United States securities and exchange commission logo
October 16, 2020
Jon Paul Richardson
Chief Executive Officer
Exodus Movement, Inc.
15418 Weir Street, #333
Omaha, NE 68137
Re: Exodus Movement,
Inc.
Draft Offering
Statement on Form 1-A
Submitted September
3, 2020
CIK No. 0001821534
Dear Mr. Richardson:
We have reviewed your draft offering statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft offering statement or publicly filing your offering
statement on
EDGAR. Please refer to Rule 252(d) regarding the public filing
requirements for non-public
submissions, amendments and correspondence. If you do not believe our
comments apply to
your facts and circumstances or do not believe an amendment is
appropriate, please tell us why
in your response. After reviewing your amended draft offering statement
or filed offering
statement and the information you provide in response to these comments,
we may have
additional comments.
Draft Offering Statement on Form 1-A
General
1. You state that you
provide support for over 100 digital assets. Please tell us how you have
determined which of
these digital assets may be securities.
2. Refer to the first full
risk factor on page 44. Please provide your analysis how
the "support" you
provide for digital assets that are securities and how the use of the dual
fee structure for
digital assets that are securities does not facilitate or cause you to
engage in transactions
in unregistered securities.
3. Please provide your
analysis regarding how the following activities are executed in
compliance with the
federal securities laws: lending activities (e.g., earning interest in
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Exodus Movement, Inc. Paul Richardson
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digital assets and exchanging cDAI and DAI tokens) on the Compound
Finance app and
staking activities (e.g., earning rewards in the form of digital
assets) on the Rewards app.
4. Please provide your analysis how you concluded you are not required to
register as an
exchange or a broker-dealer under the Exchange Act. Please address the
following in
your response: your disclosure that you "launched the Exodus Platform
for buying,
holding, using and selling crypto assets"; that you support almost
10,000 pairs of digital
assets that can be directly exchanged; that, as of July 31, 2020
approximately $2.3 billion
of digital assets have been exchanged for another digital asset within
the Exodus Platform;
and that you have a dual fee structure in which you charge a monthly
flat fee to exchanges
on which U.S. persons trade tokens that could potentially be
considered securities by
regulators.
5. Please provide your analysis how you concluded you are not required to
register as a
clearing agency or a transfer agent. In your response, address your
statement on page 78
"that the provision of a platform that provides a connection to an
exchange through an
API does not result in the entity providing the platform being deemed
to be a transfer
agent."
Cover Page
6. Please disclose here and in your Offering Summary that, in order to
purchase Class A
common stock, an investor must establish an account on the Exodus
Platform and use
Bitcoin, Ether or USDC, that there is no required minimum amount of
securities that must
be sold in this offering, funds received will be placed in an escrow
account until closing,
and that the shares of Class A common stock will not be distributed
until the closing of the
offering.
7. Please disclose that each share of Class A common stock will be
represented by a digital
Common Stock Token and that you reserve the right to discontinue the
usage of Common
Stock Tokens and revert to traditional or other methods of share
certification. Also clarify
whether, at closing, the Common Stock Tokens will be tradeable on the
ATS and whether
it is a condition to closing that the Common Stock Tokens are tradable
on an ATS.
8. Please state that the offering shall commence within two days of the
offering statement
being qualified. Refer to Rule 251(d)(3)(i)(F) of Regulation A.
9. Please reconcile the offering termination terms in the third paragraph
with the fifth full
paragraph on page 103.
Offering Summary
Digital Format Exodus Common Stock, page 1
10. We note your disclosure on page 1 that you "reserve the right to
discontinue the usage of
Common Stock Tokens and revert to traditional or other methods of
share certification."
Please disclose the consequences of discontinuing Common Stock Tokens
on the ability
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of holders to trade your common stock on the ATS or through other
means. Also, disclose
in Plan of Distribution the reasons why you may choose to discontinue
the usage of
Common Stock Tokens and how you will inform investors if you choose to
do so.
11. Please disclose the transfer restrictions referenced in the carryover
paragraph on pages 1-
2, and clarify what you mean by "peer-to-peer transactions." In
addition, please describe
the material features of the transfer agent's whitelisting and how it
is implemented, and
discuss whether, and if so how, whitelisting will include monitoring
peer-to-peer
transactions and other transfers for compliance with federal
securities laws.
12. Please identify, if true, that tZERO is the ATS on which your Common
Stock Tokens may
trade. Also clarify whether tZERO is the ATS currently involved in
ongoing discussions
with regulatory authorities described in the second full risk factor
on page 36.
Additionally, tell us the status of the process to have your Common
Stock Tokens traded
on the ATS and what, if any, additional steps you need to take in this
regard.
Summary Risk Factors, page 7
13. Please reconcile your disclosure on page 7 that your "Class A common
stock may be
traded exclusively on a closed alternative trading system," your
disclosure on page 24 that
you "may allow [y]our Class A common stock to trade on an ATS that
supports the use of
[y]our Common Stock Tokens" (emphasis added), and your disclosure on
page 96 that
your "Class A common stock will be available to trade on [an] . . .
alternative trading
system" (emphasis added).
Risk Factors
Risks Related to Our Business and Our Industry
Customer or third-party activities may subject us to liability, page 18
14. We note your disclosure that U.S. federal and state and foreign laws
may prohibit you
from making available your platform or certain of its functionalities
in all jurisdictions and
that you use geo-blocking technology to prohibit the Exodus Platform
and certain of its
functionalities from being accessed in certain jurisdictions. Please
identify these
jurisdictions and functionalities. In addition, please expand this
risk factor or add a risk
factor to describe in greater detail the potential liability related
to the services you provide
on your platform, including potential liability related to the use of
each of the apps you
offer in your app store and potential liability related to the actions
of each of your third-
party API providers.
We are subject to export control, import, and sanctions laws and regulations
that could impair,
page 45
15. Please disclose here that, in addition to the voluntary
self-disclosure you submitted in July
2019 to OFAC, you also received an OFAC administrative subpoena on
December 7,
2018 seeking information regarding potential transactions with
individuals in Iran.
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Use of Proceeds, page 52
16. Please state whether or not any of the proceeds will be used to
compensate or otherwise
make payments to your officers or directors or any of your
subsidiaries. In this regard,
we note your disclosure on page 87 that "Mr. Gernetzke is also
eligible to receive . . .
commission-based payments on certain fundraising targets" and that
"[u]pon completion
of this Offering, Mr. Gernetzke may receive a discretionary cash bonus
at the discretion of
the board or Mr. Richardson." Refer to Instruction 2 to Item 6 of Part
II of Form 1-A.
Business
Overview of Our Business, page 66
17. We note your disclosure regarding your personnel, subsidiaries and
operations outside of
the United States. Please describe your operations outside of the
United States, including
a description of your international personnel, your international
subsidiaries and your
agreements with international third-party API providers so that
investors understand the
scope of your international operations.
18. We note your disclosure on page F-12 that in July 2020 you signed an
API agreement
with a digital asset company whereby you agreed to provide various
services to the
company involving development of software tools for their asset
network and users. If
material to your business, please describe this agreement and the
services you will be
providing.
The Exodus Platform
Our desktop platform, page 72
19. Refer to the first paragraph on page 71 and the third full paragraph
on page 73. Please
clarify here and in the offering circular summary, if true, that you
do not charge for the
use of your Platform and that you earn revenue only if a user utilizes
the services of one of
your API providers for which you receive transaction and
non-transaction based API fees.
Our App Offerings, page 73
20. Refer to the first full paragraph on page 74. Please clarify why you
believe that the app
stores have decreased your reliance on market volatility and the
movement of digital asset
prices, and discuss the ways in which your business is affected by
market volatility of
digital assets. In addition, please disclose whether you hold the
digital assets you receive
as payment or convert them into U.S. dollars upon receipt. We note the
second full
paragraph on page 75 and the last sentence of the carryover paragraph
on page 76.
21. Please disclose the parties and the term and termination provisions as
well as any other
material provisions of: (i) each of your agreements with the six
exchanges that you use for
your Exchange Aggregator functionality; (ii) your agreement with
NextGen in connection
with the SportX app; and (iii) your agreement with the company that
has developed the
Rewards app. In addition, discuss what measures, if any, you take to
ensure that the app
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providers are complying with state, federal and international law and
the extent of liability
you have for the activities of third-party API providers. We note the
carryover risk factor
on pages 18-19.
Exchange Aggregator, page 74
22. Please identify the exchanges you use on your platform, and disclose
whether the fees you
receive pursuant to your API agreements with the exchanges are paid in
Bitcoin or other
digital assets, and, if so, how and when the values of such digital
assets are determined. In
addition, please disclose the digital assets that NextGen pays to
Proper Trust AG in
exchange for integrating the SportX API into the Exodus Platform and
how and when the
values of those digital assets are determined. Also, please describe
the revenues you earn
under your agreement with the entity that monitors and creates staking
pools and whether
those revenues are paid to you in the form of digital assets.
Compound Finance, page 75
23. We note your disclosure on page 75 that "[a]t this time, no revenue is
earned by Exodus
from the Compound Finance app." Please disclose the material terms of
your agreement
with the provider of the Compound Finance app, including those that
relate to fees or
payments you may earn pursuant to the agreement. Also, briefly explain
the business
rationale in hosting an app from which you presently do not earn
revenue.
Rewards, page 76
24. Please revise to describe "staking" and provide additional detail
regarding how your
Rewards App allows users to participate as validators.
Sales and Marketing, page 76
25. We note your disclosure on page 76 that "[a]s [you] look towards
[y]our next stage of
growth, [you] plan to invest significant resources into developing a
robust media strategy
and generous referral program that inspires new and current customers
to continue
exploring the financial freedom offered by crypto assets." Please
disclose an estimate of
the cost and time frame for the material components of your growth
strategy and describe
the referral program.
Legal and Regulatory Proceedings
OFAC Administrative Subpoena, page 84
26. We note your disclosure on page 84 that you "may have previously
inadvertently allowed
[y]our software to be downloaded by individuals or entities located in
countries or
territories subject to U.S. trade embargoes, and submitted a voluntary
self-disclosure
regarding these apparent violations to OFAC." To the extent material,
please describe
these transactions, including the countries involved. Please also
discuss the potential for
reputational harm from these transactions and the OFAC subpoena, and
describe the
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maximum dollar amount of the potential penalties related to the
potential non-compliance
addressed in the OFAC subpoena and in the voluntary self-disclosure.
Compensation of Directors and Executive Officers, page 87
27. To the extent that your executive officers are paid in Bitcoin, please
disclose this fact and
how and when you determine the value of the Bitcoins paid as
compensation. In addition,
clarify (i) whether Mr. Gernetzke's stock options are for Class A or
Class B shares of
common stock, (ii) whether the shares of common stock reserved for
issuance pursuant to
the 2019 Plan are Class A or Class B shares of common stock and (iii)
whether the
number of securities underlying unexcercised options disclosed on page
89 are Class A or
Class B shares of common stock.
Certain Relationships and Related Party Transactions
Demand Promissory Note, page 90
28. Please disclose the interest rate on each of the promissory notes
disclosed in this section
and the current amount outstanding on the notes with Jon Paul
Richardson and Daniel
Costagnoli.
Description of Capital Stock
Choice of Forum, page 95
29. We note your disclosure that the federal district courts of the United
States shall be the
sole and exclusive forum for the resolution of any complaint asserting
a cause of action
arising under the Securities Act. Please state here that investors
cannot waive compliance
with the federal securities laws.
Plan of Distribution, page 102
30. To the extent your officers and directors intend to offer the
securities, please
disclose whether they intend to rely on Exchange Act Rule 3a4-1 and
briefly explain the
basis for their reliance. In addition, describe the plan of
distribution for the shares offered
by the selling shareholders, including how you will determine when the
selling
shareholders' shares are sold relative to newly issued shares.
31. We note your disclosure on page 103 that, in order to purchase Class A
common stock in
this offering, an investor must pay the purchase price in Bitcoin,
Ether or USDC and that
the value in U.S. dollars of the Bitcoin, Ether or USDC used to
purchase shares of the
Class A common stock is calculated at the point at which the purchaser
transfers such
digital assets to the account of the escrow agent. Please disclose
here and in the Offering
Summary: (i) how you will calculate the value of these digital assets;
(ii) how and when
you will communicate this valuation and the number of shares of Class
A common stock
to the investors; and (iii) whether the investor will be able to
withdraw the subscription
based upon how you value the digital assets used for payment of the
Class A common
stock.
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32. Please disclose here and in your Offering Summary whether you will
return the digital
assets to the investors if a subscription is rejected or payment is to
be refunded, and, if the
value of the digital assets used for payment has changed, what means
will be used to
determine the amount and form of the refund. In addition, disclose
whether investors may
withdraw their subscription prior to the close of the offering and
whether the investors
have any rights prior to the closing and the distribution of the Class
A shares of common
stock. Please also add a risk factor describing the attendant risks,
including that investor
funds could be held in escrow for up to one year.
Trading Shares of Exodus Class A common stock following the closing of the
offering, page 104
33. You state that the ATS transactions of Common Stock Tokens will be
executed on the
Ethereum Blockchain. Please describe the "gas" fees required to
execute these
transactions, how the fees are determined, and which party is
responsible for paying these
fees.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1: Nature of Business and Summary of Significant Accounting Policies
Risks Associated with Digital Assets
Value of Crypto Assets, page F-9
34. Please address the following regarding your accounting and disclosure
for your
digital assets:
Revise your disclosure here and throughout your filing to clarify
how you value your
digital assets for aggregate fair value disclosure in Note 2 of
your interim financial
statement and Note 3 of your annual financial statements and for
impairment testing
purposes. Specify what market(s) you use to value these assets
and separately tell us
how these market(s) are the principal or most advantageous
market(s) as stipulated in
ASC 820-10-35-5.
Revise your disclosure to clarify how you determine the unit of
account for
impairment testing purposes.
Revise your disclosure to clarify how you determine cost less
impairment for
determining realized gains/losses on disposition.
Revise your disclosure in management's discussion and analysis to
include discussion
of your realized gains associated with digital assets.
Tell us why it is appropriate to include the net change in digital
assets as an operating
activity in your statements of cash flows instead of separate
purchases and sales as
investing activities. Reference for us the authoritative guidance
you rely upon to
support your classification.
Statements of Operations, page F-17
35. Please revise your annual and interim statements of operations and
footnote disclosures to
provide your earnings per share information as required by ASC
260-10-45 and ASC 260-
10-50. If you do not believe that these disclosures are required, tell
us why in your
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October 16, 2020
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response referencing the authoritative literature you rely upon to
support your position.
Notes to Financial Statements
Note 1: Nature of Business and Summary of Significant Accounting Policies
Revenue Recognition, page F-22
36. Please revise your disclosure to:
Provide disaggregated revenue as required by ASC 606-10-50-5
and/or to provide
revenue by product or group of products as required by ASC
280-10-50-40. In this
regard, it appears that revenue by each of your app offerings
(i.e., Exchange
Aggregator, Compound Finance, SportX and Rewards) as disclosed
beginning on
page 73 may be appropriate.
Provide the geographic information about your revenues as required
by ASC 280-10-
50-41.
Otherwise, tell us why this disclosure is not warranted and reference
for us the
authoritative literature you rely upon to support your position.
Exhibits
37. Please file the form of subscription agreement and escrow agreement to
be used in
connection with this offering and the employment agreement with James
Gernetzke.
You may contact Mark Brunhofer at 202-551-3638 or Bonnie Baynes at
202-551-4924 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Sonia Bednarowski at 202-551-3666 or J. Nolan McWilliams at
202-551-3217 with any
other questions.
FirstName LastNameJon Paul Richardson Sincerely,
Comapany NameExodus Movement, Inc.
Division of
Corporation Finance
October 16, 2020 Page 8 Office of
Finance
FirstName LastName