PART II
Published on May 2, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended December 31, 2022
Exodus Movement, Inc.
(Exact name of issuer as specified in its charter)
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Delaware
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81-3548560
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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15418 Weir St. #333
Omaha, NE 68137
(Full mailing address of principal executive offices)
(833) 992-2566
(Issuer’s telephone number, including area code)
Class A Common Stock
(Title of each class of securities issued pursuant to Regulation A)
Explanatory Note
This Amendment No. 1 on Form 1-K/A (this “Form 1-K/A”) amends and restates the item noted below in the Annual Report on Form 1-K of Exodus Movement, Inc. (the “Company”) for the fiscal year ended
December 31, 2022, as originally filed with the Securities and Exchange Commission on May 1, 2023 (the “Original Filing”). This Form 1‑K/A amends the Original Filing to reflect the correction of a typesetting error that resulted in an incorrect
filing of the Independent Auditor’s Report.
For the convenience of the reader, this Form 1-K/A sets forth the Original Filing, as amended, in its entirety; however, this Form 1-K/A amends and restates only the following item that was
impacted from the correction of the error:
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Item 7 – Financial Statements — Independent Auditor’s Report
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Except as described above, no other changes have been made to the Original Filing. This Form 1-K/A speaks as of the date of the Original Filing and does not reflect events that have occurred after
the date of the Original Filing or modify any disclosures affected by subsequent events.
Exodus Movement, Inc. and Subsidiary
For the Years Ended
December 31, 2022 and 2021
Exodus Movement, Inc. and Subsidiary
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ITEM 3:
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ITEM 4:
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ITEM 5:
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ITEM 6:
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ITEM 7:
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ITEM 8:
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Unless the context requires otherwise, in this annual report on Form 1-K, the terms “we,” “us,” “our,” the “Company” and “Exodus” refer to Exodus Movement, Inc., and its wholly owned subsidiary, Proper Trust AG, a Swiss
corporation.
ITEM 1. |
You should read the following discussion and analysis of Exodus’ financial condition and results of operations together with the consolidated financial statements and related notes
that are included elsewhere in this annual report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Exodus’ actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and in other parts of this annual report.
Overview of Our Business
Exodus’ mission is to help the world exit the traditional finance system. Exodus is a self-custodial platform that connects people with the world of
decentralized finance and the power of the blockchain. On December 9, 2015, we launched Exodus to empower users of our wallet (“users”) to securely control, manage, and grow their wealth. Every two weeks since then, we have released new updates and
improved our user experience.
We believe that digital assets should be easy to use and easy to understand. Our platform (the “Exodus Platform”) allows users to store and access their assets
in a secure environment that only they control. On desktop and mobile devices alike, Exodus delivers a simple, elegant, and intuitive experience. By eliminating the geek requirement, Exodus prioritizes ease of use and aims to provide unparalleled
user support.
The Exodus Platform supports over 17,000 digital assets, as well as integrations with multiple digital asset-to-digital asset exchanges and other third-party
applications, such as MoonPay. We are relentlessly focused on delivering the best user experience in the digital asset industry.
Our platform is intended to provide the trustworthiness of a bank’s online portal without service windows and clunky interfaces, and the speed of centralized digital asset exchanges without the risk of third-party
custody – we aim to provide our users with the best of both worlds in Exodus.
Our Industry
We operate in the financial technology (“FinTech”) subsector of the greater blockchain and digital asset industry. This subsector is rapidly developing and has recently seen several high-profile
bankruptcies, which have not directly impacted our operations, but have and may continue to impact our business and financial condition indirectly (see “Risk Factors—Risk
Related to Our Business and Our Industry—Because our business is dependent, in part, on the continued market acceptance and development of digital assets and blockchain technology by consumers, any declines or negative trends affecting digital
assets or blockchain technology may adversely affect our business operations.”). Users of our products range from people or entities familiar with digital assets to those new to financial solutions powered by blockchain technology. The
following are descriptions of key technologies used in our industry.
Blockchain Technology
Blockchain technology utilizes an open, distributed ledger managed by a peer-to-peer network to record transactions between parties linked to the blockchain.
The Bitcoin blockchain, and other blockchains, such as those of Ethereum and Litecoin, can be thought of as public record books of digital asset transactions. These record books are “decentralized” or stored on multiple computers around the world.
For example, the Ethereum Blockchain is a distributed public blockchain network focused on running the programming code of decentralized applications. These
decentralized applications use self-executing contracts, also known as smart contracts, to seamlessly facilitate activities on the Ethereum Blockchain. The smart contracts on the Ethereum Blockchain are powered by Ether, the Ethereum Blockchain’s
native digital asset, which is also traded as a cryptocurrency.
Accessing multiple blockchains and decentralized applications typically requires downloading complicated software specific to each blockchain. Additionally, access to these blockchains requires
complicated configuration decisions that only technically skilled specialists can execute. Further, methods of storing and leveraging digital assets are fragmented across many different platforms and software systems, instead of being neatly
organized in one location or hub. As a result, blockchain technology has a reputation for being difficult to access and use, and the current options for managing digital assets do not provide integrated or seamless solutions.
Digital Assets
Digital assets include assets that are digitally represented on the blockchain such as stock, tokens, NFTs and cryptocurrencies.
Cryptocurrency
A cryptocurrency is a digital asset that exists on a particular blockchain and can be moved from one party to another party on that blockchain. There are different types of cryptocurrencies, as
some cryptocurrencies represent stakes in a particular project, some add functionality to blockchain-based platforms, and some are intended to function like currencies, such as Bitcoin, and do not represent a stake in a particular project or
company. Cryptocurrency is directly held by its owners and is immediately transferable, subject to applicable law.
There are six primary categories of cryptocurrency:
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Store of value cryptocurrencies are primarily used to pay for goods and services and are often considered a substitute for gold, cash, or forms of electronic payment. Merchants have begun
to accept these types of cryptocurrencies as payment, although often the cryptocurrency is converted to a fiat currency, such as the U.S. dollar, immediately upon acceptance by the merchant. Examples of store of value and payment
cryptocurrencies are Bitcoin and Litecoin.
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Cryptocurrencies that comprise part of a blockchain economy or blockchain platform typically have more functionality than a payment currency. Blockchain economies permit the use of the
cryptocurrency to create other digital assets, or tokens, run decentralized applications on the blockchain platform and build various types of functionality and features on the blockchain platform. Examples of cryptocurrencies that are part
of blockchain economies include Ethereum, EOS and TRON.
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Privacy coins are cryptocurrencies created to focus on privacy and security. Privacy coin transaction details are typically encrypted, so that only the sender and receiver of the coins
knows how many coins were involved in the transaction. In addition, the balance of a privacy coin wallet is known only to the owner of the wallet and cannot be viewed on the public blockchain record. An example of a privacy coin is Monero.
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Utility tokens are digital tokens used solely to power or connect to a blockchain-based product or service. These cryptocurrencies run on their blockchain platform but are only used to
“pay for” or “power” products or services on that platform. Examples of utility tokens include Golem and Basic Attention Token.
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Stablecoins are cryptocurrencies whose value is tied to some other asset so that the value of the stablecoin will not greatly fluctuate relative to the underlying asset. Different
stablecoins have adopted different methods of stabilization. Examples of stablecoins are USDC, Tether, and DAI.
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Certain cryptocurrencies allow holders to interact with the cryptocurrency through “staking.” In doing so, the staker takes part in the cryptocurrency’s blockchain consensus mechanism
and receives part of a reward for such participation. Third-party entities monitor staking pools or create their own so as to provide stakers with a controlled, safe environment to stake cryptocurrencies and receive their rewards. An
example of cryptocurrencies that can be staked is Tezos.
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Each cryptocurrency is stored on a particular blockchain. The blockchain used by each cryptocurrency keeps a record of which addresses on that blockchain hold the cryptocurrency and the amount of
cryptocurrency each address holds. A private key is required to access the cryptocurrency held at any single address. Only the person with the private key can access the cryptocurrency at the associated address.
Private and Public Keys
In order to send digital assets from a blockchain address, a private key is required to “unlock” those digital assets. The private key will allow its holder to access and spend the digital assets
located at a particular blockchain address. Anyone who holds a private key can access the digital assets located at that blockchain address. If the holder of the assets loses or gives someone their private key, their assets are at risk. Public keys
identify a particular blockchain address, but do not enable that address to be unlocked. Instead, public keys act like a mailing address, so that a user can send a digital asset to the “address” provided by the public key. If one wants to receive a
digital asset from someone else, one must give the other party one’s blockchain address by giving the other party one’s public key.
Key Management Solutions: Custodial vs. Self-Custodial
The person or entity that holds the private key for a public wallet address controls the asset stored in that wallet. Private key management solutions generally fall into two broad categories:
custodial and self-custodial key management.
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Custodial key management: In this structure, a company or platform generates the private keys for their users’ wallets and the company or platform administers any and all funds sent to
the addresses tied to those private keys rather than the users. Custodial key management solutions become custodians of their users’ funds and in that respect are extremely similar to centralized banks.
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Self-custodial key management: In this solution, a person or entity generates (using software or other means) and secures (often on their own computer or written down on a piece of paper)
their own private keys and the user administers all funds that are sent to the address tied to those private keys. Self-custodial key management solutions are not custodians of funds in their users’ wallet, but are merely repositories for
the funds, similar to the way a physical safety box or leather wallet provides a means for people to secure their own wealth. Users are responsible for securing the digital assets and the associated cryptographic key information and
protecting them from loss, theft, or other misuse.
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While today the majority of people use custodial key management solutions, we believe that custodial key management solutions serve merely as a temporary bridge between traditional institutionalized
financial systems and the financial freedom offered by complete self-custodial control over one’s digital assets.
Blockchain-based Financial Technology
Clunky interfaces, long clearance times for transactions and an inability to control one’s own assets are hallmarks of the traditional banking system. Although the traditional banking system does
offer protection against theft through devices such as Federal Deposit Insurance Corporation (“FDIC”) insurance, banks are always answerable to governments or other powerful actors, who retain the ability to
freeze or take control of a customer’s bank assets. Moreover, even if one considers banking services or similar services such as custodial wallets to be reliable, their interfaces are cumbersome to use and they are still subject to various archaic
restrictions—for example, no services offered during the evening, weekends or on bank holidays. When these institutions are offline, customers may not be able to access customer support, make transfers, trades or payments and must wait for earlier
transactions to clear. As a result, customers must rely on antiquated institutions that operate on limited and often inconvenient schedules, while hoping that these institutions can be trusted to hold a customer’s assets, instead of being able to
manage their own assets on their own schedule.
Self-custodial holding of digital assets offer consumers a payment option that does not rely on the traditional banking system. We believe that, as more people become interested in and begin to hold
digital assets, they will look for new ways to interact with their digital assets. Digital assets have significant advantages over traditional fiat currency, particularly when used on self-custodial platforms. Unlike fiat currency held in
traditional banks, cryptocurrency on self-custodial platforms is designed to be available at all times. A self-custodial system is designed without limited operating hours, restrictions on when markets open and close, or bank holidays. Digital
Assets can also be transferred in real time, as the underlying technology is designed to avoid lengthy settlement periods, and, if transactions complete successfully, digital assets will always end up at the wallet address to which they are sent
with a proof of receipt forever etched in the blockchain, which functions as a public ledger. Most importantly, holders of digital assets control their funds. Users of self-custodial systems do not need to rely on any bank or custodian entity to
provide access to their own assets.
Wallets
Software-based technology allows users to manage their private keys that grant access to their cryptocurrency and other digital assets. This technology is known as a wallet. Wallets do not
actually store digital assets the way one might store a twenty-dollar bill in a physical leather wallet. Rather, the digital assets remain stored at a particular blockchain address on the relevant blockchain, as described above in “—Private and Public Keys,” and wallets allow users to manage the private keys that grant access to the blockchain addresses where their digital assets are stored.
There are two recognized categories of wallets: hot wallets and cold wallets. Hot wallets are connected to the internet in some way. They typically reside on a website, desktop, or inside a
mobile phone, with the holder’s private keys stored digitally. Typing one’s private key into a hot wallet will “unlock” the digital assets stored at the address identified by the private key so the user can then access the digital assets. Cold
wallets are physical devices, not connected to the internet, that store the holder’s private keys. Generally, digital assets stored in hot wallets are more easily accessible; however, access to the internet means that the user must maintain
effective internet security practices to protect their wallet. The downside to using cold wallets is that they are not as easily accessible, and so are typically used only for long-term storage of digital assets.
While there are a variety of wallets available to manage the private keys that govern digital asset holdings, many of them have serious design and functionality issues. Often wallets have clunky and
cumbersome interfaces, better suited to people very familiar with coding and computer processing than to consumers who want a straightforward, easy-to-use interface. In addition, many other wallets do not cover a sufficiently wide variety of
digital assets, thereby requiring customers to maintain different wallets for different digital assets. For wallets that offer services such as the exchanging of one digital asset for another, these services may be clunky and difficult to use.
Finally, and most significantly, wallets are often maintained by centralized exchanges, where the company that controls the technology of the wallet holds onto the private keys, which gives the wallet creator control over the funds that can be
accessed with those private keys.
Geo-Political Risks
In addition, the Company’s business is subject to the risks of catastrophic events, including acts of war or terrorism, strikes or other external events. Any such events or any other geo-political
unrest could cause disruptions in the Company’s business and lead to interruptions, delays, or loss of critical data. Specifically, financial, and digital asset markets may be negatively affected by the conflict between Russia and Ukraine and the
economic sanctions imposed by the United States and other countries. The Company currently has 2 full-time equivalent (“FTE”) and one customer in the affected area that could be directly impacted by the
conflict. Although one of the Company’s API providers is domiciled in Ukraine, there is currently no infrastructure located in Ukraine and none of the API provider’s leadership and development team is located in Ukraine.
Interruptions could have material implications for the Company’s operations and the development of the Exodus Platform or operations and development of applications that run on the Exodus Platform.
Retaliatory acts by Russia in response to Western sanctions may include cyber attacks that could disrupt the economy or that could also either directly or indirectly impact the Company’s operations. Moreover, the ongoing effects of the hostilities
and sanctions may spill over to and have a negative impact on other regional and global markets. It is also likely that the conflict will continue to affect the global political order and regional and global markets for a substantial period of
time, regardless of when the conflict itself ends. It is not currently possible to determine the severity of any potential adverse impact of these events on the financial condition of the Company, or more broadly, upon the global economy, but any
of the foregoing could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
Legal and Regulatory Environment
Various aspects of our business and service areas are subject to U.S. federal, state, and local regulation, as well as regulation outside the United States. For a summary of certain current areas of
government regulation that apply to our business and potential regulatory issues of which we are aware, refer to “Regulatory Environment” in the Risk Factors section of this annual report. We generally believe that our business is compliant with
these regulations, but in certain cases there may be uncertainty related to that conclusion.
Potential Competitive Landscape
We pioneered and are a leader in the market for self-custodial solutions for managing digital assets. We believe that we provide the most comprehensive self-custodial solution, offering mobile and
desktop products, our browser-based Web3 Wallet, the option to connect to a hardware wallet, and a significant range of supported digital assets – all of which allows our users to better experience the world of decentralized finance. Since our
founding, our competition has primarily been custodial solutions, such as the exchanges supported by well-known companies like Coinbase and Binance US. These exchanges tend to have greater name recognition and, as people are familiar with custodial
products due to the traditional banking system, people may believe that custodial products offer more security and ease of use than self-custodial products.
We believe that due to security and technical risks associated with centralized or custodial services, digital assets holders will continue to move towards self-custodial solutions. As Exodus offers a
self-custody wallet, Exodus cannot access users’ funds and therefore Exodus’ users are not at risk of becoming creditors during a bankruptcy. Within the market for self-custodial wallet solutions, there are other companies that actively compete
with us, offering various combinations of the features available on our platform. More recently, the advent of browser extensions for accessing decentralized applications (“dApp”) like Metamask and Phantom
have also become our direct competitors. Despite rapid growth in the browser extension and dApp ecosystem, these competitors are focused on single chain access whereas Exodus remains open to multi-chain, multi-asset experiences for our users
through our Web3 Wallet.
Leading exchanges, which have significant resources and brand power, have created self-custodial wallets; their focus continues to be on centralized digital asset products. However, our market is
relatively new, and our competitors have adapted and may continue to adapt their platforms to incorporate many of our features and design, as well as additional features or solutions.
We believe that the principal competitive factors in our market are:
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platform features, quality, functionality and design;
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product pricing;
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breadth of features offered by a platform;
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quality of user support;
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security and trust;
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brand awareness and reputation;
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ease of adoption and use;
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accessibility of platform on multiple devices;
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user acquisition costs; and
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range of supported digital assets.
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We compare favorably with our competitors on the basis of these factors. We expect demand for self-custodial solutions to continue to rise, based on recent market data. We believe that we are
well-positioned to take advantage of this market opportunity.
Providers
During 2022, five application programming interfaces (“API”) providers generated $43.8 million in revenue, representing in the aggregate approximately 86.6% of
our operating revenue during 2022. Our revenue in 2022 was derived primarily from non-U.S. jurisdictions, with 52.0% attributable to the APAC region, 43.7% attributable to Other Americas, 3.9% attributable to EMEA and 0.4% attributable to the
United States.
During 2021, two API providers generated $72.7 million in revenue, representing in the aggregate approximately 76% of our operating revenue during 2021. Our revenue in 2021 was derived primarily from
non-U.S. jurisdictions, with 91% attributable to the APAC region, 5% attributable to EMEA, 3% attributable to United States, and 1% attributable to Other Americas.
Team Members and Human Capital Resource Management
Our team members are critical to our mission to ignite an exodus from the traditional finance system by empowering people to secure, manage and use their cryptocurrency. Our key human capital
management objectives are to attract, retain and develop the highest quality talent. To achieve these objectives, our human resources programs are designed to prepare our talent for critical roles and leadership positions for the future; reward and
support team members through competitive pay and benefits; enhance our culture through efforts aimed at making the workplace more engaging and inclusive; and acquire talent and facilitate internal talent mobility to create a high-performing and
diverse workforce.
As of December 31, 2022, we had approximately 210 FTE, the majority of whom are engaged in customer support and engineering. Our FTE are paid exclusively in Bitcoin. None of our team members 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 team members to be good. Within our FTEs, approximately 140 team members are located
outside of the U.S. in approximately 50 countries located on six different continents.
Legal and Regulatory Proceedings
From time to time, we are involved in legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of legal proceedings and claims cannot be predicted
with certainty, we believe we are not currently party to any legal proceedings which, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial
condition. We may also pursue litigation to protect our legal rights and additional litigation may be necessary in the future to enforce our intellectual property and our contractual rights, to protect our confidential information or to determine
the validity and scope of the proprietary rights of others.
From time to time, we are also involved in regulatory proceedings that arise in the ordinary course of business.
OFAC Administrative Subpoena
On or around December 7, 2018, we received an administrative subpoena (the “First Subpoena”) issued by OFAC seeking information regarding potential transactions with
individuals in Iran. We engaged in a full review of our systems and processes and responded to the First Subpoena with a letter and set of documents that we considered responsive to the First Subpoena on February 6, 2019, and supplemented the initial response with a second set of responsive documents on May 10, 2019.
While the First Subpoena only requested information in regard to Iran, we conducted a comprehensive review that covered all countries and territories subject to U.S. trade
embargoes administered by OFAC. As a result of this review, we determined that we may have previously inadvertently allowed our software to be downloaded by individuals or entities located in countries or territories subject to U.S. trade embargoes
(i.e., Cuba, Crimea, Iran, Syria, and Sudan (prior to October 12, 2017 when comprehensive sanctions against Sudan were revoked)), and submitted a voluntary self-disclosure regarding these apparent violations to OFAC, as discussed further in “Risk Factors” in this Form 1-K. We submitted our final report of voluntary self-disclosure in July 2019.
The transactions identified in our response to the First Subpoena and the voluntary self-disclosure consisted of free downloads of our un-hosted and non-custodial software
wallet for digital assets and cryptographic assets. The disclosed transactions accounted for approximately 0.7 percent of all such downloads for the relevant time period (December 2015 through December 2018).
Additionally, on or around March 5, 2021, we received a second administrative subpoena (the “Second Subpoena,” and together with the First Subpoena,
the “Subpoenas”) issued by OFAC seeking information regarding potential transactions with certain North Korean cyber actors. On April 6, 2021, we responded to the
Second Subpoena via letter, and provided responsive documents. We supplemented our response to the Second Subpoena with a second responsive letter dated April 12, 2021. If we are found to be in violation of U.S. economic sanctions laws, it could
result in fines and penalties.
Since the receipt of the Subpoenas, we have implemented a series of measures designed to ensure that we comply with applicable sanctions laws. These activities include: the establishment of sanctions compliance
policies and procedures, providing compliance training to our team members, blacklisting addresses on the Specially Designated Nationals list from interacting with third-party APIs, and implementing geo-blocking technology to block parties with IP
addresses associated with embargoed countries and territories from accessing our software or services. We are continuing to cooperate with OFAC’s review of our response to the Subpoena and our voluntary self-disclosure, which is ongoing.
Our Solution — The Exodus Platform
We built the Exodus Platform to give our users the power to quickly secure, control, and manage their digital wealth. Our platform allows our users to store and access their digital assets in a
self-custodial, secure environment that only they control on their desktop and mobile devices while delivering a simple, elegant and intuitive experience. Our platform is intended to provide the trustworthiness of a bank’s online portal without
service windows and clunky interfaces, and the speed of centralized digital asset exchanges without the risk of third-party custody – we aim to provide our users with the best of both worlds in Exodus. The Exodus Platform allows our users to
leverage the power of digital assets in an easy and straightforward way, without compromising privacy or the security of their digital assets. We accomplish this by:
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helping to ensure that our users retain full control over the digital assets held in their Exodus wallet by encrypting the private keys locally on our users’ own devices;
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streamlining the user set up process for transacting in over 290 crypto assets, as well as offering a range of wallet options to hold users’ private keys (including hot and cold wallets)
so users can quickly access the features they want without being distracted by unnecessary or confusing technical information;
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hosting and maintaining our own robust server infrastructure to ensure near 100% uptime, 24/7, for all digital assets and services offered on our platform;
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integrating cutting-edge third-party apps seamlessly into our highly functional platform to provide our users with a rich ecosystem of ways to use and manage their digital assets, as well
as providing us with potential additional avenues for monetizing our platform;
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producing reliable, straightforward information on our website and YouTube channel regarding blockchain cryptography, digital assets and our platform that is relevant for both new and
experienced digital asset users; and
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continually adapting and innovating the Exodus Platform to support our users’ ability to store other types of valuable assets, including personal information, traditional fiat currencies,
and, potentially, traditional securities in tokenized form alongside other tokenized financial products.
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Available Information
Our website is located at www.exodus.com, and our investor relations website is located at https://www.exodus.com/investors/. Our annual reports on Form 1-K, semi-annual reports on Form 1-SA, and any
other required reports, and any amendments to these reports, are available through our investor relations website, free of charge, after we file them with the SEC. We will also provide a link to the section of the SEC’s website at www.sec.gov that
contains, in electronic form, each of the reports and other information that we file or furnish with the SEC.
We webcast via our investor relations website our earnings calls and certain events we participate in or host with members of the investment community. Our investor relations website also provides
notifications of news or announcements regarding our financial performance and other items of interest to our investors, including SEC filings, investor events, quarterly and annual financials, press and earnings releases, and blogs. Exodus uses
the following as means of disclosing material nonpublic information and for complying with disclosure obligations under Regulation Fair Disclosure: websites exodus.com/investors and exodus.com/blog; press releases; public videos, calls and
webcasts; and social media: Twitter (@exodus_io and JP Richardson’s feed @jprichardson), Facebook, LinkedIn, and YouTube (https://www.youtube.com/c/exodus). We also share news and product updates on our YouTube channel, which may be of interest or
material to our investors. The content of our websites is not incorporated by reference into this report or in any report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Risk Factors
An investment in Class A common stock involves a high degree of risk. You should consider carefully the risks described below, together with all of the other information contained
in this annual report, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this annual
report before deciding whether to invest in shares of our Class A common stock. If any of the following risks actually occur, our business, financial condition, operating results and future prospects could be materially and adversely affected. In
that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those described below titled “Risk Factors”. The risks we consider our most material risks:
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our business depends on attracting and retaining new wallet users, and any failure of our platform to satisfy user demands, achieve increased market acceptance or adapt to changing market
dynamics would adversely affect our business, results of operations, financial condition and growth prospects;
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our business depends in part on third-party services integrated with the Exodus Platform, and, if these third-party services fail to provide adequate functionality for our users, our
business, results of operations and financial condition could be adversely affected;
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because our business is dependent, in part, on the continued development of cryptocurrency and blockchain technology and market acceptance and development of cryptocurrency and blockchain
technology by users, any declines or negative trends affecting cryptocurrency or blockchain technology will adversely affect our business operations. The recent bankruptcies of Celsius Network, Voyager Digital Ltd., Three Arrows Capital,
and FTX have led to a decline in users’ confidence in trading of cryptocurrency;
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our ability to maintain user satisfaction depends in part on the quality of our customer support, and any failure to maintain high-quality customer support could have an adverse effect on
our business, results of operation, and financial condition;
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our relatively limited operating history makes it difficult to evaluate our current business and prospects and may increase the risk that we will not be successful;
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any actual or perceived failure of the Exodus Platform to block malware or prevent failures or security breaches or incidents could harm our reputation, cause the Exodus Platform to be
perceived as insecure, underperforming, or unreliable, impede our efforts to attract and retain users, and otherwise negatively impact our business, results of operations and financial condition;
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our holdings of cryptocurrency expose us to potential risks, including exchange, security and liquidity risks, which could negatively affect our business, financial condition, and results
of operations;
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our risk management efforts may not be effective to prevent fraudulent activities by third-party providers or other parties, which could expose us to material financial losses and
liability and otherwise harm our business;
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users or third-party activities may subject us to liability or cause us to experience adverse political, business, and reputational consequences with users, team members, third parties,
government entities, and others;
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we believe our long-term value as a company will be greater if we focus on improving our users’ experience with our platform, rather than growth or profitability, which may negatively
impact our profitability;
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if our users’ or contractual providers’ access to our platform is interrupted or delayed for any reason, our business could suffer;
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the trading ledger showing trades in our Common Stock Tokens is publicly available, which may give rise to privacy concerns;
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there is no guarantee that our Class A common stock will hold its value or increase in value, and you may lose the amount of your investment in our Class A common stock in whole or in
part;
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the dual class structure of our common stock will have the effect of concentrating voting capital with our executive officers and directors and it may depress the trading price of our
Class A common stock;
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the regulatory regime governing blockchain technologies, cryptocurrencies, tokens and token offerings such as the Exodus Platform and the Common Stock Tokens is uncertain, and new
regulations or policies may materially adversely affect the development and utilization of the Exodus Platform;
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we operate an interface that allows our users to connect to exchanges on which the users can trade cryptocurrency, and we receive compensation from these exchanges. Certain cryptocurrency
traded using our platform could be viewed as “securities” for purposes of state or federal regulations, and regulators might determine that the payments we receive from the exchanges would cause us or the third-party app providers that
offer apps through our platform to be in violation of federal and state securities laws, which would negatively affect our business, financial condition and results of operation;
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we are subject to export control, import, and sanctions laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate
such laws and regulations;
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our success is highly dependent on our ability to attract, hire and retain key technical, customer support, and management personnel;
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our ability to effectively manage our growth;
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our ability to prevent security breaches, cyberattacks or other incidents;
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our business is subject to the risks of catastrophic events;
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our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited;
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changes in tax laws or in their implementation may adversely affect our business and financial condition;
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the stock-based compensation expense related to our outstanding equity awards may result in increases in our expenses in future periods; and
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inflation could negatively impact our business and results of operations.
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Risk Factors
Risks Related to Our Business and Our Industry
Our business depends on attracting and retaining new wallet users. Any failure of our platform to satisfy user demands, achieve increased market acceptance or
adapt to changing market dynamics would adversely affect our business, results of operations, financial condition and growth prospects.
The success of our business depends on our ability to attract and retain Exodus Platform users. To do so, we must persuade potential users that our platform offers significant advantages over those of
our competitors. Market acceptance of the Exodus Platform is affected by a number of factors, including how the timing of new products, features and functionality are developed, released into the market and introduced by us or our competitors, the
performance of third-party services offered through the Exodus Platform, user perceptions of the Exodus Platform’s security and reliability, acceptance and interest in digital assets generally, and the growth or contraction of the market in which
we compete.
In addition, as the market for digital assets and related services continues to mature, we expect that an increasing focus on user satisfaction will profoundly impact demand for the Exodus Platform.
We believe that our users are increasingly looking for flexible and secure digital asset wallets that seamlessly integrate a range of applications and support a wide variety of digital assets, while streamlining the user experience and minimizing
complexity. If we are unable to meet this demand, or if the Exodus Platform otherwise fails to achieve widespread market acceptance, our business, results of operations, financial condition and growth prospects may be adversely affected.
Our business depends in part on third-party services integrated with the Exodus Platform. If these third-party services fail to provide adequate functionality
for our users, our business, results of operations and financial condition could be adversely affected.
We rely on the integration of third-party services, including digital asset exchanges and apps made available through our desktop app store, for several key aspects of the Exodus Platform’s
functionality and features. As such, the performance and reliability of these third-party services is critical to the continued growth in market demand for, and market acceptance of, the Exodus Platform. The success of third-party services on the
Exodus Platform is affected by a number of factors, many of which are beyond our control, such as the technical support provided by such third-parties, our ability to successfully integrate such services into the Exodus Platform using third party
APIs, technological changes and developments, and user preferences. There can be no assurance that these third-party services will continue to perform in a manner our users find adequate. If our users have negative experiences with these
third-party services through the Exodus Platform, the attractiveness of our platform may be diminished and we may experience difficulties attracting and retaining users.
In addition, we generate, and expect to continue to generate, substantially all of our revenue from fees associated with the integration of third-party services with the Exodus Platform. Our API
agreements with digital asset exchanges and app developers generally provide for the payment of integration fees to us based on agreed-upon metrics, including, in some instances, usage metrics among our user base. If a third-party service made
available through the Exodus Platform performs inadequately, or is perceived by users to perform inadequately, our users may be less likely to use that third-party service, which could affect our ability to successfully monetize and generate
revenue from the service.
Because our business is dependent on the continued market acceptance and development of digital assets and blockchain technology and market acceptance by
consumers, any declines or negative trends affecting digital assets or blockchain technology has adversely affected and may continue to adversely affect our business, results of operations and financial condition.
The Exodus Platform is built around holding, transferring, exchanging, and using digital assets, which means our business depends on growth in the adoption and acceptance of digital
assets and the underlying blockchain technology to maintain and increase demand for the Exodus Platform. During June and July of 2022, Celsius Network, Voyager Digital Ltd., and Three Arrows Capital each declared bankruptcy. In November
2022, FTX and several of its affiliates filed for bankruptcy. While the FTX app was available in the Exodus Platform until it was removed in November 2022, it was never material to our business or results of operations. However, even if there is no direct material impact on our business from such bankruptcies, we have been and may continue to be impacted indirectly. Following these events, users’ confidence in trading of digital
assets has decreased and the digital asset market has experienced negative publicity and extreme price volatility. These events have negatively impacted a number of other entities in the digital asset industry as well as the liquidity of certain
digital assets. Continued price volatility, as well as negative publicity and a lack of standardized regulation in the digital asset market, has negatively affected and may continue to negatively affect other
entities in the digital asset industry and overall digital asset market confidence. Such decrease in confidence in digital assets has had and may continue to have a negative impact on our business, including through a decline in users and/or
transaction-based API fees.
In addition to a decline in users, the extreme price volatility present in the digital asset markets has caused and may continue to cause the value of the digital assets we hold to continue to
decrease. This may have a further negative impact on our results of operations and financial condition. If the liquidity of the digital asset markets continues to be negatively impacted by these events, digital asset prices (including the price of
Bitcoin) may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. These events are continuing to develop and it is not possible to predict at this time all of the risks that they may
pose to us, our API providers or to the digital asset industry as a whole. If, for example, one of our API providers were to declare bankruptcy or cease operations for whatever reason, this could have a material adverse impact our business,
results of operations, and financial condition.
Blockchain technology represents a novel combination of several concepts, including a publicly available database or ledger that represents the total ownership of the currency at any one time, novel
methods of authenticating transactions using cryptography across distributed network nodes that permit decentralization by eliminating the need for a central clearing-house while guaranteeing that transactions are irreversible and consistent,
differing methods of incentivizing this authentication by the use of new tokens issued as rewards for the validator of each new block or transaction fees paid by participants in a transaction to validators, and hard limits on the aggregate amount
of currency that may be issued.
As a result of the new and untested nature of digital asset and blockchain technology, the market for digital assets and related services is relatively new and rapidly evolving, and its growth is
subject to a high degree of uncertainty. As such, the digital asset industry is vulnerable to risks and challenges, both foreseen and unforeseen. Examples of these risks and challenges include:
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Scalability is a challenge for platforms working with large blockchains, because addition of records to a blockchain requires the network to achieve consensus through a transaction
validation mechanism, which often involves redundant and extensive computation; processing of transactions is slower than that achieved by a central clearing-house; and delays and bottlenecks in the clearance of transactions may result as
the digital assets expands to a greater number of users.
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Our activities with respect to any crypto assets that are deemed securities could trigger the need for us to register as a broker-dealer under the Securities Exchange Act of 1934, as
amended (“Exchange Act”). If we were required to register as a broker-dealer and comply with applicable regulations, these developments could have a negative effect on our business, financial
condition and results of operations.
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Blockchain technology can have complex validation processes, and confirmation of a transaction may not always be instantaneous. Users of any digital asset wallet who do not wait a
sufficient period before treating a blockchain as permanently written may lose assets and funds in exchange for blockchain payments that are never completed. While this risk is not unique to the Exodus Platform, and is not due to any
feature of the Exodus Platform, users may blame us for such transaction errors, which could harm our reputation and make it difficult to retain users or persuade new users to use our platform.
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Although blockchains are generally considered reliable, they are subject to certain attacks as described below under “Risks Related to the Common Stock
Tokens and Trading on an alternative trading systems (“ATS”) —The distributed ledger technology used by the ATS is novel with respect to
digital securities and has been subject to limited testing and usage.”
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Because many blockchains are public, malicious users may freely view, access and interact with key components of the networks on these blockchains. For example, some of the applications
on our platform rely on “smart contracts” written to the Ethereum Blockchain, an open-source, public, distributed ledger that is secured using cryptography (the “Ethereum Blockchain”), and malicious
users will be able to freely access this code in ways that could allow them to steal or otherwise affect digital asset transactions.
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Although there may be solutions that have been proposed and implemented to these and other challenges facing various digital assets and the blockchains on which they rely, the effectiveness of these
solutions has not been proven. Further, other challenges may arise in the future that we cannot predict. For example, advances in cryptography and/or technical advances, such as the development of quantum computing, could present risks to digital
assets and the Exodus Platform by undermining or vitiating the cryptographic consensus mechanism that underpins some blockchain protocols. Similarly, legislatures and regulatory agencies could prohibit the use of current and/or future cryptographic
protocols, which could limit the utility of certain blockchains, resulting in a significant loss of value or the termination of digital assets or applications on the platform. Accordingly, the further development and future viability of digital
assets in general or for specific digital assets, is uncertain, and unknown challenges may prevent their wider adoption.
The growth of the blockchain industry in general, as well as the blockchain networks on which digital assets rely, is subject to a high degree of uncertainty regarding consumer adoption and long-term
development. The factors affecting the further development of the digital asset industry, as well as blockchain networks, include, without limitation:
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worldwide growth in the adoption and use of digital assets and other blockchain technologies;
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government and quasi-government regulation of digital assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;
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the maintenance and development of the open source software protocol of blockchain networks;
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changes in consumer demographics and public tastes and preferences, including changes in consumers’ trust in digital asset companies and markets;
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the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using government-backed currencies or existing
networks;
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the extent to which current interest in digital assets represent a speculative “bubble”;
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general economic conditions in the United States and the world;
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the regulatory environment relating to digital assets and blockchains; and
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a decline in the popularity or acceptance of cryptocurrency or other blockchain-based tokens.
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The digital asset industry as a whole has been characterized by rapid changes and innovations and is constantly evolving. Although it has experienced significant growth in recent years, the slowing or
stopping of the development, general acceptance and adoption and usage of blockchain networks and digital assets may deter or delay the acceptance and adoption of the Exodus Platform or the applications on the Exodus Platform. As discussed, the
recent collapse of large digital asset companies, such as FTX, and the resultant suspension of withdrawals, has led to a decrease in users’ confidence in trading of digital assets. Any such decrease in confidence is likely to have a negative impact
on our business. Even if there is no direct material impact on our business from such events, we may still be impacted indirectly by a decline in users as a result of decreasing consumer trust in digital assets companies and markets, which may
adversely affect our business operations.
Digital asset exchanges may be exposed to fraud and failure. Such failures may result in the marketplace losing confidence in certain digital asset exchanges, a reduction in the price of
cryptocurrencies, or even cause the market for cryptocurrencies to disappear entirely, which would adversely affect our business operations.
Digital asset exchanges are relatively new and regulatory scrutiny of digital asset exchanges is increasing. Digital asset exchanges are rapidly developing in the growing digital asset market. In many cases,
regulation surrounding the operations of such exchanges remains unclear and the global distribution of trading volume and other unique factors may not be auditable or reliable. Many digital asset exchanges currently do not provide the public with
significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance and there have been a number of significant failures recently, and such failures likely will negatively affect the values of
digital assets such as Bitcoin. For example, in 2022, each of Celsius, Voyager and Three Arrows Capital declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding digital
assets more broadly. In November 2022, FTX, a digital asset exchange, halted customer withdrawals and shortly thereafter, FTX and its subsidiaries filed for bankruptcy. Lack of clarity in the operations of digital asset exchanges may result in a
loss of confidence in the marketplace.
Additionally, fraud, business failures and security breaches have caused a number of digital asset exchanges to close in the brief history of Bitcoin. Customers of digital asset exchanges that have closed or
experienced security breaches, and in many instances, were not compensated for the losses they experienced. For example, in August 2016, hackers breached the security systems of Bitfinex, resulting in the loss of 119,755 Bitcoin in aggregate. In
addition, in December 2017, Yapian, the operator of Seoul-based digital asset exchange Youbit, suspended digital asset trading and filed for bankruptcy following a hack that resulted in a loss of 17% of Yapian’s assets. Following the hack, Youbit
users were allowed to withdraw approximately 75% of the digital assets in their exchange accounts, with any potential further distributions to be made following Yapian’s pending bankruptcy proceedings. In January 2018, Japan-based exchange
Coincheck reported that over $500 million worth of the digital asset NEM had been lost due to hacking attacks, resulting in significant decreases in the prices of Bitcoin, Ether and other digital assets. South Korean-based exchange Coinrail
announced a hacking incident that took place in June 2018 that resulted in losses of approximately $40 million in various digital assets. In September 2018, Japan-based exchange Zaif announced that approximately $60 million worth of digital assets,
including Bitcoin, was stolen due to hacking activities. Hackers are a threat to both small and large digital asset exchanges. Varying degrees of infrastructure development and capitalization among digital asset exchanges provide hackers with
incentives and opportunities to target such exchanges. When market participants become victims of security breaches or hear of such breaches, there may be a loss of confidence in the stability of digital asset exchanges or Bitcoin. Such a loss of
confidence has in the past adversely affected our business and may continue to adversely affect our business negatively.
Our ability to maintain user satisfaction depends in part on the quality of our user support. Failure to maintain high-quality user support could have an adverse
effect on our business, results of operation, and financial condition.
Our ability to attract new users and retain existing users depends in part on our ability to maintain a consistently high level of user support. We believe that the quality of our user support is, and
will continue to be, an integral part of the user experience and a key differentiator of the Exodus Platform from competing platforms. We primarily provide user support through email and, in some circumstances, audio- or video-calls. These means of
providing user support may not be sufficient to meet our users’ support needs, and while we plan to develop a user support capability directly within the Exodus Platform, there can be no assurance that we will be successful in developing such
capabilities or that such capabilities, even if developed, will be sufficient to meet our users’ support needs. If we do not help our users quickly resolve issues and provide effective ongoing support, or if our support personnel or methods of
providing support are insufficient to the needs of our users, it could adversely affect our users’ experience and negatively impact our reputation and brand, our ability to attract and retain users, and the usage of the Exodus Platform’s
revenue-generating features. The growth of our business will continue to place significant demands on our user support resources. If we are not able to meet the user support needs of our users, we may need to increase our support coverage, which
may reduce our profitability.
Our relatively limited operating history makes it difficult to evaluate our current business and prospects and may increase the risk that we will not be
successful.
Our relatively limited operating history makes it difficult to evaluate our current business and prospects, and to plan for our anticipated future growth. We were incorporated in 2016, therefore all
of our growth has occurred in recent years. As a result, our business model has not been fully proven, which subjects us to a number of uncertainties, including our ability to plan for and model future growth. While we have continued to expand our
platform and develop additional functionality within the Exodus Platform, we have encountered, and will continue to encounter, risks and uncertainties frequently experienced by rapidly growing companies in developing industries, including our
ability to achieve broad market acceptance of our platform, attract additional users, identify and grow relationships with providers, withstand increasing competition in our existing and future markets, and manage increasing expenses as we continue
to grow our business. Our current operating model may require changes in order for us to scale our operations efficiently. Investors should consider our business and prospects in light of the risks and difficulties we face as an early-stage company
focused on developing our platform, both organically and through strategic relationships, in the field of blockchain, digital assets and financial technology. If our assumptions regarding these risks and uncertainties are incorrect or change in
response to changes in the markets for our platform, our business could suffer and our results of operations and financial condition could differ materially from our expectations.
Any actual or perceived failure of the Exodus Platform to block malware or prevent failures or security breaches, cyberattacks or incidents could harm our
reputation, cause the Exodus Platform to be perceived as insecure, underperforming, or unreliable, impede our efforts to attract and retain users, and otherwise negatively impact our business, results of operations and financial condition.
We face security threats from malicious third parties that could obtain unauthorized access to our internal systems, networks and data. Ransomware and other malware, viruses and computer hacking,
fraudulent use, social engineering (including spear phishing attacks) and general hacking have become more prevalent, and such incidents or incident attempts have been initiated against our users in the past and may occur against our users in the
future. While we do not store user information on the Exodus Platform or process transactions, and the Exodus Platform encrypts our users’ data, including their private keys and, in the future, their personal identity documents, we may become the
target of cyber-attacks by third parties seeking unauthorized access to our users’ confidential data, which could disrupt our ability to provide services on the Exodus Platform, or lead to exposure of user information. Additionally, we use certain
third-party service providers to store and process data on our behalf, and they face a variety of security risks. We have taken steps to protect user information that might pass through our platform, as well as any confidential information we may
obtain through our user support services. However, our security measures or those of our third-party service providers could be breached or we could suffer data loss or unauthorized access to, or use of, our platform or the systems or networks used
in our business.
It is virtually impossible for us to entirely mitigate the risk of these security threats, and the security, performance, and reliability of the Exodus Platform may be disrupted by third parties,
including competitors, hackers, disgruntled team members, former team members, or contractors. For example, we have found security vulnerabilities within the Exodus Platform in the past which require us to quickly identify and patch those
vulnerabilities. Additionally, certain kinds of viruses or malware can, through corruption of basic functionalities of device operating systems and otherwise, allow hackers to access or misdirect our users’ digital assets.
We also process, store and transmit our own data as part of our business and operations. This data may include personally identifiable, confidential or proprietary information, and we
use third-party service providers to store and process certain data for us. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security
threats. While we take steps in an effort to protect the security of our platform and the availability, integrity, confidentiality and security of our data, our security measures or those of our third-party providers could fail and result in
unauthorized access to or use of our platform or unauthorized, accidental or unlawful access to, or disclosure, modification, misuse, unavailability, loss or destruction of, our or our users’ data. In
2022, a third-party email vendor suffered a data breach containing email addresses of individuals who had signed up for an Exodus newsletter. While this incident has not had any known impact on the Exodus Platform, such a breach may negatively
impact our reputation.
Private keys may be compromised if users choose to store their private keys in non-secure systems, such as third-party email services, which may be susceptible to security breaches and security
incidents, despite our efforts to discourage our users from engaging in these practices. Although such incidents are outside of our control and do not relate to any insecurity or vulnerability on the part of the Exodus Platform, users may
nevertheless blame or become dissatisfied with the Exodus Platform as a result of these negative experiences.
Whether or not accurate, a market perception that the Exodus Platform is insecure, underperforming or unreliable could result in:
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A loss of existing or potential users or third-party relationships;
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Harm to our financial condition and results of operations;
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A delay or failure to attain market acceptance of our platform;
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Expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate, or work around errors or defects, to address and eliminate vulnerabilities, and to
address any applicable legal or contractual obligations relating to any actual or perceived security breach or incident;
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Negative publicity and damage to our reputation and brand; and
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Legal claims and demands (including for stolen assets or information, repair of system damages, and compensation to users), litigation, regulatory audits, proceedings or investigations,
and other liabilities.
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Any actual or perceived security breach or other incident may also lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and
eliminate vulnerabilities and prevent future security breaches or incidents, as well as the incurring of significant expenses for remediation that may include liability for stolen assets or information, repair of system damage that may have been
caused, and other liabilities. We have incurred and expect to incur significant expenses in an effort to prevent security breaches and other incidents, including deploying additional personnel and protection technologies, training personnel and
engaging third-party experts and consultants.
Furthermore, because data security is a competitive factor in our industry, we make statements publicly, including in our privacy policies and terms of service, providing assurances about the security
of our platform, including descriptions of our security measures. Should any of these statements be untrue or become untrue, even though circumstances beyond our reasonable control, we may face claims, investigations or other proceedings by U.S.
federal and state regulators, as well as foreign regulators and private parties.
Our risk management efforts may not be effective to prevent fraudulent activities by third-party providers or other parties, which could expose us to material
financial losses and liability and otherwise harm our business.
We contract with third-party providers for applications available through our platform, as well as some services required to maintain the platform. We may be targeted by parties, including users,
hackers, or third-party providers, who seek to commit acts of financial fraud using techniques such as stolen identities and bank accounts, compromised email accounts, team member or insider fraud, account takeover, or other types of fraud. We may
suffer losses from acts of financial fraud committed by our team members or third parties.
The techniques used to perpetrate fraud on our platform and the applications accessed through our platform are continually evolving, and we expend considerable resources to monitor and combat them,
and to inform users of the limits to the control we have over third-party provider activities. Additionally, when we introduce new products and applications, or expand existing products, we may not be able to identify all risks created by the new
products or applications. Our risk management policies and procedures may not be sufficient to identify all of the risks to which we or our users are exposed, to enable us to prevent or mitigate the risks we have identified, or to identify
additional risks to which we or our users may become subject in the future. Furthermore, our risk management policies and procedures may contain errors, or our team members or agents may commit mistakes or errors in judgment as a result of which we
may suffer large financial losses.
The growth of our business will continue to place significant demands on our risk management efforts, and we will need to continue developing and improving our existing risk management policies and
procedures. Although we have several measures in place to prevent and investigate possible instances of fraud, the techniques that may be used by those who seek to perpetrate fraud on our platform evolve, we may need to modify our platform,
services or agreements with third parties to mitigate fraud risks. Further, if fraudulent activities on our platform occur, this could expose us to civil and criminal liability, governmental and regulatory sanctions as well as potentially cause us
to be in breach of our contractual obligations to our third-party providers.
Activities of our users or third-party activities may subject us to liability or cause us to experience adverse political, business, and reputational
consequences with users, team members, third parties, government entities, and others.
Activities of our users or other third parties could subject us to regulatory enforcement actions or liabilities. Our users may use our platform in violation of applicable law or in violation of our
terms of service or the terms of service of our third-party API providers. For example, applicable U.S. federal and state and foreign laws may prohibit us from making available our platform or certain of its functionalities in all jurisdictions.
We use geo-blocking technology to block the Exodus Platform’s availability in jurisdictions subject to U.S. trade embargoes, namely, sanctioned regions of Ukraine, Cuba, Iran, North Korea, and Syria.
We also use geo-blocking technology to block the availability of API integrations for third-party digital asset-to-digital asset exchange services in the states of New York and Washington. However, users may attempt to circumvent our geo-blocking
to gain access to our platform or certain of its functionalities in violation of applicable law. Additionally, while our API agreements with digital asset-to-digital asset exchanges include representations by the exchange that the exchange will
comply with applicable sanctions and export control laws, will not provide services to any parties located or resident in any area subject to U.S. sanctions or identified in any sanctions list maintained by the U.S. Department of the Treasury’s
Office of Foreign Assets Control (“OFAC”), and has implemented reasonable sanctions compliance procedures, there can be no assurance that the exchanges will comply with their obligations to us under our API
agreements. If governmental authorities choose to initiate legal or regulatory proceedings against us as a result, we could be subject to enforcement actions, disgorgement of profits, fines, civil and criminal penalties, damages, injunctions and
the costs associated with defending against such actions. The existing laws relating to the liability of providers of online products and services for activities of their users, as well as the laws governing transactions in digital assets, are
highly unsettled and in flux both within the United States and internationally, and there can be no assurance that our compliance efforts will keep pace with changes in the law.
We may be subject to political, business or reputational risks due to the activities of users or other third parties that are out of our control. Users may assume that we are able to prevent scams by
third parties or others or that we have control over their assets or the ability to log in to their wallet if they lose their login information, and our reputation may be negatively impacted if we are perceived to be taking insufficient measures to
address such concerns, even if the self-custodial nature of the Exodus Platform prevents us from doing so as a technical matter. In addition, user concerns about third-party services or digital assets made available through the Exodus Platform may
cause our reputation to suffer for reasons outside of our control. For example, we have received complaints associated with delays by third-party blockchains in processing and recording transactions in digital assets. While we cannot control the
operation of these blockchains, users may and have attributed such delays to our platform, leading to doubts about the efficiency or reliability of the Exodus Platform. For more information, see “—Any actual or
perceived failure of the Exodus Platform to block malware or prevent failures or security breaches or incidents could harm our reputation, cause the Exodus Platform to be perceived as insecure, underperforming, or unreliable, impede our efforts
to attract and retain users, and otherwise negatively impact our business, results of operations and financial condition.” As a result of activities by our users or other third parties outside of our control, we may experience adverse
political, business or reputational consequences.
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 sometimes leverage third parties to sell our products and conduct our business abroad. We, our team members, 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 team members, 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 team members, 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 policies and procedures to
address compliance with such laws, we cannot assure you that none of our team member, agents, representatives, business partners or third-party intermediaries will take actions in violation of our policies and applicable law, 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 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 believe our long-term value as a company will be greater if we focus on improving our users’ experience with our platform, rather than growth or
profitability, which may negatively impact our profitability.
A significant part of our business strategy is to focus on user support and improving our users’ experience using the Exodus Platform. As a result, our profitability may be lower, particularly in the
near term, than it would be if our strategy were solely to maximize growth. Significant expenditures on user support, enhancing our platform, pursuing relationships with API providers, and recruiting and retaining user support team members, may not
ultimately grow our business or cause long-term profitability. If we are ultimately unable to achieve or improve profitability at the level or during the time frame anticipated by industry or financial analysts and our stockholders, our stock price
might decline or our business might be negatively affected.
If our users’ or contractual providers’ access to our platform is interrupted or delayed for any reason, our business could suffer.
Any interruption or delay in our users’ or third-party API providers’ access to our platform will negatively impact our users. Our users depend on the continuous availability of the Exodus Platform to
send, receive, exchange, stake and unstake digital assets, and our platform is designed to operate without interruption. The adverse effects of any platform interruptions on our reputation and financial condition may be heightened due to the nature
of our business and our users’ expectation of continuous and uninterrupted access to their wallet and low tolerance for interruptions for any duration.
The following factors, many of which are beyond our control, can affect the delivery, performance, and availability of our platform:
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The development, maintenance, and functioning of the infrastructure of the internet as a whole;
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The performance and availability of third-party telecommunications services with the necessary speed, data capacity, and security for providing reliable internet access and services;
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Decisions by the owners and operators of facilities through which our platform is deployed or by global telecommunications service providers who provide us with network bandwidth to
terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, or prioritize the traffic of other parties;
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The occurrence of earthquakes, floods, fires, power loss, system failures, physical or electronic break-ins, acts of war or terrorism, human error or interference (including by
disgruntled team members, former team members, or contractors), pandemics, and other catastrophic events;
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Cyberattacks targeted at us, facilities where our platform infrastructure is located, global telecommunications service providers, or the infrastructure of the internet;
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Errors, defects, or performance problems in the software we use to operate our platform to our users;
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Our users’ or contractual providers’ improper deployment or configuration of our users’ access to our platform;
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The maintenance of the APIs in our systems that our providers use to interact with our platform;
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The failure of our redundancy systems, in the event of a service disruption at one of the facilities hosting our platform infrastructure, to redistribute load to other components of our
platform; and
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The failure of our disaster recovery and business continuity arrangements.
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The occurrence of any of these factors, or our inability to efficiently and cost-effectively fix such errors or other problems that may be identified, could damage our reputation, negatively impact
our relationship with our users, or otherwise materially harm our business, results of operations, and financial condition.
We rely on software applications that are developed by others, including our API providers, the failure or loss of which could cause us to become less
competitive and delay or prevent the delivery of our products or services, and which face security and service interruption risks.
We license many third-party applications to integrate with our platform through the interaction of APIs. We believe a significant component of our value proposition to users is the ability to
interface with these third-party applications through APIs on and within our platform. These third-party APIs and other third-party software and products are constantly evolving, and we may not be able to modify our platform to assure its
compatibility with that of other third parties following development or technology changes, and any errors, defects, or operation failures in or of any third party services could result in errors or the loss of functionality in our platform and
solutions that could harm our business. Additionally, our business may be harmed if any provider of such software systems discontinues or limits our access to its software or APIs, fails to license APIs to us on commercially reasonable terms, or
develops or otherwise favors its own competitive offerings over ours. During 2022, five API providers generated $43.8 million in revenues, representing in the aggregate approximately 86.6% of our total revenues during 2022. If we fail to maintain
or renegotiate any of these licenses, we could face significant delays and diversion of resources in attempting to develop similar or replacement offerings, or to license and integrate a functional equivalent of the offering.
Additionally, these third-party APIs and other third-party software and products that may be integrated with or otherwise used with the Exodus Platform face a variety of security threats, and there
can be no assurance that our security measures or the security measures of such third-parties will be effective against current or future security threats. The security measures of these third-party providers could fail and result in unauthorized
access to or use of our platform or unauthorized, accidental or unlawful access to, or disclosure, modification, misuse, loss, unavailability, or destruction of, data exchanged through these services. We cannot guarantee that this data will not be
compromised in the event of a successful cyberattack against the third party or other similar malicious activity. Similarly, the services may be interrupted, and files or functionality may become temporarily unavailable in the event of this type of
attack or malicious activity. If any data exposure or other compromise occurs or is perceived to have occurred, our reputation may be harmed, and we may be subject to claims, investigations or other proceedings and legal liability.
Our success depends, in part, on the success of our strategic relationships with third parties. If any of our agreements with third-party providers are terminated, our business,
results of operations and financial condition could be adversely affected.
We depend on, and anticipate that we will continue to depend on, various third-party relationships in order to sustain and grow our business, including technology companies and
application developers whose products integrate with ours. In particular, we rely on API agreements with digital asset exchanges and app providers to integrate third-party services underpinning several key aspects of the Exodus Platform’s
functionality and features. These agreements may be terminated by us or our counterparties at any time with limited notice. If any of these API agreements are terminated or suspended, whether due to a failure or breach of performance or
otherwise, the functionality of the Exodus Platform could be adversely affected and we could be forced to incur additional expenses in seeking replacements or may not be able to obtain replacements in a timely fashion, if at all, and such
interruptions or discontinuations of service could interfere with our existing user relationships and make us less attractive to potential new users. As discussed above, recent digital asset company bankruptcies and other market disruptions have
negatively impacted a number of other entities in the digital asset industry and have led to extreme price volatility and in some cases reduced liquidity of cryptocurrency. Third-party service providers who support the Exodus Platform may have
been and may continue to be negatively impacted by these events, which would negatively impact the Exodus Platform. If our current, or any of our future, third-party providers file for bankruptcy, we
could lose all or a portion of the outstanding accounts receivable associated with such providers.
For example, the Exodus Platform’s Exchange Aggregator relies on API agreements with digital asset exchanges, so that the users of our wallet can place orders with these exchanges through the Exodus
Platform. While the termination or suspension of any one API agreement with a digital asset exchange is unlikely to materially impact the performance of the Exchange Aggregator or our results of operations, multiple terminations or suspensions with
multiple exchanges in a short period of time could impair the functionality of the Exchange Aggregator, resulting in user dissatisfaction and lost revenue. Additionally, certain of our third-party API providers deliver features and functionalities
that, if no longer available to us, cannot be replaced easily or in a timely fashion, if at all.
Governmental actions may have a materially adverse effect on the digital asset industry as a whole, which would have an adverse effect on our business and results of operations.
Governmental actions may have a materially adverse effect on the digital asset industry as a whole, which would have an adverse effect on our business and results of operations. China has
historically been the world’s largest producer of Bitcoin and has housed the large majority of the world’s digital asset mining power (some observers estimate that China produced as high as 80% of the world’s digital asset mining power at certain
points in time). In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading. In September 2021, Chinese regulators instituted a blanket ban on all cryptocurrency mining and transactions, including overseas
cryptocurrency exchange services taking place in China, effectively making all cryptocurrency-related activities illegal in China. In January 2022, the Central Bank of Russia called for a ban on cryptocurrency activities ranging from mining to
trading. We cannot quantify the effects of this regulatory action on our industry as a whole. If further regulation follows, it is possible that our industry may not be able to cope with the sudden and extreme loss of mining power.
On March 8, 2022, President Biden announced an executive order on digital assets which seeks to establish a unified federal regulatory regime for digital assets. Because we are unable to
influence or predict future regulatory actions taken by governments in China, the United States, or elsewhere, we may have little opportunity or ability to respond to rapidly evolving regulatory positions which may have a materially adverse effect
on our industry and, therefore, our business and results of operations. On November 23, 2022, the governor of New York signed into law a two-year moratorium on new or renewed permits for certain electricity-generating facilities that use fossil
fuel and provide energy for proof-of-work digital asset mining operations. While this action does not directly impact our current operations, it may be the beginning of a new wave of climate change regulations aimed at preventing or reducing the
growth of Bitcoin mining in jurisdictions in the United States, including potentially jurisdictions in which we now operate or may in the future operate. The above-described developments could also demonstrate the beginning of a regional or global
regulatory trend in response to environmental and energy preservation or other concerns surrounding digital assets, and similar action in a jurisdiction in which we operate or in general could have a devastating effect on our operations. If further
regulation follows, it is possible that the Bitcoin mining industry may not be able to adjust to a sudden and dramatic overhaul to our ability to deploy energy towards the operation of mining equipment. If further regulatory action is taken by
various governmental entities, our business may suffer and investors in our securities may lose part or all of their investment.
If we fail to effectively manage our growth, we may be unable to execute our business plan, maintain high-quality levels of support, ensure the security of our
platform, adequately address competitive challenges, or maintain our corporate culture, and our business, financial condition, and results of operations would be harmed.
Our success depends on our ability to effectively manage the growth of our business. The Exodus Platform has experienced rapid organic growth, in particular since the market for digital assets began
attracting widespread interest in 2017 and 2018. Our growth has placed, and future growth will continue to place, a strain on our management and our administrative, operational and financial infrastructure. Our success will depend in part on our
ability to manage this growth effectively, which will require that we continue to improve our administrative, operational, financial, and management systems and controls by, among other things:
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maintaining the integrity of our core business purpose, to design the best user experience for digital assets;
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maintaining high levels of user support;
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ensuring the integrity and security of our platform and IT infrastructure;
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identifying and continuing to expand strategic relationships with third-party API providers and executing agreements to integrate third-party software into the Exodus Platform;
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further improving our key business applications, processes, and IT infrastructure; and
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enhancing our information and communication systems to ensure that our team members around the world are well coordinated and can effectively communicate with each other and our growing
base of third-party API providers and users.
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Managing our growth will require significant capital expenditures and allocation of valuable management and employee resources. If we fail to manage our expected growth, the uninterrupted and secure
operation of our platform, our compliance with the rules and regulations applicable to our operations, the quality of our platform, and our ability to compete could suffer. Any failure to preserve our culture also could further harm our ability to
retain and recruit personnel, innovate and create new enhancements for our platform, operate effectively, and execute on our business strategy.
Abuse or misuse of our user support tools could cause significant harm to our business and reputation.
In order to provide real-time support to our users, our team members use user support tools developed internally as well as third-party tools to diagnose and correct user security, platform
performance, and reliability issues. If our team members were to negligently use or intentionally abuse these tools by interfering with or altering our users’ wallet information, our users could be significantly harmed. Our team members’ misuse of
information received through the user support tools, inadvertent or otherwise, could similarly harm our users. Although our corporate policies prohibit team members from asking users to provide their private keys, and we have procedures in place
should users unintentionally provide their private keys to us, our team members may negligently or intentionally fail to implement these policies or procedures while providing user support. Any such improper disclosure or removal could
significantly and adversely impact our business and reputation. While our tools have been developed only for authorized use by our team members, if a malicious actor were to obtain access to the tools and impersonate our team members, our users’
information could be impacted. Accordingly, any abuse or misuse of our user support tools could significantly harm our business and reputation. If it became necessary to further restrict the availability or use of our user support tools by our team
members in response to any abuse or misuse, our ability to deliver high-quality and timely user support could be harmed.
Our international operations expose us to additional risks, and failure to manage those risks could materially and adversely impact our business.
While Exodus does not have physical infrastructure outside of the United States, we do have contractors and a subsidiary outside of the United States and contracts with international third-party API
providers. Our international operations and any expansion internationally could subject us to a variety of additional risks and challenges, including:
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increased management, travel, infrastructure and legal compliance costs associated with having operations in multiple jurisdictions;
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providing our platform and operating our business across a significant distance, in different languages, among different cultures and time zones, including the potential need to modify
our platform to ensure that it is culturally appropriate and relevant in different countries;
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compliance with foreign privacy, data protection, and security laws and regulations, including data localization requirements, and the risks and costs of non-compliance;
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greater difficulty in enforcing contracts and accounts receivable collection, and longer collection periods;
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limitations on our ability to market our platform and for our solution to be effective in foreign markets that have different cultural norms and related business practices that
de-emphasize the importance of positive user and team member experiences;
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differing technical standards, existing or future regulatory and certification requirements and required features and functionality;
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political and economic conditions and uncertainty in each country or region in which we operate and general economic and political conditions and uncertainty around the world;
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compliance with laws and regulations for foreign operations, including anti-bribery laws, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory
or contractual limits on our ability to acquire new users in certain foreign markets, and the risks and costs of noncompliance;
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changes in a specific country’s or region’s political or economic conditions;
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reduced or uncertain protection for intellectual property rights in some countries;
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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
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greater risk of a failure of foreign personnel and third-party API providers to comply with both U.S. and foreign laws, including antitrust regulations, anti-bribery laws, export and
import control laws, and any applicable trade regulations ensuring fair trade practices;
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differing employment practices and labor relations issues.
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We have taken appropriate measures to ensure that we are in compliance with foreign laws and regulations, such as the use of geo-blocking technology to prohibit the Exodus Platform and certain of its
functionalities and third-party services from being accessed in certain jurisdictions where required by applicable law. Despite these efforts, individuals may try to circumvent these efforts. If our self-custodial wallets or the applications we
offer were to be banned in any given country as a result of legal changes or regulatory or legal challenges to the Exodus Platform, we could lose access to users in that country, which could materially and adversely impact our business.
We also contract with international third-party API providers. During 2022, five API providers generated $43.8 million in revenues, representing in the aggregate approximately 86.6% of our total
revenue during 2022. Our revenue in 2022 was derived primarily from non-U.S. jurisdictions, with 52.0% attributable to the Asia-Pacific (“APAC”) region, 43.7% attributable to Canada and Latin America (“Other Americas”), 3.9% attributable to Europe, the Middle East, and Africa (“EMEA”), and 0.4% attributable to the United States. If those international third-party API
providers were to not pay us according to our agreements, we might experience greater difficulty enforcing the contracts and accounts receivable collection, and longer collections periods. Additionally, it might be difficult to enforce
indemnification clauses outside of the United States, the European Union, or Switzerland. Failure to mitigate the risks associated with our international providers could impact our ability to conduct our business as planned.
Our business could be adversely impacted by the decision of foreign governments, internet service providers, or others, to block transmission from IP addresses
on which our platform depends in order to enforce certain internet content blocking efforts.
The evolving design of our platform may create challenges for various organizations, including governments, that seek to block certain content based on IP address “blacklists” or other mechanisms. If
these challenges become too difficult for those organizations to overcome, they could make the decision to block content in an overbroad manner or block completely websites of providers that integrate with our platform. For example, the Chinese
government restricts access to certain Google Cloud services from within the People’s Republic of China, and users of our mobile platform have experienced degraded functionality in China due to these restrictions on our platform’s ability to
connect with those services. Some of these blocking efforts would be out of our control once they have been put in place and may limit our ability to provide our platform or third-party applications on a fully global basis, which could reduce
demand for our platform among current or potential users that are focused on the impacted regions or could otherwise adversely impact our business, results of operations, and financial condition.
We face intense and increasing competition, which could adversely affect our business, financial condition, and results of operations.
The market for our platform is intensely competitive and characterized by rapid changes in technology, user expectations, industry standards, and frequent introductions of new products and
improvements of existing products. Our platform exposes us to competition from competitors including other wallet providers and digital asset exchanges.
We expect competition to increase as other established and emerging companies and start-ups enter the markets for digital assets, particularly with respect to wallets, exchanges and applications
designed to support digital assets. If we are unable to anticipate or effectively react to these competitive challenges, our competitive position could weaken, and we could experience a decline in revenue or our growth rate that could materially
and adversely affect our business and results of operations.
While we are not an exchange, our potential competitors include exchanges that offer digital asset wallet storage with substantial infrastructure or existing digital asset exchanges that expand their
services or technologies, as well as existing wallet providers that enter the application development market or offer more comprehensive solutions or adapt more quickly than us to new technologies and user needs. Additionally, if the number of
wallet providers, exchanges or wallet applications increases substantially, it could reduce the demand for our platform and increase competitive pressure on us. These competitive pressures in our markets or our failure to compete effectively may
result in few users, reduced revenue and gross margin, increased net losses, and loss of market share.
Our current and potential competitors include a number of different types of companies, including:
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Exchanges that specialize in digital assets, including Binance US, Coinbase, Gemini, Kraken, and Crypto.com;
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Digital asset wallets, such as Bitpay Wallet, Coinbase Wallet, Metamask wallet, Phantom and Trust Wallet;
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Banks, non-depository trust companies and other chartered financial institutions that offer digital asset custody services, including Gemini, Paxos and Prime Trust;
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Custodial financial applications such as Venmo and Cash App, which may in the future seek to create a self-custodial model; and
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Exchanges or other FinTech companies with substantial infrastructure and market share that decide to and may be legally able to offer digital assets, such as New York Stock Exchange (“NYSE”), Nasdaq Global Market (“Nasdaq”) and Robinhood.
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Many of our existing and potential competitors have or could have substantial competitive advantages including, among others:
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greater name recognition;
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longer operating histories and larger user bases;
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larger sales and marketing budgets and capital resources;
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broader distribution and established relationships with providers and users;
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greater customer support resources;
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greater resources to make acquisitions and enter into strategic relationships;
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lower labor and software development costs;
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range of supported digital assets;
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lower user acquisition costs; and
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substantially greater financial, technical, and other resources.
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In particular, some of our competitors may have substantially broader and more diverse product and services offerings, allowing them to leverage existing commercial relationships, incorporate
functionality into existing products, sell products and services with which we compete at zero or negative margins, offer fee waivers and reductions or other economic and non-economic concessions, bundle products, maintain closed technology
platforms, or render our platform unable to interoperate with such products. If they were to engage in predatory practices, it could harm our existing platform offerings or prevent us from creating viable products in other segments of the markets
in which we participate. If our competitors are able to exploit their advantages or are able to persuade our users or potential users that their products are superior to ours, we may not be able to compete effectively and our business, financial
condition, and results of operations may be materially affected.
We rely on our key technical, user support, and management personnel to grow our business, and the loss of one or more key employees or the inability to attract
and retain qualified personnel could harm our business.
Our future success is substantially dependent on our ability to attract, retain, and motivate the members of our management team and other key employees throughout our organization, particularly Jon
Paul Richardson (co-founder and chief executive officer), Daniel Castagnoli (co-founder and president), James Gernetzke (chief financial officer), Veronica McGregor (chief legal officer), and Matias Olivera (chief technology officer) . We rely on
our leadership team in the areas of platform development, operations, user support, and general administrative functions, and on individual contributors on our creative and engineering teams. Several of our developers and designers have been with
us since we began developing the Exodus Platform, and their knowledge and understanding of how the platform works and their vision of how it will work in the future make them critical to maintaining and developing our platform. Although we have
entered into employment offer letters with our key personnel, these agreements have no specific duration and constitute at-will employment. We do not maintain key person life insurance policies on any of our team members. The loss of one or more of
our executive officers or key employees could seriously harm our business.
To execute our growth plan, we expect to attract and retain highly qualified personnel. In particular, it is critical for us to attract and retain engineering talent in our fast-growing industry. We
have from time to time experienced, and we expect to continue to experience, difficulty in hiring team members with appropriate qualifications. In addition, job candidates and existing team members often consider the value of the equity awards they
receive in connection with their employment. Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Any failure to successfully attract, integrate, or retain qualified personnel to
fulfill our current or future needs could materially and adversely affect our business, results of operations, and financial operations.
If we are not able to maintain our brand or reputation, our business and results of operations may be adversely affected.
We believe that maintaining our reputation as a leading provider of a self-custodial digital asset wallet with the best user experience, and allowing users to have direct control over their financial
assets, is critical to our relationship with our existing users and our ability to attract new users. The successful promotion of our brand will depend on a number of factors, including our record of security, performance, and reliability; our
ability to continue to develop high-quality features for and integrate high-quality products on our platform through API agreements; and our ability to successfully differentiate our platform from competitive products and services. Our brand
promotion activities may not be successful or yield increased revenue.
Independent industry and financial analysts often provide reviews of our platform, as well as those of our competitors. Perception of our offerings in the marketplace may be significantly influenced
by these expert reviews. If reviews of our platform are negative, or less positive than those of our competitors, our brand may be adversely affected. The performance of our third-party API providers may also affect our brand and reputation,
particularly if users do not have a positive experience with our API providers. While we have developed the Exodus brand without substantial expenditures on marketing, the further promotion of our brand may require us to make increased
expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive. Expenditures intended to maintain and enhance our brand may not be cost-effective or effective at all. If we do not successfully maintain
and enhance our brand, we may have reduced pricing power relative to our competitors, we could lose users, or we could fail to attract potential new users or expand offerings of new products to our existing users, all of which could materially and
adversely affect our business, results of operations, and financial condition.
If we are not able to effectively develop platform enhancements, introduce new products or keep pace with technological developments that are attractive to our
current and prospective users, our business, results of operations and financial condition could be adversely affected.
Our future success will depend on our ability to adapt and innovate. To attract new users and increase revenue from our existing users, we will need to enhance and improve our existing platform and
introduce new products, features and functionality. We have continuously released biweekly updates across the Exodus Platform. While our users expect these biweekly updates, future enhancements and new products that we develop may not be introduced
in a timely or cost-effective manner, or may contain errors or defects and may have interoperability difficulties with our platform. We have in the past experienced delays in our internally planned release dates of new products, features and
functionality, and there can be no assurance that these developments will be released according to schedule. We have also prioritized, and may continue to prioritize, the development of relationships with third-party API providers whose application
programs and services we integrate into the Exodus Platform, which we believe will enhance our platform by providing additional use cases for digital assets to our users. However, we may not be able to integrate these programs or services
successfully or achieve the expected benefits of such integration. If we are unable to successfully develop, acquire or integrate new products, features and functionality, or to enhance our existing platform to meet the needs of our existing or
potential users in a timely and effective manner, our business, results of operations and financial condition could be adversely affected.
In addition, because our platform is designed to operate on a variety of networks, applications, systems and devices, we will need to continually modify and enhance our platform to keep pace with
technological advancements in such networks, applications, systems and devices. If we are unable to respond in a timely, user-friendly and cost-effective manner to these rapid technological developments, our platform may become less marketable and
less competitive or obsolete, and our business, results of operations and financial condition may be adversely affected.
Our third-party API providers may fail to pay us in accordance with the terms of their agreements, at times necessitating action by us to attempt to compel
payment.
We typically enter into API agreements with third-party digital asset exchanges and other digital asset service providers, which provide for the payment of integration fees to us based on agreed-upon
metrics. If our third-party API providers fail to pay us in accordance with the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our agreements, including
litigation and arbitration costs. Furthermore, some of our third-party API providers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect
our results of operations, financial condition and cash flow.
Disputes with our users and other third parties could be costly, time-consuming and harm our business and reputation.
Our business requires us to distribute the Exodus Platform in many different jurisdictions, and to enter into agreements with a large number of third-party providers in many different jurisdictions.
Our agreements contain a variety of terms, including service levels, data privacy and security obligations, indemnification, dispute resolution procedures and regulatory requirements. Agreement terms may not be standardized across our business and
can be subject to differing interpretations and local law requirements, which could result in disputes with our users and other third parties from time to time. If our users or other third parties notify us of a breach of contract or otherwise
dispute the terms of our agreements, the dispute resolution process could be expensive and time consuming and result in the diversion of resources that could otherwise be deployed to grow our business. Even if these disputes are resolved in our
favor, we may be unable to recoup the expenses and other diverted resources committed to resolving the dispute and, if we receive negative publicity in connection with the dispute, our reputation and brand may be harmed. Furthermore, the ultimate
resolution of such disputes may be adverse to our interests and as a result could adversely affect our results of operations and financial condition.
The recent disruption in the digital asset markets may harm our reputation.
To the extent our third-party API providers view our business as linked to the value of our Bitcoin holdings, they may lose confidence in engaging in further business with us and may deem our business
to be risky. It may be difficult for us to reach the same business terms with such third-party API providers as we did before. In addition, additional regulations may subject us to investigation, administrative or regulatory proceedings, and civil
or criminal litigations, all of which could harm our reputation and affect our business operation and the value of our Class A common stock. If we have difficulties complying with such additional regulatory and registration requirements, we may
have to cease certain or all of our operations. Any such actions could have a material adverse effect on our business, financial condition and results of operations.
We depend and rely upon third parties to operate certain elements of our infrastructure, and interruptions in these technologies may adversely affect our
business and results of operations.
We utilize third-party cloud infrastructure services to operate and maintain certain elements of our platform and business. For example, all of our website traffic flows through cloud-based services
which provide security to protect against bad traffic, or potential malicious attacks. Some elements of the complex system that hosts our platform are operated by third parties that we do not control and that could require significant time to
replace. We expect this dependence on third parties to continue. Interruptions in these providers, our own internal infrastructure, or the third-party systems on which we rely, whether due to system failures, computer viruses, physical or
electronic break-ins, natural disasters, or other factors, could affect the security or availability of the Exodus Platform. We have previously experienced service disruptions in the past, such as an outage which prevented our users from accessing
the Exchange Aggregator on our platform, being able to log in, or accessing user support through the mobile platform. We cannot assure you that we will not experience interruptions or delays in our service in the future.
Our existing third-party hosting providers have no obligations to renew their agreements with us on commercially reasonable terms or at all, and certain of the agreements governing these relationships
may be terminated by either party at any time, with limited notice. If any of our arrangements with third parties are terminated, users could experience difficulty accessing the Exodus Platform, and we could incur additional expenses in arranging
alternative cloud services. Further, third-party cloud providers can decide to shut down our accounts for various reasons with limited notice.
Our business could be adversely impacted by changes in internet access for our users or laws specifically governing the internet.
Our platform performance and reliability depend on the quality of our users’ access to the internet. Certain features of our platform require significant bandwidth and fidelity to work effectively.
Internet access is frequently provided by companies that have significant market power that could take actions that degrade, disrupt, or increase the cost of user access to our platform, which would negatively impact our business. We could incur
greater operating expenses and our user acquisition and retention could be negatively impacted if other network operators:
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implement usage-based pricing;
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discount pricing for competitive products;
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otherwise materially change their pricing rates or schemes;
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charge us to deliver our traffic at certain levels or at all;
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throttle traffic based on its source or type;
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implement bandwidth caps or other usage restrictions; or
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otherwise try to monetize or control access to their networks.
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In addition, there are various laws and regulations that could impede the growth of the internet or online services, and new laws and regulations may be adopted in the future. These laws and
regulations could involve interconnection and network management; taxation; tariffs; privacy; licensing; data protection; data security; content; copyrights; distribution; electronic contracts and other communications; consumer protection; and
requirements for the characteristics and quality of services, any of which could decrease the demand for, or the usage of, our platform. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways
that require us to incur substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices. If these changes are implemented, it could have an adverse and negative impact on our business. In
addition, we may be banned from providing our platform in certain countries, which would prevent our ability to grow our business in such markets and would also have a detrimental impact on the performance and scope of our platform. These changes
or increased costs could materially harm our business, results of operations, and financial condition.
If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business,
financial condition, results of operations and prospects.
We use a significant number of independent contractors in our international operations for whom we do not pay or withhold any employment tax based on their location or jurisdiction. Whether an
individual is an employee or an independent contractor depends on applicable local law and may be subject to multiple, fact-intensive factors. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not
introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors. Foreign tax authorities may determine that we have misclassified our
independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. Additionally, individual independent contractors could initiate legal actions asserting rights of
employment in their various jurisdictions, which could include claims for unpaid wages or other benefits that are required by local laws. If we are required to pay employer taxes or pay backup withholding with respect to prior periods and/or any
other amounts with respect to or on behalf of our independent contractors, our operating costs will increase, which could adversely impact our business, financial condition, or results of operations. Additionally, if we are the subject of
individual legal actions or government investigations related to our independent contractors, the dispute resolution process could be expensive and time consuming and result in the diversion of resources that could otherwise be deployed to grow our
business. Even if any such dispute or investigation were to be resolved in our favor, we may be unable to recoup the expenses and other diverted resources committed to resolving the dispute or investigation and, if we receive negative publicity in
connection with any such dispute, our reputation and brand may be harmed.
We may in the future be party to intellectual property rights claims and other litigation, governmental and regulatory matters that, could be costly to defend,
and if resolved adversely, could have a material impact on our business, results of operations, or financial condition.
We own copyrights, trademarks, and domain names and, from time to time, may be subject to litigation based on allegations of infringement, misappropriation, or other violations of intellectual
property or other rights. For example, we have trademarked the name “Exodus” in the context of digital money and digital wallets, with the U.S. Patent and Trademark Office and we have ownership of the exodus.com
domain name. As we face increasing competition and gain an increasingly high profile, the possibility of intellectual property rights claims, commercial claims, and other assertions against us grows. In addition, a number of companies in our
industry hold a large number of patents and also protect their copyright, trade secret, and other intellectual property rights, and companies in the financial technology industry frequently enter into litigation based on allegations of patent
infringement or other violations of intellectual property rights. While we have not been a party to litigation so far, we may, from time to time in the future, become a party to litigation and disputes related to intellectual property, our business
practices, and our platform. We may also be subject to governmental and other regulatory investigations from time to time. The costs of supporting litigation and dispute resolution proceedings are considerable, and there can be no assurances that a
favorable outcome will be obtained. Disputes, whether or not favorably resolved, may generate negative publicity and damage our reputation. We may need to settle litigation and disputes on terms that are unfavorable to us, or we may be subject to
an unfavorable judgment that may not be reversible upon appeal. The terms of any settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. With respect to any intellectual property
rights claim, we may have to seek a license to continue practices found to be in violation of third-party rights, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such
practices may not be available to us at all, and we may be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative, non-infringing technology or practices could require
significant effort and expense. Our business, results of operations, and financial condition could be materially and adversely affected as a result.
Our holdings of digital assets expose us to potential risks, including exchange, security and liquidity risks, which could negatively affect our business,
financial condition, and results of operations.
We have invested, and expect to continue to invest, a substantial portion of our cash and cash equivalents into digital assets, such as Bitcoin and Ether, which we record on our balance sheet as
indefinite-lived intangible assets. As of December 31, 2022, digital asset holdings, such as Bitcoin and Ether, accounted for approximately 23% of our total assets, and during the year ended December 31, 2022, we derived primarily all of our
revenue in the form of digital assets, primarily Bitcoin. Any change in the U.S. dollar value of digital assets such as Bitcoin will affect our consolidated financial statements when our operating results are translated into U.S. dollars for
reporting purposes. In addition, volatility of Bitcoin and other digital assets may affect our business by increasing or decreasing the value of the funds available to us. This means that our operating results could be subject to swings based upon
increases or decreases in the value of Bitcoin. The prices of digital assets are extremely volatile. Fluctuations in the price of digital assets could materially and adversely affect our results of operations, as the prices of digital assets have
historically been subject to dramatic fluctuations. The decline in the U.S. dollar value of Bitcoin and other digital assets during 2022 has adversely affected, and any further decline in the future may continue to adversely affect, our financial
position, results of operations, and cash flows. Further, because we do not currently hedge our investment in Bitcoin and do not intend to for the foreseeable future, we are directly exposed to Bitcoin’s price volatility and surrounding risks.
The market price of Bitcoin has historically and recently been volatile. The market price of Bitcoin is impacted by a variety of factors (including those discussed herein), and is determined primarily
using data from various exchanges, over-the-counter markets and derivative platforms. As further described herein, the digital asset industry has been negatively impacted by recent events. Furthermore, such prices may be subject to factors such as
those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing
may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, or our Class A common stock price, inflating and making their market prices more volatile or creating “bubble” type risks for
both Bitcoin and shares of our Class A common stock. Further, volatility in digital asset pricing could lead to other impacts such as increased risks of legal proceedings or governmental scrutiny of us and our affiliates, users, suppliers, and
partners, either in the United States or in other jurisdictions. Continued fluctuations and volatility in the digital asset industry could adversely affect an investment in our Class A common stock.
Most of our expenses, like team member salaries, are denominated in U.S. dollars and paid using Bitcoin. While the dollar impact of these expenses on our financial condition and results of operations
is not affected by fluctuations in Bitcoin value, we are subject to translational risk because we may be required to pay a larger amount of Bitcoin to satisfy these expenses if the dollar value of Bitcoin decreases. Certain of our other
liabilities, expenses and costs must be paid in U.S. dollars, and we may be required to convert digital assets to U.S. dollars in order to satisfy those liabilities, expenses and costs. The U.S. dollar value of any given digital asset can fluctuate
significantly and may be characterized by volatility. There can be no assurance that we will be able to exchange our digital assets for U.S. dollars on a timely basis, if at all, or for a fair price. If the value of our cryptocurrency declines, or
if we experience difficulties converting our digital assets to U.S. dollars, we may not have sufficient liquid assets to satisfy our liabilities, expenses and costs as they become due, which may negatively affect our business operations and
financial condition. We are exposed to transaction costs and exchange risks because we occasionally convert a portion of our Bitcoin holdings into U.S. dollars, with a general target of ensuring that half of our total cash holdings are held in
Bitcoin and the other half in U.S. dollars, and there can be no assurances that our efforts to maintain an adequate balance of U.S. dollar holdings will be successful.
Additionally, digital assets generally are not subject to the protections typically enjoyed by more conventional types of financial assets, such as FDIC or Securities Investor Protection
Corporation insurance. If our digital assets are lost, stolen or destroyed, we may not have adequate sources of recovery and, even if we can identify a third party responsible for such loss, theft or destruction, such third party may not have the
financial resources sufficient to make us whole again. In addition, we do not have insurance that covers our Bitcoin in the event of loss or fraud. As a result, we may suffer a loss with respect to our
Bitcoin, and we may not be able to recover any of our carried value in these Bitcoin if they are lost or stolen or suffer significant and sustained reduction in conversion spot price. If we are not otherwise able to recover damages from a
malicious actor in connection with these losses, our business and results of operations may suffer, which may have a material negative impact on the price of our Class A common stock.
Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in digital asset-related activities.
A number of companies that engage in Bitcoin and/or other digital asset-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts
and other services. Similarly, a number of companies and individuals or businesses associated with digital assets may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions. To the
extent that such events may happen to us, they could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other digital assets we acquire or hold for our own account.
Our business is subject to the risks of catastrophic events.
A significant natural disaster, such as an earthquake, fire, power outage, flood or other catastrophic event, or interruptions by strikes, terrorism or other man-made problems, or interruptions due to
public health crises or pandemics, such as the ongoing COVID-19 pandemic, or other unforeseen significant interruptions could have a material adverse effect on our business, operating results and financial condition. Despite any precautions we may
take, the occurrence of a natural disaster or other unanticipated problems could result in lengthy interruptions in our services. In addition, acts of strikes, terrorism and other geo-political unrest could cause disruptions in our business and
lead to interruptions, delays or loss of critical data. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate.
We do not currently maintain business interruption insurance to compensate us for potentially significant losses, including potential harm to our business that may result from interruptions in our
ability to provide our services. Any significant interruptions to our business caused by, among other things, natural catastrophic events such as earthquakes, fires, power outages or floods, man-made problems such as strikes, terrorism or war,
public health crises such as pandemics, acts of God, and other unforeseen activities or events that cause such interruptions could have a material adverse effect on the operations and development of the Exodus Platform or operations and development
of applications that run on the Exodus Platform.
Certain of our market opportunity estimates, growth forecasts, marketing data related to user use of our platform, and key metrics included in this Form 1-K could prove to be
difficult to predict or inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
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 estimates and forecasts in
this Form 1-K relating to the size and expected growth of our target market may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasted in this Form 1-K, our business could fail to grow at
similar rates, if at all. We also rely on assumptions and estimates to calculate certain of our key metrics and we regularly review and may adjust our processes for calculating our key metrics to improve their accuracy. Our key metrics may differ
from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. Additionally, we rely on certain data streams for information related to downloads of the Exodus Platform, website
visits, and active users, as well as other statistics related to user use of the platform. These data streams are unaudited, and while we believe they are an accurate representation of the use of our platform, they could be inaccurate. If investors
or analysts do not perceive our metrics to be accurate representations of our business, or if we discover material inaccuracies in our metrics, our reputation, business, results of operations, and financial condition would be harmed.
We rely on search engine placement to attract a meaningful portion of our users. If we are not able to generate traffic to our website through search engines, or
increase the profile of the Exodus Platform through social media engagement, our ability to attract new users may be impaired.
Many of our users locate our website through internet search engines. The prominence of our website in response to internet searches is a critical factor in the attractiveness of the Exodus Platform,
and our digital marketing efforts, such as search engine optimization, are intended to improve our search result rankings and draw additional traffic to our website. Visits to our website could decline significantly if we are listed less
prominently or fail to appear in search results for any reason, including ineffective implementation of our digital marketing strategies or any change by a search engine to its ranking algorithms or advertising policies.
Visits to our website could also decline if our accounts on YouTube or other social media platforms are shut down or restricted. We work across these social networks to increase brand awareness of our
company, and to promote user acquisition. Any interruption of our use of social media platforms could result in reduced traffic to our website and diminished interest in the Exodus Platform, which could adversely affect our business and operating
results.
Some of our technology incorporates or utilizes software released under the terms of “open source” licenses, which could subject us to possible litigation and be
used by other companies to compete against us.
Aspects of the Exodus Platform and our applications include or utilize software released under the terms of open source licenses, including the MIT License, Internet Systems Consortium License, Apache
License, Mozilla Public License and GNU Lesser General Public License. We could be subject to suits by parties claiming ownership of what we believe to be open source software, noncompliance with open source licensing terms, or that our use of such
software infringes a third party’s intellectual property rights. Some open source software licenses require users who distribute or make available open source software as part of their software to publicly disclose all or part of the source code to
such software and/or make available any derivative works of the open source code (which could include our proprietary modifications and/or platform code into which such open source software has been integrated) on terms allowing further
modification and redistribution and at no or nominal cost. The terms of many open source licenses have not been interpreted by U.S. or foreign courts, and these licenses could be construed in a way that could impose other unanticipated conditions
or restrictions on our ability to commercialize the Exodus Platform. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose source code that we have decided to maintain as
proprietary or that would otherwise breach the terms or fail to meet the conditions of an open source license or third-party contract, such use could inadvertently occur and we may as a result be subject to claims for breach of contract,
infringement of intellectual property rights, or indemnification. Such inadvertent use could also require us to release our proprietary source code, pay damages, royalties, or license fees or other amounts, seek new licenses from third parties,
re-engineer our platform or applications, discontinue sales or distribution of software in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from the operation of our
business, maintenance of our platform or our development efforts, any of which could adversely affect our business.
We anticipate voluntarily making available some of our software under open source licenses in the future, which could be used by other companies to compete
against us.
A person or company could establish software, technology and networks based on the open source software we use and the software we publicly release under open source licenses, and it is possible such
products would be substantially similar to and competitive with the Exodus Platform. If this were to happen, it is possible the value of the Exodus Platform could decline. Many of the risks associated with the usage of open source software cannot
be eliminated, and could, if not properly addressed, negatively affect our business.
The Exodus Platform is free to download and use, and while this is an important part of our business strategy, we may not be able to realize all of the expected
benefits of this strategy. The costs and other detriments associated with this strategy could outweigh the benefits we receive from offering the Exodus Platform for free.
We have always offered the Exodus Platform as a free download to users. We believe that this approach is valuable for maintaining and growing our user base, and because users are more likely to engage
with monetized features once they develop an interest in our platform, this is an important part of our overall business strategy. However, to the extent that we do not achieve the expected benefits of this strategy, our business may be adversely
affected by making the Exodus Platform available for free. For example, users may misuse or publicly criticize our platform, violate our terms of service or applicable laws while using the Exodus Platform, or require substantial attention from our
user support teams, while never using any of the monetized features of the Exodus Platform.
If we fail to integrate the Exodus Platform with operating systems, platforms, and hardware that are developed by others, the Exodus Platform may become less
marketable, less competitive or obsolete and our business and results of operations would be harmed.
Our platform must integrate with a variety of operating systems, platforms, and hardware, and we need to continuously modify and enhance the Exodus Platform to adapt to changes in hardware, software
and networking technologies. The Exodus Platform is available for download on macOS, Microsoft Windows and Linux desktop devices, and on iOS and Android mobile devices. The availability of the Exodus Platform and its various functionalities is
therefore subject to standard policies and terms of service of these third-party platforms, which can affect the promotion, distribution, and operation generally of the Exodus Platform. Each platform provider has broad discretion to change and
interpret its terms of service and other policies with respect to our platform and its functionalities, and those changes and interpretations may be unfavorable. For example, both the Apple iTunes App Store and the Google Play Store have imposed
specific restrictions on the types and functionalities of digital asset-related apps available on those platforms. A platform provider may also change its fee structure, add fees associated with access to and use of its platform, or restrict how
users can access the platform, which would similarly be unfavorable.
We have previously identified a material weakness in our internal control over financial reporting and, if the remediation of the material weakness is not
effective, or if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect
investor confidence in us and the price of our common stock.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement
of our consolidated financial statements will not be prevented or detected on a timely basis. We previously identified a material weakness in our internal control over financial reporting specific to our accounting for previously issued
derivative instruments and was remediated during 2022. We currently have no derivative instruments and have no plans to issue derivative instruments in the future. In the unexpected event that we enter
into or issue derivative instruments, we would expect to engage outside experts to consult on such complex, non-routine derivative transactions if we do have not such expertise available in house. The Company previously identified
material weaknesses in its internal control over financial reporting with respect to the quantity of its resources. Management is committed to remediating its material weaknesses as promptly as possible and is in the process of implementing its
remediation plan. We intend to hire accounting personnel and an additional SOX readiness resource as well as implement processes and controls to better identify and manage segregation of duties intended to
remediate the identified control activities material weaknesses. However, we cannot provide any assurances that the measures that we have taken will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you
that we have identified all of our existing material weaknesses.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our
results of operations could be adversely affected.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires our
management to make estimates and assumptions that affect the amounts reported and disclosed in our consolidated financial statements and accompanying notes. We base our estimates and assumptions 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 assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, the valuation of digital assets, and software development costs.
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 industry or financial
analysts and investors, resulting in a decline in the trading price of our Class A common stock.
Additionally, we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards,
or changes to existing standards, and changes in their interpretation, we might be required to change our accounting policies, alter our operational policies and implement new or enhance existing systems so that they reflect new or amended
financial reporting standards, or we may be required to restate our published consolidated financial statements. Such changes to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial
condition, and profit and loss, or cause an adverse deviation from our revenue and operating profit and loss targets, which may negatively impact our results of operations.
We may make acquisitions, investments in other companies, partnerships, alliances or other strategic transactions that could be material to our business, results
of operations, financial condition and prospects. Such strategic transactions could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value, and adversely affect our
results of operations, financial condition, and prospects.
We believe that our long-term growth depends in part on our ability to develop and monetize additional aspects of our platform, which we may pursue through acquisitions, investments in other
companies, partnerships, alliances or other strategic transactions.
Our ability as an organization to successfully acquire technologies or businesses is unproven. We may not be able to find suitable acquisition candidates and we may not be able to complete
acquisitions on favorable terms, if at all. Even if we do complete an acquisition, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by users, developers, or
investors. In addition, we may not be able to integrate acquired businesses successfully or effectively manage the combined company following an acquisition. If we fail to successfully integrate our acquisitions, or the people or technologies
associated with those acquisitions, into our company, the results of operations of the combined company could be adversely affected. Any integration process will require significant time and resources, require significant attention from management,
and disrupt the ordinary functioning of our business, and we may not be able to manage the process successfully, which could adversely affect our business, results of operations, and financial condition. In addition, we may not successfully
evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges.
We may also enter into relationships with other businesses, which could involve joint ventures, collaboration agreements, investments in other companies, or alliances. Negotiating these transactions
can be time-consuming, difficult, and costly, and our ability to close these transactions may be subject to third-party approvals, such as government regulatory approvals, which are beyond our control. Consequently, we cannot assure you that these
transactions, once undertaken and announced, will close or will lead to commercial benefit for us.
In connection with the foregoing strategic transactions, we may:
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issue additional equity securities that would dilute our stockholders;
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use cash that we may need in the future to operate our business;
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incur debt on terms unfavorable to us or that we are unable to repay;
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incur large charges or substantial liabilities;
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encounter difficulties integrating diverse business cultures; and
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become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges.
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These challenges related to acquisitions or other strategic transactions could adversely affect our business, results of operations, financial condition, and prospects.
We rely on assumptions and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our
business.
We calculate our Monthly Active Users (“MAUs”) using internal company data that has not been independently verified. While these numbers are based on what we
believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring MAUs. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy, and we
may have technical bugs or errors in our measurement processes. Our measure of MAUs may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If our partners or
investors do not perceive our metrics to be accurate, or if we discover material inaccuracies in our metrics, our reputation may be harmed and our partners, may be less willing to engage with the Exodus Platform, which could negatively affect our
business and operating results. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance. If investors, analysts or customers do
not believe our reported measures, such as MAUs, are sufficient or accurately reflect our business, we may receive negative publicity and our operating results may be adversely impacted.
Risks Related to the Common Stock Tokens and Trading on an ATS
Our Class A common stock exists solely as book-entry shares within the records of the Securitize LLC, a Delaware limited liability company (“Transfer Agent”).
Shares of our Class A common stock do not have traditional share certificates. Each share of our Class A common stock is represented by a digital token (“Common Stock Token”) that can be viewed through the
Exodus Platform. Common Stock Tokens are not shares of common stock; rather, they are digital representations of the number of shares purchased and held by a given stockholder. The ownership and transfer of shares of our Class A common stock are
recorded in book-entry form by the Transfer Agent and, recorded by the Transfer Agent on a blockchain network approved by our Transfer Agent, which is an open-source, public, distributed ledger that is secured using cryptography, using the Common
Stock Tokens. Common Stock Tokens are created, held and maintained by the Transfer Agent, and not by Exodus. Our Class A common stock and Common Stock Tokens are subject to the following risks.
We intend to apply for the listing of our Class A common stock on a national securities exchange; however, we cannot provide any assurance that we will be
successful in making our Class A common stock available to trade on a national securities exchange or, even if we do, that holders of our Class A common stock will be able to sell their shares or do so at a certain price.
We intend to apply for the listing of our Class A common stock on a national securities exchange regulated by the SEC. Our efforts to do so, however, may not be successful, and there can be no
assurance that our Class A common stock will become available for trading on a national securities exchange in the near term or at all.
In addition, our Common Stock Tokens are not currently supported by a national securities exchange. Our Transfer Agent will continue to support our Common Stock Tokens and has the ability to support
shareholders who want to transfer Common Stock Tokens to shares tradable on a national securities exchange. However, this process is likely to be manual and time consuming and may result in the inability of shareholders to trade or otherwise
utilize their shares during this process.
Further, even if we are successful in listing our Class A common stock on a national securities exchange, the national securities exchange on which shares of our Class A common stock are made
available to trade may only provide limited liquidity for purchasers and sellers of our shares. There is no guarantee that purchasers or holders of Class A common stock will be able to sell those shares or do so at any particular price.
Our Class A common stock is currently available to trade on ATSs; however, the ATSs may experience limited volume and liquidity.
In order to maintain the system of Class A common stock represented by Common Stock Tokens, our Class A common stock is issued and available for purchase through our Transfer Agent and can be traded
through tZERO ATS, LLC (“tZERO”), the regulated alternative trading system and FINRA member broker-dealer subsidiary of tZERO Technologies, LLC, a leader in blockchain innovation and liquidity for digital
assets, and Securitize Markets, LLC, a registered broker-dealer and member of FINRA and subsidiary of Securities (“Securitize Markets”). Both the Transfer Agent and tZERO have the capability to support
trades in our Class A common stock and transfers of our Common Stock Tokens. However, the Common Stock Tokens may not be supported by all ATSs that may trade our Class A common stock. Holders of shares of our Class A common stock may transfer such
shares through the book-entry transfer facilities of the Transfer Agent even if there is no means by which to separately transfer the Common Stock Tokens. Any ATS on which shares of our Class A common stock are made available to trade may only
provide limited liquidity for purchasers and sellers of our shares. Only subscribers who fulfill the Transfer Agent’s and such ATS’s requirements that enable the subscriber to create an account with the Transfer Agent and ATS may buy and sell our
Class A common stock. In addition, because our Class A common stock is distinct from other securities that trade on a national market system (“ NMS”), any ATS on which our Class A common stock may trade may
experience limited trading volume due to a relatively small number of shares trading on the ATS. It is also likely that any ATS on which our shares are made available to trade will not have market makers, specialists or other institutions that
stand ready to buy and sell our shares. Instead, it is likely that a seller will be able to sell shares only if there is a willing buyer interacting with the ATS at the same time the seller is, and only if that buyer wants to buy at the price and
in the amount indicated by the seller. The same is true, in reverse, for a potential buyer. As a result, this novel trading system may have limited liquidity, resulting in a lower or higher price or greater volatility than would be the case with
greater liquidity, and consequently our Class A common stock may be less liquid than traditional common stock that is not represented by Common Stock Tokens.
Although our Class A common stock may be sold in peer-to-peer transactions and the Common Stock Tokens transferred in accordance with such sale, the availability of counterparties to such transactions
is limited to other shareholders or other eligible purchasers who have submitted to the Transfer Agent’s anti-money laundering (“AML”) and know your customer (“KYC”)
procedures and have been whitelisted by the Transfer Agent. In addition, a current shareholder who wishes to transfer Common Stock Tokens must know the blockchain account address and/or identity of an approved potential counter party in order to
engage in peer-to-peer transactions; neither we nor our Transfer Agent will publish such information. There may be relatively few investors to whom our Class A common stock and Common Stock Tokens can be transferred in a peer-to-peer transaction,
and there may not be a mechanism to readily identify other holders interested in selling our Class A common stock or persons interested in purchasing our Class A common stock. Consequently, there may be limited to no liquidity in our Class A common
stock. As a result, shareholders may not be able to sell their Class A common stock represented by Common Stock Tokens on a timely basis or at all.
Public data related to holders of our Common Stock Tokens and transaction history involving the Common Stock Tokens will be viewable on the blockchain network we choose to use for the Common Stock
Tokens. As the Common Stock Token represents shares of our Class A common stock, the ability to view the transaction history will serve as an ability to view reasonably accurate data regarding the holders of our Class A common stock and
transactions in our Class A common stock. The information may not be fully accurate, however, as the official record of transactions in our Class A common stock is kept by the Transfer Agent using its book entry methods. Ownership and transfer of
Common Stock Tokens held in an Exodus wallet is validated through the use of cryptography, in other words, by computers using algorithms to solve complex mathematical equations that prove a shareholder controls the account containing our Common
Stock Tokens and wants a transaction to be sent. Authentication ensures that only the owner of shares of our Class A common stock can transfer the Common Stock Tokens in an account. There may be a limited number of eligible investors available to
participate in such transactions.
Although records of peer-to-peer transactions in Common Stock Tokens will be viewable on the blockchain network, record and beneficial ownership of our Class A common stock is reflected on the
book-entry records of the Transfer Agent. The Transfer Agent is regulated by the SEC and the Transfer Agent’s records constitute the official shareholder records of our Class A common stock and govern the record ownership of our Class A common
stock in all circumstances.
The record of ownership of each Exodus wallet is available to the general public and it may be possible for members of the public to determine the identity of the record holders of the accounts.
Although the record of ownership included in the relevant blockchain is a non-controlling “courtesy copy” of the records maintained by the Transfer Agent, it is publicly available. The publicly available information will include the digital account
address of each holder of record transacting in our Common Stock Tokens and the entire history of each Exodus wallet, but it will not include any names or similar identifiers. As a result, it may be possible for members of the public to determine
the identity of the record holders of certain Exodus wallets based on the publicly available information in the blockchain copy, as well as other publicly available information, including, but not limited to, any ownership reports required to be
filed with the SEC regarding the ownership of our Class A common stock or Common Stock Tokens. To the extent that the Transfer Agent’s records and the duplicative records on the blockchain get out of synchronization, there could be a delay while
the Transfer Agent corrects any such errors, and such errors may cause investors confusion with respect to their record holdings of our Class A common stock and Common Stock Tokens. This could adversely affect the liquidity of our Class A common
stock.
If we are successful listing our shares with a national securities exchange, our shares will cease trading on the ATSs.
ATSs currently are not able to support trading for share classes that are currently traded on a national securities exchange. As such, we intend to delist from the ATSs where our shares currently
trade in advance of any national securities exchange listing. This will allow for our shareholders currently utilizing those services to transfer their shares to a format compatible with the national securities exchange. During this transition
period, there may be no active trading venue for our shares.
The trading ledger showing trades in our Common Stock Tokens is publicly available, which may give rise to privacy concerns.
The distributed ledger used to record transfers of our Common Stock Tokens is available to the public and stores the complete trading history from the issuance of the Common Stock Tokens. The Common
Stock Tokens are represented by ledger balances and secured by cryptographic key pairs and only the public-key-derived account address is exposed to the public on the distributed ledger. The personal identity information necessary to associate a
public key representing a given block of Common Stock Tokens with the owner of our Class A common stock is maintained by the Transfer Agent in a proprietary ledger system that is not exposed to the public. As such, robust and transparent trading
data, other than stockholder identity, with respect to our Common Stock Tokens is publicly available. This may make it more difficult for stockholders to execute certain trading strategies using their Common Stock Tokens. If there are security
breaches with respect to the proprietary ledger resulting in theft of the information necessary to link personal identity with public keys, the stolen information could be used to determine the affected stockholder’s complete trading history in our
Common Stock Tokens and, to the extent that data is an accurate reflection of transactions in our Class A common stock, the affected stockholder’s complete trading history in our Class A common stock. Moreover, concerns over these issues may limit
adoption of this novel trading system by a range of potential investors, reducing liquidity of our Class A common stock.
The private cryptographic keys representing our Common Stock Tokens could be stolen.
Our Common Stock Tokens are represented by ledger balances and secured by cryptographic key pairs. The associated private key is necessary to effect the transfer of a given block of our Common Stock
Tokens and, as such, is meant to be kept private. The general public, however, is not yet accustomed to using secure cryptographic methods and managing private keys. To make the system more user-friendly, at least initially, any ATS trading our
Class A common stock through the mechanism of transferring Common Stock Tokens, as well as any broker-dealers participating on that ATS is expected to hold the private keys on behalf of security holders. This will enable security holders to manage
their stockholder account with a simple login and password, similar to traditional online brokerage accounts. As such, this system may be as vulnerable to cyber theft as a traditional online brokerage account would be. If the repository is hacked
and private keys are stolen, the thief could transfer affected Common Stock Tokens to its own account thereby obtaining control over shares of our Class A common stock, which the thief could then sell. Each broker-dealer with access to an ATS
trading our Class A common stock is expected to know its users that have accounts set up for trading our Common Stock Tokens, but there can be no assurance that such theft would be detected in time to hold the culprit accountable. The risk of theft
of private keys is heightened so long as a centralized repository holds the private keys on behalf of security holders, as the thief is able to target a single security system for breach of multiple accounts.
The number of securities traded on ATSs that support the use of our Common Stock Tokens may be very small, making the market price more easily manipulated.
Our Class A common stock is currently traded on tZERO and Securitize Markets, both ATSs that supports the use of our Common Stock Tokens. While such ATSs may have adopted policies and procedures to
limit manipulations of the trading price of our Class A common stock contrary to applicable law, and while the risk of market manipulation exists in connection with the trading of any securities, the risk may be greater for our Class A common stock
because an ATS is a closed system that does not have the same breadth of market and liquidity as an NMS. There can be no assurance that the efforts of any ATS or any broker-dealers will be sufficient to prevent such market manipulation. For
example, there can be no assurance that a security holder will not be able to manipulate the stock price by opening multiple accounts and trading among those accounts.
The payment mechanics for securities represented digitally are novel and untested.
Our Class A common stock is currently traded on tZERO and Securitize Markets, both ATSs that support the use of our Common Stock Tokens. While
such ATS may have adopted payment mechanics that match the speed and irrevocability associated with immediate or nearly immediate transfers of digital assets on a blockchain, such payment mechanics are novel and relatively untested. To the extent
any ATS and applicable broker-dealer net capital regulations would permit broker-dealers to issue cash balances on the distributed ledger in amounts that exceed actual cash held by such broker-dealer in its user accounts, there could be systemic
risk to the system associated with payment defaults.
An ATS is not a stock exchange and has no listing requirements for issuers or for the securities traded.
There are no minimum price or other listing requirements for trading securities on an ATS as there are for trading securities on the NYSE, Nasdaq or other NMS trading platforms. As a result, trades of
our Class A common stock on an ATS may not be at prices that represent the national best bid or offer prices of securities that could be considered similar securities or that otherwise correspond to the prices of such securities on a national
securities exchange.
We rely on a Transfer Agent to maintain the books and records regarding ownership of our Class A common stock.
Ownership of our Class A common stock is based upon the books and records of the Transfer Agent. Our agreement with the Transfer Agent can be terminated by either party before the expiration of the
agreement with the Transfer Agent or any renewal thereof. If the Transfer Agent chooses to exercise its termination rights or otherwise ceases to operate as a transfer agent, we would seek to engage a successor transfer agent. We are unlikely to
assume the role of transfer agent in such a situation, and no assurance can be given that we would be able to find a successor transfer agent. If we are unable to find a successor transfer agent, the trading market for our Class A common stock
would be adversely affected and it may be difficult or impossible for us to take any actions in regard to our Class A common stock such as: pay dividends or liquidation preference or provide voting rights to the correct holders of record of our
Class A common stock. Additionally, in the event that we choose to change to a different transfer agent, or if our Transfer Agent chooses to update the system that supports our Common Stock Tokens, including potentially transferring the Common
Stock Tokens to a new blockchain, clerical or record errors could occur.
Transactions involving our Class A common stock may not be properly reflected on the blockchain.
A significant feature of our Class A common stock is that, while the records as maintained by our Transfer Agent reflect record ownership of our Class A common stock, for all record holders on the
Transfer Agent’s official and controlling records there is a “courtesy copy” of certain ownership records on the blockchain used by the Common Stock Tokens. Following the Transfer Agent’s approval of any change in record ownership, the security
position information relevant to a record holder’s digital account address on the blockchain is updated consistent with changes to the Transfer Agent’s official books and records. To the extent that the Transfer Agent’s records and the “courtesy
copy” get out of sync, there could be a delay while the Transfer Agent corrects any such inconsistencies, and such inconsistencies may cause investors confusion with respect to their record holdings of our Class A common stock, which could
adversely affect the liquidity for, and market value of, our Class A common stock.
The distributed ledger technology used by the Transfer Agent is novel with respect to our Class A common stock and Common Stock Tokens and has been subject to
limited testing and usage.
Our Class A common stock is traded on a novel system used by our Transfer Agent specifically for trading securities represented by digital tokens and has been subject to only limited testing and
usage. This novel trading system is subject to all the usual risks associated with the fact it has received only limited testing and usage, including:
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a rapidly-evolving regulatory landscape focused on digital tokens and, potentially, on the technology underlying distributed ledgers, which might include security, privacy or other
regulatory concerns that could require the Transfer Agent to implement changes to its trading system for securities represented by digital tokens that could disrupt trading in our Class A common stock, or could shut down the Transfer Agent;
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the possibility of undiscovered technical flaws, including in the process by which system participants come to agreement on the state of the distributed ledger and the ownership of our
Common Stock Tokens recorded on the ledger;
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the possibility that cryptographic security measures that authenticate transactions and the distributed ledger could be compromised, which could allow an attacker to alter the distributed
ledger and the ownership of Common Stock Tokens recorded on the ledger, resulting in a corresponding loss of the holder’s Class A common stock represented by the Common Stock Tokens;
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the possibility of breakdowns and trading halts as a result of undiscovered flaws in the Transfer Agent that could prevent trades for a period of time;
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the possibility that changes to policies of the ledger limit the ability to withdraw and deposit fiat currency;
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the possibility that new technologies or services inhibit access to the blockchain network used by the Common Stock Tokens;
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the possibility that the Transfer Agent does not competently manage transfers, potentially disrupting transfers of Common Stock Tokens;
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the possibility that other participants in the ledger could collude to manipulate the share price or limit liquidity in our Class A common stock which could restrict your ability to
divest your holdings of our Class A common stock; and
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the possibility that an investor’s private key is lost or stolen and Exodus is unable to verify the loss or theft could result in irreversible client losses.
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Technology on which the Transfer Agent and any ATS may rely for their operations may not function properly.
The technology on which the Transfer Agent and any ATS relies, including any communications between such ATS and the Transfer Agent, may not function properly because of internal problems, including a
failure relating to API integrations, or as a result of cyber-attacks or external security breaches. Any such malfunction may adversely affect the ability of holders with a brokerage account at an ATS-executing broker-dealer to execute trades of
our Class A common stock on such ATS, or the ability of our Transfer Agent to transfer our Class A common stock. Moreover, since trading in our Class A common stock has been limited, any ATS order matching system may not function properly in cases
of increased trading volume. If the technology used by the Transfer Agent or any ATS we may use does not work as anticipated, trading of our Class A common stock could be limited or even suspended.
The potential application of U.S. laws regarding virtual currencies and money transmission to the Transfer Agent’s or any ATS’s use of a blockchain network is
unclear.
The non-controlling blockchain-based “courtesy copy” of record ownership uses technology that relies on and uses a blockchain network. Although the Transfer Agent or any ATS we may use maintain
certain licenses in connection with virtual currency applications, none of these parties are licensed under the virtual currency or money transmission regulations of any state in the United States or registered with the U.S. Department of the
Treasury Financial Crimes Enforcement Network (“FinCEN”). If any regulatory authority were to assert that additional licensing or registration was required by the Transfer Agent or any ATS, it could affect
the operations or viability of the Transfer Agent or any ATS, and could adversely affect the availability of trading venues for our Class A common stock. This in turn would have a material adverse effect on the liquidity of our Class A common stock
and the holders’ ability to trade such securities.
Risks Related to Ownership of Our Common Stock
There is no guarantee that our Class A common stock will hold its value or increase in value, and you may lose the amount of your investment in our Class A
common stock in whole or in part.
Any investment in our Class A common stock is highly speculative, and any return on an investment in our Class A common stock is contingent upon numerous circumstances, many of which (including legal
and regulatory conditions) are beyond our control. There is no assurance that purchasers will realize any return on their investments or that their entire investment will not be lost. For this reason, each purchaser should carefully read this Form
1-K and should consult with his or her own attorney, financial and tax advisors prior to making any investment decision with respect to our Class A common stock. Investors should only make an investment in our Class A common stock if they are
prepared to lose the entirety of their investment.
The market prices and trading volume of our shares of Class A common stock may experience rapid and substantial price volatility which could cause purchasers of
our Class A common stock to incur substantial losses.
Recently, the market prices and trading volume of shares of common stock of other small publicly traded with a limited number of shares available to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. Similarly, following the listing on a national securities exchange, shares of our Class A common stock may experience similar rapid and substantial price volatility unrelated to our financial performance, which could cause purchasers of our Class A common stock to incur substantial losses, which may be unpredictable and not bear any
relationship to our business and financial performance. Extreme fluctuations in the market price of our Class A common stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, the
direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our Class A common stock and any related hedging
and other trading factors.
Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our Class A common stock or result in fluctuations in the price or trading volume of our
common stock, including:
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actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our earnings;
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our inability to pay dividends or other distributions;
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publication of research reports by analysts or others about us or digital assets including the NFT industry which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis;
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changes in market valuations of similar companies;
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market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders;
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additions or departures of key personnel;
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actions by institutional or significant stockholders;
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short interest in our stock and the market response to such short interest;
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the participation of our stockholders in social media platforms targeted at speculative investing;
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speculation in the press or investment community about our company or industry; strategic actions by us or our competitors, such as acquisitions or other investments;
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legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal Revenue Service (“IRS”);
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investigations, proceedings, or litigation that involve or affect us;
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the occurrence of any of the other risk factors included in this Form 1-K; and
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general market and economic conditions.
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If there is extreme market volatility and trading patterns in our Class A common stock, it may create several risks for investors, including the following:
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the market price of our Class A common stock may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals;
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if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our Class A common stock could incur substantial losses as prices decline once the level of market
volatility has abated;
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if the future market price of our Class A common stock declines, purchasers may be unable to resell their shares at or above the price at which they were acquired.
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We cannot assure you that the market of our Class A common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses.
Further, we may incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting
us. Accordingly, the market price of our shares of Class A common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business.
An active trading market for our Class A common stock may not be sustained.
We intend to apply for the listing of our Class A common stock on a national securities exchange. Our efforts to do so, however, may not be successful, and there can be no assurance that our Class A
common stock will become available for trading on a national securities exchange in the near term or at all. Currently, our Class A common stock is available for trading on several ATSs, including Securitize Markets. We cannot assure you that an
active trading market for our Class A common stock on an ATS or elsewhere exists or will be sustained.
An absence of market makers to develop a trading market in our Class A common stock may contribute to a lack of liquidity in our Class A common stock.
Most securities that are publicly traded in the United States have one or more broker-dealers acting as “market makers” for the security. A market maker is a firm that stands ready to buy and sell the
security on a regular and continuous basis at publicly quoted prices. If there are few or no market makers for our Class A common stock this may contribute to a lack of liquidity in our Class A common stock and could have a material adverse effect
on holders’ ability to trade our Class A common stock.
We offered shares of our Class A common stock that are digitally represented by a Common Stock Token that was created and supported by the Transfer Agent. The
Common Stock Tokens are not common stock, and we may decide to change our Transfer Agent to a new entity that does not support the Common Stock Token or discontinue the Common Stock Token, and either of these decisions could have a negative impact
on the price of our Class A common stock.
Our Class A common stock exists solely as book-entry shares within the records of the Transfer Agent. Shares of our Class A common stock do not have traditional share certificates. Each share of our
Class A common stock is represented by a digital Common Stock Token that can be viewed through the Exodus Platform. Common Stock Tokens are not shares of common stock; rather, they are digital representations of the number of shares purchased and
held by a given stockholder. This digital representation of the number of shares purchased and held (the “digital stock record”) is a representation of how many shares of Class A common stock are owned by an
individual, and a holder can reasonably expect that the digital stock record is correct, but the digital stock records are not the actual shares. Should we choose to discontinue the usage of Common Stock Tokens and revert to traditional or other
methods of share certification, this decision will have no effect on the ability of holders of our Class A common stock to trade their Class A common stock on an ATS, or through other means. The ownership and transfer of shares of our Class A
common stock is recorded in book-entry form by the Transfer Agent and, is also recorded by the Transfer Agent on a blockchain network approved by our Transfer Agent using the Common Stock Tokens. Although records of peer-to-peer transfers of Common
Stock Tokens are viewable on a blockchain network, record and beneficial ownership of our Class A common stock is reflected on the book-entry records of the Transfer Agent. The Transfer Agent is regulated by the SEC and the Transfer Agent’s records
constitute the official shareholder records for our Class A common stock and govern the record ownership of our Class A common stock in all circumstances.
Common Stock Tokens are “Securitize DS Protocol” digital tokens that are transferrable between approved accounts in peer-to-peer transactions on a blockchain network approved by the Transfer Agent.
Common Stock Tokens are created, held, distributed, maintained and deleted by the Transfer Agent, and not by Exodus. The Transfer Agent uses the Securitize DS Standard (which can interface with various blockchain networks’ programming standards) to
program any relevant compliance-related transfer restrictions that would traditionally have been printed on a paper stock certificate onto “smart contracts” (computer programs written to the relevant blockchain), which allows the smart contract to
impose the relevant conditions on the transfer of the Common Stock Tokens. One example of such coding is a restriction on to whom Common Stock Tokens may be transferred. Common Stock Tokens cannot be created or deleted by any entity other than the
Transfer Agent.
We retain the right to select and change our transfer agent. We may choose to change our transfer agent, and if we were to do so, our current Transfer Agent would directly provide all stockholder data
to the new transfer agent. As we do not retain any of our stockholders’ personal information in their capacity as stockholders, we are not able to directly transfer this information. It is possible that if we chose to change our transfer agent,
there may be unforeseen complications in the process of changing our transfer agent. This could result in, among other issues, the loss of shareholder data, a delay in the recording of shareholder activities in regard to their shares or a loss or
deletion of all Common Stock Tokens. In addition, it is possible that we might choose to change our Transfer Agent to a transfer agent that does not support the Common Stock Tokens. This might result in the full replacement of Common Stock Tokens
with another form of digital token, or it may result in the elimination of all forms of digital representations of our Class A common stock.
We also retain the right to list our Class A common stock on different trading platforms, which may or may not support our Common Stock Tokens. Should we choose to list on a different trading
platform, our current Transfer Agent would directly provide all stockholder data to the relevant transfer agent for the new platform. If the new platform did not support our Common Stock Tokens or other forms of digital representations of our Class
A common stock, we may no longer be able to maintain a digital representation of our Class A common stock.
We currently do not intend, but may choose in the future, to discontinue the Common Stock Token and instead use traditional stock certificates or other forms of certification for our Class A common
stock. Should we choose to make this change, any Common Stock Tokens held in a stockholder’s Exodus wallet would no longer represent the number of common shares held by such stockholder. In addition, any transition to traditional certificated or
other form of the representation of our Class A common stock may make our Class A common stock less appealing to our stockholders and potential purchasers, and as a result, the demand for our Class A common stock may decline, which may result in a
decrease in the price of our Class A common stock.
Any negative effect of the items discussed above could result in a material adverse effect on the price of our Class A common stock.
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in
the price of our Class A common stock.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will
be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
We may be subject to ongoing reporting requirements.
Subsequent to the filing of a Form 10 and the effectiveness thereof within 60 days, we would be subject to the reporting requirements of the Exchange Act and Securities Act. We expect that the
requirements of these rules and regulations would continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and
resources.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will
be exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or team members.
Our amended and restated bylaws provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or
proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware (“DGCL”),
our amended and restated certificate of incorporation or amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to claims as to which
the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days
following such determination), claims that are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or claims for which the Court of Chancery of the State of Delaware does not have
subject matter jurisdiction. For instance, the provision does not preclude the filing of claims brought to enforce any liability or duty created by the Exchange Act or Securities Act of 1933 (the “Securities Act”)
or the rules and regulations thereunder in federal court. In addition, our amended and restated bylaws provide that the federal district courts of the United States shall be the sole and exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act.
The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled
that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and
the rules and regulations thereunder.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other team members,
which may discourage such lawsuits against us and our directors, officers and other team members. Alternatively, if a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, and results of operations.
Future sales of our Class A common stock could cause our stock price to fall.
Our stock price could decline as a result of sales of a large number of shares of our Class A common stock or the perception that these sales could occur. These sales, or the possibility that these
sales may occur, also might make it more difficult for us to sell equity or equity-linked securities in the future at a time and at a price that we deem appropriate.
As of December 31, 2022, we had 3,543,791 shares of our Class A common stock, 21,798,414 shares of our Class B common stock and options to purchase an aggregate of 2,190,979 shares of our Class B
common stock outstanding. All of the shares of Class A common stock are freely tradable without restriction or further registration under the Securities Act, except for shares held by our “affiliates,” as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of our common stock and shares issuable upon the conversion or exercise of outstanding securities will be deemed “restricted securities” as that term is defined under Rule 144. Restricted securities
may be sold in the public market only if their offer and sale is registered under the Securities Act or if the offer and sale of those securities qualify for an exemption from registration, including the exemption provided by Rule 144 under the
Securities Act. Future sales of our common stock may also be subject to applicable state securities or “blue sky” laws.
As of December 31, 2022, 1,823,486 shares of our Class A common stock, amounting to 51.5% of our Class A common stock, were owned by Alameda Research Ventures LLC (“Alameda”), an entity that
filed for bankruptcy in November 2022. Alameda may sell its shares to third parties or to the Company, may distribute its shares to creditors, or may continue to hold its shares. The sale of such shares in the public market, or the perception
that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. The purchase of such shares by the Company may require significant amounts of cash that we may need in the future to operate our business.
In addition, in the future, we may issue additional shares of Class A common stock or other equity or debt securities convertible into Class A common stock in connection with a financing, acquisition,
commercial relationship, litigation settlement, team member arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
The dual class structure of our common stock has the effect of concentrating voting control with certain stockholders, including our executive officers, team
members and directors and their affiliates, which will limit your ability to influence the outcome of important transactions, including a change in control.
Our authorized common stock is divided into two series, denominated as “Class A common stock” and “Class B common stock.” Each share of Class A common stock is entitled to one vote per share. Each
share of Class B common stock is entitled to ten votes per share. Holders of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of
stockholders, unless otherwise required by law or our amended and restated certificate of incorporation.
The stockholders holding shares of Class B common stock collectively beneficially own shares representing approximately 98% of the voting power of our outstanding capital stock. Jon Paul Richardson
and Daniel Castagnoli, each an executive officer and director of the Company, control approximately 85% of the voting power of our outstanding capital stock. Because of our dual class structure, we anticipate that, for the foreseeable future, these
individuals will continue to be able to control all matters submitted to our stockholders for approval, including the election and removal of directors.
These holders of Class B common stock may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control
may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company and might ultimately affect
the market price of our Class A common stock.
Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert
automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, transfers for tax and
estate planning purposes, so long as the transferring holder of Class B common stock continues to hold exclusive voting and dispositive power with respect to the shares transferred. All shares of Class B common stock will convert automatically into
shares of Class A common stock upon the date on which the Class B common stock ceases to represent at least 10% of the total voting power of our outstanding common stock. The conversion of shares of Class B common stock into shares of Class A
common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term, which may include our executive officers and directors and their affiliates.
Anti-takeover provisions in our charter documents could make an acquisition of us difficult, limit attempts by our stockholders to replace or remove our current
management and adversely affect our stock price.
Certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of delaying, deferring, or discouraging another person from
acquiring control of our company. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and encourage persons seeking to acquire control of our company to
first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us
because negotiation of these proposals could result in an improvement of their terms.
Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that may have the effect of deterring hostile takeovers, or delaying or
preventing changes in control of our management team or changes in our board of directors or our governance or related policies. These provisions:
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eliminate the ability of our stockholders to call special meetings of our stockholders;
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establish advance notice procedures for stockholders seeking to bring business before our meetings of stockholders or to nominate candidates for election as directors at our meetings of
stockholders;
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do not provide for cumulative voting;
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authorize the issuance up to 5,000,000 per Article IV of the COI: https://www.sec.gov/Archives/edgar/data/1821534/000114036121006439/nt10013846x8_ex2-1.htm
of “blank check” preferred stock by our board of directors without further action by the stockholders;
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reflect the dual class structure for our common stock; and
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restrict the forum for certain litigation against us to certain federal or Delaware state courts.
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In addition, our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that become effective only after the date on which the Class B
common stock ceases to represent at least 50% of the total voting power of our outstanding capital stock (the “Class B Threshold Date”). These provisions may also have the effect of deterring hostile
takeovers, or delaying or preventing changes in control of our management team or changes in our board of directors or our governance or policy, including the following:
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permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
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establish a board of directors classified into three classes of directors;
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require cause to remove a director;
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require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws;
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provide that our amended and restated bylaws may be amended by a simple majority vote of our board of directors;
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prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
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Any provision of our amended and restated certificate of incorporation or amended and restated bylaws that is in effect that has the effect of delaying or deterring a change in control could limit the
opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
We are not subject to the provisions of Section 203 of the Delaware General Corporation Law, which could negatively affect your investment.
We elected in our amended and restated certificate of incorporation to not be subject to the provisions of Section 203 of the Delaware General Corporation Law (“Section
203”). In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An
“interested stockholder” is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation’s voting stock. Our decision not to be subject to Section 203 will
allow, for example, our founders, Jon Paul Richardson and Daniel Castagnoli, who together held an aggregate of approximately 85% of the voting power of our Class A and Class B common stock as of December 31, 2022. This may make us more vulnerable
to takeovers that are completed without the approval of our board of directors and/or without giving us the ability to prohibit or delay such takeovers as effectively.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us, because
companies in emerging industries have experienced significant stock price volatility in recent years, especially due to the recent disruptions in the digital asset markets. If we face such litigation, it could result in substantial costs and a
diversion of management’s attention and resources, which could harm our business.
If securities or industry analysts do not publish research or reports about our Class A common stock or publish negative reports or recommendations about our
Class A common stock, this may adversely impact the price and liquidity of our Class A common stock.
The trading market for our Class A common stock may depend, to some extent, on the research and reports that securities or industry analysts publish about us, our business, our market or our
competitors. We do not have any control over these analysts. If one or more of the analysts who may in the future cover us downgrade our Class A common stock or change their opinion of our Class A common stock, the price of our securities would
likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price and trading volume of our Class A common stock to
decline.
We offered our Class A common stock pursuant to recent amendments to Regulation A promulgated pursuant to the Jumpstart Our Business Startups Act of 2012, or the
JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to Tier 2 issuers will make our Class A common stock less attractive to purchasers as compared to a traditional public offering.
As a Tier 2 issuer, we are subject to scaled disclosure and reporting requirements, which may make our Class A common stock less attractive to purchasers as compared to a traditional public offering
which would have relatively enhanced disclosure and more frequent financial reporting. In addition, given the relative lack of regulatory precedence regarding the recent amendments to Regulation A, there is a significant amount of regulatory
uncertainty in regard to how the SEC or the individual state securities regulators will regulate both the offer and sale of our securities, as well as any ongoing compliance that we may be subject to. If our scaled disclosure and reporting
requirements, or regulatory uncertainty regarding Regulation A, reduce the attractiveness of our Class A common stock, we may be unable to raise the necessary funds to develop and grow the Exodus Platform, which could severely affect the value of
our Class A common stock.
Holders of our Class A common stock are responsible for ensuring that they comply with federal and state securities regulations in regard to making any secondary
sales.
Holders of shares of our Class A common stock are responsible for ensuring that any secondary sale of our Class A common stock is performed in accordance with applicable federal and state securities
regulations. Our Class A common stock may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state “blue sky laws” or other
jurisdictions’ securities laws. Purchasers of our Class A common stock who attempt to sell or transfer our Class A common stock on the secondary market may be deemed to be distributors or brokers under federal or state securities laws, and should
ensure compliance with such laws when engaging in secondary sales or transfers.
The Company is currently a “controlled company” within the meaning of the rules of the national securities exchanges and, as a result, qualifies for, and could
rely on, exemptions from certain corporate governance requirements.
Our directors and officers currently have beneficial ownership of a majority of the total voting power. As a result, we would be considered a “controlled company” within the meaning of the corporate
governance standards of the national securities exchanges. Currently, under the rules of the national securities exchanges, a company of which more than 50% of the outstanding voting power is held by an individual, group or another company is a
“controlled company” and may be exempt from certain stock exchange corporate governance requirements, which, generally, include the following:
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the requirement that a majority of the board consist of independent directors;
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the requirement that the company’s nominating and corporate governance committee consists entirely of independent directors; and
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the requirement that the company’s compensation committee consists entirely of independent directors.
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If we were to elect to be exempt from some or all of these corporate governance requirements, you may not have the same protections afforded to stockholders of companies that are subject to all of the
corporate governance requirements of a national securities exchange.
Risks Related to Regulation
The regulatory regime governing blockchain technologies, digital assets, tokens and token offerings such as the Exodus Platform and the Common Stock Tokens is
uncertain, and new regulations or policies may materially adversely affect the development and utilization of the Exodus Platform.
Regulation of tokens, token offerings, digital assets, blockchain technologies, and digital asset exchanges currently is undeveloped and likely to rapidly evolve. The regulatory landscape varies
significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future, adopt laws, regulations,
guidance, or other actions, which may severely impact the development and growth of the Exodus Platform. Failure by us or certain users of the Exodus Platform to comply with any laws, rules and regulations, some of which may not exist yet or are
subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.
As blockchain networks and blockchain assets have grown in popularity and in market size, federal and state agencies have taken an interest in, and in some cases begun to regulate, their use and
operation. In the case of virtual currencies, state regulators like the New York Department of Financial Services have created new regulatory frameworks. Others, as in Texas, have published guidance on how their existing regulatory regimes apply to
virtual currencies. Some states, like New Hampshire, North Carolina, and Washington, have amended their state’s statutes to include virtual currencies into existing licensing regimes. Treatment of virtual currencies continues to evolve under
federal law as well. The Department of the Treasury, the SEC, and the Commodity Futures Trading Commission (“CFTC”), for example, have published guidance on the treatment of virtual currencies. 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. Both federal
and state agencies have instituted enforcement actions against those violating their interpretation of existing laws.
The regulation of non-currency use of blockchain assets is also uncertain. The CFTC has publicly taken the position that certain blockchain assets are commodities, and the SEC has issued a public
report stating federal securities laws require treating some blockchain assets as securities. To the extent that a domestic government or quasi-governmental agency exerts regulatory authority over a blockchain network or asset, we and the Exodus
Platform may be materially and adversely affected.
Blockchain networks also face an uncertain regulatory landscape in many foreign jurisdictions such as the European Union, China and Russia. Various foreign jurisdictions may, in the near future, adopt
laws, regulations or directives that affect the Exodus Platform. Any such laws, regulations or directives may conflict with those of the United States or may directly and negatively impact our business. The effect of any future regulatory change is
impossible to predict, but such change could be substantial and materially adverse to our development and growth and the development and utilization of the Exodus Platform.
New laws and regulations or interpretations of existing laws and regulations, in the United States and other jurisdictions, are required in order for robust trading platforms and exchanges for
securities that are represented by digital tokens like our Common Stock Tokens to trade among retail investors. The recent spate of digital asset company bankruptcies could hasten the development of new laws and regulations of the digital asset
industry. This will affect the liquidity of our Class A common stock, the ability to access marketplaces or exchanges on which to trade the Common Stock Tokens, and the structure, rights and transferability of the Common Stock Tokens.
In addition, non-governmental parties may bring private legal actions against us or our affiliates, either individually or as a class, which may result in curtailment of, or inability to operate, the
Exodus Platform as intended, or judgments, settlements, fines or penalties against us or our affiliates.
To the extent licenses or other authorizations are required in one or more jurisdictions in which we operate or will operate, there is no guarantee that we will be granted such licenses or
authorizations. We may need to change our business model to comply with these licensing and/or registration requirements (or any other legal or regulatory requirements) in order to avoid violating applicable laws or regulations or because of the
cost of such compliance. Uncertainty in how the legal and regulatory environment will develop could negatively impact our development and growth and the development and utilization of the Exodus Platform.
We operate an interface that allows our users to connect to exchanges on which the users can trade digital assets, and we receive compensation from these
exchanges. Certain digital assets traded using access provided by our platform or other programs including staking, could be viewed as “securities” for purposes of state or federal regulations, and regulators might determine that the payments we
receive from the exchanges would cause us to be in violation of federal and state securities laws, which would negatively affect our business, financial condition and results of operation.
Offerings of securities in the United States are required under the Securities Act to either register with the SEC or to rely on an exemption from federal registration. Offerings of securities in the
United States may also be required to register with applicable state regulators as required by state law. Should an offering of securities in the United States occur and the issuer of the securities has not registered the offering and has not
performed the offering in reliance on an exemption from federal registration, under the laws of the United States such a security offering would be deemed illegal. Under the Securities Act, the definition of “security” is very broad and includes
the concept of an “investment contract.” An investment contract is any financial transaction that fits within the “Howey test,” a four-factor test based on an analysis of the nature of the transaction and
relevant caselaw. Certain digital assets could fall into the Howey definition of a security.
Our primary source of revenue is the operation of an interface, known as the Exchange Aggregator, that connects our users to third-party exchanges on which our users can trade one digital asset for
another digital asset. We do not engage in any trading of digital asset on our platform; however, we receive compensation from the third-party exchanges that have connected to our Exchange Aggregator. We charge our third-party providers a monthly
subscription fee for exchanges made by U.S. persons trading tokens. For exchanges made by non-U.S. persons, we charge our third-party providers a percentage of assets exchanged. Our activities with respect to any crypto assets that are deemed
securities could trigger the need for broker registration. If we were required to register as a broker-dealer and comply with applicable regulations, these developments could have a negative effect on our business, financial condition and results
of operations.
Recently, the SEC filed a complaint against Genesis Global Capital, LLC (“Genesis”) and Gemini Trust Company (“Gemini”)
for the unregistered offer and sale of securities to retail investors through the digital asset lending platform, Gemini Earn. Additionally, the SEC settled charges against Nexo Capital Inc. (“Nexo”) for
failing to register the offer and sale of its retail digital asset lending product. The SEC also settled charges against Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken (“Kraken”), for their failure to register the
offer and sale of their digital asset staking-as-a-service program, whereby investors transfer digital assets to Kraken for staking on a pooled basis in exchange for advertised annual investment returns. A number of third-party exchanges offer
staking and lending programs that are similar to the staking services and lending programs that were the subject of these recent actions. Although the Exodus Platform may allow users to use these types of services, they are always provided by
third-party exchanges through the Exodus Platform. Users do not transfer the assets used in these programs to their Exodus wallet; instead, the user interacts directly with the third-party exchange. Exodus has no control over user assets and
cannot “pool” assets or provide these services directly on the Exodus Platform in any way. Similarly, all rewards or returns received through these programs are determined by the relevant blockchain protocol or program sponsor rather than by
Exodus. The amount of user assets to stake or lend is also solely determined by the user. Since the user is participating in the blockchain staking or lending process, they may be deprived of the use of their assets as determined by the blockchain
protocol of the asset they are staking or the program sponsor. We charge the third-party provider of staking services a monthly subscription fee. To the extent third-party exchanges, services, or applications accessible through our product offer
similar staking or lending programs, such third-party exchanges or the providers of the relevant services or applications, may need to halt or restructure their programs or their entire platforms, which may result in an interruption of their
operations and cause the third-party exchanges to be unable to provide their services. Since providing access to the lending and staking programs accessible through our platform are lines of business for the Exodus Platform, any halt in operations
of those programs would have an adverse effect on our business, financial condition and results of operations.
In addition, if the staking or lending programs provided through third-party applications are deemed to be securities offerings, we could be deemed a “statutory underwriter” under Section 2(a)(11) of
the Securities Act. Section 2(a)(11) of the Securities Act provides that an “underwriter” is “any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or
participates, or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking.” A statutory underwriter is subject to the prospectus delivery
and liability provisions of the Securities Act and may be deemed to be conducting broker-dealer like activities that could in certain circumstances subject us to additional regulatory obligations. If we were subject to additional regulatory
obligations, those regulatory obligations could have a material adverse effect on our business, financial condition, and results of operations.
While the termination or suspension of any one third-party exchange is unlikely to materially impact the performance of the Exchange Aggregator or our results of operations, multiple terminations or
suspensions with multiple exchanges in a short period of time could impair the functionality of the Exchange Aggregator, resulting in user dissatisfaction and lost revenue.
Any of these developments could have a negative effect on our business, financial condition and results of operations.
We do not believe we have an obligation to register as a transfer agent under the Exchange Act, but a regulator may disagree.
It is possible that we could be viewed as a “transfer agent” for purposes of federal or state law. Under the Exchange Act, a transfer agent is a person who engages, with respect to securities
registered under Section 12 of the Exchange Act, in (a) countersigning issued securities, (b) monitoring issued securities, with the goal of preventing unauthorized issuances, (c) registering transfers of issued securities, (d) exchanging or
converting issued securities, or (e) transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates. Transfer agents are typically required to register with the SEC under the Exchange Act.
Because our platform allows our users to connect through APIs to exchanges that permit the transfer of digital assets, it is possible that if any digital assets traded through the connected exchanges
were deemed to be securities, our activity as a platform connecting users to those exchanges could result in the SEC or another regulator determining that we have acted as a transfer agent. We believe that the provision of a platform that provides
a connection to an exchange through an API does not result in the entity providing the platform being deemed to be a transfer agent; however, it is possible that the SEC or another regulator could disagree with our position. If that were the case,
we could be forced to register as a transfer agent and comply with applicable law, which could lead to us experiencing significant costs and could force us to change or cease our operations. Any of these developments could have a negative effect on
our business, financial condition and results of operations.
We do not believe we have an obligation to register with the SEC as a clearing agency, though the SEC may disagree.
It is possible that the SEC could determine that we are a clearing agency for purposes of federal law. Under the Exchange Act, a clearing agency is any person who (a) acts as an intermediary in making
payments or deliveries, or both, in connection with transactions in securities; (b) provides facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities
transactions, or for the allocation of securities settlement responsibilities; (c) acts as a custodian of securities in connection with a system for the central handling of securities whereby all securities of a particular class or series of any
issuer deposited within the system are treated as fungible and may be transferred, loaned, or pledged by bookkeeping entry without physical delivery of securities certificates; or (d) otherwise permits or facilitates the settlement of securities
transactions or the hypothecation or lending of securities without physical delivery of securities certificates. A clearing agency does not include any person solely by reason of performing a transfer agent function, specifically transferring
record ownership of securities by bookkeeping entry without physical issuance of securities certificates. Clearing agencies are generally required to register with the SEC and comply with applicable regulation.
Because we provide a platform that supports transfers in digital assets through API connections to exchanges that permit the transfer of digital assets, it is possible that we could be viewed as
engaging in these types of activities. We have taken the position that we are not a clearing agency under the Exchange Act because the provision of a digital platform is not the type of activity described in the definition of a clearing agency. It
is possible that the SEC or another regulatory agency could disagree with our position. If so, we could be forced to register as a clearing agency and comply with applicable law, which could lead to significant costs and could force us to change or
cease our operations. Any of these developments could have a negative effect on our business, financial condition and results of operations.
We do not believe we have an obligation to register the platform as an exchange or ATS, though a regulator may disagree.
It is possible that the SEC or another regulator could determine that we are an exchange or an ATS and require us to register and comply with applicable law. Entities that are engaged as “exchanges”
or “ATSs” with respect to securities are subject to federal registration and significant regulatory oversight by the SEC and Financial Industry Regulatory Authority (“FINRA”). Exchanges and ATSs are generally
networks that constitute, maintain, or provide a marketplace or facilities for bringing together the orders of multiple purchasers and multiple sellers of securities. A system “brings together” orders if it displays trading interests entered on the
system to users (e.g., through consolidated quote screens) or receives orders for processing and execution. This does not include systems that have only one seller for each security (e.g., the issuer), even if there are multiple buyers.
Because we provide a platform that allows users to access digital asset exchanges through APIs, it is possible that we could be viewed as engaged in activities that would cause us to be deemed an
exchange or ATS. We do not believe that the provision of a platform that provides connection to an exchange through an API constitutes the type of activity that is undertaken by an exchange. However, it is possible that the SEC or another regulator
could disagree with our position. If so, we could be forced to register as an exchange or ATS and comply with applicable law, which could lead to significant costs and could force us to change or cease our operations.
Additionally, the exchanges we partner with could be found by the SEC to be illegally operating as unregistered exchanges or ATSs and could require them to shut down. Any of these developments could
have a negative effect on our business, financial condition and results of operations.
We are subject to export control, import, and sanctions laws and regulations that could impair our ability to compete in international markets or subject us to
liability if we violate such laws and regulations.
Our business activities are subject to various restrictions under U.S. export control and sanctions laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations
(“EAR”) and various economic and trade sanctions administered by OFAC. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain
products and services to U.S. embargoed or sanctioned countries, governments, persons and entities, and also require authorization for the export of certain encryption items. For example, following Russia’s invasion of Ukraine, the United States
and other countries imposed certain economic sanctions and severe export control restrictions against Russia and Belarus as well as certain Russian nationals which has heightened our compliance obligations and may require us, in many cases, to
terminate users in those countries. These sanctions and restrictions have continued to increase as the conflict has further escalated, and the United States and other countries could impose wider sanctions and export restrictions and take other
actions in the future. In addition, various countries regulate the import of certain software and technology, including through import permitting and licensing requirements and have enacted or could enact laws that could limit our ability to
distribute our software in those countries. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. As a U.S.-based company, we comply
with U.S. sanctions laws, which at the current time do not prohibit us from making our service available in Russia. However, our European-based user support engineers do not provide technical support for Russian/Belarusian users. If we were to fail
to comply with the applicable import or export control laws, economic sanctions, or other applicable laws, we could be subject to penalties which could be material to our business, operating results, and prospects and could also harm our
reputation.
Although we take precautions to prevent our software and services from being accessed or provided in violation of such laws, we may have previously allowed our software to be downloaded by individuals
or entities potentially located in countries or territories subject to U.S. trade embargoes, in violation of U.S. sanctions laws.
On or around December 7, 2018, we received an administrative subpoena issued by OFAC seeking information regarding potential transactions with individuals in Iran. Additionally, on or around March 5,
2021, we received a second administrative subpoena issued by OFAC seeking information regarding potential transactions with certain North Korean cyber actors.
After learning of these potential violations, we conducted a comprehensive review that covered all countries and territories subject to U.S. trade embargoes administered by OFAC, took remedial action
designed to prevent similar activity from occurring in the future, and submitted a voluntary self-disclosure regarding the apparent violations to OFAC. If we are found to be in violation of U.S. economic sanctions laws, it could result in fines and
penalties. We may also be adversely affected through reputational harm. Further, the controls we have implemented may not be fully effective and there is no guarantee that we will not inadvertently provide software or services to sanctioned parties
in the future. The voluntary self-disclosure is currently under review by OFAC. For more information, see “Business—Legal and Regulatory Proceedings—OFAC Administrative Subpoena.”
In addition, changes in our software, or future changes in export and import regulations may prevent our international users from accessing our software. Any change in export or import regulations,
economic sanctions or related legislation, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our software by existing or potential international users. Any decreased use
of our software or limitation on our ability to export our software would likely adversely affect our business, results of operations, and financial results.
We are not registered as a money transmitter or money services business, and our business may be adversely affected if we are required to do so.
It is possible that we could be found to be a money services business at the federal level, and/or a “money transmitter” at the state level. Under the Bank Secrecy Act of 1970 (“BSA”), and BSA implementing regulations adopted by FinCEN, all money services businesses (“MSBs”) are required to (i) register with the U.S. Department of the Treasury
through FinCEN; (ii) establish an anti-money laundering (“AML”) program; and (iii) meet other recordkeeping and reporting requirements. MSBs include, among other businesses, a person providing “money
transmission services,” which includes the “acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or
person by any means.” Because of the breadth of this definition, FinCEN regulations state that whether a person is a “money transmitter” is ultimately a “facts and circumstances” determination. Failure to register, when required, may result in
penalties, suspension of business, and other harm to the business.
In addition to obligations at the federal level, virtually every U.S. state (and the District of Columbia) requires entities providing money transmission services to be licensed by the appropriate
state agency responsible for the supervision of financial institutions. State laws regulating money transmission are not uniform, but generally define “money transmission” to include the receiving of money or monetary value for transmission or the
transmitting of money or monetary value to a location within or outside the United States by any means. Failure to obtain state licenses, where required, may result in penalties, suspension of business, and other harm to the business.
FinCEN’s guidance regarding the application of the BSA to activities involving digital assets is evolving, as is guidance from state regulators, and it is unclear whether our activities in regard to
digital assets could trigger a federal MSB registration requirement or state licensing requirement. However, we believe that we do not meet the definition of a money transmitter because Exodus does not exercise “total independent control” over the
value in our users’ wallets. Exodus does not accept or transmit virtual currency on behalf of any user or otherwise act as an intermediary for exchange of currencies by taking possession of such digital assets. FinCEN has provided guidance
indicating that without having “total independent control” over the value in users’ wallets, and where the value is the property of the owner and is stored in a wallet, such a business may fall outside the ambit of MSB registration requirements.
For the same reasons, we believe we are outside the scope of state licensing requirements.
However, if we were deemed to be an MSB, at the federal level, and/or a “money transmitter” at the state level, we could be subject to significant additional regulation, which could affect our
business and operations.
Our activities with respect to any crypto assets that are deemed securities could trigger the need for broker registration.
It is possible that our activities with respect to digital assets would cause us to be viewed as a “broker” or “dealer” under federal or state law. Under the Exchange Act, a “broker” is a person
engaged in the business of effecting transactions in securities for the account of others. Our activities with respect to any crypto assets that are deemed securities could trigger the need for broker registration. If we were required to register
as a broker-dealer and comply with applicable regulations, these developments could have a negative effect on our business, financial condition and results of operations.
We plan to launch a user referral program. The user referral program will allow for payments to users who generate new users. Payments to the referring user will be based on the volume
of transactions undertaken by the new user referred by the referring user based on jurisdiction. For U.S. based referral payments, the digital assets that generate such payments are digital assets, such
as Bitcoin, that we have determined are not securities. Accordingly, we believe that the structure of our referral program does not require us to register as a broker-dealer. However, there is no guarantee that regulatory agencies will agree
with our position.
If we were deemed to be a broker-dealer, we would likely experience difficulty in complying with the broker-dealer financial responsibility rules.
If we were deemed to be a broker-dealer, we would have to comply with a number of regulatory requirements, including compliance with regulations that govern broker-dealer financial responsibility,
such as Exchange Act Rule 15c3-3(b), which relates to establishing and maintaining physical possession or control of a user’s digital asset securities. It is likely that we would experience significant challenges in attempting to comply with these
regulations, and may not be able to achieve such compliance. Due to the nature of digital asset securities, if we were deemed to be a broker-dealer, it would likely be difficult for us to comply with the requirements to obtain and maintain physical
possession or control of all fully paid or excess securities carried for the account of users. In addition, obtaining an exemption from such custody rules would likely also result in significant costs to us, in regard to both financial and
management resources, and we may not be able to obtain such an exemption. For example, in the ATS Role in the Settlement of Digital Asset Security Trades, SEC Staff No-Action Letter (Sep. 25, 2020), the SEC Staff described an acceptable process for
regulated non-custodial ATS exchanges, but such process would be costly to implement and operate. It is likely that we would not be able to implement and operate such a process. Should we be deemed to be a broker-dealer, and should we not be able
to either obtain an exemption from or implement acceptable processes for compliance with the broker-dealer financial responsibility rules, we would be deemed to not be in compliance with the appropriate broker-dealer regulations. Such
non-compliance would likely have a materially adverse effect on our business and financial operations.
We may be subject to a variety of foreign laws and regulations, and our failure to comply with such laws and regulations, or expenses we incur related to compliance, could
negatively affect our business and operations.
We may be subject to a variety of foreign laws and regulations that involve matters central to our business. These could include, for example, regulations related to user privacy such as the General
Data Protection Regulation (“GDPR”), blockchain technology, potential broker-dealer or exchange activities, data protection, and intellectual property, among others. Our Swiss subsidiary, Proper Trust AG, is
subject to Swiss corporate and privacy laws and regulations, and is regulated by the Swiss State Secretariat for Economic Affairs, which is similar to OFAC (see above, “—We are subject to export control, import,
and sanctions laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.”). In certain cases, foreign laws may be more restrictive than those
in the United States. Although we believe we are operating in compliance with the laws of jurisdictions in which Exodus exists, foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the
application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. As a result, digital assets and blockchain technologies such as those we are involved in
face an uncertain regulatory landscape in many foreign jurisdictions, including but not limited to the European Union, China and Russia. Other foreign jurisdictions may also, in the near future, adopt laws, regulations or directives that affect our
business.
We have adopted policies and procedures designed to comply with the laws that apply to us as we understand them. However, the growth of our business and its expansion outside of the United States may
increase the potential of violating foreign laws or our own internal policies and procedures. The risk of our Company being found in violation of applicable laws and regulations is further increased by the fact that many of them are open to a
variety of interpretations given the absence of formal interpretation by regulatory authorities or the courts. This risk may also be increased by the fact that our business crosses jurisdictional lines, and we may not always be in control of all
activities that occur on the Exodus Platform.
Any action brought against us by a foreign regulator or in a private action based on foreign law could cause us to incur significant legal expenses and divert our management’s attention from the
operation of the business. If our operations are found to be in violation of any laws and regulations, we may be subject to penalties associated with the violation, including civil and criminal penalties, damages and fines; we could be required to
refund payments received by us; and we could be required to curtail or cease operations. Any of these consequences could seriously harm our business and financial results. In addition, existing and proposed laws and regulations can be costly to
comply with and can delay or impede the development of new products, result in negative publicity, increase operating costs, require significant management time and attention, and subject us to claims or other remedies, including fines or demands
that we modify or cease existing business practices.
Any applicable foreign laws, regulations or directives may also conflict with those of the United States. The effect of any future regulatory change is impossible to predict, but any change could be
substantial and materially adverse to the adoption and value of the tokens and our operations.
Events in 2022 have increased the likelihood that federal and state legislatures and regulatory agencies will enact laws and regulations to regulate digital
assets and digital asset intermediaries, such as digital asset exchanges and custodians.
The collapse of TerraUSD and Luna and the bankruptcy filings of FTX (together with more than 130 of its affiliates), Celsius, Voyager and BlockFi have resulted in calls for heightened scrutiny and
regulation of the digital asset industry, with a specific focus on digital asset exchanges, platforms, and custodians. Federal and state legislatures and regulatory agencies are expected to introduce and enact new laws and regulations to regulate
digital asset intermediaries, such as digital asset exchanges and custodians. The U.S. regulatory regime — namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the CFTC, FinCEN, the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation and the Federal Bureau of Investigation) as well as the White House have issued reports and releases concerning digital assets, including Bitcoin, and digital asset markets. However, the
extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future. It is possible that new laws and increased regulation and regulatory scrutiny may require us to
comply with certain regulatory regimes, which could result in new costs for our business. We may have to devote increased time and attention to regulatory matters, which could increase costs. New laws, regulations and regulatory actions could
significantly restrict or eliminate the market for, or uses of, digital assets including Bitcoin, which could have a negative effect on the value of Bitcoin, which in turn would have a negative effect on our revenue.
It may be illegal now, or in the future, to mine, acquire, own, hold, sell or use Bitcoin or other digital assets, participate in blockchains or utilize similar
digital assets in one or more countries, the ruling of which could adversely affect us.
Although currently digital assets generally are not regulated or are lightly regulated in most countries, several countries, such as China, India, Russia, and the United States may continue taking
regulatory actions in the future that could severely restrict the right to mine, acquire, own, hold, sell or use these digital assets or to exchange for local currency. For example, in China and Russia (India is currently proposing new
legislation), it is illegal to accept payment in Bitcoin and other digital assets for consumer transactions and banking institutions are barred from accepting deposits of digital assets. In addition, in March 2021, the governmental authorities for
the Chinese province of Inner Mongolia banned Bitcoin mining in the province due to the industry’s intense electrical power demands and its negative environmental impacts. If other countries, including the U.S., implement similar restrictions, such
restrictions may adversely affect us. For example, in New York State, a moratorium on certain Bitcoin mining operations that run on carbon-based power sources was signed into law on November 22, 2022. Such circumstances could have a material
adverse effect on our business, prospects or operations.
The limited rights of legal recourse available to us expose us and our investors to the risk of loss of our Bitcoin for which no person is liable.
At this time, there is no specifically enumerated U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint
regarding missing or stolen digital assets; though law enforcement agencies like the FBI have recovered stolen Bitcoin, that recovery has required significant amounts of time. To the extent that we are unable to recover our losses from such action,
error or theft, such events could have a material adverse effect on our business, prospects or operations of and potentially the value of any Bitcoin we acquire or hold for our own account.
Other Risks
The loss or destruction of private keys required to access any digital assets held in custody for our own account may be irreversible. If we are unable to access
our private keys or if we experience a hack or other data loss relating to our ability to access any digital assets, it could cause regulatory scrutiny, reputational harm, and other losses.
Digital assets are generally controllable only by the possessor of the unique private key relating to the wallet in which the digital assets are held. While blockchain protocols typically require
public addresses 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 digital assets held in such a wallet. To the extent that any of the private keys
relating to our hot wallet or cold storage containing digital assets held for our own account is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, we will be unable to access the digital
assets held in the related wallet. Further, we cannot provide assurance that our wallet will not be hacked or compromised. Digital assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or
other malicious activities. Any loss of private keys relating to, or hack or other compromise of, wallets used to store our digital assets could adversely affect our ability to access or sell our digital assets, and subject us to significant
financial losses. As such, any loss of private keys due to a hack, team member or service provider misconduct or error, or other compromise by third parties could hurt our brand and reputation, result in significant losses, and adversely impact our
business.
Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our platform and adversely affect our business.
We are subject to laws and regulations relating to privacy, data protection, and data security. These laws and regulations are evolving, may impose inconsistent or conflicting standards among
jurisdictions, can be subject to significant change and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, in the European Union, the GDPR imposes stringent obligations
relating to privacy, data protection, and data security, and authorizes fines up to 4% of global annual revenue or €20 million, whichever is greater, for some types of violations. In the United Kingdom, a Data Protection Act that substantially
implements the GDPR also became law in May 2018, and was further amended in 2019 to align it more closely with the GDPR. Further, on January 1, 2020, the California Consumer Privacy Act (“CCPA”) went into
effect. The CCPA, among other things, requires covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information. The CCPA provides for civil penalties
for violations, as well as a private right of action that may increase related litigation. Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”), recently was promulgated. The CPRA
significantly modifies the CCPA, requiring us to incur additional costs and expenses in an effort to comply. Other states, including Colorado, Utah, Connecticut, and Virginia, have enacted laws similar to the CCPA, and these and other proposed and
enacted laws and regulations may require us to incur additional costs and expenses, and to modify our policies and practices, in efforts to comply. In addition, some countries are considering or have enacted legislation requiring local storage and
processing of data that could increase the cost or complexity of operating our platform or providing services.
In addition to government regulation, privacy advocates and industry groups may propose self-regulatory standards from time to time. These and other industry standards may legally or contractually
apply to us, or we may elect to comply with such standards or to facilitate compliance with such standards. We cannot control the conduct of our users using an Exodus wallet, who may engage in businesses that make them subject to privacy and data
protection laws, and as a result there can be no guarantee that users of the platform will not engage in misconduct. We also expect that there will continue to be new proposed laws, regulations and standards relating to privacy and data protection
in various jurisdictions, and we cannot determine the impact such future laws, regulations and standards, or new or differing interpretations or patterns of enforcement of laws, regulations and standards, may have on our business.
Aspects of the GDPR, CCPA, and other laws, regulations, standards, and other obligations relating to privacy, data protection, and data security remain uncertain, and complying with these laws,
regulations, and obligations, as well as new laws, amendments to or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations, may require us to undertake additional obligations and incur
additional costs, modify our data handling practices, and restrict our business operations. It also is possible that these laws, standards, contractual obligations, and other obligations may be interpreted and applied in a manner that is, or is
alleged to be, inconsistent with our data management practices, our privacy, data protection, or data security policies or procedures, the Exodus Platform or our services. If so, in addition to the possibility of fines, lawsuits and other claims,
we could be required to modify the Exodus Platform or services, or make changes to our business activities and practices, which could adversely affect a user’s Exodus wallet, our platform, and our business as a whole. We may be unable to make such
changes and modifications in a commercially reasonable manner or at all, and our ability to develop new offerings and features, and to make use of data, could be limited.
Any violations, or perceived violations, of laws, regulations, or contractual or other obligations relating to privacy, data protection, or data security could subject us to fines, penalties, and
regulatory investigations and other actions, as well as to civil actions by affected parties. Any such actual or perceived violations could result in negative publicity and harm to our or our third-party API providers’ reputations, as well as
adversely affect our ability to expand our platform and its functionality and any associated services, which could have a material adverse effect on our operations and financial condition. Additionally, privacy, data protection, and data security
concerns, whether valid or not valid, may inhibit market adoption of Exodus wallets and use of our platform, particularly in certain industries and foreign countries.
We may be unable to raise additional capital needed to grow our business.
While we may need to raise additional capital to expand our operations, pursue our growth strategies and to respond to competitive pressures or working capital requirements, we may not be able to
obtain additional debt or equity financing on favorable terms, if at all, which could impair our growth and adversely affect our existing operations. The global economy, including credit and financial markets, has recently experienced extreme
volatility and disruptions, including diminished credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Such
macroeconomic conditions could also make it more difficult for us to incur additional debt or obtain equity financing. Further, the digital asset industry has been negatively impacted by recent event such as the bankruptcies of Core Scientific,
Celsius Network, Voyager Digital Ltd., Three Arrows Capital and FTX. In response to these events, the digital asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the
digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital asset markets and in bitcoin. In light of conditions impacting our industry, it may be more difficult for us to obtain
equity or debt financing in the future.
If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per share value of our Class A common stock could decline.
Furthermore, if we engage in additional debt financing, the holders of debt likely would have priority over the holders of our Class A common stock on order of payment preference. We may be required to accept terms that restrict our ability to
incur additional indebtedness, take other actions including accepting terms that require us to maintain specified liquidity or other ratios that could otherwise not be in the interests of our stockholders.
Changes in our effective tax rate or tax liability may adversely affect our operating results.
Our effective tax rate could increase due to several factors, including:
• |
changes in the treatment of digital assets under tax laws;
|
• |
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate due to differing statutory tax rates in various jurisdictions;
|
• |
changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Cuts and Jobs Act (“Tax Act”), the Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”), and the Inflation Reduction Act (“IRA”);
|
• |
changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning
strategies, and the economic and political environments in which we do business;
|
• |
the outcome of current and future tax audits, examinations, or administrative appeals; and
|
• |
imitations or adverse findings regarding our ability to do business in some jurisdictions.
|
Any of these developments could adversely affect our operating results.
We may become subject to tax examinations of our tax returns by the IRS, and other domestic and foreign tax authorities. An adverse outcome of any such audit or
examination by the IRS or other tax authority could have a material adverse effect on our results of operations and financial condition.
We may become subject to audit by the IRS and other tax authorities in various domestic and foreign jurisdictions. As a result, we may in the future receive assessments in multiple jurisdictions on
various tax-related assertions. Taxing authorities also may challenge our tax positions and methodologies on various matters, including on the digital assets that we hold and use to pay team members and expenses in the future. The calculation of
our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. There can be no assurance that our tax positions and methodologies or calculation of our tax liabilities
are accurate or that the outcomes of future tax examinations will not have an adverse effect on our results of operations and financial condition.
We may have exposure to greater than anticipated income tax liabilities and may be affected by changes in tax laws, which could adversely impact our results of
operations and financial condition.
We operate in a number of tax jurisdictions globally, including in the United States at the federal, state, and local levels, and in certain other countries, and plan to continue to expand the scale
of our operations in the future. Accordingly, we are subject to income taxes in the United States and certain jurisdictions outside of the United States. While we did not incur significant income taxes in certain fiscal years, we have incurred
significant income taxes in other years and may in the future face significant tax liabilities. Our tax expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits of stock-based compensation, changes in the
valuation of deferred tax assets and liabilities, and our ability to utilize them, the applicability of withholding taxes, and effects from acquisitions.
Our tax provision could also be impacted by changes in accounting principles, changes in U.S. federal, state, or international tax laws applicable to corporate multinationals such as the recent
legislation enacted in the United States and Switzerland, other fundamental law changes currently being considered by many countries, and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions. For
example, on December 22, 2017, tax reform legislation referred to as the Tax Act was enacted in the United States. The Tax Act significantly revises U.S. federal income tax law, including lowering the corporate income tax rate to 21%, requiring
companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, implementing a modified territorial tax system, requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled
foreign corporations, and creating a base erosion anti-abuse tax. We have reflected the impact of the Tax Act in our financial statements in accordance with our understanding of the Tax Act and guidance available as of the date of this Form 1-K.
The primary effect of the Tax Act on our consolidated financial results was a reduction of our effective tax rate due to the vast majority of our revenue coming from foreign sources. This revenue is favorably impacted by the foreign-derived
intangible income deduction. Many consequences of the Tax Act, including whether and how state, local, and foreign jurisdictions will react to such changes, are not entirely clear at this time and the U.S. Department of the Treasury has broad
authority to issue regulations and interpretive guidance that may significantly impact how the Tax Act will apply to us. Any of the foregoing changes could have an adverse impact on our results of operations, cash flows, and financial condition.
Our international operations require us to exercise judgment in determining the applicability of tax laws, which may subject us to potentially adverse tax consequences.
We generally conduct our international operations through subsidiaries and are subject to income taxes and potentially other non-income-based taxes, such as payroll, value-added, goods and services
and other local taxes. Our domestic and international tax liabilities are subject to various jurisdictional rules regarding the calculation of taxable income in various jurisdictions worldwide based upon our business operations in those
jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the value of
assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could
result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
The nature of our business requires the application of complex accounting rules, and any significant changes in current rules could affect our consolidated
financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and are subject to interpretation by the Financial Accounting Standards Board (“FASB”),
the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. There has been limited precedent set for the financial accounting of digital assets and related revenue recognition provided by the FASB or the SEC.
Recent actions and public comments from the FASB and SEC have focused on the integrity of financial reporting and internal controls over financial reporting. In addition, many companies’ accounting policies and practices are subject to heightened
scrutiny by regulators and the public. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or
effectiveness of a change or require us to restate our financial statements. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our results of
operations.
Our business could be affected by various geo-political risks.
In addition, the Company’s business is subject to the risks of catastrophic events, including acts of war or terrorism, strikes or other external events. Any such events or any other
geo-political unrest could cause disruptions in the Company’s business and lead to interruptions, delays, or loss of critical data. Specifically, financial, and digital asset markets may be negatively affected by the conflict between Russia and
Ukraine and the economic sanctions imposed by the United States and other countries. The Company currently has 2 full-time equivalent (“FTE”) and one API provider in the affected area that could be directly impacted by the conflict. Although one of the Company’s API providers is domiciled in Ukraine, there is
currently no infrastructure located in Ukraine and none of the API provider’s leadership and development team is located in Ukraine.
Interruptions could have material implications for the Company’s operations and the development of the Exodus Platform or operations and development of applications that run on the Exodus
Platform. Retaliatory acts by Russia in response to Western sanctions may include cyber attacks that could disrupt the economy or that could also either directly or indirectly impact the Company’s operations. Moreover, the ongoing effects of the
hostilities and sanctions may spill over to and have a negative impact on other regional and global markets. It is also likely that the conflict will continue to affect the global political order and regional and global markets for a substantial
period of time, regardless of when the conflict itself ends. It is not currently possible to determine the severity of any potential adverse impact of these events on the financial condition of the Company, or more broadly, upon the global economy,
but any of the foregoing could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
ITEM 2. |
Restatement of Previously Issued Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement, as more fully described in Note 14, Restatement and
Reclassifications, of the Notes to Consolidated Financial Statements included within “Item 7. Financial Statements” of this Annual Report.
Components of Results of Operations
Revenue
Exodus has entered into agreements with various third-party API providers, pursuant to which the provider is allowed to integrate its services into the Exodus Platform for use by users of the Exodus
Platform. These integrations are known as APIs, and we earn revenue based on the API fees detailed in the associated API agreements. Most, but not all, of our revenue is earned on a transactional basis with users of the Exodus Platform accessing
the services of the API providers through the API. Certain interactions generate API fees, and we track fees earned on a daily basis. Examples of services provided by API providers include digital asset-to-digital asset exchanges, fiat-to-digital
asset conversions, and digital asset staking.
For transaction-based API fees, the transaction price is allocated per qualified interaction between the provider and the user and is paid by the provider. As each transaction-based API interaction
occurs, we realize revenue. With the majority of our revenue being transaction-based, our revenue can vary significantly based on the type and number of interactions that occur each day. We believe that there will be additional demand for API
services in the future as a greater number of people begin to use digital assets. However, the recent bankruptcies of Celsius Network, Voyager Digital Ltd., Three Arrows Capital, and FTX has led to a decrease in users’ confidence in trading of
digital assets and may lead to a decline in users of the Exodus Platform. Additionally, following these events, third-party services made available through the Exodus Platform have been and may continue to be negatively impacted. Furthermore, the
recent enforcement actions against Gemini, Genesis, Nexo and Kraken could cause an interruption in the services provided by third-party exchanges. These events could negatively impact our ability to monetize and generate revenue based on these
third-party services. We anticipate that proceeds from the API fees, if and when recognized as revenue under our current accounting policy (or if and when recognized as revenue under an appropriate future accounting policy) will continue to
generate the majority of our revenue for the foreseeable future.
For non-transaction-based API fees, we recognize revenues based on when performance obligations in the underlying contracts have been identified, priced, allocated, and satisfied.
Cost of Revenues
Exodus’ costs of revenues are classified as software development, user support, and security and wallet operations. Depreciation related to cost of revenues and amortization of software assets
related to cost of revenues are also included in costs of revenues.
Software Development
Software development expenses represent costs incurred by Exodus for the development of the Exodus Platform, individual API integrations, and our application ecosystem. These include: related salaries
and costs, chargebacks related to fiat onboarding services, fees paid to consultants and outside service providers. Our application ecosystem is still under development, and there are hurdles to overcome before critical components of the ecosystem
become operational. As a result, we expect to incur continuing software development expenses as we accelerate improvements to the user experience and functionality of the wallet, integrate new API services, and develop the Exodus ecosystem. Most
software development costs are expensed as incurred except for costs associated with internal use software.
User Support
User support includes related salaries and costs, subscription, and fees paid to consultants and outside service providers, and software or applications used for user support. Exodus views user
support as an integral part of its product offerings and made significant investments in this area in 2021 and in 2022. We may continue to make further investments in user support as the development of the Exodus ecosystem continues. User support
expenses are expensed as incurred.
Security and Wallet Operations
Security and wallet operations expenses consist of development operations and security related activities. Costs are primarily related salaries and related costs, fees paid to
consultants and outside service providers, and costs related to web hosting and maintaining servers. As the Exodus application ecosystem is still under development, Exodus expects security and wallet operations
expenses to increase over the next several years as we accelerate improvements to the user experience and functionality of the wallet. We continually explore and evaluate ways to make the Exodus Platform and ecosystem more secure. Most
costs are expensed as incurred except for costs associated with internal use software.
Depreciation and Amortization
Depreciation and amortization expenses consist of depreciation of fixed assets and amortization of software assets.
Operating Expenses
The Company’s operating expenses are classified as general and administrative, advertising and marketing, depreciation related to general and administrative equipment, impairment of digital assets,
and gain on sale of digital assets.
General and Administrative
General and administrative expenses consist of administrative, compliance, legal, investor relations, financial operations, advertising and marketing, information technology services, and foreign
currency gain or loss. They include related department salaries, office expenses, meals and entertainment costs, software/applications for operational use, and other general and administrative expenses, including, but not limited to, technology
subscriptions, travel, utilities, and vehicle expenses. These expenses account for a significant portion of our operating expenses. Our general and administrative expenses may increase in the future to support our continued growth, regulatory
compliance, and the costs associated with increased reporting requirements.
Advertising and Marketing
Advertising and marketing expenses include marketing and business development related activities consisting primarily of advertising, corporate marketing, public relations, promotional items, events and conferences
and fees paid for software applications used for advertising and marketing, as well as related department salaries. During the second half of 2022, the Company resumed its community-based approach to marketing. Advertising and marketing expenses
are expensed as incurred.
Impairment of Digital Assets, net
Impairment of digital assets includes the impairment of digital assets and gain on sale of digital assets.
Comparison of the results of operations for the years ended December 31, 2022 and 2021 (restated) (in thousands):
Operating Revenues
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
Operating revenues
|
$
|
50,606
|
$
|
95,849
|
-47
|
%
|
Total revenue for the year ended December 31, 2022 was $50.6 million compared to $95.8 million for the year ended December 31, 2021, a decrease of $45.2 million or 47%. The decline in total
revenue was primarily driven by a decrease in revenue from the exchange aggregation of $44.3 million due to a decrease in MAUs as well as a decrease in exchange provider processed volume of approximately 50%. These decreases reflect to some extent
market conditions for digital assets more generally, which saw a decrease in the volume of transactions for digital assets and a decline in the price of digital assets. We are focused on growing our user base, and we believe that over the long
term, interest in digital assets and digital asset markets will increase. However, during any given period we cannot be certain that our user growth efforts will be effective or that interest in digital assets will increase. Five API providers
primarily drove exchange revenue of $43.8 million during the year ended December 31, 2022 compared to two API providers generating $72.7 million in revenue during the year ended December 31, 2021.
Cost of Revenues
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
Software development expense
|
$
|
10,638
|
$
|
8,051
|
32
|
%
|
||||||
Customer support expense
|
7,771
|
6,262
|
24
|
%
|
||||||||
Security and wallet operations expense
|
6,945
|
6,724
|
3
|
%
|
||||||||
Depreciation and amortization
|
3,323
|
1,666
|
99
|
%
|
||||||||
Total cost of revenues
|
$
|
28,677
|
$
|
22,703
|
Software development expenses for the year ended December 31, 2022 were $10.6 million compared to $8.1 million for the year ended December 31, 2021, an increase of $2.5 million or 32%. This increase
was primarily due to an increase in hiring and associated compensation and benefit expense of $7.5 million, consulting of $0.2 million and testing of $0.1 million partially offset by an increase software capitalization of $2.5 million and a
decrease in chargebacks related to fiat onboarding service of $2.9 million.
User support expenses for the year ended December 31, 2022 were $7.8 million compared to $6.3 million for the year ended December 31, 2021, an increase of $1.5 million or 24%. This growth was
primarily due to increases in hiring and the associated compensation and benefit expenses of $1.6 million.
Security and wallet expenses for the year ended December 31, 2022 were $6.9 million compared to $6.7 million for the year ended December 31, 2021, an increase of $0.2 million or 3%. This growth was
primarily due to an increase in hiring and the associated compensation and benefit expenses of $1.6 million, and subscriptions of $0.4 million, offset by increased software capitalization of $0.9 million and cloud infrastructure services of $1.0
million.
Depreciation and amortization expenses for the year ended December 31, 2022 were $3.3 million compared to $1.7 million for the year ended December 31, 2021, an increase of $1.6 million or 99%. Fixed
asset increases were driven by equipment purchases associated with additional headcount during the first half of the year. Amortization expense increased by $1.6 million. Amortization expense increase was due to capitalization of salaries related
to software development and write off of obsolete projects.
General and Administrative Expense
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
General and administrative expense
|
$
|
16,436
|
$
|
12,038
|
37
|
%
|
||||||
Advertising and marketing expense
|
11,514
|
9,897
|
16
|
%
|
||||||||
Depreciation
|
136
|
96
|
42
|
%
|
||||||||
Total general and administrative expense
|
$
|
28,086
|
$
|
22,031
|
General and administrative expenses for the year ended December 31, 2022 were $16.4 million compared to $12.0 million for the year ended December 31, 2021, an increase of $4.4 million or 37%. This
growth was primarily due to an increase in hiring and associated compensation and benefit expenses of $3.8 million, foreign currency expense of $1.2 million, technology subscription of $0.4 million offset by a decrease in consulting expense of $0.9
million and charitable contributions of $0.4 million.
Advertising and marketing expenses for the year ended December 31, 2022 were $11.5 million compared to $9.9 million for the year ended December 31, 2021, an increase of $1.6 million or 16%. This
increase was primarily due to an increase in marketing expenses of $5.1 million and hiring and associated compensation and benefit expenses of $0.2 million partially offset by a decrease in professional service expenses of $3.8 million.
Impairment of Digital Assets, Net
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
Impairment of digital assets, net
|
$
|
18,308
|
$
|
6,600
|
177
|
%
|
Impairment of digital assets, net increased by $11.7 million for the year ended December 31, 2022, as price volatility on digital assets held changed compared to the year ended December
31, 2021. Impairment expense increased by $0.5 million and gains on digital assets decreased by $11.2 million for the year ended December 31, 2022 compared to year ended December 31, 2021. This was
driven by decreases in digital asset prices in 2022 leading to the digital assets used being closer to their fair market value.
Impairment of Assets
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
Impairment of assets
|
$
|
500
|
$
|
-
|
100
|
%
|
Impairment of assets increased by $0.5 million for the year ended December 31, 2022. This was primarily driven by the impairment of our investment in Magic Eden of $0.4 million.
Loss on Extinguishment of SAFEs
Years Ended
December 31,
|
||||||||||||
2022
|
2021
|
% Change
|
||||||||||
Loss on extinguishment of SAFEs
|
$
|
-
|
$
|
(61,037
|
)
|
-100
|
%
|
Loss on extinguishment of Simple Agreements for Future Equity notes (“SAFEs”) decreased by $61.0 million for the year ended December 31, 2022 compared to the
year ended December 31, 2021. This was related to changes to the contractual terms of the SAFEs.
Liquidity and Capital Resources
Overview
Our primary source of funds is from transaction-based API fee revenues. Our primary use of funds is payment of our operating costs, which consist primarily of compensation and
benefit expenses, security costs, and advertising and marketing expenses.
Source of Funds
The following table summarizes Exodus’ cash flows for the periods indicated (in thousands):
Years Ended
December 31,
|
||||||||
2022
|
2021
|
|||||||
Net cash provided by operating activities
|
$
|
44,420
|
$
|
8,712
|
||||
Net cash used in investing activities
|
$
|
(32,059
|
)
|
$
|
(2,606
|
)
|
||
Net cash provided by (used in) financing activities
|
$
|
2,758
|
$
|
(2,154
|
)
|
Net Cash from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2022, was $44.4 million. The Company had net loss of $22.9 million for the year ended December 31, 2022. This
net loss was primarily due to a decline in total revenue primarily driven by a decrease in exchange aggregation revenue of $44.3 million due to a decrease in MAUs as well as a decrease in exchange provider processed volume of approximately 50%.
These decreases reflect to some extent market conditions for digital assets more generally, which saw a decrease in the volume of transactions for digital assets and a decline in the price of digital assets which resulted in an offset of impairment
of digital assets, net of $18.3 million. A further offset was $39.8 million in non-cash activities settled in digital assets.
Net cash provided by operating activities for the year ended December 31, 2021, was $8.7 million. The Company had net loss of $17.9 million for the year ended December 31, 2021, $4.6 million of changes to working capital, a deferred tax benefit of $0.6 million, a gain on sale of digital assets of $20.8 million, and $33.9 million in non-cash activities settled in digital assets. This was offset by impairment of digital assets of $23.4 million, loss on extinguishment of SAFEs of $61.0 million, and depreciation and amortization of $1.8 million.
Net Cash from Investing Activities
Net cash used in investing activities for the year ended December 31, 2022, was $32.1 million. This consisted of a $35.9 million of investment in treasury bills, $4.2 million of treasury bills
redemption, and $0.3 million purchase of fixed assets.
Net cash used in investing activities for the year ended December 31, 2021, was $2.6 million. This consisted of $0.5 million from purchases of fixed assets and $2.0 million purchase of indefinite lived assets.
Net Cash from Financing Activities
The Company’s primary financing activity for the year ended December 31, 2022, amounted to $2.8 million. This consisted of proceeds from a note receivable of $3.0 million, partially offset by $0.3
million of repurchase of shares to pay employee withholding taxes as a part of our 2021 Equity Incentive Plan (the “2021 Plan”) and 2019 Equity Incentive Plan (the “2019 Plan”).
The Company’s primary financing activities for the year ended December 31, 2021, were $2.3 million of deferred offering costs related to the Regulation A Offering (an offering of Class A common
stock pursuant to Regulation A, as described in the Company’s Offering Circular dated April 9, 2021), partially offset by $0.2 million related to exercise of stock options.
Total Holdings
The Company holds the following cash, treasury bills, stablecoins (USDC and Tether), and digital asset holdings as of December 31, 2022 and December 31, 2021 (in thousands):
December 31, 2022
|
December 31, 2021
|
|||||||||||||||
Book
value
|
Market
Value (1)
|
Book
value
|
Market
Value (1)
|
|||||||||||||
Bitcoin
|
$
|
17,549
|
$
|
22,974
|
$
|
30,651
|
$
|
61,218
|
||||||||
Ethereum
|
2,022
|
3,031
|
3,583
|
9,342
|
||||||||||||
Algorand
|
686
|
715
|
3,523
|
6,407
|
||||||||||||
Other digital assets
|
45
|
53
|
-
|
-
|
||||||||||||
Cash and cash equivalents
|
20,494
|
20,494
|
5,375
|
5,375
|
||||||||||||
USDC
|
-
|
-
|
45,291
|
45,291
|
||||||||||||
Tether
|
-
|
-
|
77
|
77
|
||||||||||||
Treasury bills
|
31,981
|
31,981
|
-
|
-
|
||||||||||||
Total holdings
|
$
|
72,777
|
$
|
79,248
|
$
|
88,500
|
$
|
127,710
|
(1) Market rate represents a determination of fair market value derived from publicly available information.
Material Capital Commitments
The Company currently has no material commitments for capital expenditures.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements during any of the periods presented.
Critical Accounting Policies and Estimates
Exodus’s management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving
management’s judgments and estimates.
See Note 1, Nature of Business and Summary of Significant Accounting Policies, of the Notes to the consolidated financial statements in Item 7 of this Annual Report on Form 1-K for a summary of
significant accounting policies and the effect on our financial statements.
Revenue Recognition
We apply the provisions of Accounting Standards Codification (“ASC”) 606 to determine the measurement of revenue and the timing of when it is recognized. Under
ASC 606, revenue is measured as the amount of consideration we expect to be entitled to, in exchange for transferring products or providing services to our customers, and is recognized when performance obligations under the terms of contracts with
our customers are satisfied. ASC 606 prescribes a five-step model for recognizing revenue from contracts with customers: (1) identify contract(s) with the customer; (2) identify the separate performance obligations in the contract; (3) determine
the transaction price; (4) allocate the transaction price to the separate performance obligations in the contract; and (5) recognize revenue when (or as) each performance obligation is satisfied.
Exodus recognizes various charges to API providers which are based on user interactions conducted through APIs as revenue. Currently, we and/or our subsidiary have API agreements with providers of
digital asset-to-digital asset exchanges, fiat-to-digital asset conversions, and digital asset staking. We allow the providers to provide software services which permit a user of our un-hosted and self-custodial crypto asset software wallet to
access the services of the provider through the APIs. Under the terms and conditions of the agreements, Exodus and the providers have integrated the APIs into the Exodus Platform. In consideration for the integration by Exodus of the APIs into the
Exodus Platform software, exchange providers pay us an API fee for certain user interactions with API. These interactions are typically transactions of services between provider and a user, effected through the API.
For transaction-based API fees, we receive revenue based on a percentage of the volume for each qualified interaction between the provider and the user. As each transaction-based API interaction
occurs, we realize revenue.
For non-transaction-based API fees, we recognize revenues based on performance obligations in the underlying contracts having been identified, priced, allocated, and satisfied.
Software Development Costs
We apply ASC 985-20, Software—Costs of Software to Be Sold, Leased, or Marketed, in analyzing our software development costs. ASC 985-20 requires the capitalization of certain software development
costs subsequent to the establishment of technological feasibility for a software product in development. Software development costs associated with establishing technological feasibility are expensed as incurred. Technological feasibility is
established upon the completion of a working model. Based on our software development process, the working model is almost immediately placed in service. As such, development costs that meet the criteria for capitalization are not deemed material
and are expensed as incurred under ASC 985-20.
We apply ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software, in the review of certain system projects. These system projects generally relate to software not hosted on our Users’ systems
(as defined in ASC 350-40), where the User has no access to source code, and it is infeasible for the User to operate the software themselves without Exodus servers in place. In these reviews, all costs incurred during the preliminary project
planning stages are expensed as incurred. Once the projects have been committed to and it is probable that the projects will meet functional requirements, costs are capitalized. These capitalized software costs are amortized on a project-by-project
basis over the expected economic life of the underlying product on a straight-line basis, which is typically three years. Amortization commences when the software is available for its intended use.
We accounted for website development costs in accordance with ASC 350-50, Website Development Costs. We capitalized internally developed website costs when the website was under development and
reached technological feasibility. We amortized these costs over an estimated life of three years.
Value of Digital Assets
In December 2019, and subsequently updated in January 2022, the Association of International Certified Public Accountants (“AICPA”) produced a nonauthoritative practice aid
titled, “Accounting for and auditing of digital assets.” The practice aid discusses initial classification, ongoing valuation and measurement, as well as sales of digital assets.
We have determined that digital assets, other than stablecoin digital assets which are accounted for as a financial instrument, should be classified as intangible assets with indefinite useful lives; as such, they
are recorded at their respective fair values as of the acquisition date. We do not amortize intangible assets with indefinite useful lives. We review intangible assets with indefinite useful lives daily for possible impairment. We recognize
impairment on these assets caused by decreases in market value based upon quoted prices for identical instruments in active markets. In addition, indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an
event occurs or circumstances change that would more likely than not reduce the fair value of the indefinite-lived intangible assets below their carrying values.
ITEM 3. |
The following table provides information regarding our directors, executive officers and significant employees as of February 28, 2023.
Name
|
Age
|
Position
|
Term of Office
|
Directors and Executive
Officers
|
|||
Jon Paul Richardson
|
39
|
Chief Executive Officer and Director
|
Chief Executive Officer: July 2016-present;
President: July 2016-June 2019; Director:
July 2016-present
|
Daniel Castagnoli
|
46
|
President and Director
|
Chief Financial Officer: July 2016-
March 2019; Secretary: July 2016-
June 2019; President: June 2019-present;
Director: July 2016-present
|
James Gernetzke
|
46
|
Chief Financial Officer and Secretary
|
March 2019-present
|
Veronica McGregor
|
60
|
Chief Legal Officer
|
January 2022 - present
|
Matias Olivera
|
30
|
Chief Technology Officer
|
June 2022 - present
|
Significant Employees
|
|||
Sabrina Grissom
|
35
|
Chief People Officer
|
February 2021-present
|
John Staker
|
48
|
Head of Development Security Operations
|
May 2021-present
|
Zanmei Yam
|
31
|
Vice President of Community Support
|
August 2021-present
|
Executive Officers
Jon Paul Richardson, 39, has served as our chief executive officer and as a member of our board of directors since co-founding and incorporating Exodus with
Daniel Castagnoli in 2016, and previously served as our president from July 2016 until July 2019. Mr. Richardson holds a B.S. in electrical engineering and computer engineering from the University of Nebraska – Lincoln.
We believe Mr. Richardson is qualified to serve on the board of directors because of the perspective and experience he brings as the Company’s Chief Executive Officer and Co-Founder and his extensive experience in
the digital asset industry.
Daniel Castagnoli, 46, has served as our president since July 2019 and as a member of our board of directors since co-founding and incorporating Exodus with
Jon Paul Richardson in 2016, and previously served as our chief financial officer and secretary from July 2016 to March 2019. Before joining Exodus, Mr. Castagnoli designed experiences for Apple, BMW, Disney and Louis Vuitton.
We believe Mr. Castagnoli is qualified to serve on the board of directors because of the perspective and experience he brings as the Company’s President and Co-Founder and his extensive experience in the digital
asset industry.
James Gernetzke, 46, has served as our chief financial officer since March 2019. Before joining Exodus, Mr. Gernetzke served as the chief financial officer of
Banyan Medical Systems, Inc., a healthcare technology company, from February 2017 to May 2019. Prior to that, Mr. Gernetzke served as the director of finance at First Data Corporation from December 2015 to January 2017. Mr. Gernetzke is a
registered CPA in the State of Illinois and holds a B.S. in accounting from Marquette University and an M.B.A. from Northwestern University Kellogg School of Management.
Veronica McGregor, 60, has served as chief legal officer since January 2022. Prior to joining Exodus, Ms. McGregor was the chief
legal officer of ShapeShift from 2018 to 2021. Prior to that she was a partner at Goodwin Proctor from 2016 to 2018 and Hogan Lovells from 2014 to 2016. Ms. McGregor has a Juris Doctor degree from University of California - Hastings College of
the Law, and a B.A. in psychology from San Francisco State University.
Matias Olivera, 30, has served as chief technology officer since June 2022, and previously served as lead software engineer and engineering manager starting on
November 2019. Before joining Exodus, Mr. Olivera worked on open source projects in the education and digital asset spaces, among others, starting in 2014. Mr. Olivera was also a professor for web programming at Universidad Católica del Uruguay
from 2015 to 2020. Mr. Olivera has a computer engineer degree from Universidad Católica del Uruguay.
Significant Employees
Sabrina Grissom, 35, has served as chief people officer since February 2021. Before joining Exodus, Ms. Grissom served as the head of people operations at
eToro from 2019 to 2021. Prior to that she was the vice president of people at Noble Markets/Noble Bank from 2017-2019. Ms. Grissom has a B.A. in Communications from Ramapo College.
John Staker, 48, has served as head of development operations and security since May 2021 and previously served in support and development operation roles from
September 2017. Before joining Exodus, Mr. Staker served as the senior information technology officer for shipboard and shipyard operations, within the maritime industry, from 2007 to 2016. Mr. Staker has a B.S. in information systems from Latrobe
University.
Zanmei Yam, 31, has served as vice president of customer success since August 2021, and previously served as our interim head of support from May 2021 to July
2021, as APAC regional support manager from November 2020 to May 2021, and as an Exodus community support engineer from July 2019 to October 2020. Before joining Exodus, Ms. Yam served as a blockchain research consultant for Collective Ventures
from 2018 to 2019. Prior to that, Ms. Yam served as a specialist for client services at Rohei Learning & Consulting from 2016 to 2017. Ms. Yam has a B.BA in Marketing and Communications from the Queensland University of Technology.
Board of Directors
Jon Paul Richardson - See “— Executive Officers” for Mr. Richardson’s biographical information.
Daniel Castagnoli - See “—Executive Officers” for Mr. Castagnoli’s biographical information.
Board Composition and Risk Oversight
Our board of directors is currently composed of two members. Our amended and restated certificate of incorporation and amended and restated bylaws provide that the number of directors may be at fixed from time to
time by resolution of the board of directors.
Independent Directors
We plan on comprising our board of directors with a majority of “independent directors” as required by the national securities exchanges. Our board of directors will undertake a review of the independence of each director based on information provided by each director concerning his or her background, employment and affiliations.
The Company is currently a “controlled company” within the meaning of the rules of the national securities exchanges and, as a result, qualifies for, and could rely on, exemptions from certain
corporate governance requirements. We may or may not elect to rely on exemptions from certain corporate governance requirements (see “Item 1A Risk Factors—Risks Related to Ownership of Our Common Stock—The Company
is currently a “controlled company” within the meaning of the rules of the national securities exchanges and, as a result, qualifies for, and could rely on, exemptions from certain corporate governance requirements.”)
Director Compensation
We expect that non-employee directors will receive a compensation package including cash and stock-based compensation in accordance with
industry norms.
Committees of the Board
We expect that our board of directors will establish three standing committees: an audit committee, a compensation committee and a nominating
and corporate governance committee. Copies of the charters for each committee will be available on our website once such committee has been established.
Code of Business Conduct and Ethics
We expect that the Company’s board of directors will adopt a code of business conduct and ethics, or the Code of Conduct, applicable to all of the Company’s employees, executive officers and
directors. The Code of Conduct will be available on the Company’s website. Information contained on or accessible through our website is not incorporated herein by reference. The nominating and corporate governance committee will be responsible for
overseeing the Code of Conduct and will be required to approve any waivers of the Code of Conduct for employees, executive officers and directors. The Company expects that any amendments to the Code of Conduct, or any waivers of its requirements,
will be disclosed on its website.
Compensation Committee Interlocks and Insider Participation
In selecting the initial additional members of the board of directors and the compensation committee, we expect that no directors will be selected that have previously served as executive officers or employees of the
Company and that no executive officers will be selected from an entity on which an executive officer of the Company serves on such entity’s compensation committee or board of directors.
Limitation of Liability and Indemnification
Our amended and restated certificate of incorporation and amended and restated bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under the DGCL. In
addition, our amended and restated certificate of incorporation provides that our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by
the DGCL and that if the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
As permitted by the DGCL, we expect to enter into separate indemnification agreements with each of our directors, officers and certain other team members that require us, among other things, to
indemnify them against certain liabilities which may arise by reason of their status as directors, officers or team members. We also expect to obtain and maintain insurance policies under which our directors and officers are insured, within the
limits and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities that might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of
being or having been directors or officers. The coverage provided by these policies may apply whether or not we would have the power to indemnify such person against such liability under the provisions of the DGCL.
Family Relationships
There are no family relationships among any of the directors or executive officers.
Involvement in Certain Legal Proceedings
During the past five years, none of the directors or executive officers identified above have been involved in any bankruptcy or insolvency proceeding or convicted in a criminal proceeding,
excluding traffic violations and other minor offenses.
Compensation Table
The following table summarizes the compensation of the three highest paid persons during the year ended December 31, 2022:
Name
|
Principal Position
|
Year
|
Cash
Compensation(1)
|
All Other
Compensation(2)
|
Total
Compensation
|
|||||||||
Jon Paul Richardson
|
Chief Executive Officer and Director
|
2022
|
$
|
426,320
|
$
|
161,193
|
$
|
587,513
|
||||||
Daniel Castagnoli
|
President and Director
|
2022
|
343,750
|
161,193
|
504,943
|
|||||||||
Veronica McGregor (3)
|
Chief Legal Officer
|
2022
|
665,649
|
-
|
665,649
|
(1) Amounts represent the payment of base salary and cash incentive bonuses paid.
(2) Amounts represent the payment of restricted stock units.
(3) Ms. McGregor has served as the Company’s Chief Legal Officer since January 4, 2022.
The following table summarizes the compensation of the persons who were our directors, executive officers and significant employees during the years ended December 31, 2022 and 2021:
Year
|
Summary
Compensation
–
PEO (1)
|
Compensation
Actually Paid
to
PEO
|
Average
Summary
Compensation
–
Non PEO
NEOs (2)
|
Average
Compensation
Actually Paid
–
Non PEO
NEOs
|
Value of Initial Fixed
$100 Investment
Based
On:
Total Shareholder
Return (3)
|
Net Loss
(GAAP
reported,
in
thousands)
|
||||||||||||||||||
2022
|
587,513
|
703,139
|
318,642
|
351,525
|
(17.5
|
)
|
(22,912
|
)
|
||||||||||||||||
2021
|
6,268,202
|
716,667
|
340,846
|
324,605
|
(8.5
|
)
|
(21,914
|
)
|
(1) Principle Executive Officer (“PEO”)
(2) Named Executive Officer and Significant Employees (“NEO”)
(3) The values disclosed in this column represent the measurement period value of an investment of $100 in our common
stock as of December 31, 2020, and then valued again on each of December 31, 2021 and December 31, 2022.
During 2021, the Company conducted a market study to compare salaries of our team members compared to our peers. Using the study results, the Company aligned the salaries of our executives to
approximately the 25th percentile of our peers. Also in 2021, the compensation for our PEO included the sale of options or shares as pursuant to our Regulation A offering. Given market conditions during the second half of 2022, no executive
officers or significant employees received an annual discretionary incentive bonus
in addition to any guaranteed incentive bonus.
Employment Arrangements with our Named Executive Officers
Jon Paul Richardson - Mr. Richardson does not have an employment letter agreement. Mr. Richardson’s current annual base salary is $425,000 per year.
Daniel Castagnoli - Mr. Castagnoli does not have an employment letter agreement. Mr. Castagnoli’s current annual base salary is $335,000 per year.
Veronica McGregor - We entered into an employment letter agreement with Ms. McGregor in November 2021. Ms. McGregor’s employment letter agreement has no
specific term and provides that Ms. McGregor is an at-will employee. Ms. McGregor’s current annual base salary is $500,000 per year plus a guaranteed incentive bonus paid quarterly.
Employee Benefit and Stock Plans
Our named executive officers are eligible to receive awards under our 2021 Plan. Our board of directors adopted, and our stockholders approved, the 2021 Plan in August 2021. After approval of the 2021
Plan, the Company no longer issued awards under the 2019 Plan. The 2021 Plan became effective as of its approval by our board of directors. The 2021 Plan permits the grant of non-statutory stock options, incentive stock options and other equity
awards, such as restricted stock awards, to our team members, directors and consultants and any parent and subsidiary corporations’ team members and consultants.
Initially, a total 2,780,000 shares of our Class A common stock were reserved for issuance pursuant to the 2021 Plan. Pursuant to the 2021 Plan, the Company increased our share pool by 5% of our
total shares of capital stock. In 2022, the total share shares of our Class A common stock reserved for issuance increased by 1,875,000 for a total of 4,655,000 shares under the 2021 Plan. Any shares of common stock subject to an award under the
2021 Plan which for any reason expires, terminates or otherwise settles without the issuance of any common stock will not reduce (or otherwise offset) the number of shares of common stock that may be available for issuance under the 2021 Plan. If
shares issued pursuant to a stock award are forfeited back to or repurchased by us because of the failure to meet a contingency or condition required to vest such shares in the participant, such shares will become available for future grant under
the 2021 Plan. Any shares that are reacquired by us to pay withholding taxes or as consideration for the exercise or purchase price of an award will again become available for issuance under the 2021 Plan.
Our board of directors administers the 2021 Plan. The interpretation and construction by the board of directors of any term or provision of the plans or of any stock option or other award granted
under it are conclusive and binding. The board of directors may from time to time adopt rules and regulations for carrying out the 2021 Plan and, subject to the provisions of the 2021 Plan, may prescribe the form of agreements evidencing any award
granted under the plans. Subject to the provisions of the 2021 Plan, the board of directors has broad authority to administer and interpret the plans, including the authority to: determine which team members, directors or consultants are eligible
to receive awards under the plans; determine amounts, vesting schedules, acceleration events and termination events for awards; establish conditions and restrictions regarding the retention or exercise of stock option, restricted stock and other
awards; determine the fair market value applicable to awards; and make all other determinations necessary to administer the plans.
We may grant stock options, stock appreciation rights, restricted stock and other stock-based awards under the plans.
The exercise price of options granted under the plans must generally at least be equal to the fair market value of our common stock on the date of grant and the term of an incentive stock option may
not exceed 10 years. The board of directors will determine the time or times when an option is exercisable during the term of the option. The option may become exercisable in installments, and the exercisability of the option may be accelerated in
certain circumstances. The methods of payment of the exercise price of an option may include cash, check, bank draft or money order payable to us in a currency, including virtual currency, deemed acceptable by the board of directors. The board of
directors may permit option holders to pay the exercise price through a “net exercise” arrangement by having shares “withheld” from an option exercise. After the termination of service of a team member, director or consultant, he or she may
exercise his or her option for the period of time stated in his or her option agreement. However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of the plans, the administrator determines the
other terms of options.
Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Under the plans, holders of
stock appreciation rights may exercise the stock appreciation right and receive a payment in cash, in shares of our common stock or in any combination of cash and stock.
A grant of restricted stock involves an agreement that gives the holder the opportunity to receive and retain a certain number of shares of common stock from us, provided that certain conditions are
satisfied. When the conditions of the agreement are satisfied, the stock becomes fully vested. The restrictions on any restricted stock awards granted will be determined by the board of directors.
Other stock-based awards may be granted under the plans that are based in whole or in part by reference to, or otherwise based on, the fair market value of our common stock on such terms as the board
of directors may determine. Such awards may include restricted stock units, which may be settled in cash, stock or otherwise.
Unless the board of directors provides otherwise, the plans generally do not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime.
The board of directors may make adjustments to the number of shares available for awards under the plans and the terms of such awards if we undergo a stock split, stock dividend, recapitalization,
reorganization, dissolution, liquidation, consolidation, combination, merger or other similar corporate transaction.
The board of directors will have the sole right to alter, amend, suspend or terminate the plans provided such action will not materially impair the existing rights of any participant. The 2019 Plan
and 2021 Plan will automatically terminate in 2029 and 2031, respectively, unless we terminate them sooner.
Director Compensation
As of the date of this annual report on Form 1-K, our board of directors is comprised entirely of members of our management team, and as a result none of our directors receive separate compensation
for their service on the board of directors.
Outstanding Equity Awards
The following table presents information concerning equity awards held by our directors and named executive officers as of December 31, 2022:
Restricted Stock Units
|
|||||||||
Name
|
Vesting
Commencement Date
|
(#)
Vested/Settled
|
(#)
Unvested
|
||||||
Jon Paul Richardson (1)
|
1/5/2022
|
16,768
|
56,403
|
||||||
Daniel Castagnoli (1)
|
1/5/2022
|
16,768
|
56,403
|
||||||
Veronica McGregor (2)
|
1/4/2022
|
-
|
27,778
|
(1) If an RSU award is granted after a team member's one year anniversary with the Company, RSUs vest ratably over a
four year period.
(2) For team members with service to the Company of less than one year, one-fourth of the shares vest on the
one-year anniversary of the vesting commencement date, with 1/48th of the total number of shares vesting monthly thereafter, subject to continued service through each such vesting date.
ITEM 4. |
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 31, 2022, for:
• |
all executive officers and directors as a group, individually naming each director or executive officer who beneficially owns more than 10% of our common stock; and
|
• |
any other securityholder who beneficially owns more than 10% of our common stock.
|
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our common stock. We have deemed
shares of our common stock subject to stock options that are currently exercisable or exercisable within 60 days of December 31, 2022 or issuable pursuant to RSUs which are subject to vesting and settlement conditions expected to occur within 60
days of December 31, 2022, to be outstanding and to be beneficially owned by the person holding the stock option or RSU for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the
purpose of computing the percentage ownership of any other person. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they
beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and13(g) of the Exchange Act.
The percentage of beneficial ownership is based on 3,543,791 shares of Class A common stock and 21,834,538 shares
of Class B common stock outstanding.
Class A Common Stock
|
Class B Common Stock
|
|||||||||||||||||||
Name and Address of Beneficial Owner (1)
|
Shares(2)
|
% of Ownership
|
Shares(2)
|
% of Ownership
|
Total Voting
Power % (3)
|
|||||||||||||||
Executive Officers and Directors
|
||||||||||||||||||||
Jon Paul Richardson
|
42,693
|
1.2
|
%
|
9,297,537
|
42.7
|
%
|
42.0
|
%
|
||||||||||||
Daniel Castagnoli
|
42,550
|
1.2
|
%
|
9,454,413
|
43.3
|
%
|
42.7
|
%
|
||||||||||||
All executive officers
|
132,010
|
3.7
|
%
|
18,762,244
|
86.0
|
%
|
84.8
|
%
|
||||||||||||
10% or more Stockholders
|
||||||||||||||||||||
Alameda Research Ventures LLC
|
1,823,486
|
51.5
|
%
|
-
|
-
|
⚫️
|
||||||||||||||
AIC Capital LLC
|
364,698
|
10.3
|
%
|
-
|
-
|
⚫️
|
⚫️ Represents beneficial ownership or voting power of less than 1%.
(1) The address of each beneficial owner listed in the table is c/o Exodus Movement, Inc. 15418 Weir St., #333, Omaha, NE 68137
(2) Includes shares subject to vesting and settlement conditions expected to occur within 60
days of December 31, 2022
(3) Percentage total voting power represents voting power with respect to all outstanding
shares of our Class A common stock and Class B common stock, voting as a single class. Each holder of Class A common stock is entitled to one per share of Class A common stock and each holder of Class B common stock is entitled to ten votes per
share of Class B common stock. Holders of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law
or our amended and restated certificate of incorporation. The Class B common stock is convertible at any time by the holder into shares of Class A common stock on a share-for-share basis.
ITEM 5. |
There were no transactions during the last two completed fiscal years and the current fiscal year where we were or will be a party in which the amount involved exceeded the lesser of (i) $120,000 and
(ii) 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any director, officer, promoter or beneficial holder of more than 10% of any class of our voting securities, or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect material interest, other than compensation arrangements which are described under Item 3. Directors, Executive Officers and Significant Employees, “Compensation Table.”
Related Party Transactions
For the year ended December 31, 2022, related party transactions included:
tZERO is a platform on which investors can buy and sell tokenized shares of the Company’s Class A common stock:
• |
Revenue of $0.1 million and $0.3 million was settled in tZERO Preferred Shares for the years ended December 31, 2022 and 2021, respectively.
|
• |
$0.1 million of unrealized gain and $0.1 million of unrealized loss on investments was recorded on the consolidated statement of operations and comprehensive loss for the years ended
December 31, 2022 and 2021, respectively.
|
• |
$0.3 million and $0.1 million of other investments were recorded on the consolidated balance sheets as of December 31, 2022 and 2021, respectively.
|
Magic Eden is an NFT marketplace utilized by the Company:
• |
In 2021, the Company invested $0.4 million. As part of our annual impairment analysis, the entire investment has been impaired as of December 31, 2022.
|
• |
Two of the executives held, in total, approximately $0.1 million of investment in Magic Eden as of December 31, 2021. Due to the price changes as of December 31, 2022, the investment has
been impaired.
|
ITEM 6. |
Controls and Procedures
Material Weaknesses
During 2022, management identified errors in its previously reported financial information as of and for the year ended December 31, 2021. As a result of the errors that have been identified, we have identified a
material weakness in the Company’s control environment whereby the Company did not design and maintain effective internal control over financial reporting with respect to the expertise and quantity of its resources. Specifically, management did not
effectively execute a strategy to hire, train, and retain a sufficient quantity of personnel with an appropriate level of training, expertise, and experience in certain areas important to financial reporting. In addition, we also identified a
material weakness whereby management did not design and implement effective control activities based on the criteria established in the Committee of Sponsoring Organizations framework. Specifically, the control activities did not adequately (i)
address relevant risks, (ii) provide evidence of performance, (iii) provide appropriate segregation of duties, or (iv) operate at a level of precision to identify all potentially material errors.
Remediation Plan
Management is committed to remediating its material weaknesses as promptly as possible. Management is in the process of implementing its remediation plan. We have initiated and
intend to continue to implement measures designed to improve our internal control over financial reporting to remediate the material weaknesses, including the following:
|
• |
We continue to be in the process of adding personnel within our accounting function to allow for further segregation of reporting duties. We are in the process of strengthening segregation of duties
between the preparer and reviewer of controls related to financial accounting and reconciliation. We are also in the process of strengthening segregation of duties between those with access to book journal entries and those responsible
for reviewing journal entries booked.
|
|
• |
We have initiated formalizing our internal controls environment and activities and intend to hire a Sarbanes Oxley (“SOX”) readiness consultant to help perform a risk
assessment and scoping of key systems and business processes, including a risk assessment at the financial statement assertion level to ensure that the level of precision of relevant controls is adequate to address the identified risks.
We will continue to revise our risk assessment and scoping to rectify any deficiencies noted, enhance design and implement new controls if needed, expand education and training where necessary, update documentation, and add any necessary
reviews by our management. We will continue to remediate the design appropriateness of certain specific controls and test the design of the remediated controls.
|
We believe the hiring of accounting personnel and an additional SOX readiness resource and the implementation of processes and controls to better identify and manage segregation of duties will
remediate the identified control activities material weaknesses.
Changes in Internal Control over Financial Reporting
We rely extensively on information systems to manage our business and summarize and report operating results. In 2021, we began an implementation of a new Enterprise Resource Planning system (“ERP”), which will replace much of our existing core financial systems. The ERP system is designed to accurately maintain our financial records, enhance the flow of financial information, improve data
management, and provide timely information to our management team. The implementation continued during fiscal year 2022. Other than described herein, there have been no other changes in our internal control over financial reporting that occurred
during the fiscal year and quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We intend to evaluate quarterly whether such changes in our
processes and procedures materially affect our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the
benefits of possible controls and procedures relative to their costs.
Changes in Issuer’s Certifying Accountant
On January 4, 2023, the Company engaged Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the year
ended December 31, 2022, which was approved by the board of directors of the Company. For the fiscal years ended December 31, 2021 and 2020, and the subsequent interim period through the date of this Report, neither the Company nor anyone on its
behalf has consulted with Deloitte regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements,
and neither a written report nor oral advice was provided to the Company that Deloitte concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any
matter that was either the subject of a “disagreement” or a “reportable event,” as such terms are defined in Regulation S-K Item 304(a)(1)(iv) and (v), respectively.
ITEM 7. |
Independent Auditor’s Report
|
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of Exodus Movement, Inc.
Opinion
We have audited the consolidated financial statements of Exodus Movement, Inc. and subsidiary (the “Company”), which comprise the
consolidated balance sheet as of December 31, 2022, and the related consolidated statements of operation and comprehensive loss, stockholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial
statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical
responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in
accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
•
|
Exercise professional judgment and maintain professional skepticism throughout the audit.
|
•
|
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures
responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
|
•
|
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
|
•
|
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate
the overall presentation of the financial statements.
|
•
|
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to
continue as a going concern for a reasonable period of time.
|
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
April 28, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders,
Exodus Movement, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Exodus Movement, Inc. (the "Company") as of December 31, 2021, the related consolidated statements of operations and comprehensive
income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 14 to the financial statements, the Company has restated its 2021 financial statements for an error in the impairment of digital assets and certain expense reclassifications.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on
our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.
Emphasis of Matter
Uncertainties Related to Cryptocurrency Assets (also referred to as “Digital Currencies”)
As disclosed in Note 4 to the consolidated financial statements, the Company held digital currencies with a carrying value of approximately $83 million, representing approximately 76% of total
assets as of December 31, 2021. Included in these amounts is $45.4 million held in stable coins in non-custodial wallets as of December 31, 2021. In addition, the Company’s customers utilize the Company’s un-hosted and non-custodial
cryptocurrency software wallets to hold their personal digital assets. Significant information and risks related to such currencies includes, but is not necessarily limited to the following:
F-2
Digital Currencies Have Risks of Ownership
As of the date of these consolidated financial statements, the regulatory landscape continues to evolve and while cryptocurrencies have public keys (e.g., account numbers) of virtual wallets the
holding of cryptocurrencies reside on distributed networks and can be viewed publicly, the ownership of the wallets are not registered and therefore, anonymous. Ownership in the currencies residing in any wallet are evidenced only by
demonstrating knowledge of both the public key of the virtual wallet holding the currencies and the underlying private key (e.g., passcode) of the cryptocurrencies residing within the virtual wallet. Knowledge of both these keys is required in
order to demonstrate possession of the cryptocurrencies and therefore, ownership. Accordingly, prior to investing, investors who are directly or indirectly invested in such currencies should carefully evaluate and understand all relevant
internal controls put in place by companies holding such assets on their behalf to understand how their investments are being protected and how inappropriate transfers of such assets are prevented.
Risks Related to Maintaining Private Key Security
Digital currency assets require the execution of the aforementioned confidential encrypted private key in order to initiate a transfer of the asset to another party. If the private key were to
become lost, the Company would not be able to access the digital currency assets, thereby deeming the asset worthless to the Company. In addition, if another party were to gain access to the private key, along with the public key of the wallet
holding the digital currencies, the other party could demonstrate ownership of the digital currencies and could either execute a transfer of the cryptocurrency asset or inappropriately utilize the digital currency assets as collateral for
unauthorized financing.
Risks Related to Current and Continued Market Acceptance
Cryptocurrency assets are virtual currencies that have recently become significant in the marketplace and utilize blockchain technology in order to account for the transfer of such assets. These
virtual assets have significant market volatility, which can significantly vary in a short period of time and can potentially vary between various pricing sources. These virtual assets are highly speculative in nature, and have potentially
significant risks of ownership, which include, but are not necessarily limited to risks identified herein.
Regulatory Oversight and Considerations
As of the date of these financial statements, the U.S. Securities and Exchange Commission has expressed concerns regarding the adequacy and accuracy of marketplace information of cryptocurrency
assets, which could impact individual state blue sky laws, potentially impacting the exchange of such assets for more widely accepted currencies, such as the US Dollar. In the event that regulations were implemented to address these concerns,
such regulations could potentially have a significant adverse effect on the realization of these digital currency assets.
Risks Associated With a Cryptocurrency Majority Control
Since cryptocurrencies are virtual and transactions in such currencies reside on distributed networks, governance of the underlying distributed network could be adversely altered should any
individual or group obtain 51% control of the distributed network. Such control could have a significant adverse effect on either the ownership or value of the cryptocurrency.
F-3
As of the date of these consolidated financial statements, there is currently no specific authoritative accounting literature under accounting principles generally accepted in the United States of
America (U.S. GAAP) which addresses the accounting for digital assets, including digital currencies.
Certain non-authoritative sources have concluded that digital currencies should be accounted for as intangible assets, where the digital currency asset should be recorded at the lower of its
original cost or fair value, whereby any recorded write-downs could not be recovered in the future. The Company’s management has concluded that its digital currency assets should be valued at cost and reduced for any identified impairment
charges, which is consistent with current practices. In the event that specific authoritative accounting guidance were to be issued after the release of these consolidated financial statements and such guidance was inconsistent with management’s
current accounting for its digital assets and a restatement would be determined to be required, any resulting restatement could have a significant impact on the Company’s financial position, results of operations, and cash flows. The timing of
any such authoritative guidance, if issued at all, is not determinable as of the date of these financial statements.
Risks Related to Transaction Authentication
As of the date of these consolidated financial statements, the transfer of digital currency assets from one party to another currently typically relies on an authentication process by an outside
party known as a miner (or another authenticating party). In exchange for compensation, the miner will authenticate the transfer of the currency through the solving of a complex algorithm known as a proof of work, or will vouch for the transfer
through other means, such as a proof of stake. Effective transfers of and therefore realization of cryptocurrency is dependent on interactions from these miners. In the event that there was a shortage of miners to perform this function, that
shortage could have an adverse effect on either the fair value or realization of the cryptocurrency assets.
As discussed herein, holdings in digital currency assets are subject to current, emerging and potentially significant risks, including, but not necessarily limited to legal, regulatory, market
valuation and proof of ownership risks. These risks are described in greater detail in Note 1 to the consolidated financial statements. Users of financial statements for entities that are associated with or hold cryptocurrency assets should
carefully understand, consider and evaluate these and other risks related to cryptocurrency assets, when making investing decisions in such entities.
/s/ WithumSmith+Brown, PC
We have served as the Company's auditor since 2018.
New York, NY
March 4, 2022, except for the effects on the financial statements of the restatement described in Note 14, as to which the date is April 28, 2023
PCAOB Number 100
Consolidated Financial Statements
Exodus Movement, Inc. and Subsidiary
(In Thousands, except share amounts)
ASSETS
|
December 31,
2022
|
December 31,
2021
(restated)
|
||||||
CURRENT ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
20,494
|
$
|
5,375
|
||||
U.S. dollar coin
|
-
|
45,291
|
||||||
Tether
|
-
|
77
|
||||||
Accounts receivable
|
1,488
|
2,684
|
||||||
Prepaid expenses
|
2,752
|
7,034
|
||||||
Treasury bills
|
31,981
|
-
|
||||||
Other current assets
|
77
|
3,274
|
||||||
Total current assets
|
56,792
|
63,735
|
||||||
OTHER ASSETS
|
||||||||
Fixed assets, net
|
617
|
609
|
||||||
Digital assets, net
|
20,302
|
37,757
|
||||||
Software assets, net
|
7,490
|
3,977
|
||||||
Indefinite-lived assets
|
1,945
|
2,045
|
||||||
Other investments
|
694
|
632
|
||||||
Deferred tax assets
|
1,369
|
-
|
||||||
Total other assets
|
32,417
|
45,020
|
||||||
TOTAL ASSETS
|
$
|
89,209
|
$
|
108,755
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
|
$
|
610
|
$
|
1,988
|
||||
Other current liabilities
|
2,389
|
2,584
|
||||||
Total current liabilities
|
2,999
|
4,572
|
||||||
LONG-TERM LIABILITIES
|
||||||||
Deferred tax liability
|
366
|
226
|
||||||
Total long-term liabilities
|
366
|
226
|
||||||
Total liabilities
|
3,365
|
4,798
|
||||||
STOCKHOLDERS’ EQUITY
|
||||||||
Preferred stock
|
||||||||
$0.000001 par value, 5,000,000 shares authorized, no shares issued and outstanding
|
-
|
-
|
||||||
Class A Common Stock
|
||||||||
$0.000001 par value, 32,500,000 shares authorized,
|
-
|
-
|
||||||
3,543,791 issued and outstanding as of December 31, 2022
|
-
|
-
|
||||||
2,730,384 issued and outstanding as of December 31, 2021
|
-
|
-
|
||||||
Class B Common Stock
|
||||||||
$0.000001 par value, 27,500,000 shares authorized,
|
-
|
-
|
||||||
21,798,414 issued and outstanding as of December 31, 2022
|
-
|
-
|
||||||
22,510,184 issued and outstanding as of December 31, 2021
|
-
|
-
|
||||||
ADDITIONAL PAID IN CAPITAL
|
116,644
|
111,705
|
||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
(694
|
)
|
(788
|
)
|
||||
ACCUMULATED DEFICIT
|
(30,106
|
)
|
(6,960
|
)
|
||||
Total stockholders’ equity
|
85,844
|
103,957
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
89,209
|
$
|
108,755
|
The accompanying notes are an integral part of these consolidated financial statements.
Exodus Movement, Inc. and Subsidiary
(In Thousands, except per share amounts)
Year
Ended
December
31, 2022
|
Year Ended
December
31, 2021
|
|||||||
(restated)
|
||||||||
OPERATING REVENUES
|
$
|
50,606
|
$
|
95,849
|
||||
COST OF REVENUES
|
28,677
|
22,703
|
||||||
GROSS PROFIT
|
21,929
|
73,146
|
||||||
OPERATING EXPENSES
|
||||||||
General and administrative
|
28,086
|
22,031
|
||||||
Impairment of digital assets, net
|
18,308
|
6,600
|
||||||
Impairment of assets
|
500
|
-
|
||||||
Total operating expenses
|
46,894
|
28,631
|
||||||
(Loss) income from operations
|
(24,965
|
)
|
44,515
|
|||||
OTHER INCOME (EXPENSE)
|
||||||||
Unrealized gain (loss) on investments
|
295
|
(150
|
)
|
|||||
Loss on extinguishment of SAFE notes
|
-
|
(61,037
|
)
|
|||||
Interest income
|
578
|
725
|
||||||
Total other income (expense)
|
873
|
(60,462
|
)
|
|||||
Loss before income taxes
|
(24,092
|
)
|
(15,947
|
)
|
||||
INCOME TAX BENEFIT (EXPENSE)
|
946
|
(5,967
|
)
|
|||||
NET LOSS
|
$
|
(23,146
|
)
|
$
|
(21,914
|
)
|
||
OTHER COMPREHENSIVE LOSS
|
||||||||
Foreign currency translation adjustment
|
94
|
(1,036
|
)
|
|||||
COMPREHENSIVE LOSS
|
$
|
(23,052
|
)
|
$
|
(22,950
|
)
|
||
Basic net loss per share
|
||||||||
Basic net loss per share of common stock - Class A
|
$
|
(7.20
|
)
|
$
|
(12.28
|
)
|
||
Diluted loss per share of common stock - Class A
|
$
|
(7.20
|
)
|
$
|
(12.28
|
)
|
||
Basic net loss per share of common stock - Class B
|
$
|
(1.01
|
)
|
$
|
(0.99
|
)
|
||
Diluted loss per share of common stock - Class B
|
$
|
(1.01
|
)
|
$
|
(0.99
|
)
|
||
Weighted average number of shares and share equivalents outstanding
|
||||||||
Weighted average number of shares used in basic computation - Class A
|
3,216
|
1,784
|
||||||
Weighted average number of shares used in diluted computation - Class A
|
3,216
|
1,784
|
||||||
Weighted average number of shares used in basic computation - Class B
|
22,826
|
22,080
|
||||||
Weighted average number of shares used in diluted computation - Class B
|
22,826
|
22,080
|
The accompanying notes are an integral part of these consolidated financial statements.
Exodus Movement, Inc. and Subsidiary
(In Thousands)
Class A
Shares
|
Class B
Shares
|
Additional
Paid In
Capital
|
Accumulated
Other
Comprehensive
Loss
|
(Accumulated
Deficit)
Retained
Earnings
|
Total
Stockholders’
Equity
|
|||||||||||||||||||
BALANCES as of January 1, 2021
|
-
|
20,012
|
$
|
2,621
|
$
|
248
|
$
|
14,954
|
$
|
17,823
|
||||||||||||||
Stock based compensation
|
-
|
-
|
653
|
-
|
-
|
653
|
||||||||||||||||||
Exercised options
|
-
|
412
|
926
|
-
|
-
|
926
|
||||||||||||||||||
Shares repurchased and cancelled
|
(3
|
)
|
-
|
(71
|
)
|
-
|
-
|
(71
|
)
|
|||||||||||||||
Issuance of Class A Common Stock shares for Regulation A offering, net of deferred offering costs
|
1,915
|
-
|
49,001
|
-
|
-
|
49,001
|
||||||||||||||||||
Shares converted to Class A Common Stock by selling shareholders for Regulation A offering
|
818
|
(818
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||
SAFE conversion
|
-
|
2,904
|
61,575
|
-
|
-
|
61,575
|
||||||||||||||||||
Options redeemed and cancelled
|
-
|
-
|
(3,000
|
)
|
-
|
-
|
(3,000
|
)
|
||||||||||||||||
Foreign currency translation adjustment (restated)
|
-
|
-
|
-
|
(1,036
|
)
|
-
|
(1,036
|
)
|
||||||||||||||||
Net loss (restated)
|
-
|
-
|
-
|
-
|
(21,914
|
)
|
(21,914
|
)
|
||||||||||||||||
BALANCES as of December 31, 2021(restated)
|
2,730
|
22,510
|
$
|
111,705
|
$
|
(788
|
)
|
$
|
(6,960
|
)
|
$
|
103,957
|
||||||||||||
Stock based compensation
|
-
|
-
|
5,205
|
-
|
-
|
5,205
|
||||||||||||||||||
Exercised options, net of options withheld for taxes and strike price
|
-
|
7
|
18
|
-
|
-
|
18
|
||||||||||||||||||
Shares repurchased and cancelled
|
(2
|
)
|
-
|
(20
|
)
|
-
|
-
|
(20
|
)
|
|||||||||||||||
Issuance of Common Stock upon settlement of restricted stock units, net of shares withheld for taxes
|
97
|
-
|
(264
|
)
|
(264
|
)
|
||||||||||||||||||
Conversion from Class B to Class A, as elected by shareholders
|
719
|
(719
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||
Foreign currency translation adjustment
|
-
|
-
|
-
|
94
|
-
|
94
|
||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
(23,146
|
)
|
(23,146
|
)
|
||||||||||||||||
BALANCES as of December 31, 2022
|
3,544
|
21,798
|
$
|
116,644
|
$
|
(694
|
)
|
$
|
(30,106
|
)
|
$
|
85,844
|
The accompanying notes are an integral part of these consolidated financial statements.
Exodus Movement, Inc. and Subsidiary
(In Thousands)
Year Ended
December 31, 2022
|
Year Ended
December 31, 2021
(restated)
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net loss
|
$
|
(23,146
|
)
|
$
|
(21,914
|
)
|
||
Adjustments to reconcile net loss to
|
||||||||
Net cash provided by operating activities
|
||||||||
Depreciation and amortization
|
3,460
|
1,762
|
||||||
Deferred tax benefit
|
(1,595
|
)
|
(627
|
)
|
||||
Impairment of digital assets, net
|
18,308
|
6,600
|
||||||
Impairment of assets
|
500
|
-
|
||||||
Non-cash revenue - related party
|
(135
|
)
|
(302
|
)
|
||||
Unrealized (gain) loss on investments
|
(295
|
)
|
150
|
|||||
Loss on extinguishment of SAFE notes
|
-
|
61,037
|
||||||
Stock based compensation
|
4,133
|
535
|
||||||
Non-cash activities settled in digital assets (1)
|
39,833
|
(33,914
|
)
|
|||||
Change in operating assets and liabilities:
|
||||||||
Prepaid expenses
|
4,914
|
(3,139
|
)
|
|||||
Other current assets
|
161
|
(3,271
|
)
|
|||||
Other investments
|
(248
|
)
|
-
|
|||||
Accounts payable
|
(1,378
|
)
|
1,545
|
|||||
Other current liabilities
|
(540
|
) |
250
|
|||||
Other long term liabilities
|
366
|
-
|
||||||
Net cash provided by operating activities
|
44,420
|
8,712
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases of fixed assets
|
(324
|
)
|
(461
|
)
|
||||
Purchase of investments
|
-
|
(100
|
)
|
|||||
Purchase of treasury bills
|
(35,935
|
)
|
-
|
|||||
Redemption of treasury bills
|
4,200
|
-
|
||||||
Purchases of indefinite-lived assets
|
-
|
(2,045
|
)
|
|||||
Net cash used in investing activities
|
(32,059
|
)
|
(2,606
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Deferred offering costs
|
-
|
(2,316
|
)
|
|||||
Payment of shares repurchased and cancelled
|
(20
|
)
|
(71
|
)
|
||||
Proceeds from note receivable
|
3,038
|
-
|
||||||
Repurchase of shares to pay employee withholding taxes
|
(264
|
)
|
-
|
|||||
Exercise of stock options
|
4
|
233
|
||||||
Net cash provided by (used in) financing activities
|
2,758
|
(2,154
|
)
|
|||||