien Kiat | Vice Chairman of the Board | | Jeremy Miller | Director (Audit Committee Chair) | | Linda Cutler | Director (Remuneration Committee Chair) | | John Mackay | Director (Nominating Committee Chair) | - The Board of Directors consists of five members, three of whom are independent[626] - The Board has four committees: Audit, Remuneration, Nominating and Corporate Governance, and Executive[627] Executive Compensation In FY2022, CEO Dennis Nguyen's total compensation was $2.6 million, and CFO Raynauld Liang's was $3.7 million, largely from stock and option awards, with Mr. Nguyen holding a significant stock option Summary Compensation Table (2022) | Name and Principal Position | Salary/Bonus ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Dennis Nguyen, CEO | 1,167,500 | 1,426,691 | 0 | 2,594,191 | | Raynauld Liang, CFO | 510,000 | 2,783,594 | 415,048 | 3,708,642 | - CEO Dennis Nguyen has an outstanding 10-year stock option to purchase 1,945,270 shares of common stock at an exercise price of $6.49 per share, granted in 2021[644] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 21, 2023, officers and directors collectively control 75.4% of voting power, with CEO Dennis Nguyen individually holding 65.7% through common and super-voting preferred stock - As of March 21, 2023, there were 27,082,849 shares of common stock outstanding[649][650] - Founder, Chairman, and CEO Dennis Nguyen beneficially owns 28.6% of common stock and 94.3% of Series X Super Voting Preferred Stock, granting him 65.7% of the total voting power[651] - All officers and directors as a group control 75.4% of the total voting power[651] Certain Relationships and Related Transactions, and Director Independence The company engaged in related party transactions, primarily with CEO Dennis Nguyen and director Tan Bien Kiat, involving stock issuances for services and compensation, including a $500,000 payable to Mr. Nguyen for accrued salary and bonus - The company has a call option to purchase CVO Advisors Pte. Ltd, a company that provided $8 million in software development services in 2018, which the CEO, Dennis Nguyen, exercised, but the matter is currently in litigation[658] - Entities controlled by director Tan Bien Kiat and CEO Dennis Nguyen received preferred and common stock in 2021 and 2022[658][662][663][664] - In 2021, CEO Dennis Nguyen was issued 1,157,630 shares of common stock for accrued compensation and was awarded a 10-year option to purchase 1,945,270 shares for unpaid bonuses[662] - As of December 31, 2022, the company had a payable of $500,000 to CEO Dennis Nguyen for accrued and unpaid salaries and bonus[659] Principal Accountant Fees and Services Total fees to independent accountants were $479,600 in 2022 (Onestop Assurance PAC) and $395,000 in 2021 (RBSM LLP), with all services subject to Audit Committee pre-approval Audit and Non-Audit Fees | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $364,600 | $190,000 | | Audit-related fees | $25,000 | $205,000 | | All other fees | $90,000 | $0 | | Total fees | $479,600 | $395,000 | - Onestop Assurance PAC served as the auditor for the fiscal year ending December 31, 2022, while RBSM LLP served as the auditor for the fiscal year ending December 31, 2021[664] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Annual Report, including financial statements, corporate governance documents, material contracts, and certifications, with financial schedules omitted where not applicable - This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications required by the Sarbanes-Oxley Act[670][672] Form 10-K Summary The company has elected not to include a summary of the Form 10-K - The Company has elected not to include summary information[675]