Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
“SpringBig,”
“the Company,” “we,” “us” or “our” refer to SpringBig Holdings, Inc. and its subsidiaries, unless
the context otherwise requires.
Forward Looking Statements
All statements other than
statements of historical facts contained in this report, including statements regarding future operations, are forward-looking statements.
In some cases, forward-looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,”
“plan,” “potential,” “seek,” “grow,” “target,” “if,” and similar expressions
intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and
projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy,
short-term and long-term business operations, objectives, and financial needs. Our actual results could differ materially from those anticipated
due to various factors discussed under “Risk Factors” in this Annual Report on Form 10-K.
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Business Overview
SpringBig is a market-leading
software platform providing customer loyalty and marketing automation solutions to retailers and brands. We have leveraged our deep expertise
in loyalty marketing to develop solutions that address the key challenges faced by retailers and brands, including those in the cannabis
industry. Stringent, complex, and rapidly evolving regulations have resulted in restricted access to traditional marketing and advertising
channels for cannabis retailers and brands, preventing them from utilizing many traditional methods for effectively accessing and engaging
with consumers. In addition, the lack of industry-specific data and market intelligence solutions limit cannabis retailers’ and brands’
ability to efficiently market their products, thereby hindering their growth. Our platform enables our clients to increase brand awareness,
engage customers, improve retention, and access actionable consumer feedback data to improve marketing. Our clients can use our loyalty
marketing, digital communications, and text/email/push marketing solutions to drive new customer acquisition, customer spend and retail
foot traffic. Our proven B2B2C software platform creates powerful network effects between retailers and brands and provides an ability
for both to connect directly with consumers. As retailers and brand scale, a virtuous cycle amplifies growth, ultimately expanding SpringBig’s
reach and strengthening our value proposition.
SpringBig serves approximately 900 brand and retailer clients across
more than 2,300 distinct retail locations in North America. Our clients distribute approximately 600 million digital messages annually,
and in the last year more than $7.5 billion of gross merchandise value was accounted for by clients utilizing our platform.
Key Operating and Financial Metrics
We monitor the following key financial and operational
metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make
strategic decisions. The following is our analysis for the years ended December 31, 2024, and 2023, in thousands:
Years Ended December 31,
Net revenue retention 88 % 97 %
Number of messages (million) 595 578
For a reconciliation of net
loss to Adjusted EBITDA see “EBITDA and Adjusted EBITDA,” below.
Revenue
We generate revenue from
the sale of monthly subscriptions that provide retail clients with access to an integrated platform through which they can manage loyalty
programs and communications with their consumers. We also generate additional revenue from these retail clients when the quantum of messages
sent to consumers exceeds the amounts in the subscription package. The subscriptions generally have twelve-month terms (which typically
are not subject to early termination without a cancellation fee payable by the client), are payable monthly, and automatically renew for
subsequent and recurring twelve-month periods unless notice of cancellation is provided in advance.
The Company’s revenue growth
is generally achieved through a mix of new clients, clients upgrading their subscriptions (as new clients will frequently enter into a
relatively low level of subscription, with respect to the size of such client’s database and the number of their customers on such database,
and/or the number of pre-determined communication credits), which frequently occurs shortly after such a client initially becomes a client,
and the excess use element of revenues. “Excess use” revenues are revenues derived from amounts charged to clients for exceeding
the pre-determined credit volume set forth in the applicable client’s subscription agreement. Given this combination, and particularly
the tendency for clients to upgrade soon after becoming a client, the Company does not actively monitor revenue split between new and
existing clients, preferring to use the split between subscription and excess use in combination with net dollar retention and the number
of clients as key metrics, as described below.
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Other Key Operating Metrics
The growth in our revenues
is a key metric at this stage in our development as a Company and therefore to provide investors with additional information, we have
disclosed in the table above the number of our retail clients, our net revenue retention rate and the number of standardized messages
distributed through the SpringBig platform by our clients. We regularly review the key operating and financial metrics set forth above
to evaluate our business, our growth, assess our performance and make decisions regarding our business. We believe these key metrics are
useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and
operational decision-making, and they may be helpful in evaluating the state and growth of our business.
Number of Retail Clients.
We disclose in the table above the number of discrete SpringBig platforms used by clients of the business at the end of the relevant period.
We view this number as an important metric to assess the performance of our business because an increased number of clients drives growth,
increases brand awareness and helps contribute to our reach and strengthening our value proposition.
Net Revenue Retention.
We believe that the growth in the use of our platform by our clients is an important metric in evaluating our business and growth.
We monitor our dollar-based net revenue retention rate on a rolling basis to track the maintenance of revenue and revenue-increasing
activity growth. “Net revenue retention rate” (also referred to as “net dollar retention rate”) does not have
a standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies, and further,
investors should not consider it in isolation. When evaluating our retention rates and calculating our net revenue retention rate, SpringBig
calculates the recurring monthly subscription revenue from retail clients, adjusted for losses, increases and decreases in monthly subscriptions
during the prior twelve months divided by the recurring monthly subscription revenue at the start of the trailing twelve-month period.
The net revenue retention
is calculated based on subscription revenues only and does not include the impact of excess use revenue.
Number of Messages Sent.
We believe that the volume of messages sent is important as it indicates the frequency of use and level of engagement of our platform
by our clients. Messages are distributed by text, email, and direct push notifications to mobile applications.
EBITDA and Adjusted EBITDA
To provide investors with
additional information regarding our financial results, we have disclosed EBITDA, which is a non-GAAP financial measure that we calculate
as net income before interest, taxes, depreciation and amortization and Adjusted EBITDA, which represents
EBITDA adjusted for certain unusual, infrequent items, or non-cash items (such as bad debt expense and stock-based compensation).
We present EBITDA and Adjusted
EBITDA because they are key measures used by our management and board of directors to evaluate our operating performance, generate future
operating plans and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA and
Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner
as our management and board of directors, and is widely used by analysts, investors and competitors to measure a company’s operating performance.
EBITDA and Adjusted EBITDA
have limitations, and you should not consider these in isolation or as a substitute for analysis of our results as reported under GAAP,
including net loss, which we consider to be the most directly comparable GAAP financial measure. Some of these limitations are:
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Because of these limitations, you should consider
EBITDA and Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results.
A reconciliation of net loss before taxes to non-GAAP
EBITDA and Adjusted EBITDA is as follows (in thousands):
Springbig Holding, Inc
Reconciliation of net loss to non-GAAP EBITDA
and Adjusted EBITDA
(in thousands)
Years Ended December 31,
Interest income (6 ) (24 )
Income tax expense 3 4
Stock-based compensation 742 821
Gain on repurchase of convertible debt (1,573 ) -
Loss on debt extinguishment 636 -
Severance and related payments 267 494
Other non-recurring, non-operating expenses and asset impairment - 512
Settlement of litigation, including legal costs - 1,050
Change in fair value of warrants 8 (334 )
Factors Affecting Our Performance
Overall Economic Trends
The overall economic environment
and related changes to consumer behavior have a significant impact on our business. Overall, positive conditions in the broader economy
promote consumer spending on marketplaces and our customers’ products, while economic weakness, which generally results in reduced
consumer spending, may have a negative impact on our customers’ sales, which in turn may impact our revenue.
Growth and Retention of Customers
Our revenue grows primarily
through acquiring and retaining customers and expanding relationships with customers over time, increasing the revenue per customer. We
have historically been able to attract, retain and grow relationships with customers as a result of the Company’s comprehensive
product suite, differentiated loyalty programs, consistent communications with customers, and reliable customer service.
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Regulation and Maturation of Cannabis Markets
We believe that we will have
significant opportunities for growth as more jurisdictions legalize cannabis for medical and/or recreational adult use and the regulatory
environment continues to develop. We intend to explore new expansion opportunities as additional jurisdictions legalize cannabis for medical
or recreational adult use and leverage our existing business model to enter new markets. We believe our understanding of the space coupled
with our experienced sales force will enable us to quickly enter and execute in new markets and capture new business, which we sustain
via our best-in-class product offerings. Further, a change in U.S. federal regulations could result in our ability to engage in additional
outlets, including the fintech, payments and e-commerce space.
We expect competition to
intensify in the future as the regulatory regime for cannabis becomes more settled and the legal market for cannabis becomes more accepted,
which may encourage new participants to enter the market, including established companies with substantially greater financial, technical
and other resources than existing market participants.
We believe that maintaining
and enhancing our brand identity and our reputation is critical to maintaining and growing our relationships with customers and to our
ability to attract new customers.
We believe our platform’s
scale and strong customer loyalty market themselves; however, we implement a variety of marketing efforts to attract the remaining retailers
and brands not yet on our platform. Marketing efforts include multiple strategies designed to attract and retain both retail and brands
subscribers.
Negative publicity, whether
or not justified, relating to events or activities attributed to us, our employees, customers or others associated with any of these parties,
may tarnish our reputation and reduce the value of our brand. Given our high visibility, we may be more susceptible to the risk of negative
publicity. Damage to our reputation and loss of brand equity may reduce demand for our platform and have an adverse effect on our business,
operating results and financial condition. Moreover, any attempts to rebuild our reputation and restore value of our brand may be costly
and time consuming, and such efforts may not ultimately be successful.
We also believe that the
importance of our brand recognition and reputation will continue to increase as competition in our market continues to develop. If our
brand promotion activities are not successful, our operating results and growth may be adversely impacted.
Components of Our Results of Operations
Revenue
SpringBig provides its retail
customers with access to an integrated platform that provides all the functions of the Company’s proprietary software, which uses
proprietary technology to send text, email, and push messages to the customer’s contacts. This access is provided to customers under
a contract, with revenue generated from monthly subscriptions for credits (up to pre-contracted amount) and optional purchases of additional
credits.
Cost of Revenue
Cost of revenue consists
primarily of amounts payable to distributors of messages on behalf of the Company’s customers across cellular networks and integrations.
Selling, Servicing and Marketing Expenses
Selling, servicing and marketing
expenses consist of salaries, benefits, travel expense and incentive compensation for our sales, servicing and marketing employees. In
addition, sales, servicing and marketing expenses include business acquisition marketing, events cost, and branding and advertising costs.
Technology and Software Development Expenses
Technology and software
development costs consist of salaries and benefits for employees, including engineering and technical teams who are responsible for building
new products, as well as maintaining and improving existing products. We capitalize certain costs associated with technology and software
development in accordance with ACS 350-40, Intangibles – Goodwill and Other – Internal Use Software, but these are
limited in quantum as we are constantly and regularly making enhancements to our technology platform and do not consider appropriate
to be capitalized. Capitalized costs are generally amortized over a three-year period commencing on the date that the specific software
product is placed in service. We believe that continued investment in our platform is important for our growth.
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General and Administrative Expenses
General and administrative
expenses consist primarily of payroll and related benefits costs for our employees involved in general corporate functions including finance,
human resources and investor relations, as well as costs associated with the use by these functions of software and equipment. All rent,
insurance and other occupancy costs are also included in general and administrative expenses as are professional and outside services
related to legal, audit and other services, and stock compensation expenses.
Results of Operations
The following tables set forth our results of
operations for the periods indicated (in thousands):
Years Ended December 31,
Operating expenses:
Loss on debt extinguishment (636 ) - (636 ) nm
Change in fair value of warrants (8 ) 334 (342 ) nm
Provision for income taxes (3 ) (4 ) 1 25 %
nm - not meaningful
Revenues. Revenues
decreased by $3.4 million for the year ended December 31, 2024, representing a 12% year-on-year reduction compared with the year ended
December 31, 2023. Our subscription revenue was $21.1 million for the year ended December 31, 2024, compared with $22.2 million in for
the year ended December 31, 2023, representing a 6% year-on-year decline. The excess use revenue declined by 38% year-on-year from $4.2
million for the year ended December 31, 2023, to $2.6 million for the year ended December 31, 2024, with this decrease being due to the
weaker economy impacting the cannabis sector and our clients being budget-conscious in limiting their messaging activity to within the
volumes of their subscription. SpringBig has expanded its product offerings during the current year, including the introduction of a paid-for
consumer VIP loyalty tier that retail clients can operate in conjunction with their standard loyalty program, and offering clients the
ability to incorporate gift cards as a payment option for consumers within their digital rewards wallet. Our revenue from Brands clients
decreased by 56% year-on-year and was $396,000 for the year ended December 31, 2024, as compared to $901,000 for the year ended December
31, 2023.
Our net revenue retention
rate was 88% for the twelve months ended December 31, 2024, compared with 97% for the twelve months ended December 31, 2023, reflecting
the challenging macroeconomic conditions of the cannabis market and the financial stress of some of our retail clients leading to the
Company having to suspend or cease some access to our platform.
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Gross Profit. Gross
profit decreased by $3.6 million to $18.0 million for the year ended December 31, 2024, from $21.6 million for the year ended December
31, 2023, representing a 17% year-on-year reduction. The cost of revenue increased by $0.2 million, representing a 3% increase, for the
year ended December 31, 2023, due to higher messaging distribution costs which represent the main expense in our cost of revenue. The
gross profit margin reduced from 77% for the year ended December 31, 2023, to 73% for the year ended December 31, 2024, due to the higher
messaging distribution costs and the impact of recently introduced lower margin services.
Operating Expenses.
We have consistently focused on right sizing the operating expenses of the business to accelerate our path to sustainable profitability
in the challenging macroeconomic conditions that prevail across the cannabis market, and which impacts revenue in the near-term.
Our operating expenses decreased
by $11.3 million, or 38%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.
Selling, servicing and marketing
expenses decreased by $3.6 million, or 43%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to
lower compensation expense as a result of lower employee headcount.
Technology and software development
expenses decreased by $2.1 million, or 26%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, with the
decrease being attributable to lower expenses associated with the use of offshore contract developers and a reduction in compensation
expense.
General and administrative
expenses decreased by $5.6 million, or 41%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, with the
decrease being largely attributable to reductions in insurance, directors’ fees, legal and accounting advisory fees, investor relations
costs due to being quoted for trading on the OTCQX® Best Market rather than listed on the Nasdaq Capital Market, and a lower credit
loss expense.
Interest Expense.
Interest expense was $2.2 million for the year ended December 31, 2024, compared with $2.2 million for the year ended December 31, 2023.
During the year ended December 31, 2024, the interest expense comprised primarily interest paid on the cash advances and interest on the
2024 Secured Convertible and Term notes, which were issued in January 2024, whereas the interest expense during the year ended December
31, 2023 comprised primarily interest paid on cash advances and interest on the 6% Senior Secured Convertible Note that was repurchased
in January 2024.
Gain on note repurchase.
The gain on the repurchase of the 6% Senior Secured Note is the difference between the cash paid to repurchase the entire obligation of
$2.9 million and the outstanding principal and accrued interest of $5.2 million, less unamortized discounts and warrant value of $0.7
million.
Loss on debt extinguishment.
The loss on debt extinguishment arises on the amendment to the 2024 Senior Convertible Notes in November 2024 and comprises $0.6
million expensing of the difference between the carrying value of the old debt and the new debt recorded at fair value, which becomes
the new carrying value of the 2024 Senior Convertible Notes.
Change in fair value of
warrants. The liability relating to warrants issued by SpringBig is included on the balance sheet at the fair value prevailing at
the end of the accounting period and any change in value is reported in the income statement. At December 31, 2024, the market value of
the public warrants, which are quoted for trading on the OTC Pink Market, was $0.0007 per warrant compared with $0.0002 at December 31,
2023. The increase in value, which is recognized as an expense in our income statement for the year ended December 31, 2024, was $8,000
compared with a credit of $334,000 in our income statement for the year ended December 31, 2023.
Liquidity & Capital
Resources
We have incurred net losses
since inception, and experienced negative cash flows from operations. Prior to the business combination in June 2022, we financed our
operations and capital expenditures primarily through the private sales of equity securities and revenue. The net losses since the business
combination have been financed through the capital received because of the business combination, a public equity offering in May 2023,
short-term cash advances as described below, and the issuance of $8.0 million Term Notes and Convertible Notes in January 2024. Our primary
uses of cash in the short-term are to fund our operations.
On May 31, 2023, SpringBig
raised gross cash proceeds of approximately $3.0 million through a public equity offering and in addition $1.25 million of the outstanding
principal of the 6% Senior Secured Convertible Note was converted into common shares. In aggregate, 14.0 million common shares were issued,
of which, approximately 1.0 million related to conversion of a portion of the 6% Senior Secured Convertible Note to common shares on June
15, 2023. The cash proceeds from the public equity offering, after payment of transaction related fees, were $2.5 million and these funds
were in part used to make further repayments of principal of the 6% Senior Secured Convertible Note and in part for general corporate
purposes.
On July 25, 2023, the Company
entered into an agreement (the “Cash Advance”) with Cedar Advance LLC (“Cedar”) to sell future receivables to
Cedar in exchange for an advance of $1.0 million. On November 22, 2023, the Company extended the Cash Advance, receiving a further advance
of $0.3 million. As of December 31, 2023, the total outstanding amount payable to Cedar was $1.1 million. The Cash Advance was fully repaid
during the year ended December 31, 2024.
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On October 16, 2023, the
Company entered into an agreement (the “ACF Cash Advance”) with Agile Capital Funding, LLC (“ACF”) to sell future
receivables to ACF in exchange for an advance of $750,000. On December 7, 2023, the Company extended the ACF Cash Advance, receiving a
further advance of $0.5 million. As of December 31, 2023, the total outstanding amount payable to ACF was $1.7 million. The ACF Cash Advance
was fully repaid during the year ended December 31, 2024.
On January 16, 2024, the Company entered
into an agreement with the note holder to repurchase the entire outstanding principal of the 6% Senior Secured Notes and cancel the associated
warrants. The outstanding principal and accrued interest was $5.2 million. SpringBig, using a portion of the proceeds from the 8% Convertible
Notes, purchased the entire outstanding obligation to the note holder for $2.9 million.
On January 23, 2024, the
Company raised $6.4 million through the issuance of 8% Convertible Notes and $1.6 million through the issuance of 12% Term Notes. The
net cash proceeds, after transaction expenses, were $7.2 million.
The 8% Convertible Notes
accrue interest which is added to the outstanding principal balance semi-annually. The Notes are convertible into common stock at a conversion
price of $0.15 per share at the holder’s option any time up to the day prior to maturity, initially in January 2026. The 12% Term
Notes, initially due at issuance in January 2026, accrue interest payable in cash semi-annually. The 8% Convertible Notes and 12% Term
Notes rank pari passu and are secured by substantially all the assets of the Company.
On November 11, 2024, the
Company amended the terms of the 12% Secured Term Notes and 8% Secured Convertible Notes including extending the maturity date to January
23, 2027, amending the interest rates and adjusting the requirement for the Company to maintain a minimum cash balance of at least $1
million with the provision now applicable only at the end of any calendar month commencing on or after February 1, 2025.
The interest rates on the
12% Secured Term Notes and 8% Secured Convertible Notes increase to 17% and 13%, respectively, with effect from the date of amendment,
with the interest rates then reducing by 0.75% for each three-month period that the Company reports an Adjusted EBITDA exceeding $900,000,
starting with the three months ending March 31, 2025, subject to a maximum reduction to 14% and 10%, respectively. In addition, a sum
of $64,000 is payable to the holders of the 12% Secured Term Notes in January 2025, and the principal amount of the 8% Secured Convertible
Notes was increased by $266,000 with effect from the date of the amendment.
The Company may prepay any
portion of the 12% Secured Term Notes, without penalty, at any time after February 1, 2025.
The following table summarizes
our cash, accounts receivable, and working capital at December 31, 2024 and December 31, 2023 (in thousands):
Cash and cash equivalents $ 1,179 $ 331
To the extent existing cash
and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional
funds through equity, equity-linked or debt financings. If we raise additional funds by incurring indebtedness, such indebtedness may
have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity
financing may be dilutive to stockholders. Further, the 8% Convertible Notes and 12% Term Notes also contain a number of restrictive covenants
that may impose significant restrictions on obtaining future financings, including restrictions on SpringBig’s ability to do any
of each following while the 8% Convertible Notes and 12% Term Notes remain outstanding: (i) incurring
additional indebtedness and guaranteeing indebtedness; (ii) incurring liens or allowing mortgages or other encumbrances; (iii) prepaying,
redeeming, or repurchasing certain other debt; (iv) paying dividends or making other distributions or repurchasing or redeeming its capital
stock; (v) selling assets or entering into or effecting certain other transactions (including a reorganization, consolidation, dissolution
or similar transaction or selling, leasing, licensing, transferring or otherwise disposing of assets of the Company or its subsidiaries);
(vi) issuing additional equity (outside of issuances under our equity compensation plan); and (vii) adopting certain amendments to our
governing documents, among other restrictions. Accordingly, we may be limited in our ability to raise additional capital on acceptable
terms or at all within such limitations. Such restrictions may be waived by consent of the noteholders.
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Cash Flows
The following table summarizes
our cash flows from operating, investing and financing activities for the years ended December 31, 2024, and 2023 (in thousands):
Years Ended December 31,
Total cash (used in) provided by:
Operating activities $ (953 ) $ (3,976 )
Investing activities (64 ) (351 )
Operating Activities
Cash used in operating activities
consists primarily of net loss adjusted for certain non-cash items, including depreciation and amortization, non-cash stock compensation
expenses, changes in the fair value of financial instruments and the effect of changes in working capital and other activities.
For the year ended December
31, 2024, the net loss was $1.9 million and the cash used in operating activities was $1.0 million. The difference of $0.9 million is
due to $2.0 million of non-cash items (comprising $0.6 million loss on debt extinguishment, $0.7 million credit loss expense, $0.7 million
relating to stock compensation expense, $0.2 million relating to depreciation and amortization, $0.4 million relating to amortization
of operating lease right of use asset, $0.4 million amortization of debt financing costs and $0.5 million accrued interest, offset by
a $1.5 million gain on the repurchase of convertible notes) and a $1.1 million increase in working capital, primarily due to a $1.6 million
reduction in accounts payable and other liabilities.
For the year ended December
31, 2023, the net loss was $10.2 million and cash used in operating activities was $4.0 million. The difference of $6.2 million is due
to $1.5 million of non-cash items (comprising $0.8 million relating to stock compensation expense, $1.0 million relating to depreciation
and amortization and $0.4 million relating to asset write-offs, offset by a $0.3 million gain on fair value of warrants, $1.7 million
deferred payroll tax credit cash receipt, and a $2.6 million increase in working capital, primarily due to a $2.2 million increase in
accounts payable and other liabilities.
Investing Activities
SpringBig has low capital
investment requirements, with our needs comprising primarily computer equipment and office furniture and related items. Cash used in investing
activities was $0.1 million for the year ended December 31, 2024, and $0.4 million for the year ended December 31, 2023.
Financing Activities
During the year ended December
31, 2024, the net cash provided by financing activities was $1.9 million, comprising $7.2 million, net of issuance costs, from the issuance
of $6.4 million Secured Convertible Notes and $1.6 million Secured Term Notes, offset by repayment of $1.9 million short-term cash advances,
$2.9 million repurchase of convertible notes and $0.5 million repayment of a related party payable.
During the year ended December
31, 2023, the net cash provided by financing activities was $1.1 million, comprising $2.7 million from the issuance of common stock and
exercise of employee stock options, $1.9 million from short-term cash advances, net of repayments, offset by $3.2 million used to repay
the 6% Senior Secured Convertible Note.
Off-Balance Sheet Arrangements
At December 31, 2024, there
were no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future
effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to shareholders.
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Critical Accounting
Estimates
The preparation of financial
statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues
and expenses during the period reported. Certain accounting policies involve a “critical accounting estimate” because they
are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting
estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different
acceptable assumptions would yield different results. Changes in the accounting estimates are reasonably likely to occur from period to
period, which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates
and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary. We believe that
the assumptions and estimates associated with income taxes, equity-based compensation, and allowance for credit losses have the greatest
potential impact on our consolidated financial statements. Therefore, we consider the policies related to income taxes, equity-based compensation,
and allowance for credit losses to be our critical accounting policies.
Valuation of the 2024
Secured Term Notes and 2024 Secured Convertible Notes Carrying Values Regarding Debt Modification or Extinguishment
Consistent with FASB ASC Topic 470 Debt,
(“ASC 470”), the Company is required to perform an analysis of the change associated with the aforementioned amendments to
determine whether the change is a modification or an extinguishment of debt. Under a modification, no gain or loss is recorded, and a
new effective interest rate is established based on the carrying value of the debt and revised cash flow. If the debt is extinguished,
the old debt is derecognized and the new debt is recorded at fair value, which becomes the new carrying value. A gain or loss is recorded
for the difference between the net carrying value of the original debt and the fair value of the new debt. Interest expense is recorded
based on the effective interest rate of the new debt. A debt is considered extinguished if the present value of the new cash flows under
the term of the new debt is at least 10% different from the present value of the remaining cash flows under the terms of the old debt.
In connection with the aforementioned amendments, the Company determined
that the change to the 2024 Secured Term Notes was a modification consistent with ASC 470. The Company determined that the change to the
2024 Secured Convertible Notes was an extinguishment consistent with ASC 470, with the old debt of $6.3 million was derecognized and the
new debt of $6.9 million was recognized at estimated fair value. As such, a loss on extinguishment of $0.6 million was recognized in the
accompanying consolidated statement of operations for the year ended December 31, 2024.
Income Taxes
The Company records current income
taxes based on our estimates of current taxable income and provide for deferred income taxes to reflect estimated future income tax payments
and receipts. We are subject to federal income taxes as well as state taxes. In addition, we are subject to taxes in the foreign jurisdictions
where we operate.
The Company records a deferred
tax asset or liability based on the difference between financial statement and tax basis of assets and liabilities as measured by the
anticipated tax rates which will be in effect when these differences reverse. The measurement of deferred tax assets is reduced, if necessary,
by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The Company adopted ASU 2016-17,
Balance Sheet Classification of Deferred Taxes. The guidance requires that all deferred tax assets and liabilities, along with
any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will only have one net
noncurrent deferred tax asset or liability.
The Company has evaluated
its tax positions for any uncertainties based on the technical merits of the positions taken. The Company recognizes the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be upheld on examination by taxing authorities.
The Company has analyzed the tax positions taken and has concluded that as of December 31, 2024, and 2023, there are no uncertain tax
positions taken, or expected to be taken, that would require recognition of a liability or disclosure in the financial statements.
Stock-Based Compensation
ASC 718, Compensation
- Stock Compensation, addresses accounting for share-based awards, including stock options, restricted stock, performance shares and
warrant. Stock-based compensation for stock options to employees and non-employees is based upon the fair value of the award on the date
of grant. We record forfeitures as they occur. The compensation cost is recognized over the requisite service period, which is generally
the vesting period, and is included in general and administrative expenses in the consolidated statements of operations.
The Company estimates the
fair value of stock options using the Black-Scholes valuation model. The expected life represents the term the options granted are expected
to be outstanding. The expected volatility was determined using the historical volatility of similar publicly traded companies. The risk-free
interest rate is based on the U.S. Treasury rate in effect at the time of grant.
Allowance for Credit
Losses
The Company’s reserve
methodology used to determine the appropriate level of the allowance for credit losses (“ACL”) is a critical accounting estimate.
The ACL is maintained at a level believed to be appropriate to provide for the current credit losses expected to be incurred with respect
to accounts receivable balances at the balance sheet date, including balances associated with known or anticipated problem customers.
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Accounts receivables are
charged off to the extent they are deemed to be uncollectible. Net charge-offs are included in historical data utilized for calculating
the ACL. Management maintains a framework of controls over the estimation process for the ACL, including review of historical data and
facts and circumstances related to specific customers, for compliance with GAAP. Management has a quarterly process to review the appropriateness
of historical observation periods and loss assumptions. Management also maintains controls over the information systems, models and spreadsheets
used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive
loss rates, the probability of default, loss given default, and the inputs to industry and macroeconomic forecasts.
Recent Accounting Pronouncements
See the section titled “Summary
of Significant Accounting Policies” in Note 2 of the notes to our audited consolidated financial statements included in this report
for more information.
Emerging Growth Company and Smaller Reporting
Company Status
Section 107 of the JOBS Act
provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can
delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Section 107 of the
JOBS Act provides that any decision to opt out of the extended transition period for complying with new or revised accounting standards
is irrevocable. We have elected to use this extended transition period under the JOBS Act.
We are also a “smaller
reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer
an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will
be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by
non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is
less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock
held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations within
the United States and limited operations with customers located in Canada, and we are exposed to market risks in the ordinary course of
our business, including the effects of interest rate changes, inflation and exchange rate charges. Information relating to quantitative
and qualitative disclosures about these market risks is set forth below.
Interest Rate Fluctuation Risk
We consider all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
The primary objective of
our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and
cash equivalents have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. In future
periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.
Inflation
We do not believe that inflation
has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation
in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become
subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability
or failure to do so could harm our business, financial condition and results of operations.
Exchange Rate Risk
We have operations in Toronto,
Canada and customers located in Canada. Given our reporting currency is US dollars, this results in exchange rate translation risk. The
effect is minimized by matching our Canadian income and expense with our Canadian customers being invoiced in their local currency. The
exchange rate risk to our financial statements is immaterial.
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Item 8. Financial Statements
SPRINGBIG HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements Page
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3
Notes to Consolidated Financial Statements F-7
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors
and Shareholders of
SpringBig Holdings, Inc.
Opinion on the Consolidated
Financial Statements
We have audited the accompanying
consolidated balance sheet of SpringBig Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2024, and the
related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
/s/ WithumSmith+Brown, PC
We have served as the
Company’s auditor since 2024.
New York, New York
March 27, 2025
PCAOB ID Number 100
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTIG FIRM
To the Stockholders and Board of Directors of
SpringBig Holdings Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheet of SpringBig Holdings, Inc. (the “Company”) as of December 31, 2023, and the related
consolidated statements of operations, stockholders’ deficit and cash flows for the year ended December 31, 2023, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations
and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We served as the Company’s auditor from 2021 through April 2024.
Fort Lauderdale, Florida
April 1, 2024, except for Segments in Note 2 and Segment Reporting
in Note 22, as to which the date is March 27, 2025
F-2
Springbig Holding, Inc
Consolidated Balance Sheets
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 1,179 $ 331
Prepaid expenses and other current assets 284 893
Operating lease asset, non-current 2,757 340
Property and equipment, net 204 320
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accrued expenses and other current liabilities 2,630 1,951
Short-term cash advances - 1,925
Current maturities of debt - 4,360
Related party payable - 540
Operating lease liability, current 365 99
Long-term debt, non-current 8,364 -
Operating lease liability, non-current 2,551 225
Warrant liabilities 11 3
Stockholders’ Deficit
Total stockholders’ deficit (9,771 ) (8,674 )
Total liabilities and stockholders’ deficit $ 6,825 $ 5,105
See accompanying notes to consolidated financial statements
F-3
Springbig Holding, Inc
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
Expenses
Selling, servicing and marketing 4,726 8,278
Technology and software development 5,901 8,011
Loss from operations (600 ) (8,340 )
Other income (expenses)
Interest income 6 24
Gain on note repurchase 1,573 -
Loss on debt extinguishment (636 ) -
Change in fair value of warrants (8 ) 334
Loss before income taxes $ (1,873 ) $ (10,229 )
Income taxes expense 3 4
Net loss per common share:
Basic and diluted $ (0.04 ) $ (0.28 )
Weighted-average common shares outstanding:
See accompanying notes to consolidated financial statements
F-4