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BKKT Bakkt

Filed: 11 Nov 21, 7:00pm
As filed with the Securities and Exchange Commission on November 12, 2021.
Registration No. 333-          
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Bakkt Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
7389
 
98-1550750
(State or other jurisdiction of

incorporation or organization)
 
(Primary Standard Industrial

Classification Code Number)
 
(I.R.S. Employer

Identification Number)
10000 Avalon Boulevard, Suite 1000
Alpharetta, Georgia 30009
(678)
534-5849
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Gavin Michael
Chief Executive Officer
10000 Avalon Boulevard, Suite 1000
Alpharetta, Georgia 30009
(678)
534-5849
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
 
J. Matthew Lyons
 
Marc D’Annunzio
Austin D. March
 
General Counsel
Wilson Sonsini Goodrich & Rosati, P.C.
 
10000 Avalon Boulevard, Suite 1000
900 S. Capital of Texas Highway
 
Alpharetta, Georgia 30009
Las Cimas IV, 5th Floor
 
(678) 534-5849
Austin, TX 78746
 
 
(512)
338-5400
 
 
 
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
    
Non-accelerated filer
 
  
Smaller reporting company
 
    
 
 
 
  
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.  ☐
 
CALCULATION OF REGISTRATION FEE
 
 
Title of Each Class of
Securities to be Registered
 
Amount
to be
Registered
(1)
 
Proposed
Maximum
Offering Price
per Share
 
Proposed
Maximum
Aggregate
Offering Price
 
Amount of
Registration Fee
Class A common stock, par value $0.0001 per share
(2)
   32,500,000 
$26.01
(3)
 
$   845,325,000.00
(3)
     78,361.63
Class A common stock, par value $0.0001 per share
(4)
 190,726,638 
26.01
(3)
 
  4,960,799,854.38
(3)
   459,866.15
Class A common stock, par value $0.0001 per share
(5)
     5,184,300 
26.01
(3)
 
     134,843,643.00
(3)
     12,500.01
Warrants to purchase Class A common stock
(6)
     6,147,440 
 
 
 
 
(7)
 
Class A common stock, par value $0.0001 per share
(8)
     6,147,440 
26.01
(3)
 
     159,894,914.40
(3)
     14,822.26
Total
 —   —   
$6,100,863,411.78
    
 $565,550.04
 
 
(1)
Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the “
Securities Act
”), the registrant is also registering an indeterminate number of additional shares of Class A Common Stock, par value $0.0001 per share (“
Class
 A Common Stock
”), that may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
(2)
Relates to 32,500,000 shares of Class A Common Stock issued to certain qualified institutional buyers and accredited investors in a private placement.
(3)
Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of the shares of Class A Common Stock on The New York Stock Exchange (“
NYSE
”) on November 11, 2021 in accordance with Rule 457(c) of the Securities Act.
(4)
Relates to 190,726,638 shares of Class A Common Stock, issuable upon the exchange of outstanding and issuable Paired Interests (as defined herein).
(5)
Relates to 5,184,300 shares of Class A Common Stock issued to VPC Impact Acquisition Holdings Sponsor, LLC (the “Sponsor”) and certain of its affiliates upon the conversion the Founder shares (as defined herein).
(6)
Relates to 6,147,440 warrants to purchase shares of Class A Common Stock issued to the Sponsor.
(7)
Pursuant to Rule 457(g) under the Securities Act, no separate fee is recorded for the warrants, and the entire fee is allocated to the underlying Class A Common Stock.
(8)
Relates to shares of Class A Common Stock issuable upon the exercise of certain warrants to purchase Class A Common Stock, each exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
PRELIMINARY PROSPECTUS
    
Subject to Completion
  
November 12, 2021
190,726,638 Shares of Class A Common Stock Issuable Upon the Exchange of Paired Interests
6,147,440 shares of Class A Common Stock Issuable Upon the Exchange of Private Placement Warrants
32,500,000 Shares of Class A Common Stock issued in the PIPE Financing
5,184,300 Shares of Class A Common Stock Issued in Respect of Founder Shares
6,147,440 Warrants to Purchase Shares of Class A Common Stock
 
 
 
This prospectus relates to the issuance by us, and the resale by the Selling Securityholders (as defined in “Selling Securityholders” below), of (i) up to 190,726,638 shares of Class A common stock, par value $0.0001 per share (“
Class
 A Common Stock
”), issuable upon the exchange of an equal number of Paired Interests (the “
Legacy Opco Shares
”); and (ii) up to 6,147,440 shares of Class A Common Stock that may be issued upon the exercise of the Private Placement Warrants (as defined below). This prospectus also relates to the resale by the Selling Securityholders of (i) 32,500,000 shares of Class A Common Stock (the “
PIPE Shares
”) issued in the PIPE Financing; (ii) 5,184,300 shares of Class A Common Stock issued to VPC Impact Acquisition Holdings Sponsor, LLC (the “
Sponsor
”) and certain of its affiliates that relate to securities acquired by them prior to the initial public offering (the “
Founder Shares
”); and (iii) 6,147,440 warrants to purchase Class A Common Stock issued to the Sponsor (the “
Private Placement Warrants
”). Unless otherwise defined, capitalized terms have the meanings ascribed to them in the Explanatory Note below.
The Selling Securityholders may sell any, all or none of the securities and we do not know when or in what amount the Selling Securityholders may sell their securities hereunder following the date of this prospectus. The Selling Securityholders may sell the securities described in this prospectus in a number of different ways and at varying prices. See “
Plan of Distribution
” for more information about how the Selling Securityholders may sell their securities.
We are registering the offer and sale of these securities to satisfy certain registration rights we have granted under certain agreements between us and the Selling Securityholders. We will not receive any of the proceeds from the sale of the securities by the Selling Securityholders. We will receive proceeds from the exercise of the Private Placement Warrants if the Private Placement Warrants are exercised for cash. We will pay the expenses associated with registering the sales by the Selling Securityholders other than any underwriting discounts and commissions; see “
Use of Proceeds
” for more information.
The Legacy Opco Shares, the Founder Shares and the Private Warrant Shares are subject to certain
lock-up
restrictions, as described in more detail below under “
The
Offering—Lock-Up
Restrictions
.”
Our Class A Common Stock is listed on The New York Stock Exchange (“
NYSE
”) under the symbol “BKKT” and our warrants to purchase Class A Common Stock other than the Private Placement Warrants (the “Public Warrants” and together with the Private Placement Warrants, the “Warrants”) are listed on NYSE under the symbol “BKKT WS.” On November 10, 2021, the last quoted sale price for our Class A Common Stock as reported on NYSE was $25.45 per share and the last quoted sale price for our Public Warrants as reported on NYSE was $9.30 per warrant.
We are an “emerging growth company,” as defined under the federal securities laws, and have elected to comply with certain reduced public company reporting requirements for this prospectus and for future filings.
Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “
Risk Factors
” of this prospectus.
You should rely only on the information contained in this prospectus or any prospectus supplement or amendment hereto. We have not authorized anyone to provide you with different information.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
Prospectus dated                 , 2021


ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus or in any applicable prospectus supplement prepared by us or on our behalf. Neither we nor the Selling Securityholders have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the Selling Securityholders are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus is part of a registration statement on Form
S-1
that we filed with the Securities and Exchange Commission (the “
SEC
”) using the “shelf” registration process. Under this shelf registration process, the Selling Securityholders hereunder may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Securityholders of the securities offered by them described in this prospectus.
We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the section of this prospectus titled “
Where You Can Find Additional Information
.”
This document contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the
®
or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Information contained in this prospectus concerning the market and the industry in which we compete, including our market position, general expectations of market opportunity, size and growth rates, is based on information from various third-party sources, on assumptions made by us based on such sources and our knowledge of the markets for our services and solutions. This information and any estimates provided herein involve numerous assumptions and limitations, and you are cautioned not to give undue weight to such information. Third-party sources generally state that the information contained in such source has been obtained from sources believed to be reliable but that there can be no assurance as to the accuracy or completeness of such information. We have not independently verified this third-party information. The industry in which we operate is subject to a high degree of uncertainty and risk. As a result, the estimates and market and industry information provided in this prospectus are subject to change based on various factors, including those described in the sections titled “
Cautionary Note Regarding Forward-Looking Statements
” and “
Risk Factors
.”
 
ii

EXPLANATORY NOTE
On October 15, 2021, Bakkt Holdings, Inc., a Delaware corporation (f/k/a VPC Impact Acquisition Holdings, a Cayman Islands exempted company (“
the Company
”)), consummated the previously announced business combination (the “
Closing
”) pursuant to that certain Agreement and Plan of Merger, dated as of January 11, 2021 (as amended, the “
Merger Agreement
”), by and among it, Pylon Merger Company LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“
Merger Sub
”), and Bakkt Opco Holdings, LLC, a Delaware limited liability company (f/k/a/ Bakkt Holdings, LLC (“
Opco
”)). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Opco, with Opco surviving as the surviving limited liability company and as a wholly owned subsidiary of the Company (the “
Merger
”).
In connection with the transactions contemplated by the Merger Agreement (the “
Business Combination
”), the Company effected a deregistration under the Cayman Islands Companies Law (2020 Revision) and a domestication under Section 388 of the Delaware General Corporation Law (“
DGCL
”), pursuant to which the Company’s jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware (the “
Domestication
”), and changed its name to “Bakkt Holdings, Inc.”
As a result of the Domestication, (i) all 12,285,160 outstanding Class A ordinary shares of the Company, par value $0.0001 per share (the “
Class
 A Ordinary Shares
”), and 5,184,300 Class B ordinary shares of the Company, par value $0.0001 per share (the “
Founder Shares
” or “
Class
 B Ordinary Shares
”), issued to VPC Impact Acquisition Holdings Sponsor, LLC (the “
Sponsor
”) and certain of its affiliates, were exchanged for an equivalent number of shares of Class A Common Stock and (ii) all 10,368,601 outstanding warrants to purchase Class A Ordinary Shares at $11.50 per share issued in connection with our initial public offering (the “
IPO
”) and the 6,147,440 warrants issued to the Sponsor in a private placement concurrently with the IPO (i.e., the Public Warrants and the Private Placement Warrants) were exchanged for an equivalent number of warrants to purchase Class A Common Stock.
At the Closing, in accordance with the Merger Agreement, Opco equity holders (the “
Opco Equity Holders
”) received an aggregate of 208,200,000 common units of Opco (“
Opco Common Units
”) and a corresponding number of shares of Class V common stock, par value $0.0001 per share, of the Company (“
Class
 V Common Stock
,” and each share of Class V Common Stock, when coupled with one Opco Common Unit, a “
Paired Interest
”) or warrants to purchase Opco Common Units and an equal number of Class V Common Stock. Pursuant to the Third Amended and Restated LLC Agreement of Opco (the “
Opco LLC Agreement
”), and an exchange agreement among the Company, Opco and the Opco Equity Holders (the “
Exchange Agreement
”), each entered into in connection with the Business Combination, each Paired Interest may be exchanged for one share of Class A Common Stock or a specified cash amount, subject to certain limitations.
In connection with the consummation of the Business Combination, certain qualified institutional buyers and accredited investors (the “
PIPE Investors
”) purchased the 32,500,000 PIPE Shares from the Company for a purchase price of $10.00 per share and an aggregate purchase price of $325 million (the “
PIPE Financing
”), pursuant to Subscription Agreements between the several PIPE Investors and the Company (the “
Subscription Agreements
”). Pursuant to the Subscription Agreements, the Company gave certain registration rights to the PIPE Investors with respect to the PIPE Shares.
As of the open of trading on October 18, 2021, the Class A Common Stock and the Public Warrants began trading on The New York Stock Exchange (“
NYSE
”) under the symbols “BKKT” and “BKKT WS,” respectively.
The Business Combination will be accounted for in accordance with Accounting Standards Codification (“
ASC
”) 805, Business Combinations, using the acquisition method, with the Company considered the acquiror and Opco considered the acquiree. For ease of reader understanding, however, because the Company, prior to the Closing, was a shell company with no material assets other than the cash it held in Trust Account (as defined below), unless otherwise noted or the context otherwise requires, references to “we,” “us,” “our,” “Bakkt” and like terms refer (i) prior to the Closing, to Opco and its subsidiaries and (ii) after the Closing, to Bakkt Holdings, Inc. and its subsidiaries, including Opco.
 
iii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. You can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would,” the negative of such terms, and other similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to our business. Forward-looking statements in this prospectus may include, for example, statements about:
 
  
our future financial performance;
 
  
changes in the market for our products and services; and
 
  
expansion plans and opportunities.
These forward-looking statements are based on information available as of the date of this prospectus and management’s current expectations, forecasts and assumptions, and involve a number of judgments, known and/or unknown risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable law.
You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to:
 
  
our ability to grow and manage growth profitably;
 
  
changes in the market in which we compete, including with respect to our competitive landscape, technology evolution or changes in applicable laws or regulations;
 
  
changes in the digital asset markets that we target;
 
  
changes to our relationships within the payment ecosystem;
 
  
the inability to launch new services and products or to profitably expand into new markets and services;
 
  
the inability to execute our growth strategies, including identifying and executing acquisitions;
 
  
the inability to develop and maintain effective internal controls and procedures;
 
  
the exposure to any liability, protracted and costly litigation or reputational damage relating to our data security;
 
  
the possibility that we may be adversely affected by other economic, business, and/or competitive factors;
 
  
the impact of the novel coronavirus pandemic;
 
  
our inability to maintain the listing of our Class A Common Stock and Warrants on the NYSE; and
 
  
other risks and uncertainties indicated in this prospectus, including those set forth under “
Risk Factors
.”
 
iv

PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus. It does not contain all the information you should consider before investing in our Class A Common Stock or Warrants. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of VPC Impact Acquisition Holdings” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.
Overview
Bakkt is a digital asset marketplace headquartered in Alpharetta, Georgia. Bakkt was launched in 2018 by Intercontinental Exchange, Inc. (“
ICE
”) and a group of investors and strategic partners. Since its founding, Bakkt has developed technology enabling financial institutions, businesses and consumers to buy, sell, convert, spend, store and send digital assets. Bakkt’s platform, available through Bakkt’s consumer app, enables incremental consumer spending, reduces traditional payment costs and bolsters loyalty programs, adding value for all key stakeholders within the payments and digital assets ecosystem. In building its platform, Bakkt leveraged ICE’s ability to create secure and regulated market infrastructure, to make Bakkt a trusted platform for digital assets. Bakkt, through Bakkt Trust Company LLC, a wholly owned subsidiary of Bakkt (“
Bakkt Trust
”), is chartered as a New York limited purpose trust company, authorized to custody digital assets, including bitcoin, for customers.
Organizational Structure
The following diagram illustrates our ownership structure immediately following the Closing. The equity interests reflected in the diagram include (i) 12,285,160 shares of Class A Common Stock that are publicly traded, (ii) 208,200,000 shares of Class V Common Stock (207,406,648 of which are outstanding and 793,352 of which are issuable upon exercise of a warrant, and which, along with an equal number of Opco Units, comprise an equal number of Paired Interests) held by the Opco Equityholders, (iii) 32,500,000 shares of Class A Common Stock held by the PIPE Investors, (iv) 5,184,300 shares of Class A Common Stock held by the Sponsor and
 
1

certain directors of the Company prior to the Business Combination, (v) 6,147,440 Private Placement Warrants held by the Sponsor and (vi) 10,368,601 Public Warrants that are traded publicly.
 
Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the “Risk Factors” immediately following this prospectus summary. The following is a summary of the principal risks we face:
 
  
Our business model is newly developed, untested and continually evolving and may encounter additional risks and challenges as it grows and changes.
 
  
If we are unable to add additional functionalities and digital assets to our platform, our prospects for future growth may be adversely affected.
 
  
We have a limited operating history and a history of operating losses, which make it difficult to forecast our future results of operations. Further, we expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve or sustain profitability to satisfy such increased expenses.
 
  
The estimates of market opportunity and forecasts of market growth included in this prospectus and elsewhere may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
 
  
We face substantial and increasingly intense competition worldwide in the loyalty, rewards, payment, cryptoasset and investment industries.
 
2

  
If we fail to maintain a consistently high level of user satisfaction and trust in our brand, our business, financial condition, results of operations and future prospects may be materially and adversely affected.
 
  
If we fail to transition certain services provided to us by ICE in the past, our business could be harmed.
 
  
We rely on third parties, over which we have no control, in our business which creates additional risk, including risks related to the failure of third parties to provide various services that are important to our operations or to comply with legal or regulatory requirements.
 
  
If we experience rapid growth, it may place significant demands on our operational, administrative, and financial resources and it may be difficult to sustain such growth.
 
  
Our financial condition and results of operations may be adversely affected by the impact of the global outbreak of the coronavirus.
 
  
Cryptoasset custodial solutions and related technology, including our systems and custodial arrangements, are subject to risks related to a loss of funds due to theft of cryptoassets, employee or vendor sabotage, security and cybersecurity risks, system failures and other operational issues, the loss, destruction or other compromise of our private keys and a lack of sufficient insurance, which could cause damage to our reputation and brand.
 
  
Our business is subject to extensive government regulation, oversight, licensure and approvals. Our failure to comply with extensive, complex, uncertain, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.
 
  
If we are unable to develop and maintain effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements, which could have a material adverse effect on our business.
Corporate Information
Our principal executive offices are located at 10000 Avalon Boulevard, Suite 1000, Alpharetta, Georgia 30009. Our telephone number is (678)
534-5849.
Our website is https://www.bakkt.com. Information contained on, or that can be accessed through, our website is not a part of, and is not incorporated into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, (the “
JOBS Act
”). As such, we may take advantage of reduced disclosure and other requirements otherwise generally applicable to public companies, including:
 
  
presentation of only two years of audited financial statements and related financial disclosure;
 
  
exemption from the requirement to have our registered independent public accounting firm attest to management’s assessment of our internal control over financial reporting;
 
  
exemption from compliance with the requirement of the Public Company Accounting Oversight Board, or PCAOB, regarding the communication of critical audit matters in the auditor’s report on the financial statements;
 
  
reduced disclosure about our executive compensation arrangements; and
 
  
exemption from the requirement to hold
non-binding
advisory votes on executive compensation or golden parachute arrangements.
 
3

We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by
non-affiliates;
(3) the date on which we have issued more than $1.0 billion in
non-convertible
debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of the IPO.
As a result of this status, we have taken advantage of reduced reporting requirements in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. In particular, in this prospectus, we have provided only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations, and we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies unless it otherwise irrevocably elects not to avail itself of this exemption. We have elected to use this extended transition period for complying with new or revised accounting standards until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that comply with new or revised accounting pronouncements as of public company effective dates.
 
4

THE OFFERING
 
Shares of Common Stock and Warrants Offered Hereunder
We are registering the issuance by us, and the resale by the Selling Securityholders, of (i) up to 190,726,638 shares of Class A Common Stock issuable upon the exchange of a corresponding number of outstanding or issuable Paired Interests, and (ii) up to 6,147,440 Private Warrant Shares. We are also registering the resale by the Selling Securityholders of (i) 32,500,000 PIPE Shares, (ii) 5,184,300 Founder Shares and (iii) 6,147,440 Private Placement Warrants.
 
Use of Proceeds
All of the securities offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from the sale of the securities hereunder. We may receive up to an aggregate of approximately $70,695,560 from the exercise of the Private Placement Warrants assuming the exercise in full of all Private Placement Warrants for cash. If the Private Placement Warrants are exercised for cash, we expect to use the net proceeds from the exercise of any Private Placement Warrants for general corporate purposes. See “
Use of Proceeds
” for more information.
 
Common Stock Outstanding
49,949,460 shares of Class A Common Stock
 
 207,406,648 shares of Class V Common Stock (which, together with an equal number of Opco Common Units comprise an equal number of Paired Interests, please see “
Description of Securities—Common Stock
” for more information). An additional 793,352 shares of Class V Common Stock (along with an equal number of Opco Common Units) are issuable upon the exercise of a warrant.
 
Risk Factors
See “
Risk Factors
” and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.
 
NYSE Symbol
“BKKT” for our Class A Common Stock and “BKKT WS” for our Public Warrants.
 
Lock-Up
Restrictions
Pursuant to the Stockholders Agreement and the Insider Letter Agreement (each as described in “
Certain Relationships and Related Party Transactions
”), other than for certain permitted transfers: (i) Opco Equity Holders may not transfer, or make a public announcement of any intention to transfer, any of our equity securities (other than any PIPE Shares) or Opco’s equity securities of Opco before April 15, 2022 (the “
Opco
Lock-Up
Period
”); (ii) the Sponsor and certain individuals, each of whom was a member of the Company’s board or management team prior to the Closing (each, an “
Insider
”), may not transfer, or make a public announcement of any intention to transfer, any Private Placement Warrants or any shares
 
5

 
issuable upon the exchange of such (the “
Private Warrant Shares
”) before November 15, 2021 (the “
Private Placement Warrants
Lock-Up
Period
”) and (iii) the Sponsor and the Insiders may not transfer, or make a public announcement of any intention to transfer any Founder Shares until the earlier of (a) October 15, 2022 and (b) subsequent to the Closing, (i) if the closing price of our Class A Common Stock equals or exceeds $12.00 per share (subject to customary adjustments) for any trading days within any
30-trading
day period commencing at least 150 days after the Closing or (ii) the date on which we complete a liquidation, merger amalgamation, capital stock exchange, reorganization or other similar transaction that results in the holders of our Class A Common Stock having the right to exchange their Class A Common Stock for cash, securities or other property (the “
Founder Shares
Lock-Up
Period
” and, together with the Private Placement Warrants
Lock-Up
Period, the “
Lock-Up
Periods
”). See “
Certain Relationships and Related Party Transactions—Company Related Person Transactions—Insider Letter Agreement
” and “
Certain Relationships and Related Party Transactions—Transactions Related to the Business Combination—Stockholders Agreement
” for more information.
 
6

RISK FACTORS
Investing in our securities involves a high degree of risk. Before making an investment decision, you should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of VPC Impact Acquisition Holdings” and the Company’s and Opco’s consolidated financial statements and related notes thereto included elsewhere in this prospectus. Our business, operating results, financial condition or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, operating results, financial condition and prospects could be adversely affected. In that event, the market price of our securities could decline, and you could lose part or all of your investment.
Risks Related to Business, Finances and Operations
Our business model is newly developed, untested and continually evolving and may encounter additional risks and challenges as it grows and changes.
Our vision is that our users, which include consumers, enterprises and financial institutions, will utilize our platform as the
go-to
solution for buying, selling, converting, spending, redeeming and sending multiple types of digital assets. Our business model assumes that there will be multiple synergies and benefits for users arising out of a single platform to buy, sell, convert, spend, redeem and send digital assets that have traditionally been usable only via individual solutions. Most of the digital assets that we intend to incorporate into our platform are already being handled by incumbent providers, as well as other competitors who have established payment programs. To be successful, our platform must be able to lure users away from the existing solutions and platforms, and failure to achieve acceptance would impede our ability to develop and sustain a commercial business. There can be no assurance that our platform will gain the acceptance of users, consumers or other market participants. Because some of the digital assets that are anticipated to be available on our platform have not previously been available for these types of usage, it is difficult to predict the preferences and requirements of users, consumers or other market participants, and our platform, design and technology may not appeal to such users or others market participants, or be incompatible with new or emerging forms of digital assets or related technologies. Failure to achieve acceptance would impede our ability to develop and sustain a commercial business.
We primarily generate revenue when users buy, sell, convert, spend, redeem and send digital assets through our platform and our success depends in part on transaction volume from consumers. Although we have some recurring revenue, our future revenue will be heavily dependent on transaction fees earned from users buying, selling, converting, redeeming and spending digital assets and the margin we charge in connection with consumer purchase and sale of cryptoassets, unless and until we develop more recurring revenue opportunities for our platform. If we are not able to continue to grow our base of active users, we will not be able to continue to grow our revenues or our business, which could negatively impact our business, financial condition and results of operations and may cause us to be unable to continue as a going concern.
The attractiveness of our platform to users depends upon, among other things:
 
  
the number and variety of digital assets that users may buy, sell, convert, spend, redeem and send through our platform;
 
  
our brand and reputation, as well as users’ experience and satisfaction with, and trust and perception of, our solutions;
 
  
technological innovation; and
 
  
services and products offered by competitors.
Moreover, loyalty partners may choose to modify their rewards programs in a way that makes them less appealing to consumers or terminate their programs entirely, either of which could make our platform less
 
7

attractive to consumers. If we fail to retain existing relationships with, or attract new, loyalty partners, enterprises and financial institutions, attract new consumers to our platform, or continually expand usage and transaction volume on our platform, our business, financial condition, results of operations and prospects would be materially and adversely affected.
We will have both increased financial and reputational risks if there is a failure to launch one or more features, or if the launch of a new feature is unsuccessful. Also, there can be no assurance that we will receive support from loyalty partners or enterprises to launch features as planned or that we will operate as anticipated. We may also require regulatory approvals, additional licenses and/or consultation with regulators to add, modify or discontinue certain aspects of our business model, which could lead to delays or other complexities in effectuating such changes and have a materially adverse effect on our business and plan of operations. Furthermore, our business model entails numerous risks, including risks relating to our ability to:
 
  
manage the complexity of our business model to stay current with the industry and new technologies;
 
  
successfully enter new categories, markets and jurisdictions in which we may have limited or no prior experience;
 
  
integrate into multiple distributed ledger technologies as they currently exist and as they evolve;
 
  
successfully develop and integrate products, systems and personnel into our business operations; and
 
  
obtain and maintain required licenses and regulatory approvals for our business.
Our platform is still under development and is largely untested. Any failure by us to successfully execute on the development of our platform would have an adverse effect on our business, results of operations and financial condition.
We are in the process of developing an integrated platform consisting of a loyalty redemption platform, a digital asset marketplace and an alternative payment method. The first manifestation of this integrated platform is our consumer app, that allows consumers to buy, sell, convert, spend and send digital assets, which include cryptoassets, digital cash, gift cards, loyalty and rewards points, and in the future, upon necessary regulatory approval, securities in electronic form and
in-game
assets. We are integrating our white-labeled loyalty redemption platform, and other areas of our platform are still under development and largely untested on a commercial scale. Our consumer app was made generally available to the public in March 2021. Additional features planned for the consumer app are still under development. Any failure by us to execute on the development of our platform may have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that our platform and app, and their planned functionality, will be successfully developed. Our platform will require significant additional development in order to add all of the additional functionality and features planned by our management and discussed in this prospectus. There can be no assurance that the additional functionality and features currently planned for our platform will be successfully developed, including those intended to be included in our consumer app, in a timely fashion or at all. Any problems that we encounter with the operation of our platform, including technical, legal and regulatory problems, could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to add additional functionalities and digital assets to our platform, our prospects for future growth may be adversely affected.
Our platform will initially reflect a subset of the planned functionalities and digital assets and a limited number of enterprise and loyalty partners and financial institutions. Our ability to attract and retain users to our platform, and therefore increase revenues, depends on our ability to successfully expand our platform’s functionalities and digital assets over time. Accordingly, we intend to add enterprise and additional loyalty partners, financial institutions and digital assets, including additional cryptoassets and equity securities, in the future, but our management has not yet determined either the order that additional partners and digital assets will
 
8

be included or the timing of any such additions. Any substantial delay in the inclusion of additional partners and digital assets may have an adverse effect on our business, financial condition and results of operations. We will have both increased financial and reputational risks if there is a failure to launch one or more functionalities, or if the launch of a new functionality or digital asset is unsuccessful. Also, there can be no assurance that we will receive the necessary regulatory approvals or support from partners to launch features as planned or that we will operate as anticipated.
Our success in any field depends on our deep understanding of the industry. To penetrate new markets and add new functionalities, we will need to develop a similar understanding of those new markets and the associated business challenges faced by participants in them. Developing this level of understanding may require substantial investments of time and resources, and we may not be successful. In addition to the need for substantial resources, regulation could limit our ability to introduce new platform opportunities. For instance, the equity securities trading and lending industries are highly regulated. Our proposed operations in these fields could take an extended period of time to be approved by regulatory authorities, or may not be approved at all, and, if approved, would require us to devote additional resources to compliance. Further, as digital assets and distributed ledger technologies evolve, we may add, modify or discontinue certain aspects of our business model relating to the product mix and service offerings. Future additions and modifications to our business will increase the complexity of our business and place significant strain on our management, personnel, operations, systems, technical performance, financial resources and internal financial control and reporting functions. We cannot offer any assurance that these or any other additions or modifications will be successful or will not result in harm to our business. If we fail to penetrate new markets successfully, our revenue may grow at a slower rate than we anticipate and our business, financial condition and results of operations could be materially and adversely affected.
We have a limited operating history and a history of operating losses, which make it difficult to forecast our future results of operations. Further, we expect our operating expenses to increase significantly in the foreseeable future, and we may not achieve or sustain profitability to satisfy such increased expenses.
We were founded in 2018 and have experienced net losses in the periods from inception through December 31, 2020. Our revenue was $28.5 million in 2020 and $25.8 million in the nine months ended September 30, 2021, and we generated net losses of $79.6 million in 2020 and $89.6 million in the nine months ended September 30, 2021. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue was achieved largely as the result of our white-labeled loyalty redemption product to loyalty partners and does not reflect any revenues from the launch of our broader platform or our initial attempt at attracting consumers directly through the launch of our consumer app, and therefore should not be considered indicative of our future performance.
Because of our limited operating history and the fact that our historical revenue was not derived from our currently planned business model, our future revenue growth is difficult to predict. Even if we experience strong revenue growth, in future periods our revenue or revenue growth could decline for a number of reasons, including slowing demand for our platform, increased competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described below. If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.
We expect our operating costs and expenses to increase substantially in the foreseeable future. In particular, we intend to continue to invest significant resources to further develop our platform and expand our sales,
 
9

marketing and professional services teams. We will also incur increased general and administrative expenses associated with our growth, including legal and accounting expenses and costs related to internal systems and operating as a public company. Our efforts to grow our business may be costlier than we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase our revenue enough to offset the increase in operating expenses resulting from these investments. If we are unable to achieve the revenue growth that we expect from these investments, or achieve profitability, it would have an adverse effect on our business, financial condition and results of operations, and the value of our business and our securities may significantly decrease.
The estimates of market opportunity and forecasts of our expected market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Our market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users covered by our market opportunity estimates will participate in our platform or generate any particular level of revenue for us. Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our platform and the products of our competitors. Even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.
Substantially all of our net revenues each quarter come from transactions during that quarter, which may result in significant fluctuations in our operating results that could adversely affect our business, financial condition, results of operations and cash flows and may not fully reflect the underlying performance of our business.
Although we anticipate growing recurring revenue and intend to develop other products and services that provide recurring revenue, our quarterly results, including revenue, expenses, consumer metrics and other key metrics, will be derived from transactions during that quarter. Accordingly, our quarterly results are likely to fluctuate significantly. It is difficult for us to forecast accurately the level or source of our revenues or earnings, and the results for any one quarter are not necessarily an indication of future performance. Our quarterly results are likely to fluctuate due to a variety of factors, some of which are outside of our control. Due to the inherent difficulty in forecasting revenues, it is also difficult to forecast expenses. Quarterly and annual expenses reflected in our financial statements may be significantly different from historical or projected rates. Fluctuations in quarterly results may adversely affect the price of our securities. In addition, many of the factors that affect our quarterly results are difficult for us to predict. If our revenue, expenses, or key metrics in future quarters fall short of the expectations of our investors and financial analysts, the price of our securities could be adversely affected.
Other factors that may cause fluctuations in our quarterly results include:
 
  
our ability to attract and retain new users;
 
  
transaction volume and mix;
 
  
rates of repeat transaction and fluctuations in usage of our platform, including seasonality;
 
  
the amount and timing of our expenses related to acquiring users and the maintenance and expansion of our business, operations and infrastructure;
 
  
changes to our relationships with our enterprise and loyalty partners;
 
  
general economic, industry and market conditions, including the
COVID-19
pandemic;
 
  
our emphasis on user experience instead of near-term growth;
 
10

  
competitive dynamics in the industry in which we operate;
 
  
the amount and timing of stock-based compensation expenses;
 
  
network outages, cyberattacks, or other actual or perceived security incidents or breaches or data privacy violations;
 
  
changes in laws and regulations that impact our business;
 
  
the cost of and potential outcomes of potential claims or litigation; and
 
  
the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired technologies or businesses.
Sales efforts to large enterprise and loyalty partners involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations. If we are unable to attract additional enterprise or loyalty partners and retain and grow our relationships with our existing enterprise or loyalty partners, our business, financial condition, results of operations and future prospects would be materially and adversely affected.
For our platform to be successful, we must continue our existing, and successfully develop new, partnerships with large enterprise and loyalty partners, such as airlines, hotel chains, ecosystem providers, financial institutions and other organizations that sponsor loyalty and rewards programs, have first party rights to consumers and/or manage digital assets. Our ability to retain and grow our relationships with our enterprise and loyalty partners depends on the willingness of enterprise and loyalty partners to establish a commercial relationship with us. Moreover, our growth plan includes significant marketing expense to incentivize large organizations with whom we develop partnerships to market our consumer app and platform to their customers, which we expect would accelerate consumer adoption of our platform and lower our overall consumer acquisition cost. If large enterprise and loyalty partners with whom we develop partnerships fail to market or do not effectively market our platform to their customers, or consumers fail to adopt our platform through these marketing efforts in such numbers as we have projected, we may be required to increase spending on direct to consumer marketing and adoption efforts, our consumer acquisition costs may increase and our business, financial condition and results of operations may be adversely affected.
Sales to large enterprise and loyalty partners involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex partner requirements and substantial upfront sales costs. For example, large enterprise and loyalty partners may require considerable time to evaluate and test our platform prior to making a decision, or may request compensation that may erode our margins. Several factors influence the length and variability of our sales cycle, including the need to educate potential partners about the uses and benefits of our platform, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. In order for our sales efforts to large organizations to be successful, we often must be able to engage with senior officers of the organization. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly for each enterprise and loyalty partner, with sales to large enterprises typically taking longer to complete. If we fail to effectively manage the risks associated with sales cycles and sales to large enterprise and loyalty partners, our business, financial condition and results of operations may be adversely affected.
Additionally, certain of our recently announced partnerships have not yet been memorialized in definitive written agreements, or certain terms of the written agreements relating to such partnerships remain subject to further discussion and refinement before they can be implemented. Our ability to realize the intended benefits of these partnerships will depend on our ability to agree upon such agreements and/or otherwise memorialize terms, and to do so on terms sufficiently favorable to us. While we continue to negotiate partnership terms, we may be unable to agree to terms with such partners on commercially advantageous terms or at all, which may adversely affect our business and prospects.
 
11

Moreover, even when we execute an agreement with a large partner, we are still dependent on such partner to deploy our platform. Large partners often delay deployment for a lengthy period of time after executing an agreement. Even when large enterprise and loyalty partners begin their integration into our platform and consumer app, they do so on a limited basis but nevertheless demand implementation services, which may include customization and controls that limit the functionality of our platform, and negotiate pricing discounts, which increases our upfront investment in the sales effort with no guarantee that sales to these partners will justify our substantial upfront investment. If a large partner delays deployment for lengthy periods of time, our consumer and revenue growth may not achieve expectations and our business, financial condition and results of operations may be adversely affected.
Our agreements with our enterprise and loyalty partners have terms that range from approximately three to five years, and our existing partners can generally terminate these agreements without cause upon 30 to 90 days’ prior written notice. The termination of one or more of our agreements with a partner would result in a reduction in transaction volume and revenue and our business, financial condition, results of operations and future prospects would be materially and adversely affected.
Large enterprise and loyalty partners, including future prospects we are pursuing, that have been adversely impacted by the ongoing
COVID-19
pandemic have slowed all new business integrations, particularly those in the travel and hospitality industries. Their willingness to expend resources to integrate into our platform or support the consumer app is hampered by the uncertainty resulting from the
COVID-19
pandemic. Additionally, existing enterprise and loyalty partners may seek financial relief from obligations to us, or choose to cancel contracts with us, as a result of the
COVID-19
pandemic.
We face substantial and increasingly intense competition worldwide in the loyalty, rewards, payment, cryptoasset and investment industries.
The loyalty, rewards, payment, cryptoasset and investment industries are highly competitive, rapidly changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight. Although we do not believe that we have any single direct competitor for the full range of products we will provide through our platform, we compete against a wide range of businesses in the loyalty, rewards, payment and investment industries generally, including those that are larger than us, have greater name recognition, longer operating histories, or a dominant or more secure position, or offer other products and services to users that we do not offer, as well as smaller or younger companies that may be more agile in responding quickly to regulatory and technological changes. Many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting consumer needs, and frequent introductions of new products and services. Competition also may intensify as businesses enter into business combinations and partnerships, and established companies in other segments expand to become competitive with different aspects of our business.
We compete primarily on the basis of the following:
 
  
ability to attract, retain and engage users on our platform;
 
  
ability to demonstrate to enterprise and loyalty partners that they may achieve incremental sales and attract new customers by using and offering our services to consumers;
 
  
the strength of our integrated solution over other potential coalitions of disparate point solutions;
 
  
consumers’ confidence in the safety, security, privacy and control of their information on our platform;
 
  
ability to develop products and services across multiple commerce channels, including mobile payments, payments at the retail point of sale, cryptoassets and loyalty/rewards points; and
 
  
system reliability, regulatory compliance and data security.
We partner with many businesses and consider the ability to continue establishing these partnerships important to our business. Competition for relationships with these enterprise and loyalty partners is intense and
 
12

there can be no assurance that we will be able to continue to establish, grow, or maintain these partner relationships.
Some of our current and potential competitors have larger customer bases, broader geographic scope, volume, scale, resources and market share than we do, which may provide them significant competitive advantages. Some competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing and other regulatory requirements. They may devote greater resources to the development, promotion and sale of products and services, and offer lower prices or more effectively offer their own innovative programs, products and services.
If we are not able to differentiate our products and services from those of our competitors, drive value for our users, or effectively and efficiently align our resources with our goals and objectives, we may not be able to compete effectively in the market.
If we fail to promote, protect and maintain our brand in a cost-effective manner, we may lose market share and our revenue may decrease.
Our ability to further develop our business depends on our ability to build a strong and trusted brand. We are in the process of building our brand, and once achieved, we believe that developing, protecting and maintaining awareness of our brand in a cost-effective manner is critical to attracting new and retaining existing users to our platform. To the extent our brand exists today, it is largely visible with respect to loyalty providers, financial institutions and institutional investment products and services. Successful promotion of our brand will entail broadening our brand to consumers and will depend largely on the effectiveness of our marketing efforts (including
co-marketing
efforts with partners) and the experience of users. Our efforts to build our brand have involved significant expense, and we expect to increase our marketing spend in the near term. These brand promotion activities may not result in increased revenue and, even if they do, any increases may not offset the expenses incurred. Additionally, the successful protection and maintenance of our brand will depend on our ability to obtain, maintain, protect and enforce trademark and other intellectual property protection for our brand. If we fail to successfully promote, protect and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote, protect and maintain our brand, we may lose our existing users to our competitors or be unable to attract new users. Any such loss of existing users, or inability to attract new users, directly or through our partners, would have an adverse effect on our business, financial condition and results of operations.
If we fail to maintain a consistently high level of user satisfaction and trust in our brand, our business, financial condition, results of operations and future prospects may be materially and adversely affected.
If consumers do not trust our brand or do not have a positive experience, they may not use our platform. If enterprise and loyalty partners and financial institutions do not participate in our platform, our platform cannot attract or retain consumers, and vice versa. As a result, we have invested heavily in both our technology and our support team. If we are unable to maintain a consistently high level of positive user experience, we may lose existing users and consumers. In addition, our ability to attract new users is highly dependent on our reputation and on positive recommendations from our existing users and the partners we serve. Any failure to maintain a consistently high level of service, or a market perception that we do not maintain high-quality service, may adversely affect our reputation and the number of positive referrals that we receive. As a result, our business, financial condition, results of operations and future prospects may be materially and adversely affected.
If we fail to transition certain services provided to us by ICE in the past, our business could be harmed.
We have historically relied on ICE, a significant stockholder, to provide services with respect to certain aspects of our business, including the following:
 
  
market credibility, regulatory and industry expertise and infrastructure support;
 
13

  
critical infrastructure for custody of our cryptoassets; and
 
  
institutional-grade services to support our custody arrangements, which leverage ICE’s robust platform of security protocols.
Pursuant to a transition services agreement (the “
Transition Services Agreement
”) we signed with ICE on November 10, 2021, we have agreed to transition certain services, including technology and data center services, away from ICE that have been provided under an intercompany services agreement (“ISA”). There can be no assurance that we will be able to timely, efficiently or economically develop these capacities or provide these services without ICE, or that we will be able to procure alternative services from third parties
.
We may also be unable to provide the services at the level that they have historically been provided by ICE, or at all. For more information, see “Certain Relationships and Related Person Transactions—Opco Related Person Transactions—Transition Services Agreement.”
In the interim, because we rely on ICE to provide support services and to facilitate certain of our business activities, we may face increased operational risk. Over time, we anticipate that ICE may sell down its ownership interest in us, thereby reducing the alignment of interests between us and ICE. With or without this sell down, ICE may be subject to financial, legal, regulatory and labor issues, cyberattacks, security incidents, privacy breaches, service terminations, disruptions or interruptions, or other problems, which may impose additional costs or requirements on us or prevent ICE from providing services to us or our users on our behalf, which could harm our business. In addition, ICE may disagree with our interpretation of contract terms or applicable laws and regulations, fail or refuse to process transactions or provide other services adequately, take actions that degrade the functionality of our services, impose additional costs or requirements on us or our users, or give preferential treatment to competitive services. As a result, we may be subject to business disruptions, losses related to costs to remediate any deficiencies, consumer dissatisfaction, reputational damage, legal or regulatory proceedings, or other adverse consequences, any of which could harm our business.
We rely on third parties, over which we have no control, in our business, which creates additional risk, including risks related to the failure of third parties to provide various services that are important to our operations or to comply with legal or regulatory requirements.
We have significant vendors that, among other things, provide us with financial, technology and other services to support our platforms and other activities, including, for example, marketing services, fulfillment services, cloud-based computer and data storage and other IT solutions and payment processing.
Because we rely on third parties to provide certain of our services and to facilitate certain of our business activities, we face increased operational risk. These third parties may be subject to financial, legal, regulatory and labor issues, cyberattacks, security incidents, privacy breaches, service terminations, disruptions or interruptions, or other problems, which may impose additional costs or requirements on us or prevent these third parties from providing services to us or our users on our behalf, which could harm our business. Additionally, the Consumer Financial Protection Bureau (“
CFPB
”) and other regulators have issued guidance stating that institutions under their supervision may be held responsible for the actions of the companies with which they contract. Accordingly, we could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered.
In some cases, vendors are the sole source, or one of a limited number of sources, of the services they provide to us. For example, we are solely reliant on our agreement with our cloud computing web services provider for the provision of cloud infrastructure services to support our platform. Most of our vendor agreements are terminable by the vendor on little or no notice, and if our current vendors were to terminate their agreements with us or otherwise stop providing services to us on acceptable terms, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. If any vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy controls and electronic security systems, or suffers a cyberattack or other security incident or breach, we could be subject to CFPB, Federal Trade Commission and other regulatory enforcement actions, claims from third parties, including our consumers, and
 
14

suffer economic and reputational harm that could have an adverse effect on our business. Further, we may incur significant costs to resolve any such disruptions in service, which could adversely affect our business.
If the availability of our platform does not meet our service level commitments, our current and future revenue and reputation may be negatively impacted.
We typically commit, through service level agreements or otherwise, to maintaining a minimum service level of availability with respect to functionality, availability and response time. If we are unable to meet these commitments, we may be obligated to provide users, including customers of our custody business and customers of ICE Futures U.S., Inc. (“
IFUS
”) and ICE Clear US, Inc. (“
ICUS
”) under our digital currency trading, clearing and custody services agreement with IFUS and ICUS (the “
Triparty Agreement
”), with additional capacity at our expense. A failure to meet service level commitments for a relatively short duration could cause us to be contractually obligated to issue credits or refunds to a large number of affected institutions and consumers or result in the loss of institutions and consumers. In addition, we cannot predict whether our institutions and consumer participants will accept these credits, refunds, termination or extension rights in lieu of other legal remedies that may be available to them. Our failure to meet our commitments could also result in substantial consumer dissatisfaction or loss. Because of the loss of future revenues through the issuance of credits or the loss institutions and of consumers or other potential liabilities, our revenue could be significantly impacted if we cannot meet our service level commitments.
In addition, we rely on public cloud providers, such as Microsoft Azure and Google Cloud, and any availability interruption in the public cloud could result in us not meeting our service-level commitments. In some cases, we may not have a contractual right with our public cloud providers that compensates us for any losses due to availability interruptions in the public cloud.
Any of the above circumstances or events may harm our reputation, impair our ability to develop our platform and grow our base of users, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our business, financial condition and results of operations.
If we cannot keep pace with rapid technological developments to provide new and innovative products and services, the use of our products and services and, consequently, our revenues could decline.
Rapid, significant and disruptive technological changes impact the industries in which we operate, including developments in payment card tokenization, mobile, social commerce (i.e., ecommerce through social networks), authentication, cryptoassets (including distributed ledger and blockchain technologies), and near-field communication and other proximity payment technology, such as contactless payments. As a result, we expect new services and technologies to continue to emerge and evolve, and we cannot predict the effects of technological changes on our business. In addition to our own initiatives and innovations, we rely in part on third parties for the development of and access to new or evolving technologies. These third parties may restrict or prevent our access to, or utilization of, those technologies, as well as their platforms or products. In addition, we may not be able to accurately predict which technological developments or innovations will become widely adopted and how those technologies may be regulated. We expect that new services and technologies applicable to the industries in which we operate will continue to emerge and may be superior to, or render obsolete, the technologies we currently use 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 to develop new technologies may be inhibited by industry-wide standards, payments networks, changes to laws and regulations, resistance to change from users, third-party intellectual property rights, or other factors. Our success will depend on our ability to develop and incorporate new technologies 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 could be harmed.
 
15

If a large percentage of our revenue is concentrated with a small number of enterprise and/or loyalty partners, the loss of any such enterprise or loyalty partner would materially and adversely affect our business, financial condition, results of operations and future prospects.
The concentration of a significant portion of our business and transaction volume with a limited number of enterprise and/or loyalty partners and financial institutions exposes us disproportionately to the risk of any of those partners choosing to no longer partner with us, to the economic performance of such partners or their respective industries or to any events, circumstances, or risks affecting such partners or their respective industries. Any such loss could make our platform less appealing to existing and potential users. In addition, because our business model anticipates revenue synergies between our loyalty redemption, alternative payment method and digital asset marketplace aspects, the loss of a significant partner in one aspect would have negative repercussions across the three separate revenue streams. Accordingly, the loss of any significant enterprise or loyalty partner or financial institution relationship could materially and adversely affect our business, results of operations, financial condition and future prospects.
Failure to deal effectively with fraud, fictitious transactions, bad transactions and negative consumer experiences could increase our loss rate and harm our business and could severely diminish user confidence in and use of our platform.
It is expected that our platform will process a significant volume and dollar value of transactions daily. In the event that enterprise or loyalty partners do not fulfill their obligations to consumers on our platform, we may incur substantial losses as a result of claims from consumers. We will seek to recover such losses from the partner, but we may not fully recover them if the partner is unwilling or unable to pay. In addition, in the event of the bankruptcy or other business interruption of a partner that sells goods or services in advance of the date of their delivery or use (e.g., airline, cruise or concert tickets, custom-made goods and subscriptions), we could be liable to consumers who buy such goods or services, through chargebacks. Furthermore, any reserves we generate to offset transaction losses may be insufficient.
We may also incur substantial losses from claims that a consumer did not authorize fraudulent or erroneous transactions. We have taken measures to detect and reduce the risk of fraud on our platform, but these measures require continuous improvement and may not be effective in detecting and preventing fraud, particularly new and continually evolving forms of fraud or in connection with new or expanded product offerings. If these measures do not succeed, our business could be negatively impacted.
Our failure to correctly cause the settlement of transactions running through our platform, or the failure of a third party to correctly follow instructions regarding settlement of such transactions, could harm our business.
As our platform develops, we will be required to settle large amounts of user transactions on behalf of consumers and on behalf of or through enterprise and loyalty partners via their APIs. Our ability to correctly cause transaction settlement requires a high level of internal controls and to some degree requires the involvement and technology of our enterprise and loyalty partners. Since our platform is in its development stage, we have neither an established operating history nor proven management experience in developing or maintaining the necessary internal controls. Our success will require significant public confidence in our ability to handle large and growing transaction volumes and the cooperation of our enterprise and loyalty partners. Any failure by us, or by any third party, to maintain the necessary controls or to effect or cause settlement of transactions running through our platform accurately and in compliance with applicable regulatory requirements could result in reputational harm, lead users to discontinue or reduce their use of our platform and result in significant penalties and fines, any of which could materially harm our business.
 
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If we experience rapid growth, it may place significant demands on our operational, administrative and financial resources and it may be difficult to sustain such growth.
We have a relatively limited operating history even at our current scale and our projected growth in future periods following the launch of our consumer app exposes us to increased risks, uncertainties, expenses and difficulties. If we are unable to appropriately scale our operations to support such growth, our business, results of operations, financial condition and future prospects would be materially and adversely affected.
As a result of our growth, we face significant challenges in:
 
  
increasing the number of consumers on, and the volume of transactions facilitated through, our platform;
 
  
maintaining and developing relationships with existing and new enterprise and loyalty partners and financial institutions;
 
  
securing funding to maintain our operations and future growth;
 
  
maintaining adequate financial, business and risk controls;
 
  
implementing new or updated information and financial risk controls and procedures;
 
  
navigating complex and evolving regulatory and competitive environments;
 
  
attracting, integrating and retaining an appropriate number of qualified employees of an adequate technological skill level;
 
  
particularly in the
COVID-19
environment, training, managing and appropriately sizing our workforce and other components of our business on a timely and cost-effective basis;
 
  
expanding within existing markets;
 
  
entering new markets and introducing new solutions;
 
  
continuing to develop, maintain, protect and scale our platform;
 
  
effectively using limited personnel and technology resources; and
 
  
maintaining the security of our platform and the confidentiality of the information, including personally identifiable information, provided and utilized across our platform.
We may not be able to properly manage and scale our expanding operations effectively, and any failure to do so could adversely affect our ability to generate revenue and control our expenses, and would materially and adversely affect our business, financial condition, results of operations and future prospects.
Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our business, financial condition and results of operations.
We have in the past and may in the future seek to acquire or invest in businesses, joint ventures and platform technologies that we believe could complement or expand our platform, enhance our technology, or otherwise offer growth opportunities. Any such acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, or if we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. Any such transactions that we are able to complete may not result in the synergies or other benefits we expect to achieve, which could result in substantial impairment charges. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations.
 
17

We may require additional capital to support the growth of our business, and such capital might not be available on acceptable terms, if at all.
Other than the proceeds received from the Business Combination, we have funded our operations since inception primarily through equity financings and payments received from our platform. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, financial condition, or results of operations. If we incur debt, the debt holders would have rights senior to holders of existing securities to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our Class A Common Stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our existing securities. Our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, thus we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our securities and diluting their interests.
Our financial condition and results of operations may be adversely affected by the impact of the global outbreak of the coronavirus.
Occurrences of epidemics or pandemics, depending on their scale, may cause different degrees of damage to the national and local economies within our geographic focus. Global economic conditions may be disrupted by widespread outbreaks of infectious or contagious diseases. For example, the deadly global outbreak and continuing spread of
COVID-19
(including its variants) could have an adverse effect on the value, operating results and financial condition of our business. In addition, the impact of
COVID-19
is likely to cause substantial changes in consumer behavior and has caused restrictions on business and individual activities, which are likely to lead to reduced economic activity. These effects could be exacerbated or prolonged by the emergence of
COVID-19
variants, including the “delta” variant. Extraordinary actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of
COVID-19
(including its variants) in regions throughout the world, including travel bans, quarantines,
“stay-at-home”
orders and similar mandates for many individuals and businesses to substantially restrict daily activities has had and may continue to have an adverse effect on our financial condition and results of operations. The extent and duration of the economic slowdown attributable to
COVID-19
(including its variants) remains uncertain at this time. A continued significant economic slowdown, or periodic resurgences due to
COVID-19
variants and/or the failure to achieve appropriate vaccination or immunity rates, or the potential fading effect of certain vaccines, could have a substantial adverse effect on our financial condition, liquidity and results of operations.
Risks Related to Cryptoassets
Cryptoasset custodial solutions and related technology, including our systems and custodial arrangements, are subject to risks related to a loss of funds due to theft of cryptoassets, employee or vendor sabotage, security and cybersecurity risks, system failures and other operational issues, the loss, destruction or other compromise of our private keys and a lack of sufficient insurance, which could cause damage to our reputation and brand.
Our systems and custodial solutions involve the processing, storage and transmission of cryptoassets and data. While we contractually limit the amount of exposure we have in the event that cryptoassets are stolen or misappropriated, we cannot guarantee that these limits will protect us from additional liability and other damage. The theft or misappropriation of cryptoassets held in custody by us would likely result in financial loss, reputational damage, potential lack of trust from our users, negative press coverage and diversion of our management’s time and focus. The secure storage and transmission of cryptoassets and data over networks will be a critical element of our operations. Despite the defensive measures we may take, these threats may come
 
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from external factors such as governments, organized crime, hackers and other third parties such as outsourced or infrastructure-support providers and application developers, or may originate internally from an employee or service provider to whom we have granted access to our systems.
Cryptoasset transactions may be irrevocable, and stolen or incorrectly transferred cryptoassets may be irretrievable. Once a transaction has been verified and recorded in a block that is added to the distributed ledger, an incorrect transfer of a cryptoasset 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, the cryptoasset could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Such events would have a material adverse effect on our ability to continue as a going concern.
Cryptoassets are controllable only by the possessor of private keys relating to the distributed ledger through which the cryptoassets are held. While the distributed ledgers require a public key relating to a digital asset to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the cryptoassets. To the extent our private keys are lost, destroyed, or otherwise compromised and no backups of the private keys are accessible, we will be unable to access the cryptoassets held through the distributed ledger. Any loss of private keys relating to, or hack or other compromise of, our cryptoassets could adversely affect our consumers’ ability to access or sell their cryptoassets and could harm consumers’ trust in us and our products. Additionally, any loss of private keys relating to, or hack or other compromise of, the distributed ledger through which third parties store cryptoassets could have negative reputational effects on us and harm consumers’ trust in us and our products.
While we maintain insurance policies, those policies may not be adequate to reimburse us for losses caused by security breaches, and we may lose cryptoassets valued in excess of the insurance policy without any recourse. Unlike bank accounts or accounts at some other financial institutions, in the event of loss or loss of utility value, there is no public insurer to offer recourse to us or to any consumer and the misappropriated cryptoassets may not be easily traced to the bad actor.
Further, when cryptoasset custodial solutions or transfer venues, whether involving our systems or others, experience system failures or other operational issues, such events could result in a reduction in cryptoasset prices or confidence and impact our success and have a material adverse effect on our ability to continue as a going concern.
Our cryptoasset business’s pricing model and incentive arrangements may create conflicts of interest and affect our revenues.
In our cryptoasset business, our subsidiary, Bakkt Marketplace, LLC (“
Bakkt Marketplace
”), will transact with consumers on its platform for its own account, at a price determined by us, which will reflect a margin or other compensation to us. Bakkt Marketplace is not acting as broker on behalf of the consumer, and there is no assurance that prices on its platform will be as favorable to consumers as prices that may be available from other sources. To facilitate consumer transactions, we will enter into transactions in cryptoassets with trading counterparties. The prices at which we are able to transact with trading counterparties may affect the prices at which we buy or sell from or to consumers. In addition, we may enter into arrangements that give it an incentive to use certain trading counterparties for this purpose, which may also affect the price at which Bakkt Marketplace is willing to transact with its consumers. These arrangements may present conflicts of interest. Some consumers may object to our pricing model, as well as our arrangements with trading counterparties, and any negative views of users or market participants regarding our pricing and such arrangements could adversely affect our business.
There may be a general perception among regulators and others that cryptoassets are used to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams. Because we provide the
 
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ability to buy, sell, convert, spend and send certain cryptoassets, any negative perceptions associated with cryptoassets could harm our reputation and brand.
Cryptoassets are perceived by regulators and the general public as being susceptible to, and in fact have been used on numerous occasions for, illegal or improper uses, including money laundering, terrorist financing, illegal online gambling, fraudulent sales of goods or services, illegal sales of prescription medications or controlled substances, piracy of software, movies, music and other copyrighted or trademarked goods (in particular, digital goods), bank fraud, child pornography, human trafficking, prohibited sales of alcoholic beverages or tobacco products, securities fraud, pyramid or ponzi schemes, or to facilitate other illegal activity. Because our platform allows certain individuals and institutions that are direct customers of Bakkt Trust (we sometimes refer to the custody operations conducted by Bakkt Trust as the “
Bakkt Warehouse
”) to deposit and withdraw cryptoassets, and our platform allows consumers to buy, sell, convert, spend and send cryptoassets, this perception may harm our reputation and brand because it could be viewed as facilitating, or could otherwise become associated with, these illegal activities. Any such negative perception of our brand and reputation could harm our business. Further, banks may not provide banking services, or may cut off banking services, to businesses that provide cryptoasset-related services, which could dampen liquidity in the market and damage the public perception of cryptoassets generally or any one digital asset in particular, such as bitcoin, which could decrease the trading volume of cryptoassets.
Cryptoassets, such as bitcoin, do not have extensive historical precedence and distributed ledger technology continues to rapidly evolve. The unique characteristics of these digital assets present risks and challenges to us that could have a material adverse effect on our business.
Cryptoassets, such as bitcoin, do not have extensive historical precedence, and distributed ledger technology continues to rapidly evolve. Given the infancy of the development of cryptoasset networks, parties may be unwilling to transact in cryptoassets, which would dampen the growth, if any, of cryptoasset networks. In our capacity as a cryptoasset custodian, our platform holds cryptoassets for individual and institutional consumers, and buys, sells, sends and receives cryptoassets to fulfill buy and sell orders of such consumers, which it then holds on behalf of the consumers through the Bakkt Warehouse. The rate of change of cryptoasset networks can present technological challenges and require us to expend significant time and expenditures to adapt to new cryptoasset network technologies. Acceptance of software patches or upgrades by a significant, but not overwhelming, percentage of the users and miners in a cryptoasset network, such as the Bitcoin Network, could result in a “fork” in such network’s distributed ledger, resulting in the operation of multiple separate networks. This could require us to develop and incorporate new technologies to integrate with the new fork, which may require substantial expenditures and take considerable time, if it can be done at all. Until such time as we develop and incorporate such new technologies, consumers may not be able to access new forks or the assets available on new forks. Because cryptoasset networks are dependent upon the internet, a disruption of the internet or a cryptoasset network, such as the Bitcoin Network, would affect the ability to transfer cryptoassets, including bitcoin. The realization of one or more of the foregoing risks may have a material adverse effect on our cryptoasset trading and custody business. Moreover, because cryptoassets, including bitcoin, have been in existence for a short period of time and are continuing to develop and evolve, there may be additional risks in the future that are impossible to predict and which could have a material adverse effect on our cryptoasset and custody business.
Our financial results and the market price of our securities may be adversely affected if price volatility of cryptoassets causes our internal market maker algorithm to malfunction.
We hold cryptoassets for consumers through a consumer account at the Bakkt Warehouse, and we use a proprietary algorithm that automatically maintains the appropriate level of cryptoassets in our treasury (proprietary) account for the purposes of maintaining our desired proprietary balance of cryptoassets and fulfilling the buy and sell orders of cryptoasset consumers. The price of cryptoassets have historically been subject to dramatic price fluctuations and are highly volatile and the value of our cryptoasset holdings could be affected. Additionally, it is possible that our algorithm could fail, for example, as a result of such dramatic price
 
20

fluctuations, and cause us to have to buy or sell one or more cryptoassets for a loss relative to the price at which we bought or sold such cryptoassets from or to consumers. Further, our algorithm could malfunction and buy or sell far more or far fewer cryptoassets than is necessary for the purposes of maintaining our desired proprietary balance of cryptoassets and fulfilling the buy and sell orders of cryptoasset consumers. Such a malfunction could cause us to hold dramatically more cryptoassets than we should hold or that we have the capital to acquire, or cause us to be unable to fulfill the buy orders of consumers, all of which may cause us to experience damage to our reputation as well as financial losses. Any such losses caused by a malfunction of our algorithm may create significant volatility in our reported earnings. Any decrease in reported earnings or increased volatility of such earnings due to such losses could have a material adverse effect on the market price of our securities. Further, any future changes in U.S. generally accepted accounting principles (“GAAP”) that require us to change the manner in which we account for our cryptoassets in our own account could have a material adverse effect on our financial results and the market price of our securities.
The loss of the services of our senior management could adversely affect our business.
The experience of our senior management is a valuable asset to us. If we are unable to retain members of our core senior management team, including our Chief Executive Officer, Gavin Michael, we could experience uncertainty and significant delays or difficulty in the achievement of our development and strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed. Our management team has significant experience in the digital assets, payments, loyalty and institutional trading businesses, is responsible for many of our core competencies, and would be difficult to replace. Competition for senior executives in these businesses, especially in the unique manner in which we combine such competencies, is intense, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management team or other key personnel. Failure to retain talented senior leadership could have a material adverse effect on our business.
Our business would suffer if we fail to attract and retain highly skilled employees.
Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization, particularly information technology and sales. Further, hiring qualified and experienced personnel in this specialized technology space is difficult due to the high level of competition and scarcity of experience. Many of the companies with which we compete for experienced employees have greater resources than we do and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training employees, which increases their value to competitors that may seek to recruit them. We may not be able to attract, develop and maintain the skilled workforce necessary to operate our business and labor expenses may increase as a result of a shortage in the supply of qualified personnel, which would negatively impact our business.
Risks Related to Regulation, Taxation and Laws
We are a holding company and our only material asset is our interest in Opco, and it is accordingly dependent upon distributions made by its subsidiaries to pay taxes and expenses, make payments under the Tax Receivable Agreement and pay dividends.
We are a holding company with no material assets other than our ownership of Opco Common Units and our managing member interest in Opco. As a result, we have no independent means of generating revenue or cash flow. Our ability to pay taxes and operating expenses, make payments under the Tax Receivable Agreement (“
Tax Receivable Agreement
”) and pay dividends (if any) will depend on the financial results and cash flows of Opco and its subsidiaries and the distributions we receive from Opco. Deterioration in the financial condition, earnings or cash flow of Opco and its subsidiaries for any reason could limit or impair Opco’s ability to pay such distributions. Additionally, to the extent we need funds and Opco and/or any of its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of any financing arrangements, or Opco is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.
 
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Opco will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of Opco Common Units. Accordingly, we will be required to pay income taxes on our allocable share of any net taxable income of Opco. Under the terms of the Opco LLC Agreement, Opco is obligated to make certain tax distributions to holders of Opco Common Units (including us). In addition to tax expenses, we will also incur other expenses, including payment obligations under the Tax Receivable Agreement, which could be significant. We intend to cause Opco to make distributions to holders of Opco Common Units,
 pro rata
, in aggregate amounts sufficient to cover all of our applicable income taxes, payments required to be made by us under the Tax Receivable Agreement and dividends, if any, declared us. However, as discussed below, Opco’s ability to make such distributions may be subject to various limitations and restrictions including, but not limited to, restrictions on distributions that would either violate any contract or agreement to which Opco is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Opco insolvent. If our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement and to fund our obligations, we may be required to incur additional indebtedness to provide the liquidity needed to make such payments, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid; provided, however,
that non-payment for
a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, which could be substantial.
Additionally, although Opco generally will not be subject to any entity-level U.S. federal income tax, it may be liable under federal tax legislation for adjustments to its tax return, absent an election to the contrary. In the event that the taxing authorities determine that Opco’s tax returns are incorrect, Opco and/or its members, including us, in later years may be subject to material liabilities pursuant to this federal legislation and its related guidance.
We anticipate that the distributions we will receive from Opco may, in certain periods, exceed our actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. Our board of directors (the “
Board
”), in its sole discretion, will make determinations with respect to the use of any such excess cash, which may include, among other uses to pay dividends, which may include special dividends, on the Class A Common Stock; to fund repurchases of Class A Common Stock; or any combination of the foregoing. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders. To the extent that we do not distribute such excess cash as dividends on Class A Common Stock or otherwise undertake ameliorative actions between Opco Common Units and shares of Class A Common Stock and instead, for example, hold such cash balances, holders of Opco Common Units that hold interests in Opco may benefit from any value attributable to such cash balances as a result of their ownership of Class A Common Stock following an exchange of their Opco Common Units, notwithstanding that such holders may previously have participated as holders of Opco Common Units in distributions by Opco that resulted in such excess cash balances for us.
Dividends on our common stock, if any, will be paid at the discretion of the Board, which will consider, among other things, our business, operating results, financial condition, current and expected cash needs, plans for expansion and any legal or contractual limitations on its ability to pay such dividends. Financing arrangements may include restrictive covenants that restrict our ability to pay dividends or make other distributions to our stockholders. In addition, Opco is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Opco (with certain exceptions) exceed the fair value of its assets. Opco’s subsidiaries are generally subject to similar legal limitations on their ability to make distributions to Opco. If Opco does not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired.
 
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Pursuant to the Tax Receivable Agreement, we are required to pay 85% of the net income tax savings we realize as a result of increases in the tax basis in Opco’s assets as a result of exchanges of Opco Common Units for Class A Common Stock (or cash) pursuant to the Exchange Agreement, and those payments may be substantial.
The Opco Equity Holders may exchange their Opco Common Units for shares of Class A Common Stock (or cash) pursuant to the Exchange Agreement, subject to certain conditions and transfer restrictions as set forth therein and in the Third Amended and Restated LLC Agreement. These exchanges are expected to result in increases in our allocable share of the tax basis of the tangible and intangible assets of Opco. These increases in tax basis may increase (for income tax purposes) depreciation and amortization deductions and therefore reduce the amount of U.S. federal and applicable state income tax that we would otherwise be required to pay in the future had such exchanges never occurred.
We are party to the Tax Receivable Agreement, which generally provides for the payment by us of 85% of certain net tax benefits, if any, that we realize (or in certain cases are deemed to realize) as a result of these increases in tax basis and certain other tax attributes of Opco and tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. These payments are our obligation and not an obligation of Opco. The actual increase in our allocable share of Opco’s tax basis in its assets, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the market price of the Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable and the amount and timing of the recognition of our income. While many of the factors that will determine the amount of payments that we will make under the Tax Receivable Agreement are outside of our control, we expect that the payments we will make under the Tax Receivable Agreement will be substantial and could have a material adverse effect on our financial condition. Estimating the amount and timing of payments that may become due under the Tax Receivable Agreement is, by its nature, imprecise. The amount and timing of any payments under the Tax Receivable Agreement are dependent upon significant future events, including those noted above in respect of estimating the amount and timing of our realization of tax benefits The potential future tax savings that we will be deemed to realize, and the Tax Receivable Agreement payments made by us, will be calculated based on the market value of the Class A Common Stock at the time of each redemption or exchange under the Exchange Agreement and the prevailing tax rates applicable to us over the life of the Tax Receivable Agreement and will depend on us generating sufficient taxable income to realize the tax benefits that are subject to the Tax Receivable Agreement. Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid; however,
non-payment
for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, which could be substantial, as further described below. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make it a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement.
In certain cases, payments under the Tax Receivable Agreement may exceed the actual tax benefits we realize or such payments may be accelerated.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, and the Internal Revenue Service (the “
IRS
”) or another taxing authority may challenge all or any part of the tax basis increases, as well as other tax positions that we take, and a court may sustain such a challenge. In the event any tax benefits initially claimed by us are disallowed, the current Opco Equity Holders will not be required to reimburse us for any excess payments that may previously have been made under the Tax Receivable Agreement, for example, due to adjustments resulting from examinations by taxing authorities. Rather, excess payments made to such holders will be netted against any future cash payments otherwise required to be made by us, if any, after the determination of such excess. However, a challenge to any tax benefits initially
 
23

claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement and, as a result, there might not be future cash payments from which to net against. As a result, in certain circumstances we could make payments under the Tax Receivable Agreement in excess of our actual income tax savings, which could materially impair our financial condition.
Moreover, the Tax Receivable Agreement provides that, in the event that (a) we exercise our early termination rights under the Tax Receivable Agreement, (b) the Tax Receivable Agreement is rejected in a bankruptcy proceeding, (c) certain changes of control occur (as described in the Tax Receivable Agreement) or (d) we are more than thirty days late in making of a payment due under the Tax Receivable Agreement (unless we determine that we have insufficient funds to make such payment as a result of obligations imposed in connection with a senior obligation or applicable law), our obligations under the Tax Receivable Agreement will accelerate and we will be required to make an
immediate lump-sum cash
payment to the Opco Equity Holders equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement,
which lump-sum payment
would be based on certain assumptions, including those relating to our future taxable income.
The lump-sum payment
to the Opco Equity Holders could be substantial and could exceed the actual tax benefits that we realize subsequent to such payment because such payment would be calculated assuming, among other things, that we would have certain tax benefits available to it, that we would be able to use the potential tax benefits in future years, and that tax rates applicable to us would be the same as they were in the year of the termination.
There may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual income tax savings that we realize. Furthermore, our obligations to make payments under the Tax Receivable Agreement could also have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise. Such indebtedness may have a material adverse effect on our financial condition.
We may have to constrain our business activities to avoid being deemed an investment company under the Investment Company Act.
In general, a company that is or holds itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities may be deemed to be an investment company under the Investment Company Act. The Investment Company Act contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. We believe we have conducted, and intend to continue to conduct, our business in a manner that does not result in us being characterized as an investment company. To avoid being deemed an investment company, we may decide not to broaden our offerings, which could require us to forgo attractive opportunities. If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which would adversely affect our business, financial condition and results of operations. In addition, we may be forced to make changes to our management team if we are required to register as an investment company under the Investment Company Act.
Our business is subject to extensive government regulation, oversight, licensure and approvals. Our failure to comply with extensive, complex, uncertain, overlapping and frequently changing rules, regulations and legal interpretations could materially harm our business.
Our business is subject to laws, rules, regulations, policies and legal interpretations in the markets in which we operate, including, but not limited to, those governing:
 
  
money transmission;
 
24

  
virtual currency business activity;
 
  
prepaid access;
 
  
consumer protection;
 
  
anti-money laundering;
 
  
counter-terrorist financing;
 
  
privacy and data protection;
 
  
cybersecurity;
 
  
economic and trade sanctions;
 
  
commodities;
 
  
derivatives; and
 
  
securities.
We have been, and expect to continue to be, required to apply for and maintain various licenses, certifications and regulatory approvals in jurisdictions where we provide our services, including due to changes in applicable laws and regulations or the interpretation of such laws and regulations. There can be no assurance that we will elect to pursue, or be able to obtain, any such licenses, certifications and approvals. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications and approvals. For instance, in the United States, Bakkt Marketplace has obtained licenses to operate as a money transmitter (or its equivalent) in the states where it operates and where such licenses are required, as well as in the District of Columbia and Puerto Rico. As a licensed money transmitter, Bakkt Marketplace is subject to reporting requirements, restrictions with respect to the investment of consumer funds, bonding requirements and inspection by state regulatory agencies.
Our success and increased visibility may result in increased regulatory oversight and enforcement and more restrictive rules and regulations that apply to our business. As we expand our business activities, both as to the products and services offered and into jurisdictions beyond the United States, we will become increasingly obligated to comply with new laws and regulations, including those of any additional countries or markets in which we operate. Laws regulating the internet, mobile, and related technologies outside of the United States often impose different, more specific, or even conflicting obligations on companies, as well as broader liability. For example, certain transactions that may be permissible in a local jurisdiction may be prohibited by regulations of U.S. Department of the Treasury’s Office of Foreign Assets Control (“
OFAC
”) or U.S. anti-money laundering or counter-terrorist financing regulations.
Additionally, significant parts of our business, such as our product and service offerings involving cryptoassets, are subject to uncertain and/or evolving regulatory regimes. As digital assets, including cryptoassets, have grown in both popularity and market size, governments have reacted differently to such digital assets, with certain governments deeming them illegal and others allowing their use and trade. Ongoing and future regulatory actions may impact our ability to continue to operate, and such actions could affect our ability to continue as a going concern, which would have a material adverse effect on our business, prospects or operations. The regulatory framework is unsettled with respect to many forms of digital assets, which means that federal or state regulators may in the future curtail or prohibit the acquisition, use or redemption of certain digital assets. Ownership of, holding or trading in certain digital assets may be limited and subject to sanction. Federal or state regulators may also take regulatory action that may increase the cost and/or subject companies that custody or facilitate the trading of digital assets to additional regulation.
In general, any failure or perceived failure to comply with existing or new laws, regulations, or orders of any regulatory authority (including changes to or expansion of the interpretation of those laws, regulations, or orders), including those discussed in this risk factor, may subject us to liability, significant fines, penalties,
 
25

criminal and civil lawsuits, forfeiture of significant assets and enforcement actions in one or more jurisdictions, result in additional compliance and licensure requirements, increase regulatory scrutiny of our business, restrict our operations and force us to change our business practices, make product or operational changes, including ceasing our operations in certain jurisdictions, or delaying planned product launches or improvements. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brand and business, impose substantial costs and adversely affect our financial condition and results of operations. The complexity of U.S. federal and state regulatory and enforcement regimes, coupled with the scope of our operations and the evolving regulatory environment, could result in a single event giving rise to a large number of overlapping investigations and legal and regulatory proceedings by multiple authorities. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations.
The U.S. state and federal regulatory regime governing blockchain technologies and cryptocurrencies is uncertain, and new regulations or policies may alter our business practices with respect to cryptocurrencies.
We currently offer, and will continue to offer, virtual currency and cryptocurrency-related trading services through one or more subsidiaries that are licensed and registered with various governmental authorities as a money service business, money transmitter, virtual currency business, or the equivalent. Although many regulators have provided some guidance, regulation of digital assets based on or incorporating blockchain, such as cryptocurrencies and cryptocurrency exchanges, remains uncertain and will continue to evolve. Further, regulation varies significantly among federal, state and local jurisdictions. As blockchain networks and blockchain assets have grown in popularity and in market size, federal and state agencies are increasingly taking interest in, and in certain cases regulating, their use and operation. Treatment of virtual currencies continues to evolve under federal and state law. Many U.S. regulators, including the SEC, the Financial Crimes Enforcement Network (“
FinCEN
”), the IRS and certain state regulators have made official pronouncements or issued guidance or rules regarding the treatment of bitcoin and other cryptocurrencies. However, there remain uncertainties associated with being subject to FinCEN regulations as a money service business, as FinCEN’s rules, regulations and guidance are evolving and subject to change. For instance, while FinCEN has released guidance about how it considers its regulations to interact with cryptoasset businesses, there remain some uncertainties about the application of this guidance to certain cryptoasset businesses. Changes to FinCEN’s rules, regulations and guidance could subject us to increased scrutiny and/or require updates to our policies and procedures and compliance programs. The IRS released guidance treating virtual currency as property that is not currency for U.S. federal income tax purposes, although there is no indication yet whether other courts or federal or state regulators will follow this classification.
Meanwhile, certain state regulators, such as the New York State Department of Financial Services (“
NYSDFS
”), have created or are in the process of creating new regulatory frameworks with respect to virtual currency. For example, in 2015, the NYSDFS adopted the first U.S. regulatory framework for licensing participants in virtual currency business activity. The regulation, known informally as the “
BitLicense
,” regulates the conduct of businesses that are involved in virtual currencies in New York or with New York customers and prohibits any person or entity involved in such activity from conducting such activities without a license. Bakkt Marketplace currently operates under a BitLicense.
Other states may adopt similar statutes and regulations that will require us or our subsidiaries to obtain a license to conduct cryptocurrency activities. For example, in July 2020, Louisiana adopted the Virtual Currency Business Act, which will require operators of virtual currency businesses to obtain a virtual currency license in order to conduct business in Louisiana in accordance with a rule, which is expected to be issued by the Louisiana Office of Financial Institutions. Other states, such as Texas, have published guidance on how their existing regulatory regimes governing money transmitters apply to virtual currencies. Some states, such as New Hampshire, North Carolina and Washington, have amended their state’s statutes to clarify the treatment of virtual currencies within existing licensing regimes, while others have interpreted their existing statutes as requiring a money transmitter license to conduct certain virtual currency business activities.
 
26

Both federal and state agencies have instituted enforcement actions against those violating their interpretation of existing laws. Other U.S. and many state agencies have offered little official guidance and issued no definitive rules regarding the treatment of cryptoassets. The Commodity Futures Trading Commission (“
CFTC
”) staff has publicly taken the position that certain virtual currencies, which can include cryptocurrencies, are commodities, and as such, exchange-traded derivatives involving bitcoin are subject to the CFTC’s jurisdiction and enforcement powers. This has been reflected in certain CFTC enforcement actions, including those against Coinflip, Inc. and certain informal CFTC guidance, such as the LabCFTC’s Primer on Virtual Currencies. However, such informal guidance is not official policy, rule or regulation, may be subject to change and does not necessarily bind the CFTC. To the extent that bitcoin is deemed to fall within the definition of a “commodity interest” under the Commodity Exchange Act (“
CEA
”), we may be subject to additional regulation under the CEA and CFTC regulations. Although the CFTC has suggested it is not particularly focused on pursuing such enforcement at this time, in the event that the CFTC pursues such enforcement and ultimately shuts down an exchange on which our bitcoin futures contract is traded, it may have a significant adverse impact on our business and plan of operations.
As blockchain technologies and cryptoasset business activities grow in popularity and market size, and as new cryptoasset businesses and technologies emerge and proliferate, federal, state and local regulators revisit and update their laws and policies and can be expected to continue to do so in the future. Changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government, may significantly affect or change the manner in which we currently conduct some aspect of our business.
We are subject to anti-money laundering and counter terrorist financing laws and regulations, globally, including the USA PATRIOT Act, and failure to comply with such laws and regulations may subject us to liability. There can be no assurance that our employees or agents will not violate such laws and regulations.
We are subject to anti-money laundering and counter terrorist financing laws and regulations globally, including the Bank Secrecy Act, as amended by the USA PATRIOT Act, the regulations promulgated by FinCEN, as well as economic and trade sanctions programs, including those imposed and administered by OFAC. These regulations prohibit, among other things, our involvement in transferring the proceeds of criminal activities. Under OFAC’s economic sanctions program, we are prohibited from financial transactions and other dealings with certain countries and geographies and with persons and entities included in OFAC sanctions lists, including its list of Specially Designated Nationals and Blocked Persons.
The United States is also a member of the Financial Action Task Force (“
FATF
”), an intergovernmental body that establishes international standards to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. FATF issues guidance that members states are required to observe. More recently, in October 2021, FATF issued the Updated Guidance Virtual Assets and Virtual Asset Service Providers (“
FATF Guidance
”) which provides additional details regarding expectations for cryptoasset businesses, including those related to due diligence, transmission of transaction data and reporting. We are digesting the impact of this FATF Guidance, which we also expect to evolve over time.
We have implemented policies and procedures designed to help ensure compliance with these laws and regulations. However, regulators in the United States, where we currently operate, continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program. For example, Division F of the National Defense Authorization Act for Fiscal Year 2021, titled the Anti-Money Laundering Act of 2020, makes significant reforms to the Bank Secrecy Act and other anti-money laundering rules. Evaluation and incorporation of changes required under Division F could result in greater costs for compliance. Our failure to comply with such laws and regulations, as required by our regulators, may expose us to liability or enforcement actions.
There also can be no assurance that our employees or agents will not violate such anti-money laundering and counter terrorist financing laws and regulations. A failure by us or our employees or agents to comply with
 
27

such laws and regulations and subsequent judgment or settlement against us under these laws could subject us to monetary penalties, damages and/or have a significant reputational impact.
Digital assets are currently subject to many different, and potentially overlapping, regulatory regimes, and may in the future be subject to different regulatory regimes than those that are currently in effect. There can be no assurance that we will be able to comply with all of the regulatory regimes that currently apply or may be applied in the future to digital assets. In particular, a cryptoasset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if cryptoassets on our platform are later determined to be securities, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The digital assets that we currently intend to include in our platform include cryptoassets, consumer loyalty and rewards programs, merchant closed-loop gift cards and
in-game
payments. We plan to enable trading of traditional equity securities on our platform, but only through a registered broker-dealer. We do not presently plan to include cryptoasset securities in our platform. Each of the digital assets that we intend to include within our platform is currently subject to certain regulatory regimes and may in the future be subject to different regulatory regimes than those that are currently in effect. There can also be no assurance that we will be able to comply with all of the regulatory regimes that currently apply or may be applied in the future to these digital assets. In addition, it is possible that certain regulatory regimes will make it prohibitively expensive or impossible for us to provide our planned functionality for one or more digital assets.
We evaluate which cryptoassets to include on our platform pursuant to a new cryptoasset listing policy, which includes review by operational, legal and compliance functions. While we plan to enable traditional equity securities trading on our platform through a broker-dealer, we do not currently intend to include cryptoassets that are securities among the digital assets offered through Bakkt Marketplace.
The SEC and its staff have taken the position that certain cryptoassets fall within the definition of a “security” under the U.S. federal securities laws, and it is possible the SEC may take this position with respect to other assets that may be bought, sold, converted, spent and sent on our platform. The legal test for determining whether any given asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally has not provided advance guidance or confirmation on the status of any particular cryptoasset as a security. Furthermore, the SEC’s views in this area have evolved over time, and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. To date, public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that bitcoin or ether are securities in their current form; however, these are the only cryptoassets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements do not represent SEC rules or official policy statements by the SEC; they reflect only the speakers’ views and are not binding on the SEC or any other agency or court and cannot be generalized to any other cryptoasset or other asset. With respect to all other cryptoassets, there is currently no certainty under the existing securities laws to determine that such assets are not securities; though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given cryptoasset is a security in April 2019, this framework is also not a rule, regulation or statement of the SEC and is not binding on the SEC. With that said, the current SEC Chairman, Gary Gensler, has repeatedly indicated in remarks to various forums, including the U.S. Congress, that some cryptoassets and related products and services may qualify as securities and accordingly be subject to SEC oversight and regulation. Chairman Gensler further referred to the cryptoasset industry as the “Wild West” and called for more consistent and clear regulation of this sector. The SEC, as well as other regulators, seem increasingly fixated on the regulation of cryptoassets, which may impact our business. There also remains significant unclarity over whether individual cryptocurrencies or cryptoassets backed by local currencies (stablecoins) will be deemed as “securities.”
While we currently operate only in the United States, we intend to expand internationally and will be required to comply with the securities (and other) laws of those jurisdictions as we do so. Foreign jurisdictions
 
28

have varying approaches to classifying cryptoassets as “securities,” and certain cryptoassets and other assets may be deemed to be a “security” under the laws of some jurisdictions, but not others. Various
non-U.S.
jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of cryptoassets and other assets as “securities.”
The classification of an asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading and clearing of such assets. For example, an asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in assets that are classified as securities in the United States may be subject to registration with the SEC and states in which they offer and sell securities as a “broker” or “dealer” and subject to the corresponding rules and regulations of the SEC, relevant states and self-regulatory organizations, including the Financial Industry Regulatory Authority, Inc. (“
FINRA
”).
We could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a supported cryptoasset bought, sold, converted, spent or sent through our platform is a “security” under applicable laws. Because our platform is not yet registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or alternative trading system (“
ATS
”) (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of cryptoassets on our platform, we currently only permit transactions in digital assets that we have determined are not securities. We intend to offer other cryptoassets on our platform in the future, although which cryptoassets will be allowed on our platform and the timing for such cryptoassets to be allowed on out platform is uncertain. We will only allow those cryptoassets for which we determine there are reasonably strong arguments to conclude that the cryptoasset is not a security. Our process will reflect a comprehensive and thoughtful analysis and will be reasonably designed to facilitate consistent application of available legal guidance to facilitate informed risk-based business judgment.
However, the application of securities laws to the specific facts and circumstances of cryptoassets may be complex and subject to change, and a listing determination does not guarantee any conclusion under the United States federal securities laws. For example, in December 2020 the SEC filed a lawsuit against Ripple Labs, Inc. and two of its executives, alleging that they have engaged in an unregistered, ongoing securities offering through the sale of XRP, Ripple’s digital asset, which had been in the public domain since 2012. We expect our risk assessment policies and procedures to continuously evolve to take into account developments in case law, facts and developments in technology, regulatory clarity and changes in market acceptance and adoption of these digital assets.
There can be no assurances that we will properly characterize any given cryptoasset, or other digital asset, as a security or
non-security
for purposes of determining if that cryptoasset or digital asset is allowed to be offered through our platform, or that the SEC, foreign regulatory authority, or a court, if the question was presented to it, would agree with our assessment. If the SEC, foreign regulatory authority, or a court were to determine that bitcoin or any other cryptoasset or other digital asset to be offered, sold, or traded on our platform in the future is a security, we would not be able to offer such cryptoasset or other digital asset for trading until we are able to do so in a compliant manner, such as through an alternative trading system approved to trade cryptoassets or other digital assets that constitute securities, and such determination may have adverse consequences for such supported cryptoasset or other digital asset. A determination by the SEC, a foreign regulatory authority, or a court that an asset that we support for trading on our platform constitutes a security may also result in a determination that we should remove such asset from our platform, as well as other assets that have similar characteristics to such asset deemed to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines and disgorgement, criminal liability and reputational harm. Customers that traded such supported assets on our platform and suffered trading losses
 
29

could also seek to rescind a transaction that we facilitated on the basis that it was conducted in violation of applicable law, which could subject us to significant liability. Furthermore, if we remove any assets from trading on our platform, our decision may be unpopular with users and may reduce our ability to attract and retain customers, especially if such assets remain traded on unregulated exchanges, which includes many of our competitors.
We plan to offer equity securities through our platform, which may expose us to significant regulatory and legal scrutiny and risk.
We plan to add equity securities trading functionality for our customers on our platform in the future. To do so, we plan to register as a broker-dealer with the SEC and become a member of FINRA and register in those states in which we expect to conduct our broker-dealer activities (“
States
”), in 2022. We expect that this process will be lengthy and there can be no guarantee that we will be successful in obtaining our broker-dealer license. As a registered broker-dealer, we would become subject to the rules and regulations of the SEC, the states and FINRA, which will be material to our business and likely to impose substantial costs. The regulations applicable to broker-dealers cover all aspect of their securities business, including sales practices, use and safekeeping of customers’ funds and securities, capital adequacy, record-keeping and the conduct and qualification of directors, officers, employees and other related parties. As part of the regulatory process, we would be subject to examinations and inspections by the SEC, the States and FINRA.
For us to add equity securities trading functionality to our platform in the future, we may also need to conduct our business with the assistance of another licensed broker-dealer. Should we enter into such an arrangement, we may be exposed to certain regulatory and legal risks, either as a result of our own actions or the actions of the licensed broker-dealer.
Failure to comply with anti-bribery and anti-corruption laws and similar laws, could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977 (the “
FCPA
”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, and possibly other anti-bribery and anti-corruption laws in countries outside of the United States where we conduct our activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
We may leverage third parties to sell our products and conduct our business abroad. We, our employees, agents, representatives, business partners and third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our employees, agents, representatives, business partners or third-party intermediaries will not take actions in violation of applicable law for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.
These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that none of our employees, agents, representatives, business partners or third-party intermediaries will not violate our policies or applicable laws and regulations, for which we may be ultimately held responsible.
Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension
 
30

or debarment from government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We are subject to federal and state consumer protection laws and regulations in the jurisdictions in which we operate, which may result in liability or expense, including potential private rights of action, if we do not comply, or it is alleged that we do not to comply, with such laws.
We are subject to federal and state consumer protection laws and regulations in the jurisdictions in which we operate. In the United States, Bakkt Marketplace is subject to federal and state consumer protection laws and regulations applicable to its activities, including the Electronic Fund Transfer Act (“
EFTA
”) and Regulation E as implemented by the CFPB. These regulations require us to provide advance disclosure of changes to our services, follow specified error resolution procedures and reimburse consumers for losses from certain transactions not authorized by the consumer, among other requirements. There are uncertainties associated with being subject to consumer protection rules and regulations of the CFPB and other regulators, including in the application of certain rules and regulations to our business model and to cryptoassets. Bakkt Marketplace may be considered a “covered person” for purposes of the CFPB’s enforcement authority and may additionally be subject to the authority of the Federal Trade Commission. Under certain consumer protection rules and regulations, we may be exposed to significant liability to consumers in the event that there is an incident which results in a large number of unauthorized and fraudulent transfers out of our system. Additionally, we could face private litigation by consumers under consumer protection laws and regulations that have private rights of action. Technical violations of consumer protection laws could result in the assessment of actual damages or statutory damages or penalties of up to $1,000 in individual cases or up to $500,000 per violation in any class action and treble damages in some instances; we could also be liable for plaintiffs’ attorneys’ fees in such cases. We could be subject to, and could be required to pay amounts in settlement of, lawsuits containing allegations that our business violated the EFTA and Regulation E or otherwise advance claims for relief relating to our business practices.
In October 2016, the CFPB issued a final rule on prepaid accounts. The rule’s definition of prepaid account includes certain accounts that are capable of being loaded with funds and whose primary function is to conduct transactions with multiple, unaffiliated merchants, at ATMs and/or for
person-to-person
transfers, including certain digital wallets. The rule’s requirements include: the disclosure of fees and other information to the consumer prior to the creation of a prepaid account; the extension of Regulation E liability limits and error-resolution requirements to all prepaid accounts; the application of Regulation Z credit card requirements to prepaid accounts with overdraft and credit features; and the submission of prepaid account agreements to the CFPB and their publication to the general public. In April 2017, the CFPB delayed the effective date of the final rule on prepaid accounts to April 1, 2018, and indicated that it would review, among other issues, the linking of credit cards to digital wallets that are capable of storing funds. In June 2017, the CFPB released proposed changes to its final rule, and in January 2018, the CFPB issued its final rule, modifying some aspects of the rule, with an overall effective date of April 1, 2019. We have implemented certain changes to comply with the final rule, some of which constitute substantial changes to the design of certain U.S. consumer accounts and their operability, which could lead to consumer dissatisfaction, require us to reallocate resources, and increase our costs, which could negatively affect our business.
Complying with evolving privacy and other data related laws and requirements may be expensive and force us to make changes to our business, and failure to comply with such laws and requirements could result in substantial harm to our business.
We are subject to a number of laws, rules, directives and regulations (“
privacy laws
”) relating to the collection, use, retention, security, processing and transfer of personally identifiable information about our consumers, employees, and other individuals (“
personal data
”) in the jurisdictions where we operate. Our business relies on the processing of data and the movement of data, and, as a result, much of the personal data
 
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that we process, especially financial information, may be regulated by multiple privacy laws. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial relationships. Regulatory scrutiny of privacy, data protection and the collection, storage, use and sharing of personal data is increasing across multiple jurisdictions.
Furthermore, laws relating to privacy and data protection, including with respect to the use of data in artificial intelligence and machine learning, are rapidly evolving, extensive, complex and include inconsistencies and uncertainties. Examples of recent and anticipated developments that have or could impact our business include the following:
 
  
In January 2020, the California Consumer Privacy Act (“
CCPA
”) took effect, providing California residents increased privacy rights and protections, including the ability to opt out of sales of their personal information. The CCPA may increase our compliance costs and exposure to liability.
 
  
In November 2021, the California Privacy Rights (“
CPRA
”) was approved by California voters. The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered business and expanding consumers’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA.
 
  
In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (“
VCDPA
”). The VCDPA creates consumer rights similar to the CCPA, but also imposes security and assessment requirements for businesses.
 
  
In July 2021, Colorado enacted the Colorado Privacy Act, which closely resembles the VCDPA, and, like the VCDPA, will be enforced by the state Attorney General and district attorney.
 
  
Other U.S. states are considering adopting similar laws. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging.
 
  
The United States government is considering regulating artificial intelligence and machine learning.
 
  
The certifications we maintain and the standards we comply with, including the Payment Card Industry Data Security Standard, among others, are becoming more stringent.
These and other similar legal and regulatory developments could contribute to legal and economic uncertainty, affect how we design, market, sell and operate our platform, how our merchant partners, consumers and vendors process and share data, how we process and use data, and how we transfer personal data from one jurisdiction to another, which could negatively impact demand for our platform. We may incur substantial costs to comply with such laws and regulations, to meet the demands of our merchant partners relating to their own compliance with applicable laws and regulations, and to establish and maintain internal policies, self-certifications and third-party certifications supporting our compliance programs. Our merchant partners may delegate their obligations relating to these or other laws or regulations to us via contract, and we may otherwise be required to expend resources to assist our merchant partners with such compliance obligations. In addition, any actual or perceived
non-compliance
with applicable laws, regulations, policies, industry data protections, security standards and certifications could result in proceedings, investigations, or claims against us by regulatory authorities, consumers, merchant partners, or others, leading to reputational harm, significant fines, litigation costs and damages. All of these impacts could have a material adverse effect on our business, financial condition and results of operations.
We publish privacy policies and other documentation regarding our collection, processing, use and disclosure of personal data, including credit card information, and certain other information. Although we endeavor to comply with our published policies, certifications and documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving
 
32

compliance if our employees or vendors fail to comply with our published policies, certifications and documentation. Such failures can subject us to potential local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
In addition, because of the large number of text messages, emails, phone calls and other communications we send or make to our consumers for various business purposes, communication-related privacy laws that provide a specified monetary damage award or fine for each violation could result in particularly significant damage awards or fines. For example, under the Telephone Consumer Protection Act (“
TCPA
”), in the U.S., plaintiffs may seek actual monetary loss or statutory damages of $500 per violation, whichever is greater, and courts may triple the damage award for willful or knowing violations. We could be subject to lawsuits (including class-action lawsuits) containing allegations that our business violated the TCPA. These lawsuits seek damages (including statutory damages) and injunctive relief, among other remedies. Given the large number of communications we send to our consumers, a determination that there have been violations of the TCPA or other communications-based statutes could expose us to significant damage awards that could, individually or in the aggregate, materially harm our business.
We are subject to significant litigation risk and risk of regulatory liability and penalties. Any future litigation against us could be costly and time-consuming to defend.
Many aspects of our business involve substantial litigation risks. These risks include, among others, potential liability from disputes over terms of a trade, the claim that a system failure or delay caused monetary losses to a user, that we entered into an unauthorized transaction, that we provided materially false or misleading statements in connection with a transaction or that we failed to effectively fulfill our regulatory oversight responsibilities. We may be subject to disputes regarding the quality of consumer order execution, the settlement of consumer orders or other matters relating to our services. We may become subject to these claims as a result of failures or malfunctions of our systems and the services we provide. More generally, we may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our users in connection with commercial disputes, employment claims made by our current or former employees and securities class action litigation or other shareholder action litigation.
Litigation, even claims without merit, might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible or
co-insurance
requirements). A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms, or that our insurers will not deny coverage as to any future claim. Further, an adverse resolution of any future lawsuit or claim against us could have a material adverse effect on our business and our reputation. To the extent we are found to have failed to fulfill our regulatory obligations, we could lose our authorizations or licenses or become subject to conditions that could make future operations more costly and impair our profitability. Such events could also result in consumer dissatisfaction and a decline in consumers’ willingness to use our platform.
We agree to indemnify enterprise and loyalty partners and other third parties, which exposes us to substantial potential liability.
Our contracts with enterprise and loyalty partners, investors and other third parties generally include indemnification provisions under which we agree to defend and indemnify them against claims and losses arising from alleged infringement, misappropriation, or other violation of intellectual property rights, data protection violations, breaches of representations and warranties, damage to property or persons, or other liabilities arising from our platform or such contracts. Although we attempt to limit our indemnity obligations, an event triggering our indemnity obligations could give rise to multiple claims involving multiple enterprise and loyalty partners or
 
33

other third parties. We may be liable for up to the full amount of the indemnified claims, which could result in substantial liability or material disruption to our business or could negatively impact our relationships with loyalty partners , enterprises or other third parties, reduce demand for our products and adversely affect our business, financial condition and results of operations.
We are subject to patent litigation.
We have been sued for allegedly infringing other parties’ patents and may continue to be subject to patent infringement claims because, among other reasons:
 
  
our products and services continue to expand in scope and complexity and to converge with technologies not previously associated with the payments and loyalty points space;
 
  
our products and services may be designed, developed and delivered without thorough due diligence of prior works covered by legitimate patent protections;
 
  
our products and services may be designed, developed or delivered by bad actors knowingly using intellectual property from a previous employer or vendor;
 
  
we may continue to expand into new business areas, including through acquisitions; and
 
  
the number of patent owners who may claim that we, or any of the companies we have acquired, or our enterprise or loyalty partners infringe their patents, and the aggregate number of patents controlled by such patent owners, continues to increase.
Such claims may be brought directly against us or against our enterprise and loyalty partners, who we may be required to indemnify due to contractual obligations or as a business matter. We believe that many of the claims against us and other technology companies have been, and continue to be, initiated by third parties whose sole or primary business is to assert such claims. We expect to vigorously defend against patent infringement claims. In addition, there have been significant patent disputes between operating companies in some technology industries. Patent claims, whether or not meritorious, could be time-consuming, divert management’s resources, be costly to manage, defend and resolve, and lead to attempts by other parties to pursue similar claims. Additionally, patent claims could require us to make expensive changes in our methods of doing business, enter into costly royalty or licensing agreements, make substantial payments to satisfy adverse judgments, settle claims or proceedings, or cease conducting certain operations, which would harm our business, results of operations, financial condition and future prospects.
We may be unable to sufficiently protect our proprietary rights and may encounter disputes from time to time relating to our use of the intellectual property of third parties.
We rely on a combination of trademarks, patents, service marks, copyrights, trade secrets, domain names and agreements with employees and third parties to protect our proprietary rights. Nonetheless, third parties may challenge, invalidate or circumvent our intellectual property, and our intellectual property may not be sufficient to provide it with a competitive advantage.
Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our technology and processes. Our competitors and other third parties independently may design around or develop similar technology or otherwise duplicate our services or products such that we could not assert our intellectual property rights against them. In addition, our contractual arrangements may not effectively prevent disclosure of our intellectual property and confidential and proprietary information or provide an adequate remedy in the event of an unauthorized disclosure. Measures in place may not prevent misappropriation or infringement of our intellectual property or proprietary information and the resulting loss of competitive advantage, and we may be required to litigate to protect our intellectual property and proprietary information from misappropriation or infringement by others, which is expensive, could cause a diversion of resources and may not be successful.
 
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We also may encounter disputes from time to time concerning intellectual property rights of others, and we may not prevail in these disputes. Third parties may raise claims alleging that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. Given the complex, rapidly changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, an assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim, even if we ultimately prevail, pay significant money damages, lose significant revenues, be prohibited from using the relevant systems, processes, technologies or other intellectual property (temporarily or permanently), cease offering certain products or services, or incur significant license, royalty or technology development expenses.
Regulatory requirements upon a change of control of our regulated subsidiaries may require an investor to obtain prior approval or submit information to regulators upon acquiring a direct or indirect controlling interest in us.
Certain of our subsidiaries are subject to regulatory supervision, including the requirement to obtain prior consent from the relevant regulator when a person holds, acquires or increases a controlling interest in those entities. For instance, under certain state money transmitter regulations, no person may hold or acquire, alone or together with others, a direct or indirect stake of 10% or more of us, or exercise, directly or indirectly, a controlling influence over us or any of the regulated subsidiaries. Under other state money transmitter regulations, that threshold may be higher.
Non-compliance
with those requirements may lead to injunctions, penalties and sanctions against us as well as the person seeking to hold, acquire or increase a controlling interest, may subject the relevant transactions to cancellation or forced sale, and may result in increased regulatory compliance requirements or other potential regulatory restrictions on our business (including in respect of matters such as corporate governance, restructurings, mergers and acquisitions, financings and distributions). If any of this were to occur, it could damage our reputation, limit our growth and materially and adversely affect our business, financial condition and results of operations.
Our tax information reporting obligations with respect to transactions involving loyalty points or other incentives are subject to change.
Under the current law, we do not believe that we are required to file any information returns with taxing authorities with respect to the issuance by our partners of loyalty points or other incentives, and we believe that we are in compliance with our tax information reporting obligations with respect to incentives that we issue. There can be no assurance that the IRS will not challenge our position, or that the applicable laws and administrative guidance will not change in a manner requiring us to provide additional tax information reporting to our users.
It is unclear whether the conversion to cash or cryptoassets of loyalty points by means of using our platform is or may become subject to information reporting by us. In our capacity as the facilitator of an exchange on which such transactions occur, we may be deemed to have certain information reporting obligations to the IRS or another taxing authority. The IRS has provided limited guidance with respect to information reporting obligations for transactions involving loyalty points or other incentives, and, absent future regulatory or administrative guidance, we expect to file information returns with the IRS for only a limited number of such transactions. There can be no assurances, however, that the IRS will not take a contrary position with respect to our information reporting obligations. If the IRS were to successfully challenge our position with respect to its information reporting obligations or if it were ultimately determined that the conversion of loyalty points to cash or cryptoassets is subject to information reporting obligations, we could potentially be subject to penalties for any failure to satisfy such information reporting obligations. Additionally, changes in applicable laws and administrative guidance could impose such obligations on us.
 
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Such changes in our tax information reporting obligations may have a negative effect on the experience of our users and may significantly increase our compliance costs. As a result of the foregoing, our planned business model may be adversely affected or it may incur additional costs in connection therewith.
Changes in tax laws or their judicial or administrative interpretations, or becoming subject to additional taxes that cannot be passed through to our loyalty users, could negatively affect our business, financial condition and results of operations.
Our operations may be subject to extensive tax liabilities, including federal and state income taxes and other taxes, such as excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes in tax laws or their judicial or administrative interpretations could decrease the amount of revenues we receive, the value of any tax loss carryforwards and tax credits recorded on our balance sheet and the amount of our cash flow and may have a material adverse impact on our business, financial condition and results of operations. Some of our tax liabilities may be subject to periodic audits by the applicable taxing authority, which could increase our tax liabilities. Furthermore, we may become subject to taxation in various taxing jurisdictions. If we are required to pay additional taxes and are unable to pass the tax expense through to our users, our costs would increase and our net income would be reduced, which could have a material adverse effect on our business, financial condition and results of operations.
Because there is limited guidance for tax reporting or accounting of bitcoin and other cryptoasset transactions, the determination that we have made for how to account for or report the tax treatment of cryptoasset transactions may be subject to change and challenge by relevant tax authorities in various countries, including the United States. Failure to properly report activity related to cryptoassets for tax or accounting purposes may have negative regulatory or legal outcomes and harm our reputation.
Because there has been limited guidance for the tax reporting or accounting of cryptoassets and limited guidance has been provided by the IRS, it is unclear how cryptoasset transactions or other actions related to cryptoassets (such as forks, provision of staking rewards and other cryptoasset incentives and rewards products or other similar items) and related tax consequences should be accounted for or reported for tax purposes. In 2014, the IRS released Notice
2014-21,
IRB
2014-16,
or IRS Notice, discussing certain aspects of “convertible virtual currency” (that is, digital currency that has an equivalent value in real (or fiat) currency or that acts as a substitute for fiat currency) for U.S. federal income tax purposes. IRS stated that such digital currency is treated as “property”, not “currency” for purposes of the rules relating to foreign currency gain or loss, and may be held as a capital asset. In 2019, the IRS released Revenue Ruling
2019-24
and a set of “Frequently Asked Questions”, or the Revenue Ruling & FAQs, that provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of digital currencies are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital currency. However, the IRS Notice and the Revenue Ruling & FAQs do not address other significant aspects of the U.S. federal income tax treatment of cryptoassets and related transactions. Moreover, although the Revenue Ruling & FAQs address the treatment of forks, there continues to be uncertainty with respect to the timing and amount of income inclusions for various cryptoasset transactions including, but not limited to, staking rewards and other cryptoasset products. Furthermore, the accounting treatment for revenues from cryptocurrency transactions is currently under review and subject to change. Failure to properly account for and report the transactions and other items related to the cryptoassets held by our consumers to relevant tax authorities, such as the IRS, could have negative outcomes for us and harm our reputation with consumers and others.
There can be no assurance that the IRS or other foreign tax authority will not alter its existing positions with respect to cryptoassets in the future or that a court would uphold the treatment set forth in the existing IRS guidance. It is also unclear what additional guidance may be issued in the future on the treatment of existing cryptoasset transactions and future cryptoasset innovations for purposes of U.S. federal income tax or other foreign tax regulations. Any such alteration of existing IRS and foreign tax authority positions or additional guidance regarding cryptoasset products and transactions could result in adverse tax consequences for holders of cryptoassets and could have an adverse effect on the value of cryptoassets and the broader cryptoassets markets.
 
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Future technological and operational developments that may arise with respect to digital currencies may increase the uncertainty with respect to the treatment of digital currencies for U.S. federal income and foreign tax purposes. The uncertainty regarding tax treatment of cryptoasset transactions impacts our customers, and could impact our business, both domestically and abroad.
Our ability to use any current or future net operating loss to offset future taxable income may be subject to certain limitations under U.S. or foreign tax law.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “
Code
”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its net operating losses, or NOLs to offset future taxable income. Future changes in our stock ownership, the causes of which may be outside of our control, could result in an ownership change under Section 382 of the Code. Any future NOLs we generate may also be impaired under state laws. In addition, under the 2017 Tax Cuts and Jobs Act, or Tax Act, future tax losses may be utilized to offset no more than 80% of taxable income annually. Under the Coronavirus Aid, Relief, and Economic Security, or CARES Act, signed into law in March 2020, the limitation on the deduction of NOLs to 80% of current year taxable income is eliminated for taxable years beginning before January 1, 2021. Notwithstanding the CARES Act, we may be required to pay federal income taxes in future years despite generating a loss for federal income tax purposes. There is also a risk that due to statutory or regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our future NOLs could expire or otherwise be unavailable to offset future income tax liabilities. It is uncertain if and to what extent various states will conform to the Tax Act, as modified by the CARES Act. For these reasons, we may not be able to realize a tax benefit from the use of any future NOLs we generate, whether or not we attain profitability.
Risks Related to Information Technology and Data
Actual or perceived cyberattacks, security incidents, or breaches could result in serious harm to our reputation, business and financial condition.
Our business involves the collection, storage, processing and transmission of confidential information and consumers’ personal data, including financial information and information about how consumers interact with our platform. We have built our reputation on the premise that we offer consumers a secure and convenient way to manage their digital assets. We also maintain and process other information in our business, including our own proprietary, confidential, or otherwise sensitive information, and information we maintain or otherwise process for third parties. An increasing number of organizations, including large merchants, businesses, technology companies and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications and infrastructure.
The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including consumers’ personal data), disable or degrade service, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. We may be unable to anticipate these techniques or to implement adequate preventative measures, and any cyberattack, breach or other security incident may take longer than expected to remediate or otherwise address. Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems or facilities through various means, including, but not limited to, hacking into our systems or facilities or those of our users or vendors, and attempting to fraudulently induce users of our systems (including employees and consumers) into disclosing user names, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems, or to steal digital assets stored by our users. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage and insider threats. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Numerous and evolving cybersecurity threats, including advanced and persistent cyberattacks, cyberextortion, ransomware,
denial-or
service attacks, spear phishing and
 
37

social engineering schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our information technology and infrastructure could compromise the confidentiality, availability and integrity of the information (including consumers’ personal data) in our systems. Although we have developed systems and processes designed to protect information we manage, prevent data loss and other security breaches and effectively respond to known and potential risks, and we expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches, security incidents or attacks.
Our information technology and infrastructure and those of our vendors (including data center and cloud computing providers) may be vulnerable to cyberattacks, security incidents and breaches and third parties may be able to access our users’ personal data and/or proprietary information, banking, digital asset and payment card information, or other confidential, proprietary, or otherwise sensitive information, stored on or accessible through those systems. We have experienced from time to time, and may experience in the future, security incidents or breaches due to human error, malfeasance, insider threats, system errors, bugs, vulnerabilities, or other irregularities. Actual or perceived breaches of our or our vendors’ security could, among other things:
 
  
interrupt our operations;
 
  
result in our systems or services being unavailable or degraded;
 
  
result in improper disclosure of information (including consumers’ personal data) and violations of applicable privacy and other laws;
 
  
materially harm our reputation and brand;
 
  
result in significant liability claims, litigation, regulatory scrutiny, investigations, fines, penalties and other legal and financial exposure;
 
  
cause us to incur significant remediation costs;
 
  
lead to loss or theft of user digital assets, such as rewards points;
 
  
lead to loss of user confidence in, or decreased use of, our products and services;
 
  
divert the attention of management from the operation of our business;
 
  
result in significant compensation or contractual penalties from us to our users as a result of losses to them or claims by them; and
 
  
adversely affect our business and results of operations.
We expect to expend significant resources to protect against security incidents and privacy breaches and may be required to redress problems caused by security incidents or breaches. We have implemented remote working protocols and offer work-issued devices to certain employees, but the actions of employees while working remotely may have a greater effect on the security of our infrastructure, networks, and the information, including personal data, we process, including for example by increasing the risk of compromise to systems or information arising from employees’ combined personal and private use of devices, accessing our networks or information using wireless networks that we do not control, or the ability to transmit or store information outside of our secured network. Although many of these risks are not unique to the remote working environment, they have been heightened by the dramatic increase in the numbers of our employees who have been and are continuing to work from home as a result of government requirements or guidelines and internal policies that have been put in place in response to the
COVID-19
pandemic. Our employees’ or third parties’ intentional, unintentional, or inadvertent actions may increase our vulnerability or expose us to security threats, such as ransomware, other malware and phishing attacks, and we may remain responsible for unauthorized access to, loss, alteration, destruction, acquisition, disclosure or other processing of information we or our vendors process or otherwise maintain, even if the security measures used to protect such information comply with applicable laws, regulations and other actual or asserted obligations. Also, cyberattacks, including on the supply chain, continue to increase in frequency and magnitude, and we cannot provide assurances that our preventative efforts will be successful.
 
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Financial services regulators in various jurisdictions have implemented authentication requirements for banks and payment processors intended to reduce online fraud, which could impose significant costs, require us to change our business practices, make it more difficult for new consumers to join us, and reduce the ease of use of our platform, which could harm our business. While we maintain insurance policies, they may not be adequate to reimburse us for losses caused by security incidents or breaches. We also cannot be certain that our insurance coverage will be adequate for incurred information security liabilities, that insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or
co-insurance
requirements, could have a material adverse effect on our business, including our financial condition, results of operations, and reputation.
Systems failures and resulting interruptions in the availability of our websites, applications, products, or services could harm our business.
Our systems and those of our service providers, enterprise and loyalty partners have experienced from time to time, and may experience in the future service interruptions or degradation because of hardware and software defects or malfunctions, insider threats, human error, earthquakes, hurricanes, floods, fires and other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events. We have experienced from time to time, and may experience in the future, disruptions in our systems. In addition, as a provider of payments solutions and digital assets trading and custody solutions, we are subject to heightened scrutiny by regulators that may require specific business continuity, resiliency and disaster recovery plans and more rigorous testing of such plans, which may be costly and time-consuming to implement, and may divert our resources from other business priorities.
We have experienced and expect to continue to experience system failures,
denial-of-service
attacks and other events or conditions from time to time that interrupt the availability, or reduce or adversely affect the speed or functionality, of our products and services. These events have resulted and likely will result in loss of revenue. A prolonged interruption in the availability or reduction in the availability, speed, or functionality of our products and services could materially harm our business. The full-time availability and expeditious delivery of our products and services is critical to our goal of gaining widespread acceptance among users for digital payments. Frequent or persistent interruptions in our services could cause current or potential users to believe that our systems are unreliable, leading them to switch to competitors or to avoid or reduce the use of our platform, and could permanently harm our reputation and brand. Moreover, if any system failure or similar event results in damages to our users, these users could seek significant compensation or contractual penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address, and could have other consequences described in this “Risk Factors” section under the caption “
Actual or perceived
cyberattacks, security incidents or breaches could result in serious harm to our reputation, business and financial condition
.” Further, frequent or persistent site interruptions could lead to regulatory scrutiny, significant fines and penalties and mandatory and costly changes to our business practices, and ultimately could cause us to lose existing licenses that we need to operate or prevent or delay us from obtaining additional licenses that may be required for our business.
We also rely on facilities, components, applications and services supplied by third parties, including data center facilities and cloud storage services, which subjects us to risks in the nature of those discussed in this “
Risk Factors
” section under the caption “
We rely on third parties, over which we have no control, in many aspects of our business which creates additional risk, including risks related to the failure of third parties to provide various services that are important to our operations or to comply with legal or regulatory requirements.
” From time to time, such third parties may cease to provide us with such facilities and services. Additionally, if these third parties experience operational interference or disruptions, breach their agreements with us, fail to perform their obligations and meet our expectations, or experience a cyberattack, security incident or breach, our operations could be disrupted or otherwise negatively affected, which could result in consumer
 
39

dissatisfaction, regulatory scrutiny and damage to our reputation and brands and materially and adversely affect our business. While we maintain business interruption insurance, our coverage may be insufficient to compensate us for all losses that may result from interruptions in our service as a result of systems failures and similar events.
In addition, we are continually improving and upgrading our information systems and technologies. Implementation of new systems and technologies is complex, expensive and time-consuming. If we fail to timely and successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies, or if such systems and technologies do not operate as intended, this could have an adverse impact on our business, internal controls (including internal controls over financial reporting), results of operations and financial condition.
If we use open source software inconsistent with our policies and procedures or the license terms applicable to such software, we could be subject to legal expenses, damages, or costly remediation or disruption to our business.
We use open source software in our platform. While we have policies and procedures in place governing the use of open source software, there is a risk that we incorporate open source software with onerous licensing terms, including the obligation to make our source code available for others to use or modify without compensation. If we receive an allegation that we have violated an open source license, we may incur significant legal expenses, be subject to damages, be required to redesign our platform or app to remove the open source software, or be required to comply with onerous license restrictions, all of which could have a material impact on our business. Even in the absence of a claim, if we discover the use of open source software inconsistent with our policies, we could expend significant time and resources to replace the open source software or obtain a commercial license, if available. All of these risks are heightened by the fact that the ownership of open source software can be uncertain, leading to litigation, and many of the licenses applicable to open source software have not been interpreted by courts, and these licenses could be construed to impose unanticipated conditions or restrictions on our ability to commercialize our products. Any use of open source software inconsistent with our policies or licensing terms could harm our business and financial position.
Risks Related to Risk Management and Financial Reporting
Real or perceived inaccuracies in our key operating metrics may harm our reputation and negatively affect our business.
We track certain key operating metrics with internal systems and tools that are not independently verified by any third party. While the metrics presented in this prospectus are based on what we believe to be reasonable assumptions and estimates, our internal systems and tools have a number of limitations, and our methodologies for tracking these metrics may change over time. In addition, limitations or errors with respect to how we measure data or with respect to the data that we measure may affect our understanding of certain details of our business, which could affect our long-term strategies. If the internal systems and tools we use to track these metrics understate or overstate performance or contain algorithmic or other technical errors, the key operating metrics we report may not be accurate. If investors do not perceive our operating metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed and our results of operations and financial condition could be adversely affected.
If we are unable to develop and maintain effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements, which could have a material adverse effect on our business.
We have limited accounting and finance personnel and other resources and must develop our own internal controls and procedures consistent with PCAOB standards. We intend to continue to evaluate actions to enhance our internal controls over financial reporting, but there is no assurance that we will identify control deficiencies or material weaknesses in the future.
 
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The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. To comply with Section 404 of the Sarbanes-Oxley Act, we expect to incur substantial cost, expend significant management time on compliance-related issues and hire additional accounting, financial and internal audit staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Pursuant to the Sarbanes-Oxley Act we will be required to make a formal assessment of the effectiveness of our internal control over financial reporting, and once we cease to be an “emerging growth company” under the JOBS Act, we will also be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
Any failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have an adverse effect on our business and operating results, and cause a decline in the price of our securities.
The unaudited pro forma financial information included elsewhere in this prospectus may not be indicative of what our actual financial position or results of operations would have been.
The unaudited pro forma combined financial information included elsewhere in this prospectus is presented for illustrative purposes only and does not necessarily reflect what our financial condition or results of operations would have been had the Merger and PIPE Investment occurred on the dates indicated. Further, the unaudited pro forma combined financial information also may not be useful in predicting our future financial condition and results of operations. Our actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Our unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma combined financial statements and are subject to change as additional information becomes available and analyses are performed.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed financial statements and income and expenses during the periods reported. Actual results could materially differ from those estimates and the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve those related to revenue recognition,
internal-use
software development costs, valuation of our stock-based compensation awards, including the determination of fair value of our common stock, accounting for income taxes, the carrying value of operating lease
right-of-use
assets and useful lives of long-lived assets, among others. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our securities.
 
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Our management has limited experience in operating a public company.
Our executive officers and directors have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage being a public company, and we are subject to significant regulatory oversight and reporting obligations under federal securities laws. Our executive officers’ limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to our management and growth. It is likely that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.
We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, and our management will be required to devote substantial time to new compliance matters, which could lower profits and make it more difficult to run our business.
As a public company, we expect to incur significant legal, accounting, reporting and other expenses we did not incur as a private company, including costs associated with public company reporting requirements (which expenses may increase once we no longer qualify as an “emerging growth company” under the JOBS Act) and costs of recruiting and
retaining non-executive directors.
We also have incurred, and will continue to incur, costs associated with compliance with the rules and regulations of the SEC, the listing requirements of NYSE, and various other costs of a public company. The expenses generally incurred by public companies for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements. These laws and regulations also could make it more difficult and costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult to attract and retain qualified persons to serve on our Board and Board committees and serve as executive officers.
Furthermore, if we are unable to satisfy its obligations as a public company, we could be subject to delisting of our securities, fines, sanctions and other regulatory action and potentially civil litigation.
We are an “emerging growth company” and any decision to comply with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our securities less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we
 may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:
 
  
not being required to have an independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
 
  
reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form
10-K;
and
 
  
exemptions from the requirements of holding
non-binding
advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.
As a result, our stockholders may not have access to certain information that they may deem important. Our status as an emerging growth company will end as soon as any of the following takes place:
 
  
the last day of the fiscal year in which we had at least $1.07 billion in annual revenue;
 
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the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by
non-affiliates;
 
  
the date on which we have issued, in any three-year period, more than $1.0 billion in
non-convertible
debt securities; or
 
  
December 31, 2025.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of this extended transition period and as a result, our financial statements may not be comparable with similarly situated public companies.
We cannot predict if investors will find our securities less attractive if we choose to rely on any of the exemptions afforded emerging growth companies. If some investors find our securities less attractive because we rely on any of these exemptions, there may be a less active trading market for such securities and the market price of such securities may be more volatile and may decline.
Future changes in financial accounting standards may significantly change our reported results of operations.
GAAP is subject to standard setting or interpretation by the Financial Accounting Standards Board (“
FASB
”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results. For example, the accounting treatment for revenues from cryptocurrency transactions is under review and subject to change. To the extent we account for revenue from cryptocurrency transactions in a manner that is different than the manner ultimately established by the SEC and GAAP, such revenue information, and the timing of revenue recognition, could vary materially and require subsequent adjustment. Any such adjustment could materially impact our reported results of operations, which could have negative outcomes for us and harm our reputation and could affect the reporting of transactions completed before the announcement of a change.
Our merchant partners may be subject to sales reporting and record-keeping obligations.
A number of U.S. states and the U.S. federal government have implemented or are in the process of implementing reporting or record-keeping obligations on companies that engage in or facilitate
e-commerce
to improve tax compliance. Additionally, a number of jurisdictions are reviewing whether payment service providers and other intermediaries could be deemed to be the legal agent of merchants for certain tax purposes. We may be required to modify our systems to comply with future requirements, which may negatively impact our consumer experience and increase operational costs. Any failure by us to comply with these and similar reporting and record-keeping obligations could result in substantial monetary penalties and other sanctions, adversely impact our ability to do business in certain jurisdictions and harm our business.
Risks Related to Our Securities
A significant portion of our total outstanding securities are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our securities to drop significantly, even if our business is doing well.
Pursuant to our Stockholders Agreement with the Sponsor and the Opco Equity Holders, up to 208,200,000 shares of Class A Common Stock issuable upon the exchange of Paired Interests held by Opco Equity Holders are subject to a
six-month
lock-up
following the Closing. Additionally, the Sponsor and Insiders have agreed not to transfer, assign or sell (a) any of their 5,184,300 shares of Class A Common Stock acquired in connection with the Domestication until the earlier of (i) one year after the Closing and (ii) subsequent to the Merger, (x) if the closing price of our Class A Common Stock equals or exceeds $12.00 per share (subject to adjustment) for any 20 trading days within any
30-trading
day period commencing at least 150 days after the Closing or (y) the date
 
43

on which we complete a liquidation, merger, amalgamation, capital stock exchange, reorganization or other similar transaction that results in all holders of Class A Common Stock having the right to exchange their Class A Common Stock for cash, securities or other property or (b) any of the 6,147,440 Private Placement Warrants or the Private Warrant Shares issuable upon exercise of such warrants until 30 days after the Closing. In addition, up to 32,500,000 shares of Class A Common Stock issued in the PIPE Financing may be issued hereunder.
Upon expiration of the applicable
lock-up
restrictions described above, holders of our securities that are currently restricted, which in the aggregate represent 95% of our outstanding shares of Class A Common Stock (assuming that all outstanding or issuable Paired Interests are exchanged for shares of Class A Common Stock and that no outstanding Warrants are exercised) and 37% of our outstanding Warrants (assuming that no outstanding Warrants are exercised) to purchase Class A Common Stock, could sell such securities pursuant to the registration statement of which this prospectus forms a part or in privately negotiated transactions. The market price of our securities could decline if holders of currently restricted shares and/or warrants sell them or are perceived by the market as intending to sell them.
Further, pursuant to the Business Combination, holders of 37,684,300 shares of Class A Common Stock, 190,726,638 shares of Class V Common Stock, or warrants to purchase shares of Class V Common Stock (convertible into an equal number of shares of Class A Common Stock) and 6,147,440 Private Placement Warrants (to purchase an equal number of shares of Class A Common Stock) have rights, subject to certain conditions, to require us to maintain effective the registration statement of which this prospectus forms a part, or otherwise file and maintain effective registration statements for the public resale of the shares of Class A Common Stock they hold or will hold upon the exchange of Paired Interests or the exercise of Private Placement Warrants, as applicable, or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause volatility in the market price of our securities.
Warrants that prior to the Business Combination were exchangeable for Class A Ordinary Shares are now exercisable for Class A Common Stock, which increases the number of shares eligible for future resale in the public market and results in dilution to our stockholders.
Upon completion of the Business Combination, outstanding warrants to purchase an aggregate of 16,516,041 shares of Class A Common Stock became exercisable in accordance with the terms of the warrant agreement governing those securities. The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of Class A Common Stock will be issued, which will result in dilution to the holders of Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of Class A Common Stock.
We may issue additional shares of common stock or other equity securities without stockholder approval, which would dilute stockholders’ ownership interest in us and may reduce the market price of our securities.
We may issue additional shares of our Class A Common Stock or other equity securities in the future in connection with, among other things, future acquisitions, repayment of outstanding indebtedness or grants under the 2021 Omnibus Incentive Plan (the “
Equity Incentive Plan
”) without stockholder approval in a number of circumstances. The issuance of additional Class A Common Stock or other equity securities could have one or more of the following effects:
 
  
our existing stockholders’ proportionate ownership interest will decrease;
 
  
the amount of cash available per share, including for payment of dividends in the future, may decrease;
 
  
the relative voting strength of each previously outstanding share of our common stock may be diminished; and
 
  
the market price of our Class A Common Stock and/or Warrants may decline.
 
44

If securities and industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the prices and trading volumes of our securities could decline.
The trading market for our securities will depend, in part, on the research and reports that securities and industry analysts publish about us and our business. Securities and industry analysts do not currently, and may never, cover us. If securities and industry analysts do not commence coverage of us, the market price of our securities would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our securities or publish inaccurate or unfavorable research about our business, the market price of our securities would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our stock could decrease, which might cause the market price and trading volume of our securities to decline.
Delaware law and our Certificate of Incorporation and
By-Laws
contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our certificate of incorporation (the “
Certificate of Incorporation
”) and our
by-laws
(the “
By-Laws
”) contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by the Board and therefore depress the trading price of our securities. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of the Board or taking other corporate actions, including effecting changes in management. Among other things, the Certificate of Incorporation and
By-Laws include
provisions regarding:
 
  
a classified Board with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board;
 
  
the ability of the Board to issue shares of Preferred Stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
 
  
the limitation of the liability of, and the indemnification of, our directors and officers;
 
  
the right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board;
 
  
the requirement that directors may only be removed from the Board for cause and upon the affirmative vote of the holders of at least 66 2/3% of the total voting power of then outstanding Class A Common Stock;
 
  
a prohibition on stockholder action by written consent (except for actions by the holders of Class V Common Stock or as required for holders of future series of Preferred Stock), which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors;
 
  
the requirement that a special meeting of stockholders may be called only by the Board, the Chairman of the Board or our Chief Executive Officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors;
 
  
controlling the procedures for the conduct and scheduling of the Board and stockholder meetings;
 
  
the requirement for the affirmative vote of holders of at least 66 2/3% of the total voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal certain provisions in the Certificate of Incorporation which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
 
45

  
the ability of the Board to amend the
By-Laws,
which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the
By-Laws
to facilitate an unsolicited takeover attempt; and
 
  
advance notice procedures with which our stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Board or management.
Our Certificate of Incorporation designates a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, or if such court does not have subject matter jurisdiction, any other court located in the State of Delaware with subject matter jurisdiction, will be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of us, (b) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of ours to us or our stockholders, (c) any action asserting a claim against us or our officers or directors arising pursuant to any provision of the DGCL or the Certificate of Incorporation or
By-Laws or
as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, (d) any action to interpret, apply, enforce or determine the validity of the Certificate of Incorporation or the
By-Laws or
any provision thereof, (e) any action asserting a claim against us or any current or former director, officer, employee, stockholder or agent of ours governed by the internal affairs doctrine of the law of the State of Delaware or (f) any action asserting an “internal corporate claim” as defined in Section 115 of the DGCL.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such Securities Act claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, the Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; however, there is uncertainty as to whether a court would enforce such provision, and investors cannot waive compliance with federal securities laws and the rules and regulations thereunder. Notwithstanding the foregoing, the Certificate of Incorporation provides that the exclusive forum provision will not apply to suits brought to enforce any cause of action arising under the Securities Act, any duty or liability created by the Securities Exchange Act of 1934 (the “
Exchange Act
”) or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities will be deemed to have notice of and consented to this provision. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find these exclusive-forum provisions to be inapplicable or unenforceable in an action, we may incur
 
46

additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
Our Certificate of Incorporation does not limit the ability of ICE to compete with us.
ICE and its affiliates engage in a broad spectrum of activities, including investments in the financial services and technology industries. In the ordinary course of its business activities, ICE and its respective affiliates may engage in activities where their interests conflict with our interests, or those of our other stockholders. The Certificate of Incorporation provides that ICE and its affiliates (including any
non-employee
directors of ours appointed by ICE) have no duty to refrain from (1) engaging in and possessing interests in other business ventures of every type and description, including those engaged in the same or similar business activities or lines of business in which we now engage or propose to engage or (2) otherwise competing with us, on their own account, in partnership with, or as an employee, officer, director or shareholder of any other individual, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other entity. ICE also may pursue, in its capacity other than as directors of the Board, acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, ICE may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to our other stockholders. ICE will not be liable to us, our stockholders any of our affiliates for breach of any fiduciary duty solely by reason of the fact that they engage or have engaged in any such activities.
Certain significant stockholders and members of management whose interests may differ from those of other stockholders have the ability to significantly influence our business and management.
Pursuant to the Stockholders Agreement that the that we entered into with the Sponsor and the Opco Equity Holders, the Sponsor and the Opco Equity Holders agreed to designate one director nominated by the Sponsor, one director nominated by Opco, and the remaining three to six directors jointly nominated by the Sponsor and Opco. Our Board is divided into three classes of directors: Class I directors (“
Class
 I Directors
”) will initially serve for a term expiring at our 2022 annual meeting of stockholders, Class II directors (“
Class
 II Directors
”) will initially serve for a term expiring at our 2023 annual meeting of stockholders and Class III directors (“
Class
 III Directors
”) will initially serve for a term expiring at our 2024 annual meeting of stockholders following the effectiveness of the Certificate of Incorporation. At each succeeding annual meeting, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting of stockholders.
Accordingly, the parties to the Stockholders Agreement will be able to designate all of the members of the Board. Such stockholders will retain such influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, the parties to the Stockholders Agreement could influence whether acquisitions, dispositions and other change of control transactions are approved.
ICE may exert significant influence over us and its interests may conflict with yours or those of other stockholders in the future.
Each share of Class A Common Stock and each Class V Share initially entitles its holders to one vote on all matters presented to stockholders generally. Accordingly, ICE is able to exert significant influence over the election and removal of our directors and thereby significantly influence corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our Certificate of Incorporation and
By-Laws
and other significant corporate transactions for so long as it retains significant ownership. This concentration of ownership may delay or deter possible changes in control, which may reduce the value of an investment in our securities. So long as ICE continues to own a significant amount of the combined voting power, even if such amount is less than 50%, ICE will continue to be able to strongly influence our decisions. While the Voting Agreement (as defined below) limits ICE to vote only an aggregate of 30% of its
 
47

voting power, such amount may result in substantial influence in voting matters. The Voting Agreement provides that this limitation on ICE’s voting power will terminate at such time as its ownership is less than a majority of the outstanding voting power, at which time ICE will be entitled to vote all of its voting shares, which may result in an increase in its potential influence.
The price of our securities may be volatile.
The price of our securities may fluctuate due to a variety of factors, including:
 
  
changes in the industries in which we operate;
 
  
developments involving our competitors;
 
  
changes in laws and regulations affecting our business;
 
  
variations in our operating performance and the performance of our competitors in general;
 
  
actual or anticipated fluctuations in our quarterly or annual operating results;
 
  
publication of research reports by securities analysts about us or our competitors or our industry;
 
  
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
 
  
actions by stockholders, including the sale by the PIPE Investors of any of their holdings;
 
  
additions and departures of key personnel;
 
  
commencement of, or involvement in, litigation involving the combined companies;
 
  
changes in our capital structure, such as future issuances of securities or the incurrence of debt;
 
  
the volume of our Class A Common Stock available for public sale; and
 
  
general economic and political conditions, such as the effects of the
COVID-19
outbreak, recessions, volatility in the markets, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.
These market and industry factors may materially reduce the market price of our securities regardless of our operating performance.
Recent market volatility could impact the stock price and trading volume of our securities.
The trading market for our securities could be impacted by recent market volatility. While we do not believe that it is more likely to be affected by market volatility than other public companies, recent stock
run-ups,
divergences in valuation ratios relative to those seen during traditional markets, high short interest or short squeezes, and strong and atypical retail investor interest in the markets may impact the demand for our securities.
A possible “short squeeze” due to a sudden increase in demand of our securities that largely exceeds supply may lead to price volatility in our securities. Investors may purchase our securities to hedge existing exposure or to speculate on the price of our securities. Speculation on the price of our securities may involve both long and short exposures. To the extent aggregate short exposure exceeds the number of our securities available for purchase (for example, in the event that large redemption requests dramatically affect liquidity), investors with short exposure may have to pay a premium to repurchase our securities for delivery to lenders. Those repurchases may in turn, dramatically increase the price of our securities. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our securities that are not directly correlated to our operating performance.
 
48

Because there are no current plans to pay cash dividends on the Class A Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your Class A Common Stock at a price greater than what you paid for it.
We intend to retain future earnings, if any, for future operations, expansion and debt repayment and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of Class A Common Stock will be at the sole discretion of the Board. The Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications of the payment of dividends by us to our stockholders or by our subsidiaries to it and such other factors as the Board may deem relevant. As a result, you may not receive any return on an investment in Class A Common Stock unless you sell your Class A Common Stock for a price greater than that which you paid for it.
The NYSE may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our securities are currently listed on NYSE. However, we cannot assure you that our securities will continue to be listed on the NYSE in the future. We are required to demonstrate compliance with the NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements, in order to continue to maintain the listing of our securities on the NYSE. In addition to the listing requirements for common stock, the NYSE imposes listing standards on warrants. We cannot assure you that we will be able to meet those initial listing requirements or continued listing requirements in the future.
If the NYSE delists our securities from trading on its exchange and we are not able to list its securities on another national securities exchange, we expect our securities could be quoted on
an over-the-counter market.
If this were to occur, we could face significant material adverse consequences, including:
 
  
a limited availability of market quotations for our securities;
 
  
reduced liquidity for our securities;
 
  
determination that our Class A Common Stock is a “penny stock,” which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
 
  
a limited amount of news and analyst coverage; and
 
  
a decreased ability to issue additional securities or obtain additional financing in the future.
 
49

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of Regulation
S-X.
The unaudited pro forma condensed combined financial information presents the pro forma effects of the following transactions:
 
  
The acquisition of Opco by the Company on October 15, 2021, which resulted in the reorganization of the Company into an umbrella partnership C corporation structure (“
Up-C
”), and the related entrance into other agreements entered into as part of the Merger Agreement; and
 
  
The acquisition of Bridge2 Solutions, LLC and its related companies (“Bridge2 Solutions”) by Intercontinental Exchange Holdings, Inc. (“
ICEH
”) on February 21, 2020 and the subsequent contribution of substantially all of the assets and liabilities of Bridge2 Solutions to Opco at a value of approximately $261 million on March 12, 2020 (the “B2S Acquisition”), which Opco accounted for as a common control transaction under ASC 805, as Bridge2 Solutions was owned by ICEH, the entity that controlled Opco, prior to its combination with Opco.
The Company was a blank check company incorporated on July 31, 2020 (inception) as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. On August 3, 2020, the Sponsor paid approximately $0.004 per share, for an aggregate price of $25,000 to cover certain offering and formation costs of the Company in consideration for 5,750,000 Class B Ordinary Shares (i.e., the Founder Shares). In September 2020, the Sponsor transferred an aggregate of 60,000 Founder Shares to then-members of the Board, resulting in the Sponsor holding an aggregate of 5,690,000 Founder Shares. On September 25, 2020, the Company consummated the IPO of 20,000,000 of its units (each a “
Unit
” and collectively, the “
Units
”), with each Unit consisting of one Class A Ordinary Share and
one-half
of one warrant, with each such whole warrant entitling the holder thereof to purchase one Class A Ordinary Share for $11.50 per share. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to the Company of $200,000,000. The underwriters in the IPO, on October 1, 2020, partially exercised their over-allotment option and purchased 737,202 Units, generating gross proceeds of $7,372,020. As a result of the over-allotment not being exercised in full, the Sponsor forfeited 565,700 Founder Shares back to the Company, resulting the Company having an aggregate of 5,184,300 Founder Shares issued and outstanding. In addition, the Company completed the sale to the Sponsor of 6,147,440 Private Placement Warrants at a price of $1.00 per warrant, generating gross proceeds of $6,147,440. A total of $207,372,020 of the net proceeds from the IPO and the Private Placement Warrants were deposited in a trust account established at the consummation of the IPO (the “
Trust Account
”) for the benefit of the holders of Class A Ordinary Shares sold in the IPO (such Class A Ordinary Shares, the “
Public Shares
” and, such holders, the “
Public
Shareholders
”) and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. The net proceeds deposited into the Trust Account remained on deposit in the Trust Account earning interest except those certain amounts withdrawn in order to pay tax obligations. As of the Closing, there was approximately $207.4 million held in the Trust Account.
Opco is a digital asset platform that enables consumers to buy, sell, store and spend digital assets. Opco’s consumer platform, now available through the recently released app and to partners through its Bakkt platform, amplifies consumer spending and bolsters loyalty programs, adding value for all key stakeholders within the Bakkt payments and digital assets ecosystem. Launched in 2018, Opco is headquartered in Alpharetta, GA. On February 21, 2020, Opco consummated the B2S Acquisition in order to expand Opco’s loyalty conversion offerings within Opco’s digital asset marketplace.
The organizational structure following the completion of the Business Combination, as described above, is commonly referred to as an
Up-C
structure in which substantially all of the assets and the business of the Company are held by Opco and its subsidiaries, and the Company’s only direct assets consist of Opco Common
 
50

Units, which are non-voting interests in Opco, and the managing member interest in Opco. This organizational structure allows the Opco Equity Holders to retain their equity ownership in Opco, which is an entity that is classified as a partnership for U.S. federal income tax purposes. Those investors who, prior to the Business Combination, held Class A Ordinary Shares or Class B Ordinary Shares, by contrast, continue to hold their equity ownership in the Company, which is a domestic corporation for U.S. federal income tax purposes. The Company believes that it is advantageous for the Opco Equity Holders to continue to hold their equity interests in an entity that is not taxable as a corporation for U.S. federal income tax purposes.
The Company does not believe that the
Up-C
organizational structure gives rise to any significant business or strategic benefit or detriment.
The unaudited pro forma condensed combined financial information is based upon, and should be read in conjunction with, the historical financial statements and related notes of the Company and Opco. The pro forma financial statements have been presented for information purposes only and are not necessarily indicative of what the Company’s balance sheet or statement of operations actually would have been had the Business Combination or B2S Acquisition been completed as of the dates indicated, nor do they purport to project the future financial position or operating results of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The pro forma financial information is presented for illustrative purposes only and does not reflect the costs of any integration activities or cost savings or synergies that may be achieved as a result of the Business Combination and B2S Acquisition.
The unaudited pro forma condensed combined balance sheet combines Opco’s unaudited historical consolidated balance sheet as of September 30, 2021 and the Company’s unaudited historical consolidated balance sheet as of September 30, 2021, giving effect to the Business Combination as if it had been consummated on September 30, 2021. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020 give pro forma effect of the Business Combination and B2S Acquisition as if each had been consummated on January 1, 2020.
We refer to the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations as the “pro forma financial statements.”
The pro forma financial statements were prepared using the acquisition method of accounting under the provisions of ASC 805 on the basis of the Company as the accounting acquirer and Opco as the accounting acquiree. The ultimate determination of the accounting acquirer is a qualitative and quantitative assessment that requires careful consideration, of which the final determination will occur after the consummation of the Business Combination. The Company has been determined to be the accounting acquirer based on evaluation of the following factors:
 
  
The Company is the sole managing member of Opco, the managing member has full and complete charge of all affairs of Opco and the existing
non-managing
member Opco Equity Holders of Opco do not have substantive participating or kick out rights;
 
  
The Sponsor and Opco jointly designated six of the initial eight members of the Board; and
 
  
Opco Equity Holders do not hold a controlling interest in the Company or Opco due to (i) the limitation imposed by the Voting Agreement on ICEH and its affiliates’ voting power to 30% of the total voting power of all shares of Class A Common Stock and Class V Common Stock (collectively, the “
Common Stock
”) that are issued and outstanding and entitled to vote as of the relevant record date so long as it owns shares of Common Stock representing more than 50% of the total voting power of the Company, and (ii) ICEH and its affiliates do not unilaterally control the Board, as only one out of the eight members of the Board is affiliated with ICEH, and the majority of the Board are independent directors not affiliated with ICEH.
The factors discussed above support the conclusion that the Company acquired a controlling interest in Opco and is the accounting acquirer. The Company is the primary beneficiary of Opco, which is a variable
 
51

interest entity, since it has the power to direct the activities of Opco that most significantly impact Opco’s economic performance through the Company’s role as the managing member, and its ownership of Opco, which results in the right (and obligation) to receive benefits (and absorb losses) of Opco that could potentially be significant to the Company. Therefore, the Business Combination constituted a change in control and was accounted for using the acquisition method. Under the acquisition method of accounting, the purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed of Opco, based on their estimated acquisition-date fair values. These estimates are determined through established and generally accepted valuation techniques. Estimated transaction costs incurred are expensed in the pro forma condensed combined statements of operation as if the Closing occurred on January 1, 2020.
The following summarizes the pro forma ownership of Class A Common Stock following the Closing:
 
Equity Capitalization Summary (shares in millions)
  
Shares
   
%
 
Public Shareholders
(1)
   12.3    24.6 
Founder Shares
(2)
   5.2    10.4 
PIPE Investors
(3)
   32.5    65.0 
Opco Equity Holders interest in the Company
(4)
   —      —   
  
 
 
   
 
 
 
Total Class A Common Stock
  
 
50.0
 
  
 
100.0
 
 
(1)
Reflects 8,452,042 Public Shares that were redeemed by shareholders for $84.5 million at approximately $10.01 per share in connection with the Business Combination.
(2)
Represents 5,184,300 shares of Class A Common Stock issued upon the automatic conversion of the existing Class B Ordinary Shares in connection with the closing of the Business Combination.
(3)
Represents 32,500,000 PIPE Shares purchased by certain investors at a price of $10.00 per share in a private placement that closed in connection with the Closing.
(4)
The Equity Capitalization Summary table excludes Opco Equity Holders’ noncontrolling economic interest in Opco Common Units, which is exchangeable (together with the cancellation of an equal number of shares of voting,
non-economic
Class V Common Stock) into Class A Common Stock on a
1-for-1
basis subject to certain exceptions. The table below presents the Opco Common Units and noncontrolling interest percentage:
 
   
Shares
(1)
   
%
 
Opco Equity Holders’ noncontrolling interest
(shares in millions)
   198.7    79.9 
 
 (1)
Represents the 208.2 million Opco Common Units issued to Opco Equity Holders, net of 8.7 million common incentive units or preferred incentive units issued by Opco to its management, subject to the terms and conditions of the Bakkt Holdings, LLC Amended and Restated Bakkt Equity Incentive Plan (the “
Opco Incentive
Units
” and the “
Opco Plan
,” respectively), which vest on each of the first and second anniversaries of the effective time of the Closing, and 0.8 million units issuable upon the exercise of the warrant issued to a minority investor to purchase a certain number of Opco’s Class C voting units (the “
Opco Warrant
”).
The following unaudited pro forma condensed combined balance sheet as of September 30, 2021 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and for the nine months ended September 30, 2021 are based on the historical financial statements of the Company, Opco and Bridge2 Solutions, each as filed with the SEC. The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.
 
52

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2021
 
   
Historical Financials
  
Transaction
Accounting
Adjustments
      
Pro
Forma
Combined
 
($ in millions)
  
Company

(Historical as of
9/30/21)
  
Opco

(Historical as of
9/30/21)
 
Cash and equivalents
  $0.7  $22.1  $390.0  
 
A
 
  $412.8 
Restricted cash
   —     16.5   —       16.5 
Customer funds
   —     0.4   —       0.4 
Accounts receivable, net
   —     13.3   —       13.3 
Other current assets
   0.1   7.2   —       7.3 
  
 
 
  
 
 
  
 
 
    
 
 
 
Current assets
  
 
0.8
 
 
 
59.5
 
 
 
390.0
 
   
 
450.3
 
Cash and investments held in Trust Account
   207.4   —     (207.4 
 
B
 
   —   
Property, equipment and software, net
   —     28.1   —       28.1 
Goodwill
   —     233.4   1,119.0  
 
C
 
   1,352.4 
Intangible assets, net
   —     57.3   517.3  
 
C
 
   574.6 
Deposits with clearinghouse affiliate, noncurrent
   —     15.2   —       15.2 
Other assets
   —     4.2   —       4.2 
  
 
 
  
 
 
  
 
 
    
 
 
 
Non-current
assets
  
 
207.4
 
 
 
338.2
 
 
 
1,428.9
 
   
 
1,974.5
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total assets
  
$
208.2
 
 
$
397.7
 
 
$
1,818.9
 
   
$
2,424.8
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Accounts payable and accrued liabilities
   6.1   57.3   (11.6 
 
E
 
   51.8 
Customer funds payable
   —     0.4   —       0.4 
Deferred revenue, current
   —     4.3   (0.1 
 
D
 
   4.2 
Due to affiliates
   —     2.3   —       2.3 
Other current liabilities
   —     2.3   —       2.3 
  
 
 
  
 
 
  
 
 
    
 
 
 
Current liabilities
  
 
6.1
 
 
 
66.6
 
 
 
(11.7
   
 
61.0
 
Deferred revenue, noncurrent
   —     4.1   (0.1 
 
D
 
   4.0 
Warrant liability
   29.6   —     —       29.6 
Deferred underwriting fee payable
   7.3   —     (7.3 
 
E
 
   —   
Deferred tax liabilities, net
   —     0.1   —       0.1 
Other liabilities
   —     3.2   6.0  
 
F
 
   9.2 
  
 
 
  
 
 
  
 
 
    
 
 
 
Non-current
liabilities
  
 
36.9
 
 
 
7.4
 
 
 
(1.4
   
 
42.9
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total liabilities
  
 
43.0
 
 
 
74.0
 
 
 
(13.1
   
 
103.9
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Class A ordinary shares subject to possible redemption
   207.3   —     (207.3 
 
G
 
   —   
Incentive units
   —     23.5   (23.5 
 
G
 
   —   
  
 
 
  
 
 
  
 
 
    
 
 
 
Mezzanine equity
  
 
207.3
 
 
 
23.5
 
 
 
(230.8
   
 
—  
 
Class A voting units
   —     3.1   (3.1 
 
G
 
   —   
Class B voting units
   —     187.9   (187.9 
 
G
 
   —   
Class C voting units
   —     310.1   (310.1 
 
G
 
   —   
Class C warrant
   —     1.0   (1.0 
 
G
 
   —   
Additional paid in capital
   —     —     513.7  
 
G
 
   513.7 
Accumulated other comprehensive income
   —     0.2   (0.2 
 
G
 
   —   
Accumulated deficit
   (42.1  (202.1  171.6  
 
G
 
   (72.6
  
 
 
  
 
 
  
 
 
    
 
 
 
Total shareholders’ equity
  
 
(42.1
 
 
300.2
 
 
 
183.0
 
   
 
441.1
 
Noncontrolling interest
   —     —     1,879.8  
 
H
 
   1,879.8 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total equity
  
 
(42.1
 
 
300.2
 
 
 
2,062.8
 
   
 
2,320.9
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total liabilities & equity
  
$
208.2
 
 
$
397.7
 
 
$
1,818.9
 
   
$
2,424.8
 
  
 
 
  
 
 
  
 
 
    
 
 
 
 
53

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2021
 
   
Historical Financials
  
Transaction
Accounting
Adjustments
      
Pro Forma
Combined
 
($ in millions)
  
Company

(Historical Nine
months Ended
9/30/21)
  
Opco

(Historical Nine
months Ended
9/30/21)
 
Revenue
  
$
—  
 
 
$
25.8
 
 $—      
$
25.8
 
Operating expenses
       
Compensation and benefits
   —     57.4   1.9  
 
DDD
 
   59.3 
Professional services
   —     5.0   —       5.0 
Technology and communication
   —     9.9   —       9.9 
Selling, general and administrative
   5.8   19.5   —       25.3 
Acquisition-related expenses
   —     12.1   —       12.1 
Depreciation and amortization
   —     9.1   12.7  
 
AAA
 
   21.8 
Affiliate expenses
   —     1.4   —       1.4 
Impairment of long-lived assets
   —     —     —       —   
Other operating costs
   —     1.0   —       1.0 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total operating expenses
  
 
5.8
 
 
 
115.4
 
 
 
14.6
 
   
 
135.8
 
  
 
 
  
 
 
  
 
 
    
 
 
 
Loss from operations
  
 
(5.8
 
 
(89.6
 
 
(14.6
   
 
(110.0
  
 
 
  
 
 
  
 
 
    
 
 
 
Interest income, net
   —     (0.2  —       (0.2
Loss on warrant liability
   (7.1  —     —       (7.1
Other income, net
   —     0.4   —       0.4 
  
 
 
  
 
 
  
 
 
    
 
 
 
Total interest and other income, net
  
 
(7.1
 
 
0.2
 
 
 
—  
 
   
 
(6.9
  
 
 
  
 
 
  
 
 
    
 
 
 
Loss before income taxes
  
 
(12.9
 
 
(89.4
 
 
(14.6
   
 
(116.9
  
 
 
  
 
 
  
 
 
    
 
 
 
Income tax (expense) benefit
   —     (0.2  4.9  
 
BBB
 
   4.7 
  
 
 
  
 
 
  
 
 
    
 
 
 
Net loss
  
$
(12.9
 
$
(89.6
 
$
(9.7
   
$
(112.2
  
 
 
  
 
 
  
 
 
    
 
 
 
Net loss attributable to noncontrolling interest
   —     —     (93.0 
 
CCC
 
   (93.0
Net loss attributable to controlling interest
   (12.9  (89.6  83.3  
 
CCC
 
   (19.2
Earnings per share (Note 6)
       
Weighted average shares of Class A outstanding, basic
   20,737,202       50.0 
Loss per share of Class A (basic)
  $(0.50     $(0.38
Weighted average shares of Class A outstanding, diluted
   20,737,202       50.0 
Loss per share of Class A (diluted)
  $(0.50     $(0.38
Weighted average shares of Class B outstanding, basic
   5,184,300      
Loss per share of Class B (basic)
  $(0.50     
Weighted average shares of Class B outstanding, diluted
   5,184,300      
Loss per share of Class B (diluted)
  $(0.50     
 
54

Unaudited Pro Forma Condensed Combined Statement of Operations for Year Ended December 31, 2020
 
  
Historical Financials
  
Transaction
Accounting
Adjustments
     
Pro Forma
Combined
 
($ in millions)
 
Company

(Historical
from 7/31/20
through
12/31/20)
  
Opco

(Historical
from 1/1/20
through
12/31/20)
  
Bridge2
Solutions

(Historical
from 1/1/20
through
2/21/20)
  
Combined
Company

(Historical
from 1/1/20
through
12/31/20)
 
Revenue
 
$
—  
 
 
$
28.5
 
 
$
5.7
 
 
$
34.2
 
 
$
(0.1
 
 
AA
 
 
$
34.1
 
Operating expenses
       
Compensation and benefits
  —     43.1   3.2   46.3   24.4  
 
FF
 
  70.7 
Professional services
  —     5.7   1.0   6.7   —      6.7 
Technology and communication
  —     9.7   0.4   10.1   —      10.1 
Selling, general and administrative
  1.0   8.2   0.3   8.5   —      9.5 
Acquisition-related expenses
  —     13.4   —     13.4   24.5  
 
CC
 
  37.9 
Depreciation and amortization
  —     8.2   1.0   9.2   20.6  
 
BB
 
  29.8 
Affiliate expenses
  —     3.1   —     3.1   —      3.1 
Impairment of long-lived assets
  —     15.3   —     15.3   —      15.3 
Other operating costs
  —     0.9   —     0.9   —      0.9 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total operating expenses
 
 
1.0
 
 
 
107.6
 
 
 
5.9
 
 
 
113.5
 
 
 
69.5
 
  
 
184.0
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Loss from operations
 
 
(1.0
 
 
(79.1
 
 
(0.2
 
 
(79.3
 
 
(69.6
  
 
(149.9
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Interest income, net
  —     0.1   (0.2  (0.1  —      (0.1
Loss on warrant liability
  (0.9  —     —     —     —      (0.9
Transaction costs—warrants
  (0.8  —     —     —     —      (0.8
Compensation expense—warrants
  (2.2  —     —     —     —      (2.2
Other income, net
  —     (0.2  —     (0.2  —      (0.2
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total interest and other income, net
 
 
(3.9
 
 
(0.1
 
 
(0.2
 
 
(0.3
  —     
 
(4.2
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Loss before income taxes
 
 
(4.9
 
 
(79.2
 
 
(0.4
 
 
(79.6
 
 
(69.6
  
 
(154.1
Income tax (expense) benefit
  —     (0.4  —     (0.4  6.4  
 
DD
 
  6.0 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Net loss
 
$
(4.9
 
$
(79.6
 
$
(0.4
 
$
(80.0
 
$
(63.2
  
$
(148.1
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Net loss attributable to noncontrolling interest
  —     —     —     —     (123.1 
 
EE
 
  (123.1
Net loss attributable to controlling interest
  (4.9  (79.6  (0.4  (80.0  59.9  
 
EE
 
  (25.0
Earnings per share (Note 5)
       
Weighted average shares of Class A outstanding, basic
  20,737,202        50.0 
Loss per share of Class A (basic)
 $—         $(0.50
Weighted average shares of Class A outstanding, diluted
  20,737,202        50.0 
Loss per share of Class A (diluted)
 $—         $(0.50
Weighted average shares of Class B outstanding, basic
  5,184,300       
Loss per share of Class B (basic)
 $(0.94      
Weighted average shares of Class B outstanding, diluted
  5,184,300       
Loss per share of Class B (diluted)
 $(0.94      
 
55

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
1.
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting with the Company as the acquiring entity. Under the acquisition method of accounting, the Company’s assets and liabilities will retain their carrying values and the assets and liabilities associated with Opco are recorded at their fair values measured as of the acquisition date. The excess of the purchase price over the estimated fair values of the net assets acquired, if applicable, are recorded as goodwill. The acquisition method of accounting is based on ASC 805 and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurements. In general, ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date by the Company, who was determined to be the accounting acquirer.
ASC 820 defines fair value, establishes a framework for measuring fair value, and sets forth a fair value hierarchy that prioritizes and ranks the level of observability of inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for a
non-financial
asset assume the highest and best use by these market participants. Many of these fair value measurements can be highly subjective, and it is possible that other professionals applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
The pro forma adjustments represent management’s estimates based on information available as of the date of the filing of the condensed combined financial statements and do not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the Business Combination that are not expected to have a continuing impact on the statement of operations. Further, estimated
one-time
transaction-related expenses incurred in connection with the consummation of the Business Combination are presented in the unaudited pro forma condensed combined statement of operations as if it was consummated on January 1, 2020. The impact of such transaction expenses incurred prior to the Business Combination are reflected in the unaudited pro forma condensed combined balance sheet as reductions to liabilities and a decrease to cash, whereas such transaction expenses incurred concurrently with the consummation of the Business Combination are reflected as an adjustment to retained earnings or members deficit and a decrease to cash. Such transaction expenses incurred and paid by Opco prior to the Business Combination have been adjusted as part of the Opco equity close out adjustment.
The accompanying unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting in accordance with ASC 805 and are based on certain currently available information and certain assumptions and methodologies that the Company believes are reasonable under the circumstances. The Company believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of September 30, 2021 gives pro forma effect to the Business Combination as if it had been consummated on September 30, 2021. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020 present the pro forma effect of the Business Combination and B2S Acquisition as if each had been consummated on January 1, 2020. These periods are presented on the basis of the Company being the accounting acquirer.
 
56

2.
Description of the Business Combination
Pursuant to the Merger Agreement, existing Opco Equity Holders received an aggregate of 208,200,000 Opco Common Units and an equal number of shares of Class V Common Stock. The Business Combination was structured as an
Up-C
transaction, whereby the existing Opco Equity Holders own equity in Opco Common Units and a corresponding number of shares of Class V Common Stock.
 
3.
Transaction Accounting Adjustments to Pro Forma Condensed Combined Balance Sheet
Explanations of the transaction accounting adjustments to the pro forma balance sheet are as follows:
(A) Represents adjustments to cash due to the following inflows and outflows as a result of the Business Combination.
 
($ in millions)
  
Trust Account
  $207.4 
PIPE Investment
   325.0 
Public Shareholder redemptions
   (84.5
Opco Incentive Unit redemptions
   (1.5
Buyer transaction costs
(1)
   (36.8
Seller expenses
(2)
   (19.6
  
 
 
 
Total
  
$
390.0
 
 
(1)
Includes $13.0 million fees associated with the PIPE Investment that are netted against the proceeds from the equity issuance.
(2)
Excludes $6.4 million seller’s closing costs that were paid as of September 30, 2021.
(B) Reflects the release of $207.4 million of cash and cash equivalents held in the Trust Account that became available for transaction consideration, transaction expenses, underwriting commission, redemption of Public Shares, and the operating activities of the Company following the Business Combination.
(C) Represents the adjustment for the estimated preliminary purchase price allocation for the Opco business resulting from the Business Combination. The preliminary calculation of total consideration and allocation of the purchase price to the fair value of Opco’s assets acquired and liabilities assumed is presented below as if the Business Combination was consummated on September 30, 2021. The Company’s evaluation of the fair value of assets acquired and the liabilities assumed is preliminary and, accordingly, the adjustments to record the assets acquired and liabilities assumed at fair value reflect the best estimates of the Company based on the information currently available and are subject to change once additional analyses are completed. Potential differences may include, but are not limited to, changes in balance sheet as of the Business Combination date which may change the allocation to intangible assets and change in fair value of property, plant, and equipment.
 
57

The following is a preliminary estimate of the fair value of consideration transferred in the Business Combination:
 
($ in millions)
  
Pro Forma
 
Equity consideration paid to existing ownership in Opco (Common Units) and the Company (Class V Common Stock), net of $35.4 million post combination expense and $7.5 million of units issuable upon exercise of the Opco Warrant
(1)
  $1,926.7 
Cash paid for redeemed Opco Incentive Units
(2)
   1.5 
Cash paid for seller transaction costs
   26.0 
  
 
 
 
Total consideration
  
$
1,954.2
 
Current assets
   59.5 
Property, equipment and software, net
   28.1 
Non-current
assets
   19.4 
Intangible assets
   574.6 
Goodwill
   1,352.4 
Current liabilities
   (62.3
Deferred revenue, current
   (4.2
Non-current
liabilities
   (9.3
Deferred revenue, noncurrent
   (4.0
  
 
 
 
Net assets acquired
  
$
1,954.2
 
 
(1)
Represents the fair value of the 208.2 million Opco Common Units issued to Opco Equity Holders based on the October 14, 2021 closing price of Class A Ordinary Shares of $9.46 per share, excluding $35.4 million attributable to the Opco Incentive Units, which vest in equal installments on each of the first and second anniversaries of the effective time of the Business Combination and will be reflected in post-combination compensation expense over the remaining
two-year
vesting period, and $7.5 million attributable to units issuable upon the exercise of the Opco Warrant.
(2)
Represents the cash paid to Opco Equity Holders in exchange for the redemption of 40% of the first
one-third
of their Opco Incentive Units which vested at the effective time of the Business Combination.
Intangible Assets:
The following describes intangible assets that met either the separability criterion or the contractual-legal criterion described in ASC 805, and the anticipated valuation approach. The estimated fair values of intangible assets are based on information available as of the date of this filing and may differ materially as new information is made available and purchase accounting is applied. The trademark and trade name intangible assets represent the trade names that Opco originated or acquired which was valued using the relief-from-royalty method. The licenses intangible assets represent the money transmitter licenses, New York State virtual currency license, and other regulatory licenses held by Opco which were valued using the
with-and-without
method, a form of the income approach. The customer relationships intangible asset represents the existing customer relationships of Opco that was estimated by applying the multi-period excess earnings method. The developed technology intangible asset represents technology acquired or developed by Opco for the purpose of generating income for Opco, which was valued using the relief-from-royalty method. The access to exchanges intangible asset represents Opco’s rights to use exchange and clearing licenses which were valued using the multi-period excess earnings method.
 
($ in millions)
  
Weighted Average
Useful Life (Years)
   
Fair Value
 
Indefinite-lived
    
Trademark / Trade Names
   n/a   $26.3 
Licenses—MTL and BIT
   n/a    272.8 
Licenses—Trust
   n/a    25.5 
 
58

($ in millions)
  
Weighted Average
Useful Life (Years)
   
Fair Value
 
Definite-lived
    
Customer Relationship—Consumer
   8.5    9.0 
Customer Relationship—Loyalty
   11.0    40.5 
Developed Technology—Consumer
   6.0    57.7 
Developed Technology—Loyalty
   6.0    10.0 
Developed Technology—Markets
   4.0    1.8 
Access to Exchanges
   12.0    131.0 
    
 
 
 
Total
    
$
574.6
 
Goodwill:
Approximately $1,352.4 million has been allocated to goodwill. Goodwill represents the excess of the gross consideration transferred over the estimated fair value of the underlying net tangible and identifiable intangible assets acquired. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets. Goodwill represents future economic benefits arising from acquiring Opco primarily due to its strong market position and its assembled workforce that are not individually identified and separately recognized as intangible assets.
In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, goodwill and indefinite lived intangible assets related to certain acquired brands will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event management of the combined company determines that the value of goodwill and/or indefinite/finite lived intangible assets has become impaired, an accounting charge for impairment during the quarter in which the determination is made may be recognized.
(D) Reflects a reduction in deferred revenues related to the estimated fair value of the acquired deferred revenue related to the Business Combination. The adjustment is based on fair value estimates for deferred revenue, adjusted for costs to fulfill the liabilities assumed, plus normal profit margin. The difference between this adjusted deferred revenue at fair value and Opco’s historical deferred revenue results in a revenue reduction on a pro forma basis.
(E) Reflects the payment of $11.6 million of estimated acquisition-related expenses and $7.3 million of deferred underwriters’ and legal fees payable incurred by Opco and the Company, respectively.
(F) Reflects the $6.0 million increase in the fair value of participation units issued by Opco to its management upon consummation of the Business Combination (“
Opco Participation Units
”).
(G) The following table summarizes the pro forma adjustments impacting equity ($ in millions):
 
   
Adjustments
to Historical
Mezzanine
Equity and
Equity
   
New
Equity
Structure
   
Other
Items
   
Pro Forma
Transaction
Accounting
Adjustments
 
Company shareholders’ mezzanine equity and equity:
        
Class A ordinary shares subject to possible redemption
  $(207.3  $—     $—     $(207.3
Additional paid in capital
   —      472.7    41.0    513.7 
Opco members’ mezzanine equity and equity:
        
Incentive units
   (23.5   —      —      (23.5
Class A voting units
   (3.1   —      —      (3.1
Class B voting units
   (187.9   —      —      (187.9
 
59

   
Adjustments
to Historical
Mezzanine
Equity and
Equity
   
New
Equity
Structure
   
Other
Items
   
Pro Forma
Transaction
Accounting
Adjustments
 
Class C voting units
   (310.1   —      —      (310.1
Class C warrant
   (1.0   —      —      (1.0
Accumulated other comprehensive income
   (0.2   —      —      (0.2
Combined equity:
        
Accumulated deficit
   202.1    —      (30.5   171.6 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total members’ or shareholders’ mezzanine equity and equity
  
$
(531.0
  
$
472.7
 
  
$
10.5
 
  
$
(47.8
Adjustments
to historical
mezzanine
equity
and equity:
Reflects the elimination of the Company’s historical mezzanine equity and Opco’s historical equity and warrants. Opco Incentive Units converted into the right to receive a portion of the aggregate consideration of 208,200,000 Opco Common Units and 208,200,000 shares of Class V Common Stock (the “
Aggregate
Merger
Consideration
”) multiplied by the incentive unit holders’ pro rata percentage, determined by the aggregate number of incentive units held divided by the number of equity interests in Opco on a fully diluted basis. Pursuant to its authority under the Opco Plan, the plan administrator determined that, in accordance with the terms of the Opco Plan, the Opco Incentive Units would be treated, as to vesting, as if the Business Combination were an initial public offering (as defined in the Opco Plan). The number of Paired Interests that a holder of Opco Incentive Units was entitled to receive was based on the exchange ratio for the Paired Interests held by the Opco Equity Holders, equitably adjusted to give effect to the terms of such holders’ grants and the underlying threshold value applicable to a grant. Converted Opco Incentive Units are reflected in the pro forma noncontrolling interest in Note 3(H). Opco’s Class C warrant converted from a warrant to purchase equity securities in Opco into a warrant to purchase an economically equivalent number of Paired Interests in Opco.
New equity structure:
Reflects the controlling interest of 49,969,460 shares at a per share price of $9.46 and par value of $0.0001.
Othe
r
items
:
Reflects the incremental
non-recurring
transaction-related expenses of $24.5 million to accumulated deficit, excluding $18.0 million of transaction-related costs already expensed and reflected in the Company’s and Opco’s accumulated deficit as of September 30, 2021, incremental expenses of $6.0 million related to the increase in the fair value of Opco Participation Units to accumulated deficit, $7.3 million of deferred underwriters’ and legal fees netted in the Company’s additional paid in capital as of September 30, 2021, fees associated with the PIPE Investment of $13.0 million to additional
paid-in
capital, and the adjustment to additional
paid-in
capital related to the application of purchase accounting.
(H) Represents the pro forma adjustment to record noncontrolling interest in Opco of 79.9%.
 
4.
Transaction Accounting Adjustments to Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2020
Explanations of the transaction accounting adjustments to the pro forma statement of operations are as follows:
(AA) Reflects a reduction in revenues related to the estimated fair value of the acquired deferred revenue related to the Business Combination. The adjustment is based on fair value estimates for deferred revenue, adjusted for costs to fulfill the liabilities assumed, plus normal profit margin. The difference between this adjusted deferred revenue at fair value and Opco’s historical deferred revenue results in a revenue reduction on a pro forma basis.
(BB) Represents adjustments to incorporate estimated additional tangible and intangible assets depreciation and amortization for the
step-up
basis from purchase price accounting (“
PPA
”) at the closing of the Business
 
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Combination. This pro forma adjustment has been proposed assuming the Business Combination happened on January 1, 2020. The following table is a summary of information related to certain intangible assets acquired, including information used to calculate the pro forma change in amortization expenses that is adjusted to administrative expenses:
 
($ in millions)
  
Weighted
Average
Useful Life
(Years)
   
Fair
Value
   
Amortization Expense
for the Twelve Months
Ended December 31,
2020
 
Trademarks / Trade Names—Opco
   n/a   $26.3    n/a 
Licenses—MTL and BIT
   n/a    272.8    n/a 
Licenses—Trust
   n/a    25.5    n/a 
Customer Relationship Consumer Application
   8.5    9.0    1.1 
Customer Relationship—Loyalty
   11.0    40.5    3.7 
Developed Technology—Consumer Application
   6.0    57.7    9.6 
Developed Technology—Loyalty
   6.0    10.0    1.7 
Developed Technology—Markets
   4.0    1.8    0.4 
Access to Exchanges
   12.0    131.0    10.9 
    
 
 
   
 
 
 
Total
    
$
574.6
 
  
$
27.4
 
Less: Historical amortization expenses
       (6.8
      
 
 
 
Pro forma adjustments to amortization expenses
      
$
20.6
 
(CC) Reflects estimated transaction-related costs incurred by the Company and Opco related to the Business Combination as if it was consummated on January 1, 2020. These transaction-related costs are
non-recurring.
Pro forma transaction-related costs adjustment of $24.5 million excludes fees related to the PIPE Investment of $13.0 million netted against additional
paid-in
capital, $7.3 million of deferred underwriters’ and legal fees netted against additional
paid-in
capital, and $2.8 million of transaction-related costs already expensed in the Company’s and Opco’s historical statements of operations for the fiscal year ended December 31, 2020, and $15.2 million of transaction-related costs already expensed in the Company’s and Opco’s historical statements of operations for the nine months ended September 30, 2021.
(DD) Represents the income tax impacts from the pro forma adjustments and estimated deferred tax liabilities and deferred tax assets related to the fair valuation of net assets reflected in the pro forma balance sheet (excluding adjustments related to goodwill, which is assumed to be non
tax-deductible).
The tax rates are based on preliminary assumptions related to the underlying jurisdictions in which the income or expense will be recorded. The effective tax rate of the combined company could be significantly different depending on the post-merger activities, including cash needs, geographical mix of net income and tax planning strategies.
(EE) Represents the adjustment to present noncontrolling interest in Opco of 79.9%. The adjustment includes the estimated income tax impacts from Note 4(DD).
(FF) Represents post combination pro forma expense adjustment associated with Opco Incentive Units and Opco Participation Units, one third of which vest on the
one-year
anniversary of the Closing. The pro forma expense adjustment for Opco Incentive Units is based on the October 14, 2021 closing price of Class A Ordinary Shares of $9.46 per share. The pro forma expense adjustment for Opco Participation Units is based on a reference price of $10.00 per unit.
 
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5.
Transaction Accounting Adjustments to Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2021
Explanations of the transaction accounting adjustments to the pro forma statement of operations are as follows:
(AAA) Represents adjustments to incorporate estimated additional tangible and intangible assets depreciation and amortization for the
step-up
basis from PPA at Closing. This pro forma adjustment has been proposed assuming the Business Combination happened on January 1, 2020. The following table is a summary of information related to certain intangible assets acquired, including information used to calculate the pro forma change in amortization expenses that is adjusted to administrative expenses:
 
($ in millions)
  
Weighted
Average
Useful Life
(Years)
   
Fair
Value
   
Amortization Expense
for the Nine months
Ended September 30,
2021
 
Trademarks / Trade Names—Opco
   n/a   $26.3    n/a
Licenses—MTL and BIT
   n/a    272.8    n/a 
Licenses – Trust
   n/a    25.5    n/a 
Customer Relationship Consumer Application
   8.5    9.0    0.8 
Customer Relationship—Loyalty
   11.0    40.5    2.8 
Developed Technology—Consumer Application
   6.0    57.7    7.2 
Developed Technology—Loyalty
   6.0    10.0    1.2 
Developed Technology—Markets
   4.0    1.8    0.3 
Access to Exchanges
   12.0    131.0    8.2 
    
 
 
   
 
 
 
Total
    
$
574.6
 
  
$
20.5
 
Less: Historical amortization expenses
       (7.8
      
 
 
 
Pro forma adjustments to amortization expenses
      
$
12.7
 
(BBB) Represents the income tax impacts from the pro forma adjustments and estimated deferred tax liabilities and deferred tax assets related to the fair valuation of net assets reflected in the pro forma balance sheet (excluding adjustments related to goodwill, which is assumed to be non
tax-deductible).
The tax rates are based on preliminary assumptions related to the underlying jurisdictions in which the income or expense will be recorded. The effective tax rate of the combined company could be significantly different depending on the post-merger activities, including cash needs, geographical mix of net income and tax planning strategies.
(CCC) Represents the adjustment to present noncontrolling interest in Opco of 79.9%. The adjustment includes the estimated income tax impacts from Note 5(BBB).
(DDD) Represents post-combination pro forma expense adjustment associated with Opco Incentive Units and Opco Participation Units,
one-third
of which vest on the
one-year
anniversary of the Closing. The pro forma expense adjustment for Opco Incentive Units is based on the October 14, 2021 closing price of Class A Ordinary Shares of $9.46 per share. The pro forma expense adjustment for Opco Participation Units is based on a reference price of $10.00 per unit.
 
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6.
Pro Forma Earnings Per Share Information
As a result of the Business Combination, both the pro forma basic and diluted number of shares are reflective of 49,969,460 shares of Class A Common Stock outstanding.
 
   
Nine Months Ended
September 30, 2021
 
Net loss attributable to controlling interest
($ in millions)
  $(19.2
Weighted average shares outstanding, controlling (shares in millions)
   50.0 
Loss per share (basic)
  $(0.38
Loss per share (diluted)
  $(0.38
 
   
Year Ended
December 31,
2020
 
Net loss attributable to controlling interest
($ in millions)
  $(25.0
Weighted average shares outstanding, controlling
(shares in millions)
   50.0 
Loss per share (basic)
  $(0.50
Loss per share (diluted)
  $(0.50
Earnings per share exclude warrants and contingently issuable shares that would be anti-dilutive to pro forma EPS, including (i) 10,368,601 Public Warrants, (ii) 6,147,440 Private Placement Warrants, and (iii) 208,200,000 Opco Common Units owned by or issuable to the Opco Equity Holders that are exchangeable (together with the cancellation of an equal number of shares of voting,
non-economic
Class V Common Stock) into Class A Common Stock.
 
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USE OF PROCEEDS
All of the securities offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from the sale of the securities hereunder. We may receive up to an aggregate of approximately $70,695,560 from the exercise of the Private Placement Warrants assuming the exercise in full of all Private Placement Warrants for cash. If the Private Placement Warrants are exercised for cash, we expect to use the net proceeds from the exercise of any Private Placement Warrants for general corporate purposes. However, the Private Placement Warrants permit the holder to exercise such Warrants on a cashless basis, and thereby receive a lower number of Private Warrant Shares by crediting the exercise price of such shares against the number of shares otherwise issuable. As a result, we may not receive any cash proceeds upon exercise.
With respect to the registration of all other shares of Class A Common Stock and Warrants that may be offered for resale by the Selling Securityholders pursuant to this prospectus, the Selling Securityholders will pay any underwriting discounts and commissions and expenses incurred by them for brokerage, accounting, tax or legal services or any other expenses incurred by them in disposing of the securities. We would not receive any proceeds from the resale of such securities but will bear all other costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including, without limitation, all registration and filing fees, NYSE listing fees, and fees of our counsel and our independent registered public accountants.
 
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MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S SECURITIES AND RELATED STOCKHOLDER MATTERS
Market Information and Holders
Our Class A Common Stock and Public Warrants trade on NYSE under the trading symbols “BKKT” and “BKKT WS,” respectively.
As of November 8, 2021, we had 49,969,460 shares of Class A Common Stock issued and outstanding held of record by 86 holders and 10,368,601 Public Warrants issued and outstanding, each exercisable for one share of Class A Common Stock, held of record by 1 holder. There is no public market for our Class V Common Stock.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of the Board subject to applicable laws and will depend upon, among other factors, our operating results, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our capital stock may be limited by any future debt instruments or preferred securities.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BAKKT
References in this section of this prospectus to “we,” “us,” “our,” “Bakkt” or the “Company” and like terms refer (i) prior to the Closing, to Opco and its subsidiaries and (ii) after the Closing, to Bakkt Holdings, Inc. and its subsidiaries, including Opco. You should read the following discussion and analysis of our financial condition and results of operations together with the historical consolidated financial statements and unaudited pro forma financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Our mission is to power commerce by reimagining the digital asset ecosystem, which includes cryptocurrency, loyalty and rewards points, gift cards,
in-game
assets, and
non-fungible
tokens (“
NFTs
”). We are working to unlock new ways to participate in the digital economy for consumers, enterprises, and financial institutions, by expanding access to, and improving liquidity for, digital assets. We believe we are opportunistically positioned at the center of this digital asset ecosystem, with approximately 1.7 million transacting accounts on our platform year to date.
Our platform has three complementary aspects – a digital asset marketplace, a loyalty redemption service, and an alternative payment method.
 
  
Digital Asset Marketplace.
Our digital asset marketplace is designed to enable participants to seamlessly transact in digital assets and has applications for individual consumers, enterprises (whom we define as consumer-facing merchants, retailers, and financial institutions), and institutional investors. ICE, our majority shareholder, has decades of experience building institutional products and solutions. We leveraged that expertise to build an institutional-grade custodian for bitcoin, Bakkt Trust, which is regulated by the NYSDFS. This custodian, marketed as the Bakkt Warehouse, provides custody services that anchor the first
end-to-end
regulated and physically-delivered bitcoin futures and options contracts (“
PDF Contracts
”), which are traded on IFUS and cleared on ICUS, and also provides bitcoin custody to institutions and certain high
net-worth
individuals on a standalone basis as approved by the NYSDFS. Our custodian also operates as the backbone of many of our consumer- and enterprise-focused offerings. For example, it enables consumers to use our app to transact in bitcoin in real-time. On November 2, 2021, in accordance with our coin listing policy (as approved by the NYSDFS), we self-certified the addition of ether (ETH) as a cryptocurrency that we support for consumer transactions, as described further below. In addition, in the future, contingent upon achieving the necessary regulatory approvals and/or partnering with an existing licensed broker-dealer, we plan to add the ability to transact in securities such as equities, derivatives, and ETFs. We believe that our institutional-grade infrastructure underpins our ability to expand and scale consumer solutions. We earn revenue in the digital asset marketplace by providing standalone custody services for cryptocurrency assets for our institutional customers, which we recognize on a pro rata basis over the term of the custody contract. Our standalone custody revenue is currently immaterial. Separately, as a result of our Triparty Agreement with IFUS and ICUS, we earn the net revenues for providing stand-ready custody services to IFUS and ICUS in connection with the offering of PDF Contracts. With respect to our provision of custody services that are necessary to support the trading and clearing services provided by IFUS and ICUS for the PDF Contracts, our customers are IFUS and ICUS, who are related parties. The PDF Contracts generally have a duration of less than one month, and substantially all of the PDF Contracts are settled in the same month in which the trade execution is
 
66

 
initiated. Therefore, we recognize revenue for the stand-ready custody services that we provide to IFUS and ICUS on a straight-line basis over the average performance obligation period, which is less than one month. We recognize this revenue on a straight-line basis over the average obligation period, beginning at trade execution until the PDF Contract is settled by the PDF Contract Trader, which is generally no longer than a month as less than 1% of PDF Contracts go to expiration, thus not requiring physical delivery. In 2019 and 2020, the parties that trade PDF Contracts (“
PDF Contract Traders
”) were offered significant rebates and incentives to increase trading volume of PDF Contracts covered by the Triparty Agreement. This resulted in negative revenues from the Triparty Agreement of $2.0 million and $0.9 million in the year ended December 31, 2020 and 2019, respectively. In the nine months ended September 30, 2021, the rebates and incentives were reduced and negative revenue under the Triparty Agreement during such period was approximately $154,000. For more information, see Note 2 to our unaudited interim consolidated financial statements (the “
Unaudited Third Quarter 2021 Financials
”) and the audited consolidated financial statements (the “
Audited 2020 Financials
”) included elsewhere in this prospectus.
 
  
Loyalty Redemption
. Leveraging our acquisition of Bridge2 Solutions (as described below), our loyalty redemption capabilities support enterprises with leading loyalty and rewards programs (which we call “
loyalty partners
”), such as Citibank, Delta Air Lines, United Airlines, Choice Hotels, Wells Fargo Bank, Bank of America and Mastercard. While many loyalty partners have very popular loyalty programs, the points that are outstanding to customers represent material liabilities on the loyalty partners’ balance sheets. Our redemption capabilities, particularly our exclusive arrangements with leading consumer brands, provide seamless and cost-effective alternatives for consumers to spend their loyalty points and enable loyalty partners to reduce these financial liabilities. We earn and recognize Loyalty Redemption revenue through a combination of: (i) platform subscription fees, which are fixed fees charged for access to our platform and customer support services, and which are recognized on a straight-line basis over the related contract term as the customer receives benefits evenly throughout the term of the contract; (ii) transaction fees for processing transactions on our platform, which are recognized in the period in which the related transaction occurs; (iii) revenue share fees, which are rebates from third-party commerce merchants, and which are recognized in the period in which the related transaction occurs; and (iv) service fees related to the implementation and customization of new services on our loyalty platform, which are recognized on a straight-line basis, beginning when the new service is operational, over the longer of the remaining anticipated customer life and the estimated useful life of our internally developed software. Our Loyalty Redemption revenue represents substantially all of our current revenue and as described above has been reduced by negative revenues from our Digital Asset Marketplace. For more information, see Note 2 to the Unaudited Third Quarter 2021 Financials and the Audited 2020 Financials.
 
  
Alternative Payment Method
. Our platform will deliver consumer choice and convenience with an alternative payment method that allows consumers to spend the value of their digital assets with merchants in our ecosystem and also enables merchants to gain access to consumers’ increased spending power, tapping into the trend for alternative payment methods. Merchants, such as Starbucks, that accept our alternative payment method can displace transactions off existing payment card infrastructure, which results in significant reductions in payment fees and, over time, faster settlement. We earn and recognize alternative payment method revenue through a merchant discount rate (or percent of the transaction tender) at the time of each transaction and these transaction fees are reduced by consideration payable to a customer. Our alternative payment method revenue is currently immaterial. For more information, see Note 2 to the Unaudited Third Quarter 2021 Financials and the Audited 2020 Financials.
Consumer App
Our platform is built to operate at the intersection of cryptoassets, loyalty and payments, and offers partners the flexibility to choose some or all of our capabilities, and the manner in which these capabilities are enabled for
 
67

consumers, based on their needs and objectives. Some partners may choose to keep their consumer users entirely in their experience, while others may need a
“ready-to-go”
storefront and leverage our capabilities. Partners can choose to fully or partially embed our capabilities within such partner’s digital environment, or they can therefore leverage more of our capabilities—like cryptoasset buy, sell, hold and spend—entirely “powered by Bakkt.” For partners choosing a
“ready-to-go”
storefront, all of our platform’s capabilities around digital asset purchase, sales, redemption and payment come together in a seamless experience in our consumer app, which was made broadly available in March 2021. Our app enables consumers to see their digital assets—initially including bitcoin, cash, loyalty and rewards points, and closed-loop gift cards—in one place, and to transact easily with those assets. We plan to extend the functionality of our app by adding more merchants and loyalty partners, and additional digital assets, such as additional cryptocurrencies, like our addition of ETH in November 2021, and, at a later date, equities, derivatives, and ETFs, and
in-game
assets. We also plan to offer equity securities trading through our platform in the future and may do so by partnering with an existing licensed broker-dealer, or by obtaining our own broker-dealer license.
Business Combination
On October 15, 2021, we consummated the previously announced Business Combination whereby, pursuant to the Merger Agreement, Merger Sub merged with and into Opco, with Opco surviving as the surviving limited liability company and as a wholly owned subsidiary of the Company. In connection with the Business Combination, the Company effected a deregistration under the Cayman Islands Companies Law (2020 Revision) and a domestication under Section 388 of the DGCL, pursuant to which the Company’s jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware (i.e., the Domestication), and changed its name to “Bakkt Holdings, Inc.”
The Business Combination, which has not been reflected in the financial information presented herein, as the Business Combination occurred after the end of the fiscal quarter on September 30, 2021, will be accounted for in accordance with ASC 805, Business Combinations, using the acquisition method, with the Company considered the acquiror and Opco considered the acquiree. For accounting purposes, the acquiror is the entity that obtains control of the other entity. The determination of whether control has been obtained starts with an evaluation of whether the entities involved are variable interest entities or voting interest entities in accordance with ASC 810, Consolidations. As defined by GAAP, if the acquiree is a variable interest entity, the primary beneficiary is the accounting acquiror. Opco meets the definition of a variable interest entity and the Company has been determined to be the primary beneficiary as a result of the Business Combination. At the Closing, the assets and liabilities of Opco were recognized at fair value, and the consideration in excess of the fair value of the net assets acquired (including identifiable intangible assets) was recognized as goodwill.
Key Factors Affecting Our Performance
Attractiveness of Platform
We primarily generate revenue when users of our platform buy, sell, convert, spend and send digital assets through the platform, and our success depends in part on transaction volume. Business growth will come from growing users and the transaction fees associated with users buying, selling, converting and spending with digital assets, and the margin earned in connection with consumer purchases and the sale of cryptoassets. We will look to grow our base of active and transacting users to grow these revenue streams.
In addition, growing partners on our platform increases our ability to grow revenue streams. To date, management has been focused on building through partners within a
business-to-business-to-consumer
(“
B2B2C
”) model. Our goal is to provide these partners opportunities to leverage our capabilities either through their existing environment or by leveraging our platform. Expanding the platform capabilities leveraged by our partner set, as well as expanding with new partners, will be key to our business and revenue growth. We expect that revenues related to loyalty redemption transactions, cryptoasset trades, subscriptions and services will be significant drivers of our business. The risks and uncertainties related to each such revenue generating activity
 
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are largely the same. Specifically, to the extent we are unable to grow our partner base and/or organically grow our active and transacting user base (who buy, sell, convert and spend with digital assets, and from whom we can earn the margin paid in connection with consumer purchases and sale of cryptoassets), or to the extent the cost of such growth (including our average customer acquisition cost) is greater than we anticipate, the corresponding growth of our business may occur more slowly than we expect, or may not occur at all. Our ability to execute on our business plan is dependent on successfully executing on several key components of our business, principally including: (i) the technological success of our platform; (ii) the integration of our platform with the platforms of our partners; (iii) growth in the number and diversity of the loyalty brands, associated merchants and retailers, and cryptocurrencies and other digital assets that we support; and (iv) our resulting ability to create a network effect with growth in active and transacting users.
Regulations in U.S. markets
We are subject to many complex, uncertain and overlapping local, state and federal laws, rules, regulations, policies and legal interpretations (collectively, “
laws and regulations
”) in the markets in which we operate. These laws and regulations govern, among other things, consumer protection, privacy and data protection, labor and employment, anti-money laundering, money transmission, competition, and marketing and communications practices. These laws and regulations will likely have evolving interpretations and applications, particularly as we introduce new products and services and expand into new jurisdictions.
We are seeking to bring trust and transparency to digital assets. We will progressively be subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally identifiable information of our clients and all of the users in the information chain. We have developed and frequently evaluate and update our compliance models to ensure that we are complying with applicable restrictions.
We continue to work with regulators to address the emerging global landscape for digital assets. As investment continues, the intersection of technology and finance will require ongoing engagement as new applications emerge. Digital assets and distributed ledger technology have significant, positive potential with proper collaboration between industry and regulators.
COVID-19
Impacts
In March 2020, the World Health Organization declared the
COVID-19
outbreak a global pandemic. The
COVID-19
pandemic has adversely affected global economic activity and, in 2020, contributed to significant declines and volatility in financial markets. The
COVID-19
pandemic had a material adverse impact on our business during the year ended December 31, 2020, primarily in that it (i) decreased revenue from our loyalty and travel businesses, and (ii) impacted our ability to expand our relationships with existing loyalty partners, and to conclude relationships with new loyalty partners, whose businesses similarly have been adversely affected by the pandemic. For the three and nine months ended September 30, 2021, our business operations have started to recover from the impacts of the pandemic, and revenue from the loyalty and travel business has started to recover; however, the impact from a resurgence in
COVID-19
(including its variants), lack of population-wide vaccination or immunity, or the possible waning efficacy of vaccinations creates future uncertainty for our business.
Our Corporate Structure
We own and consolidate entities formed during the year ended December 31, 2019, including Bakkt Trust and Bakkt Marketplace. We also own and consolidate entities that were acquired during the year ended December 31, 2019, including DACC Technologies, Inc., Digital Asset Custody Company, Inc. (collectively with DACC Technologies, Inc., “
DACC
”), and Bakkt Clearing, LLC (“
Bakkt Clearing
”), formerly known as Rosenthal Collins Group, L.L.C. We continued to operate these entities throughout fiscal year 2020, and also acquired Bridge2 Solutions in February 2020.
 
69

Bakkt Trust is a New York limited-purpose trust company that is chartered by and subject to the supervision and oversight of the NYSDFS. In September 2019, Bakkt Trust, along with IFUS and ICUS, both of which are wholly-owned subsidiaries of ICE, brought to market the first institutional-grade, regulated infrastructure for trading, clearing, and custody services for bitcoin. Bakkt Trust acts as a qualified custodian for bitcoin, which enables Bakkt Trust to offer the PDF Contracts, the first
end-to-end
regulated, physically-delivered bitcoin futures and options contracts available in the United States. In addition, Bakkt Trust offers
non-trading-related,
standalone custody of bitcoin and, effective November 2, 2021, ether (ETH) to institutions, market makers, and certain high net worth individuals, subject to the NYSDFS’ regulatory oversight.
The below graphic illustrates the structure of the physically-delivered bitcoin futures and options and custody offerings.
 
 
Bakkt Marketplace has created an integrated platform that enables consumers and enterprises to transact in digital assets. Bakkt Marketplace’s app enables consumers to purchase, sell, convert and or spend digital assets. Users also can use the app to spend fiat currency with various retailers and convert loyalty and rewards points into fiat currency. Bakkt Marketplace has received money transmitter licenses from all states throughout the U.S. where such licenses are required (though it does not presently offer services in Hawaii), has obtained a New York State virtual currency license, and is registered as a money services business with the Financial Crimes
 
70

Enforcement Network of the United States Department of the Treasury. As shown in the below graphic, Bakkt Trust’s custody solution supports Bakkt Marketplace’s bitcoin functionality offered to consumers within the app.
 
Bakkt Clearing is registered as a futures commission merchant (“
FCM
”) with the CFTC a member of the National Futures Association (“
NFA
”).
We acquired Bridge2 Solutions on February 21, 2020 in order to expand our loyalty conversion offerings within our digital asset marketplace. We accounted for the acquisition of Bridge2 Solutions as a common control transaction under ASC 805, as Bridge2 Solutions (and its holding company, B2S Holdings, Inc.) was initially acquired by ICE prior to being acquired by us.
Our Relationship with ICE and the Triparty Agreement
Prior to the consummation of the Business Combination, we were an indirect majority-owned subsidiary of ICE. ICE is a global market infrastructure provider with a history of developing and implementing leading technologies. ICE operates exchanges, clearinghouses, and listing venues for the financial markets alongside offering data-driven technology services to support the trading, lending, investment, risk management, and connectivity needs of customers. In building our platform, ICE and minority investors contributed capital and assets valued at approximately $483 million prior to the Business Combination, leveraging ICE’s leading competency of creating and operating market infrastructure. Upon our formation, ICE made a cash capital contribution and granted us the right to access ICE’s existing futures and clearing platforms.
ICE also partners with us with respect to certain institutional product offerings. For instance, the PDF Contracts that are traded on IFUS and cleared on ICUS pursuant to the Triparty Agreement. In this regard, Bakkt Trust provides a stand-ready custody function that supports the trading and clearing services as required for the PDF Contract Traders so that IFUS can execute its trading services and ICUS can clear and arrange for the settlement of the PDF Contracts. Bakkt Trust’s obligation to provide a stand-ready custody function includes related promises such as: (i) the initial onboarding of PDF Contract Traders to the custody warehouse, which represents the commencement of the custody services; (ii) maintaining a system of accounts within its custody warehouse on behalf of IFUS and ICUS to ensure accurate, timely transfers of bitcoin at PDF Contract maturity (thereby mitigating ICUS’s clearing risk and ensuring safe storage of bitcoin, including when PDF Contracts settle through physical delivery); (iii) standing ready to accept bitcoin deposits from PDF Contract Traders at any point between the execution and settlement of the PDF Contract; (iv) verifying account balances of PDF Contract Traders as their PDF Contracts approach expiration; (v) making transfers between PDF Contract Traders as instructed by ICUS when the PDF Contracts reach expiration; and (vi) permitting withdrawals of bitcoin as
 
71

directed by PDF Contract Traders. Under the Triparty Agreement, IFUS and ICUS pay to Bakkt Trust the trading and clearing fees collected by IFUS and ICUS with respect to those PDF Contracts net of incentives and rebates. As is typical of new trading products, IFUS and ICUS have instituted such incentives and rebates in an effort to incentivize the trading volume of PDF Contracts. In particular, IFUS offers rebates to support market liquidity and trading volume, which provides qualified PDF Contract Traders with a discount to the applicable transaction fee. Opco is responsible for paying for all rebates and incentives, even if these amounts exceed the gross revenues from the Triparty Agreement. These incentives and rebates have resulted in negative revenue to Opco under the Triparty Agreement.
The Bakkt Warehouse was built on the principle that a truly institutional-grade custody operation is a crucial first step in broadening institutional acceptance of cryptoassets. As illustrated above, several institutional trading products, such as the PDF Contracts, require custody as an integral part of their value proposition, not necessarily because most such contracts go to expiration and require physical delivery (as many such contracts do not), but rather because, in the eyes of many institutional investors, the possibility of physical delivery at maturity makes those contracts a superior method for price discovery of the underlying asset. In our view, much of the historical reluctance of institutional investors to embrace these products is attributable to the lack of well-regulated, highly secure custody operations similar to those typical of more traditional financial products. The Bakkt Warehouse was built to solve this issue, and features the sophisticated security, insurance and regulatory features that institutional trading participants generally expect. However, the institutional cryptoasset market must further mature in order for us to begin achieving positive net revenue from our activities under the Triparty Agreement. In particular, in the case of bitcoin and other cryptoassets, many institutional investors still prefer to eliminate any possibility of holding those cryptoassets (and thus, to date have preferred cash-settled futures contracts, despite their perceived inferiority for price discovery). To date, less than 1% of PDF Contracts go to physical settlement. We believe that once those investors’ reluctance to hold cryptoassets has decreased, and the market for physically-delivered contracts has been sufficiently established, such rebates and other incentive payments may no longer be needed (or their amounts may be reduced), as a result of which we should be able to generate positive revenue from our services under the Triparty Agreement. The failure of the market for PDF Contracts to expand sufficiently enough to reduce the reliance on rebates and liquidity or incentive payments to PDF Contract Traders would adversely affect our ability to receive positive net revenues under the Triparty Agreement.
Our cash-settled futures contracts are offered in Singapore pursuant to a similar arrangement with ICE subsidiaries. Pursuant to a separate triparty agreement among ICE Futures Singapore (“
IFS
”), ICE Clear Singapore (“
ICS
”) and Opco, IFS and ICS provide trade execution and clearing services to customers that trade the cash-settled futures contracts. As these contracts are settled in cash (rather than by physical delivery of bitcoin), no custody function is necessary; as such, Opco provides to IFS and ICS pricing data from its PDF Contracts and also licenses its name to IFS and ICS for use in marketing the cash-settled futures. In return, ICS and IFS pay to Opco 35% of the net trading and clearing revenue that they earn with respect to these contracts.
 
72

Results of Operations
The results of operations presented below should be reviewed in conjunction with the Unaudited Third Quarter 2021 Financials and the Audited 2020 Financials. The following table sets forth our consolidated results of operations for the periods shown:
 
   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Year Ended
December 31,
 
   
2021
  
2020
  
2021
  
2020
  
2020
  
2019
 
   
(in thousands)
 
Revenues:
       
Net revenues
(1)
  $9,142  $6,629(2)  $25,773  $19,067(3)  $28,495(4)  $(881
Other
   —     —     —     —     —     17 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenues
  $9,142  $6,629(2)  $25,773  $19,067(3)  $28,495(4)  $(864
Operating expenses:
       
Compensation and benefits
   22,225   12,637   57,375   30,508   43,141   23,237 
Professional services
   3,334   2,392   5,006   4,657   5,751   4,150 
Technology and communication
   3,148   2,311   9,851   6,958   9,741   4,256 
Selling, general and administrative
   4,449   1,664   19,514   3,472   8,219   2,617 
Acquisition-related expenses
   1,766   —     12,075   11,477   13,372   731 
Depreciation and amortization
   3,270   2,232   9,098   5,536   8,159   324 
Affiliate expenses
   471   471   1,413   2,611   3,082   500 
Impairment of long-lived assets
   —     2,450   —     3,843   15,292   —   
Other operating expenses
   341   180   1,038   386   857   —   
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   39,004   24,337   115,370   69,448   107,614   35,815 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating loss
   (29,862  (17,708  (89,597  (50,381  (79,119  (36,679
Interest income (expense), net
   (96  (169  (239  255   123   3,280 
Other income (expense), net
   1,123   (83  473   146   (218  224 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Loss before income taxes
   (28,835  (17,960  (89,363  (49,980  (79,214  (33,175
Income tax (expense) benefit
   (12  (11  195   36   (391  199 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net loss
  $(28,847 $(17,971 $(89,558 $(50,016 $(79,605 $(32,976
Currency translation adjustment, net of tax
   (191  87   (18  (80  191   —   
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive loss
  $(29,038 $(17,884 $(89,576 $(50,096 $(79,414 $(32,976
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(1)
The three and nine months ended September 30, 2021 include net revenues from affiliate of $111,000 and $154,000, respectively. The three and nine months ended September 30, 2020 include net revenues from affiliate of $1,149,000 and $2,153,000, respectively. The years ended December 31, 2020 and 2019 include net revenues from affiliate of $(2,007,000) and $(881,000), respectively.
(2)
The three months ended September 30, 2020 includes revenue of approximately $7.8 million from Bridge2 Solutions and approximately $0.9 million from Opco, partially offset by approximately $2.1 million in contra-revenue from Opco.
(3)
The nine months ended September 30, 2020 includes revenue of approximately $21.1 million from Bridge2 Solutions and approximately $1.6 million from Opco, partially offset by approximately $3.7 million in contra-revenue from Opco.
(4)
The year ended December 31, 2020, includes revenue of approximately $30.8 million from Bridge2 Solutions and approximately $2.2 million from Opco, partially offset by approximately $4.5 million in contra-revenue from Opco.
 
73

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
Revenue
 
   
Three Months Ended
September 30,
  
Change in
 
   
    2021    
   
    2020    
  
$
   
%
 
   
(in thousands)
        
Net revenues (includes net revenues from affiliate of $111 and $1,149, respectively)
  $9,142   $6,629(1)  $2,513    37.9
 
(1)
The three months ended September 30, 2020 includes revenue of approximately $7.8 million from Bridge2 Solutions and approximately $0.9 million from Opco, partially offset by approximately $2.1 million in contra-revenue from Opco.
Net Revenues
Net revenues consist of transaction revenue (net of rebates and liquidity payments under the Triparty Agreement, reductions in connection with the contribution agreement entered into between Opco and ICE in connection with ICE’s formation of Opco (the “
Contribution Agreement
”) and consideration payable to a customer pursuant to the Strategic Alliance Agreement (as defined below), subscription and service revenue.
Net revenues increased by $2.5 million, or 37.9%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $1.0 million in subscription and service revenue related to the expansion of call center services for an existing loyalty customer, partially offset by reimbursements we received from a loyalty customer in 2020 to offset expenses for staffing that was not utilized due to
COVID-19
related transaction volume declines, and an increase of $1.5 million in transaction revenue related to higher customer activity in our loyalty redemption services business. Negative revenue from the Triparty Agreement, net, a component of transaction revenue, improved by $1.0 million, or 90.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This decrease in negative revenue is primarily due to a decrease in trading and clearing rebates of $1.8 million, partially offset by a $0.9 million decrease in revenues from the Triparty Agreement.
Operating Expenses
Operating expenses consist of compensation and benefits, professional services, technology and communication expenses, selling, general and administrative expense, acquisition-related expenses, depreciation and amortization, affiliate expenses, impairment of long-lived assets, and other operating expenses.
Compensation and Benefits
 
   
Three Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Compensation and benefits
  $22,225   $12,637   $9,588    75.9
Compensation and benefits expense include all salaries and benefits, compensation for contract labor, incentive programs for employees, payroll taxes, unit-based compensation and other employee related costs. Compensation and benefits expense is the most significant component of our operating expenses and we expect that our compensation and benefits expense will continue to increase in absolute dollars as we continue to expand our business, as described below. Upon the consummation of the Business Combination on October 15, 2021,
one-third
of the awards in the Equity Plan vested, which we expect will result in recognition of incremental unit-based compensation expense. The second and third
one-third
tranches will vest on the
one-year
and
two-year
anniversary date of the transaction close, respectively.
 
74

Headcount has increased, and will continue to increase, across functions to further strengthen our service offerings and enhance our systems, processes, and controls. We intend to grant equity awards as part of the compensation package for new employees. We expect that our compensation and expenses will decrease as a percentage of our revenue over time. Compensation and benefits increased by $9.6 million, or 75.9%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to $5.6 million in additional salaries, wages and benefits, $1.4 million in contract labor for software development, $0.6 million in
non-cash
compensation and incentive bonuses, $0.9 million in severance costs, $0.7 million in other operating costs, and $0.4 million in payroll taxes. The majority of the increase in these costs results from increases in headcount to support the projected growth in our business and increased compliance and reporting requirements as a public company.
Professional Services
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Professional services
  $3,334   $2,392   $942    39.4
Professional services expense includes fees for regulatory, legal, and accounting fees. Professional services increased by $0.9 million, or 39.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $0.7 million in audit and tax fees.
Technology and Communication
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Technology and communication
  $3,148   $2,311   $837    36.2
Technology and communication costs represent all
non-headcount
related costs we incur to operate our business. Such costs principally include amounts paid for software licenses and
software-as-a-service
arrangements utilized for operating, administrative and information security activities, fees paid for third-party data center hosting arrangements, and fees paid to telecommunications service providers and for telecommunication software platforms necessary for operation of our customer support operations. These costs are driven by customer requirements, system capacity, functionality and redundancy requirements.
Technology and communications expense also includes fees paid for access to external market data and associated licensing costs, which may be impacted by growth in electronic contract volume, our capacity requirements, changes in the number of telecommunications hubs, and connections with customers to access our electronic platforms directly. Technology and communication increased by $0.8 million, or 36.2%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $0.6 million in hardware and software license fees.
Selling, General and Administrative
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Selling, general and administrative
  $4,449   $1,664   $2,785    167.4
 
75

Selling, general and administrative expenses include marketing, advertising, business insurance, rent and occupancy, bank service charges, dues and subscriptions, travel and entertainment, rent and occupancy, and other general and administrative costs. Our marketing activities primarily consist of
web-based
promotional campaigns, promotional activities with partners, conferences and user events, and brand-building activities. Selling, general and administrative expenses do not include any headcount cost, which is reflected in the compensation and benefits financial statement line item. Our selling, general and administrative expenses will continue to increase in absolute dollars to support the projected growth in our business and requirements of being a public company, including increased insurance premiums and disclosure processes. However, we expect these costs will decrease as a percentage of our revenue in future years as we gain improved operating leverage from our projected revenue growth. Selling, general and administrative costs increased by $2.8 million, or 167.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $2.6 million in marketing expenses related to the launch of our consumer platform. The majority of these marketing expenses are
web-based
promotional campaigns.
Acquisition-related Expenses
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Acquisition-related costs
  $1,766   $—     $1,766    100
Acquisition-related costs for the three months ended September 30, 2021 consists entirely of costs related to the Business Combination. There were no acquisition-related costs for the three months ended September 30, 2020.
Depreciation and Amortization
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Depreciation and amortization
  $3,270   $2,232   $1,038    46.5
Depreciation and amortization expense consists of amortization of intangible assets from business acquisitions, internally developed software and depreciation of purchased software and computer and office equipment over their estimated useful lives. Intangible assets subject to amortization consist primarily of acquired technology and customer relationships from the Bridge2 Solutions acquisition. Depreciation and amortization increased by $1.0 million, or 46.5%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to $1.1 million of increased amortization related to additions to capitalized software development costs to support the expansion of our loyalty redemption services business and consumer platform.
Affiliate Expenses
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Affiliate expenses
  $471   $471   $—      0
 
76

Affiliate expenses result from technical support service and other costs pursuant to the ISA between Opco and ICE.
Impairment of long-lived assets
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Impairment of long-lived assets
  $—     $2,450   $(2,450   (100%) 
In late 2019 and early 2020, we purchased payment software to use in
the roll-out of
our alternative payment method. We ultimately built out our alternative payment method offering using Application Programming Interface (“
API
”)-based integrations instead of the acquired payment software. As the alternative payment method no longer met our business requirements, we recorded an impairment charge of $2.5 million.
Other income (expense), net
 
   
Three Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Other income (expense), net
  $1,123   $(83  $1,206    n/m 
Other income (expense), net primarily consists of
non-operating
gains and losses and income from the sale of bitcoin outside the normal course of business. Other income (expense) increased by $1.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily driven by a
non-recurring
sale of our bitcoin in August 2021 to adjust inventory reserve levels under our inventory policy.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Revenue
 
   
Nine Months Ended
September 30,
  
Change in
 
   
2021
   
2020
  
$
   
%
 
   
(in thousands)
        
Net revenues
  $25,773   $19,067(1)  $6,706    35.2
 
(1)
The nine months ended September 30, 2020 includes revenue of approximately $21.1 million from Bridge2 Solutions and approximately $1.6 million from Opco, partially offset by approximately $3.7 million in contra-revenue from Opco.
Net Revenues
Net revenues increased $6.7 million, or 35.2%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase primarily consists of an increase of $6.0 million in transaction revenues and $0.4 million in subscription and service revenue. The increase in transaction revenues is related to the full nine months of performance from our loyalty redemption services in 2021 compared to partial period performance in 2020, following the acquisition of Bridge2 Solutions, and increased revenue from higher customer activity in our loyalty redemption services business. Negative revenue from the Triparty Agreement,
 
77

net, a component of transaction revenue, improved by $2.0 million, or 92.9%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This decrease in negative revenue is primarily due to a decrease in trading and clearing rebates of $3.0 million, partially offset by a $1.1 million decrease revenues from the Triparty Agreement.
Operating Expenses
Operating expenses consist of compensation and benefits, professional services, technology and communication expenses, selling, general and administrative expense, acquisition-related expenses, depreciation and amortization, affiliate expenses, impairment of long-lived assets, and other operating expenses.
Compensation and Benefits
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Compensation and benefits
  $57,375   $30,508   $26,867    88.1
Headcount has increased, and will continue to increase, across functions to further strengthen our service offerings and enhance our systems, processes, and controls. We intend to grant equity awards as part of the compensation package for new employees, which we expect will result in increased stock-based compensation expense over the period of such grants. We expect that our compensation and expenses will decrease as a percentage of our revenue over time. Compensation and benefits increased by $26.9 million, or 88.1%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to $13.8 million in additional salaries, wages and benefits, $6.5 million in contract labor for software development, $6.2 million in
non-cash
compensation and incentive bonuses, $1.0 million in payroll taxes, $1.0 million in other operating costs, and $0.4 million in severance costs, partially offset by a decrease in compensation costs that were capitalized as capitalized software of $1.9 million. The majority of the increase in these costs results from increases in headcount to support the projected growth in our business and increased compliance and reporting requirements as a public company, in addition to the 2020 acquisition of Bridge2 Solutions, which resulted in approximately four months of compensation and benefits expense related to Bridge2 Solutions for the nine months ended September 30, 2020, compared to a full nine months of expenses for the nine months ended September 30, 2021.
Professional Services
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Professional services
  $5,006   $4,657   $349    7.5
Professional services increased by $0.3 million, or 7.5%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to an increase of $0.9 million in audit and tax fees, offset by a decrease in legal fees of $0.6 million.
Technology and Communication
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Technology and communication
  $9,851   $6,958   $2,893    41.6
 
78

Technology and communication increased by $2.9 million, or 41.6%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to an increase of $1.9 million in hardware and software license fees, $0.4 million in telecommunications fees, and $0.3 million in hosting fees.
Selling, General and Administrative
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Selling, general and administrative
  $19,514   $3,472   $16,042    462
Selling, general and administrative costs increased by $16.0 million, or 462%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to an increase of $15.1 million in marketing expenses related to the launch of our consumer platform.
Acquisition-related Expenses
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Acquisition-related expenses
  $12,075   $11,477   $598    5.2
Acquisition-related expenses for the nine months ended September 30, 2021 consist entirely of costs related to the Business Combination. Acquisition-related expenses for the nine months ended September 30, 2020 consist entirely of costs incurred in our acquisition of Bridge2 Solutions in February 2020, including approximately $9.6 million of accelerated expense for our incentive and participation units resulting from the issuance of Class C voting units in connection with the acquisition of Bridge2 Solutions.
Depreciation and Amortization
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Depreciation and amortization
  $9,098   $5,536   $3,562    64.3
Depreciation and amortization increased by $3.6 million, or 64.3%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to $2.6 million of additional capitalized software development cost amortization related to software to support the expansion of our loyalty redemption services business and the consumer app and $0.6 million of amortization associated with the customer relationship intangible asset.
Affiliate Expenses
 
   
Nine Months Ended
September 30,
   
Change in
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands)
         
Affiliate expenses
  $1,413   $2,611   $(1,198   (45.9%) 
 
79

Affiliate expenses decreased by $1.2 million, or (45.9%), for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in such costs in 2021 was primarily due to a decrease in fees under the ISA, related to a change to the fee structure for 2021 as compared with 2020.
Impairment of long-lived assets
 
   
Nine Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Impairment of long-lived assets
  $—     $3,843   $—      0
During the nine months ended September 30, 2020, we purchased payment software to use in
the roll-out of
our alternative payment method. We ultimately built out our alternative payment method offering
using API-based integrations
instead of the acquired payment software. As the alternative payment method no longer met our business requirements, we recorded an impairment charge of $2.5 million. Additionally, during the nine months ended September 30, 2020, we terminated an existing software license agreement in accordance with the terms of the agreement. The software license was related to the underlying clearing software utilized by Bakkt Clearing and had a five-year term. As a result of the termination, we recorded an impairment charge of $1.4 million. For the nine months ended September 30, 2021, there was no impairment of assets.
Other income (expense), net
 
   
Nine Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Other income (expense), net
  $473   $146   $327    224.0
Other income (expense) increased by $327 million, or 224% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily driven by a $1.0 million
non-recurring
sale of our bitcoin in August 2021 to adjust inventory reserve levels under our inventory policy, partially offset by losses of $0.5 million on our investment in shares of affiliate stock.
Income Tax Expense
 
   
Nine Months Ended
September 30,
   
Change in
 
   
    2021    
   
    2020    
   
$
   
%
 
   
(in thousands)
         
Income tax expense
  $195   $36   $159    441.7
Our effective tax rate for the nine months ended September 30, 2021 and 2020 was 0.22% and 0.07%, respectively. The effective tax rate is lower than the federal statutory rate primarily because the substantial majority of the losses are from Opco’s partnership and the single member LLCs held by the partnership, where losses flow through to the partners at the consolidated level. Income tax expense consists of income taxes primarily related to our Canadian subsidiary. Income tax expense increased by $0.2 million, or 441.7%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to state taxes.
 
80

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenue
 
   
Year Ended December 31,
 
   
    2020    
  
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Net Revenues (includes net revenues from affiliate of $(2,007) and $(881), respectively)
  $28,495(1)  $(881  $29,376    3,334.4
Other
   —     17    (17   N/A 
  
 
 
  
 
 
   
 
 
   
 
 
 
Total revenues
  $28,495(1)  $(864  $29,359    3,398.0
  
 
 
  
 
 
   
 
 
   
 
 
 
 
(1)
The year ended December 31, 2020, includes revenue of approximately $30.8 million from Bridge2 Solutions and approximately $2.2 million from Opco, partially offset by approximately $4.5 million in contra-revenue from Opco.
Net Revenues
Net revenues increased $29.4 million, or 3,334.4% for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase primarily consists of an increase of $8.6 million in transaction revenues and an increase of $20.8 million in subscription and service revenue, both of which are related to the performance from our loyalty redemption services in 2020 following the acquisition of Bridge2 Solutions. Negative revenue from the Triparty Agreement, net, a component of transaction revenue, increased by $1.1 million, or 127.8%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase in negative revenue is primarily due to increases in trading and clearing rebates of $2.7 million, partially offset by a $2.0 million increase in revenues from the Triparty Agreement.
Operating Expenses
Operating expenses consist of compensation and benefits, professional services, technology and communication expenses, selling, general and administrative expense, acquisition-related expenses, depreciation and amortization, affiliate expenses, impairment of long-lived assets, and other operating expenses.
Compensation and Benefits
 
   
Year Ended December 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Compensation and benefits
  $43,141   $23,237   $19,904    85.7
This is the most significant component of our operating expenses and we expect that our compensation and benefits expense will continue to increase in absolute dollars as we increase our headcount to support the projected growth in our business as well as our increased compliance and reporting requirements as a public company.
Headcount will also increase across functions to further strengthen our service offerings and enhance our systems, processes, and controls. We intend to grant equity awards as part of the compensation package for new employees. We expect that our compensation and expenses will decrease as a percentage of our revenue over time. Compensation and benefits increased by $19.9 million or 85.7%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to $22.4 million in additional salaries and wages, $11.4 million in contract labor for software development, $1.3 million in payroll taxes, $1.4 million in health care benefits and $1.2 million in additional bonuses. The majority of the increase in these costs results from the acquisition of Bridge2 Solutions, offset by a reduction in severance pay of $5.1 million, unit-based compensation of $1.0 million and capitalized software of $11.8 million.
 
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Professional Services
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Professional services
  $5,751   $4,150   $1,601    38.6
Professional services increased by $1.6 million or 38.6%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to $1.7 million in additional professional fees and $0.5 million in audit and tax fees due to our acquisition of Bridge2 Solutions, offset by a decrease in legal fees of $0.5 million.
Technology and Communication
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Technology and communication
  $9,741   $4,256   $5,485    128.9
Technology and communication increased by $5.5 million or 128.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to $4.0 million in software as a service fees, $1.2 million in hosting fees, $0.6 million in software maintenance and support cost, and $0.5 million in call center services.
Selling, General and Administrative
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Selling, general and administrative
  $8,219   $2,617   $5,602    214.1
Selling, general and administrative costs increased by $5.6 million or 214.1%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to $4.3 million in marketing expenses related to the launch of our consumer app and $0.9 million in insurance, offset mainly by a decrease in business travel and entertainment due to
COVID-19.
Acquisition-related Expenses
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Acquisition-related cost
  $13,372   $731   $12,641    1,729.3
Acquisition-related costs consist entirely of costs incurred in our acquisition of Bridge2 Solutions in February 2020. In 2020, we recognized an acceleration of $9.6 million of
non-cash
stock compensation resulting from the Bridge2 Solutions acquisition.
Depreciation and Amortization
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Depreciation and amortization
  $8,159   $324   $7,835    2,418.2
 
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Depreciation and amortization increased by $7.8 million or 2,418.2%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to amortization associated with intangibles acquired through the acquisition of Bridge2 Solutions.
Affiliate Expenses
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Affiliate expenses
  $3,082   $500   $2,582    516.4
Affiliate expenses result from technical support service and other costs pursuant to the ISA between Opco and ICE. Affiliate expenses increased by $2.6 million or 516.4%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in such costs in 2020 was primarily due to an increase in fees under the ISA, related to a change to the fee structure for 2020 as compared with 2019.
Impairment of long-lived assets
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Impairment of long-lived assets
  $15,292   $—     $15,292    N/A 
For the year ended December 31, 2020, we determined that third-party software to customize functionality for our consumer app and certain software from a third-party vendor would not provide a viable solution for our business requirements. After performing various analyses for impairment of the amounts capitalized, we concluded these assets were impaired and recorded an impairment charge of approximately $15.3 million. For the year ended December 31, 2019, there was no impairment of assets.
Interest Income, Net
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Interest income, net
  $123   $3,280   $(3,157   (96.3%) 
Interest income consists primarily of interest income earned from short-term investments (principally money market funds) and cash deposits with banks. Interest income decreased by $3.2 million or 96.3%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily due to the decrease in interest rates from 2019 to 2020 and lower balances in our money market funds.
Income Tax (Expense) Benefit
 
   
Year Ended December 31,
 
   
    2020    
   
    2019    
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Income tax (expense) benefit
  $(391  $199   $(590   (296.5%) 
Income tax (expense) benefit consists of income taxes related to United States federal, state and local tax. Our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in
 
83

jurisdictions with a wide range of tax rates, the effect of acquisitions, permanent differences between financial reporting and income tax return treatment of certain items, and changes in tax contingencies. Income tax (expense) benefit decreased by $0.6 million or 296.5%, for the year ended December 31, 2020 compared to the year ended December 31, 2019.
Supplemental Unaudited Pro Forma Financial Information for Opco and Bridge2 Solutions
The following supplemental unaudited pro forma financial information for the nine months ended September 30, 2021 and 2020 and the years ended December 31, 2020 and 2019 is presented to give effect to the acquisition of Bridge2 Solutions by us as if the business combination had occurred as of January 1, 2019.
Management believes the unaudited pro forma information presented below provides a meaningful comparison of operating results; however, it should not be viewed as a substitute for the historical financial results of Opco and Bridge2 Solutions. The supplemental unaudited pro forma financial information presented below should be read in conjunction with Opco’s historical unaudited financial statements for the nine months ended September 30, 2021 and 2020 and its historical audited financial statements for the years ended December 31, 2020 and 2019 included elsewhere in this prospectus.
The supplemental unaudited pro forma financial information presented below is for illustrative purposes and does not purport to represent what the results of operations would actually have been if the business combinations occurred as of the date indicated or what the results would be for any future periods. In addition, future results may vary significantly from those reflected in the supplemental unaudited pro forma financial information in the table below and should not be relied upon as an indication of any of our future results of operations. The pro forma information does not reflect any operating efficiencies, post-acquisition synergies or cost savings that we may achieve with respect to the combined companies.
Unaudited Pro Forma Revenue
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
 
   
Nine Months Ended September 30,
 
   
2021
   
2020
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Opco Gross Revenue
  $791   $1,608   $(817   (51)% 
Opco Contra-Revenue
   (2,353   (3,694   1,341    36
Bridge2 Solutions Revenue
   27,335    26,812    523    2
  
 
 
   
 
 
   
 
 
   
 
 
 
Pro Forma Revenue
  $25,773   $24,726   $1,047    4.0
Pro forma revenue increased $1.0 million, or 4.0%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase is due to the $1.3 million reduction in Opco contra-revenue, partially offset by the $0.8 million reduction in Opco gross revenue, and the $0.5 million increase in Bridge2 Solutions revenue.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
 
   
Year Ended December 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Opco Gross Revenue
  $2,198   $17   $2,181    12,829
Opco Contra-Revenue
   (4,477   (881   (3,596   408
Bridge2 Solutions Revenue
   36,433    44,297    (7,864   (18%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Pro Forma Revenue
  $34,154   $43,433   $(9,279   (21.4%) 
 
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Pro forma revenue decreased $9.3 million, or 21.4%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease primarily consists of a decrease in transaction fees earned by Bridge2 Solutions due to a reduction in travel and customers using less loyalty points due to
COVID-19.
During the year ended December 31, 2020, Opco began receiving net revenue payments from ICE earned pursuant to the Triparty Agreement, resulting in a $2.2 million increase in Opco gross revenue. The increase in Opco gross revenue was exceeded by a $3.6 million increase in Opco contra-revenue resulting from consideration payable to a customer pursuant to the Strategic Alliance Agreement with Starbucks and an increase in rebates and liquidity payments associated with futures transaction activity in the year ended December 31, 2020.
Unaudited Pro Forma Net Loss
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
 
   
Nine Months Ended September 30,
 
   
2021
   
2020
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Pro Forma Net Loss
  $(89,558  $(50,482  $(39,156   77.7
Pro forma net loss increased $39.2 million, or 77.7%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase primarily consists of an increase of $15.1 million of marketing expenses related to the launch of our consumer app and $26.9 million of compensation and benefits related to the increase in personnel.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
 
   
Year Ended December 31,
 
   
2021
   
2020
   
$ Change
   
% Change
 
   
(dollars in thousands)
         
Pro Forma Net Loss
  $(80,071  $(30,232  $(49,839   164.9
Pro forma net loss increased $49.8 million, or 164.9% for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase primarily consists of an increase of $15.3 million impairment of long-lived assets related to the impairment of the third-party software that was deemed not viable, $12.6 million of acquisition-related costs related to the Bridge2 Solutions acquisition, $4.8 million of marketing expenses, $4.3 million of compensation and benefits related to increase in personnel, $1.2 million of hosting fees, and the $9.3 million decrease in revenue discussed in the Unaudited Pro Forma Revenue section.
Liquidity and Capital Resources
Since our inception, we have financed our operations through equity financings in the form of capital contributions from our members. As of September 30, 2021, and prior to the Business Combination, we had raised an aggregate of $482.5 million of capital, net of issuance costs, through the issuance of Class B and Class C voting units. In addition, in 2018, ICE contributed certain developed assets and rights to use exchange and clearing licenses enabling us to commence operations. Our principal sources of liquidity are cash and cash equivalents. We did not raise any additional funds during the three and nine months ended September 30, 2021. As of September 30, 2021, we had $22.1 million and $16.5 million of cash and cash equivalents and restricted cash, respectively. As of December 31, 2020, we had $75.4 million and $16.5 million of cash and cash equivalents and restricted cash, respectively. As of September 30, 2020, we had $79.3 million and $17.5 million of cash and cash equivalents and restricted cash, respectively. Cash and cash equivalents consist of cash deposits at banks and money market funds. Restricted cash is held to satisfy certain minimum capital requirements pursuant to regulatory requirements.
As of September 30, 2021, our liquidity position raised substantial doubt about our ability to continue as a going concern for the 12 months following the issuance of the September 30, 2021 unaudited interim
 
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consolidated financial statements without additional capital investment. The closing of the Business Combination on October 15, 2021, which resulted in approximately $479 million of cash on the combined company’s balance sheet, alleviated the doubt about our ability to continue as a going concern.
We intend to use the funds available after the Business Combination to (i) increase our sales and marketing efforts, (ii) expand our research and product development efforts, and (iii) maintain and expand our technology infrastructure and operational support. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies or intellectual property rights. However, we have no agreements or commitments with respect to any such acquisitions or investments at this time.
Our expected uses of the available funds from the Business Combination are based upon our present plans, objectives and business condition. We have not determined all of the particular uses for the available funds, and management has not estimated the amount of funds, or the range of funds, to be used for any particular purpose. As a result, our management retain broad discretion over the available funds.
Our future cash requirements will depend on many factors, including our revenue growth rate, the timing and extent of hiring and associated overhead to support projected growth in our business, sales and marketing costs to drive revenue growth, and software development investments to continue adding features and functionality to our technology platforms to align with market needs. In 2021, we accelerated our hiring plans and increased our marketing and promotional efforts, which we expect to continue following the closing of the Business Combination. We also intend to increase our investment in software development activities from historical levels to more rapidly advance deployment of new features and functionality in our technology platforms. We may also enter into arrangements to acquire or invest in complementary businesses, services, and technologies which will likely require us to increase our cash consumption.
In addition, we have evaluated the impact of the
COVID-19
pandemic on our liquidity and capital needs, and we anticipate that its effects will be largely neutral.
Depending on the foregoing and other factors that may affect our business in the future, we may be required to seek additional capital contributions or debt financing in the future. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. The following table summarizes our cash flows for the periods presented:
 
   
Nine Months Ended
September 30,
   
Year Ended
December 31,
 
   
2021
   
2020
   
2020
   
2019
 
   
(in thousands)
 
Net cash flows used in operating activities
  $(43,777  $(29,545  $(30,940  $(48,496
Net cash flows used in investing activities
  $(9,087  $(4,228  $(7,929  $(40,947
Net cash flows provided by (used in) financing activities
  $(97  $37,518   $37,487    —   
Operating Activities
Since our inception, we have yet to achieve positive cash flow from operations. Our primary uses of cash include compensation and benefits for headcount-related expenses, investment in software and product development of our technology platforms, most significantly our consumer app, and associated
non-headcount
technology and communication cost to develop, operate and support our customer-facing technology platforms.
Net cash used in operating activities of $43.8 million for the nine months ended September 30, 2021 was primarily related to our net loss of $89.6 million, offset by
non-cash
charges of $16.6 million and net cash inflows of $29.2 million resulting from changes in our operating assets and liabilities. The
non-cash
charges primarily consisted of depreciation and amortization of $9.0 million, unit-based compensation of $3.1 million,
 
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amortization of consideration payable to a customer pursuant to the Strategic Alliance Agreement of $1.7 million,
non-cash
professional services expense associated with vesting of Opco’s Class C warrant of $1.0 million, and
non-cash
lease expense of $0.9 million. Net cash inflows from changes in our operating assets and liabilities resulted primarily from the return of a deposit with our clearinghouse affiliate of $20.2 million, an increase in accounts payable and accrued liabilities of $13.0 million, and an increase in due to related parties of $0.5 million, which were partially offset primarily by an increase in accounts receivable of $2.9 million, an increase in other assets of $1.0 million, and $0.8 million of payments related to operating lease liabilities.
Net cash used in operating activities of $29.5 million for the nine months ended September 30, 2020 was primarily related to our net loss of $50.0 million, which was offset by
non-cash
charges of $21.7 million, and net cash outflows of $1.3 million resulting from changes in our operating assets and liabilities. The
non-cash
charges primarily consisted of depreciation and amortization of $5.4 million, unit-based compensation of $9.9 million, impairment of long-lived assets of $3.8 million, acquisition-related expenses paid by affiliate of $1.4 million, and
non-cash
lease expense of $1.0 million. Net cash outflows from changes in our operating assets and liabilities resulted primarily from decreases in deferred revenues of $3.7 million, amounts due to affiliates of $8.4 million, and payments related to operating leases of $0.9 million, which were offset by decreases in accounts receivable of $0.3 million and deposits with clearinghouse affiliate of $11.0 million, and an increase in accounts payable and accrued liabilities of $0.9 million.
Net cash used in operating activities of $30.9 million for the year ended December 31, 2020 is primarily attributable to our net loss of $79.6 million, offset by
non-cash
charges of $37.9 million and changes in our operating assets and liabilities of approximately $10.7 million.
Non-cash
charges consisted of a $15.3 million asset impairment, $11.6 million of unit-based compensation expenses, and $8.0 million of depreciation and amortization. Changes in operating assets and liabilities resulted from a $16.0 million increase in accounts payable and accruals and an $11.0 million increase in deposits with clearinghouse affiliates, offset by a $7.0 million decrease in amounts due to affiliates, a $4.3 million decrease in deferred revenues and $3.7 million decrease in other assets and liabilities, and $1.2 million decrease in operating lease liabilities.
Net cash used in operating activities of $48.5 million for the year ended December 31, 2019 was primarily related to our net loss of $33.0 million, offset by
non-cash
charges of $11.0 million and net cash outflows of $26.6 million resulting from changes in our operating assets and liabilities. The
non-cash
charges primarily consisted of depreciation and amortization of $0.3 million and unit-based compensation of $10.7 million. Net cash outflows from changes resulted mainly from payment of a deposit with our clearinghouse affiliate of $39.0 million partially offset by changes in other assets of $2.8 million, an increase in accounts payable and accrued liabilities of $5.9 million and amounts due to affiliates of $9.4 million.
Investing Activities
Net cash used in investing activities of $9.1 million for the nine months ended September 30, 2021 primarily consisted of $10.9 million of capital expenditures, offset by $1.8 million in proceeds from sale of shares of affiliate stock. Capital expenditures were primary related to costs paid to third parties and capitalized associated with internally developed software for our technology platforms and other capital expenditures.
Net cash provided by investing activities of $4.2 million for the nine months ended September 30, 2020 primarily consisted of $16.9 million of capital expenditures, offset by $10.7 million cash inflows from the acquisition of Bridge2Solutions and $2.0 million cash inflows from short-term investments. Capital expenditures were primary related to costs paid to third parties and capitalized associated with internally developed software for our technology platforms and other capital expenditures.
We used $7.9 million in investing activities for the year ended December 31, 2020 consisting of capitalized costs of internally developed software and other capital expenditures. This amount was offset in part by $10.7 million of cash acquired from our acquisition of Bridge2 Solutions and proceeds from the sale of $2.0 million of short-term investments.
 
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Net cash used in investing activities of $40.9 million for the for the year ended December 31, 2019 was primarily related to acquisitions of $29.8 million, capital expenditures of $9.2 million and purchases of short-term investments of $2.0 million. Capital expenditures were primary related to costs paid to third parties and capitalized associated with internally developed software for our technology platforms.
Financing Activities
Net cash used in financing activities of less than $1 million for the nine months ended September 30, 2021 resulted from payments of finance lease liabilities.
Net cash provided by financing activities of $37.5 million for the nine months ended September 30, 2020 resulted from proceeds from issuance of our Series B ownership units of $37.8 million offset by less than 0.3 million of payments of finance leases liabilities.
Net cash flows provided by financing activities of $37.5 million for the year ended December 31, 2020 resulted from proceeds from issuance of our Class C ownership units of $37.8 million offset by $0.3 million of payments for capital leases during the year.
Commitments
We had no material commitments as of September 30, 2021, December 31, 2020, or December 31, 2019.
Off-Balance Sheet Arrangements
Bitcoin held in a custodial capacity on behalf of our customers, which are institutions, market makers, and high net worth individuals, is not included in our consolidated balance sheets.
Non-GAAP Measures
We use
non-GAAP
financial measures to assist in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that presenting
non-GAAP
financial measures is useful to investors because it (a) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that we believe do not directly reflect our core operations, (b) permits investors to view performance using the same tools that we use to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (c) otherwise provides supplemental information that may be useful to investors in evaluating our results.
We believe that the presentation of the following
non-GAAP
financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures provided herein, provides investors with an additional understanding of the factors and trends affecting our business that could not be obtained absent these disclosures.
Adjusted EBITDA
We present Adjusted EBITDA as a
non-GAAP
financial measure.
We believe that Adjusted EBITDA provides relevant and useful information, which is used by management in assessing the performance of our business. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization and certain
non-cash
and/or
non-recurring
items that do not contribute directly to our evaluation of operating results. Adjusted EBITDA provides management with an understanding of earnings before the impact of investing and financing transactions and income taxes, and the effects of
 
88

aforementioned items that do not reflect the ordinary earnings of our operations. This measure may be useful to an investor in evaluating our performance. Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or other performance measures derived in accordance with GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
In addition to the items above, Adjusted EBITDA as a
non-GAAP
financial measure also excludes interest income and other income, and income tax benefit, as these items are not components of our core business operations.
Non-GAAP
financial measures like Adjusted EBITDA have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
 
  
unit-based compensation expense, which has been excluded from Adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;
 
  
the intangible assets being amortized, and property and equipment being depreciated, may have to be replaced in the future, and the
non-GAAP
financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and
 
  
non-GAAP
measures do not reflect changes in, or cash requirements for, our working capital needs.
Because of these limitations, the
non-GAAP
financial measures should be considered alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP.
The following table presents a reconciliation of net loss, the most directly comparable GAAP operating performance measure, to our Adjusted EBITDA for each of the periods indicated (in thousands, unaudited):
 
   
Three Months Ended
September 30,
  
Nine Months Ended
September 30
  
Year Ended
December 31,
 
   
2021
  
2020
  
2021
  
2020
  
2020
  
2019
 
   
(in thousands)
 
Net loss
  $(28,847 $(17,971 $(89,558 $($50,016 $(79,605 $(32,976
Add: Depreciation and amortization
   3,270   2,232   9,098   5,536   8,159   324 
Add/(Less): Interest (income) expense
   96   169   239   (255  (123  (3,280
Add/(Less): Income tax (benefit) expense
   12   11   195   36   391   (199
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
EBITDA
   (25,469  (15,559  (80,026  (44,699  (7,178  (36,131
Add: Acquisition-related transaction costs
   1,766   —     12,075   11,477   13,372   731 
Add: Unit-based compensation expense
   604   829   3,116   370   2,082   10,673 
Add: Restructuring charges
   —     —     —     —     588   —   
Add: Impairment of long-lived assets
   —     2,450   —     3,843   15,292   —   
Less:
Non-recurring
bitcoin sale income, net
   (1,024  —     (1,024  —     —     —   
Less: Transition services to Bakkt Clearing
   —     —     —     —     (196  (145
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Adjusted EBITDA
  $(24,123 $(12,280 $(65,859 $(29,009 $(40,040 $(24,872
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
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Adjusted EBITDA decreased by $11.8 million, or 96.4%, for the three months ended September 30, 2021 compared to three months ended September 30, 2020. The decrease was primarily due to a $10.9 million increase in net loss, a $2.5 million decrease in impairment of long-lived assets and a $1.0 million increase in
non-recurring
bitcoin sale income, which were partially offset by a $1.8 million increase in acquisition-related transaction costs, a $0.2 million decrease in unit-based compensation expense, and a $1.0 million increase in depreciation and amortization. Adjusted EBITDA decreased by $36.9 million or 127.0%, for the nine months ended September 30, 2021 compared to nine months ended September 30, 2020. The decrease was primarily due to the $39.5 million increase in net loss, $3.8 million decrease in impairment of long-lived assets and a $1.0 million increase in
non-recurring
bitcoin sale income, which were partially offset by a $0.6 million increase in acquisition-related transaction costs, $3.6 million increase in depreciation and amortization and a $2.7 million increase in unit-based compensation expense. Adjusted EBITDA decreased by $15.2 million or 61.0%, for year ended December 31, 2020 compared to year ended December 31, 2019. The decrease was primarily due to the increase in net loss.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements. Critical accounting policies are those policies that management believes are most important to the representation of our financial position and results of operations, and that require management to make estimates that are difficult, subjective or complex. Based on these criteria, management has identified the following critical accounting policies and estimates, and the methodology and disclosures related to those estimates:
Business Combinations
We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate the purchase price to the individual assets acquired and liabilities assumed and record any residual purchase price as goodwill in accordance with the FASB ASC 805, Business Combinations. We identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable but recognize that the assumptions are inherently uncertain.
For business combinations effected through a common control transaction, we measure the recognized net assets of the acquiree at the carrying amounts of the net assets previously recognized by our related party. We reflect the operations of entities acquired through a common control transaction in our financial statements as of the first date in the reporting period or as of the date that the entity was acquired by our related party, as applicable.
If the initial accounting for a business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. Once the measurement period ends, which in no case extends beyond one year from the acquisition date, revisions to the accounting for a business combination are recorded in earnings.
All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred. Changes in the fair value of any contingent consideration arrangements that are not measurement period adjustments are recognized in earnings.
 
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Goodwill and Other Intangible Assets
Goodwill and intangible assets that have indefinite useful lives are accounted for in accordance with FASB ASC 350, Intangibles—Goodwill and Other. We allocate the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the acquisition consideration transferred over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is tested for impairment at the reporting unit level, and we are organized and operate as a single reporting unit. Goodwill and indefinite-lived intangible assets are tested at least annually or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. In assessing goodwill and intangible assets for impairment, we first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. In the qualitative assessment, we may consider factors such as economic conditions, industry and market conditions and developments, overall financial performance and other relevant entity-specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Should we conclude that it is more likely than not that the recorded goodwill and indefinite-lived intangible assets amounts have been impaired, it would perform the impairment test. An impairment loss is recognized in earnings if the estimated fair value of a reporting unit or indefinite lived intangible asset is less than it’s carrying amount. Significant judgment is applied when goodwill and intangible assets are assessed for impairment.
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are also reviewed at least annually for impairment or more frequently if conditions exist that indicate that an asset may be impaired.
We did not record any impairment charges related to goodwill and intangible assets during the three months ended September 30, 2021 and 2020, the nine months ended September 30, 2021 and 2020, or the years ended December 31, 2020 and 2019.
Revenue Recognition
We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.
Triparty Agreement
The Triparty Agreement governs the trading, clearing and custody services for PDF Contracts. The PDF Contracts generally have a duration of less than one month, and substantially all of the PDF Contracts are settled in the same month in which the trade execution is initiated. At expiration of a PDF Contract, physical delivery of bitcoin will occur if the counterparties to the PDF Contract have not previously settled the PDF Contract. PDF Contract Traders are generally institutional investors and market makers that enter into agreements separately with each of IFUS, ICUS and Opco for trading, clearing and custody related services, respectively.
With respect to our provision of custody services that are necessary to support the trading and clearing services provided by IFUS and ICUS for the PDF Contracts, our customers are IFUS and ICUS, who are related parties. In this regard, our obligation is to provide a stand-ready custody function that supports the trading and clearing services for the PDF Contracts. our obligation to provide a stand-ready custody function includes related promises such as: (i) the initial onboarding of PDF Contract Traders to the custody warehouse, which represents the commencement of the custody services; (ii) maintaining a system of accounts within its custody warehouse on behalf of IFUS and ICUS to ensure accurate, timely transfers of bitcoin at PDF Contract maturity (thereby mitigating ICUS’s clearing risk and ensuring safe storage of bitcoin, including when PDF Contracts settle through physical delivery); (iii) standing ready to accept bitcoin deposits from PDF Contract Traders at any point between execution and settlement of the PDF Contract; (iv) verifying account balances of PDF Contract Traders as their PDF Contracts approach expiration; (v) making transfers between PDF Contract Traders as instructed by
 
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ICUS when the PDF Contracts reach expiration; and (vi) permitting withdrawals of bitcoin as directed by PDF Contract Traders. In order to fulfill these promises, Opco has incurred significant time and expense to build, establish and maintain a fully licensed, institutional-grade bitcoin custodian.
While our performance obligation to IFUS and ICUS is comprised of several related promises as described above, we have concluded that we have a single performance obligation to provide a stand-ready custody function that supports the trading and clearing services as required for the PDF Contracts for PDF Contract Traders, so that IFUS can execute its trading services and ICUS can clear and arrange for the settlement of the PDF Contracts. We have concluded that the related activities that collectively comprise this single performance obligation are not separately identifiable within the context of the Triparty Agreement, as all are necessary in order for IFUS and ICUS to offer PDF Contracts. The maximum duration of our performance obligation would extend from trade execution through the later of settlement of a PDF Contract or the ultimate withdrawal of physically-delivered bitcoin underlying the PDF Contract. However, in our experience, less than 1% of PDF Contracts go to physical settlement. We determine the obligation period associated with Triparty Agreement revenue using the portfolio method based on our historical transaction experience, as the PDF Contracts have similar characteristics. The average performance obligation period is less than one month based on application of the portfolio method. Therefore, we recognize revenue for the stand-ready custody services that we provide to IFUS and ICUS on a straight-line basis over the average performance obligation period, which is less than one month.
PDF Contract Traders pay a transaction fee for trading and clearing which is collected by ICUS. Per the terms of the Triparty Agreement, IFUS and ICUS pass to us all trading and clearing transaction fees, net of rebates and liquidity payments issued to PDF Contract Traders. We consider the transaction price to be the net transaction fee received from IFUS and ICUS or paid to IFUS and ICUS.
In certain arrangements with PDF Contract Traders, IFUS offers rebates to support market liquidity and trading volume, which provides qualified PDF Contract Traders with a discount to the applicable transaction fee. Under the terms of the Triparty Agreement, these rebates reduce the amount of the trading and clearing revenue that IFUS and ICUS pay to us. To the extent the rebates issued to PDF Contract Traders exceed the transaction fees collected by IFUS and ICUS, we pay IFUS and ICUS for the difference between the rebate amounts and the collected transaction fees. We do not receive any goods or services from IFUS or ICUS in exchange for the payment. The payment to IFUS and ICUS for such shortfall is required to be paid pursuant to the Triparty Agreement. These rebates represent consideration payable to a customer and reduce the transaction price; as such, these rebates are included in “
Net revenues
” in the accompanying consolidated statements of operations and comprehensive loss. Because these rebates are measured and resolved within the same reporting period, it is not necessary for us to estimate these at a given reporting period date.
We also recognize a capital contribution for the cost of the trading and clearing services provided by IFUS and ICUS in connection with the Contribution Agreement, which reduces the revenue recognized as part of the net transaction fee.
Revenue from the Triparty Agreement is included in “
Transaction revenue, net
” in the disaggregation of revenue table within Note 3 of the Unaudited Third Quarter 2021 Financials.
Custody
We provide a bitcoin custody solution institutions and certain high net worth individuals. For PDF Contract Traders with custody accounts related to PDF Contracts, we do not charge a fee specifically for the custody service. For customers using custody services on a standalone basis, we charge a fee, which is generally based on a fixed fee and represents fixed consideration. We invoice customers on a quarterly basis. Our performance obligation related to the storage and custody of a customer’s bitcoin represents an obligation to provide custody services for digital assets. Bitcoin held in a custodial capacity on behalf of our customers is not included in our
 
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consolidated balance sheet, as we do not own that bitcoin. The contract for custodial services may be terminated by the applicable institution or high net worth individual at any time upon final withdrawal of all digital assets, without incurring a penalty. As a result, we believe our contracts represent a
day-to-day
contract with each day representing a renewal. These renewals are priced consistently with the original contract and with other similar customers and as such, we do not believe that they represent a material right.
The daily contract consists of a single performance obligation to provide custodial services, with the transaction price equal to a pro rata portion (i.e., daily) of the annual custody fee. Our performance obligation to provide custodial services meets the criterion to be satisfied over time. Revenue from our custodial services is included in “
Net revenues
” in the consolidated statements of operations and comprehensive loss.
Revenue from our custody services is included in “
Subscription and services revenue
” in the disaggregation of revenue table within Note 3 of the Unaudited Third Quarter 2021 Financials..
Loyalty redemption platform
We host, operate and maintain a loyalty redemption platform connecting loyalty programs to ecommerce merchants allowing loyalty point holders to redeem a spectrum of loyalty currencies for other digital assets, merchandise and services. Our customer in these arrangements is generally the loyalty partner. Our contracts related to our loyalty redemption platform consist of two performance obligations: (1) access to our SaaS-based redemption platform and customer support services, and (2) order placement. We are a principal related to providing access to our redemption platform. We are acting as an agent to provide order placement services on behalf of the loyalty partner. Revenues generated from our loyalty redemption platform are included in “
Net
revenues
” in the accompanying consolidated statements of operations and comprehensive loss and include the following:
 
  
Platform subscription fees: Monthly fixed fee charged to loyalty partners to access the redemption platform and receive customer support services. We recognize revenue for these fees on a straight-line basis over the related contract term, as the loyalty partner receives benefits evenly throughout the term of the contract. These fees are allocated to our performance obligation to provide access to our redemption platform, and thus are recognized on a gross basis.
 
  
Transaction fees: Transaction fees are earned for most transactions processed through our platform. These fees are allocated to our performance obligation to provide order placement services on behalf of the loyalty partner, and therefore are recognized net of the related redemption cost. We allocate transaction fees to the period in which the related transaction occurs.
 
  
Revenue share fees: We are entitled to revenue share fees in the form of rebates from third-party commerce merchants and other partners which provide services facilitating redemption order fulfilment. We allocate revenue share fees to the period in which the related transaction occurs.
 
  
Service fees: We earn fees for certain software development activities associated with the implementation of new customers on our loyalty redemption platform and other development activities if a loyalty partner requests that we customize certain features and functionalities for their loyalty program. We recognize service fees as revenue on a straight-line basis, beginning when the internally developed software resulting from such implementation or other development activities are operational in our platform over the longer of the remaining anticipated customer life and 3 years, which represents the estimated useful life of our internally developed software. Implementation and development service fees are generally billed when the implementation and development activities are performed.
Revenue from our loyalty redemption platform is included in “
Transaction revenue, net
” and “
Subscription and services revenue
” in the disaggregation of revenue table in Note 3 of the Unaudited Third Quarter 2021 Financials.
 
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Strategic Alliance Agreement
In February 2020, we entered into a Strategic Alliance Agreement (the “
Strategic Alliance Agreement
”) with Starbucks to develop and operate a mechanism whereby a Starbucks customer can purchase food and beverage items from Starbucks using our digital wallet related to our alternative payment method offering.
In conjunction with this agreement, we issued Starbucks a warrant to purchase 15 million Class B voting units in Opco. We account for the warrant as consideration payable to a customer within the scope of ASC 606,
Revenue from Contracts with Customers
, which is measured at the fair value on the grant date of the warrant. We recognize the warrant as a reduction to transaction fees on a straight-line basis over 28 months, which represents the time period between the launch date of the services under the Strategic Alliance Agreement, which occurred in November 2020, and the end of the contract term. These reductions to revenue are included in “
Net revenues
” in the accompanying consolidated statements of operations and comprehensive loss. These reductions to revenue are included within “
Transaction revenue, net
” in the disaggregation of revenue table in Note 3 of the Unaudited Third Quarter 2021 Financials.
Sale of cryptocurrency
As part of our operation of the Bakkt Marketplace platform, we transact in bitcoin with consumers. Consumer bitcoin transactions were not material for the three and nine months ended September 30, 2021. There were no consumer bitcoin transactions for the three and nine months ended September 30, 2020.
Additionally, as part of the Company’s operation of the Bakkt Marketplace platform, we transact in bitcoin with our trading partners in order to adjust our bitcoin inventory based on actual consumer activity to maintain an inventory based on our inventory policy. Transactions in bitcoin with our trading partners in the normal course of business were not material for the three and nine months ended September 30, 2021. There were no transactions in bitcoin with our trading partners in the normal course of business for the three and nine months ended September 30, 2020.
We maintain an inventory reserve of bitcoin to facilitate consumer transactions if needed. We may adjust our inventory reserve levels under our inventory policy. Sales of bitcoin resulting from inventory reserve adjustments is not part of our normal course of business. Accordingly, proceeds from the sale of bitcoin outside of the normal course of business is included in “
other income (expense), net
,” net of the cost of bitcoin sold, in the consolidated statements of operation and comprehensive loss.
Practical expedients
We have elected the following practical expedients under ASC 606:
 
  
Assessing the performance obligation period for Triparty Agreement transactions on a portfolio basis.
 
  
Exclude sales taxes from the measurement of the transaction price.
 
  
Not adjust the transaction price for the existence of a significant financing component if the timing difference between a customer’s payment and our performance is one year or less.
 
  
Not provide disclosures about the transaction price allocated to unsatisfied performance obligations for contracts with a duration of one year or less or when the consideration is variable and allocated entirely to a wholly unsatisfied performance obligation or a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.
Additionally, we have elected the practical expedient under ASC
340-40
to not capitalize incremental costs to obtain a contract with a customer if the amortization period would have been one year or less.
 
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Deferred Revenue
Deferred revenue includes amounts invoiced prior to our meeting the criteria for revenue recognition. We typically invoice customers for subscription fees in arrears on a monthly basis.
We invoice customers for service fees at the time the service is performed, and such fees are recognized as revenue over time as we satisfy our performance obligation. The portion of deferred revenue to be recognized in the succeeding twelve-month period is recorded as
non-current
deferred revenue, and the remaining portion is recorded as current deferred revenue. We have determined that these arrangements do not contain a significant financing component, and therefore the transaction price is not adjusted.
The amount of previously deferred revenue recognized for the three and nine months ended September 30, 2021 was $1,064,000 and $3,401,000, respectively. The amount of previously deferred revenue recognized for the three and nine months ended September 30, 2020 was $1,138,000 and $4,885,000, respectively, which was comprised of deferred revenue acquired through the Bridge2 Solutions acquisition (see Note 4).
The amount of revenue recognized for the year ended December 31, 2020 from the opening deferred revenue balance as of the date of acquisition of Bridge2 Solutions was $11,005,000. We did not have any deferred revenue as of December 31, 2019.
Property, Equipment and Software, Net
Property, equipment and software are stated at cost, less accumulated depreciation and amortization.
We capitalize costs related to software we develop or obtain for internal use and are included in “
Property, equipment and software, net
” on the accompanying balance sheet. Software development costs incurred during the preliminary or maintenance project stages are expensed as incurred, and costs incurred during the application development stage are capitalized and are amortized over the useful life of the software.
Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of assets:
 
   
Estimated Useful
Life
 
Internal use software
   3-7 years 
Purchased software
   3 years 
Assets under finance lease
   
2-5
years
 
Office, furniture and equipment
   7-10 years 
Leasehold improvements
   7 years 
Other computer and network equipment
   3 years 
Impairment of Long-Lived Assets
Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We also evaluate the period of depreciation and amortization of long-lived assets to determine whether events or circumstances warrant revised estimates of useful lives. When indicators of impairment are present, we determine the recoverability of our long-lived assets by comparing the carrying value of our long-lived assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the estimated future undiscounted cash flows demonstrate the long-lived assets are not recoverable, an impairment loss would be calculated based on the excess of the carrying amounts of the long-lived assets over their fair value.
We did not record any impairment charges for the three and nine months ended September 30, 2021. We recorded $2.5 million impairment charges and $3.8 million related to long-lived assets for the three and nine months ended September 30, 2020, respectively. We recorded impairment charges of $15.3 million and no impairment charges related to long-lived assets for the years ended December 31, 2020 and December 31, 2019, respectively.
 
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Unit-Based Compensation
Share-based payments to employees, which consist of incentive units and phantom units (“
participation units
”), are measured at fair value on the date of grant and recognized as expense in “
Compensation and benefits
” in the accompanying consolidated statements of operations and comprehensive loss over the requisite service period. Additionally, we recognize variable compensation expense for liability-classified participation units based on changes to the fair value of the awards at each reporting date. We elect to account for forfeitures as they occur.
The units are unvested on the grant date and are subject to the vesting terms in the award agreement. The units are not entitled to participate in distributions until such units are vested. The units vest subject to continuous employment through the vesting date (subject to limited exceptions), and the achievement of certain performance and market conditions as defined in the Bakkt Plan and individual award agreements. A portion of the units may be subject to vesting upon a liquidity event, initial public offering, or partial exit event, as defined in the Bakkt Plan, or to the extent any incentive units and participation units remain outstanding and unvested on the date that is the eight-year anniversary of the launch of one of our services in a production environment, which occurred on September 23, 2019, these remaining units will vest based on the calculated fair market value, as defined in the Opco LLC Agreement, as of such date.
The incentive units include certain put features; as such, we classify the incentive units as “
Mezzanine equity
” in the accompanying consolidated balance sheets due to the put option which represents a redemption feature. The incentive units will not be subject to remeasurement until exercise of the put option becomes probable.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates and assumptions on various judgments that we believe to be reasonable under the circumstances. The significant estimates and assumptions that affect our consolidated financial statements may include, but are not limited to, estimates related to income tax valuation allowances, useful lives of intangible assets and property, equipment and software, fair value of financial assets and liabilities, determining provision for doubtful accounts, valuation of acquired tangible and intangible assets, the impairment of intangible assets and goodwill, and fair market value of voting units, preferred incentive units, common incentive units and participation units. Actual results and outcomes may differ from management’s estimates and assumptions and such differences may be material to our consolidated financial statements.
Recently Issued and Adopted Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in Note 2 to the Unaudited Third Quarter 2021 Financials and the Audited 2020 Financials.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF VPC IMPACT ACQUISITION HOLDINGS
References in this section of this prospectus to “we,” “us” or “VIH” and like terms refer to the Company, prior to the consummation of the Business Combination. References to “management” or “management team” refer to VIH’s officers and directors, and references to the “Sponsor” refer to VPC Impact Acquisition Holdings Sponsor, LLC. You should read the following discussion and analysis of VIH’s financial condition and results of operations together with Bakkt Holdings, Inc. historical consolidated financial statements and the unaudited pro forma financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Until the consummation of the Business Combination, VIH was a blank check company. VIH was originally incorporated on July 31, 2020 as a Cayman Islands exempted company for the purpose of effecting a business combination.
Recent Developments
Please see the section titled “
Explanatory Note
” in this prospectus.
Results of Operations
Until the consummation of the Business Combination, we neither engaged in any operations (other than searching for a business combination after the IPO and entering into the Merger Agreement), nor generated any revenues. Our only activities from inception to September 30, 2021 were organizational activities, those necessary to prepare for the IPO and, after the IPO, identifying a target company for a business combination and entering into the Merger Agreement. We generated
non-operating
income in the form of interest income on marketable securities held in the Trust Account. We incurred expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing the Business Combination.
For the three months ended September 30, 2021, we had a net loss of $483,148, which consisted of general and administrative cost of $2,241,776, offset by interest earned on investments held in the Trust Account of $2,669 and change in fair value of warrant liability of $1,755,959.
For the nine months ended September 30, 2021, we had a net loss of $12,885,106, which consisted of changes in fair value of warrant liability of $7,086,905 and general and administrative cost of $5,822,575, offset by other income of $4,476 and interest earned on investment held in the Trust Account of $19,898.
For the period from July 31, 2020 (inception) through September 30, 2020, we had net loss of $3,032,369, which consisted of general and administrative cost of $17,543, transaction cost related to warrant liability of $754,990 and a change in fair value of warrant liability of $2,260,000, offset by interest earned on investments held in Trust Account of $164.
 
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Liquidity and Capital Resources
Until the consummation of the IPO, our only source of liquidity was an initial purchase of ordinary shares by the Sponsor and loans from the Sponsor.
On September 25, 2020, we consummated the IPO of 20,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $200,000,000. Simultaneously with the closing of the IPO, we consummated the sale of the Private Placement Warrants to the Sponsor at a price of $1.00 per Private Placement Warrant generating gross proceeds of $6,000,000.
Following the IPO and the sale of the Private Placement Warrants, a total of $200,000,000 was placed in the Trust Account, and we had $1,205,178 of cash held outside of the Trust Account, after payment of costs related to the IPO, and available for working capital purposes. We incurred $11,906,606 in transaction costs, including $4,147,440 of underwriting fees, $7,258,021 of deferred underwriting fees and $501,146 of other offering costs.
On October 1, 2020, in connection with the underwriters’ election to partially exercise of their over-allotment option, we consummated the sale of an additional 737,202 Units and the sale of an additional 147,440 Private Placement Warrants, generating total gross proceeds of $7,519,460. A total of $7,372,020 of the net proceeds was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $207,372,020.
For the nine months ended September 30, 2021, net cash used in operating activities was $469,036, which consisted of our net loss of $12,885,106 affected by interest earned on investments of $19,898, changes in fair value of warrant liability of $7,086,905 and changes in operating assets and liabilities, which provided $5,349,063 of cash from operating activities.
For the period from July 31, 2020 (inception) through September 30, 2020, net cash used in operating activities was $289,300, which consisted of our net loss of $3,032,369 affected by interest earned on investments of $164, changes in fair value of warrant liability of $2,260,000, formation costs of $6,606, transaction cost related to warrant liability of $754,990 and changes in operating assets and liabilities, which used $278,363 of cash from operating activities.
At September 30, 2021, we had investments held in the Trust Account of $207,396,111. As at September 30, 2021, we intended to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, which interest was expected to be net of taxes payable and excluding deferred underwriting commissions, to complete a business combination.
At September 30, 2021, we had cash of $708,642 held outside of the Trust Account.
Off-Balance
Sheet Financing Arrangements
We had no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 2021. We did not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating
off-balance
sheet arrangements. As of September 30, 2021, we had not entered into any
off-balance
sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual Obligations
As of September 30, 2021, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for office space, utilities, secretarial and administrative support services, provided to VIH. We began incurring these fees on September 25, 2020, and we incurred such fees until the consummation of the Business Combination.
 
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Underwriting Agreement
The underwriters were paid a cash underwriting discount of $0.20 per Unit, or $4,147,440 in the aggregate. In addition, as of September 30, 2021, $0.35 per public share, or approximately $7,258,021 in the aggregate remained payable to the underwriters for deferred underwriting commissions. The deferred fee would become payable to the underwriters from the amounts held in the Trust Account solely in the event that we completed a business combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies.
Warrant Liabilities
We accounted for the warrants issued in connection with the IPO in accordance with the guidance contained in ASC 815 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classified the warrants as liabilities at their fair value and adjusted the warrants to fair value at each reporting period. This liability was subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value was recognized in our statement of operations. The fair value of the warrants was estimated using a Black-Scholes Option Pricing Model. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as the fair value of the Public Warrants as of each relevant date.
Class A Ordinary Shares Subject to Possible Redemption
We accounted for Class A Ordinary Shares subject to possible redemption in accordance with the guidance in ASC Topic 480. Class A Ordinary Shares subject to mandatory redemption are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder, or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares featured certain redemption rights that were considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A Ordinary Shares subject to possible redemption were presented as temporary equity, outside of the shareholders’ equity section of our condensed balance sheets.
Net Income (Loss) Per Ordinary Share
Net loss per ordinary share was computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. We applied the
two-class
method in calculating earnings per share. Accretion associated with the redeemable shares of Class A Ordinary Shares was excluded from earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update
No. 2020-06,
“Debt-Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging-Contracts in Entity’s Own Equity
(Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“
ASU2020-06
”), which simplifies accounting for convertible instruments by removing major separation models
 
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required under current GAAP.
ASU2020-06
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.
ASU2020-06
is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. VIH adopted
ASU2020-06
effective as of January 1, 2021. The adoption of
ASU2020-06
did not have an impact on VIH’s condensed consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on VIH’s condensed consolidated financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. Through September 30, 2021, VIH qualified as an “emerging growth company” and under the JOBS Act was allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. VIH elected to delay the adoption of new or revised accounting standards, and as a result, it did not necessarily comply with new or revised accounting standards on the relevant dates on which adoption of such standards was required for
non-emerging
growth companies. As a result, the consolidated financial statements of VIH not be comparable to companies that complied with new or revised accounting pronouncements as of public company effective dates.
 
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BUSINESS
Overview
Our mission is to power commerce by reimagining the digital asset ecosystem, which includes cryptocurrency, loyalty and rewards points, gift
cards, in-game assets,
and NFTs. We are working to unlock new ways to participate in the digital economy for consumers, businesses and financial institutions by expanding access to, and improving liquidity for, digital assets. We believe we are opportunistically positioned at the center of this digital asset ecosystem, with approximately 1.7 million transacting accounts on our platform
year-to-date.
 
  
Consumers
. We enable individual consumers to aggregate, manage, and spend all their digital assets in one place. Our scalable platform creates new opportunities to access cryptoassets, direct merchant offers, loyalty points and gift card discounts, increasing consumer spending power and powering the digital economy.
 
  
Businesses
. We offer businesses (whom we define as consumer-facing merchants, retailers, and financial institutions with loyalty and rewards programs) the ability to strengthen those programs by delivering new redemption options. We reduce financial liabilities associated with loyalty programs, lower payment processing costs, and drive increased brand loyalty to end customers. We also enable access to new sources of consumer spending power and loyalty programs that drive incremental commerce. Our payment channels allow businesses to access improved payment settlement and processing economics.
 
  
Financial Institutions.
 We provide financial institutions in the investment sector with infrastructure to access new markets and create new products. Our platform uniquely leverages the technology and infrastructure products of our majority investor Intercontinental Exchange, Inc. (NYSE:ICE), to improve price discovery by offering a monthly bitcoin futures contract and to bring trust and transparency to the digital asset ecosystem. Our products provide greater regulatory clarity, better price discovery, and more effective risk management for financial institutions around the world.
Our platform has three complementary aspects – a digital asset marketplace, a loyalty redemption service, and an alternative payment method.
 
Digital Asset Marketplace
. Our digital asset marketplace is designed to enable participants to seamlessly transact in digital assets, and has applications for individual consumers, businesses (whom we define as consumer-facing merchants, retailers, and financial institutions), and institutional investors. ICE, our majority
 
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shareholder, has decades of experience building institutional products and solutions. We leveraged that expertise to build an institutional-grade custodian for bitcoin, Bakkt Trust, which is regulated by the NYSDFS. This custodian, marketed as the Bakkt Warehouse, provides custody services that anchor the PDF Contracts, the first
end-to-end
regulated, physically-delivered bitcoin futures and options contracts which are traded on IFUS and cleared on ICUS, and also provides bitcoin custody to institutions and certain high
net-worth
individuals on a standalone basis as approved by the NYSDFS. Our custodian also operates as the backbone of many of our consumer- and enterprise-focused offerings. For example, it enables consumers to use our app to transact in bitcoin in real-time.On November 2, 2021, in accordance with our coin listing policies (as approved by the NYSDFS), we self-certified the addition of ether (ETH) as a cryptocurrency that we support for consumer transactions, as described further below. In addition, subject to achieving the necessary regulatory approvals, we plan to add the ability to buy and sell securities such as equities, derivatives and ETFs. We believe that our institutional-grade infrastructure underpins our ability to expand and scale consumer solutions.
Loyalty Redemption
. Leveraging our acquisition of Bridge2 Solutions, our loyalty redemption capabilities support our loyalty partners, such as Citibank, Delta Air Lines, United Airlines, Choice Hotels, Wells Fargo Bank, Bank of America and Mastercard. While many loyalty partners have very popular loyalty programs, the points that are outstanding to customers represent material liabilities on the loyalty partners’ balance sheets. Our redemption capabilities, particularly our exclusive arrangements with leading consumer brands, provide seamless and cost-effective alternatives for consumers to spend their loyalty points and enable loyalty partners to reduce these financial liabilities. In a typical loyalty redemption relationship, we provide the hosted, white-labeled website where a loyalty partner’s customers can redeem their points for goods and services, and we also provide fulfillment services for several of those products through relationships with retailers like Best Buy. Our API connects into the databases where our loyalty partners maintain their points which then enables instantaneous redemption capabilities.
Alternative Payment Method
. Our platform will deliver consumer choice and convenience with an alternative payment method that allows consumers to spend the value of their digital assets with merchants in our ecosystem and also enables merchants to gain access to consumers’ increased spending power, tapping into the trend for alternative payment methods. Our platform will make different types of digital assets essentially fungible from the consumer’s perspective, regardless of the form they take (e.g. bitcoin, loyalty points, cash). While a transaction appears to the consumer as a direct conversion of the digital asset (e.g. bitcoin) to the desired good, service or other digital asset, the transaction occurs in two steps, with cash in the middle (e.g. the consumer sells her bitcoin to us at the current market price, and her wallet is credited with the cash value of that sale. Next, that amount of cash is credited to the merchant.) Merchants, such as Starbucks, that accept our alternative payment method can displace transactions off existing payment card infrastructure, which results in significant reductions in payment fees and, over time, faster settlement. For instance, our agreement with Starbucks, which enables Starbucks mobile app users to reload their Starbucks Card prepaid accounts using bitcoin and other balances held with us—which are credited to Starbucks as cash—provides significant cost savings to Starbucks compared with traditional payment cards. We are compensated by Starbucks for each such transaction that we process.
We expect to utilize the foregoing aspects of our business to generate revenue. More specifically:
 
  
Our loyalty redemption services, which we began providing in 2020, generated 108% of revenue in the year ended December 31, 2020 and 105% of revenue in the six months ended June 30, 2021. Contra revenues from our alternative payment method and digital asset marketplace service offerings comprised the difference between our loyalty redemption services revenue and total revenue. Such contra revenues principally consist of rebates and liquidity payments under the Triparty Agreement, reductions in connection with the Contribution Agreement, and consideration payable to a customer under the Strategic Alliance Agreement.
 
  
Revenue generated through our other service offerings (excluding the contra revenue cited above)—including the alternative payment method and the digital asset marketplace—has been immaterial to
 
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date. However, we expect our revenue related to loyalty redemption services to decrease as a percentage of overall revenue as the revenue from our other product and service offerings grows.
 
  
We receive revenue when consumers use the services within our consumer app, including to buy, sell, store and spend digital assets (e.g., transacting in cryptocurrency or spending or converting loyalty points).
 
  
We expect that revenues from cryptoasset trades and other transactions and subscription fees will be significant drivers of our business, and we expect those revenues to increase in the future as we grow our partner base and our user base. Please see “
—Recent Partner Engagement
” below for certain of our recent partner engagement activity that we believe will drive additional partner and user growth. With respect to cryptoasset trades, we believe that the increasing normalization of cryptocurrency should enable increased consumer acceptance of and interest in cryptocurrency, which in turn will further enhance our ability to capture and monetize consumer relationships and near-term revenue from cryptoasset trading. However, there remain numerous risks and uncertainties related to each such revenue-generating activity, including, for example, cryptoasset trades recently being the subject of heightened regulatory scrutiny and our ability to successfully realize the benefits of our partner engagement efforts. For a complete description of the known material risks underlying our business, please see “
Risk Factors—Risks Related to Business, Finances and Operations
.”
Consumer App
. Our platform is built to operate at the intersection of cryptoassets, loyalty and payments, and offers partners the flexibility to choose some or all of our capabilities, and the manner in which those capabilities are enabled for consumers, based on their needs and objectives. Some partners may choose to keep their consumer users entirely in such partner’s experience, while others may need a
“ready-to-go”
storefront and therefore leverage more of our capabilities. Partners can choose to fully or partially embed our capabilities within their digital environment, or they can leverage our platform capabilities—like cryptoasset buy, sell, hold and spend—entirely “powered by Bakkt.” For partners choosing a
“ready-to-go”
storefront, all of our platform’s capabilities around digital asset purchase, sales, redemption and payment come together in a seamless experience in our consumer app, which was made broadly available in March 2021. Our app enables consumers to see their digital assets—initially including bitcoin, cash, loyalty and rewards points, and closed-loop gift cards—in one place, and to transact easily with those assets. We plan to extend the functionality of our app by adding more merchants and loyalty partners, and additional digital assets, such as additional cryptocurrencies (like our addition of ether (ETH) in November 2021), and, at a later date, equities, derivatives and ETFs, and
in-game
assets. The additions of these new cryptocurrencies to our app will be subject to certain policies and procedures requiring an internal risk assessment of such cryptocurrencies by us, including a consideration of conflicts of interest, the assessment of such cryptocurrency as to whether it is a security and other legal, operational and compliance-based considerations. In addition, we plan to add equity securities trading functionality for customers on our platform in the future. For us to add equity trading securities functionality to our platform, we require a broker-dealer license or will need to conduct our business through a licensed broker-dealer. While we plan to submit an application to form a broker-dealer with FINRA, we expect such process to be lengthy, and there can be no guarantee as to the timing of the application or that we will be successful in obtaining our broker-dealer license.
Recent Partner Engagement
. We have recently experienced an increase in engagement with current and potential partners, including financial institutions, payment service providers, institutional investors and retailers (including those in the travel and entertainment space). For example, we recently entered into partnerships with Cantaloupe, Inc., a leading provider of self-service retail payment solutions, which will provide consumers the choice and flexibility to pay for products with bitcoin and supported loyalty points across Cantaloupe’s nationwide network, and with Wyndham Hotels & Resorts, which will allow members of the Wyndham Rewards loyalty program to link, view and redeem their Wyndham Rewards points within our consumer app. We recently expanded our relationship with Choice Hotels, which will enable the utilization of Choice Privileges rewards points through our consumer app. We currently are undertaking an
in-store
pilot program with Quiznos that enables Quiznos customers to pay with bitcoin at select locations. We also recently partnered with Mastercard to allow Mastercard partners to offer cryptocurrency solutions, enabling consumers to buy, sell and hold digital
 
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assets through custodial wallets powered by our platform. Also, we recently entered into a letter of intent for a strategic partnership with Fiserv whereby our platform would be integrated into Fiserv’s “Carat” omnichannel ecosystem which would allow customers to pursue new options for B2B and B2C payouts, loyalty programs, and transactions, all with cryptoassets accessible via a digital asset wallet. Further, we are in various stages of negotiations with additional partners, including one or more large payments operators, banking platform operators and technology platforms, and anticipate announcing some of these partnerships as soon as the fourth quarter of 2021. If these partnerships are successfully entered into and implemented within the next twelve months, we believe they will be significant drivers in our revenue, including cryptoasset trading revenue. However, there can be no assurance that we will ultimately enter into binding agreements with such counterparties or, if entered into, whether those or any of our other partnerships will be successful. For more information, please see “
Risk Factors—Risks Related to Business, Finances and Operations
.”
Our Opportunity
We believe that the global marketplace for digital assets is rapidly evolving and expanding. As interest in digital asset adoption by consumers, businesses and institutions has increased, the demand for digital payment solutions has accelerated, the number of digital asset alternatives has expanded, and regulatory scrutiny has increased.
We operate at the intersection of several different types of digital assets, and we are uniquely positioned to enable the broader adoption, use, and monetization by consumers, businesses, and institutions of these digital assets. While each digital asset currently has its own adopters and use cases, the inherent potential of digital assets as a class remains largely unrealized. Our ecosystem is designed to be scalable and agile enough to quickly add additional functionalities and digital assets in a compliant manner, enabling the market to efficiently move to additional uses for these assets, benefiting consumers, loyalty partners, merchants and institutions. Given our ICE heritage, our systems have been built with security and regulatory compliance at their core.
Cryptocurrency
Since our inception in 2008, bitcoin and other cryptocurrencies have gained greater mainstream understanding and acceptance as digital assets. Bitcoin, in particular, has become a leading digital asset based on market capitalization and transaction volume. The lack of speed with which the bitcoin blockchain can process transactions and the public and private keys required to manage bitcoin have, to date, made it unattractive to the average consumer. However, significant advancements in the ecosystem have made bitcoin more accessible, and there are a number of apps and services that reduce the complexities commonly associated with buying and storing cryptocurrency. In addition, asset managers, corporations and endowments continue to rebalance balance sheet assets and portfolio asset allocations, with bitcoin increasingly being viewed as an acceptable investment for a portion of such allocations.
Since 2008, thousands of other cryptocurrencies and cryptotokens have emerged on both public and private blockchains or other proprietary distributed ledger solutions. These include, but are not limited to, cryptoassets such as stablecoins whose value is tied to a basket of fiat currencies, and “forks” of bitcoin and other cryptocurrencies, which occur when developers and users make a conscious decision to stop adhering to protocol updates in order to create a new currency from the original blockchain, creating new versions of the cryptocurrency. Forks are a byproduct of the decentralized structure of the blockchain.
Loyalty and Rewards Points
Loyalty partners have displayed increasing interest in the pursuit of new strategies and programs that enable consumer empowerment and loyalty liability management while maintaining control over captive programs and the presumed attribution of long-term customer value and loyalty. Loyalty partners seek to improve consumer engagement by providing high perceived value to their consumers via points redemption. Traditional models for these points allowed consumers to redeem points
for in-house products
and services, such as airline seats and
 
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hotel rooms. The first evolution of the model afforded third-party service providers an opportunity to provide redemption solutions for products, services and experiences that the loyalty partners could not
source in-house.
Opening up redemption to external options was loyalty partners’ attempt to improve the perceived value of their programs and thereby increase consumer loyalty. However, the inflexibility and cost structures of these initial external redemption solutions made them unattractive for large-scale adoption. Loyalty partners continuously seek alternate methods or new programs designed to attract, retain and increase long-term consumer loyalty and value. In addition, based on our deep experience in the loyalty redemption market, we have increasingly experienced that digitally-savvy, informed and cost-conscious consumers continue to demand greater flexibility in the use cases for their accrued loyalty and rewards points.
Closed-Loop Gift Cards
Closed-loop gift cards, which are branded gift cards that may only be used at a specific merchant, retailer or restaurant, have experienced unprecedented growth over the last decade, and their popularity has increased even further as a result of
the COVID-19 pandemic.
Because closed-loop gift cards can only work within a merchant’s particular store, app, and/or website, they provide the specified merchant with a
captive, low-cost source
of payment acceptance.
Consumers favor gifting closed-loop gift cards rather than buying a product that a giftee may not enjoy. However, half of consumers have unused gift cards, either because the destination retailer is not to the recipient’s liking, or because an outstanding balance remains on the card once a purchase has been made. This locked value stagnates and eventually is escheated to the state or federal government pursuant to applicable state or federal statutes, providing no value to the merchant or the consumer. Previous efforts to resolve this through secondary market gift card exchanges were rampant with fraud and were shut down because they disintermediated the gift card provider and provided insufficient regulatory safeguards for the consumer.
In-Game Assets
The gaming industry, led by Microsoft, Sony and Nintendo, has a value greater than the worldwide film industry and major league sports in North America
combined. One-third of
the surge in the value of this industry is due in large part to
the in-game purchases
consumers make for upgrades, skins, weapons and resources.
These digital assets, whether earned or purchased, are illiquid. When the consumer ceases playing the game, those assets stagnate, providing no value to the consumer or to the game publisher. Publishers and consumers both desire a mechanism to make these assets liquid through a neutral, third-party platform that will allow consumers to monetize their
digital in-game assets
and move in and out of specific games and brands while enabling publishers to build loyalty and a broader consumer base.
Equity Securities
The equity securities trading markets have been revolutionized by the proliferation of consumer-friendly mobile apps and the abandonment of trading fees. This in turn has enabled new generations and customer segments to embrace securities trading, often with the assistance and support of social media groups focused on the topic.
We believe that equity securities are at their core digital assets, as relatively few investors ever interact with equity securities in physical form. As such, we believe these assets will represent a natural fit with the other assets enabled within our ecosystem.
Our Solution
Our solution uniquely brings together loyalty and commerce. Today, it is comprised of a digital asset marketplace, a loyalty redemption service, and an alternative payment method, all of which are embodied in a platform that can be customized by our partners, and include a
“ready-to-go”
storefront with our consumer app. We started with our digital asset marketplace and have continued to innovate and expand our platform.
 
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Loyalty Redemption Service
Our redemption service provides loyalty solutions to a significant portion of the leading loyalty programs in North America. Loyalty and rewards programs are effective in driving consumer payments behavior and incremental sales by tailoring offers and promotions. Loyalty redemption services are integral to the success of the loyalty partner’s program. Demand to grow and develop loyalty programs increases as loyalty partners seek to deepen relationships with consumers. Our services are intended to make it easy for consumers to understand how their loyalty points are earned and redeemed and feel confident in the transparency of value exchange, further increasing the loyalty benefit to the issuing loyalty partners.
The benefits of our platform for loyalty partners include:
 
  
Broad redemption options
. We enable gift cards, electronics and other merchandise from leading merchants, and rewards, including travel packages and innovative and unique experiences (e.g., admission to branded events).
 
  
Access to exclusive brands
. We have an exclusive partnership with a key electronics and entertainment provider that enables us to provide a branded experience to its store as a redemption option embedded within our site. Additional merchant benefits include product customizations, like engraving and real- time inventory management. We will seek to expand this model with other leading brands.
 
  
Balance sheet optimization
. Our loyalty redemption services offer higher perceived value to the consumer and increased alternatives for them to spend their rewards points. This in turn allows the loyalty partner to control the cost of redemption and reduce financial liabilities.
Alternative Payment Method
Alternative payment methods include any form of payment other than cash, checks or traditional bank-issued credit or debit cards. Enabling these methods is becoming a necessity for merchants seeking to grow their business. As goods and services progress, consumers demand a more versatile shopping experience. Merchants are able to address this demand by accepting our alternative payment method. We integrate our alternative payment method directly with merchants, such as Starbucks, and through partners, such as payment service providers, merchant acquirers and checkout providers, to create a closed-loop payment ecosystem.
The benefits of our platform as an alternative payment method include:
 
  
Lower cost of acceptance
. We reduce cost of payments by displacing transactions off card infrastructure to gain lower payment fees and faster settlement time.
 
  
Reduced checkout abandonment and increased conversions
. Consumers are attracted to the concept of choice, giving them more control and power over their purchasing and payments. When a consumer has the choice between multiple online merchants offering similar products, their user experience—including a merchant’s ability to accept their preferred form of payment—can be an important factor in their decision-making process.
 
  
Increased ability to reach new consumers
. We believe that our payment method will appeal to new consumer segments—e.g., cryptoasset enthusiasts, rewards stackers and gamers—by leveraging captive value in their digital assets. We enable merchants to grow their business by attracting these new consumer segments.
 
  
Hyper-personalized offers
. We are developing our capability to deepen merchants’ understanding of what consumers want, which will help them offer tailored promotions and offers and improve their marketing efficiency, all while taking significant steps to protect consumer privacy.
 
  
Easy integration
. Our direct API, designed for use by developers, allows for integration with retailer websites with minimal investment. The merchant settles in fiat currency while our platform enables the digital asset conversion and transfer.
 
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Digital Asset Marketplace
Our digital asset marketplace is designed and engineered to support both institutions and consumers and businesses. Our approach is predicated on security, regulatory compliance, and transparency; the absence of one or more of those features in other offerings has contributed to the relative slowness of institutional investors to embrace cryptocurrency investing. We believe our emphasis on these features will help drive institutional acceptance and adoption. Further, we believe that the increasing normalization of cryptocurrency investing among institutions should enable increased consumer acceptance of and interest in cryptocurrency, further enhancing the ability to capture and monetize consumer relationships.
Benefits for institutions and consumers and businesses include:
 
  
Standalone custody
. The Bakkt Warehouse offers institutional-grade, standalone bitcoin custody to institutions and certain high net worth individuals seeking secure bitcoin storage. It also supports the consumer app with respect to bitcoin functionality within the consumer app. We are extending this capability into other cryptocurrencies that, once added, will be the foundation upon which subsequent product offerings will be delivered.
 
  
Regulated futures and options
. Through our partnership with ICE, we facilitate the offer of a monthly bitcoin futures contract for which the Bakkt Warehouse provides custody services, IFUS provides trading services and ICUS provides clearing services. This physically-delivered futures contract
is end-to-end regulated
and offers unmatched price discovery and transparency. Our partnership with ICE also facilitates the offer of bitcoin options contracts based on the physically-delivered futures contracts, as well as a cash-settled bitcoin futures contract traded and cleared by ICE Singapore in connection with the Singapore Triparty Agreement.
 
  
Institutional-grade pricing execution engine
. Our pricing execution engine supports institutional-grade bitcoin trading for consumers. By managing the bitcoin in a closed-loop between us and the consumer directly, risk normally associated with deposit and withdrawal and the lethargic throughput of the blockchain is substantially reduced. This approach affords the consumer greater flexibility to spend, send and trade these assets within our ecosystem.
Consumer App
Our platform capabilities can be customized to meet the needs of partners. For instance, partners that desire to leverage all of our platform capabilities around buying and selling of digital assets, redemption and payment in a seamless customer experience can leverage our app, which we released for general launch in late March 2021.
 
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The benefits of the app for consumers include:
 
  
Personal, intuitive consumer experience
. Our
simple, end-to-end consumer
experience makes it easy for consumers to aggregate and manage all of their supported digital assets in one place.
 
  
Seamlessly transact across asset classes
. Consumers can quickly and simply aggregate, buy, sell, convert, spend and send digital assets.
 
  
Enabling the use of digital assets for everyday spending
. Consumers can use digital assets as a funding source for purchases, allowing them instant access to additional funds. In addition to our alternative payment method, our virtual debit card that launched in June 2021 enables this functionality broadly across retailers.
 
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Ability to send and receive digital assets
. Consumers can easily send their digital assets to, and receive digital assets from, other consumers in the app.
 
  
Increased value in loyalty
. Consumers enjoy access to exclusive deals from merchants in the app, without having to register or remember any coupons, codes or vouchers.
Strong Network Effects
We benefit from self-reinforcing network effects, meaning that the value of our network will increase exponentially as new businesses and digital assets are added to the network. Examples of this effect are:
 
  
As loyalty partners seek new ways to deepen consumer relationships, we believe that they will choose our platform
and co-market our
platform to their consumers.
 
  
The more options there are in our digital asset marketplace, the more liquidity opportunities consumers will have, and the more reasons they will have to engage with our platform.
 
  
The larger our platform user base becomes, the more instant liquidity will be available, and the more attractive our platform and payment method will become for merchants.
 
  
The more merchants there are on our platform, the more opportunities consumers will have to transact on our platform.
As consumers transact and the network grows, more revenue will be generated. More opportunities to generate targeted hyper-personalized rewards drive will further consumer engagement with our platform.
 
Go To Market Approach
Our go to market plans address opportunities with institutions, consumers, and businesses. As we see growth in these areas, we will leverage our relationships to
utilize co-marketing as
the primary channel for consumer acquisition and engagement.
Our institutional client model involves direct engagement with institutions and is predicated on building products and supporting assets that are unique and appeal to the sector. Our institutional custody and trading plan
 
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is to add additional cryptocurrencies and additional futures contracts and evaluate other products, including but not limited to an ETF and lending. We believe executing on this plan will also make our consumer offering more attractive to a wider audience, increasing platform user engagement as users view our platform as an opportunity for value creation resulting in additional liquidity.
We continue to expand our loyalty redemption platform offering within existing enterprise and consumer clients and into new strategic opportunities. For example, while the spend in travel has been depressed by
the COVID-19 pandemic,
we gained market share by expanding our travel redemption business with two of the top five North American financial institutions ahead of the predicted rebound in late 2021 and 2022. Doing so has created two new strategic clients whose loyalty assets and consumer reach far outweigh the travel redemption revenue opportunity. We will continue to sell our loyalty redemption solutions to strategic targets to solve their loyalty liability issues and open up opportunities to partner with us on our platform user acquisition, engagement and digital asset strategy.
Our consumer acquisition strategy has two main
efforts: co-marketing with
businesses and other strategic partners and direct to consumer
marketing. Co-marketing with
strategic partners is the focus of our go to market plan for increasing platform users. We will continue to seek and
secure co-marketing opportunities
with premier brands with whom we partner on payments (merchants) and/or loyalty conversion (loyalty partners). Direct to consumer marketing represents a fraction of our expected user acquisition forecast and is supported by targeted advertising, user referral programs, blog posts and organic acquisition.
We have established
a co-marketing relationship
with Starbucks, to whom we provide our alternative payment method. We are engaged in
a co-marketing effort
to encourage Starbucks’ U.S. domestic users to sign up for our consumer app. We also have entered into
a co-marketing relationship
with Choice Hotels to provide incentives for their users to sign up for our consumer app to register their Choice Privileges points within the app and convert points into other supported assets.
We are actively pursuing
additional co-marketing opportunities
across a broad range of market segments, with a targeted approach to generate user acquisition, payment flow and bring large digital asset brands into our ecosystem. We believe
these co-marketing efforts
will generate network effects reinforcing our direct to consumer and organic growth efforts.
Technology
Our infrastructure allows consumers to redeem and convert, spend and pay, send and trade digital assets. This is enabled by our core platforms and infrastructure which provide loyalty integrations, virtual bank/credit cards, travel redemption, “know your customer” (“
KYC
”), anti-money laundering (“
AML
”), anti-fraud, digital asset exchange, and buy/sell trading. Our technology supports all components of our platform: a digital asset marketplace, a loyalty redemption service, an alternative payment method, and our consumer app.
Loyalty Redemption Service
Our loyalty redemption service is provided as software as a service (“
SaaS
”) and powers rewards redemptions for leading loyalty programs. The SaaS storefronts that enable shopping with rewards for merchandise, travel, gift cards, event tickets and branded electronics products all are highly configurable. The service is built upon highly scalable proprietary technology and supports integrations with over 75 suppliers that curate and present over five million catalog items.
The white-labeled loyalty redemption platform is delivered as a mobile-first, responsive web app, and can stand alone or be integrated into partners’ apps or sites. The platform is built for scale and can handle hundreds of thousands of transactions in a day.
 
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Proprietary Payments Platform
Our proprietary payments platform is
a two-sided, fully
integrated, cloud-based scalable payments platform. Transactions processed on this payments platform originate from direct integration with loyalty partners, our loyalty redemption service, or our proprietary cryptocurrency trading platform.
It is deployed using managed container services and managed databases in the cloud to scale on demand. With its cloud-first approach and containerization, our platform can scale horizontally to meet the demands of the business or grow elastically to serve peak traffic. The platform contains
an in-house risk
and compliance engine as well as third-party tools to manage rules and regulations related to KYC, AML and fraud monitoring.
Our payment APIs conform to industry standards and are used by merchants to accept our alternative payment method
either in-app, in-store or
online. We provide management portals for our merchants and our internal support staff. Merchants can use the management portal to administer all aspects of our payment method, including risk, fraud and settlement processing.
Digital Asset Marketplace
Our digital asset marketplace is an institutional-grade cryptocurrency custody and trading platform. It is primarily comprised of our custody platform, the Bakkt Warehouse, and our pricing execution engine.
The custody platform is purpose-built from the ground up to safeguard digital assets. Multi-signature wallet policies, hardware security modules and offline storage of private key material, blockchain surveillance and bank-style AML / KYC compliance all are integrated into the core of our platform. The Bakkt Warehouse is integrated with ICE’s futures exchange for ease of trading, clearing, and delivery. The custody platform is hosted in geographically dispersed data centers owned by ICE.
Our pricing execution engine is an automated trading system that facilitates the purchase and sale of cryptocurrencies by consumers. The pricing execution engine is built to maximize availability of funds and mitigate risk, such as pricing discrepancies, short term volatility and market liquidity, both for us and our consumers, using proprietary risk algorithms and external market data. The pricing execution engine is deployed using the cloud to scale on demand.
Consumer App
Our consumer app is a digital wallet, an alternative payment method, and an asset conversion service for digital assets. Our app is delivered as a native iOS and Android app and provides a simple, personal intuitive customer experience that takes advantage of the unique features of each operating system.
Our Competitive Strengths
We believe that our business model will provide us several competitive advantages, including:
Liquidity for Captive Digital Assets
. We believe our platform is unique in the digital asset space, enabling the aggregation of a broad range of digital assets, enhancing consumer spending power by creating liquidity for captive digital assets, and adding value for all key stakeholders within the payments and digital assets ecosystem.
Powerful Partnerships and Integrations
. We have deep relationships with, and connections into, a significant portion of the premier loyalty partners in North America. We believe these connections will provide self- reinforcing network effects such as loyalty
partners co-marketing our
platform to their customers to deepen customer loyalty, increased merchant participation to attract loyalty customers and other consumers, and increased consumer participation to take advantage of increased liquidity opportunities.
Digital Asset-Native Architecture
. Our platform architecture is engineered to natively support digital assets across a wide range of classes, with scalability and strong regulatory and compliance controls, providing
 
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competitive differentiation. Rather than being a legacy payment technology trying to support new assets, our platform meets all of the regulatory requirements to accumulate digital assets in a secure environment.
Diversified Revenue Streams
. We believe that further growth of our diversified revenue streams should provide a path to positive cash flow with no additional capital required post-financing. Across our platform, we have multiple opportunities to generate and grow revenue through a diverse set of fees and charges, including but not limited to merchant discount rates, transaction fees, subscription fees and a margin we add to the price at which a consumer buys or sells cryptoassets to cover risks such as pricing discrepancies, short term volatility and market liquidity.
Trusted Platform
. Our approach, which prioritizes technology, privacy, security and compliance, is informed by our team’s decades of collective experience. We believe these pillars, when applied to the rapidly evolving digital asset space, provide confidence to consumers, merchants, institutions and loyalty partners that participate in our ecosystem.
Our Growth Strategies
We believe we are well positioned for future growth by leveraging our operational infrastructure, expertise and institutional and consumer approach and that our platform, partners and products will result in repeat use from our consumers. Our growth strategies include the following:
Increasing the Breadth and Depth of Digital Assets Supported
. We plan to add more and varied digital assets to our platform. This includes additional loyalty points,
cryptocurrencies, in-game assets,
and securities such as equities, derivatives ETFs and other institutionally-focused products.
Adding
 Co-Branded
 Partnerships
. We plan to
establish co-branded partnerships
with leading payment ecosystem participants. We believe that these solutions will broaden the reach of our platform, generate revenue, and generate additional consumers at a favorable cost of customer acquisition. In addition, we believe these partnerships could provide the opportunity for us to become the market platform for digital asset aggregation and liquidity.
Adding Additional Cryptocurrency-Based Products
. We believe our institutional-grade cryptocurrency custody solution provides an attractive foundation for the expansion of new products and services for retail and institutional investors, for example, cryptolending services and cryptoasset collateralization. By increasing the acceptance of cryptocurrency investing in the institutional space, we believe that these additional products can thereby further interest in cryptocurrency generally among consumers, benefiting our platform.
Increasing Merchant Participation
. We plan to increase merchant participation by enhancing existing service offerings to help merchants grow their businesses and improve margins. These offerings may leverage direct merchant payments, aggregated and de-identified consumer analytics, curated rewards and offers, and other services as warranted and appropriate for the expanded digital assets available within our platform.
Expanding Internationally
. We expect to expand our platform into new markets. While the exact sequence and identity of additional markets are yet to be determined, we presently anticipate expanding next into Australia, Canada, and the United Kingdom. Ultimately, the decision as to where to expand will be driven by client and consumer demand and the regulatory environment in those markets.
Supporting NFT Development
.
 Our core platform can support and promote NFT markets as they grow and develop across custody, liquidity, and asset management. We can deliver a secure, transparent, and scalable model for all NFT participants, including artists/creators, retailers, consumers, investors, and financial institutions.
Forming Loyalty Coalitions
.
 As we build a suite of integrated loyalty partners and a large active consumer population, we can create deeper partnerships across merchants with Bakkt at the center of these loyalty
 
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“coalitions.” As loyalty programs seek new ways to leverage customer data and behaviors to deliver value, our broad reach and access to multiple areas of consumer behaviors will allow for deeper loyalty program engagement.
Powering Central Bank Digital Currencies
. Governments around the world are actively exploring central bank digital currencies (“
CBDCs
”). Given our strategic relationship with ICE, and that ICE Clear Credit LLC has been designated as a “systemically important financial market utility” by the U.S. Financial Stability Oversight Council, we are uniquely positioned to support the creation of CBDCs. Our platform provides the capability to aid in the design, development, and operation of CBDCs for the U.S. and other countries, positioning us as a key potential partner in the development of disruptive new payment systems.
Competition
The loyalty, rewards, payment and investment industries are highly competitive, rapidly changing and highly innovative.
Although we do not believe that we have any single direct competitor for the full range of products we will provide through our platform, we compete or, upon introduction of certain services, will compete at multiple levels, including competition with other: (i) cryptoasset
exchanges; (ii) peer-to-peer payment
systems; (iii) loyalty programs’ redemption solutions; (iv) alternative payment method
platforms; (v) app-based platforms
for the services we provide; and (vi) equity securities trading apps.
We compete primarily on the basis of the following:
 
  
ability to attract, retain, and engage loyalty partners, institutions, merchants and consumers on our platform;
 
  
ability to demonstrate to loyalty partners and merchants that they may achieve incremental sales by using and offering our services to consumers;
 
  
the strength of our integrated solution over other potential coalitions of disparate point solutions;
 
  
consumer confidence in the safety, security, privacy and control of their information on our platform;
 
  
ability to develop products and services across multiple commerce channels, including mobile payments, payments at the retail point of sale, cryptoassets, and loyalty/rewards points; and
 
  
system reliability, regulatory compliance and data security.
In addition to the discussion in this section, see “
Risk Factors—Risks Related to Business, Finances and Operations—Bakkt faces substantial and increasingly intense competition worldwide in the loyalty, rewards, payment and investment industries
” for further discussion of the potential impact of competition on our business.
Cybersecurity
Each of our products is designed, deployed and managed through controls designed to protect our consumers’ sensitive personally identifiable information (“
PII
”) or other data we store or manage in line with industry best practices. We maintain a comprehensive cyber security program, managed by a dedicated team of security professionals, leveraging multiple layers of defenses to protect consumer data and digital assets, including cryptocurrency that we keep in custody. For example, we operate a combination of physical, technical, and administrative controls, such as the use of biometrics, hardware security modules, Shamir’s secret sharing (a process of breaking up an encryption key into parts managed by different resources who must come together and share the shards for the key to work), 24x7 monitoring, armed guards, strict separation of duties and other controls to protect and restrict the movement of cryptoassets to and from the Bakkt Warehouse. Additionally, we regularly utilize outside consultants, independent penetration testing firms and external auditors to provide added
 
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assurance that our products are appropriately secured and resilient against modern cyber threats. We currently maintain active AICPA SOC 2 Type 2 certifications for our consumer app as well as our loyalty platform, and maintain active Payment Card Industry Data Security Standard (“
PCI-DSS
”) certificates of compliance for the portions of our infrastructure where cardholder data is stored or processed. Finally, because we also access, store, collect, use, transmit, or may otherwise process certain types of data, including PII, we are subject to specific federal and state privacy and information security laws, rules, and regulations that govern how we and others must provide sufficient data privacy and data protection to consumer data. Accordingly, we maintain a privacy program designed to effectively respond to consumer data subject requests, or regulatory requests, in accordance with applicable laws or regulations, including the CCPA.
Intellectual Property
The protection of our intellectual property and all corresponding rights throughout the world, including our trademarks, service marks, trade dress, logos, trade names, domain names, goodwill, patents, copyrights, works of authorship (whether or not copyrightable), software and trade
secrets, know-how, and
proprietary and other confidential information, together with all applications, registrations, renewals, extensions, improvements and counterparts in connection with any of the foregoing, is important to the success of our business. We seek to protect our intellectual property rights by filing applications in various patent, trademark and other government offices, and relying on applicable laws and regulations in the U.S. and internationally, as well as a variety of administrative procedures. We have sought to register our core brands as domain names and as trademarks and service marks in the U.S. and a large number of other jurisdictions. We also have in place an active program to continue to secure, police and enforce trademarks, service marks, trade dress, logos, trade names, and domain names that correspond to our brands in markets of interest. We have filed patent applications in the U.S. and plan to extend them into international jurisdictions covering certain aspects of our proprietary technology and new innovations. We also rely on contractual restrictions to protect our proprietary rights where appropriate when offering or procuring products and services. We have routinely entered into confidentiality and invention disclosure and assignment agreements with our employees and contractors,
and non-disclosure agreements
with external parties with whom we conduct business to control access to, and use and disclosure of, our proprietary information.
For additional information regarding some of the risks relating to our intellectual property, including costs of protecting our intellectual property, see the section titled “
Risk Factors
” in this prospectus.
Regulation
Federal and state laws and regulations apply to many key aspects of our business. Any actual or perceived failure to comply with these requirements may result in, among other things, revocation of required licenses or registrations, loss of approved status, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, private litigation, reputational harm, or constraints on our ability to continue to operate. It is also possible that current or future laws or regulations could be enacted, interpreted or applied in a manner that would prohibit, alter, or impair our existing or planned products and services, or that could require costly, time-consuming, or otherwise burdensome compliance measures.
Regulation of Our Payments Business
Bakkt Marketplace, our subsidiary, maintains a money transmitter license in each jurisdiction in which we operate that requires such a license for our activities, or we have otherwise established with the applicable licensing body that a money transmitter license is not required at this time. We will comply with new license requirements as they arise. Bakkt Marketplace is also registered as a “Money Services Business” with FinCEN. These licenses and registrations subject us to, among other things, record-keeping requirements, reporting requirements, bonding requirements, limitations on the investment of customer funds, and examination by state and federal regulatory agencies.
 
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Regulation of Our Virtual Currency Business
We provide cryptocurrency custody services through Bakkt Trust, a limited purpose trust company that is chartered under the New York Banking Law and subject to the supervision and oversight of the NYSDFS. Consequently, we must comply with laws, rules and regulations promulgated pursuant to the New York Banking Law with respect to the cryptocurrency custody we provide through Bakkt Trust, including those related to capitalization, corporate governance, anti-money laundering, disclosure, reporting and examination, as well as supervisory guidance and requirements. Bakkt Trust is also registered with FinCEN as a financial institution.
We are subject in certain jurisdictions to licensing and regulatory requirements as a result of offering our consumers the ability to aggregate, buy, sell, convert, spend and send virtual currency through our consumer app. Consequently, we must comply with laws, rules and regulations promulgated by federal or state regulators in those jurisdictions in order to provide our services, including requirements related to capitalization, consumer protection, anti-money laundering, disclosure, reporting and examination, as well as supervisory guidance and requirements. Bakkt Marketplace also received a BitLicense from the NYSDFS in the first quarter of 2021. This subjects it to NYSDFS’ oversight with respect to such business activities conducted in New York State and with New York residents.
The laws and regulations applicable to virtual currency and other digital assets are evolving and subject to interpretation and change. For instance, the SEC has indicated that it considers certain cryptocurrencies to possibly constitute securities, but has yet to issue any formal regulation on this point, though the SEC has put forth some guidance on overarching frameworks and relevant factors to consider in this analysis. Therefore, our virtual currency and digital asset services offered through our consumer app or our limited purpose trust company may become subject to regulation by other authorities and / or may subject us to additional requirements.
Privacy and Information Security Regulations
Aspects of our operations or business are subject to privacy and data protection regulation in the United States and elsewhere. Accordingly, we publish our privacy policies and terms of service, which describe our practices concerning the use, transmission, and disclosure of information. As our business continues to expand in the United States and beyond, and as laws and regulations continue to be passed and their interpretations continue to evolve in numerous jurisdictions, additional laws and regulations may become relevant to us. Regulatory authorities around the world are considering numerous legislative and regulatory proposals concerning privacy and data protection. In addition, the interpretation and application of these privacy and data protection laws in the United States and elsewhere are often uncertain and in a state of flux.
Consumer Protection Regulation
The Consumer Financial Protection Bureau and other federal and state regulatory agencies, including the Federal Trade Commission, broadly regulate financial products, enforce consumer protection laws applicable to credit, deposit, and payments, and other similar products, and prohibit unfair and deceptive practices. Such agencies have broad consumer protection mandates, and they promulgate, interpret, and enforce laws, rules and regulations, including with respect to unfair, deceptive, and abusive acts and practices (“
UDAAP
”) that may impact or apply to our business.
For example, under federal and state financial privacy laws and regulations, we must provide notice to consumers of our policies on
sharing non-public information
with third parties, among other requirements. In addition, under the Electronic Fund Transfer Act, we may be required to disclose the terms of our electronic fund transfer services to consumers prior to their use of the service, among other requirements.
Anti-Money Laundering and Counter-Terrorism Regulation
We are subject to AML laws and regulations in the United States, including those of FinCEN, as well as laws designed to prevent the use of the financial systems to facilitate terrorist activities. We have implemented a
 
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comprehensive AML program designed to prevent our payments network and custody services from being used to facilitate money laundering, terrorist financing, and other illicit activity. Our program is also designed to prevent our network and other services from being used to facilitate business in countries, or with persons or entities, included on designated lists promulgated by OFAC and equivalent authorities in other countries. Our AML compliance program is comprised of policies, procedures, reporting protocols, including reporting requirements for suspicious transactions, and internal controls, including the designation of a compliance officer, training for employees, and a regular independent review of the program. It is further designed to address applicable legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.
Indirect Regulatory Requirements
We maintain relationships with certain partners, including banks and other financial institutions in the United States, that are regulated by state, local and federal agencies. Because of these relationships, we may be subject to indirect regulation or examination by these institutions’ regulators. Knowing these indirect regulatory requirements may exist, we seek to account for them in our commercial agreements.
Properties and Employees
As of November 1, 2021, we had a total of 587 employees, all of whom were located in the United States. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good. We also engage temporary employees and consultants as needed to support our operations.
We lease facilities under operating leases in Alpharetta, Georgia, our corporate headquarters, for approximately 50,000 square feet with an expiration date in October 2032, and in Scottsdale, Arizona, our principal customer service center, for approximately 21,000 square feet with an expiration date in April 2023. Additionally, ICE provides us with approximately 800 square feet in its facilities in Sandy Springs, Georgia pursuant to the Transition Services Agreement. We also intend to open an office in New York, New York in 2022 under an operating lease for approximately 9,000 square feet. We do not own any real property.
Legal Proceedings
We are not currently a party to any legal proceedings that would be expected to have a material adverse effect on our business or financial condition. From time to time, we are subject to litigation incidental to our business, as well as other litigation of
a non-material nature
in the ordinary course of business.
 
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information, as of the date of this prospectus, our executive officers and directors:
 
Name
  
Age
   
Position
Gavin Michael
   56   Chief Executive Officer, Class I Director
Adam White
   38   President
Andrew LaBenne
   47   Chief Financial Officer
Marc D’Annunzio
   49   General Counsel and Secretary
Michelle Goldberg
(1)(3)
   52   Class I Director
David C. Clifton
   44   Class II Director
Kristyn Cook
(3)
   46   Class II Director
Gordon Watson
   43   Class II Director
Sean Collins
(1)(2)(3)
   42   Class III Director
Richard Lumb
(1)
   60   Class III Director
Andrew A. Main
(2)
   56   Class III Director
 
(1)
Member of the audit committee
(2)
Member of the compensation committee
(3)
Member of the nominating and corporate governance committee
Executive Officers
Gavin Michael
. Gavin Michael has served as our Chief Executive Officer since the Closing. Mr. Michael served in the same role for Opco from January 2021 until the Closing. Prior to joining Opco, from November 2016 until April 2021, Mr. Michael was the Head of Technology for Citi’s Global Consumer Bank, responsible for the long-term strategic direction, planning and management of Citi’s global technology organization, execution of its cloud architecture, data and services strategies, and driving digitization efforts to accelerate speed to market. Before joining Citi, from April 2013 until November 2016, Mr. Michael was Head of Digital for Consumer & Community Banking at Chase, where he was responsible for all aspects of the digital business, including the Chase Mobile App and Chase Online. Mr. Michael was also previously the Chief Technology Innovation Officer at Accenture, the IT director for Lloyds Banking Group’s retail banking business, and Head of Strategy and Architecture at National Australia Bank. He has also held senior technology roles at IBM and served as a Director of Avanade, Inc. Mr. Michael earned a Ph.D. in Computer Science from Australian National University and a bachelor’s degree from the University of Western Australia.
Adam White
. Adam White has served as our President since the Closing. Mr. White served in the same role for Opco from December 2019 until the Closing. In this role, he is responsible for our operations and strategic direction. Mr. White joined Opco in November 2018 as the Chief Operating Officer. He previously served as Vice President & General Manager of Coinbase. He joined Coinbase in 2013 as the fifth employee, leading business development and strategy and later their payments, trading and institutional products. Prior to Coinbase, Mr. White served as a Captain in the United States Air Force and is a veteran of Iraq and Afghanistan. He has testified before Congress as an expert in the cryptocurrency industry, serves on the Technical Advisory Committee of the Commodity Futures Trading Commission, and has been recognized as one of Fortune’s 40 Under 40 in Finance (2020). Mr. White received his Master of Business Administration from Harvard Business School and his Bachelor of Science in Optical Engineering from the University of California, Davis.
Andrew LaBenne
. Andrew LaBenne has served as our Chief Financial Officer since the Closing. Mr. LaBenne served in the same role for Opco from April 2021 until the Closing. Prior to joining Opco,
 
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Mr. LaBenne worked for Amalgamated Financial Corp., where served as Chief Financial Officer from April 2015 to April 2021, as a Senior Executive Vice President from April 2017 to April 2021, and as an Executive Vice President from April 2015 until April 2017. Prior to joining Amalgamated Financial Corp., he served as Chief Financial Officer of Business Banking for JPMorgan Chase & Co. from August 2013 until April 2015. From 1996 until July 2013, Mr. LaBenne spent 17 years at Capital One Financial in various positions in operations, marketing and finance, including as Chief Financial Officer of Retail Banking and Chief Financial Officer of Commercial Banking. While at Capital One Financial, he played a key role in growing the institution’s banking franchise through acquisitions and organic growth. He holds a bachelor’s degree in engineering from the University of Michigan and an M.B.A. from the University of Virginia.
Marc D’Annunzio
. Marc D’Annunzio has served as our General Counsel and Secretary since the Closing. Prior to this role, Mr. D’Annunzio served as General Counsel and Secretary for Opco from May 2019 until the Closing. Mr. D’Annunzio is responsible for our legal, regulatory, compliance and governance matters. Mr. D’Annunzio joined Opco in May 2019 from Alston & Bird LLP, an international law firm, where he practiced in its Payments group from June 2015 until May 2019. Mr. D’Annunzio has 25 years of experience in the payments and loyalty industries, focusing on M&A transactions, strategic alliances, complex commercial relationships (including
co-branded
and private label card programs, and processing relationships for leading retailers), new product launches, and compliance. Mr. D’Annunzio holds a Juris Doctor and a Bachelor of Arts in Economics and History, each from the University of Michigan.
Non-Employee
Directors
Michelle Goldberg
. Michelle J. Goldberg has been an advisor to SoGal Ventures, a venture capital firm, since May 2017, and has significant technology, investment, retail disruption, finance and digital media expertise. Prior to joining SoGal, Ms. Goldberg was a partner at Ignition, an early stage enterprise software venture capital firm, from 2000 to 2020. Ms. Goldberg is a seasoned technology investor with strategic, financial and governance experience and a focus on consumer-facing, digital media and retail opportunities leveraging data analytics and investing in emerging consumer technologies. Ms. Goldberg has M.A. from Harvard University and a B.A. from Columbia University.
We believe that Ms. Goldberg’s previous public board experience has provided her with the leadership experience and background to serve on our board.
David Clifton
. David C. Clifton served as Interim Chief Executive Officer for Opco from April 2020 to January 2021. While serving in this role, Mr. Clifton was involved in the development of strategy and the assessment of its strategic alternatives, which resulted in the Business Combination. From February 2014 to present, Mr. Clifton also served as Vice President of M&A and Integration at ICE. In this role, Mr. Clifton oversaw the successful completion of numerous strategic transactions, including ICE’s 2013 acquisition of NYSE Euronext, along with other global strategic transactions and initiatives. Mr. Clifton joined ICE in July 2008, serving previously as ICE’s Associate General Counsel, M&A. Mr. Clifton received his Juris Doctor from Mercer University’s Walter F. George School of Law and is a graduate of Davidson College.
We believe that Mr. Clifton’s previous experience both with Opco and at ICE have provided him with the strategic and management background to serve on the Board.
Kristyn Cook
. Kristyn A. Cook has served as the Senior Vice President of Agency and Marketing at State Farm, an insurance agency since January 2019, where she has executive responsibilities for Corporate Agency and Sales, Marketing, Customer Care, Center/Enterprise Shared Services, and Creative Services functions. Prior to becoming the Senior Vice President of Agency and Marketing, Ms. Cook was an Area Vice President for the Southeastern Market Area at State Farm from July 2015 to January 2018, and prior to that, Ms. Cook was Vice President – Agency/ Sales at State Farm from January 2013 to July 2015. Ms. Cook has a B.A. from in Policy Studies from Syracuse University and a master’s degree in Public Administration (MPA) from the Syracuse Maxwell School of Citizenship and Public Affairs.
 
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We believe that Ms. Cook’s roles in leadership have provided her with the experience needed to serve on the Board.
Gordon Watson
. Gordon Watson has been President, Chief Operating Officer and Director of the Company since its inception. Mr. Watson joined Victory Park in 2014 and is currently a Partner. Mr. Watson is a member of Victory Park’s investment committee and helps lead its Fintech investing team. Mr. Watson is the Investment Manager for VIH Specialty Lending Investments PLC (LSE: VSL), a Victory Park managed U.K. publicly listed investment trust focused on opportunities in the Fintech market. Gordon is the
Co-Chief
Executive Officer of VPC Impact Acquisition Holdings II, a special purpose acquisition company, and VPC Impact Acquisition Holdings III, Inc., a special purpose acquisition company. Previously, Mr. Watson was a portfolio manager focused on distressed debt at GLG Partners, a London-based 31 billion multi-strategy hedge fund that concentrates on a diverse range of alternative investments. Mr. Watson joined GLG when it purchased Ore Hill Partners, a credit focused hedge fund where he was a partner. Mr. Watson received a B.A. in political science from Colgate University and an MBA from Columbia University.
We believe that Mr. Watson’s leadership experience, as well as his experience in fintech, have provided him with the financial knowledge and background to serve as a director on the Board.
Sean Collins
. Sean Collins previously served on the board of managers of Opco since December 2018. Mr. Collins has over twenty years of experience investing, advising, operating, and building companies focused on digital transformation. As
co-founder
and Managing Partner at Goldfinch Partners from December 2018 to present, he focuses on investing in enterprise software companies and fintechs. Prior to Goldfinch, from January 2015 until November 2018, Mr. Collins was
Co-Founder
and Chief Investment Officer of BCG Digital Ventures, where he oversaw investments globally into 75+ ventures. Prior to BCG DV, Mr. Collins was SVP of
E-commerce,
Marketing, and Strategy at the Sports Authority where he helped engineer a turnaround that leveraged digital marketing and
e-commerce
to drive revenue growth. Prior to Sports Authority, Mr. Collins was an Associate Partner at McKinsey & Company where he advised Retail, TMT, and Private Equity clients. Mr. Collins holds a Bachelor of Arts from Whitman College in Economics and Music. Mr. Collins also serves on the board of Vesta.
We believe that Mr. Collins’ extensive experience across the financial services industry have provided him with the financial knowledge and background to serve as a director on the Board.
Richard Lumb
. Richard A. Lumb has served as an Industry Partner at Motive Partners, a private equity firm specializing in enterprise financial services, software growth and
buy-out
investments since December 2019. Prior to joining Motive Partners, Mr. Lumb enjoyed a
35-year
tenure at Accenture, from November 1984 until August 2019, where he held the position of Group Chief Executive of Financial Services from December 2010 to August 2019, serving clients in the banking, insurance and capital markets sectors. During his time at Accenture, Mr. Lumb played a leading role in multiple technology company acquisitions and minority investments, including the 2011 acquisition of Duck Creek Technologies. Mr. Lumb earned a B.Sc. in Mechanical Engineering and an M.B.A. from the University of Bradford.
We believe that Mr. Lumb’s extensive experience across the financial services industry has provided him with the financial knowledge and background to serve on the Board.
Andrew Main
. Andrew A. Main has served as the Chief Executive Officer of Ogilvy, an advertising, marketing and public relations agency since July 2020. Prior to joining Ogilvy, Mr. Main was the Global Head of Deloitte Digital, the digital consultancy branch of Deloitte from June 2014 to July 2020, where he oversaw the acquisition of multiple creative agencies to grow the brand. Mr. Main has more than 25 years of consulting experience, and has extensive experience working with businesses to modernize and bring new ideas to market quickly. Mr. Main earned a Master of Arts from the University of Edinburgh in Business, Marketing and Geography.
 
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We believe that Mr. Main’s experience helping brands grow and modernize, and his focus on digital consultancy, have provided him with the experience needed to serve as a director on the Board.
Each of our directors has served as such since the Closing.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Code of Business Conduct and Ethics
Our Board has adopted corporate governance guidelines that address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable. In addition, the Board has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our corporate governance guidelines and our code of business conduct and ethics are posted on the
investors.bakkt.com
under the “Governance Documents” portion of our website. We will post amendments to our code of business conduct and ethics or waivers of our code of business conduct and ethics for directors and officers on the same website.
Board Composition
The Board is divided into three staggered classes of directors. At each annual meeting of our stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring, as follows:
 
  
the Class I directors are Michelle Goldberg and Gavin Michael, whose terms will expire at the annual meeting of stockholders to be held in 2022;
 
  
the Class II directors are David Clifton, Kristyn Cook and Gordon Watson, whose terms will expire at the annual meeting of stockholders to be held in 2023; and
 
  
the Class III directors are Sean Collins, Richard Lumb and Andrew A. Main, whose terms will expire at the annual meeting of stockholders to be held in 2024.
The Certificate of Incorporation
and By-Laws provide
that the Board must consist of one or more members, and the number of directors may be increased or decreased from time to time by a resolution of the Board. Each director’s term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist
of one-third of the
total number of directors. This classification of the Board may have the effect of delaying or preventing changes in control of the Company.
Each our officers serves at the discretion of the Board and will hold office until his or her successor is duly appointed and qualified or until his or her earlier resignation or removal.
Director Independence
The Board has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, the Board has determined that Sean Collins, Kristyn Cook, Michelle Goldberg, Richard Lumb and Andrew A. Main did not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of NYSE. In making these determinations, the Board considered the current and prior relationships that each
non-employee
director has with the Company and all other facts and circumstances the Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each
non-employee
director, and the transactions involving them, if any, described in “
Certain Relationships and Related Party Transactions
.”
 
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Committees of Our Board
The Board has an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of the Board is described below. Members will serve on these committees until their resignation or until as otherwise determined by the Board.
Audit Committee
The audit committee consists of Richard Lumb, Sean Collins and Michelle Goldberg, with Richard Lumb serving as the chair of the committee. Each of the members of the audit committee satisfies the requirements for independence and financial literacy under the applicable rules and regulations of the SEC and rules of the NYSE. We have not made an initial determination as to whether any member qualifies as an “audit committee financial expert,” and there can be no assurance that the Board will make such determination in its Annual Report on Form
10-K
for the fiscal year ending December 31, 2021. However, the members of the audit committee of the Board individually and collectively have vast educational and business financial experience and training and are believed to collectively hold the requisite expertise to perform the committee’s functions. The audit committee is responsible for, among other things:
 
  
selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
 
  
helping to ensure the independence and performance of the independent registered public accounting firm;
 
  
discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and the independent registered public accounting firm, our interim
and year-end financial statements;
 
  
developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
 
  
reviewing our policies on and oversees risk assessment and risk management, including enterprise risk management;
 
  
reviewing related party transactions;
 
  
reviewing the adequacy and effectiveness of internal control policies and procedures and our disclosure controls and procedures; and
 
  
approving or, as
required, pre-approving, all
audit and all
permissible non-audit services, other
than de
minimis non-audit services, to
be performed by the independent registered public accounting firm.
The Board has adopted a written charter for the audit committee which is available on our Investor Relations website available at
investors.bakkt.com
under “Governance Documents.”
Compensation Committee
The compensation committee consists of Sean Collins and Andrew Main, with Sean Collins serving as the chair of the committee. Each of the members of the Board’s compensation committee meet the requirements for independence under the under the applicable rules and regulations of the SEC and rules of the NYSE. The compensation committee is responsible for, among other things:
 
  
reviewing, approving and determining the compensation of our officers and key employees;
 
  
reviewing, approving and determining compensation and benefits, including equity awards, to directors for service on the Board or any committee thereof;
 
  
administering our equity compensation plans;
 
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reviewing, approving and making recommendations to the Board regarding incentive compensation and equity compensation plans; and
 
  
establishing and reviewing general policies relating to compensation and benefits of our employees.
The Board has adopted a written charter for the compensation committee which is available on our Investor Relations website available at
investors.bakkt.com
under “Governance Documents.”
Nominating and Corporate Governance Committee
The nominating and corporate governance committee consists of Michelle Goldberg, Sean Collins and Kristyn Cook, with Michelle Goldberg serving as the chair of the committee. Each of the members of the nominating and corporate governance committee meet the requirements for independence under the applicable rules and regulations of the SEC and rules of the NYSE. The nominating and corporate governance committee is responsible for, among other things:
 
  
identifying, evaluating and selecting, or making recommendations to the Board regarding, nominees for election to the Board and its committees;
 
  
evaluating the performance of the Board and of individual directors;
 
  
considering, and making recommendations to the Board regarding, the composition of the Board and its committees;
 
  
reviewing developments in corporate governance practices;
 
  
evaluating the adequacy of the corporate governance practices and reporting; and
 
  
developing, and making recommendations to the Board regarding, corporate governance guidelines and matters.
The Board has adopted a written charter for the nominating and corporate governance committee which is available on the Company’s website at
investors.bakkt.com
under “Governance Documents.”
Code of Conduct and Ethics
We post our code of conduct and ethics and any amendments to or any waivers from a provision of its code of conduct and ethics on our website at
investors.bakkt.com
under “Governance Documents.” and we also intend to disclose any amendments to or waivers of certain provisions of its code of conduct and ethics on a
Form 8-K.
Compensation Committee Interlocks and Insider Participation
None of our officers currently serves, and in the past year has served, (a) as a member of the compensation committee or the board of directors of another entity, one of whose officers served on our compensation committee, or (b) as a member of the compensation committee of another entity, one of whose officers served on the Board.
 
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EXECUTIVE COMPENSATION
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which generally require compensation disclosure for its principal executive officer and its two other most highly compensated executive officers.
The following sets forth information about the compensation paid to or accrued by Opco’s interim principal executive officer, its two other most highly compensated persons serving as executive officers as of December 31, 2020 (“
fiscal 2020
”), and its former principal executive officer. These executives are referred to as the “
named executive officers
.”
Summary Compensation Table for Fiscal 2020
The following table presents information regarding the compensation earned or received by certain of our executive officers for services rendered during the fiscal year ended December 31, 2020.
 
Name and Principal Position
  
Year
   
Salary
($)
(1)
   
Stock
Awards
($)
(2)
   
Bonus
($)
  
All Other
Compensation
($)
  
Total
($)
 
David C. Clifton
(9)

Former Interim Chief Executive Officer
   2020    —      1,131,000    —     —     1,131,000 
Nicolas Cabrera

Chief Product Officer
   2020    360,833    1,652,670    120,200(3)   93,210(6)   2,226,913 
Matthew Johnson

Chief Technology Officer
   2020    320,833    1,154,520    102,900(4)   18,210(7)   1,596,463 
Michael Blandina
(10)

Former Chief Executive Officer
   2020    208,048    —      250,000(5)   3,101(8)   461,149 
 
(1)
Amounts reflect annual base salary paid for fiscal 2020.
(2)
Amounts represent the grant date fair value of equity-based awards granted in fiscal 2020, calculated in accordance with ASC 718, and do not necessarily correspond to the actual value that may be recognized from the equity-based awards. Assumptions used in the calculation of these amounts are described in Note 9 of Opco’s audited consolidated financial statements included in this prospectus.
(3)
Amount represents a discretionary bonus paid to Mr. Cabrera.
(4)
Amount represents a discretionary bonus paid to Mr. Johnson.
(5)
Amount represents a discretionary bonus paid to Mr. Blandina.
(6)
Amount reflects (1) matching contributions made by Opco to Mr. Cabrera’s 401(k) plan account in the amount of $17,100, (2) imputed income from Opco’s group term life insurance in the amount of $810, (3) telecom allowance in the amount of $300 and (4) relocation expenses of $75,000.
(7)
Amount reflects (1) matching contributions made by Opco to Mr. Johnson’s 401(k) plan account in the amount of $17,100, (2) imputed income from Opco’s group term life insurance in the amount of $810 and (3) telecom allowance in the amount of $300.
(8)
Amount reflects (1) matching contributions made by Opco to Mr. Blandina’s 401(k) plan account in the amount of $2,800, (2) imputed income from Opco’s group term life insurance in the amount of $871 and (3) telecom allowance in the amount of $150.
(9)
Mr. Clifton ceased being Opco’s interim Chief Executive Officer on January 11, 2021, when Gavin Michael became our Chief Executive Officer. Mr. Clifton received no other compensation for his services as Opco’s interim Chief Executive Officer other than profits interests in the form of 975,000 preferred incentive units.
(10)
Mr. Blandina ceased being Opco’s Chief Executive Officer in May 2020.
 
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Narrative Disclosure to Summary Compensation Table
Elements of Compensation
Base Salary
Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team, when considered in combination with the other components of our executive compensation program. The relative levels of base salary for our named executive officers are designed to reflect each named executive officer’s scope of responsibility and accountability.
Annual Bonus
We provide annual bonuses to our executive officers, including the named executive officers, based on performance for the completed fiscal year on a discretionary basis. We do not currently maintain any company-wide annual cash bonus plan or program. At the end of each fiscal year, the Board reviews and assesses our performance and each individual executive officer and determines an appropriate amount of discretionary bonus to be paid to its executive officers. For certain executive officers who have target bonuses, including Messrs. Cabrera and Johnson, any discretionary bonus would be made within the target bonus. Messrs. Cabrera and Johnson’s previous discretionary bonuses, awarded by Opco pursuant to a compensation plan similar to that which we have adopted, provided in the “
Summary Compensation Table
.”
Equity-based Compensation
Opco granted equity awards in the form of Opco Incentive Units and contractual rights to participate in the value of Opco through the cash payment, upon the occurrence of a participation unit payment event, to a participant in an amount equal to the excess, if any, of the then fair market value of an Opco Common Unit over the fair market value of an Opco Common Unit as of the grant date. (“
Opco Participation Units
”) to its employees, including the named executive officers, as the long-term incentive component of Opco’s compensation program. Opco’s equity-based compensation program allowed Opco’s employees to be eligible for additional compensation for the increase in value of Opco in the event of a liquidity event. Opco’s incentive and participation units were granted to newly hired employees and generally vested as to 100% of the award upon a liquidity event, as to
one-third
of the award upon an initial public offering, with the remaining
two-thirds
vesting in two equal installments on each of the first and second anniversaries of the IPO, and as to an amount determined by the award’s performance conditions in the event of a put or call option of investors, a sale of an investor’s units to a third party, or certain additional equity issuances by Opco. Following the Business Combination, we treated the incentive and participation units as if an initial public offering has occurred under the Opco Plan, except that with respect to Opco Incentive Units granted in December 2020, participants had the opportunity, but not the obligation, to require Opco, through the management of Opco, to redeem, effective as of immediately prior to the effective time of the Merger, 40% of the first
one-third
of their Opco Incentive Units scheduled to vest at the effective time of the Merger for the receipt, as of the Closing, of a cash payment for the portion of Opco Incentive Units redeemed. Pursuant to the Merger Agreement, no new awards will be granted under the Opco Plan, and future equity-based awards will be made under the Equity Incentive Plan.
Employment Arrangements with the Named Executive Officers of Opco
Each of our named executive officers (except for Mr. Clifton) is a party to a written employment arrangement. The material terms of each of those arrangements are summarized below. For a description of the compensation actually paid to the named executive officers for fiscal 2020, please refer to the “
Summary Compensation Table
” under “
Executive Compensation.
 
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David C. Clifton
Mr. Clifton did not have a written arrangement with Opco or ICE regarding his services to Opco as interim CEO. Mr. Clifton commenced his services in this role in April 2020 and received no additional compensation from ICE for such services. In recognition of Mr. Clifton’s services to Opco in fiscal year 2020, Opco granted profits interests in the form of 975,000 preferred incentive units on December 4, 2020 subject to the Opco Plan (as described below).
Nicolas Cabrera
Mr. Cabrera and ICE entered into an offer letter on June 3, 2019, subsequently amended by a letter of modification of offer letter with Opco dated July 27, 2020 (together, the “
Cabrera Offer Letter
”). The Cabrera Offer Letter provides Mr. Cabrera an annual base salary, signing bonus, an annual performance-based discretionary cash bonus with a target of 50% of his annual base salary, a grant of Opco Incentive Units under the Opco Plan, relocation bonuses, employee benefit plan eligibility and paid time off in accordance with Opco’s policies. Upon a termination without cause on or prior to December 31, 2021, Mr. Cabrera will be eligible for a lump sum severance payment of his annual base salary of $370,000 and additional amount attributable to
12-months
of COBRA costs, subject to an effective release of claims in favor of the Company or Opco. Mr. Cabrera was also party to a Terms of Employment agreement with the Company that contains assignment of inventions, proprietary information, confidentiality, and
non-solicit
and
non-compete
covenants.
Matthew Johnson
Mr. Johnson and ICE entered into an offer letter on April 12, 2019 (the “
Johnson Offer Letter
”). The Johnson Offer Letter provides Mr. Johnson an annual base salary, an annual performance-based discretionary cash bonus with a target of 35% of his annual base salary, a grant of Opco Incentive Units under the Opco Plan, employee benefit plan eligibility and paid time off in accordance with Opco’s policies. Mr. Johnson was party to a Terms of Employment agreement with Opco that contains assignment of inventions, proprietary information, confidentiality, and
non-solicit
and
non-compete
covenants.
Michael Blandina
Mr. Blandina and ICE entered into an offer letter dated March 19, 2019 (the “
Blandina Offer Letter
”). The Blandina Offer Letter provides Mr. Blandina an annual base salary, a grant of preferred incentive units under the Opco Plan, a signing bonus, relocation bonus, a retention bonus payable after one year, employee benefit plan eligibility and paid time off in accordance with Opco’s policies.
Outstanding Equity Awards at Fiscal Year End
Opco maintained a profits interests plan, the Opco Plan, for the award of Opco Incentive Units, through Opco Management, to participants, and Opco Participation Units, directly to participants. Awards of Opco Incentive Units included awards of common incentive units and preferred incentive units, each intended to represent a “profits interests” for U.S. tax purposes and each corresponded to incentive units of Opco Management issued by Opco Management to participants. The purpose of the Opco Plan was to promote the interests of Opco by attracting and retaining key employees, directors, independent contractors or other service providers of Opco and to enable such individuals to acquire an equity interest in and participate in the long-term growth and financial success of Opco.
The profits interests represented a membership interest in Opco and entitled the holder to receive distributions in Opco once a specified threshold equity value of Opco had been reached, in each case as provided in the Opco operating agreement. The preferred incentive units are also entitled to disproportionate distributions once the participant’s applicable threshold equity value has been reduced to zero in order to
“catch-up”
such participant’s total distributions to its
pro rata
share.
 
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The following table summarizes the number of outstanding equity awards held by each of Opco’s named executive officers in the form of profits interests as of December 31, 2020, each granted pursuant to the Opco Plan. The named executive officers do not hold any outstanding equity awards other than the profits interests.
 
Name
  
Number of
profits
interests
units that
have
vested (#)
   
Market
value of
profits
interests
units that
have
vested ($)
   
Number of
profits
interests
units that
have
not vested
(#)
(5)
   
Market value of
profits interests
units that have
not vested ($)
(6)
 
David C. Clifton
(1)
   0    0    975,000    1,131,000 
Nicolas Cabrera
(2)
   0    0    3,099,000    2,975,040 
Matthew Johnson
(3)
   0    0    2,544,000    2,442,240 
Michael Blandina
(4)
   0    0    0    0 
 
(1)
Mr. Clifton was granted 975,000 profits interests in the form of preferred incentive units on December 4, 2020,
one-third
of which vested at Closing, and
one-third
of which will vest on each of the first and second anniversaries of the Closing.
(2)
Mr. Cabrera was granted (1) 2,099,000 profits interests in the form of common incentive units on February 28, 2020 and (2) 1,000,000 profits interests in the form of common incentive units on December 4, 2020
one-third
of which vested at Closing, and
one-third
of which will vest on each of the first and second anniversaries of the Closing.
(3)
Mr. Johnson was granted (1) 2,044,000 profits interests in the form of common incentive units on February 28, 2020 and (2) 500,000 profits interests in the form of common incentive units on December 4, 2020,
one-third
of which vested at Closing, and
one-third
of which will vest on each of the first and second anniversaries of the Closing..
(4)
Mr. Blandina was granted 9,000,000 profits interests in the form of preferred incentive units on May 17, 2019, all of which were forfeited by Mr. Blandina upon his voluntary resignation of employment.
(5)
At Closing, each profits interest was exchanged for the right to receive a Paired Interest. With respect to the profits interests granted to Messrs. Clifton, Cabrera and Johnson on December 4, 2020, each of Messrs. Clifton, Cabrera and Johnson also had the opportunity, but not the obligation, to require Opco, through its management, to redeem, effective as of immediately prior to the effective time of the Merger, 40% of the first
one-third
of his Opco Incentive Units scheduled to vest at the effective time of the Merger for the receipt of a cash payment.
(6)
Represents the market value of the profits interests units based on the $1.16 per unit value of Legacy Opco’s preferred incentive units (which were granted to Mr. Clifton) and $0.96 per unit value of Opco ’s common incentive units (which were granted to Messrs. Cabrera and Johnson) determined in the most recent valuation of Opco’s membership interests.
Retirement Plans
All employees are eligible to participate in broad-based and comprehensive employee benefit programs, including medical, dental, vision, life and disability insurance and a 401(k) plan with matching contributions. Our named executive officers of are eligible to participate in these plans on the same basis as our other employees and do not participate in executive level programs. We do not sponsor or maintain any deferred compensation or supplemental retirement plans in addition to its 401(k) plan. The 401(k) matching contributions earned by each named executive officer in fiscal 2020 are shown in the “
Summary Compensation Table
” under “
Executive Compensation
.”
Board Compensation
For fiscal year 2020, Opco did not provide any manager compensation to Sean Collins, Akshay Naheta, and Jeffrey C. Sprecher. For fiscal year 2020, each of Thomas E. Noonan and Hon. Sharon Y. Bowen was entitled to
 
126

an annual fee of $30,000 and an additional chair fee of $10,000, and each of Mr. Noonan and Ms. Bowen elected to receive their respective fees in the form of equity. On May 15, 2020, Opco granted to Mr. Noonan profits interests in the form of 121,212 common incentive units of Opco as compensation for his services as a member (and chair) of the board of managers of Opco , and to Ms. Bowen profits interests in the form of 212,121 common incentive units of Opco for her services as a member of the board of managers of Opco and a member (and chair) of the board of managers of Bakkt Trust.
In connection with the Business Combination, we adopted a
non-employee
director compensation program (the “
Outside Director Compensation Program
”) based on recommendations and findings regarding comparable market practices, which were provided by Compensation Advisory Partners. The Outside Director Compensation Program provides for the following cash compensation program for our
non-employee
directors:
 
  
$50,000 per year for service as a
non-employee
director;
 
  
$100,000 per year for service as
non-executive
chair of the Board of Directors;
 
  
$25,000 per year for service as chair of the audit committee;
 
  
$10,000 per year for service as a member of the audit committee;
 
  
$20,000 per year for service as chair of the compensation committee;
 
  
$7,500 per year for service as a member of the compensation committee;
 
  
$12,000 per year for service as chair of the corporate governance and nominating committee; and
 
  
$5,000 per year for service as a member of the corporate governance and nominating committee.
Each
non-employee
director who serves as a committee chair will receive only the cash retainer fee as the chair of the committee but not the cash retainer fee as a member of that committee, except that a
non-employee
director who serves as the
non-executive
chair of the Board will receive the annual cash fee for services provided in such role as well as the annual cash fee as a
non-employee
director. These fees to our
non-employee
directors are paid quarterly in arrears on a prorated basis. Under the Outside Director Compensation Program, we also reimburse
non-employee
directors for reasonable travel expenses to attend meetings of the Board and its committees. The above-listed fees for service as chair or members of committees are payable in addition to the annual
non-employee
director retainer fee.
Each
non-employee
director will automatically receive, on the date of each annual meeting of our stockholders, an annual award (the “
Annual Equity Award
”) of restricted stock units having a value of $200,000. Each Annual Equity Award is expected to be scheduled to vest on the
one-year
anniversary of the grant date, subject to continued services to us through the applicable vesting date. In the event of a change in control of the Company, as defined in the Equity Incentive Plan, each
non-employee
director’s then outstanding equity awards covering the Company’s Class A Common Stock are expected to accelerate vesting in full, provided that he or she remains a
non-employee
director through the date of the consummation of such change in control. With respect to outstanding equity awards that are subject to performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met unless otherwise provided in a separate agreement. Each Annual Equity Award is expected to be granted under the Equity Incentive Plan and form of award agreement under such plan. We may allow
non-employee
directors to elect to receive all or a portion of the annual cash retainer fees in the form of restricted stock units. All compensation payable under the Outside Director Compensation Program is expected to be subject to any limits on the maximum amount of
non-employee
director compensation as set forth in the Equity Incentive Plan.
Executive Compensation Prior to the Business Combination
Prior to the consummation of the Business Combination, none of the officers or directors of the Company received any compensation for services rendered to the Company. Until the consummation of the Business
 
127

Combination, the Company paid an affiliate of the Sponsor a total of $10,000 per month for office space, administrative and support services. Prior to the consummation of the Business Combination, the Sponsor, officers and directors, and their respective affiliates, were reimbursed for any
out-of-pocket
expenses incurred in connection with activities on behalf of the Company, such as identifying potential target businesses and performing due diligence on suitable business combinations. The Company’s audit committee reviewed on a quarterly basis all payments that were made to the Sponsor, officers, directors or the Company’s or their affiliates.
 
128

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of each transaction since January 1, 2018, and each currently proposed transaction, in which:
 
  
we were or are to be, or the Company or Opco was, a participant;
 
  
the amount involved exceeded or exceeds $120,000;
 
  
any of the Company’s or Opco’s directors, executive officers, or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Company Related Person Transactions
In August 2020, the Sponsor purchased 5,750,000 Class B Ordinary Shares for an aggregate purchase price of $25,000, or approximately $0.004 per share. In September 2020, the Sponsor transferred an aggregate of 60,000 Class B Ordinary Shares to then members of the Board, resulting in the Sponsor holding 5,690,000 Class B Ordinary Shares. As a result of the underwriters’ not exercising the over-allotment option in full in connection with the IPO, the Sponsor forfeited 585,700 Class B Ordinary Shares, resulting in an aggregate of 5,184,300 Class B Ordinary Shares issued and outstanding. In connection with the closing of the Business Combination, such Class B Ordinary Shares automatically converted into shares of Class A Common Stock on a
one-for-one
basis.
The Sponsor purchased an aggregate of 6,147,440 Private Placement Warrants, at a price of $1.00 per warrant for an aggregate purchase price of $6,147,440 in a private placement that closed simultaneously with the closing of the IPO. Prior to the Domestication, each Private Placement Warrant entitled the holder upon exercise to purchase one Class A Ordinary Share at a price of $11.50 per share, subject to adjustment. The Private Placement Warrants (including the Class A Ordinary Shares issuable upon exercise of the Private Placement Warrants) cannot, subject to certain limited exceptions, be transferred, assigned or sold by the holders thereof until 30 days after the Closing.
The Company entered into an Administrative Services Agreement with the Sponsor pursuant to which the Company paid a total of $10,000 per month for office space, administrative and support services to such affiliate. The Sponsor, officers and directors of the Company, or any of their respective affiliates, were entitled to reimbursement for
any out-of-pocket expenses
incurred in connection with activities on behalf of the Company, such as identifying potential target businesses and performing due diligence on suitable business combinations. There was no cap or ceiling on the reimbursement
of out-of-pocket expenses
incurred by such persons in connection with activities on behalf of the Company.
The Sponsor loaned the Company $82,729, which was used for a portion of the expenses of the IPO. This loan was repaid upon the closing of the IPO.