UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K
(Mark One) [X] ANNUAL REPORT PURUANT TO SECTION☒Annual Report Pursuant To Section 13
ORor 15(d)OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934For the fiscal year
endedended: December 312015 [ ] TRANSITION REPORT UNDER SECTION, 2022☐Transition Report Under Section 13
ORor 15(d)OF THE EXCHANGE ACTof the Securities Exchange Act of 1934For the transition period from ______ to_______
Commission
file numberFile No. 0-28963STRATEGIC ACQUISITIONS, INC.
---------------------------- (Exact(Exact name of registrant as specified in its charter)
Nevada 13-3506506 ------ ---------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 2 Gold Street, PH 12, New York, NY 10038 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (212) 878-6532 -------------- (Issuer's Telephone Number)
| Nevada | 13-3506506 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 51 JFK Parkway, Suite 135, Short Hills, New Jersey07078 |
| (Address of Principal Executive Offices) |
| (908)266-0541 |
| (Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
---------------
(Title of Class)
Title of Each Class | Trading Symbol | Name of each Exchange on which Registered | ||
| Common Stock, par value $0.001 | STQN | N/A |
Indicate by check mark whetherif the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] ☐ No [X]
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] ☐ No [X]
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingpast 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] ☒ No [ ]
☐
Indicate by check mark if disclosure of deliquent filerswhether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to ItemRule 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part IIIS-T (§ 232.405 of this Form 10-K or any amendmentchapter) during the preceding 12 months (or for such shorter period that the registrant was required to this Form 10-K. [ ]
submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. LargeSee the definitions of “large accelerated filer, [ ] Accelerated” “accelerated filer, [ ]
Non-accelerated filer [ ] Smaller” “smaller reporting company, [X]
” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Non-Accelerated Filer ☐ |
| Accelerated Filer ☐ | Smaller Reporting Company ☒ |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] ☐ No [ ]
The ☒
As of June 30, 2022, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common stock and non-voting common equitystock held by non-affiliates of the registrant's nonaffiliates,Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $178,480 based on 446,200 outstanding shares of common stock held by non-affiliates and the last reported price of $0.40 on June 10, 2022
There were shares of the registrant’s common stock outstanding as of as of March 8, 2016, was $132,720.
As6, 2023.
DOCUMENTS INCORPORATED BY REFERENCE:
None
STRATEGIC ACQUISITIONS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2022
TABLE OF CONTENTS
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of March 8, 2016, a totalSection 27A of 1,740,000 sharesthe Securities Act of Common Stock,
par value $.001 per share, were issued1933, as amended (the “Securities Act”), and outstanding.
PARTSection 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include statements regarding our expectations, hopes or intentions regarding the future, including but not limited to, statements regarding our strategy and business plan, our compliance with laws and regulations, our beliefs regarding the applicability of tax regulations and positions and our expectations regarding the impact of accounting pronouncements.
Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described under the heading “Risk Factors” in Part I, Item 1A of this report. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and, except as otherwise required by law, we assume no obligation to update any forward-looking statement or other information contained herein to reflect new information, events or circumstances after the date hereof.
***
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ITEM 1. Business.
BUSINESS
Strategic Acquisitions, Inc. (the "Company" or "Strategic")“Company,” “Strategic,” “we,” “us” and words of similar import) was incorporated under the laws of the State of Nevada on January 27, 1989. Since inceptionOn December 22, 2022, we entered into and consummated an Agreement and Plan of Merger (“Merger Agreement”) with Exworth Union Inc (“Exworth Union”) and the Companyowners of all of its outstanding shares of capital stock — Exworth Management LLC (“Exworth Management”) and World Class Global Technology PTE. LTD. (“World Class,” collectively with Exworth Management, the “Stockholders”) whereby we acquired Exworth Union (the “Merger”). Exworth Union is engaged in providing loans collateralized by digital assets. Prior to the Merger, we were a “shell” company with no commercial operations and had generated no revenues other than nominal interest income.
Immediately prior to the Merger, Exworth Management owned 91% of the outstanding shares of Exworth Union and 74% of the shares of our common stock outstanding. Consequently, the transaction effected through the Merger Agreement was accounted for as a reverse recapitalization. Exworth Union was determined to be the accounting acquirer and we, Strategic, were treated as the acquired company for financial reporting purposes.
As a result of the acquisition of Exworth Union we are now engaged in providing loans collateralized by digital assets. Our loan business is currently limited due to the early stage of the digital asset industry, changing economic conditions and the need to more fully develop a proprietary software technology platform, or the “Platform,” to facilitate the origination and servicing of digital asset-backed loans. Our target customers are small businesses and individuals that hold intangible assets including digital currencies seeking loans secured by such assets. We provide term loans to these enterprises and individuals which are collateralized with intangible assets, such as Bitcoin. We generate revenue from interest income and transaction-based services fees. Our Platform will be designed to originate and service loans backed by various assets. Nevertheless, to date Bitcoin is the only asset we have accepted as collateral for a loan and we intend to focus on the market for loans secured by digital currencies for the immediate future.
The Platform
The Platform under development will facilitate the origination and servicing of digital asset-backed loans and will consist of a customer facing website, a mobile application and a loan management system used to monitor the loans made by us.
The Platform will provide an integrated service for the origination, documentation and servicing of collateralized loans. Our current core offering is a digital asset-backed loan. We may in the future offer various other loan products, such as a portfolio line of credit, debit card, credit card and digital asset-denominated loans.
We manage and administer all aspects of loans originated by us, including the application process, qualification of the borrower, structuring the terms of the loan, loan funding and servicing, and related regulatory compliance. We will manage borrowers’ digital assets serving as collateral, through services provided by third party providers of digital asset custody services who hold and transfer the collateral.
The Platform will allow us to process and complete transactions. We plan to use the Platform to onboard borrowers, decide whether to approve a loan, to structure the amount and terms of the loans we offer, including the value of the collateral to be deposited under our control as a condition to funding, and to provide funds to borrowers. The Platform will enable us to closely monitor collection and portfolio performance data that we use to determine whether to foreclose on a loan and liquidate the collateral and to refine the statistical measures used in making loan transaction decisions. We will also use the Platform to facilitate the transfer of digital asset collateral for loans and manage the custodial needs for such collateral.
The Platform’s software will also provide an end-to-end system for managing loan processes from acquisition to repayment or foreclosure. The Platform will help us manage applications and track loans through all stages, from initial inquiry through funding, diligence, servicing, margin call and collateral management. Borrowers will receive notifications from the Platform upon collateral deposit, withdrawal requests, margin call, and other account changes.
The Platform will have a borrower-facing website and the mobile application, which will provide prospective borrowers and customers with the ability to directly manage their loans, collateral and account information.
We plan to develop the Platform as a flexible and scalable technology system so that we can include new products intended to meet changes in borrowers’ demands and increased volume.
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Digital Asset-Backed Loans
We will originate U.S. Dollar denominated loans. We offer loans to small business and individual borrowers who own digital assets and desire liquidity in U.S. Dollar denominated loans. We currently only provide loans to businesses and individuals outside of the United States, mainly in Asia and Europe. We serve this niche market with term loans ranging in size from $500,000 to $5,000,000. Currently, the only digital asset we are accepting as collateral is Bitcoin. Our loan agreements with borrowers permit us to sell the borrower’s collateral assets to repay the loan principal and accrued interest if a margin call is not timely cured. If the threshold for collateral liquidation is breached, we trigger a liquidation event. Liquidation events may result in fees which are passed along to the borrower. The margin requirements are determined by us and agreed to by borrowers.
Terms are set forth in loan agreements entered into with each borrower. The loans have a fixed term that range from 3 to 36 months in duration. The loans generally require either periodic payments of principal and interest with a fixed payment amount due each period during the term of the loan or periodic payments of interest only with a final lump sum payment of principal at the end of the loan term. Payments are due monthly or quarterly based on the contractual terms. The applicable interest rates, origination fees and liquidation fees for our loans will vary based on several factors including the originating loan-to-value ratio, the business status of the borrower, loan duration and jurisdiction.
We make loans based upon: (i) our ability to securely take possession, store, manage, and liquidate the digital assets held as collateral; (ii) market capitalization, volatility, liquidity, and trading volumes for the digital assets; and (iii) the legal status of the digital assets to be used as collateral; subject to due diligence and applicable know your customer and anti-money laundering regulations.
Under our loan agreements with borrowers, we may, from time to time, repledge certain collateral, including under capital facilities we maintain with financial partners for capital management purposes. The Company regularly monitors such re-hypothecation and repledging transactions as well as the credit standing of its financial partners in order to maintain sufficient available capital.
Loan Agreement with Our Lenders
Exworth Union is and will be party to loan agreements with certain lenders and other strategic partners, pursuant to which it borrows U.S. dollar-based capital for use in our lending business. We currently are party to a master loan agreement and a master pledge agreement with a U.S. based lender. According to the master loan agreement, we can borrow utilizing bitcoin as collateral with 70% loan-to-value on a non-recourse basis. We may elect to enter into additional loans secured by such digital and other assets we have the right to pledge, on such terms and conditions as may be agreed upon. Our current loan has a term of 24 months with quarterly interest-only payments with principal paid at the maturity date. No prepayment of the loan principal amount or of any interest due under the loan is allowed. If the fair market value of our pledged collateral based upon the closing market price has fallen to less than seventy percent (70%) of its fair market value as of the closing of the loan, the lender will provide written notice and we have five business days to cure the deficiency by the delivery to the lender of additional collateral in U.S. Dollars or bitcoin equivalent. The lender has the right to demand that curative payments be made in U.S. Dollars. According to the Loan agreement with our Lender, when all of our obligations have been paid in full, the lender must return the pledged collateral within five business days
Geographic Market
Our primary geographical markets are Asia and Europe. We hope to increase our engagement with and gain our clients’ trust, and enhance user understanding of the loans we make available and as our customer base grows, provide other financial services.
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Competition
Our primary target customers are small businesses and individuals in Asia and Europe. The lending industry in these markets is rapidly changing and highly innovative. We expect competition within our industry will continue to be intense as existing and new competitors introduce new products or enhance existing products. Our principal competitors are other digital asset-backed lending companies, decentralized finance companies, credit services organizations, online lenders, credit card companies, and other financial institutions that offer similar financial products and services, including loans on an unsecured as well as a secured basis.
An additional significant source of competition are companies, including those located outside the United States, that are subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. Their business models rely on being unregulated or only regulated in a small number of lower compliance jurisdictions, while also offering their products in highly regulated jurisdictions, including the United States, without necessarily complying with the relevant regulatory requirements in such jurisdictions.
Due to our commitment to legal and regulatory compliance, we have not been able to offer some popular products and services that our unregulated or less regulated competitors offer, which may adversely impact our business, financial condition, and results of operations. We also expect to expend significant managerial, operational, and compliance costs to meet the legal and regulatory requirements applicable to us in the United States and other jurisdictions in which we operate and expect to continue to incur significant costs to comply with these requirements before we could grow our business, which these unregulated or less regulated competitors have not had to incur.
Further, as digital assets become more widely adopted, more traditional financial institutions may begin to directly compete with our platform. Certain of our current and potential competitors, particularly more traditional financial institutions or non-digital asset lenders entering or that may enter our market, have more extensive customer bases and broader customer relationships than we have and have longer operating histories and greater name recognition than we have. They also have significantly more financial, technical, marketing and other resources than we have, and are able to devote greater resources to the development, promotion, sale and support of their products and services. Competing services that have partnered with or are tied to established banks and other financial institutions, may offer greater liquidity and create greater consumer confidence in the safety and efficiency of their services than we do. We expect that there will be continued mergers and acquisitions by or among these companies, which will lead to even larger competitors with more resources. We also expect to continue to see new entrants to our field, which offer competitive products and services.
Regulations That Affect Our Business
We currently make loans only outside of the United States. We plan to market and provide services through a number of different online and offline channels to business in Asia and Europe. In general, local regulations are designed to protect consumers and the public, while providing standard guidelines for business operations. Laws and regulations typically impose restrictions and requirements, such as governing interest rates and fees, maximum loan amounts, loan extensions and refinancings, payment schedules (including maximum and minimum loan durations), disclosures, security for loans and payment mechanisms, licensing, and in certain jurisdictions certain reporting requirements. For more information regarding the regulations applicable to our business and the risks to which they subject us, see the section entitled “Risk Factors” below.
In addition, regulation of the blockchain and digital assets is under active consideration by the United States through various federal agencies, including the SEC, Commodity Futures Trading Commission (“CFTC”), Federal Trade Commission (“FTC”) and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury, as well as in other countries. State government regulations may also apply. Furthermore, it is expected that regulations will increase, although we cannot anticipate how and when. As the regulatory and legal environment evolves, we may become subject to new laws and regulation by the SEC and other agencies.
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The legal environment is constantly changing as new laws and regulations are introduced and adopted, and existing laws and regulations are repealed, amended, modified and reinterpreted. Regulatory authorities at various levels of government and voters have enacted, and will likely continue to propose, new laws and regulations impacting our industry. Due to the evolving nature of laws and regulations, further rulemaking could result in new or expanded regulations, particularly at the state level, that may adversely impact current product offerings or alter the economic performance of our existing products and services. We cannot provide any assurances that additional federal, state, provincial or local statutes or regulations will not be enacted in the future in any of the jurisdictions in which we operate. It is possible that future changes to statutes or regulations will have a material adverse effect on our results of operations and financial condition. Further, as our business evolves and we make loans or provide services to businesses and individuals in more countries, we will become subject to the applicable laws and regulations in such countries and their political territories.
Technology & Technology Suppliers
Our Platform is being developed internally and by third parties directed by us. Our Platform will be hosted in third party data centers on virtual cloud-based infrastructure. These providers include Google Cloud Computing and AWS. These data centers use a mixture of biometric access controls, redundant power, environmental controls and secure internet connection points to ensure uptime and data security. We rely on our data center and service providers to maintain peak operating conditions in their businesses and to quickly address issues related to their service as they arise.
Crypto Wallet Providers
We are using a crypto custody service provided by Aegis Trust Company, a South Dakota public trust company, to hold the digital assets as collateral. We rely on our custody service provider to maintain and secure its crypto wallet service for our operations and to provide its services in accordance with applicable laws and regulations.
Intellectual Property
Our Platform and other technologies incorporate proprietary intellectual properties developed and owned by us or licensed to us on an exclusive basis. Protecting our rights to our intellectual property enhances our ability to offer distinct and competitive products and services to our customers. We rely on a combination of patent, trademark and trade secret law protections in the United States, as well as confidentiality procedures and contractual provisions to protect our intellectual property rights. Our patent strategy includes identifying our key business goals, enhancing our research and product development, and growing and defending our market share.
Employees
As of the date
hereof, the Company has no commercial operations, has no full- or part-timeFebruary 16, 2023, we had three employees and owns no real estate.
engaged two consultants.
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ITEM 1A. RISK FACTORS
Our business, financial condition or results of operations could be materially adversely affected by a number of risks if any of them actually occur, including those described below. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere in this report. These risks are not the only ones faced by us. Additional risks not known or that are deemed immaterial could also materially and adversely affect our financial condition, results of operations, business and prospects.
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
We have a limited operating history, a history of operating losses and expect to incur significant additional operating losses in the foreseeable future.
Exworth Union was incorporated in March, 2022. We have a limited operating history. We continue to incur operating losses and have not generated positive cash flow from operations.
The Company'samounts of future losses and when, if ever, we will achieve profitability and positive cash flow from operations are uncertain.
We will need to secure financing in the future and our ability to secure future financing is uncertain.
We anticipate that we will continue to incur operating losses and will need to secure additional financing. We may seek additional funding through public or private financings, collaborative arrangements, debt or other arrangements with third parties. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more segments of our business operations or curtail our business operations in their entirety. If we obtain funds by entering into arrangements with collaborative partners or others, we may be required to relinquish rights to certain of our products, services, or technologies that we would not otherwise relinquish. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We expect our Company’s business model to continue to evolve.
Our industry is characterized by experimentation, changing customer needs, and frequent introductions of new products and services. As FinTech industry and digital asset and blockchain technologies become more widely available, we expect the services and products associated with them to continue to rapidly evolve. Thus, in order to stay current with the industry, our business model may need to evolve as well. From time to time, we may materially modify aspects of our business model relating to our product and service offerings. We cannot offer any assurance that these or any other modifications will be successful or will not harm our business. If changes to our business model are not successful, or if we fail to make appropriate changes, it would have a material adverse effect on our business, prospects or operations and potentially on our ability to continue as a going concern.
Our Company is in an early stage of development and it may not be able to develop its business as anticipated.
We have generated minimal revenue from our lending business line and have a limited customer base. Our business prospects are difficult to predict because of our limited operating history, early stage of development, and unproven business strategy. In addition, demand for our loans is very difficult to predict and may vary widely based on many factors that are outside of our control. Although our management believes that our current business plan ishas potential, our Company may never attain profitable operations and our management may not succeed in realizing our business objectives due to seek, investigate,a lack of technical, marketing, financial, and if warranted,
acquireother resources or dependence on the success of one product or service, a business, and to pursue other related activities intended to enhance
shareholder value. The acquisitionunique distribution channel, or the effectiveness of a manager or management team or other reasons. If we are not able to execute our business opportunityplan as anticipated or modify our business model or products and services to accommodate changes in the market, we may not be able to achieve profitability.
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We are subject to the risks frequently experienced by early- stage companies.
The likelihood of our success must be considered in light of the risks frequently encountered by early-stage companies, especially those formed to develop and market new technologies in an uncertain and evolving regulatory landscape. These risks include our potential inability to:
| ● | establish and maintain markets for our services products; | |
| ● | expand the number of loans we extend and the markets in which we are able to lend, which may limit the potential market for our products and increase concentration risk; | |
| ● | identify, attract, retain and motivate qualified personnel; | |
| ● | continue to develop and upgrade our technologies to keep pace with changes in technology and regulations and with the growth of markets using digital assets and blockchain technologies; | |
| ● | develop strategic relationships and partnerships; | |
| ● | maintain our reputation and build trust with customers; | |
| ● | scale up to larger operations on a consistent basis; | |
| ● | contract for or develop the internal skills needed to master larger operational scales; and | |
| ● | sufficiently fund the capital expenditures required to scale up from small initial operations to larger operations. |
If we fail to effectively manage our growth our business could suffer.
A period of significant expansion will be required to achieve the objectives set forth in our current business plan. This expansion will place a significant strain on our management, operational and financial resources. To manage the expected growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures and controls, and we must continue to establish qualified finance, administrative and operations staff. As a reporting company, we and our management will have to implement internal controls to comply with our reporting requirements as well as government-mandated regulations. Our management may be madeunable to hire, train, retain, motivate and manage the necessary personnel or to identify, manage and exploit potential strategic relationships and market opportunities. Our failure to manage growth effectively could have a material and adverse effect on our business, results of operations and financial condition.
Our quarter-to-quarter performance may vary substantially.
We cannot accurately estimate future quarterly revenue and operating expenses based on historical performance. Because the loans we extend are collateralized by purchase, merger, exchangedigital assets and because we may use those digital assets as collateral for debt that funds our business, our quarterly results are significantly impacted by and can vary widely based on the underlying value of stock,those digital assets. Our quarterly operating results may also vary significantly based on many other factors, including:
| ● | fluctuating demand for our products and services; | |
| ● | announcements or implementation by our competitors of new products; | |
| ● | amount and timing of our costs related to our marketing efforts or other initiatives; | |
| ● | timing and amounts relating to the expansion of our operations; | |
| ● | our ability to enter into, renegotiate or renew key agreements; | |
| ● | developing regulations relating to digital assets and blockchain technology; or | |
| ● | economic conditions specific to our industry, as well as general economic conditions. |
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If we cannot keep pace with rapid technological developments to provide new and innovative products and services and address the rapidly evolving market for the use of our products and services, our business may fail.
Our industry has been characterized by many rapid, significant, and disruptive products and services in recent years. We cannot predict the effects of technological changes on our business. We expect that new services and technologies applicable to our industry and new market entrants, such as decentralized finance, or otherwise,DeFi, will continue to emerge and may encompassbe superior to, or render obsolete, the technologies we currently use or are developing in our products and services. Developing and incorporating new technologies into our products and services may require substantial expenditures, take considerable time, and ultimately may not be successful. In addition, our ability to adopt new products and services and develop new technologies may be inhibited by industry-wide standards, payment networks, changes to laws and regulations, resistance to change from consumers or merchants, third-party intellectual property rights, or other factors beyond our control. Our success will depend on our ability to develop and incorporate new technologies, address the challenges posed by the rapidly evolving market for block-chain based lending transactions through our platforms and adapt to technological changes and evolving industry standards. If we are unable to do so in a timely or cost-effective manner, we may not achieve profitable operations and our business could be harmed.
Substantial and increasingly intense competition within our industry may harm our business.
The lending and payments industry is rapidly changing, highly innovative and subject to substantial regulatory oversight. We expect competition within our industry will continue to be intense as existing and new competitors introduce new products or enhance existing products. We compete against a number of companies operating both within the United States and abroad, and both those that focus on traditional financial services and those that focus on crypto-based services. Alternative lending platforms utilizing digital assets, or a
business entity, such as decentralized finance, or DeFi, may be established that compete with or are more widely used than our Platform. It is possible that alternative platforms could be established that utilize the same or similar proprietary code and protocol underlying our planned Platform and attempt to facilitate services that are materially similar to our Platform.
A significant source of competition to date has been from companies, including those located outside the United States, subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. Their business models rely on being unregulated or only regulated in a corporation, joint venture,small number of lower compliance jurisdictions, while also offering their products in highly regulated jurisdictions, including the United States, without necessarily complying with the relevant regulatory requirements in such jurisdictions. In addition, potential customers may seek to interact with these companies by claiming to be in a jurisdiction or partnership. The
Company hasestablishing an entity outside the jurisdiction in which they actually reside
To date, due to limited enforcement by U.S. and foreign regulators, many of these competitors have been able to operate while offering products and services to consumers, including in the United States and other highly regulated jurisdictions, without complying with the relevant licensing and other requirements in these jurisdictions, and seemingly without penalty. Due to our commitment to legal and regulatory compliance, we may not be able to effectively compete against 0unregulated or less regulated competitors, which may adversely impact our business, financial condition, and results of operations. We will have to expend significant managerial, operational, and compliance costs to meet the legal and regulatory requirements applicable to us in the United States and other jurisdictions in which we operate, and expect to continue to incur significant costs to comply with these requirements, which these unregulated or less regulated competitors have not had to incur.
Further, as digital assets become more widely adopted, more traditional financial institutions may begin to directly provide loans backed by digital assets. Such traditional institutions would have better access to capital, a larger client base, and it is unlikelygreater industry connections and resources. In addition, some exchanges have begun offering potentially competing products, including Coinbase, one of the largest crypto exchanges, which in 2020 began offering short term Bitcoin-backed loans.
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These companies have greater financial resources and substantially larger customer bases than we do, which may provide them with significant competitive advantages. These companies may devote greater resources than we do to the development, promotion and sale of products and services, and they may be more effective in introducing innovative, less expensive products and services that hinder our growth. Competing services that have partnered with or are tied to established banks and other financial institutions, may offer greater liquidity and create greater consumer confidence in the Companysafety and efficiency of their services than we do. We expect that there will be continued mergers and acquisitions by or among these companies, which will lead to even larger competitors with more resources.
Our ability to further develop our business depends on our ability to build a strong and trusted brand.
We cannot assure you that we will be able to take advantagesuccessfully build our reputation or brand. Building, maintaining, protecting and enhancing our reputation are critical to expanding our customer base. Harm to our brand can arise from many sources, including failure by us or our partners to satisfy expectations of moreservice and quality; inadequate protection of sensitive information; compliance failures and claims; litigation and other claims; employee misconduct; and misconduct by our partners, service providers or other counterparties. If we do not successfully maintain a strong and trusted brand, our business could be harmed, which could adversely affect our financial condition.
Failure to attract customers could adversely affect our revenues.
As we expand our services, we will need consumer and commercial borrowers to join our Platform and to continue to use our Platform. The attractiveness of our loans and the products we may offer through our Platform increases as the number of consumer and commercial borrowers grows because of the resulting reduced risk and lower cost. An increased participant pool generates competitive interest rate dynamics and data, which is used to improve the effectiveness of our lending risk models. We may not be able to get consumer and commercial borrowers to join, or if we do, we may experience attrition resulting from several factors, including transfers of customer accounts to our competitors, and account closures that we may initiate due to fraud or AML concerns. We cannot predict the level of acceptance or attrition in the future.
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We have no recourse under the loans to any specific assets of borrowers other than the digital assets of the borrowers designated as collateral for the loans.
The loans we make are secured solely by designated digital assets of the borrowers. We have no security interest in any other assets of the borrowers. If a borrower breaches its payment obligations under a loan, the value of the collateral may be insufficient to satisfy the full amount of the borrower’s outstanding payment obligations under the loan. In addition, digital assets are subject to loss or theft due to cyber-attacks, and if collateral is stolen, we would have no recourse against a borrower for its payment obligations under its loan.
Digital assets of borrowers securing the loans we make may be rehypothecated or pledged as collateral in third party transactions, which may adversely impact our liquidity and results of financial operations.
Digital assets of borrowers securing the loans we hold may be rehypothecated, repledged, sold, or otherwise transferred or used at our risk (the “Repledged Collateral”) in transactions, including credit facilities or derivatives contracts, we enter into with third parties (each, a “Counterparty”) or at the risk of our Counterparties in transactions whereby they obtain capital. In the event we breach our contractual obligations or one of our counterparties were to breach its obligation in respect of such transactions or the occurrence of certain conditions, the Counterparty may foreclose on the Repledged Collateral or otherwise require us to liquidate or transfer it or the Counterparty may forfeit to its lender its right to the Repledged Collateral. Additionally, to the extent that any Repledged Collateral is required to be transferred or made accessible to a third party in connection with the pledge, such collateral may be vulnerable to loss or theft due to cyber-attacks affecting such third parties or other forms of malfeasance.
Upon the occurrence of any of the foregoing, we may be required to purchase digital assets to replace the Repledged Collateral in order to comply with our obligations to those borrowers whose digital assets constituted the Repledged Collateral. As the price and availability of digital assets are subject to fluctuations, such purchases may subject us to substantial and unpredictable expenses.
We may attempt to mitigate the risks described above relating to the Repledged Collateral through various means, including continuous monitoring and testing of market conditions, the implementation of technology security protocols, and the maintenance of specified capital ratios to ensure its continued solvency. However, there is no assurance that our attempts to mitigate the risks described above will be successful. If we are not successful in mitigating the risks relating to the Repledged Collateral, we may be unable to remit or be delayed in remitting amounts due to the Platform Counterparty.
We use third-party services in connection with our business, opportunity.and any disruption to these services could result in disruption to our business, negative publicity and a slowdown in the growth of our users, materially and adversely affecting our business, financial condition and results of operations.
Our business depends on services provided by, and relationships with, various third parties, including digital assets custody providers, exchanges, banks, cloud hosting, server operators, broadband providers, and customer service vendors among others. The Company intendsfailure of any of these parties to seek opportunities demonstrating the potentialperform in compliance with our agreements may negatively impact our business. Additionally, if such third parties increase their prices, or discontinue their relationships with us, we could suffer service interruptions, reduced revenues or increased costs, any of long-termwhich may have a material adverse effect on our business, financial condition and results of operations.
Any acquisitions, strategic partnerships or joint ventures that we make or enter into could disrupt our business and harm our financial condition.
Acquisitions, strategic partnerships and joint ventures are part of our growth as opposed
to short-term earnings.
At the present time the Company hasstrategy. We may not identified any business opportunity
that it plans to pursue, nor has the Company reached any agreement or
definitive understanding with any person concerning an acquisition.
No assurance can be given that the Company will be successful in findingidentifying acquisition, strategic partnership, and joint venture targets. In addition, we may not be able to successfully finance or acquiringintegrate, or realize expected benefits from, any businesses, services, or technologies that we acquire or with which we form a desirable business opportunity, given that limited funds are
available for acquisitions,strategic partnership or thatjoint venture, and we may lose merchants and customers as a result of any acquisition, strategic partnership, or joint venture. Furthermore, the integration of any acquisition, strategic partnership, or joint venture may divert management’s time and resources from our core business and disrupt our operations.
| 11 |
Our failure to manage our customer funds properly could harm our business.
We expect to hold digital assets belonging to our customers or deposit them with third party custody providers or repledge and rehypothecate them pursuant to a third party facility or transaction. Our ability to manage and account accurately for the assets underlying our customer funds and comply with applicable regulatory requirements requires a high level of internal controls. In addition, we are dependent on the operations, liquidity, and financial condition of third-party custody providers for the proper maintenance, use, and safekeeping of our customers’ assets. As our business continues to grow and we expand our product offerings, we must continue to strengthen our associated internal controls. Any failure to maintain the necessary controls or to manage our customer funds and the assets underlying our customer funds accurately and in compliance with applicable regulatory requirements could result in reputational harm, lead customers to discontinue or reduce their use of our products and result in significant penalties and fines, which could materially harm our business.
The costs and effects of future litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, financial position and results of operations.
We may be subject to legal, arbitration and administrative investigations, inspections and proceedings arising in the ordinary course of our business or from extraordinary corporate, tax or regulatory events, involving our clients, suppliers, customers, as well as competition, government agencies, tax and environmental authorities, particularly with respect to civil, tax and labor claims. Tax investigations could include investigations into potential tax violations committed by our customers through the use of digital assets. Lawsuits and other legal proceedings can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine, and could harm our reputation regardless of merit or eventual outcome. Our insurance may not cover all claims that occursmay be asserted against us, and any claims asserted against us. As a smaller company, the collective costs of litigation proceedings or investigations can be significant and could include judgments or settlements that exceed our insurance policies or indemnity rights or reimbursement of attorneys’ fees, litigation costs and expenses if we do not prevail, all of which would represent a drain on our cash resources, as well as require an inordinate amount of management’s time and attention. Moreover, an adverse ruling in respect of certain litigation or investigations could have a material adverse effect on our results of operation and financial condition.
| 12 |
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
We are subject to income taxes in the United States and other foreign jurisdictions. Due to the new and evolving nature of crypto assets and the absence of comprehensive legal guidance with respect to crypto asset products and transactions, many significant aspects of U.S. federal income and foreign tax treatment of transactions involving crypto assets are uncertain Our effective income tax rate could be adversely affected in the future by a number of other factors, including changes in the mix of earnings in countries with differing statutory tax rates or changes in the valuation of deferred tax assets and liabilities. Any alteration of existing IRS and foreign tax authority positions or additional guidance regarding crypto asset products and transactions could result in adverse tax consequences for holders of crypto assets and could have an adverse effect on the value of crypto assets and of our business. The uncertainty regarding tax treatment of crypto asset transactions impacts our customers, and could impact our business, both domestically and abroad.
Changes in applicable tax regulations or unanticipated tax-related liabilities and costs could have a material adverse effect on our ability to implement our business plans.
We may be subject to obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that change over time. In particular, the applicability of such taxes to digital assets in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus vary significantly and are complex. As such, we could face possible tax assessments and audits, or increased costs associated with compliance. A successful assertion, by any taxing authority, that we should be collecting sales, use, value added or other taxes in jurisdictions where we have not historically done so and do not accrue for such taxes could result in tax liabilities and related penalties for past sales, discourage customers from purchasing our products or otherwise harm our business.
Our principal stockholder owns a significant percentage of our stock and will be on
termsable to exert significant control over matters subject to stockholder approval.
Our principal stockholder beneficially owns approximately 84% of our common stock assuming no exercise of outstanding options. This stockholder is able to control matters requiring stockholder approval. For example, it is able to control elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transactions. This concentration of ownership control may delay, discourage or prevent a change of control, including unsolicited acquisition proposals or offers for our common stock that you may feel are favorablein your best interest as one of our stockholders, entrench our management and board of directors or delay or prevent a merger, consolidation, takeover or other business combination involving us that other stockholders may desire. The interests of this stockholder may not always coincide with your interests or the interests of other stockholders and it may act in a manner that advances its best interests and not necessarily those of other stockholders.
Our management team has limited experience managing a reporting company and regulatory compliance may divert its attention from the day-to-day management of our business.
The individuals who now constitute our management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to reporting companies. Our management team may not successfully or efficiently manage a reporting company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business.
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Members of our Board of Directors do not have significant experience as directors of a growing internet-based financial services platform.
Members of our Board of Directors have limited experience as directors overseeing the operation of an internet-based financial services platform that is subject to complex regulations and laws. Our Board of Directors may not successfully oversee the management of our operations and growth, risks applicable to our business or our compliance with the complex regulatory environment in which we operate, which could adversely affect our ability to successfully operate and grow our business or increase the risk of our noncompliance with laws and regulations applicable to our business.
The liability of our board of directors is limited.
The corporate law of the State of Nevada limits the liability of our directors and generally provides that directors shall have no personal liability to the Company or its stockholders.
The Company's searchstockholders for monetary damages for breaches of their fiduciary duties as directors, subject to certain limited exceptions.
We will incur increased costs as a result of operating as a reporting company, and our management will be directed toward smallrequired to devote substantial time to new compliance initiatives.
We will incur certain costs of compliance with applicable SEC reporting rules and medium-sized enterprises
which haveregulations including, but not limited to attorneys’ fees, accounting and auditing fees, other professional fees and Sarbanes-Oxley Act of 2002 (“SOX”) compliance costs.
Events outside of our control, for example, the outbreak of the recent coronavirus (“COVID-19”) or the war in Ukraine, could adversely affect our business activities, financial condition and results of operations.
Various events such as, the spread of a desire to become public corporations and which are able to satisfy,highly infectious or anticipatecontagious virus or disease, such as COVID-19, or the outbreak of an international conflict, could cause severe disruptions in the reasonably near future being able to satisfy,economies of the minimum
asset requirementsUnited States and other countries, and in order to qualify shares for trading on NASDAQturn disrupt the business, activities, and operations of some of our customers, as well as our business and operations. Moreover, since the beginning of January 2020, the coronavirus outbreak and the outbreak of the war in Ukraine, have caused significant volatility in the global financial markets. The outbreak of another highly infectious or contagious virus or disease or another stock exchange.
The Company anticipates thatconflict, may result in a significant decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us. In addition, any disruptions to the business opportunities presented to it
will (i) be recently organized with no operating history, or a history of
losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv) above. The Company intends to
concentrate its acquisition efforts on properties or businesses that it believes
to be undervalued. Given the above factors, investors should expect that any
acquisition candidate may have a history of losses or low profitability.
1
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. The Company's discretion in the selection of business opportunities
is unrestricted, subject to the availability of such opportunities, economic
conditions, and other factors.
In connection with such a merger or acquisition, it is highly likely that
an amount of stock constituting control of the Company would be issued by the
Company or purchased from the current principal shareholders of the Company by
the acquiring entity or its affiliates. If stock is purchased from the current
shareholders, the transaction is very likely to result in substantial gains to
them relative to their purchase price for such stock. In the Company's judgment,
none of its officers and directors would thereby become an "underwriter" within
the meaning of the Section 2(11) of the Securities Act of 1933, as amended (the
"Act").
It is anticipated that business opportunities will come to the Company's
attention from various sources, including its officers and directors, its other
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. The Company has no
plans, understandings, agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company, although its
officers, directors and significant shareholders seek out such opportunities and
respond to unsolicited proposals in their ordinary course of business.
The Company does not foresee that it would enter into a merger or
acquisition transaction with any business with which its officers or directors
are currently affiliated. Should the Company determine in the future, contrary
to foregoing expectations, that a transaction with an affiliate would be in the
best interests of the Company and its stockholders, the Company is in general
permitted by Nevada law to enter into such a transaction if:
1. The material facts as to the relationship or interest of the affiliate
and as to the contract or transaction are disclosed or are known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or
2. The material facts as to the relationship or interest of the affiliate
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
3. The contract or transaction is fair as to the Company as of the time it
is authorized, approved or ratified, by the Board of Directors or the
stockholders.
2
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, and numerous
other factors which are difficult, if not impossible, to analyze through the
application of any objective criteria. In many instances, it is anticipated that
the historical operations of a specificthird party service provider on whom our business opportunity may not necessarily
be indicativedepends resulting from business restrictions, quarantines, or restrictions on the ability of the potential for the future because of the possible needpersonnel to shift marketing approaches substantially, expand significantly, change product
emphasis, change or substantially augment management, or make other changes. The
Company will be dependent upon the owners of a business opportunity to identify
any such problems which may exist and to implement, or be primarily responsible
for the implementation of, required changes. Because the Company may participate
in a business opportunity with a newly organized firm or with a firm which is
entering a new phase of growth, it should be emphasized that the Company will
incur further risks, because management in many instances will notperform their jobs could have proven
its abilities or effectiveness, the eventual market for such company's products
or services will likely not be established, and such company may not be
profitable when acquired.
It is anticipated that the Company will not be able to diversify, but will
essentially be limited to only one venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decisionimpact on our service providers’ ability to purchase the
Company's securities.
It is emphasized that management of the Company may effect transactions
having a potentially adverse impact upon the Company's shareholders pursuant to
the authority and discretion of the Company's management to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. Holders of the Company's securities should not anticipate that
the Company necessarily will furnish such holders, prior to any merger or
acquisition, with financial statements, or any other documentation, concerning a
target company or its business. In some instances, however, the proposed
participation in a business opportunity may be submitted to the stockholders for
their consideration, either voluntarily by such directors, to seek the
stockholders' advice and consent, or because state law so requires.
The analysis of business opportunities will be undertaken by or under the
supervision of the Company's officers and directors. Although there are no
current plans to do so, Company management might also hire an outside consultant
to assist in the investigation and selection of business opportunities,and might
pay a finder's fee. Since Company management has no current plans to use
any outside consultants or advisors to assist in the investigation and selection
of business opportunities, no policies have been adopted regarding use of such
consultants or advisors, the criteria to be used in selecting such consultants
or advisors, theprovide services to be provided, the term of service, or regarding the
total amount of fees that may be paid. However, because of the limited resources
of the Company, it is likely that any such fee would be paid in stock and not
in cash.
3
In assessing a potential transaction, the Company anticipates that it
will consider, among other things, the following factors:
1. Potential for growth and profitability, indicated by new technology,
anticipated market expansion, or new products;
2. The Company's perception of how any particular business opportunity will
be received by the investment community and by the Company's stockholders;
3. Whether, following the business combination, the financial condition of
the business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming sufficient to enable the securities of the
Company to qualify for trading in the over-the-counter markets or listing on a
securities exchange;
4. Capital requirements and anticipated availability of required funds, to
be provided by the Company or from operations, through the sale of additional
securities, through joint ventures or similar arrangements, or from other
sources;
5. us.
The extent to which any cataclysmic event will negatively impact our business and results of operations will depend on future developments which are highly uncertain and cannot be accurately predicted. For example, an outbreak of a disease such as COVID-19 raises the possibility of an extended global economic downturn, which could affect the performance of and demand for our products and services and adversely impact our business opportunityand results of operations even after the pandemic is contained.
Additionally, such an event could continue to impact employees who may have personal needs to attend to (such as looking after children as a result of school closures or family who become sick) and employees may become sick themselves and be unable to work.
| 14 |
RISKS RELATED TO OUR INFORMATION TECHNOLOGY
Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.
Our success and ability to process transactions and provide high quality customer service depend on the efficient and uninterrupted operation of our computer server and information technology systems. The failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy, or breach in security may cause interruptions in our operations as well as reputational harm. Any failures, problems, or security breaches may mean that fewer customers are willing to borrow money from us. Factors that could occur and significantly disrupt our operations include system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failure sabotage, terrorist attacks and similar events, software errors, computer viruses, physical or electronic break-ins, and breaches of our customers’ personal information such as passwords or other personal information.
Unauthorized disclosure, destruction or modification of data, including personal information, through cybersecurity breaches, computer viruses or otherwise or disruption of our services could expose us to liability, protracted and costly litigation and damage our reputation.
Our business involves the collection, storage, processing, and transmission of customers’ personal data, including names, addresses, identification numbers and/or bank account numbers. An increasing number of organizations, including large merchants and businesses, other large technology companies, financial institutions and government institutions, have disclosed breaches of their information technology systems, some of which involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure. We could be subject to breaches of security by hackers. Breaches may occur by human error, fraud, or malice on the part of employees or third parties or may result from accidental technological failure. Concerns about security are increased when we transmit information. Electronic transmissions can be advanced;
6. Competitive position as comparedsubject to other companiesattack, interception or loss. Also, computer viruses and malware can be distributed and spread rapidly over the internet and could infiltrate our systems or those of similar sizeour associated participants, which can impact the confidentiality, integrity and experience within the industry;
7. Strength and diversityavailability of existing management, or management prospects
that are scheduled for recruitment; and
8. The accessibility of required management expertise, personnel, raw
materials, services, professional assistance, and other required items.
No one of the factors described above will be controlling in the selection
of a business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired. It should be noted that the Company
has not completed a transaction in the twenty years of its existence.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals, if
and when any are received,information and the selectionintegrity and availability of a business opportunity may take
several months or more.
The Company has no business proposals under consideration as of the date of
this annual report.
4
Prior to making a decision to participate in a business opportunity, the
Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description ofour products, services and company history; management resumes; financial
information; available projections,systems, among other effects. Denial of service, ransomware or other attacks could be launched against us for a variety of purposes, including interfering with related assumptions upon which they are
based; an explanationour services or creating a diversion for other malicious activities. These types of proprietaryactions and attacks could disrupt our delivery of products and services; evidenceservices or make them unavailable, which could damage our reputation, force us to incur significant expenses in remediating the resulting impacts, expose us to uninsured liability, subject us to lawsuits, fines or sanctions, distract our management, or increase our costs of existing
patents, trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management; a description of transactions between such
company and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements, or if they are not available, unaudited financial
statements, together with reasonable assurances that audited financial
statements would be able to be produced prior to completion of a merger
transaction; and other information deemed relevant.
doing business.
As part of our business operations, we share information with third parties, including commercial partners, third-party service providers and other agents, who collect, process, store, and transmit sensitive data. Given the Company's investigation,rules established by the Company's executive officersapplicable regulations, we may be held responsible for any failure or cybersecurity breaches attributed to these third parties insofar as they relate to information we share with them. The loss, destruction, or unauthorized modification of data of users of our services by us or our third-party service providers and directors may meet personally with managementother agents or through systems we provide could result in significant fines, sanctions, and key personnel, may visit
and inspect material facilities, obtain independent analysisproceedings or verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.
Company management believes that various types of potential mergeractions against us by governmental bodies or acquisition candidates might find a business combination with the Company to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current shareholders,
acquisition candidatesthird parties, which have long-term plans for raising capital through
the public sale of securities and believe that the possible prior existence of a
public market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of development
of a public market for their securities will be of assistance in that process.
Acquisition candidates whichcould have a needmaterial adverse effect on our business, financial condition, and results of operations. Any such proceeding or action, and any related indemnification obligation, could damage our reputation, force us to incur significant expenses in defense of these proceedings, distract our management, increase our costs of doing business, or result in the imposition of financial liability.
Our protective measures may not prevent unauthorized access or use of sensitive data. A breach of our system or that of one of our associated participants may subject us to material losses or liability, including payment scheme fines, assessments and claims for an immediate cash infusionunauthorized purchases with misappropriated credit, debit or card information, impersonation, or other similar fraud claims. A misuse of such data or a cybersecurity breach could harm our reputation and deter merchants from using electronic payments generally and our products and services specifically, thus reducing our revenue. In addition, any such misuse or breach could cause us to incur costs to correct the breaches or failures, expose us to uninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, result in the imposition of material penalties and fines under state and federal laws or regulations or by the payment systems. While we maintain insurance policies specifically for cyber-attacks, a significant cybersecurity breach of our systems or communications could result in payment systems prohibiting us from processing transactions on their systems, which could materially impede our ability to conduct business.
| 15 |
Cybersecurity incidents are not
likely to find a potential business combination with the Company to be an
attractive alternative.
Form of Acquisition
It is impossible to predict the mannerincreasing in which the Company may participatefrequency and evolving in a business opportunity. Specific business opportunities will be reviewed as
well as the respective needsnature and desires of the Company and the promoters of the
opportunity and, upon the basis of that review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but isare not limited to, leases, purchase and sale agreements, licenses, joint venturesinstallation of malicious software, unauthorized access to data and other contractual arrangements. The Company may act directlyelectronic security breaches that lead to disruptions in systems, unauthorized release of confidential or indirectly
through an interest in a partnership, corporation or other formotherwise protected information and the corruption of organization.
Implementing such structure may requiredata. Given the merger, consolidation or
reorganizationunpredictability of the Company with other corporations or formstiming, nature and scope of business
organization, and although it is likely,information technology disruptions, there can be no assurance that the Companyprocedures and controls we employ will be sufficient to prevent security breaches from occurring and we could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our business, financial condition and results of operations.
We have only a limited ability to protect our intellectual property rights, which are important to our success.
The protection of our intellectual property, including our trademarks, any future patents, copyrights, domain names, trade dress, software licensed by us for use in our Platform and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality agreements with parties with whom we conduct business.
The contractual provisions we enter into with employees, consultants, vendors, and customers may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, services and intellectual property is difficult, expensive and time consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States, and where mechanisms for enforcement of intellectual property rights may be weak. Any failure to protect or enforce our intellectual property rights adequately, or significant costs incurred in doing so, could materially harm our business.
As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may materially harm our business.
Our ability to obtain insurance to protect against losses affecting our business, including fraud or theft involving digital assets used as collateral for loans we extend, is limited and may not cover losses we experience.
We have very limited insurance coverage available to protect against losses that we may incur, including losses resulting from fraud or theft or loss of digital assets used as collateral for loans. When we hold digital assets with third-party custody service providers we may participate in their insurance coverage, such as cyber and technology errors and omissions. Such insurance coverage may be insufficient to compensate us for losses we incur in connection with our operations. If we are unable to obtain insurance to cover such losses, we would be liable for the surviving entity.full cost associated with them. Further, even if insurance coverage is or becomes available to us, the coverage may not be sufficient to cover the full amount of losses we incur, which could materially harm our business and financial results.
| 16 |
RISKS RELATED TO REGULATION OF OUR INDUSTRY
Our business is subject to extensive government regulation and oversight as well as complex and overlapping rules that frequently change.
Our business and the products we intend to offer are subject to laws, regulations, policies and legal interpretations in the United States and the markets in which we operate, including, but not limited to, those governing credit and lending transactions, collections, securities and commodities transactions, cross-border and domestic money transmission, foreign exchange, privacy, data protection, cybersecurity, consumer protection, digital assets, economic and trade sanctions, anti-money laundering, and counter-terrorist financing. The legal and regulatory requirements which we are subject to involve extensive, complex and frequently changing. These laws and regulations affect our business in many ways, and include regulations relating to:
| ● | the amount we may charge in interest rates and fees; | |
| ● | the terms of our loans (such as maximum and minimum durations), repayment requirements and limitations, maximum loan amounts, refinances and extensions and reporting; | |
| ● | underwriting requirements; | |
| ● | collection and servicing activity, including initiation of payments from consumer accounts; | |
| ● | licensing, reporting and document retention; | |
| ● | unfair, deceptive and abusive acts and practices; | |
| ● | non-discrimination requirements; | |
| ● | disclosures, notices, advertising and marketing; | |
| ● | loans to members of the military and their dependents; | |
| ● | requirements governing electronic payments, transactions, signatures and disclosures; | |
| ● | privacy and use of personally identifiable information and consumer credit reports; | |
| ● | anti-money laundering and counter-terrorist financing requirements, including currency and suspicious transaction recording and reporting; and | |
| ● | posting of fees and charges. |
As we expand into new markets, we must comply with the laws of countries or markets in which we operate. There can be no assurance that our employees, contractors, or agents will not violate such laws and regulations. Any such violation could have a material adverse effect on our Company.
We may extend loans to borrowers located outside of the United States, including in emerging markets, which would subject us to risks and additional laws and regulations.
We currently are lending to borrowers located outside the United States including countries in emerging markets. Developing countries are subject to economic, political and other uncertainties, including changes in monetary, exchange control, trade policies and environmental conditions which may affect their respective overall business environments and, in turn, our ability to originate loans and the ability of borrowers to repay loans. The lending industry in many countries is highly competitive and susceptible to changing individual and entity preferences. Additionally, in emerging markets, the repayment of loans will be subject to certain risks not typically associated with investment in developed economies or markets, such as greater political, legal, regulatory, and economic risk.
| 17 |
If we fail to adhere to applicable laws and regulations, we could be subject to fines, civil penalties and other relief that could adversely affect our business and results of operations.
The governmental entities that regulate our business have the ability to sanction us and obtain redress for violations of these regulations, either directly or through civil actions, in a variety of different ways, including:
| ● | ordering remedial or corrective actions, including changes to compliance systems, product terms, and other business operations; | |
| ● | imposing fines or other monetary penalties, including for substantial amounts; | |
| ● | ordering the payment of restitution, damages or other amounts to customers, including multiples of the amounts charged; | |
| ● | disgorgement of revenue or profit from certain activities; | |
| ● | imposing cease and desist orders, including orders requiring affirmative relief, targeting specific business activities; | |
| ● | subjecting our operations to additional regulatory examinations during a remediation period; | |
| ● | revocation of licenses to operate in a particular jurisdiction; and | |
| ● | other consequences. |
Many of the government entities that regulate us have the authority to examine us on a regular basis to determine whether we are complying with applicable laws and regulations and to identify and sanction non-compliance. These examinations and audits increase the likelihood that any failure to comply (or perceived failure to comply) with applicable laws and regulations will be identified and sanctioned, which may include suspension, imposition of fines or revocation of required licenses.
The regulations to which we are subject change from time to time, and future changes, including some that have been proposed and those that subject us to regulation as a bank or other financial institution in non-U.S. jurisdictions, could restrict us in ways that adversely affect our business and results of operations.
The laws and regulations to which we are subject change from time to time, and there has been a general increase in the volume and burden of laws and regulations that apply to us in the jurisdictions in which we operate at all levels of government. We also may be subject to licensing requirements and related compliance obligations under the money transmitter laws of the states in which we operate. For example, in June 2015, the New York State Department of Financial Services (“DFS”) issued its virtual currency regulation, 23 NYCRR Part 200, under the New York Financial Services Law. Under the regulation, businesses are not permitted, in New York or with a New York resident, to receive digital assets as payment, custody digital assets, buy or sell digital assets, or issue digital assets, among other things, without a license issued by the DFS. In addition, money transmission laws vary from state to state, with some states applying money transmission laws to digital assets, in potentially different ways, and others not applying such laws to digital assets. Failure to comply with any such applicable requirements could result in administrative, civil or criminal penalties or other enforcement actions, as well as reputational harm. In addition, we may decide not to, or may not be able to, operate in certain jurisdictions as a result of regulatory or licensing requirements.
Financial services and banking laws and regulations are subject to ongoing review and revision, including changes in response to global regulatory trends. State, federal and foreign governments have been actively considering new banking laws and regulations, and revising existing laws and regulations, particularly in relation to the present managementregulation of non-bank financial institutions, interest rate regulations, capital adequacy and stockholdersaccounting standards. We expect that the interest in increasing the regulation of our industry will continue and that we will be subject to varying rules depending on the Company most likelystate or the country. It is possible that future laws and regulations will not have controlbe enacted and will adversely affect our pricing, product mix, compliance costs or other business activities in a way that is detrimental to our results of operations. Further, we believe increasingly strict legal and regulatory requirements and additional regulatory investigations and enforcement, any of which could occur or intensify, may result in changes to our business, as well as increased costs, and supervision and examination for ourselves and our agents and service providers. Moreover, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying us from offering certain products or services offered by our competitors or could impact how we offer such products and services.
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Any legislative or regulatory action, including the initiation of a majorityproceeding relating to one or more allegations or findings of any violations of laws, and any required changes in our operations resulting from such legislation and regulations could result in significant loss of revenue, limit our ability to pursue certain business opportunities, increase the voting shareslevel of reserves we are required to maintain or capital adequacy requirements, affect the Company followingvalue of assets that we hold, require us to increase interest rates or other fees and, therefore, reduce demand for our products, impose additional costs or otherwise adversely affect our business. Such actions and proceedings may also impair our ability to collect payments on loans, originate additional loans or result in the requirement that we pay damages and/or cancel the balance or other amounts owing under loans associated with such actions and proceedings.
Judicial decisions could potentially render our arbitration agreements unenforceable.
We include pre-dispute arbitration provisions in our loan agreements. These provisions are designed to allow us to resolve most customer disputes through individual arbitration rather than in court. Our arbitration provisions explicitly provide that all arbitrations will be conducted on an individual and not on a reorganization transaction. As partclass basis. Thus, our arbitration agreements, if enforced, have the effect of shielding us from class action liability. There is always a risk, however, that a court would deny arbitration based upon facts presented by one or more consumers opposing the arbitration or that laws could change that might limit or restrict our ability to enforce the arbitration provisions in our loan agreements, in which case we would be forced to litigate disputes and may be subject to class action liability. In addition, we may be subject to public injunctive relief claims by borrowers in California, which have the potential to broadly affect a company’s business operations, much like a class-wide injunction.
Our use of pre-dispute arbitration provisions will remain dependent on whether courts continue to enforce these provisions. If our arbitration agreements were to become unenforceable for some reason, we could experience an increase in our costs to litigate and settle customer disputes and our exposure to potentially damaging class action lawsuits, with a potential material adverse effect on our business and results of operations.
Class action and administrative proceedings directed towards our industry or us may have a material adverse impact on our results of operations, cash flows and financial condition.
We may be involved in proceedings, lawsuits or other claims. Other companies in our industry have been subject to regulatory proceedings, class action lawsuits and other litigation regarding the offering of consumer loans. We could be adversely affected by interpretations of state, federal, foreign and provincial laws in those legal and regulatory proceedings, even if we are not a party to those proceedings. We anticipate that lawsuits and enforcement proceedings involving our industry, and potentially involving us, will continue to be brought in the future.
We may incur significant expenses associated with the defense or settlement of lawsuits, the potential exposure for which is uncertain. The resolution of legal or regulatory proceedings, whether by judgment or settlement, could force us to refund fees and interest collected, refund the principal amount of advances, pay damages or other monetary penalties or modify or terminate our operations in particular local, state, provincial or federal jurisdictions. The defense of such a transaction,legal proceedings, even if successful, requires significant time and attention from our senior officers and other management personnel that would otherwise be spent on other aspects of our business, and requires the Company's existing directors may resignexpenditure of substantial amounts for legal fees and new
directors may be appointed without any vote by stockholders.
5
It is likely that the Company will acquire its participationother related costs. Additionally, an adverse judgment or settlement in a business
opportunity through the issuance of common stocklawsuit or other securities of the
Company. Although the terms of any such transaction cannot be predicted, it
should be noted thatregulatory proceeding could in certain circumstances provide a basis for the criteria for determining
whethertermination, non-renewal, suspension or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986 (the "Internal Revenue Code"), depends upon the
issuance to the stockholders of the acquired companydenial of a controlling interest
(i.e., 80%license required for us to do business in a particular jurisdiction (or multiple jurisdictions). A sufficiently serious violation of law in one jurisdiction or more)with respect to one product could have adverse licensing consequences in other jurisdictions and/or with respect to other products. Thus, legal and enforcement proceedings could have a material adverse effect on our business, future results of operations, financial condition and ability to service our debt obligations.
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We are subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations.
We are subject to various anti-corruption, anti-bribery and anti-money laundering laws and regulations that prohibit, among other things, our involvement in improper payments to public officials for the common stockpurpose of obtaining advantages or in transferring the combined entities immediately
following the reorganization. If a transaction were structuredproceeds of criminal activities. We continue to take advantage
of these provisions rather than other "tax free" provisions provided under the
Internal Revenue Code, the Company's current stockholders would retainreview and update programs designed to comply with legal and regulatory requirements. However, any errors, failures, or delays in the
aggregate 20% or less of the total issuedcomplying with anti-corruption, anti-bribery and outstanding shares. Thisanti-money laundering laws and regulations could result in substantial additional dilutionsignificant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm.
The main laws in the equityU.S. regarding anti-money laundering are the Bank Secrecy Act and the USA Patriot Act of those who were
stockholders2001. These laws require financial institutions to maintain an anti-money laundering compliance program covering certain of our business activities. The program must include: (1) the development of internal policies, procedures and controls; (2) designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test the program. If we are not in compliance with U.S. or other anti-money laundering laws, we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse effect on our business, results of operations, financial condition and cash flows. Any investigation of any potential violations of anti-money laundering laws by U.S. or international authorities could harm our reputation and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Regulators may increase enforcement of these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor our transactions. Regulators regularly reexamine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow could harm our business.
GENERAL RISKS RELATED TO DIGITAL ASSETS
The prices of digital assets are extremely volatile.
Fluctuations in the price of digital assets could significantly affect the value of the Company prior to such reorganization. Any such issuancedigital assets that we hold, including treasury assets and collateral securing loans. The price of additional shares might also be done simultaneously withdigital assets is affected by many factors beyond our control. In addition, a sale or transfer of
shares representing a controlling interestdecrease in the price of one digital asset may cause volatility in the entire digital asset industry.
The regulatory regime governing digital assets is still developing, and regulatory changes or actions may alter the nature of an investment in digital assets or restrict the use of digital assets in a manner that adversely affects our business plans.
The regulation of digital assets and digital asset exchanges are currently under-developed and likely to rapidly evolve and vary significantly among U.S. and non-U.S. jurisdictions and are subject to significant uncertainty. As digital assets have grown in both popularity and market size, governments around the world have reacted differently to digital assets, with certain governments deeming them illegal while others have allowed their use and trade. Various legislative and executive bodies in the United States, and other countries, are, or are considering, enacting laws, regulations, guidance, or other actions, which could adversely impact our Company byand the current
officers, directors and principal shareholders.
It is anticipated that any new securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated elementvalue of the transaction, the Company
may agreedigital assets we hold as collateral. Our failure to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securitiescomply with any laws, rules and their potential sale into any
trading market that might develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its officers
and principal shareholders will enter into a letter of intent with the
management, principals or owners of a prospective business opportunity prior to
signing a binding agreement. Such a letter of intent will set forth the terms of
the proposed acquisition but will not bind any of the parties to consummate the
transaction. Execution of a letter of intent will by no means indicate that
consummation of an acquisition is probable. Neither the Company nor any of the
other parties to the letter of intent will be bound to consummate the
acquisition unless and until a definitive agreement concerning the acquisition
as described in the preceding paragraph is executed. Even after a definitive
agreement is executed, it is possible that the acquisition would not be
consummated should any party elect to exercise any right provided in the
agreement to terminate it on specified grounds.
6
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision were made not to participate in a specific business opportunity, the
costs theretofore incurred in the related investigation would not be
recoverable. Moreover, because many providers of goods and services require
compensation at the time or soon after the goods and services are provided, the
inability of the Company to pay until an indeterminate future time may make it
impossible to procure goods and services.
An acquisition made by the Company may be in an industry which is regulated
or licensed by federal, state or local authorities. Compliance with such
regulations, can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts to
locate attractive opportunities, primarily from business development companies,
venture capital partnerships and corporations, venture capital affiliates of
large industrial and financial companies, small investment companies, and
wealthy individuals. Many of these entities will have significantly greater
experience, resources and managerial capabilities than the Company and will
therefore be in a better position than the Company to obtain access to
attractive business opportunities. The Company also will possibly experience
competition from other public "Blank Check" companies, 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 criminal and civil penalties and fines against our Company.
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The development and acceptance of transactions in digital assets are subject to a variety of factors that are difficult to evaluate.
The use of digital assets to buy and sell goods and services and complete transactions is part of a new and rapidly evolving industry, and the continued growth of this industry and the continued and growing use of digital assets is highly uncertain. If the development or acceptance of digital assets were to slow or stop, it could have more funds available than doesa material adverse effect on our business. Factors that could affect the Company.
No Rightsexpansion or contraction of Dissenting Shareholders
Thethe use of digital assets and our related business plans, include, but are not limited to:
| ● | continued worldwide growth in the adoption and use of digital assets; | |
| ● | governmental and quasi-governmental regulation of digital assets and their use, or restrictions on or regulation of access to and operation of digital asset systems; | |
| ● | the maintenance and development of software and technology on which many digital assets are dependent; | |
| ● | the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies; | |
| ● | general economic conditions and the regulatory environment relating to digital assets (whether in the U.S. or elsewhere); and | |
| ● | negative consumer sentiment and perception of digital assets in general. |
We cannot predict with certainty any outcome regarding use of digital assets, and any of the above factors may have a material adverse effect on our business.
Digital assets, might be used for illegal or improper purposes, which could expose our Company does notto liability and harm its business.
Digital assets, including the digital assets we hold as treasury assets and as collateral for our loans, may be susceptible to potentially illegal or improper uses as criminals are using increasingly sophisticated methods to engage in illegal activities involving internet services, such as money laundering, terrorist financing, drug trafficking, and other online misconduct. Borrowers may also try to access a loan for illegal or improper purposes or try to provide stolen digital assets as collateral for a loan. To the extent any of these illegal or improper activities occur outside the United States, our remedies may be significantly limited or nonexistent. Despite measures we intend to provide its shareholders with disclosure
documentation concerning a possible target company priortake to acquisition, becausedetect and lessen the Nevada Business Corporation Act vests authorityrisk of this kind of conduct, we cannot assure you that these measures will stop all illegal or improper uses of digital assets we hold. The value of our business could be harmed if borrowers use funds obtained from us for illegal or improper purposes. It may also impair our ability to foreclose on digital assets we hold as collateral in the boardevent of directors to
decidea defaulting loan or margin call under a loan.
Incorrect or fraudulent digital asset transactions may be irreversible.
Digital asset transactions are not, from an administrative perspective, reversible without the consent and approve matters involving acquisitions within certain restrictions.
If any transaction is structured as an acquisition, not a merger, with the
Company being the parent company and the acquiree being merged into a wholly
owned subsidiary, a shareholder will have no right of dissent under Nevada law.
Employees
The Company has no employees. Managementactive participation of the Company expectsrecipient of the transaction. Once a transaction has been verified and recorded in a block that is added to use
consultants, attorneysthe blockchain, an incorrect transfer of a digital assets generally will not be reversible, and accountants as necessary, and doeswe may not anticipatebe capable of seeking compensation for any such transfer or theft. Such events on a needlarge enough scale would have a material adverse effect on our operations.
Digital assets are subject to engage any full-time employees so long as it is seeking and evaluating
business opportunities. The need for employees and their availability will be
addressedrisks of uninsured losses.
Unlike bank accounts or accounts at some other financial institutions, digital assets are uninsured unless you obtain private insurance. Thus, in connection with the decision whetherevent of loss or not to acquire or
participate in specific business opportunities. The Company has previously
paid its Secretary/Treasurer in 2004 and 2009 for her services in bookkeeping,
recordkeeping, filing tax forms and filingloss of reports with the SEC. Althoughutility value, there is no current planpublic insurer, such as the Federal Deposit Insurance Corporation or SIPC and we have not arranged private insurance, to offer recourse to holders with respect to its naturedigital assets we hold as collateral. Therefore, any lending transactions are made at the risk of the borrower.
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The use of digital asset derivatives can introduce additional market and regulatory risk.
We may use instruments referred to as derivatives, which are financial instruments that derive their value from one or amount, additional
remunerationmore assets, in our case cryptocurrencies including Bitcoin. We may use derivatives for speculative purposes to seek to enhance returns. The use of a derivative is speculative if we are primarily seeking to achieve gains, rather than offset the risk of other positions. To the extent we invest in a derivative for speculative purposes, we will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost, and the potential for loss in certain cases may be paid tounlimited.
Digital asset derivatives are a developing market and may be traded on unregulated or accrued foroffshore exchanges. Regulatory changes or actions may alter the benefitnature of the Company's
officers prior to,an investment in digital asset derivatives or in conjunction with, the completion of a business
acquisition for services actually rendered.
7
ITEM 2. Properties.
The Company has no property. The Company does not currently maintain an office
or any other facilities. It does currently maintain a mailing address at the
home of its President, John P. O'Shea, 2 Gold Street, PH 12, New York, NY 10038.
The Company pays no rent forrestrict the use of digital asset derivatives or the operations of the exchanges on which digital asset derivatives trade in a manner that adversely affects the price of digital asset derivatives, which could adversely impact the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We share office space at 51 JFK Parkway Suite 135, Short Hills, NJ 07078 with Exworth Management LLC at a rate of approximate $1,800 per month. For the reporting period ended on December 31, 2022, this mailing address. The Company does
not believe that it will needrent expense was paid by Exworth Management LLC at no cost to maintain an officeus. This arrangement could change or terminate at any time in the
foreseeable future in order to carry out its plan of operations described
herein.
time.
ITEM 3. Legal Proceedings.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, and no such proceedings are known to be contemplated.
ITEM 4. Mine Safety Disclosures.
Not applicable.
8
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PART II
ITEM 5. Market for Registrant's Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is a limited publicno established trading market for the Company's shares ofour common stock. Our common stock under the symbol STQN. The shares are tradedis subject to quotation on the OTC Pink marketplace.marketplace under the symbol STQN. The following table shows the quarterly high and low bid prices during 2014the years ended December 31, 2022 and 20152021 as reported by Bloomberg, LP. These are theprices reflect inter-dealer bid quotations, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
YEAR PERIOD HIGH LOW
------ ------------- ---- ----
2014 First Quarter 0.352 0.23
Second Quarter 0.285 0.285
Third Quarter 0.715 0.285
Fourth Quarter 0.56 0.47
2015 First Quarter 0.70 0.56
Second Quarter 0.65 0.55
Third Quarter 0.58 0.55
Fourth Quarter 0.58 0.55
At March 8, 2016,
| Inter-dealer bid quotations for Common Stock | ||||||||
| High | Low | |||||||
| Year Ended December 31, 2022 | ||||||||
| First Quarter | $ | 1.28 | $ | 0.5126 | ||||
| Second Quarter | 1.28 | 0.40 | ||||||
| Third Quarter | 2.00 | 0.40 | ||||||
| Fourth Quarter | 1.12 | 0.45 | ||||||
| Year Ended December 31, 2021 | ||||||||
| First Quarter | $ | 0.282 | $ | 0.166 | ||||
| Second Quarter | 0.2078 | 0.18 | ||||||
| Third Quarter | 1.10 | 0.2078 | ||||||
| Fourth Quarter | 0.401 | 0.40 | ||||||
As of February 16, 2023, there were approximately 5558 holders of record and 7580 beneficial owners of the Company'sour common stock.
The Board of Directors hasstock
Dividend Policy. We have never declared a dividend and the Company doesanticipate that we will not anticipate payingpay any cash dividends at any time in the foreseeable future. Also, in the
event of the acquisition of a business by the Company, control of the Company
and its Board of Directors may pass to others and the payment of dividends would
be wholly dependent upon the decisions of such persons.
The Company does not have an equity compensation plan.
The Company did not repurchase any equity securities during the last fiscal year.
9
ITEM 6. Selected Financial Data.
Not applicable. Asyear ended on December 31, 2022.
Penny Stock Regulations
The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a smaller reporting companymarket price of less than $5.00 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual incomes exceeding $0.20 million individually, or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.
Recent Sales of Unregistered Securities
In consideration of services rendered, on August 31, 2022, we issued warrants to purchase 37,129 shares of common stock to Mr. John P. O’Shea, warrants to purchase 112,137 shares of common stock to Mr. Jonathan Braun and warrants to purchase 734 shares of common stock to Mr. Marika Tonay. The warrants are not requiredexercisable for a period of five years at a price of $1.20 per share.
In connection with the organization of Exworth Union, Exworth Management made a capital contribution of $100 for which it received 1,000 shares of Exworth Union’s common stock in March 2022. In June 2022, Exworth Union issued 100 shares of its common stock to provideWorld Class Global Technology PTE LTD. at a price of $3,500 per share.
On August 31, 2022, Exworth Management purchased an aggregate of 2,013,000 shares of our common stock in private transactions with then shareholders of the information otherwise required by this item.
Company, representing 74% of the shares of common stock then outstanding. On December 22, 2022, we issued 3,600,000 shares of our common stock to Exworth Management and 360,000 shares of our common stock to World Class Global Technology PTE. LTD. pursue to the Merger Agreement whereby we acquired Exworth Union.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the accompanying
auditedcondensed financial statements and the notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Forward-Looking Statements and Business sections in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward- looking statements.
Overview
Effective December 22, 2022, we entered into and consummated an Agreement and Plan of Merger (“Merger Agreement”) whereby we acquired all of the outstanding shares of Exworth Union and it became our wholly-owned subsidiary. Immediately prior to consummation of the Merger Agreement Exworth Management owned 74% of our outstanding shares of common stock and 91% of the outstanding shares of Exworth Union. Exworth Union is engaged in providing loans collateralized by digital assets. Prior to the Merger, we were a “shell” company with no commercial operations and had generated no revenues other than nominal interest income. The transaction effected through the Merger Agreement was accounted for as a reverse recapitalization. Exworth Union was determined to be the accounting acquirer and we, Strategic, were treated as the acquired company for financial reporting purposes
The discussion below pertains to our financial results for the period commencing March 16, 2022, the date Exworth Union was formed and ending December 21, 2022. For a discussion and analysis of our financial condition and results of operations prior to the formation of Exworth Union please refer to filings made with the U.S. Securities and Exchange Commission before consummation of the Merger Agreement.
Exworth Union, a Delaware corporation, was formed on March 16, 2022. It provides loans that are collateralized by digital assets including Bitcoin and will accept other types of alternative collaterals such as eCommerce account receivables, recursive payments of subscriptions, IP and copyrights, though the only form of collateral that has been accepted to date is Bitcoin. The target customers are individuals and commercial enterprises that hold digital assets and are seeking liquidity without selling their digital assets, with limited or no access to obtain credit lines or business loans from conventional financial institutions. We provide term loans, up to two years, to these individuals and commercial enterprises.
Results of Operations
Revenue
Interest income, our major source of income, was $25,203 for the period ended December 31, 2022. As of December 31, 2022, we have 1 loan in our loan portfolio, a consumer loan secured by Bitcoin. The LTV ratio of our loan portfolio as of December 31, 2022 was 83%. The LTV ratio has as high as 87% and as low as 56% during the period from inception of the loan to December 31, 2022. On certain days in November 2022, our LTV ratio rose above 85% but the ratio dropped below 85% on the next trading day. As the LTV recovered within the agreed upon grace period, no margin call was made.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the period ended December 31, 2022 were $161,574, primarily legal and professional expenses related to the consummation of the Merger Agreement and legal and professional expense related to initialize our loan business. We expect our legal and professional expenses to increase as we are no longer a shell company.
Fair Value Adjustment on Repledged Collateral
Fair value adjustment on repledged collateral for the year ended December 31, 2015.
2022 was $505,154, which was attributable to the decline in the price of repledged Bitcoin during the period. Under loan agreements with borrowers, we may, from time to time, repledge certain collateral with financial partners for capital management purposes. We regularly monitor such repledging transactions as well as the credit standing of our financial partners in order to maintain sufficient available capital.
Interest Expense
Interest expense for the period ended December 31, 2022 was $15,911, incurred pursuant to a master loan agreement we entered with a U.S. based lender. The loan has a term of 24 months with quarterly interest-only payments with principal to be paid at maturity. No margin call was initiated by our lender during the period from inception of the loan to December 31, 2022.
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Amortization of Loan Origination Fee
Our lender charged a 1% origination fee of the principal amount that we borrowed. The origination fee was deducted from the loan principal and will be amortized evenly through the loan term. Total amortization of loan origination fee for the period ended December 31, 2022 was $3,182.
Net Income
Our net income was $248,672 for the period ended December 31, 2022, which was primarily driven by the decline in the price of the Bitcoin that we pledged to our lender. Among the more significant factors that may cause our net income to vary from period to period are: 1) the number of loans; 2) the interest rates that we charge our borrowers; 3) the interest rate that we pay to our lenders; 4) the fair market value of collateral held by us or pledged to our lenders; and 5) The allowance for loan loss of our loans.
Liquidity and Capital Resources
The Company has limited capital resources and stockholder's equity. At
As of December 31, 2015,2022, we had cash of $241,727. The accompanying condensed financial statements have been prepared assuming that we will continue as a going concern. The condensed financial statements do not include any adjustments to reflect the Company had liquidpossible future effects on the recoverability and classification of assets inor the formamounts and classifications of cashliabilities that may result should we be unable to continue as a going concern. To date, we have financed our operations through a private placement of equity raising approximately $350,000. We also entered into a master loan agreement with a U.S. based lender. The loan is non-recourse and cash equivalentscollateralized by pledging our customers’ collateral. The balance on the loan as of $2,890 and liabilities of $0.
The Company had no material commitments for capital expenditures at December 31, 2015.
Results2022 is $1,377,872, net of Operations
The Company has not realized any revenues fromunamortized origination fee of $10,704 and collateralized with 100 Bitcoins.
In assessing our liquidity, we monitor and analyze our cash-on-hand, operating and capital expenditure commitments. We believe our current working capital is sufficient to support our operations in the past two
years, and its plan of operation for the next twelve months shallmonths. However, if we are unable to raise additional capital, we may not be able to continue its effortsexecute our business plan. We will use our limited personnel and financial resources in connection with developing our business plan, including developing a proprietary software platform, issuing equity or debt securities, or obtaining additional credit facilities. The issuance and sale of additional equity would result in dilution to locate a suitable acquisition/merger candidate.our existing shareholders. The Company can provideincurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. Our obligation to bear credit risk for certain financing transactions we facilitate may also strain our operating cash flow. We have no assurance that it will continue to satisfy its cash
requirementscommitments for the next twelve monthspurchase of our equity and, should we need to raise capital, we cannot assure you that financing will be available in amounts or on terms acceptable to us, if a suitable acquisition/merger is
completed.
It is unlikely the Company will have any revenue, other than interest income,
unless it is able to effect an acquisition of or merger with an operating
company, of which there can be no assurance.
For the years ended December 31, 2015 and 2014, the Company showed net
losses of $8,102 and $9,282, respectively. The decrease in net loss was due
primarily to a change in the timing of payments to the Company's auditor.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
10
ITEM 8. Financial Statements and Supplementary Data.
STRATEGIC ACQUISITIONS INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
PAGE
----
Reports of Independent Registered Public Accounting Firms F1
Balance Sheets, December 31, 2015 and 2014 F3
Statements of Operations for the Years Ended
December 31, 2015 and 2014 F4
Statements of Stockholders' Equity, for the Years Ended
December 31, 2015 and 2014 F5
Statements of Cash Flows for the Years Ended
December 31, 2015 and 2014 F6
Notes to Financial Statements F7-10
11
[DKM CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Strategic Acquisitions, Inc.
at all.
We have auditedelected to use the accompanying balance sheetsextended transition period for complying with new or revised accounting standards under Section 102(b)(2) of Strategic Acquisitions, Inc.
(the "Company"), asthe JOBS Act, which allows us to delay the adoption of December 31, 2014new or revised accounting standards that have different effective dates for public and 2013, and the related statementsprivate companies until those standards apply to private companies. As a result of operations, stockholders' equity, and cash flows for the year then ended.
Thesethis election, our financial statements may not be comparable to companies that comply with public company effective dates.
There are the responsibilityno limitations in our certificate of the Company's management.
Our responsibility is to express an opinion on these financial statements
basedincorporation on our audit.
We conductedability to borrow funds or raise funds through the issuance of capital stock to fund our audits in accordance withworking capital requirements. Our limited resources and lack of recent operating history may make it difficult to borrow funds or raise capital. Such inability to borrow funds or raise funds through the standardsissuance of The Public Company
Accounting Oversight Board (United States). Those standards require that wecapital stock required to facilitate our business plan may have a material adverse effect on our financial condition and performfuture prospects, including the auditability to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required at this time, to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing 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
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe thatfund our audit provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2014 and 2013, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DKM Certified Public Accountants
DKM Certified Public Accountants
Clearwater, Florida
March 30, 2015
F1
[SEALE AND BEERS, CPAS LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMbusiness plan. To the Boardextent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of Directorsinterest rate fluctuations and Stockholdersinsufficiency of Strategic Acquisitions, Inc.
We have audited the accompanying balance sheetscash flow to pay principal and interest, including debt of Strategic Acquisitions, Inc.
asan acquired business.
| 25 |
Cash Flow
The following summarizes key components of December 31, 2015, and the related statements of income, stockholders'
equity (deficit), andour cash flows for the year ended December 31, 2015.
Strategic Acquisitions, Inc.'s managements is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits2022:
| Net cash (used in) operating activities | $ | (1,493,374 | ) | |
| Net cash (used in) investing activities | - | |||
| Net cash provided by financing activities | 1,735,101 | |||
| Net increase in cash | 241,727 | |||
| Cash, beginning | - | |||
| Cash, ending | $ | 241,727 |
Operating Activities
Cash used in accordance with the standards of The Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but notoperating activities resulted primarily from operating expenses for the purposeoperation of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management,our digital asset-backed loan business as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,general and administrative expenses. Net cash used in all material respects, the financial position of Strategic Acquisitions, Inc.
as of December 31, 2015, and the related statements of income, stockholders'
equity (deficit), and cash flowsoperating activities was $1,493,374 for the year ended December 31, 20152022. Cash consumed in conformity with accounting principles generally acceptedoperations reflects our net income of $248,672, less non-cash items including a fair value adjustment on repledged collateral of $505,154, increases in the United Statesinterest receivable of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed$11,456 and loan receivable of $1,374, 691, offset by deferred income tax expense of $101,018 and changes in Note 6 to the
financial statements, the Company has no revenues, has incurred recurring
lossesaccounts payable and recurring negative cash flow from operating activities, and has
an accumulated deficit which raises substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 6. The financial statements do not include any
adjustments that might result from the outcomeaccrued expenses of this uncertainty.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, NV
March 28, 2016
F2
STRATEGIC ACQUISITIONS INC.
BALANCE SHEETS
Dec 31, Dec 31,
2015 2014
----------- -----------
ASSETS
Current Assets:
Cash and Equivalents $ 2,890 $ 992
-------- --------
TOTAL CURRENT ASSETS $ 2,890 $ 992
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ - $ -
-------- --------
TOTAL CURRENT LIABILITIES $ - $ -
======== ========
Stockholders' Equity
Common Stock, $0.001 par value; 50,000,000
Shares authorized; 1,715,000 shares and
1,690,000 shares, respectively,
issued and outstanding $ 1,715 $ 1,690
Additional Paid-In Capital 216,688 206,713
Accumulated Deficit (215,513) (207,411)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 2,890 992
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,890 $ 992
======== ========
The accompanying notes are an integral part of these financial statements.
F3
STRATEGIC ACQUISITIONS INC.
STATEMENTS OF OPERATIONS
For the year For the year
ended ended
December 31, December 31,
2015 2014
------------ ------------
Revenues: $ - $ -
------------ ------------
Expenses:
General & Administrative 8,102 9,284
------------ ------------
Total Expenses 8,102 9,284
------------ ------------
Other Income:
Interest Income - 2
------------ ------------
Total Other Income - 2
------------ ------------
NET INCOME (LOSS) $ (8,102) $ (9,282)
============ ============
Weighted Average Number of
Common Stock Outstanding
- Basic & Fully Diluted 1,709,658 1,690,000
============ ============
Net Income (Loss) Per Common Share
- Basic & Fully Diluted $ (0.00) $ (0.01)
============ ============
The accompanying notes are an integral part of these financial statements.
F4
STRATEGIC ACQUISITIONS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total Accumulated
Common Stock Paid-In Stockholder's
Shares Amount Capital (Deficit) Equity
---------- --------- --------- --------- ---------
Balance - December 31, 2013 1,690,000 $ 1,690 $ 206,713 $(198,129)$ 10,274
Net (Loss), December 31, 2014 (9,282) (9,282)
--------- --------- --------- --------- ---------
Balance - December 31, 2014 1,690,000 $ 1,690 $ 206,713 $(207,411)$ 992
--------- --------- --------- --------- ---------
Issuance of common stock
on March 19, 2015 for
cash of $0.40 per share 25,000 $ 25 $ 9,975 $ - $ 10,000
Net (Loss), December 31, 2015 (8,102) (8,102)
--------- --------- --------- --------- ---------
Balance - December 31, 2015 1,715,000 $ 1,715 $ 216,688 $(215,513)$ 2,890
========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F5
STRATEGIC ACQUISITIONS INC.
STATEMENTS OF CASH FLOWS
For the For the
year ended year ended
December 31, December 31,
2015 2014
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,102) $ (9,282)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Increase (Decrease) in accounts payable - -
---------- ----------
Net cash flows from Operating Activities (8,102) (9,282)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net of costs 10,000 -
---------- ----------
Net cash flows from financing activities 10,000 -
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,898 (9,282)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 992 10,274
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,890 $ 992
========== ==========
The accompanying notes are an integral part of these financial statements.
F6
STRATEGIC ACQUISITIONS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
ORGANIZATION
The Company was organized January 27, 1989 (Date of Inception) under the laws
of the State of Nevada, as Strategic Acquisitions, Inc.
Since inception, the Company has not engaged in any business other than
organizational efforts, the sale of stock, and the evaluation of potential
acquisition targets. It has no full-time employees and owns no real property.
The Company intends to seek to acquire one or more existing businesses that
have existing management, through merger or acquisition. Management of
the Company will have virtually unlimited discretion in determining the
business activities in which the Company might engage.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company maintains a cash balance in an interest-bearing account that
currently does not exceed federally insured limits. For the purpose of
the statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
CONCENTRATION OF CREDIT RISK
At December 31, 2015, and 2014, the Company maintained all of its cash in one
commercial bank. The Company has not experienced any losses on such accounts.
REVENUE RECOGNITION
The Company recognizes revenue on an accrual basis as it invoices for services.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
ASC 720-15, "Start-Up Costs," which provides guidance on the financial
reporting of start-up costs and organizational costs, requires most costs of
start-up activities and organizational costs to be expensed as incurred.
LOSS PER SHARE
Net loss per share is provided in accordance with ASC 260, "Earnings Per Share".
Basic loss per share is computed by dividing losses available to common
stockholders by the weighted average number of common shares outstanding during
the period. The Company had no dilutive common stock equivalents, such as
stock options or warrants, as of December 31, 2015.
F7
ADVERTISING COSTS
The Company expenses all costs of advertising as incurred. $45,055.
Investing Activities
There were no advertising costs included in selling, general and administrative expenses
forinvesting activities during the yearsyear ended December 31, 2015 and 2014.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2015.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include2022.
Financing Activities
Net cash and
accounts payable. Fair values were assumed to approximate carrying valuesprovided by financing activities was $1,735,101 for cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
SEGMENT REPORTING
The Company follows ASC 280, "Segment Reporting". The Company operates as a
single segment and will evaluate additional segment disclosure requirements
as it expands its operations.
DIVIDENDS
The Company has not yet adopted any policy regarding payment of dividends.
No dividends have been paid or declared since inception.
INCOME TAXES
The Company follows ASC 740, "Income Taxes" for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the
amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes
in the period of change.
Deferred income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending
on the periods in which the temporary differences are expected to reverse.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting
pronouncements and interpretations thereof that have effectiveness dates during
the periods reported and in future periods. The Company has carefully
considered the new pronouncements that alter previous generally accepted
accounting principles and does not believe that any new or modified principles
will have a material impact on the Company's reported financial position or
operations in the near term. The applicability of any standard is subject to
the formal review of our financial management and certain standards are under
consideration. Reference is made to these recent accounting pronouncements as
if they are set forth herein in their entirety.
F8
NOTE 2 - INCOME TAXES
The Company accounts for income taxes under ASC 740, "Income Taxes", which
requires use of the liability method. ASC 740 provides that deferred tax
assets and liabilities are recorded based on the differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
U.S federal statutory rate (34.0%)
Valuation reserve 34.0%
Total - %
As of December 31, 2015, the Company has a net operating loss carryforward of
approximately $172,000 for tax purposes, which will be available to offset
future taxable income. If not used, this carryforward will expire between
2019 and 2035. The deferred tax asset relating to the operating loss
carryforward has been fully reserved at December 31, 2015. The availability of
this operating loss to offset future earnings may be limited under the change
of control provisions of Internal Revenue Code Section 381. For the yearsyear ended December 31, 2015 and 2014, the valuation allowance increased by
approximately $2,700 and $3,200, respectively.
Management has concluded that the Company has no uncertain tax positions
requiring disclosure pursuant to ASC 740. The tax years open for audit are
2012 to 2015.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company currently utilizes the home2022, consisting of its President as a mailing
address "rent free". The officers and directors of the Company are involved
in other business activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity becomes available,
such persons may face a conflict in selecting between the Company and their
other business interests. The Company has not formulated a policy for the
resolution of such conflicts.
F9
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 50,000,000 shares of its $0.001 par value
Common Stock.
On July 31, 1989, the Company issued 1,360,000 shares of its $0.001 par value
Common Stock to its directors for cash in the amount of $6,000.
During the fourth quarter 1989, the Company's public offering was declared
effective. In connection therewith, the Company sold 40,000 units of Common
Stock at $6.00 per unit. Each unit consisted of six shares of $0.001 par value
common stock, thirty Class A Warrants, thirty Class B Warrants, and thirty
Class C Warrants. The Class A Warrants, Class B Warrants, and Class C Warrants
expired on July 15, 2004.
The Company granted the underwriters of its initial public offering Warrants to
purchase an aggregate of 4,000 units that were identical in all respects to the
units sold to the public, pursuant to the terms of the underwriting agreement,
at an exercise price of $6.42 per unit. The underwriter's warrants expired on
July 15, 2004.
On June 30, 2004, the Company issued 10,000 shares of its $0.001 par value
Common Stock to an officer and director of the Company for services valued at
$3,100.
On February 25, 2013, the Company issued 80,000 shares of its $0.001 par value
Common Stock to an officer and director of the Company, for cash in the amount
of $20,000, in a private placement transaction.
On March 19, 2015, the Company issued 25,000 shares of its $0.001 par value
Common Stock to an officer and director of the Company, for cash in the amount
of $10,000, in a private placement transaction.
There have been no other issuances of Common Stock as of December 31, 2015.
NOTE 5 - SUBSEQUENT EVENT
On March 1, 2016, the Company issued 25,000 shares of its $0.001 par value
Common Stock to an officer and director of the Company, John P. O'Shea, for
cash in the amount of $10,000, paid for with personal funds in a private
placement transaction. Previously, Mr. O'Shea owned 1,479,800 shares. As a
result of this transaction, Mr. O'Shea is the owner of 1,504,800 shares of
the Company, or approximately 86.48% of outstanding shares.
NOTE 6 - GOING CONCERN
The Company has incurred net losses of approximately $215,513 for the periodproceeds from January 27, 1989 (Inception) through December 31, 2015 and has commenced
limited operations, raising substantial doubt about the Company's ability to
continue as a going concern. The Company will seek additional sources of capital
through the issuance of debta note payable of $ 1,374,690 and sales of Exworth Union’s common stock of $350,100 in private placements in June 2022, and a recapitalization for reverse merger amounting to $10,311.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or equity financing, but there can be no assurance
the Company will be successfulare reasonably likely to have a current or future effect on our financial condition, changes in accomplishing its objectives.
The abilityfinancial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 2 of our Financial Statements included elsewhere in this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a small reporting company as defined by Rule 12b-2 of the CompanySecurities Exchange Act of 1934 and are not required to continue as a going concern is dependentprovide the information under this item
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
See “Index to Consolidated Financial Statements” on additional sourcespage F-1 of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
F10
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On July 28, 2015, the Company dismissed DKM Certified Public Accountants, its
independent registered public accounting firm, and appointed Seale and Beers,
CPAs as its new independent registered public accounting firm. The change in
accountants was approved by the Company's Board of Directors and reported on
Form 8-K filed on August 3, 2015.
this report.
| 26 |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures.
Procedures
As of the end of the period covered by this report, the Companywe conducted an evaluation, under the supervision and with the participation of theour Principal Executive Officer and Principal Financial Officer, of the effectiveness of the
Company'sour disclosure controls and procedures, (asas defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”). Based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded for the reasons discussed below that the Company'sour disclosure controls and procedures arewere not effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. Additionally, the
Principal Executive Officer and Principal Financial Officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Principal Executive Officer and Principal Financial Officer, as appropriate
to allow timely decisions regarding disclosure.
Management'sof December 31, 2022.
Management’s Report on Internal Control overOver Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in RuleRules 13a-15(f) of the Securities Exchange Act of 1934.1934, as amended. A company'scompany’s internal control over financial reporting is a process designed by the Company'sa company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company'sa company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our
internal control over financial reporting includes policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of assets, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting principles and that our receiptsincludes those policies and expenditures are being made
only in accordance with authorizations of our management and directors and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisitions, use, or dispositions of our assets that could have a
material effect on the financial statements. procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
| 27 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsAlso, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
12
Management, including the President/our President and Principal Financial Officer, and
Secretary/Treasurer, has conducted an evaluation of the effectiveness of the
Company'sour internal control over financial reporting as of December 31, 2015.
Management's2022. Management’s evaluation of the effectiveness of the Company'sCompany’s internal control over financial reporting is based on the framework described in "Internal“Internal Control -— Integrated Framework"Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”).
Based on its assessment, management concluded that the Company'sCompany’s internal control over financial reporting was not effective as of December 31, 2015.
2022, with the following aspects being noted as the potential material weakness: due to the lack of an oversight committee, insufficient accounting personnel for appropriate segregation of duties and a lack of personnel with familiarity with U. S. generally accepted accounting principles.
This Annual Report does not include an attestation report of the Company'sour Company’s independent registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by the
Company'sour independent registered public accounting firm pursuant to temporary rules of the SEC that permit theour Company to provide only management'smanagement’s report in this Annual Report.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended December 31, 20152022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information.
None.
13
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
DIRECTORS， EXECUTIVE OFFICERS AND CORPORATE GOVERANCE.
The following is a list of directors and executive officers of the Company as of December 31, 2015,2022, their ages and all positions held by each of them
during the past five years.
within our Company.
DIRECTORS AND EXECUTIVE OFFICERS
| Name | Age | Title | ||
| John P. O’Shea | 66 | President and Director | ||
| Dr. Yuanyuan Hang | 43 | Treasurer, Secretary and Director | ||
| Dr. Wei Huang | 43 | Director |
John P. O'Shea, 59, is the Company'sO’Shea, 66, has been our President and a director since 2004. Mr. O'SheaO’Shea has been Chairman of Global Alliance Securities LLC since January 2014. Previously he was Co-Chairman of TerraNova Capital
Equities, Inc. from October 2010 to November 2014.2010. Since 1997, Mr. O'SheaO’Shea has been an officer and director of Westminster Securities Corp, currently serving as Chairman, CEO and a Director. He is alsoPreviously, from 2007 to 2017, he was a non-executive director on the board of BlueRock Energy Holdings, Inc. Mr. O'SheaO’Shea holds a BA and MA in Economics from the University of Cincinnati. Marika Xirouhakis Tonay, 35, isMr. O’Shea serves as our Principal Executive Officer for purposes of the Company's Secretary/Treasurer andSarbanes-Oxley Act of 2002.
| 28 |
Dr. Yuanyuan Huang, 43, became a director since 2004. Ms. Tonayof our Company and our has Secretary and Treasurer on August 31, 2022. Mr. Huan has been registered with a FINRA-membermanaging partner of Exworth Management LLC, a private investment firm, since January, 2012, currently2021. He has also served as the Managing Member of Fundin, LLC, a consulting firm providing information technology consulting services, since 2018. From August 2019 to September 2022, Dr. Huang served as a director and the CFO/COO of UTXO Acquisition Inc., a special purpose acquisition company, and from October 2021 to November 2022, he was VP of Business Development at Roxe Group Inc., a fintech company. From October 2018 to September 2020, Dr. Huang served as a Venture Partner of Efund City LLC, a fintech company, and was a member of the Investment Committee of Efund City Metro Income Fund LLC, a real estate investment company. From 2008 to 2018, Dr. Huang e worked at several boutique brokerage firms. Dr. Huang holds a Ph.D. in Physics from the College of William and Mary and a master’s degree in Finance from George Washington University. Mr. Huang serves as our Principal Financial Officer for purposes of the Sarbanes-Oxley Act of 2002.
Dr. Wei Huang, 43, became a director of our Company on August 31, 2022. Mr. Huan has been a managing partner of Exworth Management LLC, a private investment firm since January 2021. He has served as the CTO of Cogobuy Group, an e-Commerce company since 2018 and was the founder of BlockIoT, a cloud tech company. From August 2019 to September 2022, he served as the Chairman and CEO of UTXO Acquisition Inc., a special purpose acquisition company. In 2017 he founded Board of Dake Data, LTD, a Shenzhen-based company with a proprietary AI, Blockchain and Cloud computing solution, which he continues to serve as Chairman of the Board. From 2013 to 2018, Dr. Huang worked at ION Geophysical as a technical advisor for various oil and gas projects. Dr. Huang holds a bachelor’s degree from the University of Science and Technology of China, a master’s degree in mathematics from the University of Wisconsin and a PhD degree in Geophysics from the University of Houston. Dr. Huang has published more than a dozen papers and holds two international patents.
Directors are elected to serve until the next annual meeting of shareholders and their successors are duly elected and qualified, or their earlier death, resignation or removal. Officers are elected to serve until their successors are duly elected and qualified, or their earlier death, resignation or removal.
There are no agreements or understandings between or among any of our executive officers or directors and any other person with respect to the election of directors or any other matter.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Certain Transactions with Related Persons,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors.
| 29 |
Board Committees
Since our common stock is quoted in the roleOTC Pink Market, we are not required by the rules of Compliance Manager.
Previously she was CCO & COO of Andrews Securities, LLC from November 2010any securities exchange to December 2011. From April 2009 to November 2011 she wasestablish an audit committee with a financial expert, a compensation committee or a nominating and corporate governance committee or committees performing similar functions. However, our new management plans to form audit, compensation and nominating and corporate governance committees in the near future. We envision that the audit committee will be primarily responsible for reviewing the services consultant. From January 1999performed by our independent auditors and evaluating our accounting policies and system of internal controls; that the compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers; that the nominating committee would be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are established, these decisions will continue to be made by our Board of Directors. Although our Board of Directors has not established any minimum qualifications for director candidates, when considering potential director candidates, our Board of Directors considers the candidate’s character, judgment, skills and experience in the context of the needs of our Company and our Board of Directors. We also plan to appoint an individual qualified as an audit committee financial expert.
We do not have a charter governing the nominating process. The members of our Board of Directors, who perform the functions of a nominating committee, are not independent because they are also our officers. There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. Our Board of Directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because, given the early stages of our development, a specific nominating policy would be premature and of little assistance until March 2009, she was employed
by Westminster Securities Corp. She attended New York University,
Stern School of Business, graduating Magna Cum Laude withour business operations are at a BS in Finance
and Management.
more advanced level.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the Company'sCompany’s officers, directors and beneficial owners of more than 10% of its common stock is in compliance with Section 16(a) of the Exchange Act.
Code of Ethics
The Company has
We have adopted a code of ethics which applies to itsour principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions. A copy of this code of ethics was previously included as an exhibit to our annual report on Form 10-KSB for the fiscal year ended December 31, 2005. We will also provide a copy of our code of ethics, without charge, to any person who requests it by contacting us via mail, telephone or facsimile transmission.
Corporate Governance
There
Insider Trading Policy
Effective January 26, 2023, we adopted a new insider trading policy that applies to all our officers, directors, employees and others who have, been noor may have, access to material changes tonon-public information. The insider trading policy codifies the procedureslegal and ethical principles that govern trading in our securities by which security holders
may recommend nominees to the Company's board of directors.
The Company is not a listed issuer and therefore is not required to have a
separately-designated standing audit committee, nor an audit committee financial
expert. The entire board of directors ofpersons associated with the Company serves as its audit
committee.
14
Itemthat may possess material nonpublic information relating to Strategic Acquisitions, Inc.
ITEM 11. Executive Compensation.
There was no compensation awarded to, earned byEXECUTIVE COMPENSATION
During the years ended December 31, 2022 and 2021, we did not pay any cash salary or paidbonus to any officerof our officers or director by the Company during the fiscal year. Compensation was previously
paidfees to the Company's secretary/treasurer in 2004 and additional compensation
was paid in the first quarter of 2009 for ongoing services. The Company's
President has not received any compensation and no compensation is currently
intended to be paid to him.our directors. Each of the Company'sour officers and directors may from time to time be reimbursed for out-of-pocket expenses incurred on behalf of the
Company. See "Certain Relationships and Related Transactions." The Company
hasour behalf. We have no stock option, retirement, pension, or profit-sharing programs for the benefit of directors, officers or other employees, but the Board of Directors may recommend adoption of one or more such programs in the future.
| 30 |
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee. Its officers, John O'SheaO’Shea and Marika Tonay,Yuanyuan Huang, and director Wei Huang, participate in deliberations of the board of directors concerning executive officer compensation.
Compensation Committee Report
There was no Compensation Discussion and Analysis prepared
The compensation information in the below table reflects amounts paid during the fiscal year, asyears ended December 31, 2022 and 2021. Because Exworth Union was formed in March 2022, there was no compensationactivity to report for the year ended December 31, 2021, with respect to its officers and directors. The table reflects amounts paid or contemplated to be paid during
such time. John O'Sheaour officers and directors, and Marika Tonay, performwho served as our Secretary/Treasurer until his resignation on August 31. 2022, and Johnathan Braun, who was a director prior to his resignation on August 31, 2022.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock awards ($) | Option awards (1) ($) | Non-equity Incentive Plan Information ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||||||||
| John O’Shea | 2022 | - | - | - | 14,456 | - | - | - | - | |||||||||||||||||||||||||||
| President | 2021 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Marika Tonay, Former Secretary and Treasurer | 2022 | - | - | - | 286 | - | - | - | - | |||||||||||||||||||||||||||
| 2021 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Jonathan Braun | ||||||||||||||||||||||||||||||||||||
| Former Chairman | 2022 | - | - | - | 43,658 | - | - | - | - | |||||||||||||||||||||||||||
| 2021 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Yuanyuan Huang Secretary, Treasurer and Director | 2022 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| 2021 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Wei Huang Director | 2022 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| 2021 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
(1)The Company issued an aggregate of 150,000 warrants to purchase shares of common stock to John P. O’Shea, Marika Tonay and Jonathan Braun in consideration for their services. The 37,129 warrants issued to John P. O’Shea, the functions734 warrants issued to Marika Tonay, and the 112,137 warrants issued to Jonathan Braun had a fair value as of the compensation committee.
15
Itemdate of grant of $14,456, $286 and $43,658, respectively.
| 31 |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Equity Compensation Plan
The Company does not have an equity compensation plan, nor are any securities
authorized for issuance under any such type plan.
Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information concerning beneficial ownership of our common stock as of March 3, 2016, the number of shares
of common stock owned of record and beneficiallyFebruary 16, 2023 by executive officers,
directors and(i) any person who is the beneficial owner ofor group with more than 5% of our common stock, (ii) each director, (iii) our chief executive officer and each other executive officer whose cash compensation for the Company's common stock. Also included are the shares held bymost recent fiscal year exceeded $100,000 and (iv) all such executive officers and directors as a group. The Company does not haveAs of February 16, 2023, we had outstanding any6,675,000 shares of preferred stock, any other securities convertible into common stock,
or any options orour Common Stock and warrants to acquirepurchase 150,000 shares of our common stock.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER OWNED BENEFICIALLY OF CLASS
---------------------------- ------------------ ----------
John P. O'Shea 1,504,800 86.48%
c/o 100 Wall St, 7th Fl
New York, NY 10005
Marika X. Tonay 14,000 0.80%
c/o 100 Wall St, 7th Fl
New York, NY 10005
All directors
Beneficial ownership is determined in accordance with the rules of the SEC and executive 1,518,800 87.29%
officers as a group (2 persons)
Each principal shareholder has soleincludes voting and investment power andwith respect to the securities. Subject to applicable community property laws, the persons named in the table have sole voting and investment power over
the shares owned.
Possible Change in Control
In the event of a purchase of control by other persons, or a merger, the
shareholders and management listed above will no longer own the percentages set
forth above, and shareholders may be subjectwith respect to decisions by the new control
parties to which they may not assent.
16
ITEM 13. Certain Relationships and Related Transactions,
and Director Independence.
Transactions with Related Persons
On March 1, 2016, John P. O'Shea, the President of the Company, purchased,
with personal funds, 25,000 restrictedall shares of common stock issuedshown as beneficially owned by the
Company in a private placement transaction.
On March 19, 2015, John P. O'Shea, the President of the Company, purchased,
with personal funds, 25,000 restrictedthem. In addition, shares of common stock issued byissuable upon exercise of options, warrants and other convertible securities anticipated to be exercisable or convertible at or within sixty days of February 16, 2023, are deemed outstanding for the Company inpurpose of computing the percentage ownership of the person holding those securities, and the group as a private placement transaction.
Although therewhole, but are no current plans to do so,not deemed outstanding for computing the Company may pay compensation
to its President or additional compensation to its Secretary/Treasurerpercentage ownership of any other person.
| Name of Shareholder | Amount and Nature of Beneficial Ownership | Percent of Common Stock | |||||||
| Exworth Management LLC | 5,613,000 | 84.1% | |||||||
| World Class Global Technology LLC | 360,000 | 5.4% | |||||||
| Directors and Executive Officers: John P. O’Shea | 170,365 | (1 | ) | 2.5% | |||||
| Dr. Yuanyuan Hang | (2 | ) | |||||||
| Dr. Wei Huang | |||||||||
| All directors and executive officers as a group | 170,365 | (1 | ) | (2) | 2.5% | ||||
| (1) | Includes 18,565 shares of common stock that may be acquired upon exercise of warrants at a price of $1.20 per share. | |
| (2) | Dr. Yuanyuan Huang and Dr. Yuanyuan Huang each serves as a Manager of Exworth Management and disclaims any ownership of the 5,613,000 shares of our Company held by Exworth Management. |
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
On December 22, 2022, in connection with maintaining the Company's public status, seeking business
opportunities and/or completing a merger or acquisition transaction.
The Company maintains a mailing address atconsummation of the homeMerger Agreement we issued 3,600,000 to Exworth Management, an entity managed by the Company’s Directors Yuanyuan Huang and Wei Huang.
On August 31, 2022, in several private transactions, Exworth Management purchased an aggregate of 2,013,000 shares of our common stock from the former owners of such shares for an aggregate of $650,005. Upon formation of Exworth Union, for consideration of $100, Exworth Management purchased 1,000 shares of the common stock of Exworth Union, which were subsequently converted into 3,600,000 shares of our common stock pursuant to the Merger Agreement, and for consideration of $350,000, World Class Global Technology PTE. LTD. purchased 1,000 shares of the common stock of Exworth Union, which were subsequently converted into 360,000 shares of our common stock pursuant to the Merger Agreement.
Effective December 1, 2022, Exworth Union and Exworth Management entered into an Exclusive Platform License and Services Agreement confirming their previous oral agreement with respect to Exworth Union’s right to use and further develop the technology platform developed by Exworth Management. Pursuant to the Agreement. Exworth Union, as licensee, shall pay an annual licensing fee of $10,000. In addition, we shall pay to Exworth Management all third-party and out-of-scope service fees incurred by it with our prior approval in connection with its President, John P.
O'Shea, 2 Gold St, PH 12, New York, NY 10038. It pays no rentprovision of the Platform pursuant to the license agreement, including fees for third party materials, electricity, location services, and incurs
no expense for maintenance of this address.
fees charged by hosting vendors.
| 32 |
Promoters and Certain Control Persons
John P. O'Shea
Exworth Management acquired control of theour Company on February 10, 2004. He
purchased, with personal funds, an aggregateAugust 31, 2022 as a result of 874,667 restrictedits acquisition of shares from two prior shareholders of the Company. The shares were purchased
for $0.2745 per share, which was a discount to the $0.31 public market price
of the shares at the time. Mr. O'Shea held 30,700 shares prior to the
transaction, and he concurrently purchased 16,100 sharesour common stock in the open market
at $0.31 per share, for a totalprivate transactions described above. Yuanyuan Huang and Wei Huang, two executive managers of 921,467 shares. In July 2010, Mr. O'Shea
purchased, with personal funds, an additional 384,633 restricted sharesExworth Management, became directors of common stock from a third party shareholder, at $0.195 per share, which was
a premium to the last trade price of $0.15 per share but approximately equal
to the prevailing bid price. In March 2011, Mr. O'Shea purchased, with
personal funds, an additional 68,700 restricted shares of common stock from
a third party shareholder, at $0.25 per share, which was a discount to the
most recent trade price of $0.51 but approximately equal to the prevailing
bid price. In February 2013, Mr. O'Shea purchased, with personal funds, an
additional 80,000 restricted newly issued shares of common stock from theour Company in a private placement transaction, at $0.25 per share, which was
a premium to the prevailing bid price of $0.23 per share. In March 2015,
Mr. O'Shea purchased, with personal funds, an additional 25,000 restricted
newly issued shares of common stock from the Company in a private placement
transaction, at $0.40 per share, which was a discount to the prevailing bid
price of $0.65 per share but approximately equal to the 52-week average bid
price. are, which was a premium to the prevailing bid price of $0.23 per
share. In March 2016, Mr. O'Shea purchased, with personal funds, an additional
25,000 restricted newly issued shares of common stock from the Company in a
private placement transaction, at $0.40 per share, which was a discount to the
stock's closing price of $0.55 per share. Following these transactions,
Mr. O'Shea was the owner of 1,504,800 shares of common stock, increasing his
ownership to 86.48% of outstanding shares. No promoter was involved in any of
these transactions.
17
Director Independence
The Company does not have any independent directors. Both of the Company's
directors are also executive officers of the Company. The Company is not a
listed issuer and is not required by any securities exchange or quotation
system to have independent directors. There are no transactions, relationships
or arrangements with any director undertaken or considered during the Company's
last two fiscal years, other than as discussed above under "Transactions with
Related Persons".
on such date.
ITEM 14. Principal Accounting Fees and Services.
PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) Audit Fees
The aggregatefollowing table presents the fees billed for each of the last two fiscal years for professional audit services rendered by the principal accountantsBerkower LLC for the audit of the Company'sour annual financial statements and review of financial statements included in the
Company'sour annual report on Form 10-Q (17 CFR 249.308b) or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $7,25010-K for the fiscal year ended December 31, 20152021, and $6,250 for the fiscalreview of our quarterly reports on Form 10-Q during the years ended December 31, 2022 and 2021:
| Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Audit Fees | $ | 6,000 | $ | 11,000 | ||||
On December 22, 2022, we engaged Michael Studer CPA as our new independent registered auditor to audit our annual financial statements and review our annual report on Form 10-K for the year ended December 31, 2014.
2022, for which he will be paid $20,000. Mr. Studer had previously been paid $30,000 to audit the financial statements of Exworth Union for the period from the inception of Exworth Union to September 30, 2022.
(2) Audit-Related Fees
There have been no fees billed in either of the last two fiscal years for assurance and related services by the principal accountant.
(3) Tax Fees
There have been no fees billed in either of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, or tax planning.
(4) All Other Fees
There have been no fees billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above.
(5) Pre-Approval Policies and Procedures
Before the principal accountant is engaged by the Company to render audit or non-audit services, the engagement is approved by the Company'sCompany’s Board of Directors acting as the audit committee.
18
| 33 |
PART IV
ITEM 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
See ITEM 8 -EXHIBITS AND FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a)(2) Financial Statement Schedules
None
STATEMENT SCHEDULES
| (a) | The following documents are filed as part of this report: |
| (1) | Financial Statements – See Part II, Item 8 |
| (2) | Financial Statement Schedules – None |
(3) Exhibits
31.1 CertificationExhibits. The following exhibits are filed with this report or incorporated by the Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-0xley Act
of 2002
32.1 Certification by the Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, Section 906 of
the Sarbanes-Oxley Act of 2002
19
EXHIBIT LIST
| Exhibit | ||
| Number | Description |
| * | Filed herewith. |
| 34 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereuntohereunto duly authorized.
Date: March 30, 2016
STRATEGIC ACQUISITIONS, INC.
By: /s/ JOHN P. O'SHEA
------------------------
John P. O'Shea
President and
Principal Financial Officer
| STRATEGIC ACQUISITIONS, INC. | ||
| (Registrant) | ||
| Date: March 7th, 2023 | By: | /s/ YUANYUANHUANG |
| YUANYUAN HUANG | ||
Treasurer and Secretary and Principal Financial Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant andRegistrant in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
President
/s/ JOHN P. O'SHEA
| Signature | Title | Date | ||
| /s/ JOHN P. O’SHEA | President, Director | March 7, 2023 | ||
| John P. O’Shea | (Principal Executive Officer) | |||
| /s/ YUANYUAN HUANG | Secretary, Treasurer, Director | March 7, 2023 | ||
| Yuanyuan Huang | (Principal Financial Officer) | |||
| /s/ WEI HUANG | Director | March 7, 2023 | ||
| Wei Huang |
| 35 |
Index to Consolidated Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Strategic Acquisitions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Strategic Acquisitions, Inc. (the “Company”) as of December 31, 2022 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the period from March 16, 2022 (inception) to December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Strategic Acquisitions, Inc. as of December 31, 2022 and the results of their operations and cash flows for the period from March 16, 2022 (inception) to December 31, 2022 in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
| /s/ Michael T. Studer CPA P.C. | |
| Michael T. Studer CPA P.C. (PCAOB ID 822) |
Freeport, New York
March 7 2023
We have served as the Company’s auditor since 2022.
| F-2 |
STRATEGIC ACQUISITIONS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2022
| December 31, | ||||
| 2022 | ||||
| Assets | ||||
| Cash | $ | 241,727 | ||
| Collateral receivable due from lender | 2,158,254 | |||
| Loan receivable | 1,374,691 | |||
| Accrued interest receivable | 11,456 | |||
| Total assets | $ | 3,786,128 | ||
| Liabilities and shareholders’ equity | ||||
| Accounts payable and accrued expenses | $ | 30,055 | ||
| Due to related party (noninterest bearing, due on demand) | 15,000 | |||
| Note payable, net of unamortized origination fee of $10,704 | 1,377,872 | |||
| Digital asset collateral due to customer | 1,653,100 | |||
| Deferred income tax liability | 101,018 | |||
| Total liabilities | 3,177,045 | |||
| Shareholders’ Equity | ||||
| Common stock, $$ par value; shares authorized; shares issued and outstanding as of December 31, 2022 | 6,675 | |||
| Additional paid-in capital | 353,736 | |||
| Retained earnings | 248,672 | |||
| Total shareholders’ equity | 609,083 | |||
| Total liabilities and shareholders’ equity | $ | 3,786,128 | ||
The accompanying notes are an integral part of these financial statements
| F-3 |
STRATEGIC ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 16, 2022 (INCEPTION) TO DECEMBER 31, 2022
| From March 16, 2022 (Inception) to December 31, 2022 | ||||
| Revenues | ||||
| Interest income | $ | 25,203 | ||
| Total revenues | 25,203 | |||
| Operating expenses | ||||
| Selling, general and administrative expenses | 161,574 | |||
| Total operating expenses | 161,574 | |||
| Loss from operations | (136,371 | ) | ||
| Other income, net | ||||
| Fair value adjustment on repledged collateral | 505,154 | |||
| Interest expense | (15,911 | ) | ||
| Amortization of loan origination fee | (3,182 | ) | ||
| Total other income, net | 486,061 | |||
| Income before income taxes | 349,690 | |||
| Income taxes | 101,018 | |||
| Net income | $ | 248,672 | ||
| Net income per share - basic and diluted | $ | 0.04 | ||
| Weighted average shares outstanding - basic and diluted | 6,675,000 | |||
The accompanying notes are an integral part of these financial statements.
| F-4 |
STRATEGIC ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE PERIOD FROM MARCH 16, 2022 (INCEPTION) TO DECEMBER 31, 2022
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Common Stock | Additional Paid-in | Retained | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance at March 16, 2022 (inception) | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Beginning balance, value | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Sale of Common Stock | 3,960,000 | 3,960 | 346,140 | - | 350,100 | |||||||||||||||
| Net assets of strategic Acquisitions, Inc. (accounting acquiree in connection with reverse acquisition by Exworth Union Inc) at December 22, 2022 | 2,715,000 | 2,715 | 7,596 | - | 10,311 | |||||||||||||||
| Net income | - | - | - | 248,672 | 248,672 | |||||||||||||||
| Balance at December 31, 2022 | 6,675,000 | $ | 6,675 | $ | 353,736 | $ | 248,672 | $ | 609,083 | |||||||||||
| Ending balance. value | 6,675,000 | $ | 6,675 | $ | 353,736 | $ | 248,672 | $ | 609,083 | |||||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
STRATEGIC ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 16, 2022 (INCEPTION) TO DECEMBER 31, 2022
| From March 16, 2022 (Inception) to December 31, 2022 | ||||
| Cash flows from operating activities: | ||||
| Net income | $ | 248,672 | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Fair value adjustment on repledged collateral | (505,154 | ) | ||
| Deferred income tax expense | 101,018 | |||
| Amortization of loan origination fees | 3,182 | |||
| Changes in operating assets and liabilities: | ||||
| Interest receivable | (11,456 | ) | ||
| Accounts payable and accrued expenses | 30,055 | |||
| Net cash used in operating activities | (1,33,683 | ) | ||
| Cash flows from investing activities: | ||||
| Cash received in connection with reverse acquisition of Strategic Acquisition, Inc. | 10,311 | |||
| Loan receivable | (1,374,691 | ) | ||
| Net cash used in investing activities | (1,364,380 | ) | ||
| Cash flows from financing activities: | ||||
| Net proceeds from note payable | 1,374,690 | |||
| Proceeds from sale of common stock | 350,100 | |||
| Proceeds from loan from related party | 15,000 | |||
| Net cash provided by financing activities | 1,739,790 | |||
| Net change in cash and cash equivalents | 241,727 | |||
| Cash, beginning of period | - | |||
| Cash, end of period | $ | 241,727 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid during the period for: | ||||
| Interest | 8,679 | |||
| Income taxes | - | |||
| Non-cash investing and financing activities | ||||
| Non-cash collateral receivable due from lender and repledged collateral due to customer | $ | 2,158,254 | ||
The accompanying notes are an integral part of these financial statements.
| F-6 |
STRATEGIC ACQUISITIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16, 2022 (INCEPTION) TO DECEMBER 31, 2022
Note 1 - Organization and Nature of Operations
Organization
Strategic Acquisitions, Inc. (“STQN”) was organized January 27, 1989 under the laws of the State of Nevada. On November 29, 2022, STQN incorporated a subsidiary, STQN Sub, Inc. (“STQN Sub”). Since inception to December 22, 2022, STQN did not engage in any business activities other than organizational efforts, the sale of stock, and the evaluation of potential acquisition targets with active business operations.
Effective December 22, 2022, STQN completed a reverse acquisition of Exworth Union Inc (“Union”) (the “Transaction”) through a share exchange with the two shareholders of Union. To complete the Transaction, STQN issued a total of shares of STQN common stock (representing 59.3% of STQN’s issued and outstanding common stock after the Transaction) to the two shareholders of Union in exchange for shares of Union’s common stock, representing % of Union’s issued and outstanding common stock. As a result of the Transaction, STQN now owns all of the issued and outstanding common stock of Union, the surviving company of the merger between STQN Sub and Union. Prior to the Transaction, Exworth Management LLC (“Exworth Management”) owned 91% of the outstanding common stock of Union and approximately 74% of the outstanding common stock of STQN.
The Transaction was accounted for as a “reverse recapitalization” in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, STQN was treated as the “acquired” company for financial reporting purposes and Union was determined to be the accounting acquirer based on the terms of the Transaction and other factors including: (i) Union’s stockholders having a majority of the voting power of the combined company and (ii) the operations of Union comprising all of the ongoing operations of the combined entity. Operations prior to the Transaction are those of Union.
Subsequent to the Transaction, the Company conducts its operations through Union, a Delaware corporation, which was formed on March 16, 2022. Union provides loans that are collateralized by digital assets such as Bitcoin and will accept as collateral other types of alternative assets such as eCommerce accounts receivable, recursive payments of software as service (SAAS) subscriptions, IP and copyrights.
STQN and Union are collectively referred to as the “Company”.
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Nature of Operations
Loans made by the Company are collateralized with digital assets of such kind and in such amounts as the Company determines from time to time to be acceptable. As of December 31, 2022, the only digital asset the Company accepted as collateral was Bitcoin. The Company’s target markets are individuals and commercial enterprises that hold digital assets and are seeking liquidity without selling their digital assets, with limited or no options to obtain a credit line or business loans from conventional financial institutions. The Company provides term loans, up to two years, to these individuals and commercial enterprises.
The Company originates U.S. dollar denominated loans and offers loans to both individual and business borrowers who own digital assets and desire to borrow against such digital assets rather than selling them. Borrowers that receive loans from the Company are required to transfer a specified value of digital assets to the Company to be held as collateral and security for the repayment of the loans. Upon maturity and repayment of a borrower’s loan, the digital asset collateral is returned to the borrower.
Also, under the loan agreements with borrowers, the Company has the right to repledge collateral to secure transactions, including loans that the Company maintains with third parties for capital management purposes and market neutral trading strategies to generate investment returns. See Note 6 – Notes Payable for a description of these loan arrangements.
Note 2 – Summary of Significant Accounting Policies
Basis of presentation
The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
Principles of consolidation
The consolidated financial statements include the financial statements of STQN and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove a majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include calculations of the fair values of repledged borrowers’ digital asset collateral and the allowance for loan losses. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
The Federal Deposit Insurance Corporation (“FDIC”) insures accounts up to $250,000 per Federally insured institution. As of December 31, 2022, the Company had no uninsured balances on deposit at banks.
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Borrower Collateral and Custody Assets
The Company requires loans to have certain collateral levels at origination and throughout the term of the loan. The loan agreement with each borrower specifies that the borrower transfers and assigns to the Company the collateral together with all rights and interests attached or accruing thereto (including without limitation accrued dividends and distributions declared, made or paid after the relevant date of delivery). Borrowers deposit the collateral into a 3rd party designated custody wallet address that is under the control of the Company. Although the Company maintains control of the collateral, according to the loan agreement entered between each borrower and the Company, the borrower has the unilateral ability to cause the Company to return the collateralized digital assets upon full repayment of the loan, related borrower fees and other applicable fees at maturity. As a result, the transfer of digital assets by a borrower does not qualify as a sale and as such they are not included in the financial statements of the Company.
When a transfer of digital assets does not qualify as a sale, the transfer is to be accounted for as a secured borrowing with a pledge of collateral in accordance with FASB ASC 310, Receivables (“ASC 310”). When the collateral is repledged by the Company to a lender, the Company records the collateral at fair value as “Collateral receivable” and “Digital asset collateral due to customers” on the Balance Sheet. The repledged collateral is remeasured at period end, with the change in fair value captured in the fair value adjustment on repledged collateral within the Statement of Operations.
Allowance for Loan Losses
FASB ASC 310, Receivables (“ASC 310”) and ASC 450-20, Contingencies – Loss Contingencies (“ASC 450”) address evaluating loan losses and impairments in loan portfolios. A company should recognize an allowance for loan losses when it is probable that the company will be unable to collect all amounts due, including both the contractual borrower fee and principal payments under the loan agreement. Based on current information and events, if it is probable that a loan loss has been or will be incurred and the amount of the loss can be reasonably estimated, a loan loss should be recorded.
The process for determining the amount of the allowance requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of borrowers to repay their loans. Changes in economic conditions affecting borrowers, revisions to accounting rules and related guidance, new qualitative or quantitative information about existing loans, identification of additional problem loans, changes in the size or composition of a company’s finance receivables and loan portfolio, changes to a company’s loss estimation techniques including consideration of forecasted economic assumptions, and other factors, both within and outside of control, may require an increase in the allowance for loan losses.
Borrower Fees
The Company offers U.S. Dollar loans collateralized by digital assets to a broad range of customers and generates revenue from interest income and fees earned on loans. Revenue derived from borrower fees on loans is outside the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”) and is recognized ratably over the life of the loan. The applicable borrower fee rates for loans will vary based on several factors including the originating loan-to-value ratio, loan duration and jurisdiction. Liquidation handling fees, late fees, stabilization fees, or conversion fees may apply in the case of a collateral sale and are recognized at the time the liquidation, late payment, stabilization, or conversion occurs.
Income Taxes
The Company follows Accounting Standards Codification subtopic 740, Income Taxes (“ASC 740”), which requires the Company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities at currently enacted tax rates. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.
| F-9 |
ASC 740-10, Accounting for Uncertainty in Income Taxes, defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that tax position. The second step is to measure a tax position that meets the more likely than not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent period in which the threshold is met. The Company will continue to monitor its tax positions in the applicable jurisdictions and adjust this liability accordingly. The Company has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined that no uncertain tax positions related to federal and state income taxes existed as of December 31, 2022.
Basic net income (loss) per share is calculated based upon the weighted average number of shares of common stock outstanding during the relevant period. Diluted net income (loss) per share is calculated based upon the weighted average number of shares of common stock outstanding and dilutive securities (such as stock options, warrants and convertible debt) outstanding during the relevant period. Diluted securities having an anti-dilutive effect on dilutive net income (loss) per share are excluded from the calculation.
Recently Issued Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of the allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The adoption of ASU 2019-12 is not expected to have a significant effect on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which is part of the FASB’s initiative to reduce complexity in accounting standards. The proposed ASU eliminates certain exceptions to the general principles of ASC 740, Income Taxes, and simplifies income tax accounting in several areas. The implementation of this new standard applies to annual reporting periods beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2022, for Emerging Growth Companies. The adoption of ASU 2019-12 did not have a significant effect on the Company’s financial statements.
Note 3 - Fair Value Measurement
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability (i.e., the ‘exit price’) in an orderly transaction between market participants at the measurement date.
GAAP utilizes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, these valuations do not entail a significant degree of judgment.
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Level 2 – Valuations based on quoted prices, other than those in Level 1, for identical assets or liabilities in markets that are not active or for similar assets and liabilities for which significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company’s financial instruments include cash and cash equivalents, accounts payable and accrued expenses, due to related party, note payable, and digital asset collateral due to customer. The fair values of cash and cash equivalents, accounts payable and accrued expenses, due to related party, and note payable approximate their stated amounts because of the short maturity of these financial instruments.
The availability of valuation techniques and observable inputs can vary by investment. To the extent that valuations are based on sources that are less observable or unobservable in the market, the determination of fair value requires more judgment. Fair value estimates do not necessarily represent the amounts that may be ultimately realized by the Company.
The following table presents the fair value hierarchy for those assets and liabilities the Company measured at fair value on a recurring basis:
Schedule of Fair Value Measurement
| December 31, 2022 | ||||||||||||
| Fair Value Measurements | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Liabilities | ||||||||||||
| Digital asset collateral due to customer | $ | - | $ | 1,653,100 | $ | - | ||||||
The Company determined the fair value per Bitcoin to be $16,531 on December 31, 2022, using the price provided at 8:00 p.m., New York Time by the Digital Asset Exchange Market considered to be the Company’s principal market (Fed Reserve Coinbase Bitcoin).
Note 4– Collateralized Loans Receivable and Allowance for Loan Losses
As of December 31, 2022, the Company had one loan receivable in the principal amount of $1,374,691. The receivable bears interest at 4% per annum, is due in July 2024, and is secured by 100 Bitcoins.
At the time of origination, loans are secured and over-collateralized with digital assets the Company determines from time to time to be acceptable collateral. As of December 31, 2022, the only digital asset the Company accepted as collateral was Bitcoin. Borrowers make principal payments at maturity and make interest payments quarterly. The interest rate is set by the Company and is impacted by loan terms and amounts. Once a loan application is approved, a loan is created when a borrower sends collateral to the Company’s collateral wallet (the “The Company’s Custody Wallet”) and funds are disbursed to the borrower’s bank account. During the term of the loan, the Company may repledge a borrower’s collateral and move it out of the Company’s Custody Wallet. Total borrower collateral repledged of $1,653,100 is presented at fair value on the Balance Sheet as of December 31, 2022. During the term of the loan, borrowers are required to maintain a certain level of loan to value (“LTV”) ratio, which is the loan amount divided by real time fair value of the collateral. If at any time the LTV reaches the LTV margin call level, borrowers are required to deposit additional collateral with the Company so that the LTV drops to the required level. According to its loan agreements, the Company has the ability to sell or liquidate a borrower’s collateral assets to repay its loan principal if a margin call is not cured as required under the contractual terms. If the threshold for collateral liquidation is surpassed, the Company may liquidatea portion or all of the collateral assets. The liquidation handling fee is generally 2.00% of the principal amount of the loan. Since inception, the Company has not received any liquidation fees.
| F-11 |
The Company does not recognize its digital asset-backed loans extended as sale transactions as defined by FASB ASC 860. Upon the maturity of a digital asset-backed loan, the Company expects to receive back the borrowed amount it originally extended as a loan plus borrower fees and any unpaid interest and to return the borrower’s collateral. The Company values its collateralized outstanding loans at par, shown at principal values. Interest receivable on loans in the amount of $11,456 is presented on the Balance Sheet as of December 31, 2022. Loans are secured by digital assets which are the collateral for loans. The Company originates loans at various LTVs to over-collateralize each loan. A margin call notice is triggered when the LTV exceeds 85% of the current collateral value at which time the Company notifies the borrower to post additional collateral or make a payment to cure the margin call to reduce the LTV to under 85% within 24 hours of notice (unless the LTV reverts back to 85% within 2 business days). Otherwise, the Company may at its sole and absolute discretion sell, transfer, liquidate or otherwise dispose of all or a part of the collateral and apply the net proceeds to the discharge of the borrower’s obligations. A summary of loans receivable by expected future cash flows is presented below:
Schedule of Loans Receivable Future Principal Financial Officer
---------------------- DirectorPayments
| Receipt of Payments | December 31, 2022 | |||
| Future Principal Payments As Of | ||||
| Receipt of Payments | December 31, 2022 | |||
| 0 to 12 months | $ | - | ||
| 12 to 24 months | 1,374,691 | |||
| Total | $ | 1,374,691 | ||
The LTV ratio on the one loan receivable at December 31, 2022 was 83%.
On December 31, 2022, the fair value of the collateral received to secure the loan receivable balance was $1,653,100. As of December 31, 2022, all of the collateral balance was repledged, resulting in a corresponding liability of $1,653,100, which is included as “Digital asset collateral due to customer” on the Balance Sheet. There is a risk that financings made with borrower collateral could be worth less than the underlying borrower collateral, in which case the Company would have to purchase additional digital assets to repay the borrowers’ collateral.
Allowance for Loan Losses
An allowance for loan losses is established with respect to loans held for investment through periodic charges to the provision for loan losses. Loan losses are charged against the allowance for loan losses when management believes that the future collection of the principal of a loan is unlikely. To date, the Company does not have any experience with losses on the portfolio and therefore has not recorded an allowance for loan losses in the period presented.
Management classifies loans into risk categories based on their original LTV and monitors the current LTV on a recurring basis. The allowance is subjective as it requires material estimates, including such factors as historical trends. Other qualitative factors considered may include items such as uncertainties in the digital asset market, changes in the composition of the Company’s lending portfolio, business conditions and emerging trends. Recovery of the carrying value of loans is dependent to a great extent on conditions that may be beyond the Company’s control. Although the Company has not experienced any losses on the portfolio to date, any combination of the previously described factors may affect its loan portfolio resulting in potential loan losses and could require an allowance for loan loss, which could impact future periods.
As of December 31, 2022, management has not liquidated any collateral and the Company has not incurred any losses on the outstanding portfolio. The Company also over collateralizes its loans with digital assets, which allow the Company to liquidate the pledged collateral for an amount at least equal to the principal owed. As of December 31, 2022, the Company had one loan receivable and this loan had an 83% LTV. As a result, the Company recorded no allowance for loan losses as of December 31, 2022.
Note 5 - Collateral Receivable
Digital Asset Collateral Receivable
In July 2022, the Company repledged its customer collateral by entering into a master loan agreement with a counterparty lender (see Note 6). In accordance with ASC 860, upon repledging, the Company recognizes an asset for the collateral receivable from the counterparty (within “Collateral receivable” on the balance sheet) and a liability for the collateral due to customer. The receivable is recorded at cost and the liability is marked-to-market on a monthly basis. From March 30, 2016
John P. O'Shea
Secretary
/s/ MARIKA X. TONAY Treasurer
---------------------- Director16, 2022 (inception) through December 31, 2022, a fair value adjustment of $505,154 was recorded. As of December 31, 2022, the balance of the digital asset collateral receivable was $2,158,254 and the balance of the digital asset collateral due to customer (at fair value) was $1,653,100.
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Note 6 – Note Payable
On July 14, 2022, the Company entered and executed a master loan agreement with a lender. The loan has a term of 24 months and bears an interest rate of 2.5%. The loan is non-recourse and collateralized using repledged customer collateral. The net balance on the loan as of December 31, 2022, is $1,377,872 ($1,388,576 net of an unamortized origination fee of $10,704) with 100 Bitcoins as collateral. The balance of collateral included in collateral receivable due from lender on the Balance Sheet is $2,158,254 at December 31, 2022.
The following table summarizes the Company’s notes payable:
Schedule of Note Payable
| December 31, 2022 | ||||||||||||||||
| Currency | Note Issued | Note Payments | Balance as of December 31, 2022 | |||||||||||||
| Note Payable | USD | $ | 1,388,576 | $ | - | $ | 1,388,576 | |||||||||
Future principal repayments are as follows:
Schedule of Future Principal Repayments
| Amount | ||||
| 2023 | $ | - | ||
| 2024 | 1,388,576 | |||
| Total | $ | 1,388,576 | ||
Note 7 - Shareholders’ Equity
On March 30, 2016
Marika X. Tonay
20
On June 8, 2022, Union issued shares of its common stock to World Class Global Technology PTE LTD. (“World Class”) at an amended price of $ per share or $350,000.
Effective August 31, 2022, STQN issued a total of 150,000 warrants to its three directors (prior to the August 31, 2022 change in control) for past services rendered to STQN. The warrants are exercisable into shares of STQN common stock at a price of $1.20 per share and expire August 31, 2027.
On December 22, 2022, STQN completed a reverse acquisition transaction with the two shareholders of Union. (See note 1) Exworth Management received shares of STQN common stock in exchange for the shares of Union common stock it owned and World Class received shares of STQN common stock in exchange for the shares of Union common stock it owned.
Note 8- Income Taxes
The components of the provision for income taxes are as follows:
Schedule of Provision for Income Taxes
| From March 16, 2022 (Inception) through December 31, 2022 | ||||
| Current | $ | - | ||
| Deferred | 101,018 | |||
| Total provision for income taxes | $ | 101,018 | ||
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The reconciliation between the statutory and effective tax rates is comprised of the following:
Schedule of Reconciliation Statutory Effective Tax Rates
| From March 16, 2022 (Inception) through December 31, 2022 | ||||
| Computed “expected” tax expense (United States statutory rate) | 21.00 | % | ||
| Increase (decrease) in tax expense resulting from: | ||||
| State tax expense, net of Federal benefit | 7.92 | % | ||
| Effective rate | 28.92 | % | ||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income tax assets and (liabilities) are as follows:
Schedule of Deferred Income Tax Assets and Liabilities
| December 31, 2022 | ||||
| Deferred income tax assets: | ||||
| Net operating loss carryforwards | $ | 49,013 | ||
| Less: Valuation allowance | - | |||
| Total deferred income tax assets | 49,013 | |||
| Deferred income tax liabilities | ||||
| Unrealized gain on repledged collateral fair value adjustment | (150,031 | ) | ||
| Total deferred income tax liabilities | (150,031 | ) | ||
| Net deferred income tax liability | $ | (101,018 | ) | |
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of certain deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of domestic deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. No valuation allowance has been made by Management for the deferred tax asset identified.
For United States income tax purposes, STQN has a net operating loss carry forward of approximately $548,000 at December 31, 2022 (approximately $212,000 of which expires in varying amounts from 2023 to 2037). Current United Stated income tax law limits the amount of loss available to offset against future taxable income when a substantial change in ownership occurs. Income tax returns for tax years 2019, 2020, and 2021 remain subject to examination by the internal Revenue Service.
Union has a United States net operating loss carry forward of approximately $155,000 at December 31, 2022.
Note 9 – Risk and Uncertainties
The Company’s investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The significant types of financial risks to which the Company is exposed include, but are not limited to market risk, industry risk, liquidity risk, concentration risk, credit risk and digital asset risk. Certain aspects of those risks are addressed below:
Concentration Risk
One borrower represented 100% of the Company’s total loan receivable balance at December 31, 2022 and 100% of the Company’s total interest income for the period March 16, 2022 (inception) through December 31, 2022.
One lender represented 100% of the Company’s note payable balance at December 31, 2022 and 100% of the Company’s total interest expense for the period March 16, 2022 (inception) through December 31, 2022.
| F-14 |