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Digital Tokens

6 Months Ended

Jun. 30, 2020

7.	Digital Tokens

Digital tokens consist of XPX tokens received in connection with the ProximaX Agreement and the Props tokens received in connection with the YouNow Agreement. Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

XPX Tokens

Indefinite-lived intangible assets are recorded at cost and are not subject to amortization but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If, at the time of an impairment test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized. Fair value of the digital tokens had been based on the quoted market prices for the XPX tokens.

During the six months ended June 30, 2020, the Company sold 27,881,674 digital tokens for proceeds of $31,356. The recorded loss of approximately $23,800 is included under other income (expense), net in the condensed consolidated statements of income.

Props Tokens Receivable

To calculate the fair value of the Props tokens received and receivable pursuant to the YouNow Agreement, the Company used the backsolve method, which utilizes the option pricing method to calculate the implied value of the Props tokens based on the recent transaction price. The backsolve method takes into account the strike price of the token warrant agreement and then determines the allocated value of the tokens as though it were a basket purchase.

The implied fair value of the Props tokens represents a marketable basis of value. As the Props tokens do not currently have access to a liquid marketplace, a discount for lack of marketability was applied to the implied fair value using a protective put calculation. A summary of the key inputs used in the backsolve model are summarized as follows:

Maturity (time until an exit or liquidity)	1 year
Volatility		197.0	%
Risk free rate of return		0.16	%

The basic logic of the protective put approach is supported by the notion that the holder of a nonmarketable security can effectively purchase liquidity by purchasing a put option on the security. Therefore, the non-marketable value of a security is its value on a marketable basis, less the value of the hypothetical put option. The put option calculation relies on the Black-Scholes option pricing model, which utilizes volatility from comparable utility tokens, an estimated time to maturity (or liquidity), and the risk-free rate commensurate with that maturity.

The Props tokens received and receivable from YouNow are intangible assets that are accounted for at cost, less impairment charges. According to the guidance the holder cannot only compare the carrying value to fair value at the reporting period, but instead must assess impairment daily. As a result, the Company will use the amount equal the lowest price during the period in which the Props tokens are held as the carrying amount.