Form S-1/A Athena Bitcoin Global
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As filed with the Securities and Exchange Commission on May 16, 2022
Registration No. 333-262629
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Athena Bitcoin Global
(Exact name of registrant as specified in its charter)
| Nevada | 6099 | 87-0493596 |
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
| incorporation or organization) | Classification Code Number) | Identification Number) |
1332 N Halsted St Suite 403
Chicago, IL 60642
(312) 690-4466
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Eric Gravengaard
Chief Executive Officer
1332 N Halsted St Suite 403
Chicago, IL 60642
(312) 690-4466
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications to:
| Iwona Alami, Esq. | Matthew Ogurick | |
| Law Office of Iwona J. Alami | K&L Gates, LLP | |
| 620 Newport Center Dr. | 599 Lexington Avenue | |
| Suite 1100 | New York, NY 10022 | |
| Newport Beach, CA 92660 | (212) 536-3901 | |
| (949) 200-4626 |
|
Approximate date of commencement of the proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated May 16, 2022
459,783,937 Shares of Common Stock
This prospectus relates to the resale or other disposition of up to 459,783,937 shares of Athena Bitcoin Global common stock, par value $0.001 per share (the “common stock” or “shares”), which may be offered for sale from time to time by the selling shareholders named in this prospectus (each a “Selling Shareholder” and, collectively, the “Selling Shareholders”). The shares of our common stock covered by this prospectus include: (i) 409,933,937 shares of common stock that were issued by us to the Selling Shareholders in the share exchange transaction or were purchased by the Selling Shareholders in private transactions, and (ii) up to 49,850,000 shares of common stock issued or issuable upon exercise of our outstanding 6% Convertible Debentures Due 2023 (the “Convertible Debentures”) which were issued in connection with a private placement financing in 2021. We are registering the resale of the shares of common stock underlying the Convertible Debentures as required by the Securities Purchase Agreement that we entered into with the Selling Shareholders as of June 22, 2021, which provided said Selling Shareholders with certain registration rights with respect to the common stock issuable upon conversion of the Convertible Debentures (the “Purchase Agreement”). We are not selling any shares of common stock under this prospectus and will not receive any proceeds from the sale of any shares of common stock by the Selling Shareholders. The Selling Shareholders will bear all commissions and discounts, if any, attributable to the sale or other disposition of the shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.
Our common stock is quoted on the OTC Pink Market (“OTC Pink”) operated by the OTC Markets Group, Inc. under the symbol “ABIT”. On May 12, 2022, the last reported sale of our common stock was $0.2875. There is a limited public trading market for our common stock. You are urged to obtain current market quotations for the common stock.
Our registration of the shares of common stock covered by this prospectus does not mean that the Selling Shareholders will offer or sell any of the shares. The Selling Shareholders may offer and sell or otherwise dispose of the shares of common stock described in this prospectus from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices at varying prices. See “Plan of Distribution” which begins on page 88 of this prospectus for more information.
This offering will terminate on the earlier of (i) the date when all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), (ii) or the date that all of the securities may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, (iii) or we decide at any time to terminate the registration of the shares at our sole discretion.
We have made no written communications as defined under Rule 405 of the Securities Act to prospective investors or investors.
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus.
Investing in our shares involves a high degree of risk. You should carefully consider the Risk Factors beginning on page 11 of this prospectus before you make an investment in our securities.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act (the “Jobs Act”) and defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” beginning on page 11 of this prospectus before you make an investment decision.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
This Prospectus is dated [●], 2022.
You should rely only on information contained in this prospectus. We have not authorized anyone to provide you with information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for and cannot provide any assurance as to the reliability of any other information others may give you. The Selling Shareholders are not offering to sell or seeking offers to buy shares of common stock in jurisdictions where offers and sales are not permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of shares of our common stock. Our business, financial condition, results of operations, and prospects may have changed since that date. We are responsible for updating this prospectus to ensure that all material information is included and will update this prospectus to the extent required by law.
For investors outside of the United States: Neither we nor any of the Selling Shareholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of common stock by the Selling Shareholders and the distribution of this prospectus outside of the United States.
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This prospectus is a part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration or continuous offering process. Under this shelf process, the Selling Shareholders may, from time to time, sell the shares of common stock covered by this prospectus in the manner described in the section titled “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in, this prospectus (except for the section titled “Plan of Distribution,” which additions, updates, or changes that are material shall only be made pursuant to a post-effective amendment). You may obtain this information without charge by following the instructions under the section titled “Additional Information” appearing elsewhere in this prospectus. You should read this prospectus and any prospectus supplement before deciding to invest in our shares.
Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal Company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.
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Glossary of Bitcoin and Crypto Terms
| · | Address: An alphanumeric reference to where crypto assets can be sent or stored. |
| · | Ankr: An Ethereum token that powers a decentralized public blockchain infrastructure that aims to make it easy and affordable for anyone to participate in blockchain ecosystems. |
| · | Bitcoin: The first system of global, decentralized, scarce, digital money as initially introduced in a white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto. Bitcoin, while having several of the primary attributes of money, is not considered a currency or money in the jurisdictions that the Company operates, with the exception of El Salvador where it is legal tender. |
| · | Bitcoin ATM: A kiosk that can be used by a Customer to buy or sell Bitcoin or other crypto assets in exchange for Cash. |
| · | Bitcoin Cash (BCH): A fork of Bitcoin that seeks to add more transaction capacity to the network in order to be useful for everyday transactions. BCH is based on the original Bitcoin blockchain with some distinct differences. A major one is an increased maximum block size of 32MB, compared to just 1MB on Bitcoin. Increased block size allows BCH to process transactions faster than Bitcoin, with lower fees and an increased per-second transaction capacity. | |
| · | Bitcoin SV: A fork of Bitcoin Cash (BCH), also known as Bitcoin Satoshi’s Vision, that attempts to restore the original Bitcoin protocol to align with Bitcoin inventor Satoshi Nakamoto’s original vision for the blockchain network. |
| · | Block: A grouping of Transactions validated by Miners and disseminated by the Network to servers that maintain the records in a Blockchain. Blocks are added to an existing Blockchain as transactions occur on the network. Miners are rewarded for “mining” a new block. |
| · | Blockchain: A cryptographically secure digital ledger that maintains a record of all transactions that occur on the network and follows a consensus protocol for confirming new blocks to be added to the blockchain. |
| · | Cash: The physical specie or banknotes of a sovereign country including the US Dollar and other countries that issue fiat currency in paper formats. | |
| · | Chivo: Official Bitcoin platform of El Salvador that supports the use of Bitcoin as legal tender in the country. The platform facilitates the exchange of Bitcoin and US dollar between users and their counterparties. The Chivo brand, which is the exclusive property of the government of El Salvador, is used across multiple products and services including a mobile wallet (Chivo wallet), integrated ATMs (Chivo ATMs) and point-of-sale (“POS”) terminals. | |
| · | Cold storage: The storage of private keys in any fashion that is disconnected from the internet. Common cold storage examples include offline computers, USB drives, or paper records. |
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| · | Confirmation: A Bitcoin or similar transaction is considered confirmed when it is included in a new Block in the Blockchain. Each time another block is appended to the chain, the Transaction is confirmed again. | |
| · | Crypto: A broad term for any cryptography-based market, system, application, or decentralized network. | |
| · | Cryptocurrency: Bitcoin and alternative coins, or ‘altcoins’. This category of crypto asset is designed to work as a medium of exchange, store of value, or to power applications and excludes security tokens. |
| · | Customer: A retail user of our Bitcoin ATMs or client of one of our other services. |
| · | Customer Buying: When a Customer acquires Bitcoin or crypto asset in exchange for Cash or a Wire Transfer. In these transactions, the Company is selling Bitcoin or crypto asset and acquiring Fiat Currency. |
| · | Customer Selling: When a Customer acquires Fiat Currency, either Cash or Wire Transfer, in exchange for Bitcoin or crypto asset. In these transactions, the Company is acquiring Bitcoin or crypto asset in exchange for Fiat Currency. |
| · | Crypto Asset or Digital Asset: Bitcoin and alternative digital forms of money, or ‘altcoins’, launched after the success of Bitcoin. This category of crypto asset is designed to work as a medium of exchange or store of value. This term is inclusive of Ethereum, Litecoin, and Bitcoin Cash, but not securities. In the Company’s marketing documents and website, this would be referred to as “cryptocurrency,” however in this document we refer to this category of digital token as a “crypto asset.” | |
| · | Ethereum: A decentralized global computing platform that supports smart contract transactions and peer-to-peer applications, or “Ether,” the native crypto assets on the Ethereum network. |
| · | Fiat Currency: The currency issued by a sovereign government or bloc including the US Dollar, Argentine Peso, or Euro. |
| · | Fork: A fundamental change to the software underlying a blockchain which results in two different blockchains, the original, and the new version. In some instances, the fork results in the creation of a new token. |
| · | Hot Wallet: A wallet that is connected to the internet, enabling it to broadcast transactions. |
| · | Miner: Individuals or entities who operate a computer or group of computers that add new transactions to blocks, and verify blocks created by other miners. Miners collect transaction fees and are rewarded with new tokens for their services. |
| · | Mining: The process by which new blocks are created, and thus new transactions are added to the blockchain. |
| · | Monero: A cryptocurrency focused on privacy, which allows users to send and receive transactions without making this data available to anyone examining its blockchain. |
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| · | Network: The collection of all Miners and Nodes that use computing power to maintain the ledger and add new blocks to the blockchain. Most networks are decentralized, reducing the risk of a single point of failure. |
| · | Node: A server that maintains a record of the Blockchain and can communicate with other Nodes on the Network to propagate new Transactions. Nodes can also maintain Wallets and safeguard Private Keys. |
| · | Protocol: A type of algorithm or software that governs how a blockchain operates. |
| · | Public key or private key: Each public address has a corresponding public key and private key that are cryptographically generated. A private key allows the recipient to access any funds belonging to the address, similar to a bank account password. A public key helps validate transactions that are broadcasted to and from the address. Addresses are shortened versions of public keys, which are derived from private keys. |
| · | Ripple (XRP): Ripple is the cryptocurrency used by the Ripple payment network. Built for enterprise use, XRP aims to be a fast, cost-efficient cryptocurrency for cross-border payments. |
| · | Siacoin: Native cryptocurrency for the Sia blockchain platform, which serves as a way for customers to pay hosts for renting storage space. The Sia project is meant to create a distributed, decentralized network for cloud data storage, similar to Dropbox or Google Drive. |
| · | Stable Coin: A Token issued for the purpose of maintaining a constant value relative to a fiat currency. Examples include USDC, Tether, or GUSD. Many of these operate as un-regulated money market fund equivalents. These have become a popular method to transfer funds between exchanges without taking price risk. |
| · | Tether: A blockchain-based cryptocurrency whose tokens in circulation are backed by an equivalent amount of U.S. dollars, making it a stablecoin with a price pegged to USD $1.00. |
| · | Token: A unit of a crypto asset or other instrument secured by and recorded on a Blockchain. Tokens could include the primary units of a Blockchain as in Ethereum or Bitcoin, or be a separate construct whose ownership is recorded using such a Blockchain as in an ERC-20 Token, whose ownership might convey any number of properties. |
| · | Transaction: The transfer of Bitcoin or a crypto asset from one Address to one or more Addresses. The Transaction is validated by Nodes and Miners according to the Protocol and specifically must be signed using the private key of the sending Address to be included in a Block, whereby it becomes Confirmed. | |
| · | Tron: Tron is a blockchain-based decentralized digital platform with its own cryptocurrency, called Tronix or TRX. It is a platform built specifically for peer-to-peer file sharing with the goal of competing with centralized media tech giants such as YouTube. |
| · | Wallet: A place to store public and private keys for crypto assets. Wallets are typically software, hardware, or paper-based. |
| · | Wire Transfer: A permanent inter-bank transfer on a national or international settlement system including the Fedwire system in the United States or the SWIFT international system but excluding non-permanent systems like ACH. |
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This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our common stock. You should carefully read the entire Prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. Unless the context suggests otherwise, all references to “Athena”, “we”, “us”, “our”, or “the Company” refer to Athena Bitcoin Global, a Nevada corporation and all of its subsidiaries, and all references to “Athena Bitcoin” refer solely to Athena Bitcoin, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. As used below, Bitcoin with an uppercase “B” is used to describe the system as a whole that is involved in maintaining the ledger of bitcoin ownership and facilitating the transfer of bitcoin among parties. When referring to the digital asset within the Bitcoin network, bitcoin is written with a lower case “b” (except, of course, at the beginning of sentences or paragraph sections, as below). The name “Athena Bitcoin” and the Athena Bitcoin logo service mark appearing in this prospectus are the property of Athena Bitcoin, Inc., a wholly-owned subsidiary of the Company. Solely for convenience, the trademarks, servicemarks and trade names in this prospectus are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that the owner of such trademarks, servicemarks and trade names will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Introduction
We are an early entrant in the crypto asset market and one of the first U.S. publicly traded companies using crypto assets and blockchain technologies in our business operations which include a global network of Athena Bitcoin ATMs.
Our management has determined that it is in our best interests to become a reporting company under the Securities and Exchange Act of 1934 as amended (“Exchange Act”), and endeavor to establish a public trading market for our common stock on the OTCQB or other trading systems. Currently our trading volume is limited and we are subject to the Alternative Reporting Standard of OTC Pink Market. Our management believes that establishing a public market on OTCQB or another exchange: (i) will increase our profile as a leading company in the international operation of Bitcoin ATMs, giving us greater identity and recognition, and (ii) will make it easier for us to attract additional equity capital, which we need to expand our business. There is no assurance that we will accomplish any of the foregoing goals and prospective investors are cautioned to carefully read the risk factors set forth herein prior to making an investment decision.
Athena
Bitcoin connects the world’s
cash to the world of cryptocurrency.
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Overview
Athena Bitcoin Global owns and operates a global network of Athena Bitcoin ATMs, which we refer to as our ATMs, that allow our customers to buy or sell Bitcoin and other major crypto assets in exchange for their local fiat currency, such as dollars or pesos. We are focused on making Bitcoin and other major crypto assets more easily accessible, functional and usable for ordinary people and small businesses. Bitcoin, blockchains, smart contracts and crypto assets are poised to transform the international financial order, however for billions of people, this new financial system is out of reach. They still rely on cash, either because they do not have a bank account or choose not to use one. For them, a connection between digital finance and paper currency is necessary.
Bitcoin is a system for decentralized digital value exchange that is designed to enable units of bitcoin to be transferred across borders without the need for currency conversion. Bitcoin is not legal tender, except recently in the country of El Salvador. The supply of bitcoin is not determined by a central government, but rather by an open-source software program that limits both the total amount of bitcoin that will be produced and the rate at which it is released into the network. The responsibility for maintaining the official ledger of who owns what bitcoin and for validating new bitcoin transactions is not entrusted to any single central entity. Instead, it is distributed among the network’s participants. As such, crypto assets are transferred entirely online, with no physical coins or bills. Instead of being held at a bank, crypto assets are held in one’s digital wallet, which is an online vault for holding public and private keys for crypto assets. Instead of being transferred through banks, clearing houses and payment processors, crypto assets are transferred directly to the recipient online and transactions are recorded on a blockchain or public ledger. The value of each crypto asset is determined by trading among buyers and sellers all over the world. At the end of 2020, the overall market capitalization of crypto assets reached $782 billion, representing a compounded average growth rate (CAGR) of over 150% since 2012. The supply of Bitcoin is greater than the M1 money supplies of the Swiss Franc and the Russian Ruble. One challenge for Bitcoin and other crypto assets is that they typically cannot be used to pay for things like groceries, utility bills, or a house. When someone wants to spend their bitcoin, they will generally need to first convert it to their local currency. Crypto asset owners can use crypto exchanges like Coinbase and acquire U.S. dollars by selling their crypto asset(s). On Coinbase or other crypto asset exchanges, users can oftentimes sell their bitcoin or other crypto assets for up to 50,000 U.S. dollars a day which can be wired or otherwise sent directly to a bank account and typically usable after one or two business days. Crypto exchanges are well suited for larger, planned transactions but can be inconvenient or entirely unsuitable for smaller or more immediate transactional needs. They also do not offer the level of convenience that bank customers are accustomed to. Most people in the U.S. use bank ATMs rather than bank tellers to get spending cash due to the added convenience.
ATM Market
According to a University of Florida study, there were over 470,135 traditional ATMs operating in the United States in 2018. For Bitcoin owners, our ATMs play a similar role by providing cash conveniently and quickly. Someone that owns Bitcoin, Ethereum, Litecoin or BCH can visit our ATMs and get up to $2,000 in cash in a single transaction. While our ATMs dispense cash for Bitcoin owners like a typical ATM cash machine does for a bank customer, our ATMs function is more akin to currency exchange booths at international airports. Our ATMs are performing real-time exchange between major crypto assets and local fiat currency including dollars and pesos. Instead of exchanging across countries, we exchange between the legacy financial system and a new emerging digital financial system. The majority of our customers use our services to purchase Bitcoin with dollars. Although some of our ATMs in the United States support dispensing dollars in exchange for Bitcoin, only a small percentage of customers use this service. However, in Central and South America, there is a more even distribution between purchases and sales. Athena Bitcoin ATMs enable anyone to quickly buy or sell Bitcoin, Ethereum, Litecoin or BCH in exchange for local paper money. While our ATMs differ substantially in function from bank ATMs, they provide a similar level of convenience. In addition, our ATMs benefit from the public’s vast experience using bank ATMs, which greatly contributes to making our ATMs a very user-friendly method for anyone to buy or sell Bitcoin.
Company Summary
The Company is focused on developing, owning and operating a global network of Athena Bitcoin ATMs, which are free standing kiosks that permit customers to buy or sell crypto assets (including Bitcoin, Ethereum, Litecoin and BCH) in exchange for cash (banknotes) issued by sovereign governments and often referred to as fiat currencies. The Company places its machines in convenience stores, shopping centers, and other easily accessible locations. Our network presently includes Athena Bitcoin ATMs in 10 states and 3 countries in Central and South America. We seek to expand our network in the U.S. and globally, and to further develop Athena Bitcoin as a trusted and preferred brand for parties seeking to exchange currency for Bitcoin and other major crypto assets.
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Customers can purchase as little as $1 of Bitcoin, but normally choose between $100 and $1,000 using Athena Bitcoin ATMs. The typical ATM that the Company operates is about 5-feet tall and features a large touchscreen for customer interaction. The customer typically needs to have a wallet app on his smart phone to buy or sell crypto assets on our ATM. In the process of the transaction, the customer will follow the steps prompted on the screen. When a customer is buying crypto assets, the machine will prompt the customer to insert cash since our ATMs do not accept debit or credit cards. When the customer is done, a receipt will print showing exactly how much crypto assets have been bought and the address they were sent to.
The Company’s ATMs do not contain any crypto assets or keys to crypto assets. The Company sells Bitcoin, Ethereum, Litecoin, LTC and BCH from cloud-based wallets in each country, enabling real-time supply of crypto assets to its customers. For the fiscal years ending December 31, 2021 and December 31, 2020, the Company’s breakdown of volume of ATM transactions per crypto asset is as follows:
| Crypto Asset | For the Twelve Months Ended December 31, 2021 |
For the Twelve Months Ended December 31, 2020 |
| Bitcoin | 87,816 | 100,113 |
| Ethereum | 1,936 | 913 |
| Litecoin | 5,513 | 7,511 |
| Bitcoin Cash (BCH) | 865 | 1,044 |
| Total | 96,130 | 109,581 |
The Company buys most of its crypto assets through automated purchases on crypto exchanges, based on algorithms the Company has developed for balancing its holdings with anticipated demand. In addition to this automated buying program, the Company is active in the over-the-counter dealer market and has bilateral relationships with several large crypto asset trading desks. We replenish our supply of Bitcoin, Ethereum, Litecoin and BCH daily as needed, and hold them in our wallet to sell to users of our ATMs. On average, we sell our holdings of Bitcoin within 3 to 5 days of buying it, and within 7 to 10 days of buying our Ethereum, Litecoin, and BCH holdings. We strive to keep this period short to reduce the effect of changes in crypto assets/U.S. dollar exchange rates on our business and to maximize our working capital. We do not invest or have long term holdings of Bitcoin, Ethereum, Litecoin or BCH.
We charge a fee per crypto asset available through Athena Bitcoin ATM, equal to the prevailing price at U.S.- based exchanges plus a mark up that typically ranges between 5% and 20%. The prices shown to customers on our Bitcoin ATM are inclusive of this price spread and are calculated by multiplying the prevailing price level of crypto asset by one plus the mark up. The mark up varies from one crypto asset to another and by location. It is determined by a proprietary method that is maintained as a trade secret. Our revenues associated with our ATM transactions are recognized at the time when the crypto asset is delivered to the customer. By increasing our geographic service area, including our recent expansion of operations in El Salvador, we aim to make Athena into a global financial services company that can connect the world’s cash to the world of crypto assets.
Corporate History and Other Information
The Company was incorporated in the state of Nevada in 1991 under the name “GamePlan, Inc.” for the sole purpose of merging with Sunbeam Solar, Inc., a Utah corporation, which merger occurred as of December 31, 1991 with GamePlan, Inc. as a sole surviving entity. The Company was involved in various businesses, including, gaming and other consulting services, prior to becoming a company seeking acquisitions (a “shell company” as defined in Rule 405 of the Securities Act). The Company was a reporting issuer under the Securities and Exchange Act of 1934 (the “Exchange Act”) from 1999 until 2015 when it filed Form 15 pursuant to Rule 12g-4(a)(1) with the Commission and ceased to be a reporting company.
On January 14, 2020 the Company entered into a Share Exchange Agreement (the “Agreement”), by and among the Company, Athena Bitcoin, Inc., a Delaware corporation (“Athena Bitcoin”) incorporated in 2015, and certain shareholders of Athena Bitcoin. The Agreement provides for the reorganization of Athena Bitcoin, with and into the Company, resulting in Athena Bitcoin becoming a wholly-owned subsidiary of the Company. The agreement is for the exchange of 100% shares of the outstanding common stock of Athena, for 3,593,644,680 shares of GamePlan, Inc. common stock (an exchange rate of 1,244.69 shares of common stock of GamePlan, Inc. for each share of Athena Bitcoin common stock). The closing of the transaction occurred as of January 30, 2020. Subsequently, in May, 2020, the Company filed its amended and restated articles of incorporation authorizing a total of 4,409,605,000 shares of common stock.
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The Company approved the name change from “GamePlan, Inc.” to “Athena Bitcoin Global” on March 10, 2021 by the unanimous consent of its Board of Directors and a majority consent of its shareholders. The Company filed an amendment to its Articles of Incorporation with the Secretary of State of the state of Nevada on April 6, 2021, with the effective date of April 15, 2021. The Company’s name change and trading symbol change to “ABIT” was declared effective by FINRA on OTC Pink Market as of June 9, 2021.
The Company, Athena Bitcoin Global, is a Nevada corporation which owns 100% of our operating subsidiary, Athena Bitcoin, Inc., a Delaware corporation. Our domestic business operations are conducted by Athena Bitcoin, Inc. We have operating subsidiaries in the specific countries where we operate, as more fully described in the following:
(1) Athena Bitcoin Inc. owns 99% of Athena Holdings El Salvador SA de CV and Eric Gravengaard holds 1% on behalf of the Company.
(2) Athena Bitcoin Inc. beneficially owns and controls Athena Holdings SAS which is nominally owned by Eric Gravengaard 95% and Matias Goldenhörn 5%.
(3) Athena Bitcoin Inc. beneficially owns and controls Athena Holding Company SRL which is nominally owned by Eric Gravengaard 45%, Gilbert Valentine 45%, and Matias Goldenhörn 10%.
(4) Athena Bitcoin Inc. owns 2,999 Shares of Athena Bitcoin SRL de CV and Eric Gravengaard owns 1 Share on behalf of the Company.
(5) Athena Bitcoin Inc. is the only member of Athena Holdings of PR, LLC.
(6) Athena Bitcoin Inc. owns 100% Athena Business Holdings Panama S.A.
Our corporate office is located at 1332 N Halsted St., Suite 403, Chicago, IL 60642, and our telephone number is 312-690-4466. Our website is www.athenabitcoin.com. The information on, or that can be accessed through, our website is not part of this prospectus and is not incorporated by reference herein.
Industry Summary
The Company is an active participant in the operation of Bitcoin ATMs in the U.S. and Latin America. More broadly we operate in the market of retail sales of bitcoin facilitating small purchases of Bitcoin, Ethereum, Litecoin, and BCH. There are many ways that retail consumers, individuals purchasing small amounts from one dollar to a few thousand dollars’ worth, can purchase or dispose of crypto assets.
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The Birth of Bitcoin ATMs
In the earliest days of Bitcoin, most transactions were done in person - often facilitated by websites. These sites matched prospective buyers with sellers and facilitated communications and wallet coordination, allowing them to meet in public places like coffee shops and street corners, and exchange bitcoin for envelopes of cash. The first Bitcoin ATMs began appearing in 2014. These ATMs were an instant hit with retail customers who were accustomed to in-person transactions because they offered instantaneous access to bitcoin in a familiar and safe method.
According to Reuters in a March, 2021 article titled “Bitcoin ATMs are coming to a gas station near you”, the industry has grown from a handful of machines operated by hobbyists to more than 15,000 kiosks worldwide primarily operated by increasingly larger organizations. There are many operators of Bitcoin ATM networks, from crypto businesses to major corporate and conventional kiosk companies including Coinstar.
Some Bitcoin ATMs offer one-way exchange, allowing customers to only buy crypto assets. Others offer two-way exchange, so customers can buy crypto assets for cash, or sell some of their crypto assets and receive cash. Athena Bitcoin ATMs, serve clients with the following types of crypto assets: Bitcoin, Ethereum, Litecoin, and BCH in either one-way or two-way exchanges, depending on the functionality of each ATM machine.
Bitcoin Exchanges
Parties that want to use their bank accounts to buy Bitcoin can do so without an ATM. These transactions are the domain of exchanges and specialty apps including services from Coinbase, Gemini, Kraken, and Square. These services generally accept U.S. dollar transfers from bank accounts and do not accept physical currency. These services may or may not, depending on several factors including method of deposit, allow the purchaser of a crypto asset on their platforms to immediately transfer the crypto asset into their own wallet. These services cater to larger purchasers and investors in crypto assets. Users of exchanges may use ATMs as a convenient method to get spending cash, similar to how bank account and credit card holders use bank ATMs.
The growth of businesses and services that accept Bitcoin and make it more functional is contributing to increasing Bitcoin usage. In October of 2020, PayPal and Venmo announced they will accept Bitcoin, thus enabling PayPal and Venmo customers to use their Bitcoin to make online purchases and online payments. In 2020 and 2021, with little promotion and advertising, we have experienced a significant increase in transaction volumes and average transaction sizes (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). We believe this trend is due in part to an increase in companies and online service providers that are helping to make Bitcoin more widely and easily usable. We believe that the use of Bitcoin ATMs will continue to rise as the Bitcoin and crypto industry and its many interconnected service providers expand.
Business Strategies
We seek to grow and distinguish Athena Bitcoin services based on our method of location selection, our global expansion, operational efficiencies, and our authenticity as a crypto industry forerunner with respect to Bitcoin ATMs.
We are an efficient operator.
We are focused on placing our ATMs in optimal locations that maximize both current income and future potential. Our ATMs are in urban, suburban, and rural locations. Our site selection criteria and metrics are a closely guarded proprietary aspect of our business. In placing our ATMs, we employ a data driven strategy based on factors we have learned over the years. In addition to data metrics, our placement strategy includes analysis of immediate trends, as we are in a dynamic business where usage is widening dramatically and often in unpredicted ways. Each location is chosen to complement the rest of the fleet and offer customers of diverse backgrounds access to convenient crypto assets transactions.
We are constantly improving our operational efficiency. Our ATMs serve as remote tellers that connect to our centralized cloud-based crypto trading operation. We have proprietary systems and methods of managing our currency exchange operation. Our founders have a deep understanding of high-frequency trading and were some of the first to electronically trade Bitcoin on multiple exchanges simultaneously. The objective of our purchasing algorithms is to frequently re-balance our crypto holdings to meet the dynamic demand of our many customers. Over-buying of any crypto asset can result in inefficiency and currency risk, while under-buying may temporarily prevent us from selling crypto assets at our ATMs. We strive to improve the efficiency of our currency exchange operations to maximize our profits, manage risk and facilitate growth.
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We are a global business.
We placed our first ATM outside the U.S. in Mexico in 2017. According to the CIA World Factbook, the median age in the United States is 38. In South America it is 31, and Africa has a median age of only 18. As the digital generation accumulate their wealth, they are far more likely to embrace crypto assets than their predecessors. Bitcoin is poised to quickly become a part of the lives of a huge percentage of the developing world’s population. This “global south” offers a large green field expansion opportunity for us because it combines high usage of physical currency with low median age and reduced access to quality banking.
On June 8, 2021, El Salvador became the first and remains the only country to officially adopt the cryptocurrency as legal tender when its congress passed the Bitcoin Law proposed by President Nayib Bukele. On September 7, 2021, the Bitcoin Law was implemented and Bitcoin became legal tender in El Salvador, alongside the U.S. dollar, the country’s other official currency. Under the new law, Salvadorans can pay taxes in Bitcoin and businesses are obliged to accept Bitcoin as payment for goods and services, in addition to the U.S. dollar. Given that more than 70% of the adult population of El Salvador does not have access to the traditional banking system, the government of El Salvador believes that Bitcoin will greatly help the unbanked get access to electronic payments.
The Company began working with the government of El Salvador in late June 2021 to support the implementation of its Bitcoin Law. In August 2021, we entered into certain agreements for services to be rendered by the Company to the Department of Treasury (Ministerio De Hacienda) of El Salvador, pursuant to which we have installed and are operating 200 Chivo Bitcoin ATMs in El Salvador, 10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S., 45 Chivo Bitcoin ATMs in other U.S. locations, and importing and delivering 950 Chivo point-of-sale (“POS”) terminals for local businesses in El Salvador to transact with Bitcoin. As of December 31, 2021, all Chivo Bitcoin ATMs are installed and operational and all 950 point-of-sale terminals have been delivered and subsequently distributed to end-users as per above. The Company is responsible for maintaining the existing software infrastructure supporting the operation of the ATMs, the hardware maintenance of the ATM, cash logistics and customer support. Currently, there are no on-going obligations with respect to the POS terminals. For the fiscal year ended December 31, 2021 the Company presented to the government of El Salvador/Ministerio de Hacienda invoices amounting to $300,000 for the installation of white label machines, $1,000,000 for the monthly maintenance of the 200 white label machines in El Salvador, $360,000 for the sale of POS terminals, $584,000 for the monthly software maintenance, $385,000 for the monthly maintenance of the 55 white label machines in the USA and $37,800 for the service fee for the 55 white label machine transactions. The total amount of $2,666,800 exclusive of VAT was recorded as part of Revenues in the Consolidated Statement of Operations and Comprehensive Income. As of December 31, 2021, $1,418,800 of these amounts remained outstanding and was recorded as part of Accounts receivable on the Consolidated Balance Sheets. The Company does not anticipate any further sales of POS terminals to the government of El Salvador.
In addition to the ATM and POS portions of the agreements for services, we were also contracted to develop and maintain a Bitcoin platform (Chivo Ecosystem) to support the Chivo digital wallet. The Company was obligated to provide the software for the Chivo digital wallet, comprising both the software that runs on mobile smartphones, which we refer to as the App, and the software that runs on servers, which together comprise the Chivo Digital Wallet. The Chivo Digital Wallet has the following functions: (i) storing and displaying USD and Bitcoin balances; (ii) sending and receiving USD and Bitcoin between users of the Chivo digital wallet and (iii) sending and receiving Bitcoin using on-chain and Lightning Network transaction.
The delivery of the software was initially completed on September 7, 2021 . In response to news reports of user problems and government requests for changes the Company hired additional technology resources and delivered subsequent improvements continuously throughout the quarter ending December 31, 2021. The usage of the software we provided and the operation of the Chivo digital wallet was conducted by Chivo S.A. de C.V., a government-controlled entity. Through the year ended December 31, 2021, the Company booked $3,500,000 as advances for revenue contract and $757,000 as capitalized software development within other non-current assets for the costs related to the Chivo Ecosystem in the consolidated balance sheets. In addition, $700,000 in taxes were recorded as part of income tax expense in the consolidated statement of operations and comprehensive income.
The government of El Salvador discontinued use of the Company’s software on or about December 15, 2021, but has not terminated its contract with the Company as the Company assists the government’s secondary provider. At the time the contract for the software was negotiated, the Company was aware that the government of El Salvador was considering multiple providers and our contract included the option for the government to change providers. Our non-disclosure agreement with the government of El Salvador prohibits us from discussing the operation of the Chivo digital wallet. The government of El Salvador did not provide us with the reasons behind their decision. Parts of the contract related to data retention security, analysis and reporting remain in effect as of the time of this prospectus as do the services related to the operation of the Chivo branded ATMs and the POS terminals, but the government of El Salvador is not using the Company’s software to enable the Chivo digital wallet. The expected revenues and associated costs of satisfying those data obligations will be determined based on ongoing negotiations and requests of the government.
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There are no expected future costs for the POS sections of the agreements as the Company does not expect to sell additional POS terminals to the government of El Salvador as of the date of this prospectus.
On April 20, 2022, David Gerard, an author of several books and an eponymous website, reported that there was a theft of several million dollars from the Chivo digital wallet on or around April 1, 2022. This event, if true, was after the migration of user data from the Company’s software to the new software provider for the Chivo digital wallet and the Company has no direct knowledge of or responsibility for the alleged events.
None of the funds received under the agreements are refundable upon contract termination.
The government of El Salvador owns the software (which we refer to as the “IP Software”) and the Company has a perpetual, royalty-free license under its Master Services Agreement to market the IP Software elsewhere.
Subsequent to executing the Master Services Agreement, the Company implemented branding of its “Athena Ruru” suite of services, with such brand comprising of the three services the Company offers: Bitcoin ATMs, POS terminals and merchant services, and the wallet solution, based on the App. To date, the Company has not completed the sale of a license to its bitcoin platform, marketed under the Athena Ruru brand, to any other person, including without limitation any government entity or bank.
The initial term of the Master Services Agreement (the “MSA”) is three-years beginning on August 20, 2021. The Company’s El Salvador Contracts have the following ongoing terms for their obligations:
| Specific Nature of Services | Term | Status | Revenue YE 2021 | Paid to YE 2021 | Accounts Receivable as YE 2021 | |||
| Contract 51/2021 (Installation and Maintenance of Chivo ATMs) | July 30, 2021 - July 30, 2024 - | Ongoing | $ | 1,685,000 | $ | $800,000 | $ | 885,000 |
| Contract 56/2021 (Development of Chivo Wallet, alternative version of SA1) | August 9, 2021 - December 31, 2021 | Concluded | – | 3,500,000* | – | |||
| Service Addendum 1 (Phase 1: Service Fees for Chivo Ecosystem) | August 15, 2021 – December 31, 2021 | Concluded | 584,000 | 88,000 | 496,000 | |||
| Service Addendum 1 (Phase 2: Service Fees USA Based Activities) | September 7, 2021- December 31, 2022 | Ongoing | 37,900 | – | 37,900 | |||
| Service Addendum 2 (Importation, setup, and distribution of POS terminals) | August 20 - September 7, 2021 | Concluded | 360,000 | 360,000 | – | |||
*Recognized as Advances for revenue contracts in the Consolidated Balance Sheets
See also Business – Operations in El Salvador- Material Contracts on page 61.
Our strategy is to become a global financial services company that can connect the world’s cash to the world of digital assets including Bitcoin, Ethereum, Litecoin, and BCH. We have spent years learning how to expand our business across borders. We have assembled the people, processes, and technologies to enable us to continue to grow our global footprint we believe is unmatched by our competition.
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Competitive Strengths
When comparing Bitcoin ATMs to other methods of transacting, the primary advantage of an ATM is its ability to complete a transaction from payment to delivery of crypto assets quickly. In the context of a purchase transaction, our ATM only accept physical currency, which is an immediate and permanent form of payment, and which facilitates the immediate delivery of crypto assets, also an immediate and permanent form of transaction. Apps and services that rely on ACH or other bank mechanisms for the delivery of fiat currency in a transaction often cannot deliver the crypto asset quickly because the funding mechanism is neither immediate nor permanent.
Risk Factors Associated with Our Business
Investing in our shares of common stock involves significant risks. You should carefully consider the risks described in “Risk Factors” before deciding to invest in our shares. If we are unable to successfully address these risks and challenges, our business, financial condition, results of operations, or prospects could be materially adversely affected. In any of such cases, the trading price of our common stock would likely decline, and you may lose all or part of your investment. Below is a summary of some of the risks we face.
| · | Our shares are subject to liquidity risks. | |
| · | Our business is in a relatively new consumer product segment, which is difficult to forecast. | |
| · | Our operating results may fluctuate due to the highly volatile nature of crypto. | |
| · | A majority of our net revenue is derived from transactions in Bitcoin. If demand for crypto assets declines, our business, operating results, and financial condition could be adversely affected. | |
| · | The future development and growth of crypto is subject to a variety of factors that are difficult to predict and evaluate. If crypto does not grow as we expect, our business, operating results, and financial condition could be adversely affected. | |
| · | Cyberattacks and security breaches of our platform, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition. |
| · | We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition. | |
| · | As we continue to expand and localize our international activities, our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by regulators and governmental authorities. | |
| · | We currently rely on third-party service providers for certain aspects of our operations, and any interruptions in services provided by these third parties may impair our ability to support our customers. | |
| · | Loss of a critical banking relationship could adversely impact our business, operating results, and financial condition. | |
| · | Any significant disruption in our products and services, in our information technology systems, or in any of the blockchain networks we support, could result in a loss of customers or funds and adversely impact our brand and reputation and business, operating results, and financial condition. | |
| · | The loss or destruction of private keys required to access any crypto assets held for our business transactions with our customers may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause adversely impact our business operations, operating results, regulatory scrutiny, reputational harm, and other losses. | |
| · | None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following the registration of our shares, the sales or distribution of substantial amounts of our common stock, or the perception that such sales or distributions might occur, could cause the market price of our common stock to decline. |
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Impact from COVID-19
The significant global outbreak of COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide and has affected our business in several ways. First, we have been unable to ship our ATMs freely between countries. Second, it has restricted the movement of our employees and their ability to both collaborate in-person, and to do some field-service and installation work.
We are responding to the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the restrictions put in place by governments to protect the population. Our employees and service providers have transitioned to work-from-home. This subjects us to heightened operational risks. For example, technologies in our employees’ and service providers’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees and service providers to be more limited or less reliable than in our offices. Further, the security systems in place at our employees’ and service providers’ homes may be less secure than those used in our offices, and we may be subject to increased cybersecurity risk, which could expose us to risks of data or financial loss, and could disrupt our business operations. There is no guarantee that the data security and privacy safeguards we have put in place will be completely effective or that we will not encounter risks associated with employees and service providers accessing company data and systems remotely.
In addition, the continued spread of COVID-19 and the imposition of related public health measures have resulted in, and is expected to continue to result in, increased volatility and uncertainty in the crypto-economy. We also rely on third party service providers to perform certain functions. Any disruptions to a service providers’ business operations resulting from business restrictions, quarantines, or restrictions on the ability of personnel to perform their jobs could have an adverse impact on our service providers’ ability to provide services to us. The continued spread of COVID-19 and efforts to contain the virus could adversely impact our strategic business plans and growth strategy, reduce demand for our products and services, reduce the availability and productivity of our employees, service providers, and third-party resources, cause us to experience an increase in costs due to emergency measures, and otherwise adversely impact our business.
Offering Summary
We are registering the resale of 459,783,937 shares of our common stock that include: (i) 409,933,937 shares of common stock that were issued by us to the Selling Shareholders in the share exchange transaction or were purchased by the Selling Shareholders in private transactions, and (ii) up to 49,850,000 shares of common stock issued or issuable upon exercise of our outstanding 6% Convertible Debentures Due 2023 (the ”Convertible Debentures”) which were issued in connection with a private placement financing in 2021.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could remain an emerging growth company for up to five years after the effective date of this Registration Statement, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of any December 31 before that time or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.07 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Additionally, even if we no longer qualify as an emerging growth company, as long as we are neither a “large accelerated filer” nor an “accelerated filer,” we would not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot predict if investors will find our securities less attractive because we may rely on these exemptions, which could result in a less active trading market for our securities and increased volatility in the price of our securities.
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Finally, we are a “smaller reporting company” (and may continue to qualify as such even after we no longer qualify as an emerging growth company) and accordingly may provide less public disclosure than larger public companies, including the inclusion of only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
Summary Consolidated Financial Data
The following tables set forth a summary of our historical consolidated financial data as of and for the periods indicated. The summary consolidated statements of operations data for the fiscal years ended December 31, 2021 and December 31, 2020, respectively, have been derived from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future. When you read this summary consolidated financial data, it is important that you read it together with the historical consolidated financial statements and the related notes thereto included elsewhere in this prospectus, which qualify this summary consolidated financial data in their entirety, as well as the sections of this prospectus titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary financial data in this section are not intended to replace our audited consolidated financial statements and the related notes, and are qualified in their entirety by such financial statements and related notes included elsewhere in this prospectus.
(in thousands) Balance Sheet Summary | For the twelve months ended December 31 | |||||||
2021 Audited | 2020 Audited | |||||||
| Current assets | $ | 7,948 | $ | 2,201 | ||||
| Other assets | 7,053 | 4,274 | ||||||
| Total assets | $ | 15,001 | $ | 6,475 | ||||
| Current liabilities | $ | 11,999 | $ | 4,312 | ||||
| Long-term liabilities | 10,576 | 5,435 | ||||||
| Total shareholders’ deficit | (7,574 | ) | (3,272 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 15,001 | $ | 6,475 |
(in thousands) Statement of Operations Summary | For the twelve months ended December 31 | |||||||
2021 Audited | 2020 Audited | |||||||
| Revenues | $ | 81,747 | $ | 68,937 | ||||
| Cost of revenues | 76,178 | 62,390 | ||||||
| Gross profit | 5,569 | 6,547 | ||||||
| Operating expenses | 6,774 | 3,497 | ||||||
| Income (loss) from operations | (1,205 | ) | 3,050 | |||||
| Fair value adjustment on crypto asset borrowing derivatives | 515 | 1,061 | ||||||
| Interest expense | 661 | 990 | ||||||
| Fees on crypto asset borrowing | 341 | 466 | ||||||
| Other (income) expense | 39 | (55 | ) | |||||
| Income (loss) before taxes | (2,761 | ) | 588 | |||||
| Income tax expense (benefit) | 883 | 428 | ||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | |||
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| Common Stock offered by Selling Shareholders | 459,783,937 shares of common stock which include: (i) 409,933,937 shares of common stock that were issued by us to the Selling Shareholders in the share exchange transaction or were purchased by the Selling Shareholders in private transactions, and (ii) up to 49,850,000 shares of common stock issued or issuable upon exercise of our outstanding 6% Convertible Debentures Due 2023 (the “Convertible Debentures”) which were issued in connection with a private placement financing in 2021. We are registering the resale of the shares of common stock underlying the principal amount of the Convertible Debentures, as required by the Securities Purchase Agreement that we entered into with the Selling Shareholders as of June 22, 2021, which provided said Selling Shareholders with certain registration rights with respect to the common stock issuable upon conversion of the principal amount of the Convertible Debentures (the “Purchase Agreement”). | |
| Common Stock outstanding before the offering | 4,089,409,545 shares of common stock | |
| Exchange Symbol | ABIT | |
| CUSIP | 046839106 | |
| Terms of the Offering | The Selling Shareholders have not engaged any underwriter regarding the sale of their shares of common stock. The sale price to the public will vary according to prevailing market prices or privately negotiated prices by the Selling Shareholders. | |
| Termination of the Offering | The offering will conclude upon the earliest of (i) such time as all the common stock has been sold pursuant to the registration statement or (ii) such time as all the common stock becomes eligible for resale without volume limitations pursuant to Rule 144 under the Securities Act (iii) or we decide at any time to terminate the registration of the shares at our sole discretion. | |
| Trading Market | Our common stock is currently quoted on the OTC Pink Market operated by OTC Markets Group, Inc. There is an uneven and limited trading market for our securities. We intend to apply for quotation on the OTCQB once we become a fully reporting company with the SEC. | |
| Use of proceeds | We are not selling any shares of the common stock covered by this prospectus. As such, we will not receive any of the offering proceeds from the registration of the shares of common stock covered by this prospectus. | |
| Expenses | We will pay all expenses associated with this registration statement. | |
| Risk Factors | The shares offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 11. |
The number of shares of common stock to be outstanding immediately after this offering is based on 4,089,409,545 shares of common stock outstanding as of March 31, 2022 and excludes:
| · | 250,000,000 shares of common stock issuable upon conversion of 8% Convertible Debenture Due 2025 issued to KGPLA Holdings, LLC; |
| · | 15,200,000 shares of common stock issuable upon conversion of the remaining outstanding principal amount of the 6% Convertible Debenture Due 2023 issued to certain accredited investors pursuant to the Company’s private placement of up to $5,000,000. See page 68. |
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Investing in the Shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before deciding to invest in the Shares. If any of the risks occur, our business, results of operations, financial condition, and prospects could be harmed. In that event, the trading price of the Shares could decline, and you could lose part or all your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
The Most Material Risks Related to Our Business and Financial Position
Our business is in a new consumer product segment, which is difficult to forecast.
Our industry segment is new and is constantly evolving. As a result, there is a lack of available information with which to forecast industry trends or patterns. There is no assurance that sustainable industry trends or preferences will develop that will lead to predictable growth or earnings forecasts for individual companies or the industry segment. We are also unable to determine what impact future governmental regulation may have on trends and preferences or patterns within our industry segment. See “Risk Factors Related to Current and Future Regulations and other Law Enforcement Actions” for a discussion of the risks associated with governmental regulation.
The prices of Bitcoin and other crypto assets are volatile.
We generate substantially all our revenue from the sale of crypto assets to our customers, either using our Bitcoin ATMs or over the phone. Revenue is based on the prices that we charge our customers based on prevailing market prices. The price at which we are able to purchase crypto assets prior to selling those same crypto assets may not be lower than the sale price if the market conditions change between those two points in time. Purchasing Bitcoin or other crypto assets for prices higher than they can be later sold could result in an impairment of the asset value and our operating results could be adversely affected. The value of the entirety of our crypto assets held could be lost if the prices of those digital assets were to significantly decrease, which would adversely affect our operating results. There are no assurances that the crypto assets we hold will have value from one day to the next and we could suffer a loss if any of the prices of those crypto assets declines or is permanently depressed.
As discussed in our financial statements included in this prospectus, we account for our crypto assets as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our crypto assets decreased below their carrying value. As of December 31, 2021, management’s estimate of the effect on fair values due to a +/- 20% uniform change in the market prices of all crypto assets, with all other variables held constant, was +/- $168.4 thousand (December 31, 2020: +/- $268.6 thousand).
Additionally, and as discussed in our financial statements, we act as an agent (vs. principal) in the operation of the Chivo branded Bitcoin ATMs. As part of our contract with the government of El Salvador, the Company manages the processes of purchasing and selling of Bitcoin that are involved with the operations of the Chivo branded Bitcoin ATMs and assumes the price risk associated with those transactions. The value of the Bitcoin between the time of a transaction at such an ATM and the time at which the Company exchanges them to/for USD can be between seconds and hours, during which time the price of Bitcoin relative to the US dollar can change. As of December 31, 2021, management estimates that if Bitcoin were to change prices by +/- 20%, with all other variables held constant, the risk of gain/loss on the value of the Bitcoin used by the Chivo branded Bitcoin ATMs would be +/- $236.1 thousand (prior periods: Not Applicable).
Our total revenue is substantially dependent on the volume of transactions conducted by our customers. If such volume declines, our business, operating results, and financial position would be adversely affected.
We generate substantially all our revenue from the sale of crypto assets to our customers, either using our Bitcoin ATMs or over the phone. Revenue is based on the prices that we charge our customers based on prevailing market prices. This revenue may fluctuate based on the price of crypto assets. As such, any declines in the volume of transactions, the price of crypto assets, or market liquidity for crypto assets generally may result in lower total revenue to us.
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The price of crypto assets and associated demand for buying, selling, and trading crypto assets have historically been subject to significant volatility. The price and trading volume of any crypto asset is subject to significant uncertainty and volatility, depending on several factors, including:
| · | market conditions across all elements of the crypto-economy; |
| · | changes in liquidity, market-making volume, and trading activities; |
| · | trading activities on other crypto platforms worldwide, many of which may be unregulated, and may include manipulative activities; |
| · | investment and trading activities of highly active retail and institutional users, speculators, miners, and investors; |
| · | the speed and rate at which crypto assets and specifically Bitcoin can gain adoption as a medium of exchange, utility, store of value, consumptive asset, security instrument, or other financial assets worldwide, if at all; |
| · | decreased user and investor confidence in crypto assets and associated exchanges and service providers; |
| · | negative publicity and events relating to Bitcoin, blockchain technology, or the digital currency economy as a whole; |
| · | unpredictable social media coverage or “trending” of Bitcoin or other crypto assets; |
| · | the ability for crypto assets to meet user and investor demands; |
| · | consumer preferences and perceived utility and value of crypto assets and associated markets; |
| · | increased competition from other payment services or other crypto assets that exhibit better speed, security, scalability, or other characteristics; |
| · | regulatory or legislative changes and updates affecting the use, storage, ownership, exchange, or any other aspect of the crypto-economy; |
| · | the characterization of crypto assets under the laws of various jurisdictions around the world; |
| · | the maintenance, troubleshooting, and development of the blockchain networks underlying crypto assets, including by miners, validators, and developers worldwide; |
| · | the ability for protocol networks to attract and retain miners or validators to secure and confirm transactions accurately and efficiently; |
| · | ongoing technological viability and security of protocols and their associated crypto assets, smart contracts, applications, and networks, including vulnerabilities against hacks and scalability; |
| · | fees and speed associated with processing blockchain transactions, including on the underlying protocol networks and on exchanges and other platforms for trading; |
| · | financial strength of wholesale market participants; |
| · | the availability and cost of funding and capital; |
| · | the liquidity of over-the-counter trading desks, market-makers, exchanges, and other wholesale dealers of crypto assets; |
| · | interruptions in service from or failures of major crypto asset exchanges and platforms; |
| · | availability of banking and payment services to support crypto-related projects; |
| · | level of interest rates and inflation in both G-10 economies and emerging markets; |
| · | monetary policies of governments, trade restrictions, and fiat currency valuation changes; and |
| · | national and international economic and political conditions. |
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There is no assurance that any supported crypto asset will maintain its value or that there will be meaningful levels of interest from customers. If the demand for purchasing or selling crypto assets declines, our business, operating results, and financial condition would be adversely affected.
The future development and growth of crypto assets and protocols is subject to a variety of factors that are difficult to predict and evaluate. If the future does not develop and grow as we expect, our business, operating results, and financial condition could be adversely affected.
Blockchain technology was only introduced in 2008 and remains in the early stages of development. In addition, different protocols are designed for different purposes. Bitcoin, for instance, was designed to serve as a peer-to-peer electronic cash system, while Ethereum was designed to be a smart contract and decentralized application platform. Many other protocol networks—ranging from cloud computing to tokenized securities networks—have only recently been established. The further growth and development of any crypto assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer, and usage of crypto assets represent a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate, including:
| · | Many protocol networks have limited operating histories, have not been validated in production, and are still in the process of developing and making significant decisions that will affect the design, supply, issuance, functionality, and governance of their respective tokens and underlying blockchain networks, any of which could adversely affect their respective usefulness. |
| · | Many networks are in the process of implementing software upgrades and other changes to their protocols, which could introduce bugs, security risks, or adversely affect the respective crypto networks. |
| · | Several large networks, including Bitcoin and Ethereum, are developing new features to address fundamental speed, scalability, and energy usage issues. If these issues are not successfully addressed, or are unable to receive widespread adoption, it could adversely affect the underlying crypto asset. |
| · | Security issues, bugs, and software errors have been identified with many protocols and their underlying blockchain networks, some of which have been exploited by malicious actors. There are also inherent security weaknesses in some crypto assets and their networks and protocols, such as when creators of certain crypto networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses identified with a protocol, token or blockchain could adversely affect its price, security, liquidity, and adoption. If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the compute or staking power on a crypto network, as has happened in the past, it may be able to manipulate transactions, which could cause financial losses to holders, damage the network’s reputation and security, and adversely affect its value. |
| · | The development of new technology for mining, such as improved application-specific integrated circuits (commonly referred to as ASICs), or changes in industry patterns, such as the consolidation of mining power in a small number of large mining farms, could reduce the security of blockchain networks, lead to increased liquid supply of the crypto asset token, and reduce its price and attractiveness. |
| · | If rewards and transaction fees for miners or validators on any protocol network are not sufficiently high to attract and retain miners, a network’s security and speed may be adversely affected, increasing the likelihood of a malicious attack. |
| · | The governance of many decentralized blockchain networks is by voluntary consensus and open competition, and many developers are not directly compensated for their contributions. As a result, there may be a lack of consensus or clarity on the governance of any crypto network, a lack of incentives for developers to maintain or develop the network, and other unforeseen issues, any of which could result in unexpected or undesirable errors, bugs, or changes, or stymie such network’s utility and ability to respond to challenges and grow. |
| · | Many crypto networks are in the early stages of developing partnerships and collaborations, all of which may not succeed and adversely affect the usability and adoption of the respective crypto asset token. |
| · | Various other technical issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain users’ personal information, theft of users’ assets, and other negative consequences, and which required resolution with the attention and efforts of their global miner, user, and development communities. If any such risks or other risks materialize, and if they are not resolved, the development and growth of crypto assets, blockchain technology, or Bitcoin may be significantly affected and, as a result, our business, operating results, and financial condition could be adversely affected. |
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Loss of a banking relationship could adversely impact our business, operating results, and financial condition.
Athena depends on having regular and normalized access to a bank checking account for normal business purposes and also for taking deposits of the cash received from the ATM fleet. As a money services business registered with the Financial Crimes Enforcement Network (“FinCEN”) under the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, and its implementing regulations enforced by FinCEN, our banking partners view us as a higher risk customer for purposes of their anti-money laundering programs. We may face difficulty establishing or maintaining banking relationships due to our banking partners’ policies and some prior bank partners have terminated their relationship with Athena. The loss of these banking partners or the imposition of operational restrictions by these banking partners and the inability for us to utilize other redundant financial institutions may result in a disruption of business activity as well as regulatory risks. In addition, financial institutions in the United States and globally may, because of the myriad of regulations or the perceived risks of crypto assets, decide to not provide accounts, payments other financial services to us. Such events could negatively affect an investment in the Shares.
The Company may be forced to cease operations.
It is possible that, due to any number of reasons, including, but not limited to, an unfavorable fluctuation in the value of cryptographic and fiat currencies, the inability by the Company, whether in the United States or globally, to obtain clients, the failure of commercial relationships, the failure of development of the necessary technical environment, the failure of government actors to provide needed regulatory clarity, the failure of technology development by third parties, or intellectual property ownership challenges, the Company may no longer be viable to operate and the Company may dissolve, either in whole or part, or take actions that result in a dissolution event. During the past six years there have been several rumors that regulation specifically aimed at terminating the practice of selling crypto assets via kiosks, such as the Company’s fleet of Bitcoin ATMs, would be forthcoming. While the regulations hypothesized by these rumors have never been enacted, it remains a risk to the Company’s principal operations and could be detrimental to an investment in the Shares.
Other Risk Factors Related to Our Business Operations and Financial Position
Currently, there is a small use of Bitcoin in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in the Shares.
Bitcoin and the Bitcoin Network have only recently become accepted as a means of payment for goods and services by certain major retail and commercial outlets, and the use of Bitcoin by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant portion of Bitcoin demand is generated by speculators and investors seeking to profit from the short- or long-term holding of Bitcoin. A lack of expansion by Bitcoin or other crypto assets into retail and commercial markets, or a contraction of such use, may result in decreased demand for the Company’s services or increased demand for services the Company is not able to provide, either of which could adversely affect an investment in the Shares.
The Company’s assets could be stolen and would be difficult to recover due to the nature of cash and crypto assets.
It is possible that, due to any number of reasons, including, but not limited to, a robbery by either a general malcontent or an employee of the Company could adversely affect the Company’s operations and assets. From time to time, the Company has been the victim of vandalism and targeted attacks on our ATMs, which have resulted in loss of cash and equipment. The Company has also been the target of cyberattacks and has suffered security breaches of its websites, email, cellphones, and other systems related to the operations of the business. On March 31, 2021, we suffered a security breach which resulted in a loss of 29 bitcoin (approximately $1.7 million of market value). We have initiated two independent investigations of the attack with the assistance of law enforcement and outside counsel. See also Management Discussion and Analysis of Financial Condition and Results of Operations on page 31. Historically, stolen Bitcoin, crypto assets of multiple types, and cash have been difficult to recover by law enforcement or other means due to their fundamental nature as fungible instruments of value. At this time, we have no information if the stolen crypto assets can be recovered. The Company’s losses may negatively affect an investment in the Company’s shares.
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Crypto assets and funds that the Company holds on Bitcoin exchanges could be lost, stolen, or otherwise impaired.
From time to time and for customary reasons of procuring crypto assets, the Company holds assets including dollar deposits, Bitcoin, Ethereum, Tether, Litecoin, and BCH on crypto asset exchanges. The Company carefully selects the platforms that it chooses to do business with, however this may not be sufficient to avoid losses if those exchanges suffer losses or other impairments. In 2018, the Company had assets of less than $10,000 on the Quadriga Exchange in Canada when Quadriga filed for bankruptcy protection following the death of its Chief Executive Officer and subsequent discovery of its insolvency. In addition, while not applicable to the Company’s operations, several other well-known and highly regarded exchanges have suffered similar fates. For example, in February 2014, Mt. Gox, then the largest Bitcoin exchange worldwide, filed for bankruptcy protection in Japan after an estimated 700,000 bitcoin were stolen from its wallets. In May 2019, Binance, one of the world’s largest exchanges was hacked, resulting in losses of approximately $40 million. Any such losses by an exchange could have a negative impact on the financial position of the Company and adversely impact an investment in the Shares.
Our lack of insurance protection could adversely impact our business, operating results, and financial condition.
The crypto assets held by us are not insured. We also do not rely on insurance carriers to insure losses resulting from a breach of our physical security, cyber security, or by employee or service provider theft since we do not carry crime and specie insurance. We only maintain a general liability insurance which does not cover crypto assets or breaches described above. Therefore, we may suffer a loss which is not covered by insurance in damages. Such a loss could cause a substantial business disruption of our operations, adverse reputational impact, inability to compete with our competitors, regulatory scrutiny, and consequently, it could adversely impact an investment in our shares of common stock.
The Company operates in locations outside of the United States and, as such, is subject additional risks with respect to enforcement of its contractual rights.
We currently operate and intend to grow our operations in a number of jurisdictions outside of the United States. Laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses, or our failure to adapt our practices, systems, processes, and business models effectively to the traveler and supplier preferences (as well as the regulatory and tax landscapes) of each country into which we expand, could impede our ability to enter into, negotiate or enforce contracts in those markets. In addition to the other risks described in this prospectus, our company’s international operations would be subject to numerous other risks, including, but not limited to, weaker enforcement of our company’s contractual rights, longer payment cycles, and difficulties in collecting accounts receivable.
The countries, we operate in, may or may not have stable economies, stable banking sectors, or stable governments which may or may not permit us to repatriate profits, maintain ownership of our business or its assets, or continue operations.
From time to time, certain governments have seized foreign companies, their assets, and or their operations. It is possible for us to face significant losses if such an event occurs, either specific to us or broadly across the entire country or industry in which we operate. We may, for example no longer be permitted to purchase additional crypto assets, or operate our machines, or return capital or profits to our parent company in the United States. This may result in a total and complete loss of our assets within that country as well as further costs to continue to pay our existing liabilities within that country.
The countries we operate in may not have stable governments or may face significant political, social, or civil unrest.
The countries where the Company operates, or may choose to operate in the future, may face significant periods of political, military, social, or civil unrest. This may result in the destruction of the Company’s property, the destruction of the Company’s other assets, or other harm to the Company and its personnel, which may cause losses or for the Company to incur significant liabilities. Nationalization of certain industries has occurred in some of the countries where Athena currently operates. The loss of access to those nationalized assets may adversely impact an investment in the Shares.
Fluctuations in currency exchange rates could harm our operating results and financial condition.
Revenue generated and expenses incurred from our international operations are often denominated in the currencies of the local countries. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results reflected in our U.S. dollar-denominated consolidated financial statements. Our financial results are also subject to changes in exchange rates that impact the settlement of transactions in non-local currencies. As a result, it could be more difficult to detect underlying trends in our business and operating results. To the extent that fluctuations in currency exchange rates cause our operating results to differ from the expectations of investors, the market price of the Shares could be adversely impacted. To date, we have not engaged in currency hedging activities to limit the risk of exchange fluctuations. Even if we use derivative instruments to hedge exposure to fluctuations in foreign currency exchange rates, the use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place and may introduce additional risks if we are unable to structure effective hedges with such instruments.
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Adverse economic conditions may affect our business.
Our performance is subject to general economic conditions, and their impact on the digital currency markets and our customers. The United States and other international economies have experienced cyclical downturns from time to time in which economic activity declined resulting in lower consumption rates, restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies, and overall uncertainty with respect to the economy. The impact of general economic conditions on the Company is highly uncertain and dependent on a variety of factors, including global adoption of cryptocurrencies, central bank monetary policies, and other events beyond our control. Geopolitical developments, such as trade wars and foreign exchange limitations can also increase the severity and levels of unpredictability globally and increase the volatility of global financial and digital currency markets. To the extent that conditions in the general economic and digital currency markets materially deteriorate, our ability to attract and retain customers may suffer.
The COVID-19 pandemic could have an adverse effect on our business, operating results, and financial condition.
We are responding to the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the restrictions put in place by governments to protect their populations. Our employees and service providers have transitioned to work-from-home. This subjects us to heightened operational risks. For example, technologies in our employees’ and service providers’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees and service providers to be more limited or less reliable than in our offices. Further, the security systems in place at our employees’ and service providers’ homes may be less secure than those used in our offices, and while we have implemented technical and administrative safeguards to help protect our systems as our employees and service providers work from home, we may be subject to increased cybersecurity risk, which could expose us to risks of data or financial loss, and could disrupt our business operations. There is no guarantee that the data security and privacy safeguards we have put in place will be completely effective or that we will not encounter risks associated with employees and service providers accessing company data and systems remotely. We also face challenges due to the need to operate with the remote workforce and are addressing those challenges to minimize the impact on our ability to operate.
In addition, the continued spread of COVID-19 and the imposition of related public health measures have resulted in, and is expected to continue to result in, increased difficulty in retail or in-store operations, including our ability to ship, install, and maintain our Bitcoin ATM fleet. Some of the retail locations, such as shopping malls, where we have placed our Bitcoin ATMs have closed either permanently or temporarily due to the spread of COVID-19 and the subsequent response by governments and businesses. We also rely on third party service providers, including our armored car services, to perform certain functions. Any disruptions to a service providers’ business operations resulting from business restrictions, quarantines, or restrictions on the ability of personnel to perform their jobs could have an adverse impact on our service providers’ ability to provide services to us. The continued spread of COVID-19 and efforts to contain the virus could result in the death of our customers or employees, adversely impact our strategic business plans and growth strategy, reduce demand for or availability of our products and services, reduce the availability and productivity of our employees, service providers, and third-party resources, cause us to experience an increase in costs due to emergency measures, and otherwise adversely impact our business.
Risk Factors Related to Our Operations in El Salvador
Expansion of business operations in El Salvador may not produce the positive results as planned.
We have established significant operations in El Salvador to support the country’s efforts to use Bitcoin as legal tender. However, there are many factors that could disrupt the implementation of Bitcoin Law in El Salvador, and as a result, our operations in El Salvador. Any of such disruptions can have a negative impact on the financial position of the Company. They could jeopardize our expansion plan and be detrimental to our business.
Those risks, as summarized below include:
| · | Exposure to Bitcoin volatility. While Bitcoin can be used as a speculative asset to generate significant gains, it can also generate major losses. Bitcoin pricing has fluctuated rom more than $63,000 per Bitcoin on November 15, 2021 to less than $32,000 on May 10, 2022. Holding or transacting in such an unstable asset is a particularly risky for people with low incomes, who can ill afford to sustain price swings as large as 30% in a single day and may become victims of a significant collapse. If the savings of a whole nation were cut by a third in two months, it would be a destabilizing event for the country and its Bitcoin Law. |
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| · | Depletion of banking assets. In today’s El Salvador, banks connect savers and borrowers. If most Salvadorans start using Bitcoin, their savings will be stored in digital wallets away from potential borrowers who would otherwise use it to fund projects. Massive adoption of Bitcoin would likely drain banks of savings and raise the cost of borrowing for companies and individuals, who will face higher interests. If that occurs, the economy of El Salvador and implementation of the Bitcoin Law can be negatively affected. |
| · | Lack of transparency/money laundering. Adopting Bitcoin as legal tender is not without certain challenges or risks since Bitcoin’s practical implementation has yet to be defined by regulators. Internationally, the cryptocurrency has been used for money laundering and to facilitate illegal activities. The intergovernmental Financial Action Task Force (“FATF”) may increase monitoring of El Salvadoran banks, businesses, and other financial institutions. The FATF is the international “money laundering and terrorist financing watchdog.” It reviews countries’ anti-money laundering and counter-financing terrorism practices. If the FATF determines that a country is exposed to financial crime, the flagged country is placed on either the list of “Jurisdictions under Increased Monitoring,” known as the “grey list,” or the list of “Jurisdictions subject to a Call for Action,” known as the “black list.” When a country is placed on the grey list, it must cooperate with increased FATF monitoring. When a country is placed on the black list, the FATF urges its 39 member nations and over 200 affiliated nations to apply enhanced due diligence and impose countermeasures, such as sanctions. From an FATF regulatory perspective, El Salvador has been in full compliance, however, that may likely change after the Bitcoin Law has been fully implemented. For example, the FATF mandates that the parties engaging in virtual-asset transactions provide complete and sufficient know-your-customer information. It also requires that senders and recipients of virtual assets obtain accurate knowledge and information about “the transaction, the source of funds, and the relationship with the counterparty.” The chances of Bitcoin transactions meeting such requirements are unlikely and El Salvador may be subject to sanctions. |
| · | Loss of central bank reserves. El Salvador currently carries a large debt burden (about 65% of GDP) and has a challenging amortization schedule, with $800 million due in January 2023. To navigate this difficult fiscal environment during the pandemic, El Salvador has reached out to the International Monetary Fund (“IMF”) for a $1.3 billion financing package. However, the IMF opposes the adoption of Bitcoin as a legal tender. Thus, the funding program could be put in jeopardy at a time when El Salvador is running out of financial alternatives. Furthermore, the IMF has warned against adopting cryptocurrencies as legal tender, citing risks to macroeconomic stability, financial integrity, consumer protection and the environment (creating Bitcoin consumes large amounts of electricity). The World Bank turned down a request to help advise El Salvador on Bitcoin. Moody’s rating agency has downgraded the country’s debt further from B3 to Caa1, and its outlook remains negative. Those factors may negatively affect the economy of El Salvador and disrupt the implementation of the Bitcoin Law. |
| · | Continued Negative Publicity in the Media with respect to Chivo S.A. de C.V, the Chivo Ecosystem, of Bitcoin ATMs in general, or of the Company’s services could have a material adverse effect on our business. The government of El Salvador, through a government owned company—Chivo S.A. de C.V, operate the Chivo digital wallet. The government purchased software and related services from the Company and used this software from the launch of the Chivo digital wallet in September of 2021 until December of 2021. According to media reports, the Chivo company’s operation of the Chivo digital wallet is not subject to public reporting or auditing by a banking regulator. Therefore, there is no way for an outside observer to know that the assets held by Chivo S.A. de C.V. are sufficient to cover the liabilities (user balances) of the Chivo digital wallet. If there are negative views presented in the news about the assets held by Chivo S.A. de C.V, or of the quality of its service offerings, or its lack of transparency, or fraud or identity theft connected with the usage of the Chivo digital wallet, or any reported problems related to the Chivo digital wallet (either the version written by the Company or any subsequent version not using the Company’s Intellectual Property), then the Company’s reputation could be damaged which may negatively affect an investment in the Shares. |
| · | Failure to maintain sufficient cash in Chivo branded ATMs to mee demand could have a material adverse effect on our reputation. Chivo S.A. de C.V. also directs the Company as to how much physical cash should be loaded into the Chivo ATMs in El Salvador for the purpose of ATM users retrieving U.S. dollar currency in exchange for their Bitcoin or dollars held in the Chivo digital wallet. If for any reason, there is not sufficient physical cash loaded into a Chivo ATM to meet the total demand for such cash, the ATM will be unable to initiate additional transactions to dispense cash to a user and the user will see the machine as non-functional. This could create negative impression of the Chivo Ecosystem, of Bitcoin ATMs in general, of the Company’s services, or the Company’s reputation and negatively affect an investment in the Shares. |
| · | Capital flight. Bitcoin Law could facilitate a capital flight, especially during a crisis. Many emerging markets control the flow of capital in and out of their countries to avoid a macroeconomic crisis or to prevent one from worsening. However, Bitcoin can facilitate such a flight: Once dollars are converted to Bitcoin, they can easily be sent to anyone in the world, without any control or tracking. Such an event would have a negative effect on the economy of El Salvador. |
| · | Environmental concerns about Bitcoin mining. The system on which Bitcoin is currently based consumes large amounts of electricity, making it particularly taxing for the environment. President Bukele believes that the country’s cheap, clean, and renewable geothermal energy from volcanoes can power Bitcoin mining rigs, thus reducing its carbon footprint. It is not clear at this time if such a solution would solve the environmental concerns. |
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Political and economic developments in El Salvador may adversely affect Bitcoin Law.
El Salvador's Bitcoin Law has been greeted with skepticism from both Salvadorans and international financial institutions. The population might not fully embrace Bitcoin. Requiring every business to accept Bitcoin for goods and services without adequate access to technology, may be a difficult obstacle to overcome and Bitcoin Law can be changed if it remains unpopular under a successor administration. Any of these concerns could disrupt our operations in El Salvador and have a negative impact on the financial position of the Company. Although several political leaders around the globe have voiced support for the Bitcoin Law enacted by El Salvador, and cryptocurrencies such as Bitcoin are widely used and accepted as forms of payment in many countries, only one other government (Central African Republic) has taken official steps to adopt Bitcoin as legal tender.
There is political discontent in El Salvador with President Bukele's ouster of Supreme Court judges and the potential for the president to seek a second consecutive term. The presidential period is five years in El Salvador. Consecutive re-election is not permitted, though previously elected presidents may run for a second, non-consecutive term. Recently, El Salvador’s top court and its election authority have removed what seemed to be a constitutional ban on consecutive presidential reelection, setting the stage for President Nayib Bukele to potentially seek a second term in 2024. If there is a change in El Salvador’s administration after 2024, it may negatively affect Bitcoin Law and our operations in El Salvador.
Our contracts with the El Salvador government may be negatively impacted
We have entered into agreements with El Salvador's Treasury department, pursuant to which we have installed and are operating 200 Chivo Bitcoin ATMs in El Salvador, 10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S., 45 Chivo Bitcoin ATMs in other U.S. locations (as of fiscal year end December 31, 2021), importing and delivering 950 Chivo POS terminals for local businesses in El Salvador to transact with Bitcoin, and developing and maintaining the software for the Chivo digital wallet. Each obligation comes with its own set of operational risks in addition to risks set forth herein, including but not limited to the volatile nature of crypto assets, data breach and crypto hacks, fraud conducted by users of the services offered by the government of El Salvador, changes in U.S. and foreign laws and regulations, talent acquisition and retention, and general economic conditions. If we fail to fulfil our contractual obligations, our agreements may be terminated which may negatively impact our financial standing and reputation. Our current agreements may also be modified or terminated by El Salvador’s Department of Treasury for any reason including but not limited to regime change, additional competition, and loss of political support. Any such unfavorable change in our business operations in El Salvador, including the termination of any contracts with the government of El Salvador, would adversely affect our revenues and profitability, and could negatively affect an investment in our shares of common stock.
Risk Factors Related to the Bitcoin Network, Wallets, Bitcoin, and Crypto Assets
Bitcoin, and most other crypto assets based on public key cryptography, are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoin are held.
While the Bitcoin Network, and similar blockchain protocol networks, require a public key relating to a digital wallet to be published when used in a spending transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the bitcoin held in such wallet. To the extent a private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, Athena will be unable to access the Bitcoin, or other digital currency, held in the related digital wallet. Any loss of private keys relating to digital wallets used to store Athena’s Bitcoin, or other crypto assets, could adversely affect an investment in the Shares.
The future and development of the Bitcoin Protocol and other blockchain technologies are subject to a variety of factors that are difficult to evaluate.
The further development and acceptance of the Bitcoin Network and other cryptographic and algorithmic protocols governing the issuance of transactions in bitcoin and other crypto asset, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. Athena does not participate in the development of the Bitcoin Network and has little to no influence over the software developers who write the code or the miners who run the Bitcoin Network. The slowing or stopping of the development or acceptance of the Bitcoin Network may adversely affect an investment in the Shares.
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Tether is a token issued by a private company and may not have any intrinsic value.
Tether is a “stablecoin” and the price of one Tether has historically been about one U.S. dollar. Stablecoins are digital assets designed to have a stable value over time as compared to typically volatile crypto assets, and are typically marketed as being pegged to a fiat currency, such as the U.S. dollar. According to the official Tether website, as of May 5, 2021, approximately $25.3 billion worth of U.S. Dollar Tether (“USDT”) has been issued by a smart contract on the Ethereum network as an ERC-20-compatible token. Some have argued that some stablecoins, particularly Tether, are improperly issued without sufficient backing, and have also argued that those associated with certain stablecoins may be involved in laundering money. On February 17, 2021, the New York Attorney General entered an agreement with Tether’s operators, requiring them to cease any further trading activity with New York persons and pay $18.5 million in penalties for false and misleading statements made regarding the assets backing Tether. Volatility in stablecoins, operational issues with stablecoins (for example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins, or regulatory concerns about stablecoin issuers or intermediaries, such as crypto asset spot markets, that support stablecoins, could impact any individual’s willingness to purchase Tether from the Company and may adversely affect an investment in the Shares.
A temporary or permanent blockchain “fork” to any supported crypto asset could adversely affect our business.
Blockchain protocols, including Bitcoin, Ethereum, and Litecoin, are open source. Any user can download the software, modify it, and then propose that Bitcoin, Ethereum, Litecoin, or other blockchain protocols users and miners adopt the modification. When a modification is introduced and a substantial majority of users and miners consent to the modification, the change is implemented and the Bitcoin, Ethereum, Litecoin, or other blockchain protocol networks, as applicable, remain uninterrupted. However, if less than a substantial majority of users and miners consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” (i.e., “split”) of the impacted blockchain protocol network and respective blockchain, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two parallel versions of the Bitcoin, Ethereum, Litecoin, or other blockchain protocol network, as applicable, running simultaneously, but with each split network’s crypto asset lacking interchangeability.
Both Bitcoin and Ethereum protocols have been subject to “forks” that resulted in the creation of new networks, including Bitcoin Cash ABC, Bitcoin Cash SV, Bitcoin Diamond, Bitcoin Gold, Ethereum Classic, and others. Some of these forks have caused fragmentation among platforms as to the correct naming convention for forked crypto assets. Due to the lack of a central registry or rulemaking body, no single entity can dictate the nomenclature of forked crypto assets, causing disagreements and a lack of uniformity among platforms on the nomenclature of forked crypto assets, and which results in further confusion to customers as to the nature of assets they hold on platforms. In addition, several of these forks were contentious and as a result, participants in certain communities may harbor ill will towards other communities. As a result, certain community members may take actions that adversely impact the use, adoption, and price of Bitcoin, Ethereum, Litecoin, or any of their forked alternatives.
Furthermore, hard forks can lead to new security concerns. For instance, when the Ethereum and Ethereum Classic networks split in July 2016, replay attacks, in which transactions from one network were rebroadcast on the other network to achieve “double-spending”, plagued platforms that traded Ethereum through at least October 2016, resulting in significant losses to some crypto asset platforms. Similar replay attacks occurred in connection with the Bitcoin Cash and Bitcoin Cash SV network split in November 2018. Another result of a hard fork is an inherent decrease in the level of security due to the splitting of some mining power across networks, making it easier for a malicious actor to exceed 50% of the mining power of that network, thereby making crypto assets that rely on proof-of-work more susceptible to attack, as has occurred with Ethereum Classic.
Future forks may occur at any time. A fork can lead to a disruption of networks and our information technology systems, cybersecurity attacks, replay attacks, or security weaknesses, any of which can further lead to temporary or even permanent loss of our assets.
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From time to time, we may encounter technical issues in connection with the integration of supported crypto assets and changes and upgrades to their underlying networks, which could adversely affect our business.
To support any crypto asset or blockchain token, a variety of front and back-end technical and development work is required to implement our wallet, custody, pricing, transfer, accounting, and other solutions for our Bitcoin ATM fleet, and to integrate such supported crypto asset with our existing infrastructure. For certain crypto assets, a significant amount of development work is required and there is no guarantee that we will be able to integrate successfully with any existing or future crypto asset, token, or stable coin. In addition, such integration may introduce software errors or weaknesses into our platform, including our existing infrastructure. Even if such integration is initially successful, any number of technical changes, software upgrades, soft or hard forks, cybersecurity incidents, or other changes to the underlying blockchain network may occur from time to time, causing incompatibility, technical issues, disruptions, or security weaknesses to our platform. If we are unable to identify, troubleshoot and resolve any such issues successfully, we may no longer be able to support such crypto assets, our assets may be frozen or lost, the security of our crypto asset wallets may be compromised, and technical infrastructure may be affected, all of which could adversely impact our business.
If miners or validators of any crypto asset network, either that we provide to customers or hold for other reasons, demand high transaction fees, our operating results may be adversely affected.
We pay miner fees when transmitting crypto assets including Bitcoin to customers upon completion of their purchase. In addition, we also pay miner fees when we move crypto assets for various operational purposes, such as when we transfer Bitcoin between our regional wallets. However, miner fees can be unpredictable. For instance, in 2017, Bitcoin miner fees increased from approximately $0.35 per transaction in January 2017 to over $50 per transaction in December 2017. Even though Bitcoin’s miner fees have since decreased to $18 per transaction as of March 4, 2021, if the demand for Bitcoin remains at current levels, we could experience high costs in excess of our historical performance. Although we attempt to adjust our pricing to pass through these expenses to our customers, we have in the past incurred, and expect to incur from time to time, losses associated with the payment of miner fees in excess of what we charge our customers, resulting in adverse impacts on our operating results.
We are subject to an extensive and rapidly evolving regulatory environment, and if a particular crypto asset we transact or transacted in is characterized as a “security”, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given crypto asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. Public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ether are securities (in their current form). Bitcoin and Ethereum are the only crypto assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other crypto asset. With respect to all other crypto assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular crypto asset could be deemed a “security” under applicable laws. Similarly, though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given crypto asset is a security in April 2019, this framework is also not a rule, regulation or statement of the SEC and is not binding on the SEC.
We currently offer only Bitcoin, Ethereum, Litecoin, and BCH for sale at all our ATM machines. We also operate an over-the-counter (“OTC”) desk for private clients and trade customers of the Company. Since 2019, we have been typically buying and selling Bitcoin through our OTC desk, but we have also facilitated transactions in Ethereum, Litecoin, and in some cases : Ankr (1 transaction in 2021), Monero (1 transaction in 2019), Bitcoin SV (1 transaction in each 2019 and 2020), Ripple (1 transaction in 2019), Siacoin (3 transactions in 2019), Tether (5 transactions in 2021, 5 transactions in 2022), and Tron (1 transaction in 2019). As of the date of this prospectus, we do not transact, or make offers to transact to our customers, in any crypto assets except Bitcoin, Ethereum, Tether, Litecoin, and BCH. We will update this prospectus if we decide to transact in other crypto assets. Such a change would only happen if there were significant customer demand for a specific crypto asset and that crypto asset was available to us through multiple trading partners, digital asset exchanges and digital asset brokers.
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The classification of a crypto asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. For example, a crypto asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in crypto assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade crypto assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. If Bitcoin, Ether, Litecoin, and BCH or any other crypto asset we transacted in the past as listed above, is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such supported crypto asset (if it is still being used in our transactions) or for our Company if it is determined that certain securities laws were violated and we may be subject to regulatory scrutiny, investigation and penalties. Moreover, the networks on which such supported crypto assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the crypto asset. Also, it may make it difficult for such supported crypto asset to be traded, cleared, and custodied as compared to other crypto asset that are not considered to be securities. Additionally, new laws, regulations, or interpretations may result in litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying us from offering certain products or services, or could impact how we offer such products and services. Foreign jurisdictions may have similar regulations and licensing, registration, and qualification requirements.
Risk Factors Related to Current and Future Regulations and Other Law Enforcement Actions
The regulations that govern our primary business operations are in flux and could change in unpredictable ways that negatively affect our business operations, demand for our services, or our financial position.
Current regulations acknowledge and allow for companies to sell Bitcoin and other crypto assets in the United States and other countries where Athena operates. If regulations change to disallow the sale of Bitcoin or other crypto assets such a change could have a negative impact on revenues and adversely affect an investment in the Shares. Current regulations require Know Your Customer (“KYC”) information be collected as part of a Customer Information Program (“CIP”). If regulations change and require significantly more information to be collected from customers, this change may have a negative impact on customer behavior and could adversely affect an investment in the Shares.
Sanctions could cause us to cease operations in foreign countries or dealings with foreign citizens.
Sanctions, such as those promulgated by the U.S. Department of Treasury, could be brought against countries where the Company operates, or against citizens of certain countries regardless of where they reside. Ceasing operations in such a country would have a negative impact on revenues and the Company may also incur extraordinary costs which may adversely impact an investment in the Shares.
Heightened scrutiny by regulators could be detrimental to the operations of the Company or its brand image.
Our existing operations and any future operations or investments may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in the United States or globally. As a result, we may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on our ability to operate or invest in the United States or any other jurisdiction, in addition to those described herein. Further any negative connotations directed at the Company by such public officials could be detrimental to the Company’s brand image and adversely impact an investment in the Shares.
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We or our assets may become subject to federal and state asset forfeiture laws which could negatively impact our business operations or financial position.
Violations of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions, or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, seizure of assets, disgorgement of profits, cessation of business activities or divestiture.
As an entity that conducts business in cash (physical currency), we are potentially subject to federal and state forfeiture laws (criminal and civil) that permit the government to seize the proceeds of suspected criminal activity. Civil forfeiture laws could provide an alternative for the federal government or any state (or local police force) that wants to discourage residents from conducting transactions with crypto asset related businesses. Also, an individual can be required to forfeit property suspected to be the proceeds of a crime even if the individual is not charged or convicted of a crime. Many law enforcement agencies consider large amounts of cash to be suspicious of criminal activity and have been known to seize such property when discovered. Any seizure or forfeiture of the Company’s assets, even if only temporary, could disrupt its normal operations or financial position and negatively affect an investment in the Shares.
Regulators and payment processors have historically taken actions relating to access to banking services, which could materially adversely affect our business.
Actions by the U.S. Department of Justice (the “Justice Department”), the Federal Deposit Insurance Corporation, (“FDIC”), and certain state regulators beginning in 2013, referred to as “Operation Choke Point,” appear to have been intended to discourage banks and payment processors from providing access to banking for certain businesses that are considered high-risk. This heightened regulatory scrutiny by the Justice Department, the FDIC and other regulators has caused various banks and payment processors to cease doing business with Bitcoin ATM companies or companies who do business with Bitcoin ATM companies, without consideration of the actual risk to the banks or processors, simply to avoid heightened federal and state regulatory scrutiny. The operation was officially ended in August 2017; however, future discouragement by the Justice Department, the FDIC, or the Office of the Comptroller of the Currency (“OCC”) could cause the Company, or its service providers including locations where the Company places its fleet of Bitcoin ATMs, to have restricted access to the U.S. financial system as provided by banks, payment providers, or other financial intermediaries, and that could have a negative impact on the Company’s operations, its ability to perform its contractual obligations, or its financial position.
If the Company is unable to satisfy data protection, security, privacy, and other government- and industry-specific requirements, its growth could be harmed.
There are several data protections, security, privacy, and other government and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data, enacted across various jurisdictions globally. In addition, our agreements to deliver software may have requirements for the protection of user data. Security compromises or cyberattacks could harm the Company’s reputation, erode market confidence in the effectiveness of its security measures and reliability of its endorsements, negatively impact its ability to attract new clients, or cause clients to stop using the Company’s services.
The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies. If financial accounting standards undergo significant changes, our operating results could be adversely affected.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board (the “FASB”), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. In addition to the United States, the Company operates in several Latin American countries that may or may not offer similar accounting treatments to some of the Company’s transactions. This could have a significant effect on the ability of the Company to offer comparable results segmented by country in the future. A change in these principles or interpretations could have a significant effect on our reported financial results and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subject to heightened scrutiny by regulators and the public. Further, there has been limited precedents for the financial accounting of crypto assets and related valuation and revenue recognition, and no official guidance has been provided by the FASB or the SEC. As such, there remains significant uncertainty on how companies can account for crypto asset transactions, crypto asset balances, derivatives and liabilities denominated in crypto asset tokens, and related revenue and expense. Uncertainties in or changes to regulatory or financial accounting standards could result in the need to change our accounting methods and restate our financial statements and impair our ability to provide timely and accurate consolidated financial information, which could adversely affect our financial statements, result in a loss of investor confidence, and more generally impact our business, operating results, and financial position.
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Risk Factors Related to Intellectual Property
Our intellectual property rights are valuable, and any inability to protect them could adversely impact our business, operating results, and financial condition.
Our business depends in large part on our proprietary technology and our brand. We rely on, and expect to continue to rely on, a combination of trademark, trade dress, domain name, copyright, and trade secret and laws, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights. However, our efforts to protect our intellectual property rights may not be sufficient or effective. Our proprietary technology and trade secrets could be lost through misappropriation or breach of our confidentiality and license agreements, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services, or technologies that are substantially like ours and that compete with our business.
We may in the future be sued by third parties for alleged infringement of their proprietary rights.
In recent years, there has been considerable patent, copyright, trademark, domain name, trade secret and other intellectual property development activity in the crypto economy, as well as litigation, based on allegations of infringement or other violations of intellectual property, including by large financial institutions. Furthermore, individuals and groups (collectively “patent trolls”) can purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. Our use of third-party intellectual property rights also may be subject to claims of infringement or misappropriation. We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products or services or using certain technologies, force us to implement expensive workarounds, or impose other unfavorable terms. We expect that the occurrence of infringement claims is likely to grow as the market grows and matures. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Further, during any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our common stock may decline. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, operating results, and financial condition and negatively affect an investment in the Shares.
Risk Factors Related to Our Employees and Other Service Providers
Our management team has limited experience managing a public company.
Our management team has limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts, Reddit commenters, Twitter posters, and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, operating results, and financial position.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could adversely impact our business, operating results, and financial position.
We operate in a new industry that is not widely understood and requires highly skilled and technical personnel. We believe that our future success is highly dependent on the talents and contributions of our senior management team, including Eric Gravengaard, our co-founder and Chief Executive Officer, members of our executive team, and other key employees across operations, customer support, finance, and compliance. Our future success depends on our ability to attract, develop, motivate, and retain highly qualified and skilled employees. Due to the nascent nature of the Bitcoin ATM market, the pool of qualified talent is extremely limited, particularly with respect to executive talent, engineering, cross-border operations, risk management, and financial regulatory expertise. We face intense competition for qualified individuals from numerous software, finance and other technology companies. To attract and retain key personnel, we incur significant costs, including salaries, benefits and equity incentives. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. The loss of even a few qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the planned expansion of our business could adversely impact our operating results and impair our ability to grow.
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We currently rely and are dependent on one third-party service provider for certain aspects of our operations, and any interruptions in services provided by that third party may impair our ability to support our customers.
We rely on and are dependent on one third party, Genesis Coin, in connection with many aspects of our business operations, including primarily the supply of our Bitcoin ATMs and the development of related software systems that provide advanced security protections, which are critical to our operations. Although we use other suppliers of Bitcoin ATMs, primarily outside the U.S., our main income is generated by the ATMs that we purchase from Genesis Coin. Because we rely heavily on one third party to provide these services and to facilitate certain of our business activities, we face increased operational risks. We do not control the operation of that third party. That third party may be subject to financial, legal, regulatory, and labor issues, cybersecurity incidents, break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism, privacy breaches, service terminations, disruptions, interruptions, and other misconduct. They may also be vulnerable to damage or interruption from human error, power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes, pandemics (including the COVID-19 pandemic) and similar events. In addition, we do not have a written contract with that third party and our relationship is based on oral agreement and previous working relationship. That third party may breach such oral agreement with us, refuse to continue to provide their services to us, take actions that degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competitors. There can be no assurance that such third party that provides services to us will continue to do so on acceptable terms, or at all. If such a third party does not adequately or appropriately provide its services or perform its responsibilities to us, we may be unable to procure alternatives in a timely and efficient manner and on acceptable terms, or at all, and we may be subject to business disruptions, losses or costs to remediate any of the deficiencies, customer dissatisfaction, reputational damage, legal or regulatory proceedings, or other adverse consequences which could harm our business.
In the event of employee or service provider misconduct or error, our business may be adversely impacted.
Employee or service provider misconduct or error could subject us to legal liability, financial losses, and regulatory sanctions and could seriously harm our reputation and negatively affect our business. Such misconduct could include engaging in improper or unauthorized transactions or activities, misappropriation of funds, identity theft, misappropriation of information, failing to supervise other employees or service providers, and improperly using confidential information. Employee or service provider errors, including mistakes in executing, recording, or processing transactions for customers, could expose us to the risk of material losses even if the errors are detected. Although we have implemented processes and procedures and provide trainings to our employees and service providers to reduce the likelihood of misconduct and error, these efforts may not be successful. Moreover, the risk of employee or service provider error or misconduct may be even greater for novel products and services. It is not always possible to deter misconduct, and the precautions we take to prevent and detect such activities may not be effective in all cases. If we were found to have not met our regulatory oversight, compliance and other obligations, we could be subject to regulatory sanctions, financial penalties, and restrictions on our activities for failure to properly identify, monitor and respond to potentially problematic activity and seriously damage our reputation. Our employees, contractors, and agents could also commit errors that subject us to financial claims for negligence, as well as regulatory actions, or result in financial liability. Further, allegations by regulatory or criminal authorities of improper trading activities could affect our brand and reputation.
Our officers, directors, employees, and large shareholders may encounter potential conflicts of interests with respect to their positions or interests in certain crypto assets, projects, entities, and other initiatives, which could adversely affect our business and reputation.
We frequently engage in a wide variety of transactions and maintain relationships with a significant number of other firms in the broad economy surrounding Bitcoin, blockchain and crypto assets. These transactions and relationships could create potential conflicts of interests in management decisions that we make. For instance, certain of our officers, directors, and employees are active investors in crypto projects themselves, and may make investment decisions that favor projects that they have personally invested in. Many of our large shareholders also make investments in these crypto projects.
Similarly, certain of our directors, officers, employees, and large shareholders may hold crypto assets or have other beneficial ownership of sponsors of such crypto assets, tokens, or stable coins that we are considering supporting with our Bitcoin ATM fleet and may be more supportive of such listing notwithstanding legal, regulatory, and other issues associated with such crypto assets. If we fail to manage these conflicts of interests, our business may be harmed and the brand, reputation and credibility of our company may be adversely affected.
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Risk Factors Related to Ownership of Our Common Stock
Our founders, officers, single major shareholder, and directors control, and will continue to control, our Company for the foreseeable future, including the outcome of matters requiring shareholder approval.
Our founders, officers, single major shareholder, and directors collectively beneficially own approximately 69% of our outstanding shares of common stock. As a result, such individuals will, for the foreseeable future, have the ability, acting together, to control the election of our directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring, or preventing an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from those entities and individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of our Company. In addition, Messrs. Gravengaard and Komaransky, have ability to control who is elected to our board of directors pursuant to the voting agreement, as amended, they entered into. See “Management and Certain Security Holders” for further discussion of the board of directors’ structure and principal shareholders’ agreements. Therefore, you should not invest in reliance on your ability to have any control over our Company.
Our securities may be treated as “Penny Stocks” that may make them less desirable or accessible by investors or potential investors.
Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer must approve a person’s account for transactions in penny stocks; and (b) the broker or dealer must receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Management believes that the penny stock rules could discourage investor interest in and limit the marketability of our Shares.
Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to our previously filed financial statements, which could cause our stock price to decline.
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results and retroactively affect previously reported results.
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Our Shares are subject to FINRA sales practice requirements that may make them less desirable or accessible by investors or potential investors.
The U.S. Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending an investment to a customer. Prior to recommending speculative, low priced securities to non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives, and other information. Pursuant to the interpretation of these rules, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend the Common Shares to customers which may limit an investor's ability to buy and sell the Common Shares, have an adverse effect on the market for the Common Shares, and thereby negatively impact the price of the Common Shares.
Our Shares may be subject to dilution.
We may make future acquisitions or enter financings or other transactions involving the issuance of securities of the Company which may be dilutive to the other shareholders and any new equity securities issued could have rights, preferences, and privileges superior to those of holders of Common Shares.
We have never paid dividends on our common stock and have no plans to do so in the future.
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common stock may have, will be in the form of appreciation, if any, in the market value of their shares of common stock. See “Dividend Policy.”
We will indemnify and hold harmless our officers and directors to the maximum extent permitted by Nevada law.
Our bylaws provide that we will indemnify and hold harmless our officers and directors against claims arising from our activities, to the maximum extent permitted by Nevada law. In addition, if we are called upon to perform under our indemnification agreements entered into with each one of our directors, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
We may engage in acquisitions, mergers, strategic alliances, joint ventures, and divestures that could result in results that are different than expected.
In the normal course of business, we engage in discussions relating to acquisitions, equity investments, mergers, strategic alliances, joint ventures, and divestitures. Such transactions are accompanied by a number of risks, including the use of significant amounts of cash, potentially dilutive issuances of equity securities, incurrence of debt on potentially unfavorable terms, accruement of impairment expenses related to goodwill and amortization expenses related to other intangible assets, the possibility that we overpay for an acquisition relative to the economic benefits that we ultimately derive from such acquisition, and various potential difficulties involved in integrating acquired businesses into our operations.
We might require additional capital to support business growth, and this capital might not be available.
We have funded our operations since inception primarily through debt and equity financings and revenue generated by our services. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments in our business to respond to business challenges, including deploying more Bitcoin ATMs both in the United States and globally, enhancing our operating infrastructure, expanding our international operations to include additional regions and countries, and acquiring complementary businesses and technologies, all of which may require us to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If we incur additional debt, the debt holders would have rights senior to holders of our common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock.
The trading prices for our common stock may be highly volatile, which may reduce our ability to access capital on favorable terms or at all. In addition, a slowdown or other sustained adverse downturn in the general economic or crypto markets could adversely affect our business and the value of our common stock. Because our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of securities. As a result, our shareholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests. Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our ability to continue supporting our business growth and responding to business challenges.
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Our Common Shares are subject to liquidity risks.
Our Common Stock is quoted on the OTC Pink Market Tier of the OTC Markets under the symbol “ABIT”. On May 12, 2022, the last reported sale of our Common Stock was $0.2875 per share. As of the date of this prospectus, our Common Stock is quoted on the OTC Pink, and it is not otherwise regularly quoted on any other over-the-counter market or exchange. We intend for our shares to trade on the OTCQB, an inter-dealer, over-the-counter market that provides significantly less liquidity than other national or regional exchanges. However, there is no guarantee that our shares will be listed on the OTCQB, or any other "over- the- counter" marketplace. Moreover, securities traded on the OTCQB are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The SEC's order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCQB. Quotes and other important information for stocks listed on the OTCQB are not listed in newspapers and may be incorrectly listed by prominent financial websites. Therefore, prices for securities traded solely on the OTCQB may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price.
We cannot predict at what prices the common shares of the Company will trade and there can be no assurance that an active trading market will develop or be sustained. There is a significant liquidity risk associated with an investment in the Company.
The shares of our common stock we may issue in the future and the options we may issue in the future may have an adverse effect on the market price of our common stock and cause dilution to investors.
We may issue shares of common stock and warrants to purchase common stock pursuant to private offerings and we may issue options to purchase common stock to our executive officers and employees pursuant to their employment agreements. The sale, or even the possibility of sale, of shares pursuant to a separate offering or to executive officers and employees could have an adverse effect on the market price of our common stock or on our ability to obtain future financing.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business, and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.
Being a public company results in additional expenses, diverts management’s attention and could also adversely affect our ability to attract and retain qualified directors.
As a public reporting company, we are subject to the reporting requirements of the Exchange Act. These requirements generate significant accounting, legal and financial compliance costs and make some activities more difficult, time consuming or costly and may place significant strain on our personnel and resources. The Exchange Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to establish the requisite disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.
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As a result, management’s attention may be diverted from other business concerns, which could have an adverse and even material effect on our business, financial condition and results of operations. These rules and regulations may also make it more difficult and expensive for us to obtain director and officer liability insurance. If we are unable to obtain appropriate director and officer insurance, our ability to recruit and retain qualified officers and directors, especially those directors who may be deemed independent, could be adversely impacted.
We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years following the effectiveness of this registration statement, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three year period.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors (currently five persons) are independent directors, we do not currently have an independent audit or a compensation committee. As a result, directors have the ability, among other things, to determine each other’s level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it costlier or deter qualified individuals from accepting these roles.
In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this Prospectus, potential investors should keep in mind other risks that could be important.
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SPECIAL NOTE REGARDING Forward-Looking Statements
This prospectus contains “forward-looking statements.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements.
Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, market acceptance of our products; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services and successfully pursue innovation; our ability to complete capital raising transactions; and other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations. Actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Important factors that could cause such differences include, but are not limited to:
| · | our future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve and maintain future profitability; | |
| · | our business plan and our ability to effectively manage our growth; | |
| · | anticipated trends, growth rates, and challenges in our business, the crypto economy, and in the markets in which we operate; | |
| · | market acceptance of our products and services; | |
| · | beliefs and objectives for future operations; | |
| · | our ability to further penetrate our existing customer base and maintain and expand our customer base; | |
| · | our ability to develop new products and services and grow our business in response to changing technologies, customer demand, and competitive pressures; | |
| · | our expectations concerning relationships with third parties; | |
| · | our ability to maintain, protect, and enhance our intellectual property; | |
| · | our ability to continue to expand internationally; | |
| · | the effects of increased competition in our markets and our ability to compete effectively; | |
| · | future acquisitions of or investments in complementary companies, products, services, or technologies and our ability to successfully integrate such companies or assets; | |
| · | our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally; | |
| · | economic and industry trends, projected growth, or trend analysis; | |
| · | trends in revenue, cost of revenue, and gross margin; | |
| · | trends in operating expenses, including technology and development expenses, sales and marketing expenses, and general and administrative expenses, and expectations regarding these expenses as a percentage of revenue; | |
| · | increased expenses associated with being a public company; and | |
| · | other statements regarding our future operations, financial condition, and prospects and business strategies. |
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements, because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Actual events or results may vary significantly from those implied or projected by the forward-looking statements due to these risk factors. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
Forward-looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as may be required by applicable law. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
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The following table details the Company’s capitalization as of December 31, 2021:
| · | On an actual basis; | |
| · | On a pro forma basis to give effect to the sale of the shares by employees who have outstanding loans to exercise options and the pro-rata repayment of those loans; and | |
| · | On a pro forma basis as adjusted basis to give effect to the transaction described in the preceding bullet point as well as the conversion of the Convertible Debenture. |
In January 2020, the Company allowed its employees with vested stock options to exercise such options with the use of a non-recourse loan agreement. The Company’s employees exercised their respective stock options into a total of 157,635,309 shares of common stock at a weighted average exercise price of $0.0060 per share. The loan amount at exercise of such options was $945,812. The terms of the non-recourse loan agreement include a maturity date of 48 months from the date of exercise and an interest rate of 1.69%. As of December 31, 2021, the outstanding balance due from employees was $977,000. The amount receivable from employees is presented in the balance sheet as a deduction from stockholders' equity. This is generally consistent with Rule 5-02.30 of Regulation S-X which states that accounts or notes receivable arising from transactions involving the registrant's capital stock should be presented as deductions from stockholders' equity and not as assets. When the shares held by employees who have outstanding loans are sold, those loans will be paid in a pro-rata manner as described below.
A total of [●] shares of common stock held by employees (approximately 15% of each employees shares) are being registered in this offering. In the event the employees sell any or all of these shares before repaying the loan, an amount that bears the same proportion to the total loan including accrued interest thereon, as the registered number of shares bears to the total holding of the employee against which said loan has been given, will become due and payable to the Company. If all the registered shares are sold and using the outstanding balance due of $977,000 as of December 31, 2021, the loan will be reduced by $147,000.
The pro-forma capitalization would then have both cash and equity going up by the amount being repaid.
The purchasers of the Company's 8% Convertible Debentures have an option to convert the outstanding principal and accrued interest amount of their respective Convertible Debentures into shares of common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. On conversion the purchasers of these convertible debentures will get shares issue of which will be recorded as increase in share capital of $260,000 and increase in additional paid in capital of $2,865,000. The pro forma basis as adjusted basis column in the table below gives effect to the conversion of the Convertible Debenture as well as the return of outstanding employee loans as described above. The Company expects that the Convertible Debentures will convert at $0.012 per share. If the conversion happens at a price lower than $0.012 per share the pro forma basis as adjusted numbers will change accordingly.
The pro forma and pro forma as adjusted information below is illustrative only, and our cash and cash equivalents and total capitalization following the completion of this offering will be adjusted based on several factors. You should read the following table together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
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| As of December 31, 2021 | ||||||||||||
| (in thousands) | Actual | Pro forma | Pro forma as adjusted (1) | |||||||||
| Cash and cash equivalents | ||||||||||||
| Total cash and cash equivalents (2) | $ | 1,174 | $ | 1,321 | $ | 1,321 | ||||||
| Long-term liabilities | ||||||||||||
| Other long-term debt | 2,811 | 2,811 | 2,811 | |||||||||
| Related party convertible debt (1) | 3,000 | 3,000 | – | |||||||||
| Convertible debt (1) | 4,765 | 4,765 | – | |||||||||
| Related party note payable | – | – | – | |||||||||
| Total long-term liabilities | 10,576 | 10,576 | 2,811 | |||||||||
| Equity: | ||||||||||||
| Common stock, $0.001 par value (3) | 4,050 | 4,050 | 4,360 | |||||||||
| Loans to employees for options exercised (4) | (977 | ) | (830 | ) | (830 | ) | ||||||
| Additional paid in capital (5) | 5,246 | 5,246 | 12,701 | |||||||||
| Accumulated deficit | (15,716 | ) | (15,716 | ) | (15,716 | ) | ||||||
| Accumulated other comprehensive loss | (177 | ) | (177 | ) | (177 | ) | ||||||
| Total equity (deficit) | (7,574 | ) | (7,427 | ) | 338 | |||||||
| Total capitalization | $ | 4,176 | $ | 4,470 | $ | 4,470 | ||||||
| (1) | Pro forma as adjusted includes the full conversion of the Convertible Debentures into 260,416,667 shares of common stock at the assumed conversion price of $0.012 per share for the 8% Convertible Debentures and 49,850,000 shares of common stock at the assumed conversion price of $0.10 per share for the 6% Convertible Debentures. See Convertible Debentures in section Description of Capital Stock, page 69. |
| (2) | Pro forma cash and cash equivalents increased by $147,000 from the repayment of the loan as part of this offering. |
| (3) | Pro forma as adjusted common stock at $0.001 par value increased by $260,000 assuming the full conversion of the 8% Convertible Debentures at conversion price of $0.012 per share and by $50,000 assuming the full conversion of the 6% Convertible Debentures at conversion price of $0.10 per share. |
| (4) | Pro forma as adjusted loans to employees for options exercised decreased by $147,000 as a result of loan repayment from this offering. |
| (5) | Pro forma as adjusted additional paid in capital increased by $7,455,000 to account for the principal value of the 8% Convertible Debenture of $3,000,000 less $260,000 in common stock value, which was recorded under common stock and $4,765,000 to account for the principal value of the 6% Convertible Debenture less $50,000 in common stock value, which was recorded under common stock (see footnote 3). |
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Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this prospectus. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
The Company is focused on developing, owning, and operating a global network of Athena-branded Bitcoin ATM machines, which are free standing kiosks that permit customers to buy or sell crypto assets in exchange for cash (banknotes) issued by sovereign governments - often referred to as fiat currencies.
We place our machines in convenience stores, shopping centers, and other easily accessible locations. Our network presently includes Athena Bitcoin ATMs in 10 states and 3 countries in Central and South America. See table below for our ATMs breakdown, as of December 31, 2021.
| Country | Number
of Athena Bitcoin ATMs (as of December 31, 2021) |
Type of Fiat Currency | |
| Total | Two-Way | ||
| United States | 186 | 129 | U.S. Dollar |
| El Salvador | 3 | 3 | U.S. Dollar |
| Argentina | 12 | 12 | Argentine peso |
| Argentina | - | - | U.S. Dollar |
| Colombia | 17 | 17 | Colombian peso |
We offer Bitcoin, Ethereum, Litecoin, and Bitcoin Cash (BCH) for sale at all our ATM machines. We also buy these crypto assets at some of our ATM machines (also known as two-way ATMs). The cash withdrawal limit from our two-way ATMs is $2,000 per transaction. We replenish our ATMs about twice a week or depending on usage, using bonded security companies.
We also operate an over-the-counter (“OTC”) desk for private clients and trade customers of the Company. Customers typically interact with the Company on the phone for transaction sizes in dollar terms greater than $10,000 and on some occasions, for crypto assets not included in our ATMs. Since 2019, we have been typically buying and selling Bitcoin through our OTC desk, but we have also executed transactions in Ethereum, Litecoin, and in some cases, altcoins such as Bitcoin SV, Ripple, Siacoin, Tether, and Tron. As of the date of this prospectus, we do not transact in any crypto assets except Bitcoin, Ethereum, Tether, Litecoin, and BCH. We will update this prospectus if we decide to transact in other crypto assets. Such a change would only happen if there were significant customer demand for a specific crypto asset and that crypto asset was available to us through multiple trading partners, digital asset exchange and digital asset brokers.
Additionally, we operate ATMs and point-of-sale (“POS”) terminals on behalf of certain customers, typically under their brand, which we refer to as “white label service”. This white label service is comprised of maintaining ATMs and POS terminals to facilitate the exchange of crypto assets for cash, and vice-versa, by our customers with their counterparties. We do not control the service in this case as we are not responsible for fulfilling the exchange contract or establishing pricing at these ATMs and POS terminals. Currently, the government of El Salvador is our only white label service customer. The Company has begun working with the government of El Salvador in late June 2021 to support the implementation of its Bitcoin Law. In August 2021, we entered into certain agreements for services to be rendered by the Company to the Department of Treasury (Ministerio De Hacienda) of El Salvador, pursuant to which we have installed and are operating 200 Chivo Bitcoin ATMs in El Salvador, 10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S., 45 Chivo Bitcoin ATMs in other U.S. locations, and importing and delivering 950 Chivo point-of-sale (“POS”) terminals for local businesses in El Salvador to transact with Bitcoin. As of December 31, 2021, we were operating 200 white label ATMs in El Salvador for the Department of Treasury (Ministerio de Hacienda) of El Salvador. We were not operating any POS terminals on behalf of any clients as of December 31, 2021. The Government of El Salvador controls the private keys in digital asset ATM transactions.
From time to time, we sell equipment such as POS terminals as well as software and corresponding intellectual property (“IP”) to customers, which we consider to be ancillary to our primary business. This activity is sporadic.
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Revenue Recognition for the Sale of IP to Government of El Salvador
The Company has satisfied its obligations with the Government of El Salvador, has sent invoices and has received payment for these invoices. We will recognize the revenue for these transactions upon finalization of license rights related to the XPay acquisition. The transaction has been recorded as Advances for Revenue Contract pending the closing of the XPay acquisition. In the event the XPay acquisition does not close as expected, we have agreed to negotiate with the XPay team to effect and finalize the license formalities and will recognize the associated revenue in compliance with ASC 606 Revenue from Contracts with Customers which provides accounting guidance for the licensing of Intellectual Property (“IP”).
Our analysis follows:
To properly account for IP licenses under ASC 606, the Company analyzes each contract to determine:
1) whether the transaction represents a sale or licensing of IP
Conclusion: The Company licenses its IP
2) whether the IP is a distinct performance obligation:
Licenses of IP are often transferred with other goods or services in a contract. Therefore, entities must determine if a license of IP is a distinct (separate) performance obligation in accordance with ASC 606-10-25-18 through 25-22. This means that the IP must be (1) capable of being distinct and (2) distinct within the context of the contract.
The guidance provides two examples of when a license is not distinct from the other goods or services in a contract:
a. When the license forms a component key to the functionality of a tangible good (e.g. machinery with integral embedded software).
b. When the license is required for a customer to benefit from a related service (e.g. web hosting arrangements for software).
If a license is deemed not to be distinct during this analysis, the license is combined with the other goods or services and the combined performance obligation.
Conversely, if the license is distinct, then it is a separate performance obligation. If the license is regarded as a separate performance obligation and the Company will then determine the nature of the license to assess the timing of revenue recognition.
Conclusion: We consider goods or services to be distinct if the customer receives benefits from the goods or services on their own or with other resources that are readily available and if our promise to transfer the goods or services to the customer can be separately identified and distinguished from other promises in the contract (ASC 606-10-25-19).
3) The nature of the license—functional or symbolic
ASC 606-10-55-59 notes two categories of licenses: functional and symbolic.
To determine whether the entity’s promise to provide a right to access its intellectual property or a right to use its intellectual property, the entity should consider the nature of the intellectual property to which the customer will have rights. Intellectual property is either:
a. Functional intellectual property. Intellectual property that has significant standalone functionality (for example, the ability to process a transaction, perform a function or task, or be played or aired). Functional intellectual property derives a substantial portion of its utility (that is, its ability to provide benefit or value) from its significant standalone functionality.
b. Symbolic intellectual property. Intellectual property that is not functional intellectual property (that is, intellectual property that does not have significant standalone functionality). Because symbolic intellectual property does not have significant standalone functionality, substantially all of the utility of symbolic intellectual property is derived from its association with the entity’s past or ongoing activities, including its ordinary business activities.
Conclusion: The Company determines that its IP provides the Customer with the right to access.
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4) the timing of recognition based on the nature of the license
The determination of the IP’s nature as being either a right to use or a right to access affects the timing of revenue recognition. Specifically, revenue from licenses of IP deemed to provide a right to use IP will be recognized at a point in time when control is transferred in accordance with ASC 606-10-25-30. On the other hand, revenue from licenses of IP deemed to provide a right to access IP will be recognized over the license period (or its remaining economic life, if shorter). Such licenses will follow the revenue recognition over time guidance found in ASC 606-10-25-31 through 37.
Conclusion: The Company determines that it will recognize its IP revenue at a point in time, as we determine will be the completion of the XPay transaction.
As of December 31, 2021, the Company has received an advance for sale of IP Software, pursuant to our contract with El Salvador, which, for accounting purposes, at the time of receipt is recorded as advances from revenue contract until revenue can be recognized when the XPay acquisition has been finalized. ASC 606 states that revenue should be recognized at the point in time when the specific performance obligations in the contract are performed. The Company’s acquisition of XPay, which has not closed as of the date of this prospectus, is the final step for the Company to acquire all of the intellectual property necessary to transfer to the government of El Salvador.
As of December 31, 2021, the Company recorded Advances for revenue contract as follows: On August 26, 2021, the Company presented to the government of El Salvador an invoice for Service Addendum 1 (the Chivo Ecosystem software) in the amount of $2,000,000 plus 13% Value Added Tax (VAT) of $260,000. Payment on this invoice was received on August 31, 2021, for the net amount of $1,600,000 after deducting 20% Income tax withheld at source of $400,000 and VAT. The transaction was recorded in the Company’s books as Advances for revenue contract for $2,000,000, VAT Payable of $260,000 which was subsequently paid and reduced to zero and prepaid income tax for the 20% retention of $400,000 for which we have provided full allowance.
On October 21, 2021, the Company presented to the government of El Salvador an invoice related to the Chivo Ecosystem for services provided for the period ended September 30, 2021, in the amount of $1,500,000 plus 13% Value Added Tax (VAT) of $195,000. Payment for this invoice was received on October 26, 2021, for the net amount of $1,200,000 after deducting 20% Income tax withheld at source of $300,000 and VAT. The transaction was recorded in the Company’s books as Advances for revenue contract for $1,500,000, VAT Payable of $195,000 which was subsequently paid and reduced to zero and prepaid income tax for the 20% retention of $300,000 for which we have provided full allowance.
Through the year ended December 31, 2021, the Company booked a total of $3,500,000 as Advances for revenue contract and $757,000 for capitalized software development within other non-current assets for the costs related to the Chivo Ecosystem in the consolidated balance sheets. In addition, $700,000 in taxes was recorded as part of income tax expense in the Consolidated Statement of Operations and Comprehensive Income.
Revenue Recognition for the Installation of Chivo Branded Bitcoin ATMs in El Salvador
With respect to the installation of the Chivo Branded Bitcoin ATMs in El Salvador and specifically the installation fee collected from the government of El Salvador, we analyze the payment of the installation fee using the ASC 606 framework as follows:
| 1. | Contract with Customer: |
The contract with the government of El Salvador for the installation and operation of the Chivo Branded Bitcoin ATMs in El Salvador is filed as Exhibit 10.25.
| 2. | Separate Performance Obligations in the Contract: |
| a) | Government of El Salvador must pay an installation charge, a monthly service fee, and a per-transaction fee (if applicable). |
| b) | Company must install White-Labeled ATMs at the locations determined by the Service Client. |
| c) | Company must operate the White-Labeled ATMs including keeping them stocked, online, and ready to function |
| 3. | Determine Transaction Price: |
| 1) | For the installation of White-Labeled ATMs: The contract specifies a one-time installation fee. |
| 2) | For the monthly operation of White-Labeled ATMs: The contract specifies a monthly operation fee. |
| 4. | Allocate the Transaction Price to Performance Obligations: |
The Company has two performance obligation, which is to install ATMs at the various locations and the second item refers to the monthly maintenance fees the Company has allocated the selling price because it is made up of a series of distinct goods or services and includes variable consideration.
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| 5. | Recognition of Revenue When Company Satisfies Performance Obligation: |
The Company as noted above has two revenue sources related to the Chivo ATMs, an installation fee of $339,000 and an additional fee of $1,412.50 per month for the ongoing maintenance and servicing of the equipment. Based off the guidance’s criteria, the revenue related to the installation is treated as being recognized at a point in time due to the fact that the customer (Treasury Department) may terminate the contracts at any time and for any reason by providing Athena a 30-day written notice, the Company in effect has a 30-day contract. Each individual ATM is distinct and are separately identifiable. Therefore, the single payment for installation of 200 ATMs in El Salvador national territory ($339,000) is considered a distinct performance obligation.
The monthly maintenance and service fee is $1,412.50 per ATM. Based on the guidance’s criteria, the customer simultaneously receives and consumes the benefits provided by the Company and as a result the monthly fee is considered to be recognized over the contracts time. The Company expects costs to fulfill the ATM services to remain level at $705,000 per quarter.
Further analysis and recognition of revenues for the year ended December 31, 2021:
For installation, the Company received a one-time payment of $300,000 for the installation of 200 ATMs in El Salvador national territory. Although ASC 606-10-25-4 states that “A contract does not exist if the parties have unilateral enforceable rights to terminate”, in the Basis of Conclusion 50 (“BC 50”) in ASU 2014-09, FASB decided that this applies only if each party to the agreement has the unilateral enforceable right to terminate the contract without penalty. Those contracts would not affect an entity’s financial position or performance until either party performs.
In accordance with ASC 606-10-25-1 and 2, the first step in assessing revenue recognition is to identify the contract with the customer. As described below, the Company’s contract with Department of Treasury of El Salvador is cancelable by them with 30 days’ notice. The Company recognized a one-time fee upfront since the installation of ATMs was considered a distinct performance obligation and the Company has a 30-day contract not subject to cancellation, which rolls over into another 30-day contract if Department of Treasury of El Salvador does not cancel, as discussed below.
However, if only the customer (e.g., Department of Treasury of El Salvador) could terminate the agreement(s) without penalty, the entity is obliged to stand ready to perform at the discretion of the customer. Hence, there could be an effect on an entity’s financial position and performance if only one party could terminate a wholly unperformed contract without penalty.
As long as the Department of Treasury of El Salvador does not give notice to terminate the ATM services, Athena has an enforceable obligation to provide services and an enforceable right to receive payment for those services for the next 30 days until the contractual termination date of the Master Services Agreement and the Service Addendum.
Each individual ATM is distinct and aside from integration to the Chivo Ecosystem digital platform, it is not dependent on other services. The ATMs are delivered to the customer at different points in time and are separately identifiable. Therefore, the single payment for installation of 200 ATMs of $300,000 in El Salvador’s national territory is considered a distinct performance obligation.
For the year ended December 31, 2021 revenue on ATM installation and related services was $300,000 and direct costs related to the installation were $334,000 as presented in our Consolidated Statement of Operations and Comprehensive Income.
Revenue Recognition for the Sale of Digital Assets
Through our Athena ATM machines, we buy and sell various Digital Assets as described above at an offer price that changes according to the prevailing price. We control all aspects of the transaction done at our Athena ATMs and we record those transaction on a gross basis as we act as a principal in such sales. Through our White-Labeled ATMs, which we operate on behalf of service clients, we facilitate the buying and selling of various Digital Assets at prices that change according to the prevailing price, but that are set by the service clients. We do not control all aspects of the transaction done at White-Labeled ATMs and record those transactions on a net basis as we act as an agent. The PWC ASC 606 Guide aids us in characterizing these transactions as either principal or agent based on the party having pricing discretion. As we do not control pricing, own the Digital Asset being sold, or control all aspects of the transaction for White-Label ATM services, we have determined that we are an agent.
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Although these steps are done sequentially, they are completed from start to finish in a matter of minutes or hours and are treated as point in time transactions with a single performance obligation by the Company. Further the Digital Assets the Company sells are fungible and would have the same value to any other customer and client. During the performance of these Transactional Steps, the Company does not create an asset with an alternative use or an asset that is unique to the customer. Finally, these transactions, where the Company acts as a principal in the sale of a Digital Asset, do not create an Accounts Receivable or a prepayment. All transactions are settled same day. The specific transactional steps and activities with respect to such sales of Digital Assets (i.e., indefinite-lived intangible assets) are as follows:
| Types of Digital Asset Sales | Transactional Steps and Activities | |
| Sale of Digital Assets via ATMs | 606 Evaluation | 1. Contract with Customer: Simple cash-for-crypto purchase contract with ATM customer governed by ATM Terms of Service filed as Exhibit 10.34 to the registration statement which this prospectus is a part.
2. Separate Performance Obligations in the Contract: Customer must insert into the ATM authentic sovereign currency as payment for the Digital Asset. Company must deliver Digital Asset to the address specified by the Customer immediately after the Customer finishes her insertion of cash.
3. Determine Transaction Price:
The price that the Company will sell a Digital Asset is displayed on the screen of the Bitcoin ATM. That price is set by the Company by taking the then prevalent price of the Digital Asset and applying a markup.
4. Allocate the Transaction Price to Performance Obligations:
100% of the Transaction Price is recognized at the Company’s single Performance Obligation. There are no refunds. All sales are final. There are no ongoing performance obligations.
5. Recognition of Revenue When Company Satisfies Performance Obligation:
Revenue, gross transaction amount, is recognized when the Company has completed its single Performance Obligation. |
| Step 1. | Digital Assets, indefinite-lived intangible assets, are owned and controlled by the Company using digital asset wallets and similar technology operated by the Company, for the purpose of selling to customers. They have been previously acquired by purchasing such Digital Assets on digital asset exchanges or from OTC dealers.
The customer initiates a transaction by inserting paper currency into the ATM after complying with KYC/AML and customer identification procedures and pressing the “Buy BTC” button.
The price that the Company will sell a Digital Asset is displayed on the screen of the Bitcoin ATM. That price is set by the Company by taking the then prevalent price of the Digital Asset and applying a markup.
During this Step, the Digital Assets are owned and controlled by the Company. | |
| Step 2. | Once the funds have been inserted into the ATM and verified for authenticity and the customer has pressed the “Done” button on the ATM, a blockchain transaction is created that will transfer the ownership and control of the Digital Asset to the blockchain address that the customer has previously given to the Company via the ATM. The blockchain transaction is then broadcast to the Network, transferring the ownership and control. The Company does not custody Digital Assets on behalf of customers. This process typically takes seconds and at no time ever takes more than 20-minutes and would only depend on the batching of several transactions into a single broadcast of a blockchain transaction.
The purpose of a Blockchain is to establish the ownership and control of Digital Assets and represent a ledger of the changes in control and ownership of Digital Assets. The transfer of ownership and control over Digital Assets is done using the protocol of the Blockchain Network and happens at the precise moment in time when a blockchain transaction transferring that ownership and control is broadcast on the peer-to-peer network between nodes. Our Bitcoin ATMs sell Bitcoin that is transferred using on-chain transactions which are broadcast on the Bitcoin Network, clearly establishing a time before the transaction is broadcast as the time when the Company owned and controlled the Bitcoin and a time after which when the customer owned and controlled the Bitcoin.
Upon completion of this Step, and specifically at the time the blockchain transaction is broadcast the ownership and control of the Digital Asset is held by the customer using the ATM. | |
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| Custody | The Company is not a custodian of Digital Assets or fiat monies for ATM customers. The digital wallet used and selected by the ATM customer, according only to her own preferences, is the custodian of the Digital Assets once the ownership and control is transferred in Step 2. There are many digital wallets that can be used to secure a Digital Asset like Bitcoin, the Company’s ATMs work with all that accept on-chain Bitcoin transactions according to the protocol of the Bitcoin Network. | |
| Third Party Reliance | The Company relies only on its own holdings of Digital Assets that it controls to fulfill the contract with the customer. The Company does not contract or engage any other third party to deliver the Digital Asset to the customer. | |
| Not a Broker | The Company does not actively acquire Digital Assets from other third parties or take control of the Digital Assets from third parties during the transaction steps described above. If the Company did not have sufficient Digital Assets to complete Step 2, then the ATM would not allow the initiation of a transaction. | |
| Use of Proceeds | At a subsequent time, between hours and days, the Company will use some or all of the funds received from the customer to purchase additional Digital Assets from OTC dealers or on digital asset exchanges or from ATM customers or from OTC customers. | |
| Accounting | We consider a counterparty in Digital Asset sales to be our customer. When we sell a Digital Asset that was accounted for as an indefinite-lived intangible asset, we account for the sale under ASC 606 and present the sale as revenue when control of the digital assets sold has transferred.
The Company would record the journal entries in its books and records for this transaction as a debit to Cash for the amount received and credit to ATM Revenue. Cost of revenue is recorded as a debit to Cost of revenue for the carrying amount of the digital assets sold and credit to Crypto assets held. | |
| Sale of Digital Assets via Phone | 606 Evaluation | 1. Contract with Customer:
Simple cash-for-crypto purchase contract with OTC client governed by OTC Terms of Service filed as Exhibit 10.35 to the registration statement which this prospectus is a part.
2. Separate Performance Obligations in the Contract: Client must wire to the Company authentic sovereign currency payment in the form of same-day available funds for the purchase of the Digital Asset. Company must deliver Digital Asset to the address specified by the Customer immediately after the wire is properly received by the Company.
3. Determine Transaction Price:
The price that the Company will sell a Digital Asset is communicated electronically to the client via email. That price is set by the Company by taking the then prevalent price of the Digital Asset and applying a markup.
4. Allocate the Transaction Price to Performance Obligations:
100% of the Transaction Price is recognized at the Company’s single Performance Obligation. There are no refunds. All sales are final. There are no ongoing performance obligations.
5. Recognition of Revenue When Company Satisfies Performance Obligation:
Revenue, gross transaction amount, is recognized when the Company has completed its single Performance Obligation. |
| Step 1. | Digital Assets, indefinite-lived intangible assets, are owned and controlled by the Company using digital asset wallets and similar technology operated by the Company, for the purpose of selling to customers. They have been acquired by purchasing such Digital Assets on digital asset exchanges or from OTC dealers.
During this Step, the Digital Assets are owned and controlled by the Company.
The client initiates a purchase of Digital Assets, after discussing a transaction with our client services staff, by transferring funds from her bank accounts to those of the Company. |
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| Step 2. | Once the sovereign funds have been received into the bank accounts of the Company our client services team completes the transaction with the client. This Step is completed the same day as the funds are received and typically within 30 to 60 minutes of receiving a notification from the Company’s bank.
First, they validate the funds represent a good and proper wire of same-day available funds from an account owned by the client. Second the price at which the client will purchase the Digital Asset is determined by observing the then prevalent Digital Asset price and applying the appropriate markup. Finally, a blockchain transaction is created that will transfer the ownership and control of the Digital Asset to the blockchain address that the customer has previously given to the Company. The blockchain transaction is then broadcast to the Network, transferring the ownership and control.
If it is determined that the funds received do not originate from an account owned by the client, they are returned to sender. The Company does not custody fiat funds on behalf of any third parties. The Company does not allow purchases of Digital Assets by agents of third parties. The Company only deals with other principals who have control of their own fiat funds and take direct ownership and control of Digital Assets.
Our only Performance Obligation, with respect to this transaction, is to deliver the Digital Asset into the ownership and control of the customer. The Company does not custody fiat funds or Digital Assets on behalf of clients.
Upon completion of this Step, and specifically at the time the blockchain transaction is broadcast, the ownership and control of the Digital Asset is held by the client. | |
| Custody | The Company is not a custodian of Digital Assets or fiat funds for OTC customers. | |
| Third Party Reliance | The Company relies only on its own holdings of Digital Assets that it controls to fulfill the contract with the customer. The Company does not contract or engage any other third party to deliver the Digital Asset to the customer. | |
| Not a Broker | The Company may or may not acquire Digital Assets from other third parties or take control of the Digital Assets from third parties during the transaction steps described above. The time between Steps 1 and 2 can last hours and many transactions, of varying types, can be in the process of completion simultaneously. These activities are incidental to this transaction and not a part of the flow of procedural steps.
If the Company did not have the Digital Assets or have the expectation of immediately purchasing, from readily available sources, and taking control over such Digital Assets, then the Company would not initiate the transaction in Step 1. The Company has multiple sources for purchasing Digital Assets and does not contract or engage such a source to specifically fulfill the performance obligation of this contract.
The Company is not a broker, we trade as a principal in these transactions. | |
| Use of Proceeds | At a subsequent time, between hours and days, the Company will use some or all of the funds received from the customer to purchase additional Digital Assets from OTC dealers or on digital asset exchanges or from ATM customers or from OTC customers. |
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| Accounting | In some circumstances and depending on the Company’s arrangement with the counterparty, the order of Step 1 and Step 2 could be reversed. This would not impact the accounting treatment for this transaction.
We consider a counterparty in digital asset sales to be our customer. When we sell a digital asset that was accounted for as an indefinite-lived intangible asset, we account for the sale under ASC 606 and present the sale as revenue when control of the digital assets sold has transferred.
The Company would record the journal entries in its books and records for this transaction as a debit to Cash for the amount received and credit to ATM Revenue. Cost of revenue is recorded as a debit to Cost of revenue for the carrying amount of the digital assets sold and credit to Crypto assets held. | |
Sale of Crypto Asset via White Labeled ATMs
How we deliver the services as agent.
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606 Evaluation | 1. Contract with Customer:
The Company has contracted with a service client to provide White-Labeled ATMs. For the government of El Salvador, the terms of this service activity are filed as Exhibits 10.24, 10.25, 10.26, and 10.27 to the registration statement which this prospectus is a part. As part of that contract, the Company must facilitate the sale of Bitcoin to a user of the White-Labeled ATM in exchange for cash.
2. Separate Performance Obligations in the Contract:
a) Service Client must pay an installation charge, a monthly service fee, and a per-transaction fee (if applicable). b) Service Client must make available to the Company a balance of Digital Assets to be sold at the White-Labeled ATMs and facilitate the transfer of those Digital Assets to the ATM User. c) ATM User must insert into the ATM authentic sovereign currency as payment for the Digital Asset. d) Company must install White-Labeled ATMs at the locations determined by the Service Client. e) Company must operate the White-Labeled ATMs including keeping them stocked, online, and ready to function f) Company must deliver a Digital Asset to the address specified by the ATM user immediately after the funds are inserted.
3. Determine Transaction Price:
For the sale of Digital Assets at an ATM: The price that the Service Client will sell a Digital Asset displayed on the screen of a White-Label ATM. That price is computed by the Company by taking the then prevalent price of the Digital Asset and applying a markup (if applicable). If the contract allows the Company to collect a per-transaction fee, then that fee would be the price at which the Company would deliver the service of providing each transaction.
a) For the installation of White-Labeled ATMs: The contract specifies a one-time installation fee. b) For the monthly operation of White-Labeled ATMs: The contract specifies a monthly operation fee.
4. Allocate the Transaction Price to Performance Obligations:
The Company has relied upon the guidance of ASC 606-10-32-32, which states that "a contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the standalone selling price of that good or service.” Hence, the Company will rely upon the stated amounts in the Contract to allocate the transaction price to the various performance obligations.
5. Recognition of Revenue When Company Satisfies Performance Obligation:
The Company as noted above has two revenue sources related to the Athena ATMs, in which the Company charges a fee per cryptocurrency equal to the prevailing price at U.S. crypto-based exchanges plus a markup that typically varies between 5% and 20%.
Based off the guidance’s criteria, the customer simultaneously receives and consumes the benefits provided by the Company and as a result the fees are considered to be recognized over time.
Since the fee per cryptocurrency plus the markup is a result of individual ATM transactions, the Company has determined that the customer obtains control of the entity’s output as it performs and, thus, the performance obligation is satisfied over time. The Company has concluded that it will recognize revenue over time.
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| Step 1. | Digital Assets, indefinite-lived intangible assets, are owned and controlled by the services client, using digital asset wallets and similar technology operated by or on behalf of the services client, for the purpose of selling to users of the services client’s branded Bitcoin ATMs. They have been previously acquired, for the services client, by purchasing such Digital Assets from other users of the services client branded Bitcoin ATMs or other legal method for purchasing such Digital Assets in the local country.
The price that the ATM user will pay for a Digital Asset is displayed on the screen of the Bitcoin ATM. That price is computed by ATM software by taking the then prevalent price of the Digital Asset and applying a markup or no markup as determined by, and only by, the service client. There are many indexes and price sources for Digital Assets. The service client selects the source for prices of Digital Assets.
a) During this Step, the Digital Assets are owned and controlled by the services client.
b) The Digital Assets are not owned and controlled by the Company. The Company does not control the private keys of the services client.
The user of a White-Labeled ATM inserts paper currency into a service client branded ATM after complying with the service client’s KYC/AML and customer information procedures. | |
| Step 2. | Once the funds have been inserted by the user into the service client branded ATM, and verified for authenticity by the Company, and the user has pressed the “Done” button on the service client branded ATM, a transaction is created that will transfer the ownership of the Digital Asset to the user. This could happen by broadcasting a transaction on a Blockchain network, or it could happen within the service client’s digital wallet system in the case of operating a white-label ATM for a custodial wallet solution that does not broadcast every transaction or transfer onto a blockchain network.
Upon completion of this Step and for all future Steps for this sale, the ownership of the Digital Asset is held by the user of the White-Labeled ATM. The control of the Digital Asset might be held by the same user if she used her own self-custodial wallet or by the service client if she used their branded custodial wallet. In all cases, the Company is not the custodian, controller, or owner of the Digital Asset. | |
| Custody | The Company is not a custodian of Digital Assets for either users of the service client branded Bitcoin ATM or the service client or for any third party. The service client, or another service provider to the client, but not the Company, was the custodian of the Digital Asset prior to the sale of the Digital Asset to the end user. | |
| Third Party Reliance | The Company relies on its own software, services, and procedures in addition to the software and services provided by these additional third parties: · The service client is engaged to deliver the Digital Asset in this transaction in Step 2. In the case of the contract with the government of El Salvador, this would be the services offered by Chivo S.A. de C.V. | |
| Not a Broker | During the transactional steps and activities described above, the Company does not actively acquire Digital Assets on behalf of the services client from any third party. If the services client does not have sufficient Digital Assets under their ownership and in their control to complete Step 2, then the Company and specifically the White-Labeled ATM would not initiate the sale transaction in Step 1. | |
| Use of Proceeds | The proceeds of the sale of Digital Assets at a White-Label ATM are the property of the services client. As part of the operating agreement, the Company is responsible for the collection of these funds from the ATMs.
Further, the Company has the obligation to purchase Digital Assets, from time to time, at its discretion to replenish the Digital Asset used in this transaction and other transactions. The Company assumes some limited amount of price risk between the price set by the services client in Step 1, and the price at which the Company is able to purchase replacement amounts of Digital Assets. See Risk Factors in this prospectus for further discussion of the magnitude of this risk. | |
| Accounting | The Performance Obligation for the Company is to provide White-Labeled ATMs having the branding of the service client and to facilitate the use of those ATMs by the service client’s users. The Company, which has acted as an agent for this transaction, records revenue on a service fee basis; recording a combination, as applicable, of per-transaction fees and/or monthly service charges.
The Company would record the journal entries in its books and records related to this transaction as a debit to Accounts receivable for the amount of fees and monthly charges due for that period and credit to Revenue on service on contracts. |
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When we purchase crypto assets from a retail customer, we pay less than the prevailing price (referred to as markdown) and when we sell to retail customers, we sell more than the prevailing price (referred to as markup). There are many sources of prices for Digital Assets. The Company chooses sources that represent the broad market consensus for the prices of Digital Assets. Both markup and markdown rates are determined based on a variety of commercial factors such as current price, price trend, category of host location, among others, and are calculated using a proprietary method.
We apply different markups for crypto asset sales through our Athena ATM machines as compared to sales at our OTC desk (markup for the ATMs is greater than at the OTC desk). These transactions are done as principal by the Company and this revenue is recognized on a gross basis.
We do not invest or have long term holdings of Bitcoin, Ethereum, Litecoin, or BCH. On average, we sell our holdings of Bitcoin within 3 to 5 days of buying it and within 7 to 10 days of buying our Ethereum, Litecoin, and BCH holdings. We strive to keep this period short to reduce the effect of changes in crypto asset/U.S. dollar exchange rates on our business and to minimize our working capital. There are risk involved in holding these amounts of Digital Assets. In the past, we have held a higher level of Bitcoin as an economic hedge against liabilities for Bitcoin borrowed. As of December 31, 2021, management’s estimate of the effect on fair values of the Digital Assets held as indefinite-lived intangible assets due to a +/- 20% uniform change in the market prices of all crypto assets, with all other variables held constant, was +/- $168.4 thousand (December 31, 2020: +/- $268.6 thousand).
Our OTC desk sells Bitcoin and other digital assets, which we account for as indefinite-lived intangible assets. We present digital assets sales revenue and corresponding digital assets sales cost on a gross basis, consistent with the revenue standard. We act as a principal (vs. agent) in these transactions which requires gross treatment for revenue and for corresponding costs. If we were considered an agent, this would allow the revenue to be recorded net of corresponding digital asset sales cost. As a principal, we have control over the digital asset before it is transferred to the customer. All OTC trades are settled the same trading day, we do not allow OTC clients to keep funds on-account with the Company. We do not provide custodial services and/or wallets for our OTC customers or third parties or otherwise hold any indefinite-lived intangible assets for these customers.
For our white label services in El Salvador, which include Chivo branded ATMs, we currently collect, and anticipate collecting from future white label service customers, a recurring monthly service and maintenance fee for ATMs and a one-time setup fee at the beginning of a contract. We provide the equipment and associated software functionality for our clients to complete ATM transactions with their customers. We do not have control of the Digital Assets nor do we control all aspects of the operation of each service. The Company recognizes the operating fee it receives for these services (and not the gross value of customer transactions) as revenue.
For the period ended December 31, 2021, the Revenues from the Sale of Digital Assets at Athena ATMs was $63,097,000 (December 31, 2020: $55,268,000). The Revenues from OTC Sales of Digital Assets was $15,874,000 (December 31, 2020: $13,579,000).
In our ancillary equipment business, we are paid on the sale of equipment such as POS terminals. In the case of software sales and corresponding IP, we collect a one-time fee and recurring monthly maintenance fees. This revenue is recognized on a gross basis.
BitQuick
BitQuick earns revenue from service fees calculated as a percentage of the purchase value for facilitating a peer-to-peer exchange transaction between sellers and buyers that utilize this channel. We do not control the Bitcoin used in these transactions and only facilitate the connection and communication between buyers and sellers. We act as an agent (vs. principal) in these transactions which requires net treatment for revenue and for corresponding costs. This revenue is recognized on a net basis and not the gross value of user transactions.
Our analysis of these transactions under the ASC 606 framework is as follows:
| 1. | Contract with Customer: |
The Company has contracted with a Bitcoin Seller to deliver to a Bitcoin Buyer an amount of Bitcoin. The Terms of Service that govern this contract were available on the BitQuick website when the service was in operation.
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| 2. | Separate Performance Obligations in the Contract: |
| a) | Bitcoin Buyer must make a deposit of cash into the bank account of the Bitcoin Seller. |
| b) | Bitcoin Seller must acknowledge the payment made by Bitcoin Buyer to their bank account and give their affirmative consent to the Company to deliver the Digital Asset, which is owned and controlled by them in a multi-signature wallet that they have control over. |
| c) | Company must provide a website that connects buyers with sellers and a communication tool for buyer and seller to interact. The Company also operated a non-custodial multi-signature wallet to allow the escrow of Bitcoin from the control and ownership of the Seller to the control and ownership of the Buyer. |
| 3. | Determine Transaction Price: |
Transaction Fees: The Company collected a fee as a percentage of the gross sale amount paid by the Buyer directly to the Seller. The fee was collected in Bitcoin.
| 4. | Allocate the Transaction Price to Performance Obligations: |
This contract contains a single performance obligation. The transaction price is the service fee and is entirely allocated to the performance obligation.
| 5. | Recognition of Revenue When Company Satisfies Performance Obligation: |
The Company recognized the service fee revenue, at a point in time, when the performance obligation is satisfied. The performance obligation is satisfied when the customer obtains control over the Bitcoin purchased
Future Accounting Treatment
If we were to reconstitute the BitQuick service, our accounting treatment of assets used in the marketplace might be different than previously presented. On March 31, 2022, the SEC’s staff in the Division of Corporation Finance and the Office of the Chief Accountant released a Staff Accounting Bulletin (SAB) numbered 121 relating to the accounting for obligations to safeguard crypto assets when an entity holds such crypto assets for platform users. When determining the accounting treatment for a digital asset that is held for a customer, user, or third-party, the Company will first determine if the digital assets are owned by or are being safeguarded by the Company, or its agent. If those actions included the securing of cryptographic key information and/or protecting those crypto assets from loss, then we would determine those assets were being safeguarded. If the determination was made that Company is responsible for safeguarding the digital assets, then the Company will recognize the digital asset as its asset and recognize a corresponding liability to return the digital asset to the customer or depositor in its financial statements according to the guidance of SAB 121.
The Company does not, as of the date of this prospectus, safeguard any digital assets on behalf of users.
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Purchase of Digital Assets
The Company purchases Digital Assets using the following processes. In most cases, except as noted, the Company acts as principal (vs. agent) in these transactions and records the purchase price of a Digital Asset as a Cost of revenue using the gross amount of the transaction. If we were an agent, we would record only the net expenses as the cost of providing those services. These thumbnail sketches of the transactional steps demonstrate how we establish ownership and control of the Digital Asset in exchange for our fiat funds. Although these steps are done sequentially, they are completed from start to finish in a matter of minutes or hours; we treat them as concurrent. The transactions are point in time transactions with a single performance obligation by the Company. In other words, these are simple concurrent exchanges of the Company’s sovereign funds for the customer’s digital asset. We engage in the following transactional steps and activities with respect to our purchases of Digital Assets (i.e., our indefinite-lived intangible assets):
| Types of Digital Asset Purchases | Transactional Steps and Activities | |
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Purchase of Digital Assets via ATMs
How we purchase Digital Assets as a principal
Terms of Service for this activity are filed as Exhibit 10.34 to the registration statement which this prospectus is a part. |
Step 1. |
During this Step, the Customer is the owner and has control of the Digital Asset.
The customer initiates a transaction at an ATM by completing a KYC/AML and customer information process and selecting the appropriate button to sell a Digital Asset to the Company.
The price that the Company will purchase a Digital Asset is displayed on the screen of the Bitcoin ATM. That price is set by the Company by taking the then prevalent price of the Digital Asset and applying a markdown.
The customer sends the Digital Assets by using his or her wallet to broadcast a transaction on the Blockchain Network .
The Company does not custody Digital Assets or fiat currency on behalf of customers. |
| Step 2. |
Once the Company , and its software systems, sees the transaction in the Blockchain and has verified its authenticity, funds, in the form of paper monies, are disbursed from the ATM, thereby completing the transfer of ownership and control of the paper monies, to the customer.
Our only performance obligation is to disburse paper monies from the ATM after receiving and verifying the Digital Asset. This typically occurs within seconds of the customer pressing the appropriate buttons on their digital wallet and depends on the number of bills that need to be dispensed.
We consider ourselves the owner of the Digital Asset once the last paper money bill is disbursed from the ATM and the Company has fulfilled its performance obligation. The Company does not custody Digital Assets or fiat currency on behalf of customers, and in cases where the bill dispenser does not function properly the Company can: issue refunds in the form of the Digital Assets; or direct the customer to a different ATM to retrieve the proper amount of fiat currency. This does not materially affect our cost of Digital Assets.
The Company’s ATMs only purchase Digital Assets for fiat currencies in the form of paper monies. The Company’s ATMs do not exchange one Digital Asset for another. The Company’s ATMs do not purchase Digital Assets in exchange for any forms of fiat currency other than paper monies. The Company’s ATMs do not purchase Digital Assets for bank deposits or other forms of electronic money transmission. | |
| Custody | The Company does not custody Digital Assets or fiat money on behalf of ATM users. | |
| Third Party Reliance | The Company relies on its own fiat currency in the ATM to purchase the Digital Assets. The Company does not contract or engage any other third party to: take custody of the Digital Asset; transfer the Digital Asset into the custody or ownership of the Company; or deliver the physical currency into the possession of the customer. | |
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| Not a Broker | The Company does not actively dispose of the Digital Assets to other third parties or transfer control of the Digital Assets to third parties during the transaction steps described above. If the Company did not have sufficient physical currency to complete Step 2, then the ATM would not allow the initiation of a transaction. | |
| Use of Digital Assets | At a subsequent time, the Digital Assets, indefinite-lived intangible assets, are then owned and controlled by the Company, subject to impairment, and will be used in subsequent activities such as future sales of Digital Assets to ATM or OTC clients. Digital Assets, which are indefinite-lived intangible assets, are not held as “inventory”. | |
| Accounting |
Digital Assets are indefinite-lived intangible assets. An indefinite-lived intangible asset is initially carried at the value determined in accordance with ASC 350-30-30-1, ASC 805-50-30-2, and is not subject to amortization.
Digital Assets purchased through this method are subject to the Company’s impairment policy for impairment of indefinite-lived intangible assets.
The Company records the cost of the Digital Assets acquired as the price paid to the customer, in the form of paper monies dispensed by the ATM. These costs are recorded using the gross amount, as the Company acted as a principal in the transaction.
The performance obligation for this transaction is to disburse fiat currency. Once the last bill falls out of the ATM, the Company would record the journal entries in its books and records for this transaction as a debit to purchases for the amount of cash disbursed from the ATMs and credit to Cash. | |
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Purchase of Digital Assets via OTC
How we purchase Digital Assets as a principal
Terms of Service for this activity are filed as Exhibit 10.35 to the registration statement which this prospectus is a part. |
Step 1. |
During this Step, the client is the owner and has control of the Digital Asset.
The client initiates a transaction by contacting a member of our services team indicating a desire to sell a Digital Asset. This is subsequent to any KYC/AML and customer onboarding processes have been completed.
The customer transfers ownership and control of Digital Assets by using his or her wallet to broadcast a transaction on the Blockchain Network that transfers ownership to the Company.
The Company does not custody Digital Assets or fiat currency on behalf of customers. |
| Step 2. |
Once the Company , either through monitoring software or by work of the client services team, sees the transaction in the Blockchain and verifies the authenticity and amount of the Digital Asset, the client services team completes the transaction with the client. This Step is completed the same day as the Digital Assets are received and typically within 60 to 90 minutes of the transaction being broadcast on the Blockchain Network.
First, the customer service team validates the funds represent a good and proper transaction of Digital Assets. Second the price at which the client will sell the Digital Asset is determined by observing the then prevalent Digital Asset price and applying the appropriate markdown. Finally, a wire is sent from the Company’s bank account to the client’s bank.
The Company does not custody fiat funds on behalf of any third parties. The Company does not allow sales of Digital Assets by agents of third parties. The Company only deals with other principals who have control of their own fiat funds and direct ownership and control of Digital Assets.
Our only Performance Obligation, with respect to this transaction, is to deliver the sovereign funds into the bank account of the client.
Upon completion of this Step, and specifically at the time the wire instructions are sent to the Company’s bank, and for all future Steps for this purchase, the ownership and control of the Digital Asset is held by the Company . | |
| Custody | The Company does not custody fiat funds or Digital Assets on behalf of clients. |
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| Third Party Reliance | The Company relies on its own fiat funds to purchase Digital Assets in this transaction and does not rely on, contract with, or engage any third party to complete this transaction. The Company does not contract or engage any other third party to: take custody of the Digital Asset; or transfer the Digital Asset into the custody or ownership of the Company. | |
| Not a Broker |
The Company may or may not dispose of the Digital Assets to other third parties or transfer control of the Digital Assets to third parties during the transaction steps described above. The time between Steps 1 and 2 can be 60 to 90 minutes and many transactions, of varying types, can be in the process of completion simultaneously.
If the Company did not have the fiat monies necessary to complete the purchase, then the Company would not initiate the transaction in Step 1. | |
| Use of Digital Assets | At a subsequent time, the Digital Assets, indefinite - li v e d intangible assets, are then owned and controlled by the Company , subject to impairment, and will be used in subsequent activities such as future sales of Digital Assets to ATM or OTC clients. Digital Assets, which are indefinite-lived intangible assets, are not held as “inventory”. | |
| Accounting |
Digital Assets are indefinite-lived intangible assets. An indefinite-lived intangible asset is initially carried at the value determined in accordance with ASC 350-30-30-1, ASC 805-50-30-2, and is not subject to amortization.
Digital Assets purchased through this method are subject to the Company’s impairment policy for impairment of indefinite-lived intangible assets which is in accordance with ASC 820.
The Company records the cost of the Digital Assets acquired as the price paid to the customer, in the form of paper monies dispensed by the ATM. These costs are recorded using the gross amount, as the Company acted as a principal in the transaction.
The performance obligation for this transaction is to wire fiat currency. Once the instructions for sending the wire have been successfully transmitted to the Company’s bank, the Company would record the journal entries in its books and records for this transaction as a debit to Purchases for the amount of the outgoing wire and credit to Cash. | |
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Purchase of Digital Assets via Exchange
How we purchase Digital Assets as a principal
Terms of Service for this activity differ by exchange and are available at the websites of various Digital Asset Exchanges. |
Step 1. |
During this step the Digital Assets are owned by other users of a Digital Asset Exchange but the identities of those users are not known by name to the Company.
The Company wires sovereign funds to a Digital Asset Exchange, which are then credited to our account.
The Digital Asset Exchange is the custodian of the Company’s sovereign funds. The Digital Asset Exchange is the custodian for any Digital Assets for which they list markets. |
| Step 2. |
The Company, using its proprietary methods, enters orders into the exchange to purchase Digital Assets. When those orders are filled, the Company records the purchase price as the total cost of the transaction including any exchange fees.
During this Step the Company takes ownership, but not all forms of control over the Digital Assets. The Digital Assets remain in the custody of the Digital Asset Exchange, although the Company has the right to transfer, to access via withdrawal, and all risks and rewards from the fluctuations in the market price of the Digital Asset. The Digital Asset Exchange could hypothecate the asset, loan it to another party, or pledge the Company’s Digital Asset, but must also stand ready to allow the Company to withdraw the Digital Asset. We cite the AICPA Guide in making the determination that we do not have all of the factors of control at this Step. However, we have legal ownership as soon as the buy order is filled on the Digital Asset Exchange and would record the transaction as finalized on our books and records for cost purposes. | |
| Step 3. | The Company initiates the transfer from the Exchange to its wallet which is owned and controlled by the Company and can be used in subsequent activities such as future sales of Digital Assets to ATM or OTC clients. |
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| Custody |
The Company does not custody fiat funds or Digital Assets on behalf of clients.
The Company relies on the Digital Asset Exchange to custody its fiat funds and its digital assets that are involved in this transaction. | |
| Third Party Reliance | The Company relies on its own funds to purchase digital assets. The Company does not rely on, or contract with, or engage any other third-party when purchasing digital assets from an exchange. | |
| Not a Broker | The Company does not actively dispose of the Digital Assets to other third parties or transfer control of the Digital Assets to third parties during the transaction steps described above. If the Company did not have sufficient sovereign funds to complete Step 1, then the Company would not be able to initiate such a wire transfer. | |
| Use of Digital Assets | At a subsequent time, the Digital Assets, indefinite-lived intangible assets, are then owned and controlled by the Company, subject to impairment, and will be used in subsequent activities such as future sales of Digital Assets to ATM or OTC clients. Digital Assets, which are indefinite-lived intangible assets, are not held as “inventory”. | |
| Accounting |
Digital Assets held by the Company, and purchased in this manner, are subject to impairment.
The Company records the cost of the Digital Assets acquired as the price paid on the Digital Asset Exchange including any fees or commissions. These costs are recorded using the gross amount, as the Company acted as a principal in the transaction.
The performance obligation for this transaction is to wire fiat currency. Once the instructions for sending the wire have been successfully transmitted to the Company’s bank, the Company would record the transaction as a debit to Purchases for the amount sent to the Digital Asset Exchange and a credit to Cash. Any funds sent to the exchange that were not fully transacted into digital currencies are recorded as Prepaid assets at the end of the each month. | |
|
Purchase of Digital Assets via OTC Dealer
How we purchase Digital Assets as a principal
A contract, for illustrative purposes only, with one such OTC Dealer for this activity is filed as Exhibit 10.31 |
Step 1. |
The Company enters into an agreement with an OTC Dealer to purchase a Digital Asset, indefinite-lived intangible asset. This is often done by phone or electronic communications.
During this Step, the Company does control the Digital Asset, but has established a contract to purchase a Digital Asset if it fulfills its obligation, which is to wire funds. |
| Step 2. |
The Company sends sovereign funds, in the form of bank wires, to the OTC Dealer.
During this Step, the Company performs its obligation under the contract with the OTC Dealer to wire funds.
The Company does not custody fiat funds on behalf of any third parties. The Company does not purchase Digital Assets on behalf of third parties. The Company does not deal with agents who might intermediate transactions between the Company and an OTC Dealer. The Company only uses its own assets to purchase Digital Assets. | |
| Step 3. |
Once the OTC Dealer is satisfied with the funds that the Company has wired from its own bank accounts and never from any third party, and never using a different Digital Asset, then the transaction moves into the delivery phase.
The OTC Dealer initiates the transfer of the Digital Asset from its wallet to a wallet owned and controlled by the Company. Subsequently, the Digital Asset can be used in activities such as future sales of Digital Assets to ATM or OTC clients.
The Company records the purchase price of the Digital Asset as cost of acquiring the Digital Asset. OTC Dealers quote prices including any and all fees. |
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| Custody | The Company does not rely on any third-party custodian, other than its bank, for custody of its fiat funds related to this transaction. The Company does not rely on any third-party custodian of its Digital Assets related to this transaction. | |
| Third Party Reliance | The Company does not engage any third-party service to perform any of the actions related to the purchase of digital assets from an OTC dealer. The Company only engages directly with the OTC dealer and is not intermediated in the transaction. | |
| Not a Broker | The Company does not actively dispose of the Digital Assets to other third parties or transfer control of the Digital Assets to third parties during the transaction steps described above. The time between Steps 1 and 2 can be 60 to 90 minutes. If the Company did not have the fiat monies necessary to complete the purchase, then the Company would not initiate the transaction in Step 1. | |
| Use of Digital Assets | At a subsequent time, the Digital Assets, indefinite-lived intangible assets, are then owned and controlled by the Company, subject to impairment, and will be used in subsequent activities such as future sales of Digital Assets to ATM or OTC clients. Digital Assets, which are indefinite-lived intangible assets, are not held as “inventory”. | |
| Accounting |
The accounting procedures for the purchase of a Digital Asset via an OTC dealer are the same as for any other purchase of a Digital Asset. Digital Assets are indefinite-lived intangible assets. An indefinite-lived intangible asset is initially carried at the value determined in accordance with ASC 350-30-30-1, ASC 805-50-30-2, and is not subject to amortization.
Digital Assets purchased through this method are subject to the Company’s impairment policy for impairment of indefinite-lived intangible assets which is in accordance with ASC 820.
Our performance obligation for this transaction is to wire fiat currency and record a debit to Cash and credit to Purchase. We consider the transaction finalized when the OTC Dealer’s obligation to transmit Digital Assets is fulfilled. The entire process takes between 60 and 90 minutes and is accounted for as occurring concurrently. The Company has never had a failure to deliver that has resulted in additional expenses or liabilities.
We record this transaction as a single point in time transaction. |
Impact of COVID-19
The significant global outbreak of COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide and has affected our business in several ways. First, we have been unable to ship our ATMs freely between countries. Second, it has restricted the movement of our employees and their ability to both collaborate in-person, and to do some field-service and installation work. In addition, the continued spread of COVID-19 and the imposition of related public health measures have resulted in, and is expected to continue to result in, increased volatility and uncertainty in the crypto-economy. We also rely on third party service providers to perform certain functions. Any disruptions to a service providers’ business operations resulting from business restrictions, quarantines, or restrictions on the ability of personnel to perform their jobs could have an adverse impact on our service providers’ ability to provide services to us.
We are responding to the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the restrictions put in place by governments to protect the population. Our employees and service providers have transitioned to work-from-home.
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Trends and Uncertainties
Our business is subject to the following trends and uncertainties:
| · | Adoption of crypto assets as a medium of exchange by merchants and their trading partners could decrease and reduce the demand for crypto asset transactions at the Company’s Bitcoin ATMs. | |
| · | Adoption of crypto assets as a store of value by investors could decrease and reduce the demand for crypto asset transactions at the Company’s Bitcoin ATMs. | |
| · | The total number of Bitcoin ATMs could reach a saturation in the markets where the Company operates. And the demand, as measured on a per Bitcoin ATM basis, would decrease. |
Components of Results of Operations
Revenue
Since 2019, the Company has derived approximately 95% of its revenue from the sale of Bitcoin through its network of ATM machines and its over-the-counter desk. As the Company expands its operations, the Company expects additional revenue from its white label and ancillary business lines. For the period ended December 31, 2021, white label business operations in El Salvador that started during the year, generated almost 2.5% of total revenue while ancillary business activities contributed less than 0.7% of total revenue.
Cost of Revenue
Cost of revenues consists primarily of expenses related to the acquisition of crypto assets. In accordance with ASC 805-50-30-2, the crypto asset is recorded at cost of acquisition, i.e., it is inclusive of any surcharge or markdown. The Company assigns the costs of crypto assets sold in its revenue transactions on a first-in, first-out basis. The crypto asset acquired is included with other crypto assets owned by the Company and the asset on hand at end of each period is subjected to the same impairment accounting policy.
Digital assets classified as indefinite-lived intangible assets are initially measured at cost and are impaired when the quoted price of the digital asset is less than the price associated with the carrying value of that digital asset. Impairment expense is reflected in impairment of crypto assets held in the consolidated statement of operations.
Additionally, cost of revenues includes the cost of installing the ATMs (including shipping and handling expenses), the costs of operating the ATMs from which crypto assets are sold (including the associated rent expense, related incentives, ATM cash losses, software licensing fees for the ATMs, depreciation, general liability insurance, and utilities), fees paid to service the ATM machines and transport cash to the banks, and outsourced customer support staff for white label and ancillary services.
Operating Expenses
The Company's expenses consist of salaries and benefits, general and administrative expenses, sales and marketing expenses, and other operating expenses. The Company sees opportunities for growth as the economies of the countries it operates in recover from the COVID-19 pandemic and additional machines are deployed. As such, we expect our operating expenses to increase in future periods. As our ATM count and sales volume increase, we expect to see increases in direct salaries and benefits. As we invest in new opportunities, we expect to see increases in sales and marketing, and general and administrative expenses, including public company operating costs.
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Salaries and Benefits
Cost of salaries and benefits includes all employee-related expenses. Employee-related costs recorded in salaries and benefits consist of salaries, taxes, benefits and equity-based compensation.
Sales and Marketing
Sales and marketing expenses consist primarily of costs of general marketing and promotional activities, advertising fees used to drive subscriber acquisition, commissions, the production costs to create our advertisements. The Company doesn’t have employees who solely manage our marketing and brand, and there are no expenses related to salaries and benefits of such employees and other allocated overhead costs.
General and Administrative
General and administrative expenses consist primarily of non-personnel costs, such as legal, accounting, and other professional fees, not expensed under salaries and benefits. In addition, general and administrative expenses include rent and travel costs, and all other supporting corporate expenses not allocated to other departments.
Interest Expense
Interest expense, net consists of interest expense, and includes amortization of debt discount and issuance costs.
Fees on Crypto Asset Borrowings
Fees on crypto asset borrowings is the fair value of fees payable, typically in the crypto asset borrowed, on the outstanding borrowings of crypto assets calculated as percentage of principal outstanding and current price of the crypto asset in which it is payable.
Provision for (Benefit from) Income Taxes
The Company was taxed as a partnership for U.S. federal and state income tax purposes for tax years prior to 2020. There is no provision for income taxes for those years. The Company accrues liabilities for uncertain tax positions that are not more likely than not to be sustained upon examination as of December 31, 2021 and 2020. Interest and penalties related to uncertain tax positions are recorded in accrued liabilities in the accompanying consolidated balance sheets. The Company had no unrecognized tax benefits at December 31, 2021 and 2020, that, if recognized, would affect its annual effective tax rate.
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Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The table below sets forth, for the periods presented, certain historical financial information.
| Year Ended December 31 | ||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||
| (in thousands, except number of shares) | ||||||||||||||||
| Revenues | $ | 81,747 | $ | 68,937 | $ | 12,810 | 19% | |||||||||
| Cost of revenues | 76,178 | 62,390 | 13,788 | 22% | ||||||||||||
| Gross profit | 5,569 | 6,547 | (978 | ) | (15% | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Technology and development | 143 | 86 | 57 | 66% | ||||||||||||
| General and administrative | 4,153 | 3,070 | 1,083 | 35% | ||||||||||||
| Sales and marketing | 647 | 286 | 361 | 126% | ||||||||||||
| Theft of bitcoin | 1,600 | – | 1,600 | n.m. | ||||||||||||
| Other operating expenses | 231 | 55 | 176 | 320% | ||||||||||||
| Total operating expenses | 6,774 | 3,497 | 3,277 | 94% | ||||||||||||
| Income (loss) from operations | (1,205 | ) | 3,050 | (4,255 | ) | (140% | ) | |||||||||
| Fair value adjustment on crypto asset borrowing derivatives | 515 | 1,061 | (546 | ) | (51% | ) | ||||||||||
| Interest expense | 661 | 990 | (329 | ) | (33% | ) | ||||||||||
| Fees on borrowings | 341 | 466 | (125 | ) | (27% | ) | ||||||||||
| Other (income) expense | 39 | (55 | ) | 94 | 171% | |||||||||||
| Income (loss) before income taxes | (2,761 | ) | 588 | (3,349 | ) | (570% | ) | |||||||||
| Income tax expense | 883 | 428 | 455 | 106% | ||||||||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | $ | (3,804 | ) | n.m. | |||||||
| Comprehensive income (loss) | ||||||||||||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | $ | (3,804 | ) | n.m. | |||||||
| Foreign currency translation adjustment | (60 | ) | 20 | (80 | ) | (400% | ) | |||||||||
| Comprehensive income (loss) | $ | (3,704 | ) | $ | 180 | $ | (3,884 | ) | n.m. | |||||||
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Revenue
| Year Ended December 31 | ||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
| Athena ATM | $ | 63,097 | $ | 55,268 | $ | 7,829 | 14% | |||||||||
| Over-the-counter | 15,874 | 13,579 | 2,295 | 17% | ||||||||||||
| White label | 2,083 | – | 2,083 | n.m. | ||||||||||||
| Ancillary | 584 | – | 584 | n.m. | ||||||||||||
| BitQuick, and other | 109 | 90 | 19 | 21% | ||||||||||||
| $ | 81,747 | $ | 68,937 | $ | 12,810 | 19% | ||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue | ||||||||||||||||
| United States | $ | 78,624 | $ | 68,134 | $ | 10,490 | 15% | |||||||||
| El Salvador | 2,538 | – | 2,538 | n.m. | ||||||||||||
| International | 585 | 803 | (218 | ) | (27% | ) | ||||||||||
| $ | 81,747 | $ | 68,937 | $ | 12,810 | 19% | ||||||||||
Athena ATM revenue increased $7,829,000 or 14%. Average transaction size for all crypto assets increased from $523 to $656, or 25% while number of transactions decreased from 105,500 to 96,132, or 9%. Number of ATMs increased from 132 to 298, or 126%. The table below shows Bitcoin sales in Athena ATM.
| Bitcoin Sales (ATM) | Twelve Months Ended December 31 | |||||||||||
| 2021 | 2020 | % Change | ||||||||||
| Quantity sold | 1,154 | 4,234 | (73% | ) | ||||||||
| Average selling price | $ | 52,902 | $ | 12,767 | 314% | |||||||
| Average mark up | 14.50% | 15.70% | -120 bps | |||||||||
| % Athena ATM revenue (1) | 97% | 98% | ||||||||||
___________________
Note: n.m. defined as not meaningful.
(1) Ethereum, Litecoin, and BCH accounted for the remaining revenue.
Over-the-counter revenue increased $2,295,000 or 17%. Average transaction size for all crypto assets increased from $32,381 to $78,817 or 135% while number of transactions decreased from 419 to 209, or 50%. The table below shows Bitcoin sales in Over-the-counter.
| Bitcoin Sales (AIS/OTC) | Twelve Months Ended December 31 | |||||||||||
| 2021 | 2020 | % Change | ||||||||||
| Quantity sold | 303 | 1,306 | (77% | ) | ||||||||
| Average selling price | $ | 47,806 | $ | 10,228 | 367% | |||||||
| Average mark up | 3.98% | 4.60% | -62bps | |||||||||
| % Over-the-counter revenue (1) | 91% | 98% | ||||||||||
____________________
Note: n.m. defined as not meaningful.
(1) Ethereum and Litecoin accounted for the remaining revenue in 2021 and in 2020. BitQuick and other revenue increased $19,000 or 22% due to changing customer preferences.
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Cost of Revenues and Gross Profit
Cost of revenues is comprised primarily of the expenses related to the acquisition of crypto assets sold and the costs of operating the ATMs from which the crypto assets are sold. For the year ended December 31, 2021 and 2020, the expenses related to the acquisition of crypto assets sold were $69,740,000 and $59,540,000, respectively. Impairment of crypto assets held for the year ended December 31, 2021 and 2020 were $44,000 and $35,000 respectively. The increase in expenses related to acquisition of crypto assets sold was primarily a result of the increased sales of crypto assets. For the year ended December 31, 2021 and 2020, the costs of operating the ATMs were $5,385,000 and $2,850,000, respectively. Vendors are paid in both sovereign and crypto currency. The payment of these expenses is timed closely with the recognition of the expense. The appropriate gain or loss on these transactions are recognized as part of Other (income) expenses in the Consolidated Statement of Operations and Comprehensive Income. The increase in operating the ATMs was primarily driven by the 126% increase in ATMs installed.
Gross profit decreased $979,000 or 15%, due to slower Athena ATM revenue growth in the U.S. vs. the direct expenses to operate the existing and newly installed machines.
Operating Expenses
Total operating expenses increased $3,277,000 or 94%, primarily due to theft of bitcoin of $1,600,000 and general and administrative expenses of $1,083,000 detailed in the table below.
| Year Ended December 31 | ||||||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| General and administrative expenses | $ | 1,398 | $ | 435 | 963 | 221% | ||||||||||
| Salaries and benefits | 2,350 | 2,429 | (79 | ) | (3% | ) | ||||||||||
| Travel | 309 | 39 | 270 | 692% | ||||||||||||
| Rent | 96 | 167 | (71 | ) | (43% | ) | ||||||||||
| $ | 4,153 | $ | 3,070 | $ | 1,083 | 35% | ||||||||||
General and administrative expenses increased $1,083,000 or 35%, to business expansion and infrastructure investment.
| Year Ended December 31 | ||||||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Advertising | $ | 258 | $ | 151 | $ | 107 | 71% | |||||||||
| Salaries and benefits | 365 | 132 | 233 | 177% | ||||||||||||
| Other selling and marketing | 24 | 3 | 21 | 700% | ||||||||||||
| $ | 647 | $ | 286 | $ | 361 | 126% | ||||||||||
Sales and marketing expenses increased of $361,000 or 126%, due to branding and building the formal marketing and sale infrastructure.
Fair Value Adjustment on Crypto Asset Borrowing Derivatives
| Year Ended December 31 | ||||||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Fair value adjustment on crypto asset borrowing derivatives | $ | 515 | $ | 1,061 | $ | (546 | ) | (51% | ) | |||||||
Fair value adjustment on crypto asset borrowing derivatives decreased $546,000 or 51%, due to the full payment of the outstanding amount of Bitcoin borrowed (host contract) in 2021. See Note 10 to our Audited Consolidated Financial Statements for the year ended December 31, 2021 and 2020.
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Interest and Fees on Crypto Asset Borrowings
| Year Ended December 31 | ||||||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Interest expense | $ | 661 | $ | 990 | $ | (329 | ) | (33% | ) | |||||||
| Fees on crypto asset borrowings | 119 | 337 | (218 | ) | (65% | ) | ||||||||||
| Fees for virtual vault services | 222 | 129 | 93 | 72% | ||||||||||||
Interest expense decreased $329,000 or 33%, of which $224,000 was due to an accounting standard update (ASU 2020-06) and the remainder to a reduction in long-term debt.
Fees on crypto asset borrowings decreased $218,000 or 65%. The net decrease is primarily due to a 30 bitcoin decrease in the principal balance outstanding (30 bitcoin as of December 31, 2020 and 0 bitcoin as of December 31, 2021). In addition to the $218,000 reduction due to the decreased principal balance there was a decrease in the fair value adjustment on crypto asset borrowings of $546,000 from December 31, 2020 to December 31, 2021.
Income Tax Expense (Benefit)
Income tax expense increased $455,000, primarily due to income tax expense of $700,000 paid to the government of El Salvador and statutory federal tax benefit on net loss of $245,000.
Net Loss Attributable to Common Stockholders
We realized a net loss attributable to common stockholders of $3,644,000, or (0.00090) cents per share, for the year ended December 31, 2021, compared to a net income attributable to common stockholders of $160,000, or 0.00004 per share, during the year ended December 31, 2020, representing a decrease in net income attributable to common stockholders of $3,804,000.
Financial Condition
The table below sets forth certain financial information for the periods presented.
| December 31 | December 31 | Y-o-Y(1) | Y-o-Y(1) | |||||||||||||
| (in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||
| Current assets | $ | 7,948 | $ | 2,201 | $ | 5,747 | 261% | |||||||||
| Property and equipment, net | 2,903 | 788 | 2,115 | 268% | ||||||||||||
| Others | 4,150 | 3,486 | 664 | 19% | ||||||||||||
| Total | $ | 15,001 | $ | 6,475 | $ | 8,526 | 132% | |||||||||
| Current liabilities | $ | 11,999 | $ | 4,312 | $ | 7,687 | 178% | |||||||||
| Long-term liabilities | 10,576 | 5,435 | 5,141 | 95% | ||||||||||||
| Shareholders’ deficit | (7,574 | ) | (3,272 | ) | (4,302 | ) | (131% | |||||||||
| Total | $ | 15,001 | $ | 6,475 | $ | 8,526 | 132% | |||||||||
_______________________
(1) Percentage change from December 31, 2020 to December 31, 2021.
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As of December 31, 2021, we had total assets of $15,001,000 compared to total assets of $6,475,000 as of December 31, 2020. This increase was primarily due to an increase in accounts receivable of $1,531,000, restricted cash held for customers of $3,671,000, which is offset by a liability to customers of $3,671,000, and other advances of $845,000. The increase in accounts receivable was primarily due to revenue from our contracts with the Department of Treasury (Ministerio de Hacienda) of El Salvador. The Company has collected $1,577,000 of the amount due as of May 12, 2022, of the accounts receivable at December 31, 2021. There was an increase of $2,220,000 due to investments in property and equipment, primarily ATM machines in El Salvador and U.S. We had no balance for accounts receivable and restricted cash held for customers as of December 31, 2020.
Our crypto assets held was $842,000 as of December 31, 2021, as compared to $1,343,000 as of December 31, 2020. This decrease was due to lower levels of crypto assets held and not restocking to match the bitcoin borrowings after the theft of 29 bitcoin in March 2021. Crypto asset borrowings from a related party decreased from $881,000, fair value of 30 bitcoin, as of December 31, 2020, to $0, fair value of 0 bitcoin, as of December 31, 2021, as we to repaid all borrowed bitcoin. We do not intend to borrow additional crypto assets in the foreseeable future and intend to raise equity funds or debt capital to finance working capital and investment as needed. No assurances can be made that we will be successful in such efforts.
Our leased assets increased from $2,067,000 as of December 31, 2020, to $2,318,000 as of December 31, 2021, primarily due to the increase in locations leased for ATMs. There was also an equivalent decrease in the Company’s lease liabilities (current and long-term). The current portion of the Company’s long-term debt increased from $1,354,000 as of December 31, 2020 to $1,959,000 as of December 31, 2021, due to of $1,955,000 becoming due within one year offset by a decrease of $1,350,000 debt repaid during the period using cash flows from operations.
The Company increased its capital resources in 2021 over the twelve months ended December 31, 2020. Our cash on hand increased by $2,760,000 compared to the balance on December 31, 2020, primarily due to increase in restricted cash held for customers of $3,671,000 offset by decreases in cash and cash equivalents of $911,000.
Liquidity and Capital Resources
As of December 31, 2021, we had current assets of $7,948,000 and current liabilities of $11,999,000, including the current portion of the long-term note held by Consolidated Trading of $1,490,000 and advances for revenue contracts of $3,500,000, resulting in a deficit working capital of $4,051,000. The revenue contract above refers to the sale of IP Software to the government of El Salvador which, for accounting purposes, is being termed Advances for revenue contract until such time as the XPay acquisition has been finalized.
Our working capital needs are influenced by our level of business operations and generally increase with higher levels of revenue. We strive to minimize the amount of working capital deployed to enhance liquidity. During the year, we raised $4,985,000 in 6% Convertible Debentures in addition to a net increase $141,000 in additional debt. The additional financing provided sufficient working capital for current needs. The Company continues its efforts to supplement financial resources through raising equity and debt capital as well as generating cash inflow from operations. No assurances can be made that we will be successful in our equity and/or debt fund raising efforts.
We measure our liquidity internally for management purposes on an operational basis which we define as cash and accounts receivable less accounts payable and accrued expenses, other short-term liabilities, income tax payable and liabilities for cash held for customer (also in cash as restricted, net $0 effect) and excluding any short-term financing. As of December 31, 2021, operational working capital was $1,461,000 and as of December 31, 2020, was $1,171,000. Management believes this measurement of liquidity is a more accurate reflection of liquidity to facilitate operations and how we manage our daily obligations.
Our ATM business has two significant components of working capital – holdings of crypto assets and cash holdings in the machines and in transit, i.e., once it has been removed from the machines and it is the process of being counted and credited to our account with the appropriate banking institution. We must buy our holdings in cash and don’t get credit from our counterparties. On average, we hold 3 to 5 days of anticipated sales of Bitcoin and 7 to 10 days of anticipated sales of Ethereum, Litecoin, and BCH holdings. We strive to keep this period short to reduce the effect of changes in crypto asset/U.S. dollar exchange rates on our business and to minimize our working capital. Our cash logistics contractors restock or remove cash from our machines periodically, the frequency of this service determined by a host of operational considerations like historical trend of sales, current levels of cash in the machines, route considerations, public holidays, and incremental cost of each removal etc. We employ a data driven strategy based on factors we have developed over the years to reduce the amount of cash deployed and to keep it as low as possible. It currently takes from 3 to 7 days from the time the cash is picked up from the machines to be credited to our account. An increase in this period or amount impacts our ability to restock our holdings of crypto assets in a timely manner to avoid a situation where there are insufficient amounts of crypto assets to fulfill customer orders.
For the fiscal year ending December 31, 2021, the average cash balance was $4,092 per machine in the United States.
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The employees of the Company regularly, at intervals of 3-hours or less, monitor the balance of Digital Assets owned and controlled by the Company. When employees of the Company, using their professional discretion, believe that there are insufficient amounts of Digital Assets owned and controlled by the Company, they initiate the purchase of additional Digital Assets. There have been periods of time, each less than 24-hours, where there have not been sufficient amounts of Digital Assets owned and controlled by the Company to execute future customer transactions. During those times, no customer transactions are permitted. The employees of the Company use the working capital of the Company to purchase more Digital Assets, during times when banking transactions are permitted, and once those Digital Assets are delivered to the Company and owned and controlled by the Company, customer transactions are again permitted.
Our OTC desk (phone sales) has a lower level of capital required since we only function on days other market participants and banks are operating and our trades are cash settled every day. The Company does not separately hold crypto assets earmarked for ATM sales as opposed to phone sales and the Company holds approximately 3 or 4 days’ worth of crypto assets needed for transactions at its ATMs. We strive to minimize the amount of working capital deployed for better financial results.
On July 12, 2021, the Company signed a loan restructuring agreement for the remaining of outstanding Bitcoin balance as of that date. Under the agreement Mr. Komaransky, the Company’s largest shareholder, agreed to extend the maturity for the entire amount of the loan to May 31, 2022, and certain other modified terms which included the conversion of the borrowings into a U.S. dollar loan when the published exchange rate of Bitcoin for U.S. dollars is equal to or exceeds a ratio of 1 bitcoin: U.S. $75,000 at the first time and on the first date after June 30, 2021. The Company, under the agreement, created a first priority security interest and lien on all its property excluding property that has been given as collateral to Consolidated Trading Futures, LLC (“CTF”) until the repayment of the outstanding debt to CTF. Further, the Company agreed to pay accelerated weekly payments of $35,000 in bitcoin. As of December 31, 2021, there is no remaining balance under the loan restructuring agreement. We continue to make efforts to obtain additional resources to meet the financial needs of our business.
In the 2022 fiscal year, the Company has one materially significant debt due, the note held by CTF (the “Consolidated Note”). As of December 31, 2021, the principal balance of the Consolidated Note was $1,490,000. The Company makes monthly interest payments on the Consolidated Note, but as of the date of this prospectus, has not paid down the principal. To retire this debt in 2022, the Company expects to use cash inflow from operations and other working capital.
The Company has no material commitments for capital expenditures.
Loan Agreement with the Company’s Director and Shareholder
On August 22, 2018, the Company entered into a crypto asset borrowing agreement with Mr. Komaransky, the Company’s principal shareholder and a former director. Under this agreement, the Company borrowed 30 bitcoin initially due and payable on August 22, 2019. The borrowing fee on the loan as defined in the agreement, is 13.5% of the outstanding principal amount. On July 12, 2021, the Company and Mr. Komaransky entered into a borrowing restructuring agreement for the remaining outstanding Bitcoin balance as of that date. Under the terms of the agreement, the maturity of the borrowings was extended to May 31, 2022 and the Company agreed to make weekly repayments of $35,000 in Bitcoin. On a weekly basis, the Company intends to utilize cash flows from operations and other financings to obtain the Bitcoin necessary for the weekly repayments. As discussed in further detail in Notes 1 and 5 to our consolidated financial statements for the year ended December 31, 2020 and 2019, the crypto assets borrowings are accounted for as hybrid instruments, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying crypto asset. The host contract is not accounted for as a debt instrument because it is not a financial liability and is carried at the fair value of the assets acquired on the date acquired. The embedded derivative is accounted for at fair value (based on the underlying Bitcoin value), with changes in fair value recognized in other non-operating expenses in the consolidated statements of operations and comprehensive income. The host contract and embedded derivative are presented together in Related party crypto asset borrowings in the consolidated balance sheets.
The Company intends to utilize cash from operations to repay its related party crypto asset borrowing obligation (not directly related to the theft of Bitcoin). On July 12, 2021, the Company entered into a borrowing restructuring agreement for the remaining outstanding bitcoin balance as of that date. Under the terms of the agreement, the maturity of the borrowings was extended to May 31, 2022 and the Company agreed to make weekly repayments of $35,000 in Bitcoin.
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Cash Flow
The following summarizes our cash flow for the year ended December 31, 2021 and 2020:
| Year Ended December 31 | ||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net cash used in operating activities | $ | (4,145 | ) | $ | (6,057 | ) | $ | 1,912 | 32% | |||||||
| Net cash provided by investing activities | 1,779 | 5,461 | (3,682 | ) | (67% | ) | ||||||||||
| Net cash provided by financing activities | 5,126 | 2,345 | 2,781 | 119% | ||||||||||||
| Net increase in cash and cash equivalents | 2,760 | 1,749 | 1,011 | 58% | ||||||||||||
| Cash and cash equivalents, beginning of period | 2,085 | 336 | 1,749 | 521% | ||||||||||||
| Cash and cash equivalents, end of period | $ | 4,845 | $ | 2,085 | $ | 2,760 | 132% | |||||||||
Cash flow from operating activities
Operating activities used $4,145,000 in cash for the twelve months ended December 31, 2021, compared to a use of $6,057,000 for the twelve months ended December 31, 2020 representing a decrease in cash used of $1,912,000. The changes in sources of cash from operating activities for the twelve months ended December 31, 2021, comprised primarily of an increase from advances for revenue contracts $3,500,000; increase from restricted cash held for customers of $3,671,000, decrease of $379,000 in non-cash charges and increase in accounts payable and other liability of $340,000. This was offset by the increase of $909,000 in crypto asset payments for expenses, theft of bitcoin $1,600,000, gain on sale of crypto assets $194, increase in value of accounts receivable by $1,531,000, increase in advances of $730,000, increase in prepaid expenses and other assets of $1,208,000, and an increase in net loss of $3,804,000 and all other at $650,000. Operating activities used less cash in the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020.
Cash flow from investing activities
Our investing activities provided $1,779,000 in cash for the year ended December 31, 2021 which included a cash inflow of $78,972,000 from sale of crypto assets offset by $74,973,000 of cash outflow on purchase of crypto assets, and $2,220,000 towards purchase of property and equipment to expand our fleet of ATMs including $1,194,000 as investment in our fleet of white label ATMs and other assets in El Salvador. For the year ended December 31, 2020, investing activities provided $5,461,000 which included a cash inflow of $68,818,000 from sale of crypto assets offset by $62,498,000 of cash outflow on purchase of crypto assets, and $859,000 towards purchase of property and equipment to expand our fleet of ATMs.
Cash flow from financing activities
For the year ended December 31, 2021, net cash provided by financing activities was $5,126,000, primarily due to the issuance of issuance of 8% convertible debt for $4,985,000 and $141,000 proceeds from additional net debt. For the year ended December 31, 2020, net cash provided by financing activities was $2,345,000, primarily due to the issuance of convertible debt for $3,125,000 and repayment of debt for $731,000.
Capital Expenditure Commitments and Off-Balance Sheet Arrangements
The Company has no material commitments for capital expenditures. The Company is not a party to any off-balance sheet transactions except for the safeguarding of certain assets for the government of El Salvador. Under our agreements with the government of El Salvador, the Chivo branded ATMs are provided with operating capital including USD and Bitcoin, over which the Company has responsibilities to safeguard, manage the loading and unloading of the ATMs, and maintain a balance between USD and Bitcoin by entering trades within the Chivo systems. We have no guarantees or obligations other than those which arise out of normal business operations.
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Critical Accounting Policies and Estimates
Our financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate the accounting policies and estimates used to prepare the financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position. Our critical accounting estimates are more fully discussed in Note 2 to our unaudited financial statements contained herein.
Revenue Recognition
The Company derives its revenues primarily from two sources: (i) point of sale transactions of crypto assets at ATMs and (ii) customized investor trading services for the sale or purchase of crypto assets. From the third quarter of 2021, it also has revenue from (i) white label operations in El Salvador and (ii) some ancillary activities. The Company adopted ASC 606, Revenue Recognition, effective January 1, 2019, using the modified retrospective method. Under ASC 606, Revenue Recognition, the Company recognizes revenue at the point of sale of these products or services to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. The Company determines revenue recognition through the following steps:
| · | Identification of the contract, or contracts, with a customer |
| · | Identification of the performance obligations in the contract |
| · | Determination of the transaction price |
| · | Allocation of the transaction price to the performance obligations in the contract |
| · | Recognition of revenue when, or as, we satisfy a performance obligation. |
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. The Company’s revenue associated with ATM and investor services are recognized at a point in time when the crypto asset is delivered to the customer. We recognize operating fee revenues from the white label services per our agreement with the government of El Salvador on a monthly basis, at the end of the month, when the services for the machines have been completed. The payment terms for on the agreement with the government of El Salvador is net 60.
The Company controls the service as it is primarily responsible for fulfilling the service and has discretion in establishing pricing with its customers. Adoption of the new revenue standard resulted in no changes to the Company’s accounting policies for revenue recognition.
Crypto Asset Borrowings
The Company borrows crypto assets. Such crypto assets borrowed by the Company are reported in crypto assets held on the Company’s consolidated balance sheets.
The borrowings are accounted for as hybrid instruments, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying crypto asset. The host contract is not accounted for as a debt instrument because it is not a financial liability, is carried at the fair value of the assets acquired and reported in crypto asset borrowings in the consolidated balance sheets. The embedded derivative is accounted for at fair value, with changes in fair value recognized in other non-operating expenses in the consolidated statements of operations. We evaluate all of our loan contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815, Derivatives and Hedging. The embedded derivatives are included in crypto asset borrowings in the consolidated balance sheets.
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Stock-based Compensation
The Company accounts for stock-based compensation according to the provisions of ASC 718, Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and non-vested stock awards, based on the fair values on the dates they are granted. The Company records the fair value of awards expected to vest as compensation expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards, including the options expected term, expected volatility of the underlying stock, risk-free rate, and expected dividends. The expected volatility is based on the average historical volatility of certain comparable publicly traded companies within the Company’s industry. The expected term assumptions are based on the simplified method, due to insufficient historical exercise data and the limited period of time that the Company’s equity securities have been available for issuance. The risk-free interest rates are based on the U.S. Treasury yield in effect at the time of grant. The Company does not expect to pay dividends on common stock in the foreseeable future; therefore, it estimated the dividend yield to be 0%.
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Overview
The Company is focused on developing, owning, and operating a global network of Athena-branded Bitcoin ATM machines, which are free standing kiosks that permit customers to buy or sell crypto assets in exchange for cash (banknotes) issued by sovereign governments - often referred to as fiat currencies.
We place our machines in convenience stores, shopping centers, and other easily accessible locations. Our network presently includes Athena Bitcoin ATMs in 10 states and 3 countries in Central and South America. See table below for our ATMs breakdown, as of December 31, 2021.
| Country | Number of Athena Bitcoin ATMs (as of December 31 , 2021) |
Type of Fiat Currency | |
| Total | Two-Way | ||
| United States | 186 | 129 | U.S. Dollar |
| El Salvador | 3 | 3 | U.S. Dollar |
| Argentina | 12 | 12 | Argentine peso |
| Argentina | - | - | U.S. Dollar |
| Colombia | 17 | 17 | Colombian peso |
We offer Bitcoin, Ethereum, Litecoin, and Bitcoin Cash (BCH) for sale at all our ATM machines. We also buy these crypto assets at some of our ATM machines (also known as two-way ATMs). The cash withdrawal limit from our two-way ATMs is $2,000 per transaction. We replenish our ATMs about twice a week or depending on usage, using bonded security companies.
We also operate an over-the-counter (“OTC”) desk for private clients and trade customers of the Company. Customers typically interact with the Company on the phone for transaction sizes in dollar terms greater than $10,000 and on some occasions, for crypto assets not included in our ATMs. Since 2019, we have been typically buying and selling Bitcoin through our OTC desk, but we have also executed transactions in Ethereum, Litecoin, and in some cases, altcoins such as Bitcoin SV, Ripple, Siacoin, Tether, and Tron. As of the date of this prospectus, we do not transact in any crypto assets except Bitcoin, Ethereum, Tether, Litecoin, and BCH. We will update this prospectus if we decide to transact in other crypto assets. Such a change would only happen if there were significant customer demand for a specific crypto asset and that crypto asset was available to us through multiple trading partners, digital asset exchanges and digital asset brokers.
Additionally, we operate ATMs and point-of-sale (“POS”) terminals on behalf of certain customers, typically under their brand, which we refer to as “white label service”. This white label service is comprised of maintaining ATMs and POS terminals to facilitate the exchange of crypto assets for cash, and vice-versa, by our customers with their counterparties. We do not control the service in this case as we are not responsible for fulfilling the exchange contract or establishing pricing at these ATMs and POS terminals. Currently, the government of El Salvador is our only white label service customer. The Company has begun working with the government of El Salvador in late June 2021 to support the implementation of its Bitcoin Law. In August 2021, we entered into certain agreements for services to be rendered by the Company to the Department of Treasury (Ministerio De Hacienda) of El Salvador, pursuant to which we have installed and are operating 200 Chivo Bitcoin ATMs in El Salvador, 10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S., 45 Chivo Bitcoin ATMs in other U.S. locations, and importing and delivering 950 Chivo point-of-sale (“POS”) terminals for local businesses in El Salvador to transact with Bitcoin. As of December 31, 2021, we were operating 200 white label ATMs in El Salvador for the Department of Treasury (Ministerio de Hacienda) of El Salvador. We were not operating any POS terminals on behalf of any clients as of December 31, 2021.
By increasing our geographic service area, including our expansion of operations to El Salvador, we aim to make Athena Bitcoin into a global financial services company that can connect the world’s cash to the world of crypto assets.
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Background and Corporate History
The Company was incorporated in the state of Nevada in 1991 under the name “GamePlan, Inc.” for the sole purpose of merging with Sunbeam Solar, Inc., a Utah corporation, which merger occurred as of December 31, 1991 with GamePlan, Inc. as a sole surviving entity. The Company was involved in various businesses, including, gaming and other consulting services, prior to becoming a company seeking acquisitions (a “shell company” as defined in Rule 405 of the Securities Act). The Company was a reporting issuer under the Securities and Exchange Act of 1934 (the “Exchange Act”) from 1999 until 2015 when it filed Form 15 pursuant to Rule 12g-4(a)(1) with the Commission.
On March 28, 2014, the Company entered into an Agreement and Plan of Merger (the “Plan”) with VPartments; VPartments Acquisition Corp., a Georgia corporation that was formed as a wholly-owned subsidiary of the Company (the “Merger Subsidiary”); and Mark D. Anderson, Sr., who was the beneficial owner of approximately 60.1 percent of the issued and outstanding shares of common stock of VPartments. Under the terms of the Plan, the parties agreed that at the closing, the Merger Subsidiary would merge with and into VPartments, with each 7.52034545757 then-outstanding shares of VPartments common stock to be converted into the right to receive one share of the Company’s common stock. The Company issued a total of 150,525,000 “restricted” shares of its common stock to the stockholders of VPartments Inc., causing such stockholders to become the collective owners of approximately 90.8 percent of the Company’s issued and outstanding shares of common stock. In connection with the change of control pursuant to the Plan, the Company’s then current officers and directors resigned, and the new officers and directors were appointed. The Company (GamePlan, Inc.) had no operations and was seeking acquisitions from April, 2014 until January 30, 2020. The Company (GamePlan, Inc.) did not enter into any debt obligations during that period.
In July, 2018, Magellan Capital Partners, Inc., a Wyoming corporation, became a majority shareholder of the Company after purchase of 90,421,378 shares of common stock (approximately 55%) in a private transaction with a majority shareholder, Mark D. Anderson. Following the acquisition of control, Dempsey Mork, a beneficial owner of Magellan Capital Partners, Inc., was appointed a sole officer and director of the Company, and subsequently elected as its sole director in November, 2018 shareholders’ meeting. On December 6, 2018, Mr. Mork entered into an agreement with Robert Berry, a former officer and director, to cancel all debts due to Mr. Berry from the Company in consideration for the issuance of the total of 90,421,000 shares of common stock of the Company to Mr. Berry and another shareholder.
On January 14, 2020, the Company entered into a Share Exchange Agreement (the “Agreement”), by and among the Company, Athena Bitcoin, Inc., a Delaware corporation (“Athena Bitcoin”) incorporated in 2015, and certain shareholders of Athena Bitcoin. The Agreement provides for the reorganization of Athena Bitcoin, with and into the Company, resulting in Athena Bitcoin becoming a wholly-owned subsidiary of the Company (the “Share Exchange”). GamePlan, Inc, had a total of 486,171,020 shares outstanding prior to the Share Exchange. The Agreement is for the exchange of 100% shares of the outstanding common stock of Athena Bitcoin, for 3,593,644,680 shares of GamePlan, Inc. common stock (an exchange rate of 1,244.69 shares of common stock of GamePlan, Inc. for each share of Athena Bitcoin common stock). The exchange rate was determined by the Board of Directors of Athena Bitcoin based on the arbitrary valuation of Athena Bitcoin by its Board of Directors and negotiations with the principals of GamePlan, Inc. No independent valuation was obtained. The authorized capital stock of Athena Bitcoin immediately preceding the closing of the Share Exchange consisted of (i) 3,000,000 shares of the Athena Bitcoin’s common stock, par value $0.001 per share, authorized, of which: 2,887,175 shares were issued and outstanding immediately prior to the Share Exchange, which included the following conversion events in connection with the Share Exchange: (i) 1,328,381 shares resulting from the conversion of certain Simple Agreements for Future Tokens (“SAFT”) issued by Athena Bitcoin in 2018 pursuant to the SAFT provisions providing for the conversion into Athena Bitcoin equity under certain conditions (see SAFT Investments, page 56) were exchanged for 1,653,425,404 shares of the Company’s common stock at a conversion price of $4.09; (ii) 93,106 shares resulting from the exercise of certain outstanding warrants at an average exercise price of $2.00 per share, issued by Athena Bitcoin were exchanged for 115,888,490 shares of the Company’s common stock (see also Description of Capital Stock – Warrants to Purchase Common Shares, page 69 and Note 16 to the Company’s audited financial statements for the fiscal years ended December 31, 2019 and 2020); (iii) 126,646 shares resulting from the exercise of stock options issued by Athena Bitcoin were exchanged for 157,635,309 shares of the Company’s common stock (see Note 10 to the Company’s audited financial statements for the fiscal years ended December 31, 2019 and 2020); and (iv) 336,692 shares resulting from the conversion of the Swingbridge Conversion and Release Agreement were exchanged for 419,078,082 shares of the Company’s common stock (see Swingbridge Crypto LLC Loans, page 54 and Note 6 to the Company’s audited financial statements for the fiscal years ended December 31, 2019 and 2020). The closing of the Share Exchange transaction occurred as of January 30, 2020. Following the closing date of the transaction, there were 4,079,815,704 shares of the Company’s common stock outstanding. The Company had 5,000,000,000 shares of common stock authorized as of the closing date of the Share Exchange transaction. Subsequently, in May, 2020, following the Company’s Convertible Debenture financing (see Recent Financings below), the Company filed its amended and restated articles of incorporation authorizing a total of 4,409,605,000 shares of common stock.
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The Company approved the name change from “GamePlan, Inc.” to "Athena Bitcoin Global" on March 10, 2021 by the unanimous consent of its Board of Directors and a majority consent of its shareholders. The Company filed an amendment to its Articles of Incorporation with the Secretary of State of the state of Nevada on April 6, 2021, with the effective date of April 15, 2021. The Company’s name change, and trading symbol change to “ABIT” on OTC Pink Market were declared effective by FINRA on June 9, 2021. The Company’s Board of Directors and its shareholders approved a 10-for-1 reverse stock split as of October 15, 2021.
The Company, Athena Bitcoin Global, is a Nevada corporation which owns our 100% of our operating subsidiary, Athena Bitcoin, Inc., a Delaware corporation. Our domestic business operations are conducted by Athena Bitcoin, Inc. We also have operating subsidiaries in the specific countries where we operate, or in the case of Mexico, where we previously operated until 2019. Our wholly-owned subsidiaries located outside of the United States are: Athena Bitcoin S. de R.L. de C.V., incorporated in Mexico; Athena Holdings Colombia SAS, incorporated in Colombia; Athena Holding Company S.R.L, incorporated in Argentina; Athena Holdings of PR LLC, incorporated in Puerto Rico; and Athena Holdings El Salvador, S.A. de C.V., incorporated in El Salvador.
Our corporate office is located at 1332 N Halsted St., Suite 403, Chicago, IL 60642, and our telephone number is 312-690-4466. Our website is www.athenabitcoin.com. The information on, or that can be accessed through, our website is not part of this prospectus and is not incorporated by reference herein.
Recent Financings of Athena Bitcoin Global
On June 22, 2021, the Company commenced its private offering of up to $5,000,000 of 6% Convertible Debentures to accredited investors only. The maturity date on the 6% Convertible Debentures is two years after the date of issuance. The investor has an option to convert the principal amount of the Debenture into shares of common stock of the Company at a conversion price equal to the lesser of (i) $0.10 or (ii) 25% less than the twenty trading day (20-trading day) volume weighted average price (“VWAP”) of the common stock based on the closing prices per share reported by the OTC Pink Market operated by the OTC Markets Group, Inc., for said twenty-day trading period, commencing ten-trading days prior to the date of election to convert the Debenture and ending ten-trading days after such election is made and the notice of conversion has been submitted to the Company. The investor is required to convert the Debenture if the Company’s common stock is admitted or listed for trading on a national stock exchange or if certain corporate transactions occur, such as merger, sale or change of control of the Company. The accrued interest on the 6% Convertible Debentures is paid quarterly and is not subject to conversion to common stock. The holders of the Debentures are provided with the registration rights to register the shares of common stock the Debentures are convertible into, in a registration statement to be filed by the Company on Form S-1 with the Commission. The Company sold a total of $4,985,000 of the 6% Convertible Debentures to 77 accredited investors. The proceeds of the private placement are to be used for working capital and operations of the Company. The Company closed its private placement as of September 30, 2021. As of March 31, 2021, $1,520,000 of the 6% Convertible Debentures were outstanding, the remainder having converted to common stock at a price of $0.10 per share.
On January 31, 2020 immediately following the closing of the Share Exchange transaction, the Company closed a private placement of its 8% Convertible Debentures in the total amount of $3,125,000 (the “Convertible Debentures”). The closing of the private placement was subject to the closing of the Share Exchange transaction by the Company. There were two purchasers of the Convertible Debentures: KGPLA, LLC, an entity in which a director of the Company and the Company’s beneficial owner of 41% has ownership interest ($3,000,000 principal amount of Convertible Debenture) and Swingbridge Crypto III, LLC ($125,000 principal amount of Convertible Debenture), an affiliate and former noteholder of the Company – see Note 7 to the Financial Statements. The Convertible Debentures have a maturity date of January 31, 2025 and bear interest at 8% per annum. The purchasers have an option to convert the outstanding principal and accrued interest amount of their respective Convertible Debentures into shares of common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. In connection with the Convertible Debentures private placement, the purchasers acquired certain registration and voting rights. – see also Description of Capital Stock.
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Debt Obligations of Athena Bitcoin, Inc. and the Company
Notes
In 2017, Athena Bitcoin, Inc. entered into several subordinated note agreements with shareholders of its common stock. The notes had a principal amount of $117,000 with maturity dates in 2021 and 2022. The notes have 12% interest per annum. As of December 31, 2021, and December 31, 2020, the outstanding principal was $117,000 and $90,000 respectively.
On May 30, 2017, the Company entered into a senior note agreement with Consolidated Trading Futures, LLC. The note provided for a principal amount of $1,490,000 of the loan secured against the Company’s cash in machines and held by service providers with a maturity date of May 31, 2022. Interest as defined in the note is 15% per annum. As of both December 31, 2021, and December 31, 2020, the outstanding principal was $1,490,000.
On August 1, 2018, Athena Bitcoin, Inc. entered into a promissory note with LoanMe, Inc. The promissory note provided for a principal amount of $100,000, with a final maturity date of August 1, 2028, with equal monthly installment payments of $2,205. The promissory note has 24% interest per annum. As of December 31, 2021, and December 31, 2020, the outstanding principal was $87,800 and $92,400, respectively.
On October 22, 2018, Athena Bitcoin, Inc. entered into a loan agreement and a promissory note with Swingbridge Crypto I, LLC. The promissory note provided for an aggregate of $500,000 in principal with a maturity date of May 30, 2019. Interest as defined in the promissory note was simple interest equal to 8% per annum. As of December 31, 2019, the outstanding principal was $500,000. The principal amount and accrued interest on the note were converted into 153,817 shares of common stock of Athena Bitcoin, Inc. at a price of $4.09 per share. The conversion price was determined by the negotiation of the parties with an implied valuation of Athena Bitcoin, Inc. of not less than $5 million, pursuant to the terms of the loan agreement. Such shares of Athena Bitcoin, Inc. were then exchanged in the Share Exchange transaction (see above).
On May 21, 2019, the Company entered into a loan agreement and a promissory note with Swingbridge Crypto II, LLC. The promissory note provided for an aggregate of $300,000 in principal with a maturity date of August 21, 2019. Interest as defined in the promissory note was simple interest equal to 30% per annum. As of December 31, 2019, the outstanding principal was $300,000. The principal amount and accrued interest on the note were converted into 40,389 shares of common stock of Athena Bitcoin, Inc. at a price of $9.24 per share. The conversion price was determined by the negotiation of the parties with an implied valuation of Athena Bitcoin, Inc. of not less than $5 million, pursuant to the terms of the loan agreement. Such shares of Athena Bitcoin, Inc. were then exchanged in the Share Exchange transaction (see above).
On July 26, 2019, the Company entered into a loan agreement and a promissory note with Swingbridge Crypto III, LLC. The promissory note provided for an aggregate of $1,000,000 in principal with a maturity date of July 26, 2020. Interest as defined in the promissory note was simple interest equal to 40% per annum. As of December 31, 2019, the outstanding principal was $1,000,000. The principal amount and accrued interest on the note were converted into 142,486 shares of common stock of Athena Bitcoin, Inc. at a price of $8.32 per share. The conversion price was determined by the negotiation of the parties with an implied valuation of Athena Bitcoin, Inc. of not less than $5 million, pursuant to the terms of the loan agreement. Such shares of Athena Bitcoin, Inc. were then exchanged in the Share Exchange transaction (see above).
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In connection with the Share Exchange transaction of the Company on January 30, 2020, and pursuant to the Swingbridge Conversion and Release Agreement, the 336,692 shares of common stock resulting from the conversion of the above Swingbridge notes were exchanged for 419,078,082 shares of the Company’s common stock.
DV Chain LLC Loan
On November 21, 2019, Athena Bitcoin, Inc. entered into a promissory note with DV Chain, LLC. The promissory note provided for a principal amount of $1,950,719 with a maturity date of May 1, 2021. Interest as defined in the promissory note was 15% per annum. On August 16, 2020, the Company entered into an agreement with DV Chain, LLC, whereby the Company repurchased 30,422,825 common shares held by DV Chain, LLC at a price of $0.00388 and agreed to make accelerated payments of $25,000 per week on the promissory note until the maturity date of May 1, 2021. As of December 31, 2020, and December 31, 2019, the outstanding principal was $1,350,000 and $1,950,719, respectively. As of March 31, 2021, the outstanding principal was $585,000. The Company repaid the remaining principal balance and interest due on this loan on May 31, 2021.
SBA Loan
On April 15, 2020, the Company entered into a forgivable loan agreement (SBA Loan) with Citizens National Bank of Greater St. Louis under the Coronavirus Aid Relief, and Economic Security Act (CARES Act) administered by the U.S. Small Business Administration. The Company received total proceeds of $156,919 from the SBA Loan. In accordance with the requirements of the CARES Act, the Company used the proceeds from the SBA Loan primarily for payroll costs and retained the employment of full-time employees as required by the terms of the SBA Loan. The SBA Loan was scheduled to mature on April 15, 2022 and has a 1.00% interest rate. In accordance with the CARES Act and the Paycheck Protection Program Flexibility Act, the Company applied for Loan Forgiveness for the full outstanding principal balance of the SBA Loan, which was approved in 2020. Accordingly, during the year ended December 31, 2020, the Company recorded $156,919 in other income for the forgiveness of the SBA Loan. See also Note 6 to our Financial Statements.
Loan from Banco Hipotecario
In September 2021, the Company’s El Salvador subsidiary, Athena Holdings El Salvador, S.A. DE C.V. (“Athena El Salvador”) entered into a loan agreement with Banco Hipotecario for the loan amount of $1,500,000. The loan has an interest rate of 7.5% and is secured by Athena El Salvador’s assets in El Salvador. The maturity date is 36 months after the disbursement of the funds. The monthly payments on the loan in the equal amounts of $49,108, begin two (2) months after the disbursement of the funds. The current balance as of December 31, 2021, is $1,500,000. The Company intends to utilize loan proceeds to expand its fleet of Bitcoin ATMs and for other general corporate purposes. See also Note 8 (“Debt”) to the audited financial statements for the twelve months ended December 31, 2021.
Borrowing Agreements with the Company’s Former-Director and Shareholder
On August 22, 2018, Athena Bitcoin, Inc. entered into a loan agreement with Mike Komaransky, the Company’s principal shareholder (“Bitcoin Agreement”). Under this Bitcoin Agreement, the Company borrowed 30 bitcoin initially due on August 22, 2019. The borrowing fee, as defined in the agreement, is 13.5% of the outstanding principal. On July 12, 2021, Athena Bitcoin and the Company entered into Loan Restructuring and Related Amendments Agreement (the “Restructuring Agreement”) with Mr. Komaransky and Eric Gravengaard, the Company’s CEO, director and principal shareholder, with respect to the Bitcoin Agreement and certain other agreements. As of the date of the Restructuring Agreement, the Company had still a balance due of approximately 21.6 bitcoin. Pursuant to the terms of the Restructuring Agreement, the Company entered into First Amendment of the Loan Agreement which amended the terms of the Bitcoin Agreement. The new amended terms included the extension of the maturity date to May 31, 2022, mandatory weekly payments of $35,000 in Bitcoin and a grant of first priority security interest in all property described in that certain Security Agreement entered into at the same time. In addition, the First Amendment to the Loan Agreement provided for conversion of the note into U.S. dollars any time after June 30, 2021, if the market price of one bitcoin equals to or exceeds $75,000.
See also Description of Capital Stock, page 69.
In November 2018, the Company entered into another agreement with Mr. Komaransky. This agreement provides for up to four additional borrowings at 50 bitcoin increments with an initial term of 90 days for each loan. Fees for these borrowings is the greater of 10% of the outstanding principal or 0.4% of total ATM sales. The Company borrowed 50 bitcoin under this agreement in November 2018 and an additional 50 bitcoin in March 2019. The Company repaid these Bitcoin borrowings in the year ended December 31, 2020.
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In 2018, Athena Bitcoin issued a series of instruments called “Simple Agreements for Future Tokens” (“SAFTs”) in exchange for investments in cash or crypto assets. The SAFTs entitle holders to receipt of tokens representing equity in the Athena Bitcoin. under certain pre-defined circumstances. These include a qualified financing event in which the Company raises $15 million or more in a single transaction, a “corporate transaction” (which definition includes a sale of all or substantially all of the Company’s assets), or a dissolution. Athena Bitcoin may also elect to issue equity in lieu of tokens in settlement of the SAFTs. In January 2020, Athena Bitcoin issued 1,653,425,404 shares of common stock for the full outstanding SAFT balance of $5,434,819 since the Share Exchange transaction between GamePlan and Athena qualified as a corporate transaction, based upon the conversion price of $4.09 per share implied by the valuation of the Company as of the date of SAFT determined in good faith by the Board of Directors of Athena Bitcoin and the capitalization of Athena Bitcoin immediately prior to the “corporate transaction” (see also “Background and Corporate History” above).
Buying and Selling Crypto
We are a provider of Bitcoin, Ethereum, Litecoin, and BCH through automated kiosk machines, which we refer to as our ATMs, in the United States and Latin America, integrating one-stop convenience with expert-level customer service. We were one of the first companies to introduce Bitcoin ATMs into the United States, Colombia, Argentina, and El Salvador. We are committed to serving retail purchasers of digital assets with the highest level of customer care through a broad product selection, trained customer service staff, multi-lingual support, and convenient locations. We seek to address the consumer who prefers to transact in cash for digital assets such as Bitcoin, bypassing the traditional means of access to the financial system. Our varied selection of crypto assets includes Bitcoin, Ethereum, Litecoin and BCH. As of December 31, 2021, we operated 186 Athena Bitcoin ATMs in the United States and 32 in Argentina, Colombia, and El Salvador.
Our Athena Investor Services (“AIS”) group allows us to assist digital asset buyers and sellers who wish to use their bank accounts. This service caters to investors who are making larger purchases of Bitcoin in exchange for wire transfers from their bank accounts. These customers are often looking for the same crypto assets that we sell at our Athena Bitcoin ATMs but sometimes challenge us with finding a less well-known coin. In such cases where we do not have such a crypto asset in our possession, we first acquire the crypto asset and then subsequently make the sale to the customer. We earn their business through education, service, and quality execution of their transaction. The Company has changed the name of its over-the-counter service to Athena Crypto Exchange (“ACE”).
The retail digital asset space is crowded with large digital players including Coinbase, Square, Gemini, and PayPal. The Company focuses on the cash buyer, who needs bitcoin in the here and now. To serve our customers, we follow AML and KYC guidelines appropriate for BSA compliance. The Company's operating unit, Athena Bitcoin, Inc., is FinCEN registered and undergoes an annual Compliance and Financial audit to maintain good standing. We also comply with state regulations and reporting in each state where it is required.
Our objective is to become one of the world's leading retailers of Bitcoin through cash exchange kiosks. Key elements of our strategy include:
| · | International expansion in Latin America where we have a foothold; | |
| · | Machine count growth; | |
| · | Tailoring site selection to our target market. |
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Wide User Base
We serve a wide user base including people buying Bitcoin for the first time; small businesses buying Bitcoin to make global payments; Bitcoin owners needing weekend spending cash; and people that have no bank or savings accounts. While many people are interested in Bitcoin for potential investment profits, Athena believes the great promise of Bitcoin is something wholly different - the democratization of money. A key aspect of the rationale behind Bitcoin is that the traditional system of money and banking, with its many layers, costs and inefficiencies, results in the disenfranchisement of enormous numbers. This includes the world’s people of modest means, as well as the world’s small businesses.
There are over 30 million small businesses in the United States, according to the Small Business Administration, while there are several times that amount worldwide. Today, the Internet has enabled global communications with real-time translation of languages and business connections, that were next to impossible thirty years ago. For those small businesses to transact with each other, they no longer need to speak a common language; however, they do need a common currency. They need money native to the Internet. Bitcoin is the first widespread form of Internet native money. There are 1.7 billion people in the world without bank accounts, according to a 2017 report from the World Bank. This condition includes large segments of people in wealthy countries including the United States. There are 7.1 million U.S. families with no bank account according to a 2019 FDIC report. In 2017, the FDIC did a study on a segment of the U.S. population referred to as “underbanked,” which they define as households that have a bank account but opt to use check cashing services, payday loans, and other non-bank services. The FDIC estimated the underbanked population in the U.S. to include 48.9 million adults and 15.4 million children. The survey reported that more than half of the underbanked households said they did not have enough cash to keep in a bank account. Another 30% said they did not trust the system and 9% said the banks were in inconvenient locations.
Crypto assets are often used as stores of value by underbanked and unbanked people all over the world. Countless banked, unbanked, and underbanked people with relatives in other countries use Bitcoin and other crypto assets for sending funds to loved ones. Crypto assets also enable citizens in countries with high inflation and depreciating fiat currencies to keep their money in alternate forms such as stable coins or other digital tokens; thus, protecting vulnerable populations from significant loss in the value of their money. Athena Bitcoin ATMs are widely used by small businesses to make global payments.
For big companies that perform million-dollar transactions, the wire fees and currency conversion costs are a modest percentage of the total transaction. For small transactions (i.e., $1,000), these fees are significant. A small business seeking to pay $2,000 for this month’s order of birdfeeders from a small Asian factory will incur high fees when using the traditional money and banking system. One of our first customers in Ohio taught us this lesson when he explained why he needed Bitcoin quickly to secure a discount with a supplier around the other side of the world.
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Products and Services
Sales of Bitcoin and Crypto Assets at Bitcoin ATM
The primary business activity of the Company is the purchase and sale of Bitcoin, Ethereum, Litecoin, and BCH through our Bitcoin ATMs —which are free standing kiosks that allow customers to exchange their physical currency for crypto assets. Customers can buy crypto assets or sell crypto assets using Athena Bitcoin ATMs - either spending or receiving physical currency (cash). We do not charge transaction fees but rather make a spread on the price of the crypto asset. The typical Bitcoin ATM that the Company uses is about 5-feet tall and features a large touchscreen for customer interaction. The ATMs are capable of both buying and selling multitude of crypto assets, but most transactions of the Company are for Bitcoin.
Customers can purchase as little as $1 of Bitcoin, but typically choose between $100 and $1,000. The Company charges a fee per bitcoin equal to the prevailing price at U.S. crypto-based exchanges plus a mark up that typically varies between 5% and 20%. The Company recognizes revenue when performance obligations identified under the terms of service with its customers are satisfied. The Company’s revenue associated with ATM transactions are recognized at a point in time when the digital asset is delivered to the customer. The Company controls the service as it is primarily responsible for fulfilling the service and has discretion in establishing pricing with its customers.
Our Bitcoin ATMs do not contain any crypto assets or keys to crypto assets. We sell crypto assets from cloud-based wallets in each country, enabling real-time supply of crypto assets to our customers. We buy the majority of our crypto assets through automated purchases on crypto exchanges, based on algorithms we have developed for balancing our holdings with anticipated demand. We do not seek to hold excess quantity of any crypto asset.
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Our hot wallets are maintained by the staff of the Company. Access is limited to as few persons as is necessary to maintain their proper functionality. At this time, the Company does not maintain any balance of crypto asset in cold storage. The crypto assets the Company holds are available for immediate sale. We do not have any insurance policies that cover the crypto assets held in our wallets.
A perfect match between supply and demand can never be achieved as demand is generally predictable but not exact, and there are often demand spikes due to Bitcoin price movements. For example, if a big winter storm hits a large territory on a given weekend, less people than normal will visit our Bitcoin ATM locations and we may end up with excess holdings. If we ever fail to fully anticipate a spike in demand or if our buying turned out to be short for any reason, our users may not be able to purchase crypto assets from our Bitcoin ATMs. This is something we strive to minimize; thus, we try to err on the side of having a slight excess of crypto holdings.
ATM Operations
Suppliers of our ATMs
As of December 31, 2021, 176 of our Athena Bitcoin ATMs and their software systems, which include advanced security protections, are sold to us by Genesis Coin, Inc. (“Genesis Coin”), a major supplier of Bitcoin ATMs. We supplement these protections with our own added risk management methods. The Genesis Coin machines have a good track record for stability. We have worked with the company for many years and were among its first customers, and we continue to be impressed with the Genesis Coin hardware and software. To this date, our ATMs have only accepted a negligible number of counterfeit bills. For our white label service in El Salvador, we are operating and managing a mix of ATMs supplied by Genesis Coin as well as General Bytes s.r.o., and Bitaccess Inc., two other suppliers of Bitcoin ATMs.
Agreement with Genesis Coin, Inc.
We currently do not have a written contract for purchase and sale of ATMs with Genesis Coin. We have been operating based on our working relationship and the terms of the original purchase and sale contract with Genesis Coin, which we entered into on October 1, 2015. Although said contract was terminated when the equipment described therein was delivered and paid for, we continue to honor bilaterally, the terms of said contract in our ongoing business relationship. While the purchase price and delivery of each order of ATM machines is subject to negotiation and prevailing market conditions, we follow the terms agreed to in the 2015 contract, which include the agreement that: the software license we receive is limited and non-exclusive and/or sublicense; we pay to Genesis Coin or nominee a software license fee of one percent (1%) of the value of all transactions processed by us (such fees are assessed in Bitcoin, deducted automatically and transferred automatically to Genesis Coin or nominee); the term of license granted by Genesis Coin commences at delivery of equipment and continues as long as we retain legal right and title to operate the ATMs purchased from Genesis Coin; and Genesis Coin provides us with the one year limited parts warranty for the ATM kiosks we purchase.
Rental Agreements for our ATMs
We pay rent to the establishments where we place our ATMs. Our rental agreements are for one year, three years, five years, or less than one year with auto renewal and we are typically free to move our ATMs from sites that are not performing to our objectives, at minor cost. In addition to rent, we also pay for internet connection costs and cash logistics (handling) costs.
Technical Support for our ATMs
Our ATMs can experience down-time due to internet connection failures as well as technical problems. For technical problems like a frozen screen, our tech support team can typically reboot the machine remotely. In other cases, we may have to contact a local technician to repair the machine. In some rare cases, we may have to fly one of our team members to the location to fix the problem.
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Global Cash Logistics
A significant operational aspect of our business involves collecting physical fiat currencies from our Bitcoin ATM fleet and getting them safely deposited into our bank account. The collection and deposit of the physical currencies received in our ATMs is a multi-step process. We do not directly handle the currency operations. This function is contracted to bonded security companies that have armored vehicles and cash storage vaults in many locations.
For logistic efficiency, it is impractical to retrieve cash from one machine and go directly to a bank branch. Rather the cash from all our machines in a city is collected by contracted armored vehicle companies on a periodic basis, and brought to their regional centers where it is counted, inventoried, and grouped with cash coming from our ATMs in other cities.
We actively oversee this process in conjunction with our cash logistics contractors to adjust for factors like three-day weekends and unanticipated surges. While we can manage the crypto side of our business with real-time tracking, the current time period from retrieving cash from our ATMs to having the funds available in our bank account is about eight (8) days. In our early years, the time period was close to twenty-one (21) days. This time period directly impacts our working capital and our ability to buy more crypto assets; thus, we strive to keep it as short as possible.
Just as shortages of crypto assets can temporarily prevent us from selling crypto assets to our customers, our ATMs running out of cash or becoming fully loaded with cash (and unable to take more bills) can impede our users from completing certain transactions until our cash logistics contractors fix the issue at their next visit to our ATMs. Our business has variable demand, and it is unavoidable that some machines will at times run out of cash or become fully loaded with cash (and unable to take more bills) for a time period.
Sales of Bitcoin and Crypto Assets by Telephone
For transactions larger than is practicable at our Athena Bitcoin ATMs, we offer select clients the ability to transact with us via telephone. This service is offered under the name Athena Investor Services (“AIS”). Through this service, clients can buy and sell a wide variety of crypto assets through a direct transaction and will complete their purchases by wiring funds directly from their bank accounts. In like manner we may buy a private party’s crypto assets. The Company is in the process of changing the name of its over-the-counter service to Athena Crypto Exchange (“ACE”).
Purchases or sales of crypto assets of $10,000 or more are made by agreement and closed with the parties exchanging a bank wire for crypto assets on the same day. This business currently constitutes about 20% percent of our overall sales by revenue, with an average transaction size of $76,000 in the twelve months’ period ended December 31, 2021 As the transaction sizes are larger for this business area, our mark ups are smaller than transactions using our ATMs. As of the date of this prospectus, we do not transact in any crypto assets except Bitcoin, Ethereum, Tether, Litecoin, and BCH. We will update this prospectus if we decide to transact in other crypto assets. Such a change would only happen if there were significant customer demand for a specific crypto asset and that crypto asset was available to us through multiple trading partners, digital asset exchanges, and digital asset brokers.
Peer-to-Peer Exchange Services via BitQuick.co
In 2016, Athena Bitcoin purchased the assets of BitQuick Technologies including the peer-to-peer exchange at BitQuick.co. The services offered by BitQuick include the ability of sellers of Bitcoin, and only Bitcoin, to list for sale their Bitcoin and receive cash deposits into their bank accounts. BitQuick will verify that the deposit has been made and upon satisfaction of the terms of the sale, release the Bitcoin, which are held in escrow by the Company using a non-custodial multi-signature wallet during the processing of the transaction, to the buyer. BitQuick takes a percentage of the purchase as its fee for facilitating the transaction. On most transactions, this fee is 2% except when we split this fee with other website operators who have directed internet traffic to BitQuick. Through our “affiliate program” we pay website operators a portion of our fees when links from their websites result in transactions. The overall BitQuick business has faced significant headwinds in recent years as banks have restricted the ability of non-account holders to deposit cash into accounts they do not control. This has led to a decline in the ability of BitQuick buyers to deposit cash into BitQuick sellers’ accounts. As these policies are determined solely by each bank and not publicly discussed, we cannot say why these restrictions have been enacted nor if they will ever be lifted. As of the date of this prospectus, we have no plans to support additional crypto assets besides Bitcoin. For the fiscal year ended December 31, 2021 total revenue from BitQuick was $40,000 while revenue from BitQuick was $90,000 for the fiscal year ended December 31, 2020. The Company has closed this business down.
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Expansion of Business Operations in El Salvador
Overview
On June 8, 2021, the Bitcoin Law, proposed by President of El Salvador, Nayib Bukele, was passed by the Legislative Assembly of El Salvador giving Bitcoin the status of legal tender within El Salvador. Under this law, effective as of September 7, 2021, Salvadorans can pay taxes in Bitcoin and businesses will be obliged to accept Bitcoin as payment for goods and services. The U.S. dollar will continue to circulate alongside Bitcoin as the national currency and legally recognized tender. When Salvadorans convert their Bitcoin to dollars within the Chivo digital wallet, they do not receive dollars in the digital wallet in the same sense as having a dollar balance with a chartered bank. Instead, they become holders of dollar obligations as represented by a dollar balance within the Chivo digital wallet, which are only a claim to real dollars. At that point, Salvadorans hold an asset backed by Chivo S.A. de C. V., which according to news reports is not a chartered bank, and the full faith and credit of Mr. Bukele’s government. According to news reports, the government spent up to $120 million to supply $30 worth of Bitcoin into each Chivo wallet, the country’s new official Bitcoin wallet application. That funding would cover the cost of providing 4 million citizens with Bitcoin in a country of 6.5 million. The government created a $150 million fund to support Bitcoin to U.S. dollar conversions and began implementation of Chivo ATMs to give citizens access to paper-currency in exchange for their Bitcoin and U.S. dollar balances held in their Chivo digital wallets..
El Salvador ranks third to last among its regional peers in terms of banking access. Since approximately 70% of the adult population of El Salvador does not have access to the traditional banking system, Bitcoin/digital wallets can serve as a savings instrument, promote financial inclusion and democratize access to electronic payments. Currently, there are already 161 mobile subscriptions per 100 inhabitants in El Salvador, and it is likely easier to provide financial services linked to cellphones than trying to open new bank accounts. Bitcoin legalization could lower the cost of paying and receiving money. According to President Bukele, Bitcoin, which is easy to send across borders, will greatly reduce remittance fees. In El Salvador, remittances accounted for more than 20% GDP in 2020. On a global basis, according to the World Bank’s Remittance Prices Worldwide (March 2021), sending remittances costs an average of 6.38% of the amount sent, but can reach more than 10% for small transactions. The high cost of remittances means that El Salvador loses more than 1% of GDP on remittances fees. The Chivo digital wallet also allows Salvadorans in the U.S. to send money home without incurring remittance fees. Since the implementation of the Bitcoin Law, many Bitcoin enthusiasts around the world have shown interest in moving to the country, where their Bitcoin trading profits would be tax-exempt and where tax rates are relatively low. El Salvador is offering permanent residency to anyone who invests at least three Bitcoins (about $160,000) in the country. Legalization of Bitcoin could attract investment of both crypto asset investors and miners, and could generate additional tourism.
Business Operations
Since June 2021, when the Bitcoin Law was enacted, the Company has focused its resources and expanded its operations in El Salvador. The Company’s operating subsidiary in El Salvador is Athena Holdings El Salvador, S.A. de C.V.; however, our agreements with the government of El Salvador discussed below, have also been entered with Athena Bitcoin Global, a Nevada corporation and Athena Bitcoin, Inc., a Delaware corporation, our wholly-owned operating subsidiary. We began discussions with the government of El Salvador in late June 2021, and successfully executed agreements with the Department of Treasury (Ministerio de Hacienda) in August, 2021. Under those agreements, the Company is responsible for several major projects, which include the operation of 200 Chivo Bitcoin ATMs in El Salvador,10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S. (in the states of California, Florida, Georgia, Illinois, and Texas), 45 Chivo Bitcoin ATMs in other U.S. locations, and the delivery to the government of El Salvador 950 Chivo point-of-sale (“POS”) terminals for local businesses in El Salvador to process transactions with Bitcoin. Additionally, we develop and maintain a Bitcoin platform (“Chivo Ecosystem”) designed to support the Chivo digital wallet.
For operating 200 Bitcoin ATMs the Company was paid a one-time non-refundable installation fee and will recognize recurring monthly service fees for maintaining the machines. The Department of Treasury of El Salvador paid us the agreed price per contract for each POS terminal delivered in 2021. We are also charging a monthly fee to maintain Chivo Bitcoin ATMs in the U.S. for each consulate and a transaction fee on all Bitcoin purchases made on those ATMs . The agreement terms vary by project from one year to three years with monthly or annual renewal terms. Currently, we do not face any direct competition for the services we provide since we are operating under contract with El Salvador’s Treasury department. The Treasury department owns all intellectual property developed for the Chivo Ecosystem and has granted Athena a royalty-free, fully paid up, perpetual worldwide right and license to use for any purpose.
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Contracts with the Government of El Salvador
In the third quarter of 2021, the Company signed several contracts with the Department of Treasury (Ministerio de Hacienda) of El Salvador (“El Salvador Contracts”) which include installing and operating 200 Chivo Bitcoin ATMs in El Salvador, 10 Chivo Bitcoin ATMs at El Salvador consulates in the U.S., 45 Chivo Bitcoin ATMs in other U.S. locations, and sales of 950 point-of-sale (POS) terminals for local businesses in El Salvador to process transactions with Bitcoin. Additionally, the Company will sell intellectual property in software, and develop and maintain a Bitcoin platform designed to support a branded digital wallet, as specified in El Salvador Contracts. See also [Note * ].
Letter of Intent with Vakano Industries
The Company entered into a non-binding Letter of Intent with Arley Lozano, a principal beneficial owner of Vakano Industries and XPay, both Colombian entities (collectively, “XPay”), for the purchase and sale of certain assets of XPay, primarily intellectual property assets, including the XPay Wallet (the precursor to the Chivo Wallet) and XPay POS software, to the Company. In September, 2021, Lozano and the Company entered into a letter of intent to acquire assets of XPay which include certain technologies, ATMs, point-of-sale terminals in El Salvador, X-Pay POS system and other assets. The total purchase price is comprised of $3 million in cash and the issuance of 270 million of the Company’s shares of common stock (valued at $27 million at a $0.10 per share valuation). The shares are subject to vesting over a three-year period based on the consulting services related to the management of Colombian operations to be provided by Mr. Lozano and additional five-year non-competition and non-solicitation clause. The shares shall vest on one year cliffs and then linearly thereafter. The definitive agreement for the purchase and sale of XPay assets has not been executed yet, however, the Company paid an initial deposit of $780,000 to XPay as a partial payment towards the purchase price of $3,000,000 for XPay assets. The initial payment was accepted and agreed to by XPay on September 9, 2021 in a written confirmation which included a specific list of assets to be acquired by the Company. See also, Note 13 to the unaudited financial statements of the Company for the nine months’ period ended September 30, 2021. The Company expects the acquisition to be finalized in the fourth quarter of 2022.
Loan from Banco Hipotecario
In September 2021, the Company’s El Salvador subsidiary, Athena Holdings El Salvador, S.A. DE C.V. (“Athena El Salvador”) entered into a loan agreement with Banco Hipotecario for the loan amount of $1,500,000. The loan has an interest rate of 7.5% and is secured by Athena El Salvador’s assets in El Salvador. The maturity date is 36 months after the disbursement of the funds. The monthly payments on the loan in the equal amounts of $49,108, begin two (2) months after the disbursement of the funds. The current balance as of December 31, 2021 is $1,500,000. The Company intends to utilize loan proceeds to expand its fleet of Bitcoin ATMs and for other general corporate purposes. See also Note 8 (“Debt”) to the unaudited financial statements for the twelve months ended December 31, 2021.
Athena Ruru
In November 2021, the Company began marketing its services under a service branded “Athena Ruru”. Athena Ruru includes three services the Company offers: Bitcoin ATMs, point of sale (POS) terminals and merchant services, and the wallet solution. The Company believes that by defining those services as a complete product, it could facilitate the combined use of digital currency and electronic banking to power economies in need of access and inclusion to enable them to grow their GDP, such as the economy of El Salvador. As a payment system, it provides a mobile wallet which allows users to access both crypto assets and fiat balances, exchange between those assets, send and receive money, pay for goods and services, and deposit and withdraw funds to local bank accounts and international crypto asset platforms. The target market for the combined product offering includes other government entities, regional banks, and other trusted institutions that want to provide their constituencies with access to a wallet integrated into an ATM and merchant network.
Environmental Impact
El Salvador's Bitcoin plan has put a spotlight on the environmental impact of cryptocurrency with the World Bank flagging such potential adverse effects among its concerns. Mining digital currency requires large amounts of energy, and the Bitcoin industry's global CO2 emissions have risen to 60 million tons, equal to the exhaust from about 9 million cars, according to Bank of America’s report in March 2021. President Bukele sought to counter sustainability concerns by engaging state-owned geothermal electric company, LaGeo SA de CV to offer Bitcoin mining facilities using renewable energy from the country's volcanoes.
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Marketing
Our marketing consists of:
| · | Trade shows, | |
| · | Digital advertising on search engines, map sites, and industry-specific platforms, | |
| · | Social media, and | |
| · | SMS messaging. |
Athena also maintains country-specific websites that include information about how to access our service offerings as well as country-specific disclosures. Total advertising costs amounted to $258,000 in 2021, and $151,000 in 2020.
Technology Research and Intellectual Property Development
Athena licenses most of its technology from third party vendors including the software that runs on our ATM kiosks. Our intellectual property (“IP”) includes proprietary algorithms that we have developed. Some effort is devoted to automating a majority of our crypto purchases in a manner that helps us match supply with anticipated demand. In addition, we have invested in building automated systems for customer onboarding including the collection of required KYC documentation as well as government transaction reporting.
In 2020, technology costs were $702,000, and for twelve months ended December 31, 2021, technology costs were $2,071,000. Athena has not filed for protection of our algorithms and maintains them as private and proprietary business information. The IP we use for the security of our ATMs and transaction integrity is mostly provided by vendors, although we have added additional layers and extra private security measures that are unique to the Company.
Athena Bitcoin has registered both its name and distinctive owl logo with the United States Patent and Trademark Office. As of December 31, 2021, the registration is live with serial number 90606452.
Competition
There are many different companies that enable people and businesses to buy or sell Bitcoin and other crypto assets, including other operators of Bitcoin ATM networks, online services and exchanges such as Coinbase and Gemini, and payment services such as Square and PayPal.
Our direct competition in the U.S. includes Coinstar, a major corporation that today runs one of the largest kiosk networks in the U.S., as well as a variety of Bitcoin ATM network operators. Coinstar is an existing operator of kiosks at major grocery chains that are used to exchange coinage for a variety of payment instruments such as gift cards and in-store vouchers. In recent years, they have added the ability to use physical coins and cash bills to buy Bitcoin on many of their kiosks, in partnership with Coinme. The other Bitcoin ATM network operators use machines similar to the Company’s fleet of Bitcoin ATMs.
The financial performance of any Bitcoin ATM network is influenced by several factors. We believe that site selection and branding have the biggest effect on per-ATM transaction volumes. We are not aware of the operating performance of our competitors as they are private companies and do not provide any public financial disclosures. From our years of experience in this industry, we believe the Company’s Bitcoin ATMs perform at or above industry averages.
While there are many other Bitcoin ATM operators, we believe the industry is nascent and that worldwide tens of thousands of attractive locations remain untouched. While we recognize that there is a terminal limit to the number of Bitcoin ATMs that the U.S. market can support, we believe that that limit has not yet been reached and is expanding as Bitcoin and other crypto assets gain more widespread use. In South America, the Bitcoin ATM network is still being developed and far from maturation.
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Below is a partial list of US Bitcoin ATM networks that operate in the regions where the Company also operates:
| Company Name | Units | Website |
| Coinstar/Coinme | 5607 | https://www.coinstar.com/bitcoin |
| LocalCoin | 399 | https://localcoinatm.com/ |
| Bitcoin Depot | 332 | https://bitcoindepot.com |
| Digital Mint | 269 | https://www.digitalmint.io/ |
| Cryptospace | 8 | https://www.cryptospace.com |
Outside of the US market, which is the largest, the next highest concentration of Bitcoin ATMs is located in Eastern Europe. Below is a partial list of Bitcoin ATM networks outside the US.
| Company Name | Units | Website |
| 24nonStop | 6971 | http://24nonstop.com.ua/ |
| iBox | 5071 | https://www.ibox.ua/ru/map/ |
| Bitcoin Romania and Zebrapay | 1685 | https://selfpay.ro/ |
| Sweepay and Swiss Railways | 1357 | https://sweepay.ch/ |
| CashTerminal | 612 | http://www.cashterminal.eu/en |
| Bitcoin Romania | 74 | https://bitcoinromania.ro |
| LoCoins | 27 | https://locoins.io/ |
| Bitnovo | 10 | https://www.bitnovo.com |
In the United States, we have a small percentage of the total market, operating approximately 1% of ATMs according to one industry reporting service (https://coinatmradar.com). In Latin America, we control a larger percentage of the total market, operating 21% of ATMs overall, and 89% in the countries where the Company operates.
Apps like Robinhood, PayPal, and Cash App offer customers a way to purchase crypto assets using their smartphones and funds from their bank accounts. These apps offer competitive pricing relative to our ATMs; however, they do not accept physical currency and typically require users to connect their bank accounts.
Full-service exchanges like Coinbase Pro, Gemini, and Kraken allow traders to make investments in a wide variety of crypto assets. These exchanges cater to active traders and the most highly price sensitive consumers. The Company often uses such services for purchasing its crypto assets. Users from this segment of the overall market rarely overlaps with the Bitcoin ATM industry.
Competitive Advantages
We believe we enjoy several competitive advantages. We believe our foremost advantage is our many years of business experience combined with our insight into optimizing many interrelated factors and aspects of the crypto business. This winning combination ultimately drive our bottom-line profits.
No two Bitcoin ATM networks are the same, they will each have different results and a different bottom line. No two locations perform the same. Any company with sufficient capital on hand can copy our ATM offerings and exchange rates, and place them in 10,000 locations before we can. They might also lose money.
Site selection is a very substantial factor in overall performance. Many people think major shopping centers like Walmart would be an optimal location but in the U.S., we have found otherwise. Our site selection methodology is a trade secret of our business. Our methodology is not easily uncovered as we have ATMs located in rural, urban, and suburban areas. We have learned and refined our site selection methodology over the years, and we believe our expertise in this area constitutes a material competitive advantage.
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We believe our operational efficiencies provide us with another competitive advantage. It took six years of significant efforts and achievements to grow the Company from start-up losses all the way to steady profitability and to develop several proprietary approaches to manage our operations efficiently with respect to all aspect of crypto transactions, risk management, and efficient cash handling spanning five countries. Operational efficiency is in the same category of importance as site selection.
Unlike many competitors that focus on quickly installing dozens or hundreds of ATMs, we prioritized getting to profitability on a global scale with a small base of ATMs. We focused on developing and putting in place scalable systems and methods for managing a diverse global operation. When comparing Bitcoin ATMs to other methods of transacting, the primary advantage of an ATM is its ability to complete a transaction from accepting payment to delivering crypto assets quickly. The ATM will only accept physical currency, which is an immediate and permanent form of payment. This subsequently facilitates the immediate delivery of crypto assets; also, an immediate and permanent form of transaction. Apps and services that rely on ACH or other bank mechanisms for the fiat leg of a transaction often cannot deliver the crypto assets quickly because of the funding mechanism is neither immediate nor permanent.
We also believe our branding gives us a competitive advantage with many store owners. Large companies often have access to capital, but they have no heritage in the crypto space. Companies that want to start a Bitcoin ATM network tomorrow can copy our offerings and hire top branding specialist, but what they can’t do is create a brand that has roots to the early years of Bitcoin and Bitcoin ATMs. The bright orange on our Athena Bitcoin ATMs is the same color as the orange in the original Bitcoin logo, helping our brand stand out and represent the spirit and essence of Bitcoin and the entire crypto industry in any stores where our ATMs are placed.
While the end result of a transaction on one Bitcoin ATM versus another may be similar, we believe that many store owners and customers looking for a Bitcoin ATM will often prefer an Athena Bitcoin ATM versus, for example, a multipurpose Coinstar machine that can handle your loose change and also sell you Bitcoin. That is our opinion from anecdotal feedback we have received over the years. We believe our branding and brand authenticity has been a contributing factor to getting good performing sites, and that it will continue to be a big contributor to our future growth.
Competitive Disadvantages
Our competitive disadvantages are that we do not yet have the operational and financial resources that some of our competitors have, which results in having fewer resources to deploy new ATMs, develop fewer new markets, and invest in technology that could extend our service offerings, as compared to some of our competitors. We intend to raise capital several times in the coming years to vastly expand our network, but we do not favor growth at all costs and will continue to focus on bottom line performance and maintain our standards of careful site selection. This could result in slower sales growth than would otherwise be possible.
Need for Government Approval of Principal Products and Services
Compliance with laws and regulations is a vital part of our business. In the United States, there are several important federal laws and regulations aimed at preventing money-laundering and terrorist financing that require specific record-keeping, filings, and other compliance procedures. In addition, there are laws and regulations in state jurisdictions that also require permits, reporting, and other compliance and customer service procedures. Finally, we are often contacted by federal, state, and local law enforcement agencies and subpoenaed for information on the activities of some customers.
Federal Regulation
In the United States, the Department of the Treasury through the Financial Crimes Enforcement Network (“FinCEN”) has primary authority over dealers in crypto assets. This was established in 2013 when FinCEN released interpretive guidance to “clarify the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to person creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies” (FIN-2013-G001). Since that time, all businesses that deal in crypto assets in the manner of the Company must register as a Money Service Business (“MSB”) with FinCEN and comply with the requirements of the BSA, the Patriot Act, and other amendments and administrative guidance issued by FinCEN and the Department of the Treasury.
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We are subject to various anti-money laundering and counter-terrorist financing laws, including the BSA in the United States, and similar laws and regulations abroad. In the United States, as a money services business registered with FinCEN, the BSA requires us to among other things, develop, implement, and maintain a risk-based anti-money laundering program, provide an anti-money laundering-related training program, report suspicious activities and transactions to FinCEN, comply with certain reporting and recordkeeping requirements, and collect and maintain information about our customers. In addition, the BSA requires us to comply with certain customer due diligence requirements as part of our anti-money laundering obligations, including developing risk-based policies, procedures, and internal controls reasonably designed to verify a customer’s identity. Many states and other countries impose similar and, in some cases, more stringent requirements related to anti-money laundering and counter-terrorist financing. We have implemented a compliance program designed to prevent our platform from being used to facilitate money laundering, terrorist financing, and other illicit activity in countries, or with persons or entities, included on designated lists promulgated by Office of Foreign Assets Control (“OFAC”) and equivalent foreign authorities. Our compliance program includes policies, procedures, reporting protocols, and internal controls, and is designed to address legal and regulatory requirements as well as to assist us in managing risks associated with money laundering and terrorist financing. Anti-money laundering regulations are constantly evolving and vary from jurisdiction-to-jurisdiction. We continuously monitor our compliance with anti-money laundering and counter-terrorist financing regulations and industry standards and implement policies, procedures, and controls in light of the most current legal requirements.
Athena Bitcoin is registered with FinCEN and has registration number 31000158527394. In addition, Athena Bitcoin has appointed Sam Nazarro as its Chief Compliance Officer, written and distributed a BSA Compliance Policy, and engages an outside review firm to perform an annual review of its Compliance Policy.
State Regulation
Depending on the state where the Company places a Bitcoin ATM, there are local laws and regulations with which the Company must comply to operate legally. These laws usually require the Company to register with a state agency, provide a surety bond, and make regular reports about its activities in the state and its financial health.
In some jurisdictions, the Company may be required to obtain operating permits from the city or county. These typically involve the payment of registration fees.
Subpoenas and Other Law Enforcement Interactions
From time to time, the Company is subpoenaed for its records and asked to testify in legal proceedings. These requests come from all branches of local, state, and federal law enforcement agencies and are usually requests for information about our clients, their transactions, and other information that we have collected. Our compliance team is charged with responding in a timely and accurate manner to these requests once the validity and legality of the request has been determined.
Consumer Protection
The Federal Trade Commission (“FTC”), the Consumer Financial Protection Bureau (“CFPB”), and other U.S. federal, state, and local and foreign regulatory agencies regulate financial products, including money transfer services related to remittance or peer-to-peer transfers. These agencies, as well as certain other governmental bodies, in particular state attorneys general, have broad consumer protection mandates and discretion in enforcing consumer protection laws, including matters related to unfair or deceptive, and, in the case of the CFPB, abusive, acts or practices (“UDAAPs”), and they promulgate, interpret, and enforce rules and regulations that affect our business. For example, all persons offering or providing financial services or products to consumers in the United States, directly or indirectly, can be subject to enforcement actions related to the prohibition of UDAAPs. The CFPB has enforcement authority to prevent an entity that offers or provides consumer financial services or products or a service provider in the United States from committing or engaging in UDAAPs, including the ability to engage in joint investigations with other agencies, issue subpoenas and civil investigative demands, conduct hearings and adjudication proceedings, commence a civil action, grant relief (e.g., limit activities or functions; rescission of contracts), and refer matters for criminal proceedings.
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International Regulations
Outside of the United States, the countries where the Company operates are members of an array of regional Anti-Money-Laundering (“AML”) treaty organizations. Specifically, Argentina and Colombia are signatories to the Financial Action Task Force of Latin America (“GAFILAT”). Argentina is also a member of Financial Action Task Force (“FATF”). El Salvador is a member of Caribbean Financial Action Task Force (“CFATF”). The United States is a member of both FATF and Asia/Pacific Group on Money Laundering (“APG”). These relationships, both overlapping and non-overlapping, result in legal interpretations, regulation, and enforcement that is heterogeneous. In each of these jurisdictions, membership in one or more AML treaty organizations can influence the specific documentation, record keeping, and financial limits placed on MSB, or dealers in crypto assets.
Employees
We strive to foster a productive and engaging work environment. Our talent strategy is aligned with our business vision and platform strategy. We hire smart people with a passion for crypto assets and the possibilities to empower our customers to achieve their financial and transactional goals.
As of December 31, 2021, we employed 12 people in the United States, and through subsidiaries had 19 direct employees in foreign subsidiaries. We also engage temporary employees and consultants. As of December 31, 2021, we had 16 direct employees and have engaged 2 independent contractors to support our El Salvador operations . They are primarily responsible for customer support of the Bitcoin ATMs, the Chivo wallet and the Chivo POS terminals. We continue to search for additional personnel as we grow our operations in El Salvador.
Properties
We lease approximately 4,000 square feet of space across two office locations in Chicago and the surrounding suburbs pursuant to two leases that each expire in 2022. The monthly lease payments are approximately $4,500. The Company has short-term storage, office, and warehousing contracts in Illinois and Florida for approximately 1,750 square feet. We maintain international offices or co-working facilities in Colombia and Argentina. In El Salvador, we lease approximately 4,000 square feet of office space in San Salvador under the lease which expires in September 2022. The monthly lease payments are approximately $7,000. We believe we will be able to obtain additional space on commercially reasonable terms.
Legal Proceedings
On December 28, 2021, ROI Developers, Inc., doing business as Accruvia (“Accruvia”), filed a lawsuit against Athena Bitcoin, Inc., doing business as Athena Bitcoin Global in the 96th Judicial District in Tarrant County, Texas. The case was removed from Tarrant County Court and is currently pending in the U.S. District Court for the Northern District of Texas. Accruvia is a provider of software development and support services. The complaint alleges failure to make payment for services performed for the Company and breach of contract. The plaintiff seeks monetary damages of $250,000 or less, for compensation allegedly owed, reasonable attorneys’ fees and other relief as the court deems just and proper. The Company believes that the lawsuit is without a merit and intends to vigorously defend the case.
On February 7, 2022, the Company filed a lawsuit against Accruvia and Shaun Overton (“Overton”), Accruvia’s principal officer and shareholder, among others, in the Illinois state court. The complaint alleges a breach of fiduciary duty, breach of contract, and intentional and tortious interference with the Company’s business relationship with the government of El Salvador. On September 22, 2021, Accruvia and the Company signed a term sheet agreement for the proposed acquisition of Accruvia’s assets (the “Term Sheet”). The terms of the acquisition were subject to due diligence and closing on or about October 22, 2021. Overton also signed a confidentiality and non-disclosure agreement (“NDA”) with the Company’s El Salvador subsidiary and began purporting to work for the Company and representing himself as its Chief Technology Officer in El Salvador. The Term Sheet provided for an employment agreement with Overton upon the closing of the acquisition, however, the transaction did not close and no definitive agreement was entered into. The Company’s complaint alleges that Overton’s intent was to sabotage and harm the Company’s business relationship with El Salvador’s government and to secure contract for Accruvia to provide its software and development services. The complaint further alleges that Overton violated the NDA and confidentiality clause in the Term Sheet, and caused losses by attempting to implement inappropriate hiring practices. The Company also seeks preliminary and permanent injunctive relief preventing Accruvia and Overton from disclosure of the Company’s confidential information. The Company is seeking damages of up to $3 million.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is quoted on the OTC Pink Market operated by OTC Markets Group, Inc. under the symbol “ABIT”. Our common stock last traded at $0.92 on March 10, 2022. The volume of shares of common stock traded was insignificant and therefore, does not represent a reliable indication of the fair market value of these shares. The following table sets forth the high and low closing-bid quotations for our common stock as reported on the OTC Pink Market for the periods indicated. These quotations reflect inter-dealer prices, without retail mark up, mark down or commission and may not necessarily represent actual transactions. The OTC Markets Quotation System is a quotation service that display real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The market is limited for our stock and any prices quoted may not be a reliable indication of the value of our shares of common stock.
| For the year ended December 31, 2020 | High | Low | ||||||
| First Quarter | $ | 0.1000 | $ | 0.0290 | ||||
| Second Quarter | $ | 0.0810 | $ | 0.0350 | ||||
| Third Quarter | $ | 0.0450 | $ | 0.0405 | ||||
| Fourth Quarter | $ | 0.0505 | $ | 0.0150 | ||||
| For the year ended December 31, 2021 | High | Low | ||||||
| First Quarter | $ | 0.5500 | $ | 0.0466 | ||||
| Second Quarter | $ | 1.8400 | $ | 0.1200 | ||||
| Third Quarter | $ | 32.8500 | $ | 1.5000 | ||||
| Fourth Quarter | $ | 9.0000 | $ | 3.1900 | ||||
| For the year ending December 31, 2022 | High | Low | ||||||
| First Quarter | $ | 4.4000 | $ | 0.7500 | ||||
Holders of Record
As of March 10, 2022 and just prior this filing, we had 4,089,409,545 shares of our common stock issued and outstanding held by 152 shareholders of record. The actual number of holders of our common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees.
Dividends
We have not paid, nor declared any cash dividends since our inception and do not intend to declare or pay any such dividends in the foreseeable future as we intend to retain any earnings for use in our business. Any future determination to pay dividends will be at the discretion of our board of directors, subject to limitations imposed by state law.
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2021, we did not have any equity compensation plans. The Company’s 2021 Equity Compensation Plan was approved and adopted by the Board and the Company’s majority shareholders, effective October 15, 2021. There are no securities authorized to be issued under the 2021 Equity Compensation Plan as of the date of this prospectus, and no securities have been issued so far.
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The following description of our capital stock is based upon our Amended and Restated Articles of Incorporation (the “Amended Articles”), our bylaws and applicable provisions of law, in each case as currently in effect. This discussion does not purport to be complete and is qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, and our bylaws, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part.
Authorized Capital Stock
We are authorized to issue 4,409,605,000 shares of common stock, par value $0.001 per share, and no shares of preferred stock. As of the date of this prospectus, there were 4,089,409,545 shares of common stock issued and outstanding. The outstanding shares of stock have been duly authorized and are fully paid and non-assessable.
Common Stock
The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election of directors. There is no cumulative voting in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities.
Pursuant to the Company’s Amended Articles, 1,521,141,192 shares of the authorized shares of common stock has been designated as a separate series referred to as “Lead Investor Common Stock”. 868,960,471 shares of the authorized shares of common stock has been designated as a separate series referred to as “Key Holder Common Stock”. The remaining 2,609,898,337 shares of the authorized shares of our common stock are not designated as a separate series and are not considered Lead Investor Common Stock or Key Holder Common Stock. The Lead Investor Common Stock holders of record (and only for so long as such holders hold any Lead Investor Common Stock, exclusively and as a separate class), is entitled to elect three (3) directors of the Company; and with respect of the Key Holder Common Stock, as long as such holders hold any Key Holder Common Stock, and at all times while the issued and outstanding shares of Key Holder Common Stock represents ten percent (10.00%) or more of the Corporation’s total issued and outstanding shares (subject to appropriate adjustment for any stock splits, stock dividends, combinations, recapitalizations and the like) and all the original record holders of the Key Holder Common Stock are then providing services to the Corporation as officers, employees or consultants, such holders, exclusively and as a separate class, is then entitled to elect two (2) directors of the Corporation and no other holder of any undesignated shares of Common Stock has the right to elect any directors of the Corporation.
The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, and our Amended Articles do not provide for cumulative voting in the election of directors. The holders of our common stock receive ratably any dividends declared by our Board out of funds legally available therefor. In the event of our liquidation, dissolution, or winding-up, the holders of our common stock will be entitled to share ratably in all assets remaining after payment of or provision for any liabilities.
Preferred Stock
We have not authorized any preferred stock in our Amended Articles.
Warrants to Purchase Common Shares
The Company does not have any authorized warrants to purchase its common stock.
The only outstanding warrants are in the Company’s wholly-owned subsidiary, Athena Bitcoin. In 2017, Athena Bitcoin issued warrants to purchase 202,350 shares of Athena Bitcoin’s common stock for $14,005 for a right to purchase common shares in Athena Bitcoin, priced at $2.00 to $3.00 per share, at an average exercise price of $2.49 per share. There was no activity related to these warrants in 2019 and the warrants to purchase 202,350 shares of Athena common stock remained outstanding on December 31, 2019 and were classified as equity. In January 2020, warrants to purchase 102,350 shares of Athena Bitcoin common stock at an average exercise price of $2.00 per share were exercised, some of them in a cashless manner, against a lesser number of shares. As a result of the exercise of these warrants, the net issuance of Athena Bitcoin common stock was 93,106 shares (exchanged into 115,888,490 shares of the Company’s common stock on January 31, 2020). The unexercised warrants to purchase 100,000 shares of Athena Bitcoin common stock, at an exercise price of $3 per share, remain outstanding as of December 31, 2020. The warrant will expire on May 30, 2025.
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Anti-takeover Effects of Nevada Law
We may currently be subject to the provisions of the Nevada Revised Statutes regarding the acquisition of controlling interest (the “Controlling Interest Law”). A corporation is subject to the Controlling Interest Law if it has more than 200 stockholders of record, at least 100 of whom are residents of Nevada, and if the corporation does business in Nevada, directly or through an affiliated corporation. The Controlling Interest Law may have the effect of discouraging corporate takeovers. As of December 31, 2021, we had [●] stockholders of record who are residents of Nevada.
The Controlling Interest Law focuses on the acquisition of a “controlling interest,” which means the ownership of outstanding voting shares that would be sufficient, but for the operation of law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third; (2) one-third or more but less than a majority; or (3) a majority or more. The ability to exercise this voting power may be direct or indirect, as well as individual or in association with others.
The effect of the Controlling Interest Law is that an acquiring person, and those acting in association with such person, will obtain only such voting rights in the controlling interest as are conferred by a resolution of (1) a majority of the stockholders of the corporation and, if applicable (2) a majority of each class or series of outstanding shares of which the acquisition would adversely affect or alter a preference or relative or other right, approved at a special or annual stockholders’ meeting. The Controlling Interest Law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved in accordance with the Controlling Interest Law. However, if the stockholders do not grant voting rights to the shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell the shares to others, and so long as the subsequent buyer or buyers of those shares themselves do not acquire a controlling interest, those shares would not be governed by the Controlling Interest Law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, a stockholder of record, other than the acquiring person, who did not vote in favor of approval of voting rights, is entitled to dissent to the acquisition and demand fair value for such stockholder’s shares pursuant to applicable provisions of Chapter 92 of the Nevada Revised Statutes governing rights and procedures for dissenting stockholders.
In addition to the Controlling Interest Law, Nevada has a business combination law, which prohibits certain business combinations between Nevada publicly traded corporations and any “interested stockholder” for two years after the interested stockholder first becomes an interested stockholder, unless the board of directors of the corporation approved the combination before the person became an interested stockholder or the corporation’s board of directors approves the transaction and at least 60% of the corporation’s disinterested stockholders approve the combination at an annual or special meeting thereof. For purposes of Nevada law, an interested stockholder is any person who is: (a) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation, or (b) an affiliate or associate of the corporation and at any time within the previous two years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of “combination” contained in the statute is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of the Company from doing so if they cannot obtain the approval of our Board or stockholders.
In addition, under Nevada law directors may be removed only by the vote of stockholders representing not less than two-thirds of the voting power of the issued and outstanding stock entitled to vote, which could also have an anti-takeover effect.
Dividends
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our board of directors at such time. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future.
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6% Convertible Debentures
On June 22, 2021, the Company commenced its private offering of up to $5,000,000 of 6% Convertible Debentures to accredited investors only. The maturity date on the 6% Convertible Debentures is two years after the date of issuance. The investor has an option to convert the principal amount of the Debenture into shares of common stock of the Company at a conversion price equal to the lesser of (i) $0.10 or (ii) 25% less than the twenty trading day (20-trading day) volume weighted average price (“VWAP”) of the common stock based on the closing prices per share reported on the OTC Pink Market operated by the OTC Markets Group, Inc., for said twenty-day trading period, commencing ten-trading days prior to the date of election to convert the Debenture and ending ten-trading days after such election is made and the notice of conversion has been submitted to the Company. The accrued interest is not convertible and is payable quarterly. The investor is required to convert the Debenture if the Company’s common stock is admitted for trading on a national stock exchange or if certain corporate transactions occur, such as merger, sale or change of control of the Company. The holders of the Debentures are provided with the registration rights to register the shares of common stock the Debentures are convertible into, in a registration statement to be filed by the Company on Form S-1 with the SEC. The Company sold a total of $4,985,000 of the 6% Convertible Debentures to 77 accredited investors. The Company closed its private placement in September, 2021. As of March 31, 2022, the Company issued 34,650,000 shares of its common stock upon conversion of $3,465,000 principal amount of the 6% Convertible Debentures.
8% Convertible Debentures
On January 31, 2020, we issued 8% Convertible Debentures in the total principal amount of $3,125,000 to two (2) accredited investors pursuant to that certain securities purchase agreement as of the same date, which has been amended in connection with the Company’s Loan Restructuring and Related Amendments Agreement entered into as of July 12, 2021 (the “Restructuring Agreement”). The holders of the Convertible Debentures have the right to convert their principal amount and any unpaid accrued interest into 260,416,667 shares of common stock based on the conversion price equal to dividing the total amount of principal and accrued interest, if any, of the Debenture by the lesser of $0.012 per share or at a 20% discount to a next equity financing, subject to certain limitations requiring the consent of the lead investor. The holders of the Convertible Debentures are also subject to the mandatory conversion (except for the lead investor whose consent is required) at the next equity financing. Next equity financing has been defined in the securities purchase agreement between the respective holders and the Company as the next sale (or series of related sales) by the Company of additional equity securities under an exemption from registration available under the rules promulgated under the Securities Act, from which the Company receives gross proceeds of not less than US$3,000,000.00 (excluding, the aggregate principal amount of the Convertible Debentures) The maturity date for the Convertible Debentures is January 31, 2025. The Convertible Debentures are unsecured obligations of the Company. The holders of Convertible Debenture have certain registration rights as described below (the “Registration Rights”). The holder of 8% Convertible Debenture in the principal amount of $125,000, Swingbridge Crypto III LLC, converted the principal amount and accrued interest of its 8% Convertible Debenture into 10,416,666 shares of common stock in February, 2022 at the conversion price of $0.012 per share.
We are party to an Investors’ Rights Agreement dated as of January 31, 2020 which was entered into in connection with the Company’s issuance of Convertible Debentures with lead investor and certain key holders as defined in the Investors Rights Agreement, which grants them certain registration rights with respect to our common stock. The registration of shares of our common stock pursuant to the exercise of registration rights described below would enable holders to sell these shares without restriction under the Securities Act when the registration statement is declared effective. We will pay all expenses related to any demand, piggyback, or Form S-3 registration described below, with the exception of underwriting discounts and commissions.
Demand Registration Rights
At any time beginning 180 days after the effective date of the registration statement of which this prospectus forms a part or five (5) years after the date of the Investors’ Rights Agreement, the holders of 30% or more of at least 30% of the registrable securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions would exceed $15 million) may make a written request that we register all or a portion of their shares, subject to certain specified exceptions. The holders of shares having registration rights are entitled to written notice from the Company. We will prepare and file a registration statement as requested, unless, in the good faith judgment of our Board, such registration would be seriously detrimental to the Company and its stockholders and filing should be deferred. We may defer only once in any 12-month period, and such deferral shall not exceed 120 days after receipt of the request. In addition, we are not obligated to effect more than two of these registrations within any 12-month period or if the holders’ proposed registered securities may be immediately registered on Form S-3.
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Piggyback Registration Rights
Subject to certain specified exceptions, if we propose to register any of our securities under the Securities Act either for our own account or for the account of other stockholders, the holders of shares having registration rights are entitled to written notice and certain “piggyback” registration rights allowing them to include their shares in our registration statement. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, in their sole discretion, to limit the number of shares included in any such offering under certain circumstances, but not below 30% of the total amount of securities included in such offering, unless (i) such offering is the initial public offering or (ii) all other securities, other than our securities, are entirely excluded from the offering.
Form S-3 Registration Rights
At any time after we are qualified to file a registration statement on Form S-3, and subject to limitations and conditions, the holders of 35% or more of the registrable securities then outstanding are entitled to written notice of such registration and may make a written request that we prepare and file a registration statement on Form S-3 under the Securities Act covering their shares, so long as the aggregate price to the public, net of the underwriters’ discounts and commissions, is at least $5,000,000. We will prepare and file the Form S-3 registration as requested, unless, in the good faith judgment of our board of directors, such registration would be seriously detrimental to the Company and its stockholders and filing should be deferred. We may defer only once in any 12-month period, and such deferral shall not exceed 90 days after receipt of the request. In addition, we are not obligated to prepare or file any of these registration statements (i) within 180 days after the effective date of a registration statement pursuant to demand or piggyback registration rights or (ii) if two of these registrations have been completed within any 12-month period.
In accordance with the Investors’ Rights Agreement, the Company delivered the required notice of a proposed filing in a timely manner, of the Company’s registration statement on Form S-1 to the holders with the registration rights. The holders elected not to include in the registration statement any of the common stock issuable upon the conversion of their respective Convertible Debentures.
The two largest individual shareholders have entered into to a Voting Agreement as of January 31, 2020, in connection with the offering of the Convertible Debentures, pursuant to which the lead investor (currently our largest shareholder, Mr. Komaransky) has a right to nominate three (3) directors and the key holder (currently our CEO, director and second largest shareholder, Eric Gravengaard) has a right to nominate two (2) directors. The Voting Agreement has been amended in connection with the Restructuring Agreement to provide that upon the Company’s repayment in full of the amounts due and outstanding to the lead investor under the Convertible Debentures and that certain Loan Agreement for 30 bitcoin, entered into on August 22, 2018, and subsequently amended as of July 12, 2021, the lead investor will cause one of the three designated persons on the Board of Directors to resign, and maintain the right to only designate two (2) directors instead of three (3), and the resigning person shall be replaced by the mutually selected nominee by the lead investor and the key holder. The size of the Board of Directors has been determined to be five (5) seats and can only be increased with the consent of the lead investor. The Voting Agreement does not prohibit other shareholders from voting or grant any special voting rights to any shareholder. The parties to the Voting Agreement further agree to vote to increase the authorized number of shares of common stock of the Company, if needed, to ensure that there is a sufficient amount of shares available for conversion of the Convertible Debentures.
Right of First Refusal and Co-Sale Agreement
In connection with the offering of the Convertible Debentures, Eric Gravengaard, the Company’s officer, director and principal shareholder (the “Key Holder”), and investors in the Convertible Debentures (the “Investors”), entered with the Company into a Right of First Refusal and Co-Sale Agreement dated as of January 31, 2020 (the “RFR Agreement”), pursuant to which the Key Holder granted to the Company the right of first refusal to purchase all or any portion of common stock that the Key Holder proposes to transfer, at the same price and terms as offered to the proposed transferee. The right of first refusal is subject to certain notice requirements and applicable purchase terms. The Key Holder also agreed to grant to the Investors, secondary refusal right to purchase all or any portion of the common stock proposed to be transferred by the Key Holder that has not been purchased by the Company pursuant to the right of first refusal. The grant of the secondary refusal right is subject to certain notice requirements and additional purchase terms as set forth in the RFR Agreement.
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Shares Eligible for Future Sale - Rule 144
Under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, and we are current in our Exchange Act reporting at the time of sale, a person (or persons whose shares are required to be aggregated) who is not deemed to have been one of our “affiliates” for purposes of Rule 144 at any time during the 90 days preceding a sale and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, including the holding period of any prior owner other than one of our “affiliates,” is entitled to sell those shares in the public market without complying with the manner of sale, volume limitations, or notice provisions of Rule 144, but subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than one of our “affiliates,” then such person is entitled to sell such shares in the public market without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of the Exchange Act for at least 90 days, our “affiliates,” as defined in Rule 144, who have beneficially owned the shares proposed to be sold for at least six months, are entitled to sell in the public market, within any three-month period, a number of those shares that does not exceed the greater of:
| · | 1% of the number of shares of our common stock then outstanding, which will equal shares immediately after the completion of this offering; or | |
| · | the average weekly trading volume of our common stock on during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Such sales under Rule 144 by our “affiliates” or persons selling shares on behalf of our “affiliates” are also subject to certain manner of sale provisions, notice requirements, and requirements related to the availability of current public information about us.
Restrictions on the Reliance of Rule 144 by Shell Companies or Former Shell Companies
Rule 144(i) "Unavailability to Securities of Issuers with No or Nominal Operations and No or Nominal Non-Cash Assets" provides that Rule 144 is not available for the resale of securities initially issued by an issuer that is a “shell company” as that term is defined in section 405 of the Securities Act. The Company has previously been identified as a shell company until January 30, 2020 (see “Corporate History and Other Information” on page 3). Rule 144 is not available for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. Rule 144(i) provides an important exception to this prohibition, however, if the following conditions are met:
| · | The issuer of the securities that was formerly a shell company has ceased to be a shell company; | |
| · | The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; | |
| · | The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and | |
| · | At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company. |
Transfer Agent
The transfer agent and registrar of our common stock is Action Stock Transfer Corporation, located at 2469 E. Fort Union Blvd., Suite 214 Salt Lake City, UT 84121.
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Management and Certain Security Holders
Directors and Executive Officers
The following table sets forth certain information regarding our directors and executive officers as of the date of this prospectus.
| Name | Age | Position(s) | DATES HELD |
| Executive Officers | |||
| Eric Gravengaard | 47 | Chief Executive Officer, Director, Interim Chief Financial Officer |
January, 2020 – present May 2022 – present (ICFO) |
| Edward Weinhaus | 49 | President, Director | January, 2020 – present |
| Parikshat Suri | 54 | Chief Financial Officer | February 2021 – May 2022 |
| Non-Employee Directors | |||
| Michael Pruyn(2) | 38 | Director | May, 2022 – present |
| Michael Komaransky (1) | 43 | Director | March 2020 – May 2022 |
| Huaxing Lu | 34 | Director | March, 2020 – present |
| Esteban Suarez | 42 | Director | March, 2020 – present |
| (1) | Mr. Komaransky resigned as the Company’s director effective on May 6, 2022 and his resignation was accepted by the Company’s Board of Directors. Mr. Komaransky’s decision to resign from the Board of Directors was not a result of a disagreement with management regarding the Company's operations, policies, practices or otherwise. |
| (2) | Mr. Komaransky nominated Michael J. Pruyn to the Board of Directors, and Mr. Pruyn was appointed as a member of the Board of Directors effective on May 6, 2022. |
The following is a biographical summary of the experience of our directors and executive officers. Each director of the Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by the Company’s shareholders and subject to the provisions of our Amended and Restated Articles of Incorporation and that certain Voting Agreement as described below. Each executive officer serves at the discretion of the board of directors and holds office until the officer’s successor is duly elected and qualified, or until the officer’s earlier resignation or removal.
Eric Gravengaard has served as our CEO and director since January 30, 2020 and as our Chief Financial Officer since January 31, 2020 until February 3, 2020 and again since May 2022 until the present time. Mr. Gravengaard is a co-founder of Athena Bitcoin, Inc. and has served as its Chief Executive Officer since its inception in September, 2015. Mr. Gravengaard also holds a position of CIO of Red Leaf Advisors LLC, a Bitcoin investment company, since January 2016 in which he has a controlling interest (see Note 16 to the Financial Statements). Mr. Gravengaard was formerly a trader at Zen Trading FX, a non-bank liquidity provider trading G-10 and select EM currencies on multiple FX platforms. Previously, he was a Portfolio Manager at Rock Capital Markets, a Director at Chicago Trading Company, and Director of Quantitative Strategies at Spot Trading, all in Chicago. Mr. Gravengaard earned an M.B.A. from the University of Chicago Graduate School of Business, and an S.B. in Mechanical Engineering from the Massachusetts Institute of Technology. We believe that Mr. Gravengaard’s background in the industry and leadership experience as a co-founder and CEO of Athena Bitcoin qualify him to serve on the Board.
Edward “Coach” Weinhaus, Esq. has served as our President and director since January 30, 2020. Mr. Weinhaus is a co-founder of Athena Bitcoin and served as a director since September, 2015. Mr. Weinhaus is also a manager of consultancy RelbanE, and a consultant to the Company since 2015. Mr. Weinhaus is an attorney, academic, and faculty lecturer at UCLA Anderson School of Management where he currently teaches Entrepreneurial Strategy and the Law and other Entrepreneurship courses. He has been a lecturer at UCLA since 2016. From November 2018 until June 2019, Mr. Weinhaus served as an Assistant Professor (Adj.) at University of Chicago Booth School of Business where he taught Booth’s first course in cryptocurrency and blockchain (and previously had earned his M.B.A.). Mr. Weinhaus is the Managing Attorney of law firm LegalSolved and is a partner at the appellate law firm Ste. Monique Appellors. He previously taught at Washington University’s Olin Business School and Pepperdine University’s Graziadio Business School. Mr. Weinhaus currently conducts his doctoral research in Cryptocurrency and Liberty at Washington University School of Law in St. Louis working towards his JSD degree. Mr. Weinhaus holds JD and LLM degrees from Washington University School of Law in St. Louis, a B.Sc. from London School of Economics and an M.Sc. in Digital Currency. We believe Mr. Weinhaus is qualified to serve on our board because of his experience as the co-founder of the Athena Bitcoin and knowledge of Bitcoin and the blockchain industry.
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Michael “Mike” Pruyn has been the Company’s director since May, 2022. Michael Pruyn joined BMO Capital Markets in 2016 and is a Vice President in the ABS Banking group. Prior to joining BMO, Michael spent nearly eight years in the derivatives trading industry, focusing primarily on listed ETF and Equity Index Options. He has a B.A. in Economics from Northwestern University and an M.B.A. from the University of Texas at Austin, McCombs School of Business. He is a holder of FINRA series 7, 63, and 79 licenses. We believe that Mr. Pruyn is qualified to serve as a director on our Board because of his experience in the financial services industry.
Huaxing “Jason” Lu has been a director of the Company since March, 2020. Mr. Lu has been a managing director at Komodo Bay Capital since May, 2020. Prior to joining Komodo Bay Capital, he was a trader at 4170 Trading from February, 2018 until May, 2020, where he started and ran the cryptocurrency focused subsidiary, Grapefruit Trading. From March, 2017 until February, 2018, Mr. Lu worked in numerous other trading roles at Old Mission Capital, and prior to 2017, at MSR Investments (2011-2017). Mr. Lu graduated from the University of Illinois Urbana-Champaign in 2008 with a dual degree in Electrical Engineering and Economics. Mr. Lu’s significant experience building and overseeing successful cryptocurrency businesses was instrumental in his selection as a member of the Board.
Esteban “Steve” Suarez has been a director of the Company since March. 2020. Mr. Suarez has been the CEO of BlackStage Productions, an innovative event planning firm since April, 2019 and the CEO of Ultimate Gamer, E-Sports medium, since January, 2017. From January, 2010 until January, 2019, Mr. Suarez founded and led a large event company, which held an annual fitness festival called Wodapalooza. From 2016 to 2018, he was the President of Loud and Live, an entertainment company. Mr. Suarez created the Spanish language political website www.epolitico.com that was later sold to a private equity firm in 2003. Mr. Suarez has an MBA from Florida International University. We believe that Mr. Suarez is qualified to serve as a member of our Board because of the perspective and experience he brings from his successful entrepreneurial endeavors.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Arrangements between Principal Shareholders, Officers and Directors
Our Amended and Restated Articles of Incorporation (the “Amended Articles”) provide that our principal shareholder, Mike Komaransky, who was a lead investor through his entity KGPLA Holdings, LLC, a Delaware corporation (the “Lead Investor”) in the Company’s private placement of convertible debentures in January, 2020, is entitled to elect three (3) out of five (5) directors of the Company (the “Lead Investor Directors”) and our CEO, Director and principal shareholder, Eric Gravengaard (the “Key Holder”) is entitled to elect two (2) of five (5) directors of the Company for so long as such Key Holder(s) maintain(s) a certain amount of such shares pursuant to the Voting Agreement entered as of January 31, 2020 by and between the Company, Lead Investor and Key Holder (the “Voting Agreement”). The Voting Agreement has been subsequently amended in July, 2021, to provide for certain conditions which would cause the Lead Investor to relinquish his right to appoint one (1) of the three (3) nominee directors to the Board of the Company. See Description of Capital Stock, Voting Agreements on page 72. The Lead Investor and the Key Holder hold their respective rights with respect to the election of the directors to the Board of the Company, as long as they maintain the required amount of their respective holdings of common stock of the Company, as set forth in the Amended Articles.
Directors Pruyn, Lu and Suarez were appointed by Mr. Komaransky as the Lead Investor, and directors Gravengaard and Weinhaus were appointed by Mr. Gravengaard who is the Key Holder (pursuant to the provisions of the Amended Articles). Except as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer was selected to serve as an officer.
Board Structure
Our business and affairs are managed under the direction of our Board, which currently consists of five members. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. In accordance with our Amended Articles and Voting Agreement, our directors are elected by Lead Investor and Key Holder having a required number of shares of our common stock as set forth in the Amended Articles. Board will stand for election at each annual meeting of stockholders. Each director will hold office for a one-year term and until the election and qualification of his or her successor. The authorized number of directors is determined from time to time solely by resolution of the Board. Our subject to the provisions of the Amended Articles and Voting Agreement.
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Our Board has designated Eric Gravengaard, our Chief Executive Officer, to serve as Chairman of the Board. Combining the roles of Chief Executive Officer and Chairman allows one person to drive strategy and agenda setting at the board level while maintaining responsibility for executing on that strategy as Chief Executive Officer. Although our Amended Articles and bylaws do not require that we combine the Chief Executive Officer and Chairman positions, our Board believes that having the positions be combined is the appropriate leadership structure for us at this time. Our Board recognizes that, depending on the circumstances, other leadership models, such as separating the roles of Chief Executive Officer and Chairman, might be appropriate. Accordingly, our board of directors may periodically review its leadership structure. Our Board believes its administration of its risk oversight function has not affected its leadership structure.
We face a number of risks, including those described under the section titled “Risk Factors” included elsewhere in this prospectus. Our board of directors believes that risk management is an important part of establishing, updating, and executing on the Company’s business strategy. Our Board, as a whole and at the committee level, has oversight responsibility relating to risks that could affect the corporate strategy, business objectives, compliance, operations and the financial condition and performance of the Company. Our Board focuses its oversight on the most significant risks facing the Company and on its processes to identify, prioritize, assess, manage, and mitigate those risks. While our Board has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on the Company. We do not have any independent directors at this time.
Committees of the Board of Directors.
Due to the Company’s size, the Company has not formally designated a nominating committee, an audit committee, a compensation committee or committees performing similar functions. The Board currently acts as our audit committee.
Code of Conduct and Ethics
Our Board has adopted a Code of Ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insider trading, corporate opportunities and whistleblowing or the prompt reporting of illegal or unethical behavior. We will provide a copy, without charge, to anyone that requests a copy of our Code of Ethics in writing by contacting us at our address provided in this prospectus.
Involvement in Certain Legal Proceedings
None of our directors and executive officers has been involved in any of the following events during the past ten years:
| (a) | any petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver, fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing; | |
| (b) | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); | |
| (c) | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; |
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| (d) | being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (c)(i) above, or to be associated with persons engaged in any such activity; | |
| (e) | being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been reversed, suspended, or vacated; | |
| (f) | being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; | |
| (g) | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| (h) | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Director Compensation
Our directors did not and do not receive any compensation for their services as our directors. We will reimburse directors for their reasonable out-of-pocket expenses, including travel, food, and lodging, incurred in attending meetings of our Board and/or its committees. We do not expect to compensate our employee directors for their service on our board of directors in the future.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors. The indemnification agreements have been effective since the beginning of the term of each respective director and require us to indemnify these individuals to the fullest extent permitted by Nevada law.
Conflicts of Interest and Policy Regarding Transactions with Related Persons
We do not have a formal, written policy for the review, approval or ratification of transactions between us and any director or executive officer, nominee for director, 5% stockholder or member of the immediate family of any such person that are required to be disclosed under Item 404(a) of Regulation S-K. However, our policy is that any activities, investments or associations of a director or officer that create, or would appear to create, a conflict between the personal interests of such person and our interests must be reviewed by our Board of Directors and determined in accordance with the applicable provisions of Nevada law, and specifically pursuant to Section 78.140 of Nevada Revised Statutes, which provides restrictions on transactions involving interested directors or officers, including requirement of full disclosure of such interest to the Board of Directors, abstention from voting on the matter involving conflict of interest and the determination of the fairness of the transaction.
Equity Compensation Plans
In 2016, our wholly-owned subsidiary, Athena Bitcoin, established the 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan authorized the granting of up to 207,422,610 shares of common stock to officers, employees, and Board members of the Company. The exercise price of the options was determined by the Board provided it was not to be less than 100% of the fair market value on the date of grant. As of December 31, 2019, no shares remained available for future issuance under the 2016 Equity Incentive Plan. The 2016 Plan has been terminated in January, 2020 by Athena Bitcoin. A total of 126,646 shares resulting from the exercise of the outstanding stock options issued by the Athena Bitcoin were exchanged for 157,635,309 shares of the Company’s common stock.
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In October, 2021, the Company’s Board of Directors and its majority shareholders approved the Company’s 2021 Equity Compensation Plan in the amount of 100 million shares of the Company’s common stock. No securities of the Company have been authorized for issuance nor issued under the 2021 Equity Compensation Plan as of the date of this prospectus.
Shareholder Communications
Shareholders who wish to communicate with the Board may address their written correspondence to either the Board of Directors, or an individual director and mail it to the offices of the Company at the address on the front page of this prospectus.
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The following table sets forth information regarding each element of compensation that we pay or award to our named executive officers for the fiscal years of 2019, 2020, and 2021. No other executive officers or directors received annual compensation in excess of $100,000 during the last two fiscal years.
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Stock | Option | Non-Equity | Nonqualified | All Other | Total | |||||||||||||||||||||||||||
| ($) | ||||||||||||||||||||||||||||||||||||
| Eric Gravengaard (1) | 2021 | 250,000 | 50,000 | – | – | – | – | – | 300,000 | |||||||||||||||||||||||||||
| Chief Executive Officer | 2020 | 250,000 | – | – | – | – | – | – | 250,000 | |||||||||||||||||||||||||||
| 2019 | 166,029 | – | – | 46,820 | – | – | – | 212,849 | ||||||||||||||||||||||||||||
| Edward Weinhaus (2) | 2021 | 28,646 | – | – | – | – | – | 115,051 | 143,697 | |||||||||||||||||||||||||||
| President | 2020 | – | – | – | – | – | – | 169,806 | 169,806 | |||||||||||||||||||||||||||
| 2019 | – | – | 46,820 | – | – | 159,044 | 205,864 | |||||||||||||||||||||||||||||
| Parikshat Suri (3) | 2021 | 229,167 | 50,000 | – | – | – | – | 60,460 | 339,627 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2020 | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
| (1) | includes an option granted prior to the Share Exchange in common stock of Athena Bitcoin pursuant to the 2016 Plan. Such option was subsequently exercised into 4,856 shares of Athena Bitcoin’s common stock at an exercise price of $16.09 per share, and exchanged in the Share Exchange transaction into 6,044,226 shares of the Company’s common stock. |
| (2) | includes an option granted prior to the Share Exchange in common stock of Athena Bitcoin pursuant to the 2016 Plan. Such option was subsequently exercised into 4,856 shares of Athena Bitcoin’s common stock at an exercise price of $16.09 per share, and exchanged in the Share Exchange transaction into 6,044,226 shares of the Company’s common stock. See also Certain Relationships and Related Party Transactions for additional disclosure regarding payment to Advisory FX LLC for Mr. Weinhaus’ services as the President of the Company. |
| (3) | excludes $291,119 in accounting and financial consulting fees paid during the period from March, 2020 to February, 2021 (prior to Mr. Suri’s appointment as the Company’s CFO), to Radiant Consulting, LLC, an entity beneficially owned and controlled by Mr. Suri. The compensation for Mr. Suri’s consulting services is not included in this Summary Compensation Table because it was received prior to his appointment as the Company’s CFO. |
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Outstanding Equity Awards at 2021 Fiscal-Year End
The following table sets forth information regarding outstanding equity awards at the end of 2010 for each of our NEOs.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number
of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value Of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Employment Contracts, Termination of Employment
We do not have employment contracts with our officers, however, we have signed Offer Letter with our Chief Financial Officer which provides for an annual salary of $250,000, health and transit benefits, vacation time and participation in the Company’s equity compensation plan. In an event of termination without cause, Mr. Suri would be entitled to receive compensation equal to six-months of his base salary. See Exhibit 10.12. We have also terminated our oral agreement with Advisory FX LLC in October 2021, and Mr. Weinhaus is compensated directly for his services as the Company’s President.
Compensation of Directors
Our directors did not and do not receive any compensation for their services as our directors. We will reimburse directors for their reasonable out-of-pocket expenses, including travel, food, and lodging, incurred in attending meetings of our Board and/or its committees. We do not expect to compensate our employee directors for their service on our board of directors in the future.
Outstanding Equity Awards at Fiscal Year-End December 31, 2021
Not applicable. At the end of 2020, there were no equity awards outstanding, and the Company has not adopted such a plan.
Prior to the Share Exchange transaction, as defined elsewhere in this prospectus, the Company’s subsidiary had 2016 Stock Option Plan which was terminated in January, 2020. See Note 11 to the Financial Statements.
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The following table sets forth certain information regarding the beneficial ownership of our capital stock outstanding as of May 12, 2022 by:
| · | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our shares of common stock; | |
| · | each of our directors; | |
| · | each of our named executive officers; and | |
| · | all of our directors and named executive officers as a group. |
The percentage ownership information is based on 4,089,409,545 shares of common stock outstanding as of March 10, 2022. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules attribute beneficial ownership of securities as of a particular date to persons who hold options or warrants to purchase shares of common stock and that are exercisable within 60 days of such date. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
Except as otherwise noted below, the address for each person or entity listed in the table is c/o Athena Bitcoin Global, 1332 N Halsted St., Suite 403, Chicago, IL 60642.
| Name of Beneficial Owner | Number of shares beneficially owned (1) | Percentage of shares beneficially owned | ||||||
| Directors and Named Executive Officers | ||||||||
| ERIC GRAVENGAARD (2) | 1,151,484,077 | 28.16% | ||||||
| EDWARD WEINHAUS (3) | 27,618,811 | * | ||||||
| PARIKSHAT SURI (Resigned May 4, 2022) | – | – | ||||||
| Non-Employee Directors | – | |||||||
| MICHAEL PRUYN | – | – | ||||||
| HUAXING LU | – | – | ||||||
| ESTEBAN SUAREZ | – | – | ||||||
| 5% Stockholders | – | |||||||
| MICHAEL KOMARANSKY (4) | 1,771,141,192 | 40.82% | ||||||
| Entities Affiliated with SWINGBRIDGE (5) | 429,494,749 | 10.50% | ||||||
| All Named Executive Officers and Directors as a Group (6 persons) | 1,179,102,888 | 27.17% | ||||||
*Less than one percent
___________________
| (1) | Based on 4,089,409,545 shares of our common stock outstanding as of March 10, 2022. To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding and all shares of our common stock issuable to that person in the event of the conversion of outstanding Convertible Debentures owned by that person which are convertible within 60 days of the date of this prospectus. Convertible Debentures held by other stockholder(s) are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power and sole investment power for the shares listed opposite such person’s name. |
| (2) | Consists of: (i) 863,960,473 shares of common stock held of record by Eric Gravengaard, as Trustee of the Eric L. Gravengaard Trust of 2011 and (ii) 287,523,604 shares of common stock held of record by Eric Gravengaard. |
| (3) | Consists of: (i) 8,948,426 shares of common stock held of record by Edward Weinhaus; and (ii) 18,670,385 shares of common stock held of record by Liberty Digital Holdings, LLC, an entity beneficially owned and controlled by Mr. Weinhaus. |
| (4) | Consists of: (i) 1,521,141,192 shares of common stock held of record by Athena Equity LLC, an entity beneficially owned and controlled by Mr. Komaransky; and (ii) includes 250,000,000 shares of common stock issuable upon the conversion of Convertible Debentures in the principal amount of $3,000,000 held of record by KGPLA, LLC, an entity beneficially owned and controlled by Mr. Komaransky. The assumed conversion price is $0.012 per share. See Description of Securities, page 69. |
| (5) | Consists of: (i) 191,454,966 shares of common stock held of record by Swingbridge Crypto I LLC; (ii) 50,271,880 shares of common stock held of record by Swingbridge Crypto II LLC; (iii) and 187,767,904 shares of common stock held of record by Swingbridge Crypto III LLC. Tom Kerestes is the manager and beneficial owner of Swingbridge Crypto I LLC, Swingbridge Crypto II LLC and Swingbridge Crypto III LLC. |
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Certain Relationships and Related Party Transactions
Except as set forth below, there were no transactions during our fiscal years ended December 31, 2021 and 2020 to which we were a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this registration statement. We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
On January 31, 2020, the Company entered into a convertible debenture agreement with KGPLA Holdings LLC, an entity in which Mike Komaransky, the Company’s former director and principal shareholder, has ownership interest. The convertible debenture provided for a principal amount of $3,000,000, with a maturity date of January 31, 2025. Interest as defined by the agreement is 8% per annum. KGPLA Holdings, LLC has the option to convert the outstanding principal and accrued interest balance into common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. As of December 31, 2020, the outstanding principal was $3,000,000. See also “Description of Capital Stock” on page 69.
On January 31, 2020, the Company entered into a security purchase agreement for Convertible Debenture with Swingbridge Crypto III, LLC., a shareholder of the Company. The convertible debenture provided for a principal amount of $125,000, with a maturity date of January 31, 2025. Interest as defined by the agreement is 8% per annum. Swingbridge Crypto III LLC. has the option to convert the outstanding principal and accrued interest balance into common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. As of December 31, 2020, the outstanding principal was $125,000. As of February 28, 2022, the principal amount and accrued interest was converted to 10,416,666 shares of the Company’s common stock.
The Company continues to carry a payables balance to Red Leaf Advisors, an entity in which Eric Gravengaard, our CEO has controlling interest in, for previous purchases of crypto assets. The outstanding balance due to Red Leaf Advisors as of December 31, 2020 and 2019 was $406,905 and $531,905, respectively, and is recorded in accounts payable, related party in the consolidated balance sheets. See Note 18 on page F-25 and Note 17 on page F-49.
On August 22, 2018, the Company entered into a loan agreement with Mike Komaransky, the Company’s former director and principal shareholder (“Bitcoin Agreement”). Under this Bitcoin Agreement, the Company borrowed 30 bitcoin initially due on August 22, 2019. The borrowing fee as defined in the agreement, is 13.5% of the outstanding principal. On July 12, 2021, Athena Bitcoin and the Company entered into Loan Restructuring and Related Amendments Agreement (the “Restructuring Agreement”) with Mr. Komaransky and Eric Gravengaard, the Company’s CEO, director and principal shareholder, with respect to the Bitcoin Agreement and certain other agreements. As of the date of the Restructuring Agreement, the Company had still a balance due of approximately 21.6 bitcoin. Pursuant to the terms of the Restructuring Agreement, the Company entered into First Amendment of the Loan Agreement which amended the terms of the Bitcoin Agreement. The new amended terms included the extension of the maturity date to May 31, 2022, mandatory weekly payments of $35,000 in Bitcoin and a grant of first priority security interest in all property described in that certain security agreement entered into at the same time. In addition, the First Amendment to the Loan Agreement provided for conversion of the note into U.S. dollars any time after June 30, 2021, if the market price of one bitcoin equals to or exceeds $75,000.
In November 2018, the Company entered into another agreement with the same former director and principalshareholder, Mike Komaransky. The agreement provides for up to four additional borrowings at 50 bitcoin increments with an initial term of 90 days for each loan. Fees for these borrowings is the greater of 10% of the outstanding principal or 0.4% of total ATM sales. The Company borrowed 50 bitcoins under this agreement in November 2018 and an additional 50 bitcoin in March 2019. The Company repaid these Bitcoin borrowings in the year ended December 31, 2021.
December 31, 2021 |
December 31, 2020 | |||||||
| Bitcoin borrowed outstanding | 0 | 30 | ||||||
The carrying value of the outstanding host contracts as of December 31, 2021 and 2020 was $0 and $193,000 respectively, and the fair value of the embedded derivative liabilities as of December 31, 2021 and 2020 was $0 and $688,000 respectively. During the years ended December 31, 2021 and 2020, the Company paid $119,000 and $337,000 of borrowing fees in crypto assets, respectively. See also Note 6 on Page F-18 and Note 5 on Page F-43.
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Company’s Transactions with Mr. Weinhaus
In March 2016, the Company previously engaged Mr. Weinhaus’ services as the President of the Company through an oral agreement with AdvisoryFX LLC. Mr. Weinhaus has no beneficial ownership interest in AdvisoryFX LLC, nor is he an officer or director of said company. AdvisoryFX LLC engaged Control NEW MLSS LLC., in which Mr. Weinhaus is a beneficial owner (99% ownership). AdvisoryFX LLC received a total of $132,873.33 in the fiscal year ended December 31, 2019 and a total of $148,745.81 in the fiscal year ended December 31, 2020, and a total of $115,050.89 for the period of January 1, 2021 through October 15, 2021. The Company terminated its oral agreement with AdvisoryFX LLC as of October 15, 2021. Mr. Weinhaus is currently compensated directly from the Company for his services as the President of the Company.
Mr. Weinhaus, has a beneficial interest in the return on the investment in the amount of $150,000 in the Company’s 6% Convertible Debentures made by JJE Management LLC, who is a general partner of TOI Fund L.P (the “Fund”). Mr. Weinhaus became a minority member of JJE Management LLC in March, 2021 when he provided legal services to said entity. Mr. Weinhaus is not an officer or managing member of JJE Management LLC and had no decision-making authority regarding the Fund’s investment in the Company’s 6% Convertible Debentures. Should the Convertible Debenture earn only interest, then Mr. Weinhaus will earn 4% of such accrued interest. Should the Convertible Debenture convert to common stock and earn a higher return, Mr. Weinhaus could earn a maximum of 8% of the profits of the Fund’s investment in the Convertible Debenture.
Investors’ Rights Agreement
In January, 2020, we entered into investors’ rights agreement (the “Investors’ Rights Agreement”) with certain holders of our 8% Convertible Debentures, including KGPLA Holdings, LLC and Swingbridge Crypto III LLC, each holder of the registration rights under the Agreement is a holder of more than 5% of our capital stock. Mr. Komaransky, a beneficial owner of KGPLA Holdings LLC, is also a former member of our board of directors (resigned in May, 2022). These stockholders are entitled to rights with respect to the registration of their shares issuable upon the conversion of Convertible Debentures following the effectiveness of the registration statement of which this prospectus forms a part. For a description of these registration rights, see the section titled “Description of Capital Stock—Registration Rights.”
Indemnification Agreements
We have entered into indemnification agreements with each of our current directors. The indemnification agreements, our Amended Articles, and our restated bylaws, require us to indemnify our directors to the fullest extent not prohibited by Nevada law. Subject to certain limitations, our restated bylaws also require us to advance expenses incurred by our directors and officers. See also “Description of Capital Stock” on page 69.
Right of First Refusal and Co-Sale Agreement
In January, 2020, we entered into a Right of First Refusal and Co-Sale Agreement with Eric Gravengaard, the Company’s officer, director and principal shareholder and investors in the Convertible Debentures (the “Investors”) pursuant to which Mr. Gravengaard granted to the Company the right of first refusal to purchase all or any portion of common stock that he proposes to transfer, at the same price and terms as offered to the proposed transferee. Mr. Gravengaard also agreed to grant to the Investors, secondary refusal right to purchase all or any portion of the common stock proposed to be transferred by him that has not been purchased by the Company pursuant to the right of first refusal. See also “Description of Capital Stock” on page 69.
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We will not receive any proceeds from the sale of Common Stock by the selling security holders. All net proceeds from the sale of our Common Stock will go to the selling security holders as described below in the sections entitled “Selling Shareholders” and “Plan of Distribution.” We have agreed to bear the expenses relating to the registration of the Common Stock for the selling security holders.
We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our board of directors deems relevant.
Determination of Offering Price
The prices at which the shares of common stock covered by this prospectus may be sold will be determined by the prevailing public market price for shares of common stock, by negotiations between the selling security holders and buyers of our common stock in private transactions or as otherwise described in the “Plan of Distribution.”
The offering price of the shares of our common stock does not necessarily bear any relationship to market value, our book value, assets, past operating results, financial condition, or any other established criteria of value.
Our common stock is currently quoted on OTC Pink Market. We will be filing with OTC Markets Group, Inc. to obtain quotation on the OTCQB. There is no assurance that our common stock will trade at any certain market price, as prices for the common stock in any public market, which may develop, will be determined in the marketplace, and may be influence by many factors, including the depth and liquidity of that market.
Not applicable. The Shares registered under this registration statement are not being offered for purchase from the Company. The shares are being registered on behalf of the Selling Shareholders.
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The Selling Shareholders named in this prospectus are offering 459,783,937 shares of common stock including: (i) 409,933,937 shares of common stock that were issued by us to the Selling Shareholders in the Share Exchange transaction or were purchased by the Selling Shareholders in private transactions, and (ii) up to 49,850,000 shares of common stock issued or issuable upon exercise of the principal amount of our outstanding 6% Convertible Debentures Due 2023 (the ”Convertible Debentures”) which were issued in connection with a private placement financing in 2021 (the “Private Placement”). We are registering the resale of the shares of common stock underlying the Convertible Debentures as required by the Purchase Agreement, as defined in this prospectus, that we entered into with the Selling Shareholders as of June 22, 2021, which provided said Selling Shareholders with certain registration rights with respect to the common stock issuable upon conversion of the Convertible Debentures. We will not receive any proceeds from the sale of shares being sold by Selling Shareholders.
The Selling Shareholders of 409,933,937 shares of common stock include our affiliates and certain other stockholders with “restricted securities” (as defined in Rule 144 under the Securities Act) and their pledgees, donees, transferees, assignees, or other successors-in-interest who, because of their status as affiliates pursuant to Rule 144 or because they acquired their shares of common stock an affiliate or from us as of January 30, 2020 pursuant to the Share Exchange Agreement, as defined in this prospectus, would be unable to sell their securities pursuant to Rule 144 until we have been subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for an indefinite period since such shares were issued by the Company when it was a “shell company” as defined in the Securities Act, and certain shareholders of the Company who received their shares of common stock in the Company prior to the Share Exchange with Athena Bitcoin, including their pledgees, donees, transferees, assignees, or other successors-in-interest (also, see Sales of Unregistered Securities).
The shares being offered hereby are being registered to permit public secondary trading, and the Selling Shareholders may offer all or part of the shares for resale from time to time, however, they are under no obligation to sell all or any portion of such shares nor are the Selling Shareholders obligated to sell any shares immediately upon effectiveness of this prospectus. The Selling Shareholders and their pledgees, donees, transferees, assignees, or other successors-in-interest may elect to sell their shares common stock covered by this prospectus, as and to the extent they may determine. As such, we will have no input if and when any Selling Shareholders may elect to sell their shares of common stock or the prices at which any such sales may occur. We cannot provide an estimate of the number of our securities that the Selling Stockholders will hold in the future. See the section titled “Plan of Distribution.”
The amount of shares of common stock of each Selling Shareholder registered pursuant to this prospectus has been arbitrarily determined by the Company, and is not subject to any pre-existing agreement(s). The Selling Shareholders have furnished all information with respect to share ownership.
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The Selling Shareholders have not, nor have they within the past three years had, any position, office, or other material relationship with us, other than as disclosed in this prospectus. See the sections titled “Management” and “Certain Relationships and Related Party Transactions” for further information regarding the Selling Shareholders.
| Beneficial Ownership of Common Stock After the Offering | ||||||||||||||||
| Name of Selling Shareholder | Number of Shares of Common Stock Prior to the Offering | Common Stock Saleable Pursuant to This Prospectus | Number of Shares | Percent of Class | ||||||||||||
| Executive Officers | ||||||||||||||||
| ERIC GRAVENGAARD | 1,151,484,077 | 14,279,100 | 1,137,204,977 | 27.81% | ||||||||||||
| EDWARD WEINHAUS | 27,618,811 | 3,151,300 | 24,467,511 | * | ||||||||||||
| 5% Stockholders | ||||||||||||||||
| MICHAEL KOMARANSKY | 1,521,141,192 | 76,057,000 | 1,445,084,192 | 35.34% | ||||||||||||
| Entities Affiliated with SWINGBRIDGE | 429,494,749 | 21,474,737 | 408,020,012 | 9.98% | ||||||||||||
| Other Selling Stockholders | ||||||||||||||||
| JONATHAN MORK | 177,751,020 | 134,557,600 | 43,193,420 | 1.06% | ||||||||||||
| MAGELLAN CAPITAL PARTNERS INC | 152,200,353 | 130,725,200 | 21,475,153 | * | ||||||||||||
| JEREMY MORK | 16,021,050 | 13,760,500 | 2,260,550 | * | ||||||||||||
| LINDSAY GARRISON | 85,883,774 | 4,294,000 | 81,589,774 | 2.00% | ||||||||||||
| TODD KLEIN | 30,422,821 | 1,521,100 | 28,901,721 | * | ||||||||||||
| LAUREN DELUCA | 15,211,410 | 770,500 | 14,440,910 | * | ||||||||||||
| RYAN SULLIVAN | 15,211,410 | 770,500 | 14,440,910 | * | ||||||||||||
| SHC VENTURES LLC | 15,211,410 | 770,500 | 14,440,910 | * | ||||||||||||
| RICHARD DOERMER | 14,547,890 | 737,300 | 13,810,590 | * | ||||||||||||
| DAN SCHWARTZ | 13,338,897 | 676,800 | 12,662,097 | * | ||||||||||||
| BEN ROSS | 5,335,558 | 266,700 | 5,068,858 | * | ||||||||||||
| NICOLE LOITERSTEIN | 5,335,558 | 266,700 | 5,068,858 | * | ||||||||||||
| KIRKLAND & ELLIS LLP | 3,650,745 | 182,500 | 3,468,245 | * | ||||||||||||
| Current and Former Employees & Contractors | ||||||||||||||||
| ATHENA BLOCKCHAIN, INC. | 12,944,801 | 1,941,700 | 11,003,101 | * | ||||||||||||
| GILBERT VALENTINE | 169,098,926 | 1,690,900 | 167,408,026 | 4.09% | ||||||||||||
| ERIC MATSON | 5,103,239 | 765,400 | 4,337,839 | * | ||||||||||||
| MATIAS GOLDENHÖRN | 4,356,423 | 653,400 | 3,703,023 | * | ||||||||||||
| BRIAN SCHWARTZ | 12,446,924 | 124,400 | 12,322,524 | * | ||||||||||||
| DANTE GALEZZI | 622,346 | 93,300 | 529,046 | * | ||||||||||||
| CHAD DAVIS | 622,346 | 93,300 | 529,046 | * | ||||||||||||
| MICHAEL LEON | 622,346 | 93,300 | 529,046 | * | ||||||||||||
| PATRICK PATTON | 248,938 | 37,300 | 211,638 | * | ||||||||||||
| JOHN BERGQUIST | 186,704 | 28,000 | 158,704 | * | ||||||||||||
| ADAM SAITER | 2,074,902 | 20,700 | 2,054,202 | * | ||||||||||||
| BILL ULIVIERI | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| JENNY BALLIET | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| HERNAN ALVIDE | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| KATRYN DICKOVER | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| VANESSA FLORES | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| MARTIN MELIENDREZ | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| MARTIN WESOLOWSKI | 124,469 | 18,600 | 105,869 | * | ||||||||||||
| SUB TOTAL | 409,933,937 | |||||||||||||||
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| Purchasers of the 6% Convertible Debenture | ||||||||||||||||
| Shares to be issued to 6% Convertible Debenture Holders | 15,550,000 | 15,550,000 | – | – | ||||||||||||
| QUANTUM PARTNERS, LP | 4,313,805 | 4,313,805 | – | – | ||||||||||||
| RYAN MYERS | 4,100,000 | 4,100,000 | – | – | ||||||||||||
| TODD KLEIN | 2,500,000 | 2,500,000 | – | – | ||||||||||||
| MERCER STREET GLOBAL OPPORTUNITY FUND, LLC | 3,500,000 | 3,500,000 | – | – | ||||||||||||
| LAWRENCE SPIELDENNER | 2,500,000 | 2,500,000 | – | – | ||||||||||||
| FP AUSTRALIA LLC | 1,000,000 | 1,000,000 | – | – | ||||||||||||
| JONATHAN LAMENSDORF | 1,000,000 | 1,000,000 | – | – | ||||||||||||
| PAUL KUSAK | 1,000,000 | 1,000,000 | – | – | ||||||||||||
| TOI FUND LP | 1,000,000 | 1,000,000 | – | – | ||||||||||||
| JOHN CRICK | 750,000 | 750,000 | – | – | ||||||||||||
| STEVEN HELLER | 750,000 | 750,000 | – | – | ||||||||||||
| CRAIG HERKIMER | 500,000 | 500,000 | – | – | ||||||||||||
| JAMES GRANAT | 500,000 | 500,000 | – | – | ||||||||||||
| JEFFREY EVERSON | 500,000 | 500,000 | – | – | ||||||||||||
| JOHN CAUFFIEL | 500,000 | 500,000 | – | – | ||||||||||||
| JOHN SUPERSON | 500,000 | 500,000 | – | – | ||||||||||||
| JONATHAN CARSON | 500,000 | 500,000 | – | – | ||||||||||||
| MICHAEL O'GRADY | 500,000 | 500,000 | – | – | ||||||||||||
| RODOLFO FLORES | 500,000 | 500,000 | – | – | ||||||||||||
| 2S HOLDINGS LLC | 375,000 | 375,000 | – | – | ||||||||||||
| JAMES LYDIARD MEAD | 350,000 | 350,000 | – | – | ||||||||||||
| PALINDROME MASTER FUND LP | 336,195 | 336,195 | – | – | ||||||||||||
| CAUFFIEL INVESTMENTS, LLC | 300,000 | 300,000 | – | – | ||||||||||||
| CORT BARRETT | 300,000 | 300,000 | – | – | ||||||||||||
| APRIL A GIVEN | 250,000 | 250,000 | – | – | ||||||||||||
| BRANDON S. REIF | 250,000 | 250,000 | – | – | ||||||||||||
| BRYAN BLOOM | 250,000 | 250,000 | – | – | ||||||||||||
| CHARLES WILDES | 250,000 | 250,000 | – | – | ||||||||||||
| DAVID PERL | 250,000 | 250,000 | – | – | ||||||||||||
| EDWARD CRIMMINS | 250,000 | 250,000 | – | – | ||||||||||||
| ET FAMILY CORP | 250,000 | 250,000 | – | – | ||||||||||||
| JARED MACKOUL | 250,000 | 250,000 | – | – | ||||||||||||
| JEFFREY GOOCH | 250,000 | 250,000 | – | – | ||||||||||||
| JEROME KLINT | 250,000 | 250,000 | – | – | ||||||||||||
| JOHN WILLIAM WHITAKER, JR. TRUST | 250,000 | 250,000 | – | – | ||||||||||||
| LIMPHAM, LLC | 250,000 | 250,000 | – | – | ||||||||||||
| MATHEW THACKER | 250,000 | 250,000 | – | – | ||||||||||||
| MBL MANAGEMENT LLC | 250,000 | 250,000 | – | – | ||||||||||||
| NICKY GATHRITE | 250,000 | 250,000 | – | – | ||||||||||||
| TARA S MAJEED | 250,000 | 250,000 | – | – | ||||||||||||
| ANTHONY TEMESVARY | 200,000 | 200,000 | – | – | ||||||||||||
| JASON BURSTEIN | 200,000 | 200,000 | – | – | ||||||||||||
| JOHN-MARC BERTHOUD | 200,000 | 200,000 | – | – | ||||||||||||
| JONATHAN BURSTEIN | 200,000 | 200,000 | – | – | ||||||||||||
| ZACH BROYER | 200,000 | 200,000 | – | – | ||||||||||||
| QUANT TWO LLC | 150,000 | 150,000 | – | – |
| 96 |
| DANIEL KING | 125,000 | 125,000 | – | – | ||||||||||||
| CHRIS FAHY | 100,000 | 100,000 | – | – | ||||||||||||
| DANIEL TUREK | 100,000 | 100,000 | – | – | ||||||||||||
| DANIEL WINOGRAD | 100,000 | 100,000 | – | – | ||||||||||||
| IAN SAMUEL | 100,000 | 100,000 | – | – | ||||||||||||
| IVANKOVICH FAMILY TRUST | 100,000 | 100,000 | – | – | ||||||||||||
| JORDAN POSELL | 100,000 | 100,000 | – | – | ||||||||||||
| KYLE CETRULO | 100,000 | 100,000 | – | – | ||||||||||||
| MIKE LEON | 100,000 | 100,000 | – | – | ||||||||||||
| STEVEN PETERSON | 100,000 | 100,000 | – | – | ||||||||||||
| WILLIAM STEWART JONES | 50,000 | 50,000 | – | – | ||||||||||||
| SUB TOTAL | 49,850,000 |
* Represents less than 1%
| (1) | Based on 4,089,409,545 shares of common stock outstanding as of March 10, 2022. This registration statement covers a maximum of 459,783,937 shares. Assumes that each shareholder will sell all the shares registered in this prospectus. |
| (2) | This is on a non-diluted basis and reflects only the percentage of the issued and outstanding shares. |
| (3) | This reflects two transfers of shares from Mr. Gravengaard not yet reflected in the list of shareholders in exhibit __ which are subject to a Right of First Refusal by the Company. |
| (4) | Consists of: (i) 8,948,426 shares of common stock held of record by Edward Weinhaus; and (ii) 18,670,385 shares of common stock held of record by Liberty Digital Holdings, LLC, an entity beneficially owned and controlled by Mr. Weinhaus. |
| (5) | Consists of: (i) 152,199,975 shares of common stock held of record by Jonathan Mork; and (ii) 25,551,045 shares of common stock held of record by Millennium Group Inc. |
| (6) | Mr. Weinhaus, the Company’s President and director, has a beneficial interest in the return on the investment in the Company’s 6% Convertible Debentures made by JJE Management LLC, which is a general partner of TOI Fund L.P. (the “Fund”). Mr. Weinhaus became a minority member of JJE Management LLC in March, 2021 when he provided legal services to said entity. Mr. Weinhaus is not an officer or managing member of JJE Management LLC and had no decision-making authority regarding JJE Management LLC’s investment in the Company’s 6% Convertible Debentures. Should the Convertible Debenture earn only interest, then Mr. Weinhaus will earn 4% of such accrued interest. Should the Convertible Debenture convert to common stock and earn a higher return, Mr. Weinhaus could earn a maximum of 8% of the profits of the Fund’s investment in the Convertible Debenture. |
| (7) | Consists of: (i) 1,000,000 shares of common stock held of record by Ryan Myers; (ii) 2,600,000 shares of common stock held of record by RKVP LLC, an entity beneficially owned and controlled by Mr. Myers; and (iii) 500,000 shares of common stock held of record by Ryan Myers and Kelsey Myers. |
To our knowledge, none of the Selling Shareholders is a registered broker-dealer or an affiliate of a broker-dealer.
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This prospectus relates to the resale of an aggregate of 459,783,937 shares of our common stock, par value $0.001 per share.
The Selling Shareholders may, from time to time, sell any or all of the shares of our common stock covered by this prospectus from time to time at prevailing market prices at the time of sale, at varying prices or at negotiated prices. A selling shareholder may use any one or more of the following methods when selling securities:
| · | ordinary brokerage transactions on OTC Pink, in the over the counter market, or on any other national securities exchange on which our shares are listed and traded, and transactions in which the broker-dealer solicits purchasers; | |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| · | an exchange distribution in accordance with the rules of the applicable exchange; | |
| · | privately negotiated transactions; | |
| · | in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security; | |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| · | a combination of any such methods of sale; or | |
| · | any other method permitted pursuant to applicable law. |
The Selling Shareholders may also sell securities under Rule 144 under the Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as may be set forth in a supplement to this prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a mark up or mark down in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Shareholders may also sell securities short and deliver these securities to close out such short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities that require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (however, in such case, we must file a prospectus supplement or an amendment to this registration statement under applicable provisions of the Securities Act amending it to include such successors in interest as Selling Shareholders under this prospectus).
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The Selling Shareholders might not sell any, or all, of the shares of our common stock offered pursuant to this prospectus. In addition, we cannot assure you that the Selling Shareholders will not transfer the shares of our common stock by other means not described in this prospectus.
The Selling Shareholders and any brokers, dealers, agents or underwriters that participate with the Selling Shareholders in the distribution of our common stock pursuant to this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In this case, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of our common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any profits realized by the Selling Shareholders may be deemed to be underwriting commissions. If the Selling Shareholders and any brokers, dealers, agents or underwriters that participate with the Selling Shareholders in the distribution of our common stock pursuant to this prospectus are deemed to be an underwriter, the Selling Shareholders and such other participants in the distribution may be subject to certain statutory liabilities and would be subject to the prospectus delivery requirements of the Securities Act in connection with sales of shares of our common stock.
The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and will inform them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
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Unless otherwise indicated, Law Office of Iwona J. Alami, Newport Beach, California, will pass upon the validity of the shares of our common stock to be sold in this offering.
The consolidated financial statements of Athena Bitcoin Global (issued under its previous name GamePlan, Inc.) and subsidiaries as of December 31, 2021 and for the year ended December 31, 2020, included in this prospectus and elsewhere in the registration statement have been audited by BF Borgers CPA PC, an independent registered public accounting firm, as stated in their report. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our directors and officers are indemnified as provided by Nevada law, our Amended and Restated Articles of Incorporation, and our bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto. While we have summarized the material terms of all agreements and exhibits included in the scope of this Registration Statement, for further information regarding the terms and conditions of any exhibit, reference is made to such exhibits. Upon effectiveness of this Prospectus, we will be subject to the reporting and other requirements of Section 15(d) of the Securities Exchange Act of 1934 and will file periodic reports with the Securities and Exchange Commission, including a Form 10-K for the year ended December 31, 2021 and periodic reports on Form 10-Q during that period. We will make available to our shareholders annual reports containing financial statements audited by our independent auditors and our quarterly reports containing unaudited financial statements for each of the first three quarters of each year; however, we will not send the annual report to our shareholders unless requested by an individual shareholder.
For further information with respect to us and the common stock, reference is hereby made to the Registration Statement and the exhibits thereto, which may be inspected and copied at the principal office of the SEC, 100 F Street NE, Washington, D.C. 20549, and copies of all or any part thereof may be obtained at prescribed rates from the Commission’s Public Reference Section at such addresses. Also, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. To request such materials, please contact Eric Gravengaard, our Chief Executive Officer.
| 100 |
CONSOLIDATED FINANCIAL STATEMENTS
Athena Bitcoin Global
For the twelve months ended December 31, 2021 and 2020
| 101 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Athena Bitcoin Global
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Athena Bitcoin Global (the "Company") as of December 31, 2021 and 2020, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, 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.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audits 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.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor since 2020
Lakewood, CO
March 31, 2022
| F-1 |
Athena Bitcoin Global
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,174 | $ | 2,085 | ||||
| Restricted cash held for customers | 3,671 | – | ||||||
| Accounts receivable | 1,531 | – | ||||||
| Other advances | 845 | – | ||||||
| Prepaid expenses and other current assets | 727 | 116 | ||||||
| Total current assets | 7,948 | 2,201 | ||||||
| Crypto assets held | 842 | 1,343 | ||||||
| Property and equipment, net | 2,903 | 788 | ||||||
| Leased assets | 2,318 | 2,067 | ||||||
| Other noncurrent assets | 990 | 76 | ||||||
| Total assets | $ | 15,001 | $ | 6,475 | ||||
| Liabilities and Shareholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,044 | $ | 433 | ||||
| Accounts payable, related party | 407 | 407 | ||||||
| Liability for cash held for customers | 3,671 | – | ||||||
| Advances for revenue contract | 3,500 | – | ||||||
| Leased liabilities | 624 | 487 | ||||||
| Income tax payable | 14 | 324 | ||||||
| Deferred tax liabilities | – | 104 | ||||||
| Related party crypto asset borrowings | – | 881 | ||||||
| Long-term debt, current portion | 1,959 | 1,354 | ||||||
| Short-term debt | 75 | – | ||||||
| Related party note payable, current portion | 90 | 27 | ||||||
| Other current liabilities | 615 | 295 | ||||||
| Total current liabilities | 11,999 | 4,312 | ||||||
See accompanying notes.
| F-2 |
Athena Bitcoin Global
Consolidated Balance Sheets
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (in thousands, except number of shares) | ||||||||
| Long-term liabilities: | ||||||||
| Long-term debt | $ | 1,117 | $ | 1,568 | ||||
| Lease liabilities | 1,694 | 1,580 | ||||||
| Related party convertible debt | 3,000 | 2,109 | ||||||
| Convertible debt | 4,765 | 88 | ||||||
| Related party note payable | – | 90 | ||||||
| Total liabilities | $ | 22,575 | $ | 9,747 | ||||
| Commitments and contingencies (Note 15) | ||||||||
| Shareholders’ deficit: | ||||||||
| Common shares, $0.001 par value 4,409,605,000 shares authorized; 4,049,392,879 and 4,049,392,879 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | $ | 4,050 | $ | 4,050 | ||||
| Loans to employees for options exercised | (977 | ) | (961 | ) | ||||
| Net common stock | 3,073 | 3,089 | ||||||
| Additional paid in capital | 5,246 | 6,037 | ||||||
| Accumulated deficit | (15,716 | ) | (12,281 | ) | ||||
| Accumulated other comprehensive loss | (177 | ) | (117 | ) | ||||
| Total shareholders’ deficit | (7,574 | ) | (3,272 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 15,001 | $ | 6,475 | ||||
See accompanying notes.
| F-3 |
Athena Bitcoin Global
Consolidated Statement of Operations and Comprehensive Income
| For the year ended | ||||||||
December 31, 2021 | December 31, 2020 | |||||||
(in thousands, except number of shares) | ||||||||
| Revenues | $ | 81,747 | $ | 68,937 | ||||
| Cost of revenues | 76,178 | 62,390 | ||||||
| Gross profit | 5,569 | 6,547 | ||||||
| Operating expenses: | ||||||||
| Technology and development | 143 | 86 | ||||||
| General and administrative | 4,153 | 3,070 | ||||||
| Sales and marketing | 647 | 286 | ||||||
| Theft of bitcoin | 1,600 | – | ||||||
| Other operating expense | 231 | 55 | ||||||
| Total operating expenses | 6,774 | 3,497 | ||||||
| Income (loss) from operations | (1,205 | ) | 3,050 | |||||
| Fair value adjustment on crypto asset borrowing derivatives | 515 | 1,061 | ||||||
| Interest expense | 661 | 990 | ||||||
| Fees on borrowings | 341 | 466 | ||||||
| Other (income) expense | 39 | (55 | ) | |||||
| Income (loss) before income taxes | (2,761 | ) | 588 | |||||
| Income tax expense | 883 | 428 | ||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | |||
| Basic (loss) earnings per share | $ | (0.00090 | ) | $ | 0.00004 | |||
| Diluted (loss) earnings per share | $ | (0.00090 | ) | $ | 0.00004 | |||
| Weighted average shares outstanding - Basic | 4,049,392,879 | 3,840,697,666 | ||||||
| Weighted average shares outstanding - Diluted | 4,049,392,879 | 4,079,710,223 | ||||||
| Comprehensive loss | ||||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | |||
| Foreign currency translation adjustment | (60 | ) | 20 | |||||
| Comprehensive income (loss) | $ | (3,704 | ) | $ | 180 | |||
See accompanying notes.
| F-4 |
Athena Bitcoin Global
Consolidated Statement of Cash Flows
| For the year ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Operating activities | ||||||||
| Net (loss) income | $ | (3,644 | ) | $ | 160 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation | 574 | 283 | ||||||
| Debt discount amortization | 8 | 237 | ||||||
| Impairment of crypto assets held | 44 | 35 | ||||||
| Stock based compensation | – | 477 | ||||||
| Transaction losses and doubtful accounts | 15 | (12 | ) | |||||
| Crypto asset payments for expenses | 2,048 | 1,139 | ||||||
| Theft of bitcoin | 1,600 | – | ||||||
| Deferred tax assets | (104 | ) | – | |||||
| Gain on sale of crypto assets | (9,321 | ) | (9,515 | ) | ||||
| Fair value adjustment on crypto asset borrowing derivatives | 515 | 1,061 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,531 | ) | – | |||||
| Other advances | (730 | ) | – | |||||
| Prepaid expenses and other assets | (1,275 | ) | (67 | ) | ||||
| Customer advances | 3,671 | – | ||||||
| Advances received for revenue contract | 3,500 | – | ||||||
| Accounts payable and other liabilities | 485 | 145 | ||||||
| Net cash used in operating activities | (4,145 | ) | (6,057 | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | (2,220 | ) | (859 | ) | ||||
| Purchase of crypto assets | (74,973 | ) | (62,498 | ) | ||||
| Sale of crypto assets | 78,972 | 68,818 | ||||||
| Net cash provided by investing activities | 1,779 | 5,461 | ||||||
| Financing activities | ||||||||
| Issuance of convertible debt | 4,985 | 3,125 | ||||||
| Proceeds from warrants exercised | – | 69 | ||||||
| Repurchase of shares | – | (118 | ) | |||||
| Proceeds (repayment) of debt | 141 | (731 | ) | |||||
| Proceeds from PPP loan | – | 157 | ||||||
| Forgiveness of PPP loan | – | (157 | ) | |||||
| Net cash provided by financing activities | 5,126 | 2,345 | ||||||
| Net increase in cash and cash equivalents | 2,760 | 1,749 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | 2,085 | 336 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 4,845 | $ | 2,085 | ||||
See accompanying notes.
| F-5 |
Athena Bitcoin Global
Consolidated Statement of Cash Flows (Continued)
| For the year ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Cash, cash equivalents, and restricted cash consisted of the following: | ||||||||
| Cash and cash equivalents | $ | 1,174 | $ | 2,085 | ||||
| Restricted cash held for customers | 3,671 | – | ||||||
| Total cash, cash equivalents and restricted cash | $ | 4,845 | $ | 2,085 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 593 | $ | 709 | ||||
| Cash paid for taxes | $ | 438 | $ | 29 | ||||
| Leased assets obtained in exchange for operating lease liabilities | $ | 960 | $ | 1,648 | ||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||
| Conversion of SAFT Notes for common shares | $ | – | $ | 5,434 | ||||
| Conversion of debt for common shares | $ | – | $ | 1,799 | ||||
| Crypto assets used to buy property and equipment | $ | 476 | $ | – | ||||
| Crypto assets used for other advances | $ | 115 | $ | – | ||||
| Crypto asset borrowing repaid | $ | 1,396 | $ | 1,114 | ||||
See accompanying notes.
| F-6 |
Athena Bitcoin Global
Consolidated Statement of Shareholders’ Deficit
| Common Units | Receivables From Employees For Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Options | Capital | Deficit | Loss | Total | ||||||||||||||||||||||
| (in thousands, except number of shares) | ||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 1,247,617,399 | $ | 1,248 | $ | – | $ | (1,067 | ) | $ | (12,280 | ) | $ | (137 | ) | $ | (12,236 | ) | |||||||||||
| Conversion of SAFTs | 1,653,425,404 | 1,653 | – | 3,781 | – | – | 5,434 | |||||||||||||||||||||
| Debt conversions | 419,078,082 | 419 | – | 1,381 | – | – | 1,800 | |||||||||||||||||||||
| Warrant exercise | 115,888,490 | 116 | – | 26 | (73 | ) | – | 69 | ||||||||||||||||||||
| Stock option exercises | 157,635,309 | 158 | – | 789 | – | – | 947 | |||||||||||||||||||||
| Stock-based compensation | – | – | – | 477 | – | – | 477 | |||||||||||||||||||||
| Loans to employees for options exercised | – | – | (945 | ) | – | – | – | (945 | ) | |||||||||||||||||||
| Balance prior to merger | 3,593,644,684 | 3,594 | (945 | ) | 5,387 | (12,353 | ) | (137 | ) | (4,454 | ) | |||||||||||||||||
| Reverse merger – existing shareholders | 486,171,020 | 486 | – | (486 | ) | – | -. | – | ||||||||||||||||||||
| Balance subsequent to merger | 4,079,815,704 | 4,080 | (945 | ) | 4,901 | (12,353 | ) | (137 | ) | (4,454 | ) | |||||||||||||||||
| Net Income | – | – | – | – | 160 | – | 160 | |||||||||||||||||||||
| Convertible debenture beneficial conversion | – | – | – | 1,136 | – | – | 1,136 | |||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | – | 20 | 20 | |||||||||||||||||||||
| Retirement of shares | (30,422,825 | ) | (30 | ) | – | – | (88 | ) | – | (118 | ) | |||||||||||||||||
| Accrued interest on employee loans | – | – | 16 | – | – | – | (16 | ) | ||||||||||||||||||||
| Balance, December 31, 2020 | 4,049,392,879 | $ | 4,050 | $ | (961 | ) | $ | 6,037 | $ | (12,281 | ) | $ | (117 | ) | $ | (3,272 | ) | |||||||||||
| Net loss | – | – | – | – | (3,644 | ) | – | (3,644 | ) | |||||||||||||||||||
| Adjustments for prior periods from adopting ASU 2020-06 | – | – | (1,136 | ) | 209 | – | (927 | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | (60 | ) | (60 | ) | ||||||||||||||||||||
| Shares to be issued* | 345 | 345 | ||||||||||||||||||||||||||
| Accrued interest on employee loans | – | – | (16 | ) | – | – | (16 | ) | ||||||||||||||||||||
| Balance, December 31, 2021 | 4,049,392,879 | $ | 4,050 | $ | (977 | ) | $ | 5,246 | $ | (15,716 | ) | $ | (177 | ) | $ | (7,574 | ) | |||||||||||
See accompanying notes.
* 12,616,666 shares to be issued for conversion of convertible debt see note 12
| F-7 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Athena Bitcoin Global (f.k.a. GamePlan, Inc.), a Nevada corporation, and its wholly owned subsidiary, Athena Bitcoin, Inc., a Delaware corporation (together referred to as “Athena Global” or “the Company”) is a provider of various crypto asset trading platforms, including the operation of automated teller machines (ATMs) for purposes of selling and buying crypto assets, personalized investor services, and the operation of online peer to peer exchanges. The Company’s network of Athena Bitcoin ATMs is presently active in ten states (CA, TX, GA, FL, OH, IL, MO, PA, MI, AL) and the territory of Puerto Rico in the United States, and 3 countries in Central and South America. The Company places its machines in convenience stores, shopping centers, and other easily accessible locations.
The Company has changed its name to Athena Bitcoin Global from GamePlan, Inc. in a filing with the Secretary of State of the State of Nevada effective as of April 15, 2021.
Athena Bitcoin Global was a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act) immediately before the completion of the transactions described below. Athena Bitcoin Global was incorporated in the state of Nevada in 1991 under the name “GamePlan, Inc.” for the sole purpose of merging with Sunbeam Solar, Inc., a Utah corporation, which merger occurred as of December 31, 1991. The Articles of Merger were filed in the state of Nevada pursuant to which the Company was the surviving entity following the merger. The Company was involved in various businesses, including, gaming and other consulting services, prior to becoming a company seeking acquisitions. The Company filed form 10-SB with the Securities and Exchange Commission in September 1999 thus becoming a reporting company under section 12(g) of the Securities and Exchange Act of 1934. The Company subsequently filed Form 15 in March 2015, terminating its reporting status.
On January 14, 2020, Athena Bitcoin Global (f.k.a. GamePlan, Inc.) entered into a Share Exchange Agreement (the “Agreement”), by and among the Company, Athena Bitcoin, Inc., a Delaware S corporation (“Athena”) founded in 2015, and certain shareholders of Athena Bitcoin, Inc. The Agreement provides for the reorganization of Athena Bitcoin, Inc., with and into Athena Bitcoin Global (f.k.a. GamePlan, Inc.), resulting in Athena Bitcoin, Inc. becoming a wholly owned subsidiary of Athena Bitcoin Global. The agreement is for the exchange of 100% shares of the outstanding Common Stock of Athena Bitcoin, Inc., for 3,593,644,680 shares of Athena Bitcoin Global common stock (an exchange rate of 1,244.69 shares of Athena Bitcoin Global stock for each share of Athena Bitcoin, Inc. stock). The closing of the transaction occurred as of January 30, 2020.
In accordance with ASC 805-10-55-12, because the former shareholders of Athena Bitcoin, Inc. acquired the majority (88%) of the voting rights of the Company and control of the Company’s board of directors and senior management of Athena Bitcoin, Inc. became management of the combined entity, the Company determined that the Share Exchange was a reverse acquisition.
As the Share Exchange is considered a reverse acquisition, in accordance with ASC 805-40-45-2, for financial statement purposes Athena Bitcoin, Inc. is considered the accounting acquiror. Accordingly, the historical financial statements prior to the Share Exchange are those of Athena Bitcoin, Inc., except that the historical equity of Athena Bitcoin Global has been retroactively restated to reflect the number of shares received in the business combination at the exchange rate of 1,244.69 shares of Athena Bitcoin Global common stock for each share of Athena Bitcoin, Inc. common stock. The historical common stock carrying amount has been adjusted to reflect the revised par value of the outstanding stock and the corresponding offset was reflected in the additional paid-in capital. All share and per share information included in these financial statements have been adjusted to reflect the 1,244.69 to 1 share conversion.
In connection with the Share Exchange, as discussed in Note 18, the SAFT Notes were converted into 1,653,425,404 shares of Athena Bitcoin, Inc. (which were then exchanged for Athena Bitcoin Global common stock). Additionally, warrants to purchase 115,888,490 shares of Athena Bitcoin, Inc.’s common stock were exercised for proceeds of $69,000. These shares were then exchanged for Athena Bitcoin Global common stock). Also, as discussed in Note 7, the Swingbridge notes were converted into 419,078,082 shares of Athena Bitcoin, Inc.’s common stock (which was then exchanged for Athena Bitcoin Global common stock). Lastly, as discussed in Note 11, 157,635,309 shares of Athena Bitcoin, Inc. were issued upon the exercise of stock options (which was then exchanged for Athena Bitcoin Global common stock).
| F-8 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
There were 4,079,815,704 shares of Athena Bitcoin Global’s common stock outstanding following the closing date of the transaction. Athena Bitcoin Global subsequently purchased and cancelled 30,442,825 shares as discussed in Note 7. Athena Bitcoin Global has 4,049,392,879 shares issued and outstanding, and authorized capital of 4,409,605,000 shares as of December 31, 2021.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Athena Bitcoin Global, Athena Bitcoin, Inc. and its wholly owned subsidiaries, Athena Bitcoin S. de R.L. de C.V., incorporated in Mexico; Athena Holdings Colombia SAS, incorporated in Colombia; Athena Holding Company S.R.L, incorporated in Argentina; Athena Holdings of PR LLC, incorporated in Puerto Rico; and Athena Holdings El Salvador, S.A. de C.V., incorporated in El Salvador. All intercompany account balances and transactions have been eliminated in consolidation.
Going Concern
The Company adopted Financial Accounting Standards Board (FASB) ASU No. 2014-15, Presentation of Financial Statements – Going Concern, effective December 31, 2017, which requires that management evaluate whether there are relevant conditions or events that, in aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. The Company considered all significant existing and new contracts entered in 2021 as part of its going concern assessment and concluded that substantial doubt about the Company continuing as a going concern does exist.
The Company had a net loss in the twelve months ended December 31, 2021. Even though the Company operated at a profit for prior quarters, it has not operated at a profitable level year-to-date. These conditions and events create an uncertainty about the ability of the Company to continue as a going concern for the next 12 months. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations and current liabilities. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The ultimate impact of these matters to the Company and its consolidated financial condition is presently unknown.
A summary of the Company’s significant accounting policies is as follows:
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
Reclassification
For the year ended December 31, 2021, the Company reclassified certain operating expenses within the consolidated statements of operations. Prior-period amounts were revised to conform with the current presentation. These changes have no impact on the Company’s previously reported consolidated net income (loss) for prior periods, including total operating expenses, financial position, or cash flows for the year ended December 31, 2020.
The Company reclassed expenses out of Salaries and benefits into General and administrative, Technology and development, and Sales and marketing.
| F-9 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
The following table presents the impact of the reclassification on the presentation of these operating expenses to the previously reported consolidated statements of operations for the year ended December 31, 2020:
| Year Ended December 31, 2020 | ||||||||||||
| As Previously Reported | Adjustments | Reclassified | ||||||||||
| Salaries and benefits | $ | 2,562,000 | $ | (2,562,000 | ) | $ | – | |||||
| Technology and development | – | 86,000 | 86,000 | |||||||||
| General and administrative | 862,000 | 2,208,000 | 3,070,00 | |||||||||
| Sales and marketing | 18,000 | 268,000 | 286,000 | |||||||||
| Other operating expense | 55,000 | – | 55,000 | |||||||||
| Total operating expenses | $ | 3,497,000 | $ | – | $ | 3,497,000 | ||||||
Use of Estimates
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Significant estimates and assumptions made by management are used for, but not limited to, the useful lives of property and equipment; valuation of derivatives and stock options; and impairment assessment for goodwill and long-lived assets. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Revenue Recognition
The Company derives its revenues primarily from three sources: (i) point of time transactions of crypto assets at Athena Bitcoin branded ATMs, (ii) sales of crypto assets via our OTC services and (iii) white-label service fees. Revenues are recognized at the point of time when the performance obligations related to those services and transaction are satisfied, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines revenue recognition through the following steps:
| · | Identification of the contract, or contracts, with a customer | |
| · | Identification of the performance obligations in the contract | |
| · | Determination of the transaction price | |
| · | Allocation of the transaction price to the performance obligations in the contract | |
| · | Recognition of revenue when, or as, we satisfy a performance obligation. |
We present crypto asset sales revenue and corresponding crypto asset sales cost on a gross basis consistent with the revenue standard. We act as principal (vs. agent) in transactions at our Athena Bitcoin branded ATMs and our OTC desk, which requires gross treatment for revenue and for corresponding costs. If we were considered agent, this would allow the revenue to be recorded net of corresponding crypto asset sales cost. As a principal, we have control over the digital asset before it is transferred to the customer.
We consider a counterparty in a crypto asset sale transaction to be our customer. When we sell a crypto asset that was accounted for as an indefinite-lived intangible asset, we have a single performance obligation, which is satisfied at the point in time when control of the crypto asset has transferred.
In cases of the sale of crypto assets where the company does not control the over the digital asset before it is transferred to the customer or in cases where the Company does not set prices and a third party is involved in the performance of the transaction, the company acts as an agent. Our, now shutdown, service BitQuick facilitated the peer-to-peer exchange of Bitcoin for a service fee. In BitQuick revenue is recognized on a net basis and only our fees are recorded as Revenue.
| F-10 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed. Contracts with customers are usually open-ended and can be terminated by either party without a termination penalty. Therefore, contracts are defined at the transaction level and do not extend beyond the service already provided. The Company’s revenue associated with ATM and over the counter services are recognized at a point in time when the crypto asset is delivered to the customer. The Company controls the service as it is primarily responsible for fulfilling the service and has discretion in establishing pricing with its customers.
The Company also generates revenue from operating ATMs, POS terminals, and licensing of software on behalf of certain customers, typically under their brand, which we refer to as “white-label service”. The Company’s white-label ATM service is comprised of providing and maintaining ATMs to facilitate the exchange of crypto assets and cash, and vice-versa, by our customers with their counterparties. The Company does not control the service in this case as it is not responsible for fulfilling the exchange contract and does not establish pricing at these ATMs. This revenue is recognized on a net basis.
Cost of Revenues
Cost of revenues consists primarily of expenses related to the acquisition of crypto assets (including the costs to purchase crypto assets). The Company assigns the costs of crypto assets sold in its revenue transactions on a first-in, first-out basis.
Additionally, cost of revenues includes the costs of operating the ATMs from which some of the crypto assets are sold (including the associated rent expense, related incentives, ATM cash losses, software licensing fees for the ATMs, depreciation, insurance, and utilities) and fees paid to service the ATM machines and transport cash to the banks.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Restricted cash held for customers consists of money on hand received from white-label customers for replenishment of ATMs.
The Company maintains cash balances at various financial institutions. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation (FDIC). The Company has deposits in excess of the FDIC-insured limit. The Company has not experienced any losses in such accounts.
Accounts Receivable
Accounts receivable is stated at the amount the Company expects to collect. In 2021 the Company adopted ASC 326 Financial Instruments - Credit Losses. This methodology is referred to as the current expected credit loss (CECL) method and replaces the previous incurred loss methodology. The measurement of CECL applies to all financial assets measured at amortized cost, including receivables for revenue. The company recognized no allowance for credit losses for December 31, 2021 and 2020 respectively utilizing the CECL methodology.
Concentration of Credit Risk
The Company’s revenues, other than white-label services below, are generated primarily from ATM sales to customers located in the United States and Latin America. As the Company collects all amounts from these customers and holds $0 in accounts receivable from its ATM or over the counter customers, there is no credit risk associated with customer concentration for these customers.
The Company has revenues from white-label services in El Salvador and ancillary sales to customers where it provides services on customary credit terms, typically Net 30 or Net 60. As of December 31, 2021, one customer, Ministerio de Hacienda (Department of Treasury) of El Salvador represents almost the entirety of our total accounts receivable balance.
No single customer is responsible for over 10% of revenue.
| F-11 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, net of accumulated depreciation. Equipment is depreciated over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of improvements or the term of the related lease. Repairs and maintenance costs are expensed as incurred.
Following are the estimated useful lives:
| Computer equipment | Three years |
| ATM equipment | Three years |
| Office equipment | Six years |
| Leasehold improvements | Lesser of estimated useful life or remaining lease term |
Goodwill
The Company conducts goodwill impairment testing in the fourth quarter of each year or whenever indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. If, after assessing the totality of events or circumstances, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and goodwill is considered to be unimpaired. However, if, based on the qualitative assessment, the Company concludes that it is more likely than not that the fair value of a reporting unit (generally based on discounted future cash flows) is less than its carrying amount, it will proceed with performing the quantitative assessment which is done by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, if any, not to exceed the total amount of goodwill.
Impairment of Long-Lived Assets
Acquired Intangible assets with a definite useful life are amortized over their estimated useful lives on a straight-line basis. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Intangible assets assessed as having indefinite lives (such as crypto assets) are not amortized but are assessed for indicators that the useful life is no longer indefinite or for indicators of impairment each period.
The Company reviews its long-lived assets for impairment in accordance with FASB ASC 350-30-30-1 whenever events or changes in circumstances have indicated that an asset may not be recoverable. Management has determined that no impairment of long-lived assets existed as of December 31, 2021 and December 31, 2020 except for impairment of Digital Intangible Assets discussed below. Acquired intangible assets with a definite useful life are amortized over their estimated useful lives on a straight-line basis. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization.
Digital Intangible Assets
Under US GAAP, digital assets are accounted for as indefinite lived intangible assets, in accordance with ASC 350, Intangibles—Goodwill. These “Digital Intangible Assets” are a medium of exchange. The assets consist of coins or tokens that are built on a blockchain. The Company acquires digital intangible assets through cash purchases from customers and through trading activity with multiple brokers and exchanges. As intangible assets, the assets are initially recorded at cost and tested for impairment when evidence of impairment exists. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the crypto asset at the time its fair value is being measured. The Company assigns cost to transactions on a first-in, first-out basis. Gains on such assets are not recorded or recognized until their final disposition. The impairment of digital intangible assets are recorded as Cost of revenues. For the period ended December 31, 2021 and December 31, 2020, the Company had impairment charges related to digital assets of $44,000 and $35,000, respectively which are included in the Cost of revenues.
| F-12 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Crypto Assets Held
Crypto assets (Digital Intangible Assets) are considered indefinite-lived intangible assets under ASC 350, Intangibles—Goodwill and are initially measured at cost and are not amortized. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges. We may make no upward revisions for any market price increases until a sale or transaction occurs. The Company classifies crypto assets held as non-current assets in the consolidated balance sheets. These assets are held solely for operating purposes and the Company in the normal course of its operations converts crypto assets held to cash frequently. The Company assigns costs to transactions on a first-in, first-out basis.
Crypto Asset Borrowings
The Company enters into agreements with counterparties to borrow digital intangible assets. The Company recognizes the digital intangible assets borrowed at fair value on the date the asset is received and records a corresponding liability measured at fair value on the date the digital assets are received. The digital intangible assets received from borrowing transactions are accounted for as indefinite lived intangible assets under ASC 350 and are included within Related party crypto asset borrowings on the accompanying consolidated balance sheet. The loans are accounted for as hybrid instruments, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying crypto asset. The host contract is not accounted for as a debt instrument because it is not a financial liability and is carried at the fair value of the assets acquired and reported in crypto asset borrowings in the consolidated balance sheets. The embedded derivative is accounted for at fair value, with changes in fair value recognized in other non-operating expenses in the consolidated statements of operations and comprehensive income. The embedded derivatives are included in crypto asset borrowings in the consolidated balance sheets. The term of these borrowings can either be for a fixed term of less than one year or can be open-ended and repayable at the option of the Company or the lender. These borrowings bear a fee payable by the Company to the lender, which is based on a percentage of the amount borrowed and is denominated in the related crypto asset borrowed. The borrowing fee is recognized on an accrual basis and is included in non-operating expenses as fees on borrowings in the consolidated statements of operations and comprehensive income.
Embedded Derivative related to Obligation to Return Digital Intangible Assets
Derivative contracts derive their value from underlying asset prices, other inputs or a combination of these factors. As a result of the Company entering into transactions to borrow (digital intangible assets) crypto assets, an embedded derivative is recognized relating to the differences between the fair value of the amount borrowed, which is recognized on the borrowing effective date, and the fair value of the amount that will ultimately be repaid, based on changes in the spot price of the (digital intangible assets) crypto asset over the term of the borrowing. This embedded derivative is accounted for as a forward contract to exchange at maturity the fixed amount of the crypto asset to be repaid. The embedded feature is evaluated as a derivative that is not clearly and closely related to the host contract and therefore, is separately recognized at fair value with unrealized changes in fair value recognized on the consolidated statement of operations under fair value adjustment on crypto asset borrowing derivatives in the consolidated statements of operations and comprehensive income. Further, the Company estimates the fair value of the derivative liability based on the closing price on an exchange and considers the fair value hierarchy of the derivative liability as level 2 under ASC 820.
Accumulated Other Comprehensive Income
Unrealized gains and losses related to foreign currency translation are accumulated in “Accumulated other comprehensive loss” (“AOCI”). These changes are also reported in “Other comprehensive income (loss)” on the Consolidated Statements of Comprehensive Income.
| F-13 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Foreign Currency Translation
The functional currency of our wholly owned subsidiaries is the currency of the primary economic environment in which the Company operates. Assets and liabilities denominated in currencies other than the functional currency are remeasured using the current exchange rate for monetary accounts and historical exchange rates for nonmonetary accounts, with exchange differences on remeasurement included in comprehensive income in our consolidated statements of operations and comprehensive income. Our foreign subsidiaries that utilize foreign currency as their functional currency translate such currency into U.S. dollars using (i) the exchange rate on the balance sheet dates for assets and liabilities, (ii) the average exchange rates prevailing during the period for revenues and expenses, and (iii) historical exchange rates for equity. Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive loss within shareholders’ deficit in the consolidated balance sheets.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation according to the provisions of ASC 718, Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and non-vested stock awards, based on the fair values on the dates they are granted. The Company records the fair value of awards expected to vest as compensation expense on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards, including the options expected term, expected volatility of the underlying stock, risk-free rate, and expected dividends. The expected volatility is based on the average historical volatility of certain comparable publicly traded companies within the Company’s industry. The expected term assumptions are based on the simplified method, due to insufficient historical exercise data and the limited period of time that the Company’s equity securities have been available for issuance. The risk-free interest rates are based on the U.S. Treasury yield in effect at the time of grant. The Company does not expect to pay dividends on common stock in the foreseeable future; therefore, it estimated the dividend yield to be 0%.
Technology and Development
Technology and development include non-capitalized costs incurred in operating, maintaining the Company’s network, website hosting, and technology infrastructure.
Sales and Marketing
The Company expenses Sales and marketing expense when they are incurred.
Treasury Stock
Treasury stock purchases are accounted for under the cost method, whereby the entire cost of the acquired stock is recorded as treasury stock. Upon retirement of treasury shares, amounts in excess of par are value are charged to accumulated deficit.
Warrants to Purchase Common Shares
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in the ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, they are recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as a non-cash gain or loss in the statement of operations.
| F-14 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Income taxes
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheet in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.
The Company adopted ASC 740-10-30 on January 1, 2020. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As a result of the implementation of ASC 740-10, the Company does not have a liability for unrecognized income tax benefits.
Segment reporting
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (the “CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The CODM reviews financial information presented on a global consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. While the Company does have revenue from multiple products and geographies, no measures of profitability by product or geography are available, so discrete financial information is not available for each such component. As such, the Company has determined that it operates as one operating segment and one reportable segment.
Income (Loss) per share
Basic income (loss) per share is calculated by dividing net loss by the number of weighted average common shares outstanding for the applicable period. Diluted income (loss) per share is calculated by dividing net loss available to common shareholders by the weighted average shares outstanding. Potentially dilutive shares, which are based on the weighted average shares of common stock underlying outstanding stock-based awards, warrants and convertible senior notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net income per share of common stock attributable to common stockholders when their effect is dilutive. For the years ended December 31, 2021 and 2020, there were 310,266,667 potential common shares, respectively, related to the Company’s convertible debt which were excluded from the earnings per share calculation because the impact would have been anti-dilutive. Additionally, the impact of the outstanding warrants of the Company’s subsidiary, Athena Bitcoin, on net income available to common shareholders has also been excluded in each period because the impact would have been anti-dilutive
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued a new accounting standard update, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), to simplify the accounting for convertible debt and other equity-linked instruments. The new guidance simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives. Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares. The Company early adopted this new guidance using the modified retrospective method as of January 1, 2021. The adoption of this new guidance resulted in an increase of $890,000 and $37,000 to Related party convertible debt and Convertible debt, respectively, to reflect the full principal amount of the Convertible Notes (as defined below) outstanding, net of issuance costs, a reduction of $1,136,000 to additional paid-in capital, net of estimated income tax effects, to remove the equity component separately recorded for the conversion features associated with the Related party convertible debt and Convertible debt and a cumulative-effect adjustment of $209,000, net of estimated income tax effects, reducing the beginning balance of accumulated deficit as of January 1, 2021. The adoption of this new guidance reduced interest expense by $224,000 in the year ended December 31, 2021. In addition, the adoption requires the use of the if-converted method for all convertible notes in the diluted net income (loss) per share calculation and the inclusion of the effect of potential share settlement of the convertible notes, if the effect is more dilutive. The use of the if-converted method had no impact on the diluted income per share amount in the twelve months ended December 31, 2021 because the impact would have been anti-dilutive.
| F-16 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
2. Fair Value Measurements
ASC 820, Fair Value Measurement, establishes a three-level valuation hierarchy for disclosure of fair value measurements. Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods, including the market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
| Level 1: | Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. | |
| Level 2: | Observable inputs other than Level 1, including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. | |
| Level 3: | Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single-dealer quotes not corroborated by observable market data. |
The Company has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models, and periodic re-assessments of models to ensure that they are continuing to perform as designed. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed, and any material exposures are escalated through a management review process.
While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. To the extent that the valuation method is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised in determining fair value is greatest for the financial instruments categorized in Level 3.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
During the year ended December 31, 2021, there were no changes to the Company’s valuation techniques that had, or are expected to have, a material impact on its consolidated financial position or results of operations.
| F-17 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
As of December 31, 2021, and December 31, 2020, the fair value of the crypto asset borrowing derivatives (as determined by Level 2 fair value measurements) was $0 and $688,000 respectively. The carrying value of the host contract as of December 31, 2021, and December 31, 2020, was $0 and $193,000 respectively.
The Company did not make any transfers between the levels of the fair value hierarchy during the years ended December 31, 2021, and 2020.
Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis (such as goodwill, property and equipment, and crypto assets held); that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). For the year ended December 31, 2021, and 2020, the Company had impairment charges of $44,000 and $35,000, respectively which are included in Cost of revenues.
3. Revenue
The table below presents revenue of the Company disaggregated by revenue source for the following periods. In the current year the Company has relabeled Athena ATMs (previously described as Retail Sales - ATMs) and over-the-counter revenue (previously described as Wholesale – private client, and trade), to make them more descriptive.
| For the twelve months ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Athena ATM | $ | 63,097 | $ | 55,268 | ||||
| Over-the-counter | 15,874 | 13,579 | ||||||
| White-label | 2,083 | – | ||||||
| Ancillary | 584 | – | ||||||
| BitQuick, and other | 109 | 90 | ||||||
| $ | 81,747 | $ | 68,937 | |||||
Athena ATMs revenue represents sales of crypto assets to customers at the Company’s ATMs. The Company’s service is comprised of a single performance obligation to provide crypto assets to our customers at the ATMs and is responsible for fulfilling the exchange contract and establishes pricing at these ATMs. This revenue is recognized on a gross basis.
Over-the-counter revenue represents sales of crypto assets to private client and trade customers at the Company’s over the counter (OTC) desk. Customers typically interact with the Company on the phone and in larger amounts and/or for a less well-known crypto asset. The Company’s service is comprised of a single performance obligation to provide crypto assets to our customers and revenue is recognized on a gross basis.
White-label revenue represents revenue from operating ATMs and POS terminals on behalf of certain customers, typically under their brand, which we refer to as our “white-label service”. The Company’s service is comprised of maintaining ATMs and POS terminals to facilitate the exchange of crypto assets by our customers with their counterparties.
For the year ended 2021, white label services for ATMs machines were provided only to the government of Salvador and is recognized for the flat-monthly service fees collected per agreement and, when applicable, for the per-transaction fees recorded on a net-basis and not on the gross-amounts transacted at the ATMs. Included in the white-label revenue is $300,000 for the one-time non-refundable ATM set-up and Sale of POS $360,000.
Ancillary revenue represents revenue from sales of equipment such as POS terminals, sales of software and corresponding intellectual property, as well as software maintenance fees. This revenue is recognized on a gross basis.
BitQuick revenue represents the fees calculated as a percentage of the purchase value for facilitating a peer-to-peer exchange transaction between sellers and buyers that utilize this channel; revenue is recognized on a net basis.
| F-18 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Revenue disaggregated by geography based on sales location for the period below are as follows.
| For the year ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Revenue | ||||||||
| United States | $ | 78,624 | $ | 68,134 | ||||
| El Salvador | 2,538 | – | ||||||
| International | 585 | 803 | ||||||
| $ | 81,747 | $ | 68,937 | |||||
Contracts with government of El Salvador
In the third quarter of 2021, the Company installed and began operating 200 white-labeled Bitcoin ATMs in El Salvador, 10 white-labeled Bitcoin ATMs at El Salvador consulates in the U.S., 45 white-labeled Bitcoin ATMs in other U.S. locations and sold 950 point-of-sale (POS) terminals for local businesses in El Salvador to process transactions with Bitcoin to Ministerio de Hacienda (Department of Treasury) of El Salvador (“GOES”). Additionally, we will also sell intellectual property in software, develop, and maintain a Bitcoin platform designed to support a GOES branded digital wallet. As of December 31, 2021, advances for revenue contracts of $3,500,000 presented in current liabilities, represents amounts invoiced for intellectual property in software pending transfer of control to GOES, accounts receivable includes $1,500,000. The Company has expensed $700,000 of taxes withheld from payment of these contract receivables to income tax expense/(benefit) in the current year as it does not expect to be able to receive a benefit in future years.
From time to time, the Company receives money from GOES to facilitate replenishment of cash in the ATMs that we provide and operate for them. As of December 31, 2021, the cash received as advances from GOES ($3,647,000) is presented as part of Restricted held for customers on the consolidated balance sheet. A corresponding liability to repay GOES for the advances is reflected within Liability for cash held for customers on the consolidated balance sheet.
4. Accounts Receivable
Accounts receivable, net of allowance consist of the following as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| White-label fee receivable | $ | 979 | $ | – | ||||
| Ancillary fee receivable | 496 | – | ||||||
| Others | 56 | – | ||||||
| $ | 1,531 | $ | – | |||||
5. Crypto Assets Held
Crypto assets are considered indefinite-lived intangible assets under applicable accounting rules and are initially measured at cost and are not amortized. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale. The Company classifies crypto assets held as non-current assets in the consolidated balance sheets, but these assets are held mainly for operating purposes; these balances turnover frequently, and the Company anticipates converting crypto assets held at any point to cash within a year. The Company assigns costs to transactions on a first-in, first-out basis.
| F-19 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Crypto assets held include Bitcoin in possession of the Company pending delivery to BitQuick customers. An equivalent amount is included in the other current liabilities as amounts owed to customers in the Consolidated Balance Sheets.
The Company held the following crypto assets as of December 31, 2021 and December 31, 2020, including 7 Bitcoin with a fair market value of $278,000 as of December 31, 2020 and 8 Bitcoin with a fair market value of $388,000 as of December 31, 2021
The Company held the following crypto assets as of December 31, 2021 and December 31, 2020.
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Qty (1) | Average Rate | Amount (thousands) | Qty (1) | Average Rate | Amount (thousands) | |||||||||||||||||||
| Bitcoin | 17 | $ | 46,327 | $ | 796 | 44 | $ | 29,374 | $ | 1,299 | ||||||||||||||
| Litecoin | 192 | 147 | 28 | 97 | 126 | 12 | ||||||||||||||||||
| Ethereum | 5 | 430 | 15 | 9 | 730 | 6 | ||||||||||||||||||
| Bitcoin Cash | 6 | 493 | 3 | 20 | 342 | 7 | ||||||||||||||||||
| Tether | – | – | – | 6,541 | 1.00 | 7 | ||||||||||||||||||
| Bitcoin SV | – | – | – | 54 | 163 | 9 | ||||||||||||||||||
| Monero | – | – | – | 22 | 136 | 3 | ||||||||||||||||||
| $ | 842 | $ | 1,343 | |||||||||||||||||||||
(1) Rounded off to the nearest whole number
The table below shows the roll-forward of quantity and costs (in thousands of dollars) of various crypto assets traded by the Company.
| Bitcoin | All Others (2) | |||||||||||
| Qty | Cost | Cost | ||||||||||
| Twelve months ended | ||||||||||||
| January 1, 2020 | 32 | 230 | 9 | |||||||||
| Purchases | 5,758 | 60,894 | 1,603 | |||||||||
| Cost of sales | (5,540 | ) | (57,734 | ) | (1,569 | ) | ||||||
| Crypto assets used for expenses | (46 | ) | (556 | ) | – | |||||||
| Crypto assets borrowings repaid | (100 | ) | (1,114 | ) | – | |||||||
| Fees on bitcoin borrowings paid | (53 | ) | (583 | ) | – | |||||||
| Impairment | – | (35 | ) | – | ||||||||
| Change in bitcoin held on behalf of BitQuick sellers | (7 | ) | 198 | – | ||||||||
| December 31, 2020 (1) | 44 | 1,299 | 44 | |||||||||
| January 1, 2021 | 44 | 1,299 | 44 | |||||||||
| Purchases | 1,551 | 72,457 | 2,516 | |||||||||
| Cost of sales | (1,464 | ) | (67,230 | ) | (2,510 | ) | ||||||
| Theft (3) | (29 | ) | (1,600 | ) | – | |||||||
| Crypto assets used for expenses | (35 | ) | (2,048 | ) | – | |||||||
| Crypto assets used for other advances | (2 | ) | (115 | ) | – | |||||||
| Crypto assets used for capital expenditure | (12 | ) | (476 | ) | – | |||||||
| Crypto assets borrowed repaid | (31 | ) | (1,396 | ) | – | |||||||
| Fees on crypto borrowings paid | (3 | ) | (130 | ) | – | |||||||
| Impairment | – | (40 | ) | (4 | ) | |||||||
| Change in bitcoin held on behalf of BitQuick sellers | (2 | ) | 75 | – | ||||||||
| December 31, 2021 (1) | 17 | 796 | 46 | |||||||||
| F-20 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
(2) All others include Bitcoin Cash, Bitcoin SV, Ethereum, Litecoin, Monero, and Tether. There were no sales of Bitcoin SV, Monero, and Tether during twelve months ended December 31, 2021 and 2020.
(3) On March 31, 2021, the Company experienced a breach in its security that resulting in a two-hour sales outage and a loss of 29 Bitcoin with a purchase costs of $1,600,000 (approximate market value $1,709,000). The associated loss is recorded as theft of bitcoin in the consolidated statements of operations and comprehensive income.
6. Property and Equipment
Property and equipment consist of the following as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| ATM Equipment | $ | 4,219 | $ | 1,615 | ||||
| Computer equipment | 118 | 54 | ||||||
| Office equipment | 27 | 6 | ||||||
| 4,364 | 1,675 | |||||||
| Less accumulated depreciation | 1,461 | 887 | ||||||
| $ | 2,903 | $ | 788 | |||||
Depreciation expense for the twelve months ended December 31, 2021 and 2020 was $574,000 and $283,000 respectively.
The table below presents property and equipment by geography.
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| United States | $ | 1,336 | $ | 709 | ||||
| El Salvador | 1,565 | 8 | ||||||
| International | 2 | 71 | ||||||
| $ | 2,903 | $ | 788 | |||||
7. Operating Leases
Lease liabilities as of consist of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Current portion of lease liabilities | $ | 624 | $ | 487 | ||||
| Long term lease liabilities, net of current portion | 1,694 | 1,580 | ||||||
| Total lease liabilities | $ | 2,318 | $ | 2,067 | ||||
The Company classifies its facilities it right of use arrangements for ATM retail spaces under operating leases. The Company does not have any significant arrangements where it is the lessor. The Company does not separate lease and non-lease components for arrangements where the Company is a lessee. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company determines if an arrangement contains a lease at inception. Operating lease expense is recognized on a straight-line basis over the lease term.
| F-21 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.
The operating lease asset also includes any initial direct costs and lease payments made prior to lease commencement and excludes lease incentives incurred.
Other information related to leases was as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Weighted-average remaining lease term (in years) | 3.86 | $ | 4.41 | |||||
| Weighted-average discount rate | 15% | 15% | ||||||
The discount rates used in measuring the lease liabilities was based on the Company’s hypothetical incremental borrowing rate, as the rate implicit in the leases were not readily determinable.
The components of lease expense were as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Lease Cost | ||||||||
| Operating lease cost | $ | 1,126 | $ | 813 | ||||
| Variable lease cost | – | – | ||||||
| Total lease cost | $ | 1,126 | $ | 813 | ||||
As of December 31, 2021, the Company's leases have remaining lease terms of up to 5.5 years, some of which include optional renewals or terminations, which are considered in the Company’s assessments when such options are reasonably certain to be exercised. Any variable payments related to the lease will be recorded as lease expense when and as incurred. As of December 31, 2021, the operating leases that the Company has signed but have not yet commenced are immaterial.
Maturities of operating lease liabilities as of December 31, 2021, are shown below:
| 2022 | $ | 894 | ||
| 2023 | 740 | |||
| 2024 | 630 | |||
| 2025 | 534 | |||
| 2026 and thereafter | 233 | |||
| Total lease payments | 3,031 | |||
| Less: Imputed interest | (713 | ) | ||
| Present value of lease liabilities | $ | 2,318 |
Total operating lease payments reflected in operating cash flows were $1,210,000 and $864,000 for the year ended December 31, 2021 and 2020, respectively.
| F-22 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
8. Prepaid Expenses and Other Assets
Prepaid expenses and other current assets, and Other noncurrent assets consist of the following as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid expense | $ | 369 | $ | 113 | ||||
| Prepaid foreign taxes | 116 | 3 | ||||||
| Supplier advances | 210 | – | ||||||
| Others | 32 | – | ||||||
| $ | 727 | $ | 116 | |||||
| Other noncurrent assets | ||||||||
| Capitalized software & development | $ | 905 | $ | – | ||||
| Others | 85 | 76 | ||||||
| $ | 990 | $ | 76 | |||||
9. Accounts Payable, Accrued Expenses and Other liabilities
Accounts payable and accrued expenses, and Other current liabilities consist of the following as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable | $ | 619 | $ | 320 | ||||
| Accrued expenses | 291 | 22 | ||||||
| Interest payable | 134 | 91 | ||||||
| $ | 1,044 | $ | 433 | |||||
| Other current liabilities | ||||||||
| Payroll liabilities | 51 | 16 | ||||||
| Funds owed to customers | 256 | 242 | ||||||
| Foreign local taxes payable | 123 | 12 | ||||||
| Uncertain tax position | 173 | – | ||||||
| Other payable | 12 | 25 | ||||||
| $ | 615 | $ | 295 | |||||
10. Derivatives
On August 22, 2018, the Company entered into a borrowing agreement with one of the Company’s directors and principal shareholder, Mr. Mike Komaransky, for restocking bitcoin and increasing working capital. Under this agreement, the Company borrowed 30 Bitcoin, at fair value, initially due on August 22, 2019. The borrowing fee as defined in the agreement, is 13.5% of the outstanding principal and was payable in bitcoin.
| F-23 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
In November 2018, the Company entered into another agreement with Mr. Komaransky. This agreement provides for up to four additional borrowings at 50 bitcoin increments with an initial term of 90 days for each loan. Fees for these borrowings is the greater of 10% of the outstanding principal or 0.4% of total ATM sales. The Company borrowed 50 bitcoin under this agreement in November 2018 and an additional 50 bitcoin in March 2019. The Company repaid these bitcoin borrowings in the year ended December 31, 2020. These transactions have been recorded at fair value in the Company’s books.
On July 12, 2021, the Company signed a borrowing restructuring agreement for the remaining outstanding bitcoin balance as of that date. Under the agreement Mr. Komaransky agreed to extend the maturity for the entire amount of loan to May 31, 2022. Further, the company agreed to pay accelerated weekly payments of $35,000 in equivalent Bitcoin. During 2021, the Company made all required payments as well as additional repayments. As of December 31, 2021 the borrowings have been repaid and no obligation remain.
The table below presents the roll-forward of the bitcoin borrowings.
| December 31, 2021 | December 31, 2020 | |||||||||||||||
| Bitcoin (No) | Fair value (USD) | Bitcoin (No) | Fair value (USD) | |||||||||||||
| (in thousands) | ||||||||||||||||
| Bitcoin borrowings: | ||||||||||||||||
| Beginning fair value balance bitcoins borrowings | 30 | $ | 881 | 130 | $ | 934 | ||||||||||
| New borrowings | – | – | – | – | ||||||||||||
| Repayments | (30 | ) | (1,396 | ) | (100 | ) | (1,114 | ) | ||||||||
| Fair value adjustment on crypto asset borrowing derivatives | 515 | 1,061 | ||||||||||||||
| Ending fair value balance bitcoins borrowings | – | $ | – | 30 | $ | 881 | ||||||||||
| Ending fair value consists of: | ||||||||||||||||
| Carrying value of outstanding host contract | – | $ | – | – | $ | 193 | ||||||||||
| Fair value of the embedded derivative liability | – | – | – | 688 | ||||||||||||
| Total | – | $ | – | 30 | $ | 881 | ||||||||||
11. Debt
In 2017, the Company entered into several subordinated note agreements with shareholders of the Company’s common stock. The notes had a principal amount of $117,000 with maturity dates in 2021 and 2022. Interest as defined in the notes is 12% per annum. As of December 31, 2021, and December 31, 2020, the outstanding principal was $90,000 and $117,000, respectively.
On May 30, 2017, the Company entered into a senior note agreement with Consolidated Trading Futures, LLC. The note provided for a principal amount of $1,490,000 secured against the Company’s cash in machines and held by service providers. Interest as defined in the note as 15% per annum with a maturity date of May 31, 2022. As of both December 31, 2021, and December 31, 2020, the outstanding principal was $1,490,000.
On August 1, 2018, the Company entered into a promissory note with LoanMe, Inc. The promissory note provided for a principal amount of $100,000, with a final maturity date of August 1, 2028, with equal monthly installment payments of $2,000. Interest as defined in the promissory note is 24% per annum. As of December 31, 2021, and December 31, 2020, the outstanding principal was $88,000 and $92,000, respectively.
| F-24 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
On October 22, 2018, the Company entered into a promissory note with Swingbridge Crypto I, LLC. The promissory note provided for an aggregate of $500,000 in principal with a maturity date of May 30, 2019. Interest as defined in the promissory note is simple interest equal to 8% per annum. In the case the note is still outstanding beyond the maturity date, interest shall be calculated as 15% per annum, compounded annually from and after the maturity date.
On May 21, 2019, the Company entered into a promissory note with Swingbridge Crypto II, LLC. The promissory note provided for an aggregate of $300,000 in principal with a maturity date of August 21, 2019. Interest as defined in the promissory note is simple interest equal to 30% per annum. In the case the note is still outstanding beyond the maturity date, interest shall be calculated as 40% per annum, compounded annually from and after the maturity date.
On July 26, 2019, the Company entered into a promissory note with Swingbridge Crypto III, LLC. The promissory note provided for an aggregate of $1,000,000 in principal with a maturity date of July 26, 2020. Interest as defined in the promissory note is simple interest equal to 40% per annum. In the case the note is still outstanding beyond the maturity date, interest shall be calculated as 50% per annum, compounded annually from and after the maturity date.
In connection with the recapitalization of the Company on January 31, 2020, these three Swingbridge notes were exchanged for 419,078,082 shares of the Company’s common stock.
On November 21, 2019, the Company entered into a promissory note with DV Chain, LLC to convert outstanding borrowing of 250 bitcoin and unpaid fee on borrowings into debt denominated in US dollars. The promissory note provided for a principal amount of $1,951,000 with a maturity date of May 1, 2021. Interest as defined in the promissory note is 15% per annum. On August 16, 2020, the Company entered into an agreement with DV Chain, LLC, whereby the Company repurchased 30,422,825 common shares held by DV Chain, LLC at a price of $0.00388 and agreed to make accelerated payments of $25,000 per week on the promissory note until the maturity date of May 1, 2021. As of December 31, 2021, and December 31, 2020, the outstanding principal was $0 and $1,350,000, respectively.
On September 22, 2021, the Company entered into a borrowing arrangement with Banco Hipotecario secured against the Company’s assets in El Salvador. The promissory note provided for a principal amount of $1,500,000, with a final maturity date of 36 months after disbursal with equal monthly installment payments of $49,108 with a moratorium of 2 months. Interest as defined in the loan arrangement is 7.5% per annum.
On December 12, 2021, the Company entered into a financing agreement for $75,000 with Capital Premium Financing, Inc. to pay the insurance premium on its commercial liability insurance with an annual percentage rate of 15.28% per annum repayable in nine monthly installments beginning February 1, 2022. No interest expense has been recognized in the twelve months ended December 31, 2021.
For Debt and Convertible debt (see note 12) the principal payments due as of December 31, 2021 are as follows (in thousands):
| 2022 | $ | 2,124 | ||
| 2023 | 5,271 | |||
| 2024 | 548 | |||
| 2025 | 3,012 | |||
| 2026 | 16 | |||
| Thereafter | 37 | |||
| $ | 11,008 |
Deferred financing costs are amortized using the effective interest method. Deferred financing for the twelve months ended December 31, 2021 and 2020 was $8,000 and $9,000 respectively. Deferred financing costs had a carrying value of $2,000 at December 31, 2021 and $10,000 at December 31, 2020. These discounts are recorded as a reduction of debt on the consolidated balance sheets.
| F-25 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
12. Convertible debt
On January 31, 2020, the Company entered into a convertible debenture agreement with KGPLA LLC, an entity in which Mike Komaransky, a director and principal shareholder of the Company has controlling interest. The convertible debenture provided for a principal amount of $3,000,000, with a maturity date of January 31, 2025. Interest as defined by the agreement is 8% per annum. KGPLA, LLC has the option to convert the outstanding principal and accrued interest balance into common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. As of December 31, 2021 and December 31, 2020, the outstanding principal amount of the debenture was $3,000,000. In January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective method. The adoption resulted in an increase of $890,000 and $37,000 to Related party convertible debt and Convertible debt, respectively, to reflect the full principal amount of the Convertible Notes outstanding, net of issuance costs.
On January 31, 2020, the Company entered into a convertible debenture agreement with Swingbridge Crypto III, LLC. The convertible debenture provided for a principal amount of $125,000, with a maturity date of January 31, 2025. Interest as defined by the agreement is 8% per annum. On August 26, 2021, Swingbridge Crypto III, LLC gave notice to convert the outstanding principal of $125,000 as per the terms of the debentures since the Company secured major financing consequent to issuance of 6% Convertible Debentures as described below. This amount is included in Shares to be issued in the Consolidated Statement of Shareholders’ Deficit as at December 31, 2021. The Company issued 10,416,666 shares to convert the outstanding principal on February 18, 2022.
On June 22, 2021 the Company authorized the issuance and sale of up to $5,000,000 in aggregate principal amount of Convertible Debentures. The convertible promissory notes (i) are unsecured, (ii) bear interest at the rate of 6% per annum, and (iii) are due two years from the date of issuance. The convertible promissory notes are convertible at any time at the option of the investor into shares of the Company’s common stock that is determined by dividing the amount to be converted by the lesser of (i) $0.10 per share or (ii) 25% less than the twenty trading day (20-trading day) volume weighted average price (“VWAP”) of the Common Stock based on the trades reported by the OTC Pink Market operated by the OTC Markets Group, Inc.
As of December 31, 2021, the Company received an amount of $4,985,000 toward subscription against this issue. In December 2021, certain debenture holders exercised their right and gave an irrevocable notice to convert $220,000 of the convertible debt. This amount is included in Shares to be issued in the Consolidated Statement of Shareholders’ Deficit as at December 31, 2021. The Company issued 2,200,000 shares on March 11, 2022. The outstanding amount of the convertible debt as of December 31, 2021 is $4,765,000.
Debt discounts are amortized using the effective interest method. There was no debt discount expense for the twelve months ended December 31, 2021 consequent to early adoption of ASU 2020-06 as previously discussed in Note 2. Debt discount expense for the twelve months ended December 31, 2020 was $57,000. Unamortized debt discounts had a carrying value of $0 at December 31, 2021 and $927,000 at December 31, 2020. These discounts are recorded as a reduction of debt on the consolidated balance sheets. Unamortized balance of debt discount of $927,000 at December 31, 2020 was added to convertible debt to reflect the full principal amount of the Convertible Notes as discussed in Note 2.
13. Fair Value Measurements
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities measured and recorded at fair value on a recurring basis (in thousands):
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,174 | $ | – | $ | – | $ | 1,174 | $ | 2,085 | $ | – | $ | – | $ | 2,085 | ||||||||||||||||
| Restricted cash – cash held for customers | 3,671 | – | – | 3,671 | – | – | – | – | ||||||||||||||||||||||||
| Crypto assets held | – | 842 | – | 842 | – | 1,343 | – | 1,343 | ||||||||||||||||||||||||
| $ | 4,845 | $ | 842 | $ | – | $ | 5,687 | $ | 2,085 | $ | – | $ | – | $ | 3,428 | |||||||||||||||||
| Liabilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Crypto asset borrowings | – | – | – | – | – | 881 | – | 881 | ||||||||||||||||||||||||
| $ | – | $ | – | $ | – | $ | – | $ | – | $ | 881 | $ | – | $ | 881 | |||||||||||||||||
| F-26 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
The Company did not make any transfers between the levels of the fair value hierarchy during the years ended December 31, 2020 and December 31, 2019.
Assets and liabilities measured and recorded at fair value on a non-recurring basis
The Company’s non-financial assets, such as goodwill, intangible assets, property and equipment, and crypto assets held but not designated in hedging relationships are adjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on Level 3 inputs. Fair value of crypto assets held are predominantly based on Level 2 inputs.
14. Stock-Based Compensation
Stock Option Plan
In 2016, the Company established the 2016 Equity Incentive Plan (the 2016 Plan). The 2016 Plan authorized the granting of up to 207,422,610 shares of common stock to officers, employees, and Board members of the Company.
The exercise price of the options was determined by the Board but shall not be less than 100% of the fair market value on the date of grant.
As of December 31, 2019, no shares remained available for future issuance under the 2016 Equity Incentive Plan.
The table below summarizes the stock option activity for the year ended December 31, 2020:
| Number of Units | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | ||||||||||
| Outstanding at January 1, 2020 | 207,422,610 | $ | 0.0048 | 2.04 | ||||||||
| Granted | – | – | – | |||||||||
| Exercised | (157,635,009 | ) | 0.0060 | – | ||||||||
| Forfeited | (49,787,601 | ) | 0.0014 | – | ||||||||
| Expired | – | – | ||||||||||
| Outstanding at December 31, 2020 | – | $ | – | – | ||||||||
| Exercisable | – | $ | – | – | ||||||||
The Company recognized $0 and $477,000 stock-based compensation expense for the twelve months ended December 31, 2021 and 2020. As of December 31, 2021, total unrecognized compensation cost related to unvested stock options was $0.
The Company terminated the 2016 Equity Incentive Plan (the 2016 Plan) in January 2020. As of December 31, 2021 and December 31, 2020, there are no options outstanding.
The Company’s Board of Directors and majority shareholders approved the 2021 Equity Compensation Plan effective October 15, 2021. There are no securities authorized to be issued under the 2021 Equity Compensation Plan and no securities have been issued as of the date of these financial statements.
| F-27 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
15. Commitments and Contingencies
The Company, from time to time, might have claims against it incidental to the Company’s business including but not limited to tax demands and penalties. While the outcome of any of these matters cannot be predicted with certainty, management does not believe that the outcome will have a material adverse effect on the accompanying consolidated financial statements.
On September 9, 2021, the Company entered into a term sheet proposed agreement to acquire assets of XPay, a software services and crypto asset provider based in Colombia. These assets include a digital wallet, software, ATMs, point-of-sale terminals, and certain other assets. The preliminary purchase price, subject to change based upon final negotiations, would be a combination of $3 million in cash and 270 million shares of the Company’s common stock. These to be authorized and issued shares will be subject to vesting over a three-year period based on the consulting services to be provided by the controlling beneficial owner of XPay. As of December 31, 2021, the Company had paid an advance of $845,000 related to this proposed acquisition, which is included as Other Advances in the accompanying Consolidated Balance Sheets. The Company paid an additional amount of $750,000 in January 2022. The Company plans to use a combination of cash on hand, operating cash flows and borrowings to pay for the proposed acquisition.
The Company is still negotiating the final terms of the XPay acquisition and accounting considerations for appropriately reflecting this transaction in the financial statements of the Company upon closing. The Company will include these developments and conclusion in subsequent financial statements.
16. General and Administrative Expenses
General and administrative expenses consisted of the following.
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| General and administrative expenses | $ | 1,398 | $ | 435 | ||||
| Salaries and benefits | 2,350 | 2,429 | ||||||
| Travel | 309 | 39 | ||||||
| Rent | 96 | 167 | ||||||
| $ | 4,153 | $ | 3,070 | |||||
17. Sales and Marketing
Sales and marketing expenses consisted of the following.
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Advertising | $ | 258 | $ | 151 | ||||
| Salaries and benefits | 365 | 132 | ||||||
| Other selling and marketing | 24 | 3 | ||||||
| $ | 647 | $ | 286 | |||||
| F-28 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
18. SAFT
In 2018, the Company issued a series of instruments called “Simple Agreements for Future Tokens” (SAFTs) in exchange for investments in cash or crypto assets. The SAFTs entitled holders to receipt of tokens representing equity in the Company under certain pre-defined circumstances. These include a qualified financing event in which the Company raised $15 million or more in a single transaction, a “corporate transaction” (sale of all or substantially all of the Company’s assets), or a dissolution.
In January 2020, the Company allowed its employees with vested stock options to exercise with the use of a non-recourse loan agreement. These loan agreements have a maturity date of 48 months from the date of exercise and carries an interest rate of 1.69%. As of December 31, 2021 and 2020, the outstanding balance due from employees was $977,000 and $961,000 respectively.
19. Employee Loans
In January 2020, the Company allowed its employees with vested stock options to exercise with the use of a non-recourse loan agreement. These loan agreements have a maturity date of 48 months from the date of exercise and carries an interest rate of 1.69%. As of December 31, 2021 and 2020, the outstanding balance due from employees was $973,000.
20. Warrants to Purchase Common Shares
In 2017 Athena Bitcoin, Inc., the wholly owned subsidiary of the Company, issued warrants to purchase 202,350 shares of Athena Bitcoin, Inc.’s common stock for $14,005. The warrants provide for a right to purchase common shares in Athena Bitcoin, Inc., priced at $2.00 to $3.00 per share, at an average exercise price of $2.49 per share. The warrants to purchase 202,350 shares of Athena Bitcoin, Inc. common stock remained outstanding on December 31, 2019 and were classified as equity. In January 2020, warrants to purchase 102,350 shares of Athena Bitcoin, Inc. common stock at an average exercise price of $2.00 per share were exercised, some of them in a cashless manner, against a lesser number of shares. As a result of the exercise of these warrants, the net issuance of Athena Bitcoin, Inc. common stock was 93,106 shares (exchanged into 115,888,490 shares of the Company’s common stock on January 31, 2020).
The unexercised warrants to purchase 100,000 shares of Athena Bitcoin, Inc. common stock, at an exercise price of $3 per share, remain outstanding as of December 31, 2021. The warrant will expire on May 30, 2025. As of December 31, 2021 and December 31, 2020, there are 3,096,345 shares of Athena Bitcoin, Inc. issued and outstanding, all of which are held by the Company.
21. Related Party
Aside from the transactions discussed in other notes to these financial statements, the Company continues to carry a payables balance to Red Leaf Opportunities Fund LP, an entity in which the Chief Executive Officer has a controlling interest in the General Partner, Red Leaf Advisors LLC, for previous purchases of crypto assets. The outstanding balance due to Red Leaf Opportunities Fund LP as of December 31, 2021 and December 31, 2020 was $407,000, and is recorded in accounts payable, related party in the consolidated balance sheets.
22. Fees on Borrowings
Fees on borrowings consisted of the following expense:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Fees on crypto borrowings | $ | 119 | $ | 337 | ||||
| Fees for virtual vault services | 222 | 129 | ||||||
| $ | 341 | $ | 466 | |||||
Fees for virtual vault services were included as part of Other (income) expense for the twelve months ended December 31, 2020.
| F-29 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
23. Income Taxes
Income before income taxes was attributable to the following regions:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Domestic | $ | (1,391 | ) | $ | 828 | |||
| Foreign | (1,370 | ) | (240 | ) | ||||
| $ | (2,761 | ) | $ | 588 | ||||
Provision for (benefit from) income taxes consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Current: | ||||||||
| Statutory federal tax on income | $ | 961 | $ | 230 | ||||
| State income tax, net of federal benefit | (26 | ) | 94 | |||||
| Foreign | 52 | – | ||||||
| Total current | 987 | 324 | ||||||
| Deferred: | ||||||||
| Statutory federal tax on income | $ | (119 | ) | $ | 123 | |||
| State income tax, net of federal benefit | 15 | (19 | ) | |||||
| Total deferred tax liability | (104 | ) | 104 | |||||
| Total provision for income taxes | $ | 883 | $ | 428 | ||||
A reconciliation of the statutory income tax rates and the effective tax rate are as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Statutory U.S. federal rate | 21.0 | % | 21.0 | % | ||||
| Income tax on jurisdiction other than statutory | 1.5 | 0.0 | ||||||
| State income tax, net of federal benefit | 5.8 | 7.8 | ||||||
| Stock compensation | 0.0 | 17.1 | ||||||
| Valuation allowance | (58.3 | ) | 8.6 | |||||
| Uncertain tax positions | (6.3 | ) | 0.0 | |||||
| Prior year true-ups (state and federal) | 5.2 | 0.0 | ||||||
| Other | (0.9 | ) | 18.3 | |||||
| Provision for income (tax) | (32.0 | )% | 72.8 | % | ||||
| F-30 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and deferred tax liabilities consist of:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Deferred tax asset: | ||||||||
| Foreign tax credit | $ | 700 | $ | – | ||||
| Net operating loss carryforward | 941 | 51 | ||||||
| Lease liability | 60 | – | ||||||
| Interest carryforward | 162 | – | ||||||
| Other | 3 | – | ||||||
| Gross deferred tax assets | 1,866 | 51 | ||||||
| Deferred tax liability: | ||||||||
| Depreciation and amortization | (196 | ) | 104 | |||||
| Right of use asset | (60 | ) | – | |||||
| Gross deferred tax liability | (256 | ) | 104 | |||||
| Less: valuation allowance | (1,610 | ) | (51 | ) | ||||
| Total deferred assets and liability | $ | – | $ | 104 | ||||
The Company has determined that its right-of-use assets are true tax leases and has appropriately accounted for the related income tax benefits.
A valuation allowance of $1,610,000 and $51,000 was recorded against the Company’s net deferred tax asset balance as of December 31, 2021 and December 31, 2020, respectively. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. On the basis of this evaluation, the deferred tax asset and liability is more likely not to be realized. The valuation allowance included allowances primarily related to U.S. Federal net operating loss carryforwards and foreign tax credits. As of December 31, 2021 and 2020, the Company has $2,123,000 and $0, respectively of federal loss carryforwards available to offset federal taxable income, and $1,734,000 and $0, respectively of state loss carryforwards available to offset future state taxable income. As of December 31, 2021 and 2020, the Company also has carryforwards available for credits from taxes paid in foreign jurisdictions of $700,000 and $0, respectively. The Company also had foreign net operating loss carryforwards of $442,000 as of December 31, 2021, all of which have a full valuation allowance.
Activity related to the Company’s uncertain tax positions consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of year | $ | – | $ | – | ||||
| Increase to tax positions taken during the current year | 75 | – | ||||||
| Increases to tax positions taken during the prior year | 98 | – | ||||||
| Balance, end of year | $ | 173 | $ | – | ||||
The increase in tax positions taken during the current and prior year relate to positions taken on the Company’s convertible debt instruments. The Company is otherwise currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in this estimate over the next twelve months.
Major tax jurisdictions are the United States and Illinois. All of the tax years will remain open three and four years for examination by the Federal and state tax authorities, respectively, from the date of utilization of the net operating loss. There are no tax audits pending.
| F-31 |
Athena Bitcoin Global
Notes to Consolidated Financial Statements
For the twelve months ended December 31, 2021 and 2020
24. Net Income and Loss Per Share
The computation of net income (loss) per share is as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| (in thousands, except per share amounts) | ||||||||
| Basic net income (loss) per share: | ||||||||
| Numerator | ||||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | |||
| Denominator | ||||||||
| Weighted-average shares of common stock used to compute net income (loss) per share attributable to common stockholders, basic | 4,049,392,879 | 3,840,697,666 | ||||||
| Net income (loss) per share attributable to common stockholders, basic | $ | (0.00090 | ) | $ | 0.00004 | |||
| Diluted net income (loss) per share: | ||||||||
| Numerator | ||||||||
| Net income (loss) | $ | (3,644 | ) | $ | 160 | |||
| Denominator | ||||||||
| Weighted-average shares of common stock used to compute net income (loss) per share attributable to common stockholders, basic | 4,049,392,879 | 3,840,697,666 | ||||||
| Weighted-average effect of potentially dilutive securities: Convertible Debt | – | 239,012,557 | ||||||
| Weighted-average shares of common stock used to compute net income (loss) per share attributable to common stockholders, diluted | 4,049,392,879 | 4,079,710,223 | ||||||
| Net income (loss) per share attributable to common stockholders, diluted | $ | (0.00090 | ) | $ | 0.00004 | |||
Potential common shares related to the Company’s convertible debt of 278,544,886 in December 31, 2021 were excluded in the calculation of diluted shares outstanding as the effect would have been anti-dilutive.
25. Subsequent Events
The Company has evaluated subsequent events after the balance sheet date of December 31, 2021 through March 31, 2022 the date on which these audited consolidated financial statements were available to be issued.
After the balance sheet date of December 2021, certain debenture holders exercised their right and gave an irrevocable notice to convert $3,465,000 of the principal amount of 6% Convertible Debentures into shares of common stock of the Company resulting in the issuance of 34,650,000 shares of common stock of the Company in fiscal year 2022.
On March 17, 2022, the Company learned that one million shares of its restricted common stock owned by an existing shareholder was transferred to another party and put into Depository Trust Company on or about February 15, 2022, and that some portion of stock has been sold on the trading market. This took place without the Company’s knowledge or required authorization. The Company has notified the relevant parties to cease any sales of such shares on the public market.
On March 30, 2022, the Company received a notice from the IRS dated March 28, 2022, assessing certain penalties amounting to $96,000. This amount has not been provided for in these results and will be accounted in the results for the quarter ending March 31, 2022.
On May 6, 2022, Mr. Komaransky resigned from the Board of Directors of the Company and nominated Michael Pruyn to replace him. Mr. Pruyn was accepted onto the Board of Directors the same day.
| F-32 |
PART II- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by the Company in connection with the issuance and distribution of the securities being registered hereunder. All amounts are estimates except the SEC registration fee.
| SEC registration fees | $ | 113,374.44 | ||
| Printing expenses | $ | |||
| Accounting fees and expenses | $ | |||
| Legal fees and expenses | $ | 150,000.00 | ||
| Miscellaneous | $ | |||
| Total | $ | 263,374.44 |
Item 14. Indemnification of Directors and Officers.
We are a Nevada corporation, and accordingly, we are subject to the corporate laws under the Nevada Revised Statutes. Article Ten of our Amended and Restated Articles of Incorporation, Article V of our by-laws and the Nevada Revised Business Statutes, contain indemnification provisions.
Our Amended and Restated Articles of Incorporation provides that we will indemnify, in accordance with our by-laws and to the fullest extent permitted by the Nevada Revised Statutes or any other applicable laws, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including an action by or in the right of the corporation, by reason of such person acting as a director or officer of the corporation or any of its subsidiaries against any liability or expense actually and reasonably incurred by such person. We will be required to indemnify an officer or director in connection with an action, suit or proceedings initiated by such person only if (i) such action, suit or proceeding was authorized by the Board and (ii) the indemnification does no relate to any liability arising under Section 16(b) of the Exchange Act, as amended, or rules or regulations promulgated thereunder. Such indemnification is not exclusive of any other right to indemnification provided by law or otherwise. Indemnification shall include payment by us of expenses in defending an action or proceeding in advance of final disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if it’s ultimately determined that such person is not entitled to indemnification.
All members of our Board of Directors are additionally subject to the protections offered by the Indemnification Agreement by and between the Company and each of the directors. We do not carry director and officer liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Please read “Item 17. Undertakings” for more information on the SEC’s position regarding such indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
| II-1 |
Item 15. Recent Sales of Unregistered Securities.
On June 22, 2021, the Company commenced its private offering of up to $5,000,000 of 6% Convertible Debentures to accredited investors only as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. The maturity date on the 6% Convertible Debentures is two years after the date of issuance. The investor has an option to convert the principal amount of the Debenture into shares of common stock of the Company at a certain conversion – see Description of Capital Stock, page 69. The Company sold a total of $4,985,000 of the 6% Convertible Debentures to 77 accredited investors. The proceeds of the private placement are for working capital and operations of the Company. The Company closed the private placement in September, 2021. Neither 6% Convertible Debentures nor the shares of common stock convertible upon the conversion of the Convertible Debentures, have been registered under the Securities Act, and have been issued in reliance upon an exemption from registration provided by Section 4(a)(2) and 4(a)(5) under the Securities Act and Regulation D promulgated thereunder and bear a Rule 144 restrictive legend.
Effective as of January 30, 2020, GamePlan, Inc., a Nevada corporation entered into a share exchange agreement dated as of January 14, 2020 (the “Share Exchange Agreement”) with Athena Bitcoin, Inc., a Delaware corporation and certain Athena Bitcoin shareholders. In accordance with the terms and provisions of the Share Exchange Agreement, the Company acquired Athena Bitcoin in exchange for 3,593.644.680 newly issued “restricted” shares of common voting stock of the Company to the Athena Bitcoin shareholders on a pro rata basis for the purpose of effecting a tax-free reorganization pursuant to sections 351, 354 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Pursuant to the terms of the Share Exchange Agreement, each 1 share of common stock of Athena Bitcoin has been exchanged for 1,244.69 shares of the Company’s common stock. The shares of common stock issued to the Athena Bitcoin shareholders in connection with the Share Exchange (3,593.644.680) were issued with a Rule 144 restrictive legend. The shares issued in the Share Exchange were not registered under the Securities Act, in reliance upon an exemption from registration provided by Section 4(a)(2) and/or 4(a)(5) under the Securities Act and Regulation D promulgated thereunder.
On January 31, 2020 immediately following the closing of the Share Exchange transaction, the Company closed a private placement of its 8% Convertible Debentures in the total amount of $3,125,000 (the “Convertible Debentures”). The closing of the private placement was subject to the closing of the Share Exchange transaction by the Company which occurred on January 30, 2020. There were two purchasers of the Convertible Debentures: KGPLA, LLC, an entity in which a director of the Company and the Company’s beneficial owner of 41% has ownership interest ($3,000,000 principal amount of Convertible Debenture) and Swingbridge Crypto III, LLC ($125,000 principal amount of Convertible Debenture), an affiliate of the Company – see Note 7 to the Financial Statements. Both purchasers were accredited investors as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. The Convertible Debentures have a maturity date of January 31, 2025 and bear interest at 8% per annum. The purchasers have an option to convert the outstanding principal and accrued interest amount of their respective Convertible Debentures into shares of common stock of the Company at the lower of $0.012 per share or 20% discount to the next major financing or change in control. Based upon the conversion ratio, the Convertible Debentures can be converted to up to 260,416,667 shares of common stock. In connection with the Convertible Debentures private placement, the purchasers acquired certain registration and voting rights – see Description of Securities and Management sections. Neither Convertible Debenture nor the shares of common stock convertible upon the conversion of the Convertible Debentures, have been registered under the Securities Act, and have been issued in reliance upon an exemption from registration provided by Section 4(a)(2) and 4(a)(5) under the Securities Act and Regulation D promulgated thereunder and bear a Rule 144 restrictive legend.
On December 24, 2018, the Company issued 45,210,500 shares of common stock to Robert Berry and 45,210,500 shares of common stock to Jon Jenkins, former officers and directors of the Company pursuant to the agreement for cancellation of debt owed to Mr. Berry valued at $1,500,000, with Dempsey Mork, the Company’s officer, director and majority shareholder. On the same date, Mr. Mork was issued 230,000,000 shares of common stock of the Company for payment of state corporate fees, transfer agent and other outstanding fees of the Company and his services rendered to the Company, in the name of Magellan Capital Partners, which is an entity controlled by Mr. Mork. All shares issued pursuant to the above transactions were not registered under the Securities Act, in reliance upon an exemption from registration provided by Section 4(a)(2) and/or 4(a)(5) under the Securities Act and Regulation D promulgated thereunder and had a Rule 144 restrictive legend.
The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) and/or Section 4(a)(5) of the Securities Act and Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and the registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above.
All recipients of the foregoing transactions either received adequate information about the registrant or had access, through their relationships with the registrant, to such information. Furthermore, the registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
| II-2 |
Item 16. Exhibits and Financial Statement Schedules.
| II-3 |
| II-4 |
____________________
| * | Filed herewith. |
| ** | To be filed by amendment |
| + | Previously filed by the Company with the Securities and Exchange Commission. |
| † | Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. |
| (b) | Financial Statement Schedule |
All schedules have been omitted because the required information is included in the consolidated financial statements or the note thereto or is not applicable or required.
| II-5 |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by section 10(a)(3) of the Securities Act; | ||
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; | ||
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| II-6 |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
| (1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| II-7 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in Chicago, State of Illinois, on the 16th day of May, 2022.
| ATHENA BITCOIN GLOBAL | ||
| By: | /s/ Eric Gravengaard | |
| Eric Gravengaard | ||
|
Chief Executive Officer, Interim Chief Financial Officer and Director (Principal Executive Officer & Principal Financial and Accounting Officer) | ||
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints Eric Gravengaard his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments including pre and post effective amendments to this registration statement on Form S-1, any subsequent registration statement for the same offering which may be filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and pre or post-effective amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his or her substitute, each acting alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities held and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Eric Gravengaard | Chief Executive Officer, Interim Chief Financial Officer and Director | May 16, 2022 | ||
| Eric Gravengaard | (Principal Executive Officer & Principal Financial and Accounting Officer) | |||
| /s/ Edward Weinhaus | President and Director | May 16, 2022 | ||
| Edward Weinhaus | ||||
| /s/ Huaxing Lu | Director | May 16, 2022 | ||
Huaxing Lu |
| II-8 |
Exhibit 10.24
MASTER SERVICES AGREEMENT
This Master Services Agreement (this "MSA") is hereby entered into by Athena Bitcoin Global, a Corporation organized and existing under the laws of Nevada, USA, Athena Bitcoin Inc., a Corporation organized and existing under the laws of Delaware, USA, and Athena Bitcoin Holdings of El Salvador, a [•1 organized and existing under the laws of El Salvador (collectively, the "Company"), on the one hand, and [Ministerio de Hacienda de El Salvador] ("[Ministerio de Hacienda)"), and is effective as of August 20, 2021 ("MSA Effective Date"). In this MSA, Company and Ministerio de Hacienda are each referred to as a "Party" or collectively as the "Parties". Capitalized terms that are not defined in the body or exhibits of this MSA have the meanings set forth in Exhibit A (Definitions).
1. MSA.
1.1 Service Addendums. From time to time, Ministerio de Hacienda and/or any of its Entities may procure services from Company and/or any of its Affiliates by executing an addendum to this MSA in the form attached hereto as Exhibit C (each addendum, a "Service Addendum"). Each Service Addendum will describe specific services that the Company Entities will provide to the Ministerio de Hacienda Entities (the "Services") and will set forth terms applicable to such Services. Each Service Addendum forms an independent agreement binding on each of the Ministerio de Hacienda Entities and Company Entities that execute it. By executing a Service Addendum, the applicable Ministerio de Hacienda Entities and Company Entities agree to the terms of the Service Addendum and the terms in this MSA.
1.2 Application of MSA to Service Addendums. When interpreting the terms of this MSA with respect to a given Service Addendum, (i) references to "Company", "Ministerio de Hacienda", and "Party" will be construed as references to the Company Entities and the Ministerio de Hacienda Entities that signed the Service Addendum, except where the context indicates otherwise, (ii) references to "Services" will be construed as references to the Services described in the Service Addendum, and (iii) references to a "Service Addendum" will refer to the terms of both the Service Addendum and the terms of this MSA as applicable to the Service Addendum. If there is a conflict between the terms of a Service Addendum and this MSA, the Service Addendum will control. For clarity, a Company Entity may not exercise any right set forth in this MSA that is intended, as indicated by the context, only to be exercised by the signatories to this MSA (e.g., termination rights with respect to this MSA).
1.3 Responsibility for Entities. Company will consult with each Company Entity (as applicable) that executes a Service Addendum to be informed of all terms of the Service Addendum prior to execution. Company will be jointly and severally liable for all the acts and omissions of, each Company Entity in connection with a Service Addendum, provided that no Company Entity shalt be obligated to conduct activities that will require it to possess a money transmission license in any US state, provided further that at all times, Company will be able to fully perform its obligations under this MSA and all Service Addendums.
2. SERVICES.
With respect to the Services set forth in a Service Addendum, Company will provide the Services and perform as follows:
2.1 Provision of Services. Company will provide the Services in accordance with (i) the terms of the Service Addendum and (ii) Applicable Law. The Services will include all ancillary services required for Company to provide the Services to Ministerio de Hacienda, including all those that are inherent, necessary, or customary to provide the Services. Company will only use personnel who are suitably skilled, experienced, and qualified to provide the Services.
| 1 |
2.2 Development and Integration. Company will develop and integrate the Services for use with the Bitcoin Digital Platform in accordance with the Service Addendum and the other requirements that Ministerio de Hacienda may provide to Company from time to time. Company will provide Ministerio de Hacienda with the Technology required for Ministerio de Hacienda to use or make available the Services for the Bitcoin Digital Platform as contemplated in a Service Addendum. Company will provide a dedicated integration and development team and all development resources necessary to fully integrate and develop the Services.
2.3 Performance Standards. Company will use its best efforts to perform the Services. All Services will be performed by Company in a workmanlike manner and, in any event, no less than with that degree of skill and care that Company uses when performing the same or similar services to its other customers (e.g., at least the same degree of accuracy, quality, completeness, timeliness, and responsiveness).
2.4 Reporting. Company will provide Ministerio de Hacienda with accurate and complete reports, in a form and format specified by Ministerio de Hacienda, in accordance with the Service Addendum or as reasonably requested by Ministerio de Hacienda.
2.5 Relationship Management. As part of the Services, Company will make available personnel (the "Ministerio de Hacienda RM Team") who will provide Ministerio de Hacienda with support services and other administrative, operational, technical, and partner support, as described in the Service Addendum or as reasonably requested by Ministerio de Hacienda. The Ministerio de Hacienda RM Team will be dedicated to Ministerio de Hacienda and adequate in number. The Ministerio de Hacienda RM Team will be available for regular, periodic meetings as reasonably determined by Ministerio de Hacienda to discuss the Services generally. Ministerio de Hacienda may request weekly reconciliation and reporting reviews and business and operations reviews to discuss any specific issues that arise in connection with the Services. The regular, periodic meetings may be held in person, by videoconference, or other format reasonably agreed by the Parties. Company may replace any member of the Ministerio de Hacienda RM Team by providing Ministerio de Hacienda with written notice (including via email) of such replacement. From time to time, Ministerio de Hacienda may raise concerns or issues regarding the Services to Company, and Company will make available its executives who have the decision-making power to address the concerns or issues raised.
2.6 Service Providers. Company will obtain Ministerio de Hacienda's prior written consent, or a waiver of such consent in writing, before using a Service Provider in connection with a Service Addendum. Company will use its best commercially reasonable efforts to obtain a written agreement with each Service Provider that enables Company to comply with its obligations under the Service Addendum, and such written agreement must not contradict or be inconsistent with the terms of the MSA and Service Addendum. Except as set forth in this Section 2.6, Company will not use a Service Provider. The acts and omissions of a Service Provider will be treated as the acts and omissions of Company, and Company will be responsible and liable for the acts and omissions of its Service Providers.
2.7 User Communications. Company will not, and will cause its Affiliates to not, communicate or otherwise contact any User in connection with the Services without Ministerio de Hacienda's prior written consent (including via email).
2.8 Continued Performance. Company acknowledges that the timely and complete performance of its obligations under each Service Addendum is critical to the business and operations of Ministerio de Hacienda and that time is of the essence, and Company will provide the Services and perform its obligations accordingly. Except if prohibited by Applicable Law, during any dispute resolution proceedings involving a Service Addendum, whether informal or formal, Company will continue to provide the Services in accordance with the Service Addendum (and waives any right to suspend, delay, or otherwise diminish performance), and Ministerio de Hacienda may continue to exercise its rights in accordance with the Service Addendum. Any limitation on the amount or nature of damages in the Service Addendum will be ineffective to limit the Company's liability for injury caused to Ministerio de Hacienda by reason of breach of the foregoing prohibitions. Company hereby waives the defense of the adequacy of monetary damages in the context of an action by Ministerio de Hacienda for equitable enforcement of this Section 2.8.
| 2 |
2.9 Company Policies and Procedures. If a Service Addendum requires Company to perform the Services in accordance with Company's policies or procedures, Company will ensure that such policies or procedures do not conflict with its obligations under the Service Addendum. If there is a conflict between any Company policy or procedure, and the Service Addendum, the Service Addendum will control.
3. INTELLECTUAL PROPERTY.
3.1 Assignment of Intellectual Property. Company hereby assigns to Ministerio de Hacienda, Company's entire right, title, and interest in and to any Intellectual Property Rights, hereafter made or conceived solely or jointly by Company or its Affiliates while working for or on behalf of Ministerio de Hacienda pursuant to the terms of the MSA or any Service Addendum, which relate to the "Foreground IP". Company shall disclose all Foreground IP promptly to Ministerio de Hacienda. Company shall, upon request of Ministerio de Hacienda, promptly execute a specific assignment of title to Ministerio de Hacienda or its Entities and take all other actions reasonably necessary to enable Ministerio de Hacienda to secure for itself all Foreground IP in El Salvador, the United States or any other country. It shall be conclusively presumed that any patent applications relating to the Chivo Bitcoin Wallet, which Company may file within one year after termination of this MSA, shall belong to Ministerio de Hacienda, and Company hereby irrevocably assigns the same to Ministerio de Hacienda or its designated Entity, as having been conceived or reduced to practice during the term of this MSA.
3.2 Works of Authorship. All Foreground iP that are writings or works of authorship, including, without limitation, program codes or documentation, produced or authored by Company or its Affiliates in the course of performing services for Ministerio de Hacienda, together with any associated copyrights, are works made for hire and the exclusive property of Ministerio de Hacienda. To the extent that any writings or works of authorship may not, by operation of law, be works made for hire, Company hereby irrevocably assigns Ministerio de Hacienda all ownership of and all rights of copyright in, such items, and Ministerio de Hacienda shall have the right to obtain and hold in its own name, rights of copyright, copyright registrations, and similar protections which may be available in such works. Company shall give Ministerio de Hacienda or its designees all assistance reasonably required to perfect such rights.
3.3 License to Services and Company Technology. With respect to each Service Addendum, Company hereby grants to Ministerio de Hacienda and its Entities a nonexclusive, non-sublicensable (except to Representatives of a Ministerio de Hacienda Entity), royalty-free, fully paid-up, irrevocable, perpetual, worldwide right and license to (i) access and use the Services and make them available for the Bitcoin Digital Platform, as agreed to in the Service Addendum; and (ii) use, evaluate, test, install, integrate, modify, reproduce, and distribute the Company Technology in connection with using the Services and integrating the Services for the Bitcoin Digital Platform.
3.4 License to Ministerio de Hacienda Technology. With respect to each Service Addendum, Ministerio de Hacienda hereby grants to Company a non-exclusive, non-sublicensable (except to Service Providers approved pursuant to Section 2.6), nontransferable, royalty-free, fully paid-up, worldwide right and license, during the Service Addendum Term, to use, evaluate, test, install, integrate, modify, and reproduce (i) the Ministerio de Hacienda Technology provided to Company in connection with the Service Addendum and (ii) the Foreground IP, in each case, solely as required for Company to perform its obligations under the Service Addendum.
3.5 License to Technolocu in Foreground IP. Ministerio de Hacienda hereby grants to Company a non-exclusive, non-transferable, royalty-free, fully paid-up, perpetual, worldwide right and license, to use, evaluate, test, install, integrate, modify, and reproduce all Technology in the Foreground IP (excluding the use of the compiled binaries of the Bitcoin Chivo Wallet) for any purpose, including for use in products or services provided by Company to third parties. For the avoidance of doubt, Ministerio de Hacienda shall retain all rights, title and interest in the Bitcoin Chivo Wallet, including all Intellectual Property Rights therein or thereto. Nothing in this Section 3.5 is meant to preclude Company from using the Technology in Foreground IP to produce or market a bitcoin wallet that does not have the Look and feel of the Bitcoin Chivo Wallet (as long as such bitcoin wallet does not use or incorporate any trademarks, trade names, trade dress or similar rights of Ministerio de Hacienda in the Bitcoin Chivo Wallet).
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3.6 Non-Exclusivity: No Commitments. The Parties and their Affiliates acknowledge and agree that the terms of this MSA and any Service Addendum, the Services, and the relationship between the Parties and their respective Affiliates, do not impose any obligations of exclusivity on either Party or its Affiliates. Ministerio de Hacienda and its Affiliates are under no obligation to (i) enter into a Service Addendum, (ii) guarantee a minimum number of Users who will use the Services, or (iii) provide a minimum volume of transactions processed through the Services or a minimum amount of fees, amounts paid, or revenues in connection with the Services.
3.7 Control of Bitcoin Digital Platform. Ministerio de Hacienda may exercise the rights and licenses granted by Company in a Service Addendum in its sole discretion, including whether to use, launch, suspend, or discontinue the availability of the Services for the Bitcoin Digital Platform, in whole or in part, at any time. Notwithstanding anything to the contrary, Ministerio de Hacienda retains the sole ownership, decision-making authority, and control over the Bitcoin Digital Platform, including the user interface, the product experience, and its related branding.
3.8 Ministerio de Hacienda Entities and Third Parties. Any Ministerio de Hacienda Entity may perform any of Ministerio de Hacienda's obligations, grant any approvals required by Ministerio de Hacienda, and exercise all rights and all licenses granted to Ministerio de Hacienda under a Service Addendum. Ministerio de Hacienda may designate a Representative to receive, on its behalf, any information, communications, reports, or other materials to be provided by Company to Ministerio de Hacienda pursuant to a Service Addendum. Ministerio de Hacienda may engage its Representatives to perform its obligations under a Service Addendum. The acts and omissions of a Representative in performing Ministerio de Hacienda's obligations under a Service Addendum will be treated as the acts and omissions of Ministerio de Hacienda under the Service Addendum.
3.9 Further Assurances. If for any reason, Ministerio de Hacienda is unable to secure Company's signature on any document needed to apply for, perfect, or otherwise acquire title to the Intellectual Property Rights granted to it under this Section 3, or to enforce such rights, Company hereby designates Ministerio de Hacienda as Company's attorney-in-fact and agent, solely and exclusively to act for and on Company's behalf to execute and file such documents with the same legal force and effect as if executed by Company and for no other purpose.
4. DATA; DATA SECURITY.
4.1 Data Use, Disclosure and Retention. Company and each Company Entity that is a party to a Service Addendum will comply with the provisions governing the use, disclosure and retention of Data set forth in the Service Addendum.
4.2 Management of Data and Data Security. Company will secure and protect the Services from misuse and unauthorized access and implement security, data management, and incident response protocols in accordance with industry best practices and comply with the terms of Exhibit B (Data Security Program).
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4.3 Business Continuity and Disaster Recovery. Company will maintain a business continuity and disaster recovery plan that complies with industry best practices and that enables Company to perform its obligations under a Service Addendum in accordance with the terms thereof without any interruption (the "BCDR Plan"). Company will maintain multiple data centers in different geographic locations and will ensure that all core components of the Company Technology, and all data repositories used to provide the Services, are located in multiple and redundant data centers. Upon Ministerio de Hacienda's request, Company will provide Ministerio de Hacienda with a copy of the BCDR Plan. Company will test the BCDR Plan no less than once annually and will provide Ministerio de Hacienda with a copy of the test results no later than thirty (30) days following the completion of such test, including a detailed description of any material deficiencies, and Company's plan and schedule for curing such deficiencies. If there is a business interruption or disaster, Company will activate and comply with its BCDR Plan.
5. FEES AND INVOICES.
5.1 Service Fees. Except for the fees, charges, and reimbursements that are expressly set forth in a Service Addendum ("Service Fees"), Company will not charge, directly or indirectly, any fees or other charges, or seek reimbursements, for the Services to Ministerio de Hacienda, its Entities or Users. Company will comply with the terms in a Service Addendum governing the charging, collecting, or invoicing of Service Fees.
5.2 Service Fee Disputes. If Ministerio de Hacienda disputes any amounts in connection with the Services (e.g., amounts owed, paid, or transferred to Company or charged, reimbursed, collected, invoiced, withheld, or transferred by Company), Ministerio de Hacienda may provide Company written notice (including via email) of such dispute (a "Notice of Dispute"). Each Notice of Dispute will include sufficient detail for the Company to investigate the dispute and Ministerio de Hacienda may withhold payment of the disputed amounts in good faith. Once Ministerio de Hacienda has given Company sufficient detail about the dispute, within ten (10) days of such receipt, Company will use commercially reasonable efforts to resolve the issue and communicate its position in writing to Ministerio de Hacienda. If the Parties are unable to resolve a dispute within thirty (30) days of Company's receipt of the Notice of Dispute, at the request of either Party, the dispute will be promptly escalated to senior personnel of each Party for resolution. If Ministerio de Hacienda does not provide a Notice of Dispute with respect to any amounts in connection with the Services, Ministerio de Hacienda does not waive its right to dispute such amounts at a later date, even if it has paid the amount charged or accepted the amount reimbursed.
5.3 Taxes. The fees set forth in this MSA and the Service Addendums shall cover and include all sales and use taxes, duties, and charges of any kind imposed by any federal, state, or local governmental authority ("Taxes") on amounts payable by Ministerio de Hacienda under this MSA and the Service Addendums, and in no event shall Ministerio de Hacienda be required to pay any additional amount to Company in connection with such Taxes, or any Taxes imposed on, or regarding, Ministerio de Hacienda's revenues, gross receipts, personnel, or real or personal property or other assets.
5.4 Books and Records; Audit. Company will keep and maintain consistently applied, complete and accurate books, records and other documentation, that are, in each case, audited by a reputable and duly licensed audit firm, in connection with the Services, including for all financial transactions, and will retain such books, records and other documentation for a period of no less than ten (10) years following the expiration or termination of each applicable Service Addendum or for such longer period as may be required under Applicable Law (the "Audit Period"). During the Audit Period, upon providing reasonably advanced written notice (including via email) to Company, Ministerio de Hacienda may audit, or may direct a third-party auditing firm to audit such books and records during normal business hours. Company will cooperate with Ministerio de Hacienda or such auditing firm in conducting any such audit.
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6. TERM AND TERMINATION RIGHTS.
6.1 Term. This MSA commences on this MSA Effective Date and, unless otherwise terminated pursuant to the terms of this MSA, continues for a period of three (3) years (the "Initial Term"). This MSA will automatically renew for successive one-year periods (each a "Renewal Term") after the Initial Term and any subsequent Renewal Term, unless a Party provides the other Party written notice of its intent not to renew at least ninety (90) days prior to the expiration of the Initial Term or the then-current Renewal Term (the Initial Term together with all Renewal Terms, the "MSA Term").
6.2 Service Addendum Term. Each Service Addendum commences on the effective date set forth in the Service Addendum and, unless the Service Addendum is terminated, continues for the period of time set forth in the Service Addendum, or if no period of time is set forth, for the period of time coterminous with this MSA (such period of time and any applicable Phase-Out Period, the "Service Addendum Term"). If a Service Addendum Term continues beyond the expiration of the MSA Term, the MSA Term of this MSA will be extended until such time that the Service Addendum expires or is terminated, solely with respect to the Services provided under that Service Addendum. The termination of a specific Service Addendum will not terminate this MSA or any other Service Addendum. Notwithstanding the foregoing, upon termination of this MSA by Ministerio de Hacienda, all Service Addendums will terminate, except for those Service Addendums set forth in the applicable notice of termination as those that Ministerio de Hacienda elects not to terminate.
6.3 Termination for Cause. Either Party to this MSA or a Service Addendum may terminate this MSA or the Service Addendum (as the case may be) by providing written notice to the other Party, if the other Party commits a material breach of this MSA or the Service Addendum (as the case may be) that (i) is not capable of cure, or (ii) is capable of cure but that the other Party fails to cure within thirty (30) days after receipt of written notice from the other Party of such breach.
6.4 Termination for Financial Insolvency. Ministerio de Hacienda or any Ministerio de Hacienda Entity that is a party to a Service Addendum, at its sole discretion, may terminate this MSA or the Service Addendum (as the case may be) by providing Company with written notice, if Company (I) becomes insolvent, undergoes a dissolution, or ceases its business operations, or any petition is filed or other steps are taken for its bankruptcy, liquidation, receivership, administration, examinership, dissolution, or other similar action, or (11) commences negotiations or enters into an agreement with all or any class of its creditors in relation to any assignment for the benefit of such creditors, the rescheduling of any of its debts, and/or any compromise or other arrangement with any of its creditors.
6.5 Termination Due to a New Regulatory Requirement. If a Governmental Authority enacts or issues an Applicable Law that conflicts with any term of a Service Addendum (a "Regulatory Requirement"), the Parties will discuss an amendment to the Service Addendum to modify the Service Addendum as required to comply with such Regulatory Requirement. While the Parties are discussing such amendment, if, due to the Regulatory Requirement, Company is unable to perform an obligation under the Service Addendum, then prior to not performing such obligation, Company will inform Ministerio de Hacienda of the obligation it is unable to perform and will use commercially reasonable efforts to continue to try to perform such obligation in a manner that does not diminish or degrade the functionality of the Services or the User experience (if applicable). If the Parties cannot agree upon the amendment, then upon written notice to Company, Ministerio de Hacienda may, at its sole discretion, terminate the portion of the Service Addendum affected by the Regulatory Requirement (if practicable) or terminate the Service Addendum in its entirety. Notwithstanding the above, the amendment provision of this Section 6.5 shall not be triggered by any actions of Ministerio de Hacienda or its Entities.
6.6 Additional Termination. Ministerio de Hacienda may terminate this MSA or any Service Addendum at any time and for any reason by providing the Company with at least thirty (30) days' prior written notice.
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6.7 Not Exclusive Remedy. Termination of this MSA or any Service Addendum is not an exclusive remedy, and the exercise by any Party of any remedy under this MSA or any Service Addendum will be without prejudice to any other remedy it may have under this MSA, the Service Addendum, Applicable Law, or otherwise.
6.8 Phase-Out Period/Transition Support. If a Service Addendum expires or is terminated for any reason, Ministerio de Hacienda may elect to have the Services continue for a period of six (6) months, or such other agreed upon period, starting from the date of expiration or termination of the Service Addendum (the "Phase-Out Period"). During the Phase-Out Period, Ministerio de Hacienda may continue to exercise its rights under the Service Addendum, and Company will: (i) continue to operate and provide the Company Technology and Services, and continue to perform its other obligations under the Service Addendum, (ii) cooperate, in a manner that minimizes disruption to Ministerio de Hacienda and Users, with any transition of the Services to an alternative service provider selected by Ministerio de Hacienda in its sole discretion, (iii) permit Ministerio de Hacienda to have full access to all personnel necessary to transition Services to such alternative service provider, and (iv) perform any other actions that are necessary and proper to ensure the transition of the provision of the Services to such alternative service provider.
6.9 Migration of Data. Upon the expiration or termination of a Service Addendum, or otherwise upon Ministerio de Hacienda's request, Company will provide Ministerio de Hacienda all Data that is necessary for an alternative service provider, selected by Ministerio de Hacienda in its sole discretion, to provide the Services (or substantially similar services). All such Data will be provided in a form and format selected by Ministerio de Hacienda and shall be Ministerio de Hacienda Data.
6.10 Return/Destruction of Confidential Information. Upon the expiration or termination of this MSA or a Service Addendum (as the case may be) (and any Phase-Out Period), Company will cause its Affiliates and its and their Representatives to, return or destroy all copies of Ministerio de Hacienda's and its Entities' respective Confidential Information possessed by or within the control of Company or its Affiliates or their Representatives in connection with this MSA or the Service Addendum (as the case may be). Notwithstanding the foregoing, Company may retain Ministerio de Hacienda's Confidential Information if it is required to be retained (1) to comply with Applicable Law, or (11) to comply with its obligations under this MSA or a Service Addendum due to an obligation that survives the expiration or termination of this MSA and the Service Addendum. All such retained Confidential Information will (a) only be retained for so long as required and (b) still be subject to the use, disclosure, data security, and other restrictions and obligations in this MSA and the Service Addendums (as applicable).
6.11 Survival. The following Sections and Exhibits will survive any expiration or termination of this MSA or a Service Addendum: Section 1 (MSA) Section 2.6 (Service Providers), Section 2.7 (User Communications) Section 3.6 (Non-Exclusivity. No Commitments), Section 4.2 (Management of Data and Data Security), including Exhibit B (Data Security Program), Section 5.4 (Books and Records; Audit), Section 6.7 (Not Exclusive Remedy), Section 6.8 (Phase-Out Period), Section 6.9 (Migration of Data), Section 6.10 (Return/Destruction of Information and Data), Section 6.11 (Survival), Section 6.12 (Effect of Termination), Section 8 (Disclaimers; Limitation of Liability), Section 9 (Indemnification and Performance Bond), Section 10 (Confidentiality), Section 11 (General), Exhibit A (Definitions), in addition to any Sections and Exhibits that are otherwise designated as surviving.
6.12 Effect of Termination. Termination or expiration of a Service Addendum will not affect a Party's respective rights, obligations, and remedies under the Service Addendum with respect to transactions submitted by a User or Ministerio de Hacienda before the date of termination or expiration (including any chargebacks or reversals related thereto), or with respect to a Party's right to collect for fees of any transaction.
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7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
7.1 Mutual. Each Party to this MSA and a Service Addendum represents andwarrants that: (i) it has and will retain, the full right, power, and authority to enter into this MSA or the Service Addendum; (H) it has been duly authorized to do so by all required governmental, corporate or similar action; (iii) when executed and delivered by such Party, this MSA or the Service Addendum will be legally binding upon and enforceable against such Party, and this MSA or the Service Addendum will not conflict with any agreement, instrument, or understanding, oral or written, to which such Party is a party or by which it may be bound; and (iv) as of the date such Party executed this MSA or the Service Addendum, there are no proceedings pending or, to its knowledge, threatened or reasonably anticipated that would challenge or that may have a material adverse effect on its performance under this MSA or the Service Addendum.
7.2 Company. Company represents, warrants, and covenants that:
7.2.1 Company Organization. Company is duly organized, validly existing, and in good standing as a corporation or other entity as represented in this MSA or the Service Addendum under the laws and regulations of its jurisdiction of incorporation, organization, or chartering.
7.2.2 Company Property.
7.2.2.1 The Company Technology, Company Data, and theServices, and the use of them as contemplated under each applicable Service Addendum, do not and will not infringe, violate, or misappropriate the Intellectual Property Rights of any Entity anywhere in the world.
7.2.2.2 The Company Technology is and will be sufficient to enablethe Services, including to operate them for the Bitcoin Digital Platform and enable the use of the Services by Users or Ministerio de Hacienda, as contemplated under each applicable Service Addendum.
7.2.3 Open Source Software. No portion of the Company Technology is or will be subject to any open source or other license that when used with the Bitcoin Digital Platform or Ministerio de Hacienda's Technology as contemplated by each applicable Service Addendum, will require any software associated with the Bitcoin Digital Platform or Ministerio de Hacienda's Technology to be disclosed or distributed in source code form, licensed for the making of derivative works, or freely redistributable.
7.2.4 No Harmful Material or Disruption. The Company Technology and the Services do not and will not contain or cause any viruses, worms, time bombs, Trojan horses or other harmful, malicious or destructive code to be installed on or introduced into the software for the Bitcoin Digital Platform or Ministerio de Hacienda's Technology. Company and its Service Providers will not engage in any act or fail to take any act that could or does result in the disablement, interference, or impairment, in whole or in part, any part of the Bitcoin Digital Platform or Ministerio de Hacienda's Technology.
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7.2.5 Applicable Rights and Licenses. Company has, and each of the Service Providers has, obtained and possesses, and will maintain at all times, all authorizations, permissions, consents, rights, licenses, agreements, permits, approvals, registrations, orders, declarations, filings, and the like, that are required under Applicable Law or by a Governmental Authority, and/or that are necessary (i) to provide the Services and perform its obligations, and (ii) for the Services to be made available and used as contemplated under each applicable Service Addendum.
7.2.6 Compliance with Applicable Law. Company's and each Service Providers' performance of its obligations under this MSA and any Service Addendum, and the Services, are and will at all times be in compliance with Applicable Law. Company will promptly notify Ministerio de Hacienda of any actual or expected changes in Applicable Law that would reasonably be expected to affect the Services or the use of the Services as contemplated.
7.2.7 Protection of Reputation. Company and each Service Provider will take no action that is intended to, or would reasonably be expected to, harm Ministerio de Hacienda or its reputation or which reasonably would be expected to lead to unwanted or unfavorable publicity to Ministerio de Hacienda.
7.2.8 Access to Bitcoin and Private Keys. If the Services include private key management, custodial services or relate in any manner to access control restrictions of the Bitcoin Chivo Wallet or to a User's bitcoin, then Company and each Service Provider will provide, at all times, Ministerio de Hacienda with access to the bitcoin in the Bitcoin Chivo Wallet.
7.3 Anti-Corruption. Company, on behalf of itself, its Affiliates, its ServiceProviders, and each of their Representatives, represents, warrants and covenants that they have not engaged in and covenants that they will refrain from offering, promising, paying, giving, authorizing the paying or giving of, soliciting, or accepting money or Anything of Value„ directly or indirectly, to or from (i) any Government Official to (a) influence any act or decision of a Government Official in his or her official capacity, (b) induce a Government Official to use his or her influence with a government or instrumentality thereof, or (c) otherwise secure any improper advantage; or (ii) any Entity in any manner that would constitute bribery or an illegal kickback, or would otherwise violate applicable anti-corruption laws. Company will immediately report to Ministerio de Hacienda any breach of this Section 7.3. As used in this Section 7.3, "Anything of Value" includes cash or a cash equivalent (including "grease," "expediting" or facilitation payments), discounts, rebates, gifts, meals, entertainment, hospitality, use of materials, facilities or equipment, transportation, lodging, or promise of future employment. As used in this Section 7.3 "Government Official" refers to any official or employee of any multinational, national, regional, or local government in any country, including any official or employee of any government department, agency, commission, or division; any official or employee of any government-owned or government-controlled enterprise; any official or employee of any public educational, scientific, or research institution; any political party or official or employee of a political party; any candidate for public office; any official or employee of a public international organization; and any Entity acting on behalf of or any relatives, family, or household members of any of those listed above.
7.4 Anti-Money Laundering. Company, on behalf of itself, its Affiliates, its Service Providers, and each of their Representatives, represents, warrants and covenants that they will comply with all applicable laws and regulations aimed at preventing, detecting, and reporting money laundering and suspicious transactions and will take all necessary and appropriate steps, consistent with Applicable Law and generally accepted industry standards set forth by the Financial Action Task Force ("FATE"), to (i) obtain, verify, and retain information with regard to User identification and source of funds, (ii) maintain records of all User transactions, (iii) file reports with applicable Governmental Authorities, and (iv) block account access and terminate transactions that are, or are reasonably suspected to be, in contravention of Applicable Law and generally accepted industry standards set forth by the FATE. Company will immediately report to Ministerio de Hacienda any breach of this Section 7.4.
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8. DISCLAIMERS; LIMITATION OF LIABILITY.
8.1 Warranty Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS MSA OR ANY SERVICE ADDENDUM, NEITHER PARTY TO THIS MSA OR A SERVICE ADDENDUM MAKES ANY REPRESENTATIONS OR WARRANTIES, AND ALL OF THE PARTIES HEREBY EXPRESSLY DISCLAIM, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND IMPLIED WARRANTIES OF NON-INFRINGEMENT AND THOSE ARISING FROM THE COURSE OF DEALING OR PERFORMANCE, USAGE OR TRADE PRACTICES.
8.2 Damages Disclaimer. EXCEPT WITH RESPECT TO (I) A BREACH OF SECTION 2.8 (CONTINUED PERFORMANCE), (II) ANY OBLIGATIONS UNDER SECTION 9 (INDEMNIFICATION AND PERFORMANCE BOND), (III) A BREACH OF ANY OBLIGATIONS OR RESTRICTIONS REGARDING DATA USE OR SECURITY OR REGARDING CONFIDENTIAL INFORMATION, INCLUDING SECTION 4 (DATA; DATA SECURITY) AND SECTION 10 (CONFIDENTIALITY), (IV) A BREACH OF SECTION 7.2.8 (ACCESS TO BITCOIN AND PRIVATE KEYS), (V) A PARTY'S GROSS NEGLIGENCE, WILLFUL MISCONDUCT, FRAUD, OR FRAUDULENT MISREPRESENTATION, OR (VI) DEATH OR BODILY INJURY CAUSED BY A PARTY, TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY TO THIS MSA OR A SERVICE ADDENDUM WILL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, OR LOST PROFITS (DIRECT OR INDIRECT), OF ANY KIND IN CONNECTION WITH THE TERMS OR THE BREACH OF THE TERMS OR SUBJECT MATTER OF THIS MSA OR A SERVICE ADDENDUM, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
8.3 Limitation of Liability. THE ENTIRE LIABILITY OF ANY PARTY AND ITS ENTITIES IN CONNECTION WITH OR ARISING OUT OF THIS MSA AND ALL OF THE SERVICE ADDENDUMS, WILL NOT EXCEED, CUMULATIVELY AND IN THE AGGREGATE, THE FEES PAYABLE BY MINISTERIO DE HACIENDA TO COMPANY FOR THE SERVICES DURING THE TERM OF THIS AGREEMENT AND THE SERVICE ADDENDUMS.
8.4 Essential Element. The Parties agree that the limitations specified in this Section 8 will survive and apply even if any limited remedy specified in this MSA or any Service Addendum is found to have failed of its essential purpose.
9. INDEMNIFICATION AND PERFORMANCE BOND.
9.1 Performance Bond. If required in a Service Addendum, Company shall deliver to Ministerio de Hacienda a performance bond in the amount specified in such Service Addendum, in the form provided by Ministerio de Hacienda, which secures the faithful performance of the Services specified in such Service Addendum (the "Performance Bond"). The Performance Bond shall contain the original notarized signature of an authorized officer of the Company and affixed thereto shall be a certified and current copy of the officer's power of attorney. The Performance Bond shall be unconditional and remain in force during the entire term of such Service Addendum and shall be null and void only if the Company promptly and faithfully performs all terms and conditions of such Service Addendum.
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9.2 Company Indemnification. Company agrees to indemnify, defend, and hold harmless Ministerio de Hacienda and its Entities, and their respective employees, officers, directors, and other representatives (collectively, the "Ministerio de Hacienda Indemnified Parties") from and against any and all losses, costs, expenses (including reasonable legal fees and expenses such as for attorneys, experts, and consultants, and reasonable out-of-pocket costs, and interest), penalties, fines, judgments, settlements, damages (of all types including special damages), or liabilities (collectively, "Losses"), suffered or incurred by any of them in connection with any claim, cause of action, or other legal assertion, brought or threatened to be brought by a third party, or any investigation, examination, or proceeding of a Governmental Authority, or any request by a third party for reimbursement or compensation (each a "Claim"), where such Claim arises out of or alleges any of the following: (i) any acts or omissions of Company or a Service Provider that constitute a breach of Section 7 (Representations and Warranties) or any other representations or warranties made under this MSA or any Service Addendum; (ii) Company or a Service Provider's failure to pay any withholding Taxes, social security, unemployment or disability insurance or similar items in connection with compensation received by Company pursuant to this MSA or a Service Addendum; (iii) Company's or a Service Provider's fraud, fraudulent misrepresentation, gross negligence, or willful misconduct; (iv) any acts or omissions of Company or its Service Providers that cause any loss, theft, impairment, unauthorized use or access of, damage to, or other loss of any bitcoin in the a Bitcoin Chivo Wallet; or (v) a Data Breach (collectively (i) - (v), "Ministerio de Hacienda Claims", in addition to any other claims defined as "M inisterio de Hacienda Claims" in a Service Addendum). Ministerio de Hacienda will give prompt notice of any Ministerio de Hacienda Claims to Company. A Ministerio de Hacienda Indemnified Party may participate in the defense of any Ministerio de Hacienda Claims with counsel of its own choosing, at its own cost and expense. Company will not settle any Ministerio de Hacienda Claims without Ministerio de Hacienda's prior written consent, which will not be unreasonably withheld. The remedies in this Section 9 are not exclusive and do not limit the remedies provided elsewhere in this MSA, a Service Addendum or under Applicable Law.
10. CONFIDENTIALITY.
10.1 Definition and Exclusions.
10.1.1 Definition of CI. A Party (each a "Disclosing Party") may disclose information, directly or indirectly, to the other Party (each a "Receiving Party"), and such information will be deemed to be "Confidential Information" if when it is disclosed, regardless of the form or medium (whether in writing, verbally, electronically, or otherwise), (i) it is designated as confidential by the Disclosing Party, or (ii) it should reasonably be understood by the Receiving Party, given the nature of the information or the circumstances surrounding its disclosure, to be confidential. Confidential Information includes information such as product designs, product plans, software, Technology, financial information, marketing plans, business opportunities, pricing information, information regarding customers or users, inventions, and know-how. The terms of this MSA and all Service Addendums will be treated as Confidential Information. Notwithstanding the foregoing, all Ministerio de Hacienda Technology, Ministerio de Hacienda Data and information comprising or concerning the Bitcoin Digital Platform or Ministerio de Hacienda's or its Entities' use of the Services, including Usage Information, will be deemed to be Ministerio de Hacienda's Confidential Information. Notwithstanding anything to the contrary, Personal Data will not be deemed to be Confidential Information under this MSA or the Service Addendums and the use, disclosure, and retention thereof will be governed by other provisions under this MSA and the Service Addendums.
10.1.2 Exclusion for Government Business. In the case of Ministerio de Hacienda as the Receiving Party, the obligations under this MSA and any Service Addendum with respect to Confidential Information, including the restrictions on use and disclosure in Section 10.2 , do not apply to information that is desirable to use or disclose to third parties in conjunction with the performance of official government business.
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10.2 Use and Disclosure of Cl. A Receiving Party will only use the Confidential information of a Disclosing Party as required to perform its obligations and exercise its rights under this MSA or a Service Addendum, provided that, subject to the requirements of Section 10.3, a Receiving Party may disclose the existence of this MSA or the Service Addendum and their respective key terms pursuant to a securities filing to a Governmental Authority. A Receiving Party will hold the Confidential Information it receives in strict confidence and take appropriate precautions to protect such Confidential Information (such precautions to include, at a minimum, all precautions such Receiving Party employs with respect to its own Confidential Information). A Receiving Party will not disclose the other Party's Confidential Information to anyone other than to its Affiliates and its and their Representatives, subject to the following conditions: any individual who receives Confidential Information in accordance with the foregoing must (1) have a "need to know" such Confidential Information for the purposes of the Receiving Party exercising its rights or performing its obligations under this MSA or a Service Addendum, and (2) be subject to confidentiality obligations that offer at least the same degree of protection as the confidentiality obligations set out in this MSA or the Service Addendum (as the case may be). A Receiving Party making such disclosures will be liable for each such individual's retention, use, and disclosure of the Disclosing Party's Confidential Information. Company will treat all Confidential Information disclosed by Ministerio de Hacienda, its Entities, and their respective Representatives who are disclosing Confidential Information on their behalf in connection with the Services, as Ministerio de Hacienda's Confidential Information. Notwithstanding anything to the contrary in this MSA or any Service Addendum, Company may request from Ministerio de Hacienda consent to use or disclose Confidential Information of Ministerio de Hacienda or its Entities to a third party and Ministerio de Hacienda may, in its sole discretion, consent or not to such request.
10.3 Disclosures to Governmental Authorities. If a Governmental Authority requires a Receiving Party to disclose the Confidential Information of a Disclosing Party, the Receiving Party will (I) immediately notify the Disclosing Party after learning of the existence or likely existence of such requirement (unless prohibited by Applicable Law); (ii) limit the scope of such disclosure to only the Confidential Information necessary to comply with the requirement; (iii) make best efforts to obtain confidential treatment of or protection by order of any Confidential Information; and (iv) permit, subject to Applicable Law, the Disclosing Party to seek a protective order or to otherwise challenge or limit the disclosure of the Confidential Information prior to the disclosure thereof.
10.4 Feedback. A Party or any one of its Affiliates may, but is not required to, provide the other Party or its Affiliates, suggestions, comments, ideas, or know-how, in any form, that are related to the other Party's or its Affiliates' respective products, services, or Technology ("Feedback"). Any such Feedback will be considered Confidential Information. Neither Party nor any of their respective Affiliates will have any obligation to provide compensation for any use of Residuals or Feedback. Nothing in this Section 10.4, will be deemed to license any patents or transfer any Intellectual Property Rights from a Party or its Affiliates to the other Party or its Affiliates. Notwithstanding anything to the contrary, this Section 10.4 does not govern the use and disclosure of Personal Data.
10.5 Residuals. Notwithstanding anything to the contrary in this Agreement regarding Confidential Information, neither Party nor its Affiliates (including its employees, subcontractors, consultants, Service Providers, and agents) shall be prohibited or enjoined from utilizing general knowledge, skills and experience, concepts, know-how and techniques retained in the unaided memory of an individual and acquired as a result of such individual's authorized access to the other Party's Confidential Information during the course of the performance or receipt of the Services ("Residuals") provided that none of such Residuals include any trade secrets of the other Party.
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n. GENERAL.
11.1 Governing Law Jurisdiction: Venue. This MSA and the Service Addendums will be construed in accordance with and governed by the Laws of the Ministerio de Hacienda of El Salvador, without giving effect to any conflicts of laws principles that require the application of the laws of a different jurisdiction. The Convention on Contracts for the International Sale of Goods will not apply to this MSA and the Service Addendums. The Parties and their respective Affiliates, as applicable, will make a good-faith effort to settle between themselves any claim, dispute, or controversy (each, a "Dispute") arising out of or in connection with this MSA and/or any Service Addendum. If any Dispute cannot be settled within thirty (30) days after notice of such Dispute is provided by one Party to the other Party, such Dispute may be resolved through proceedings initiated by either Party. The exclusive jurisdiction and venue for Disputes and any other actions related to the subject matter of this MSA and the Service Addendums will exclusively be the courts of the city of San Salvador, and each Party and its respective Affiliates hereby submit to the personal jurisdiction of such courts.
11.2 Assignment. This MSA and the Service Addendums will each bind and inure to the benefit of each of its respective Parties and their permitted successors and assigns. Company and its Affiliates will not, in whole or in part, assign this MSA or the Service Addendum (as the case may be), without the prior written consent of Ministerio de Hacienda, which shall not be unreasonably withheld or delayed. For the purposes of this Section 11.2 a change of control of Company will be deemed to be an assignment, and if Company undergoes a change of control without the consent of Ministerio de Hacienda, such change of control will be deemed to be a material breach of this Section 11.2. Ministerio de Hacienda may assign this MSA or a Service Addendum (including assigning its rights and licenses and delegating its obligations) to any of its Entities. Except as expressly authorized under this Section 11.2, any attempt to transfer or assign this MSA or any Service Addendum will be null and void.
11.3 Notices. Except as otherwise expressly set forth in this MSA or a Service Addendum, any notice required under this MSA or a Service Addendum will be in writing delivered to the applicable address below and will be deemed given: (1) upon receipt when delivered personalty; (II) two (2) days (other than weekends or public holidays) after it is sent if sent by certified or registered mail (return receipt requested); or (iii) one (1) day (other than weekends or public holidays) after it is sent if by next day delivery by a major commercial delivery service. Any notice provided to Athena Bitcoin Global shall be deemed effectively provided to Company inclusive of all Parties included in the definition of "Company."
Ministerio de Hacienda:
[•1 Attn: (.1 With a copy to: Pratin Vallabhaneni White 8- Case LLP 701 Thirteenth Street, NW Washington, DC 20005-3807 |
Company:
Athena Bitcoin Global Attn: Chief Executive Officer 1332 N Halsted St Chicago, IL 60642 USA [®1 |
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11.4 Amendments. No supplement, modification, or amendment of this MSA or any Service Addendum will be binding unless executed in writing by a duly authorized signatory of each Party. A valid amendment of this MSA wilt be deemed to automatically amend and will be binding upon each Ministerio de Hacienda Entity and Company Entity that is a signatory to a Service Addendum.
11.5 Waivers. No waiver will be implied from conduct or failure to enforce or exercise rights under this MSA or any Service Addendum, nor will any waiver be effective, unless in writing signed by a duly authorized signatory on behalf of the Party claimed to have waived such rights.
11.6 No Publicity by Company. Company and its Affiliates will not engage in anypromotions, publicity, marketing, or make any other public statement relating to the Services as used in connection with the Bitcoin Digital Platform or its relationship with Ministerio de Hacienda or Users (including regarding the existence and terms of this MSA or a Service Addendum), unless Company has obtained Ministerio de Hacienda's prior written consent, which shall not be unreasonably withheld. For the purposes of this Section 11.6, public statements include press releases, written or oral statements made to the media, blogs, trade organizations, publications, websites, or any other public audience. Notwithstanding anything to the contrary in this MSA, any Service Addendum or otherwise, Ministerio de Hacienda and its Entities may publicly disclose information about the Services, including with reference to Company.
11.7 Insurance. During the MSA Term, Company shall, at its own expense, maintain and carry insurance in full force and effect with financially sound and reputable insurers, that includes, but is not limited to, commercial general liability with limits no less than an amount deemed reasonably satisfactory by Ministerio de Hacienda which policy will include contractual liability coverage insuring the activities of Company under this MSA. Upon Ministerio de Hacienda's request, Company shall provide Ministerio de Hacienda with a certificate of insurance from Company's insurer evidencing the insurance coverage specified in this MSA. The certificate of insurance shall name Ministerio de Hacienda as an additional insured. Company shall provide Ministerio de Hacienda with sixty (60) days' advance written notice in the event of a cancellation or material change in Company's insurance policy.
11.8 Entire Agreement. This MSA (including all exhibits) is the complete and exclusive statement of the mutual understanding of the Parties, and supersedes and cancels all previous written and oral agreements and communications, relating to the subject matter of this MSA. Each Service Addendum (including any exhibits), is the complete and exclusive statement of the mutual understanding of the Parties with respect to the Services provided thereunder, and supersedes and cancels all previous written and oral agreements and communications, relating to the subject matter of the Service Addendum.
11.9 Independent Contractors. The Parties are independent contractors. There is no relationship of partnership, joint venture, employment, franchise or agency created between the Parties. Company will be solely responsible and liable for any compensation due any of its employees, agents, or contractors and employment-related Taxes, insurance premiums or other employment benefits required to be provided to its employees, agents, or subcontractors under Applicable Law. Company and its employees, agents or subcontractors will not be eligible for any benefits from Ministerio de Hacienda (including vacation or illness payments, stock awards, bonus plans, health insurance or retirement benefits) normally provided by Ministerio de Hacienda to its employees.
11.10 Remedies. Unless expressly set forth otherwise in this MSA or a Service Addendum, any and all remedies expressly conferred upon a Party are cumulative with and not exclusive of any other remedy conferred by this MSA or the Service Addendum or by law on that Party, and the exercise of any one remedy does not preclude the exercise of any other available remedy.
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11.11 Counterparts. This MSA and each Service Addendum may be executed in one or more counterparts, each of which will be considered an original, but all of which together will constitute one agreement.
11.12 Severability. Any provision of this MSA or a Service Addendum that is invalid, prohibited, or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction.
11.13 Third-Party Rights. Except as expressly set forth in this MSA or a Service Addendum, an Entity that is not a party to this MSA will not have any rights as a third-party beneficiary to enforce any term of this MSA.
11.14 Construction. Captions are for convenience only and do not constitute a limitation of the terms hereof. The singular includes the plural, and the plural includes the singular. References to "herein," "hereunder," "hereinabove," or like words will refer to this MSA or a Service Addendum as a whole and not to any particular section, subsection, or clause contained in this MSA or the Service Addendum. The terms "include" and "including" are not limiting. Reference to any agreement or document includes any permitted modifications, supplements, amendments and replacements thereto. References to "day" refer to a calendar day, unless otherwise expressly stated.
[SIGNATURE PAGE FOLLOWS]
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By signing below, each Party acknowledges that it has read, and agrees to, all the terms of this MSA.
| [COMPANY] | [MINISTERIO DE HACIENDA] |
| Athena Bitcoin | Signature: /s/ José Alejandro Zelaya Villalobo |
| Signature: /s/ Eric Gravengaard | Name: José Alejandro Zelaya Villalobo |
| Name: Eric Gravengaard | Title: Ministro de Hacienda LA CONTRATANTE |
| Title: CEO |
Athena Bitcoin Inc. of Delaware
Signature: /s/ Eric Gravengaard
Name: Eric Gravengaard
Title: CEO
Athena Bitcoin Holdings of El Salvador
Signature: /s/ Carlos Miguel Rivas Carrillo
Name: Carlos Miguel Rivas Carrillo
Title: Legal Representative
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PRIVILEGED & CONFIDENTIAL
ATTORNEY WORK PRODUCT
EXHIBIT A
DEFINITIONS
"Affiliate" means, with respect to a specified Entity, any other Entity that directly or indirectly controls, is controlled by, or is under common control with such specified Entity. For the purposes of this definition, "control" means the possession, directly or indirectly, of the power to independently direct or cause the direction of the management and policies of an Entity, whether through ownership of more than fifty percent (50%) of the stock or other equity interests entitled to vote for representation on its board of directors, or body performing similar functions, by contract or otherwise.
"Applicable Law" means, with respect to a specified Entity, each of the following, whether existing now or in the future, including any updates thereto, that are applicable to such Entity: (i) the rules, requirements, or operational and technical standards of any relevant self-regulatory organization having jurisdiction or oversight over the Services, including the PCI DSS; and (ii) all laws, treaties, rules, regulations, regulatory guidance, directives, policies, orders, or determinations of, or mandatory written direction from or agreements with, any Governmental Authority, including trade control laws, export laws, sanctions regulations, statutes, or regulations, relating to stored value, money transmission, unclaimed property, payment processing, telecommunications, unfair or deceptive trade practices or acts, anticorruption, trade compliance, anti-money laundering, terrorist financing, "know your customer," privacy, or data security.
"Bitcoin Chivo Wallet" means that certain bitcoin wallet, including the application that Ministerio de Hacienda will make available for Android, 105, and other operating systems, offered, now or in the future, to Users.
"Bitcoin Digital Platform" means the digital platform based on blockchain technology, including all features, services and products that Ministerio de Hacienda or its Entities make available to the citizens of El Salvador through hardware, software, APIs, websites or other interfaces of any type, whether presently existing or later developed, that are developed or marketed, in whole or in part, by or for any of them, or that relate to the Bitcoin Chivo Wallet.
"Chivo Website" has the meaning set forth in Section 2.3 of (Development of Chivo Website) of Athena Service Addendum 1.
"Company" has the meaning set forth in Section 1.2 (Application of MSA to Service Addendums) of this MSA.
"Company Data" has, with respect to a Service Addendum, the meaning set forth in the Service Addendum.
"Company Entities" means Company or its Affiliates that have signed a Service Addendum.
"Company Technology" means Technology that Company provides, makes available, or uses in connection with the Services.
"Confidential Information" has the meaning set forth in Section 10 (Confidentiality) of this MSA.
"Data" means Company Data, Ministerio de Hacienda Data, Personal Data and, with respect to a Service Addendum, any other data expressly included as "Data" in the Service Addendum.
"Data Breach" means (1) any unauthorized access to or use of Ministerio de Hacienda Data or Personal Data resulting from Company's or a Service Provider's breach of the data security obligations set forth in this MSA or a Service Addendum (as the case may be), including those in Section 4 (Data; Data Security) of this MSA, or (ii) Company's or a Service Provider's misuse of or unauthorized access to Ministerio de Hacienda Data or Personal Data (e.g., as a result of a breach of any data use obligations or restrictions).
"Data Security Program" means Exhibit B (Data Security Program) of this MSA.
"Disclosing Party" has the meaning set forth in Section 10.1 (Definition and Exclusions) of this MSA.
"Entity" means an individual, corporation, firm, limited liability company, partnership, joint venture, trust, unincorporated organization, estate, association, Governmental Authority, or other entity or organization, whether or not a legal entity.
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"Feedback" has the meaning set forth in Section 10.4 (Feedback) of this MSA. "Foreground IP" means the Bitcoin Chivo Wallet and the Chivo Website.
"Governmental Authority" means any duly authorized federal, national, supranational, intergovernmental, state, provincial, local, or other government, governmental, regulatory, or administrative authority, self-regulatory authority, governmental agency, bureau, office or commission, or any court, tribunal, or judicial or arbitral body, of competent jurisdiction.
"Intellectual Property Rights" means any and all right, title, and interest in and to any and all trade secrets, patents, copyrights, service marks, trademarks, know-how, inventions, techniques, processes, devices, discoveries or improvements, trade names, rights in trade dress and packaging, moral rights, and similar rights of any type, including any applications, continuations or other registrations with respect to any of the foregoing, under the laws or regulations of any foreign or domestic governmental, regulatory, or judicial authority.
"Losses" has the meaning set forth in Section 9.2 (Company Indemnification) of this MSA. "MSA Term" has the meaning set forth in Section 6.1 (Term) of this MSA.
"Party" or "Parties" have the meaning set forth in Section 1.2 (Application of MSA to Service Addendums) of this MSA.
"Personal Data" means any information .from, about, or that can be associated with any household, individual consumer, or any other legal person (human or non-human), including any Users, employees, and contingent workers, or that otherwise is regarded as personal data or personal information under Applicable Law, including any financial data, transaction data or other data or information related to the Bitcoin Digital Platform collected by or on behalf of Company from Users of any Services.
"Phase-Out Period" has the meaning set forth in Section 6.8 (Phase-Out Period) of this MSA.
"Receiving Party" has the meaning set forth in Section 10.1 (Definition and Exclusions) of this MSA.
"Representative" means, with respect to a specified Entity, any of its directors, officers, employees, agents, consultants, contractors, subcontractors, service providers, advisors, accountants, attorneys, or other representatives. For clarity, Company's Representatives includes its Service Providers.
"Ministerio de Hacienda" has the meaning set forth in Section 1.2 (Application of MSA to Service Addendums) of this MSA.
"Ministerio de Hacienda Claims" has the meaning set forth in Section 9.2 (Company Indemnification) of this MSA.
"Ministerio de Hacienda Data" means (i) all data collected by, stored in, used by, or circulated in or through the Bitcoin Digital Platform, (ii) all data relating to Ministerio de Hacienda's and Users' use of the Services, and (iii) any other data as specified as Ministerio de Hacienda in a Service Addendum.
"Ministerio de Hacienda Entity" means Ministerio de Hacienda or its Affiliates that have signed a Service Addendum.
"Ministerio de Hacienda Indemnified Parties" has the meaning set forth in Section 9.2 (Company Indemnification) of this MSA.
"Ministerio de Hacienda Technology" means Technology that Ministerio de Hacienda provides to Company in connection with the Services. For clarity, Ministerio de Hacienda Technology does not include Ministerio de Hacienda Data.
"Residuals" has the meaning set forth in Section 10.4 (Residuals) of this MSA
"Service Addendum" has the meaning set forth in Section 1.1 (Service Addendums) of this MSA.
"Service Addendum Term" has the meaning set forth in Section 6.1 (Term) of this MSA. "Service Fees" has the meaning set forth in Section 5.1 (Service Fees) of this MSA.
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"Service Provider" means, any Entity, other than a Company employee, who performs any of Company's obligations under a Service Addendum or who provides, directly or indirectly, any product or service to, on behalf of, or for the benefit of Company (including all other third parties downstream of any such Entity who are performing obligations or providing products or services in connection with the Service Addendum).
"Services" has the meaning set forth in Section 1.1 (Service Addendums) of this MSA.
"Taxes" has the meaning set forth in Section 5.3 (Taxes) of this MSA.
"Technology" means application programming interfaces, software development kits, software (including object and source code), applications, technical integrations, payment processing platforms, blockchain technology and any derivative technology thereof or technology necessary to use or access blockchain technology, equipment, information technology infrastructure, systems, other technology, and any updates or modifications to, and documentation (e.g., instructional materials) related to, any of the foregoing.
"Usage Information" means any data that is based on, generated or created from, or information about, the use of the Services by Ministerio de Hacienda or its Affiliates or Users (e.g., the number of transactions or the amounts of transactions).
"Users" means any user who has taken an action to use (e.g., initiated the signup process), or who is using, any Services made available pursuant to a Service Addendum for the Bitcoin Digital Platform.
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EXHIBIT B
DATA SECURITY PROGRAM
Company will maintain a comprehensive written information security program that includes technical, physical, and administrative/organizational safeguards designed to (i) ensure the security and confidentiality of Ministerio de Hacienda Data and Personal Data, (H) protect against any anticipated threats or hazards to the security and integrity of Ministerio de Hacienda Data and of Personal Data, (Hi) protect against any actual or suspected unauthorized processing, loss, or acquisition of any Ministerio de Hacienda Data and any Personal Data, and (iv) ensure the proper disposal of Ministerio de Hacienda Data and Personal Data. Company will ensure that such program satisfies all of the requirements set forth in this Exhibit B and that Company complies with all such requirements, as well as any other written information security policies, procedures, and guidelines that are applicable to the Services. As used in this Exhibit B, the terms "systems", "information systems", and the like, include all information technology systems and all other Technology. Capitalized terms used but not defined in this Exhibit B will have the meanings set forth in the MSA.
1. Network Segmentation. Company's systems that host Ministerio de Hacienda Data or Personal Data will be segmented from the Internet by actively managed network access controls that will restrict traffic to the minimum required for proper operation of those systems. Company's systems will also segment the Ministerio de Hacienda Data and Personal Data from other data, either via separate systems or logical segmentation.
2. Data Storage. Company will store all Ministerio de Hacienda Data and Personal Data in a manner that enables Company to comply with its obligations under each Service Addendum, including its obligations that require it to be able to identify Ministerio de Hacienda Data or Personal Data such as those regarding Data Breach Incident notifications and data destruction.
3. Personnel Screening. Company must limit access to Ministerio de Hacienda Data and Personal Data by Company's employees and Service Providers based on their respective job function and on a need-to-know basis. Company will cause all of Company's employees with access to Ministerio de Hacienda Data and Personal Data to undergo, at a minimum, background screening for criminal history and, in the case of financial related support services, financial risk, unless otherwise restricted by Applicable Law. A Company employee's or a Service Provider's access to Ministerio de Hacienda's or its Affiliates' respective systems must be revoked at the time that such employee or Service Provider no longer needs access to such systems to facilitate Company's provision of the Services.
4. User Authentication. Company will use multiple factor authentication protocols/methods to access Ministerio de Hacienda Data or Personal Data. All passwords used by Company in connection with Ministerio de Hacienda Data and Personal Data must meet or exceed Ministerio de Hacienda's length, complexity, and age requirements. Company will not use, and will prohibit the use of, shared credentials, with respect to accessing Ministerio de Hacienda's or its Affiliates' respective systems, or Ministerio de Hacienda Data or Personal Data residing on other systems.
5. Logging and Monitoring. Company must ensure that it has a process to monitor its systems and networks. This must include monitoring of the environment for external threat actors and internal abuse by Representatives. The process must include steps to follow-up on suspicious activity and investigate potential security b1-eaches. With respect to each Service Addendum, during the Service Addendum Term and for ninety (90) days thereafter, Company must ensure that relevant log data is available for analysis by Ministerio de Hacienda should the need for such information arise as part of Ministerio de Hacienda's own incident response process
6. Vulnerability Management and Application Security. Company will (i) operate systems to discove1- vulnerabilities on systems that protect Ministerio de Hacienda Data and Personal Data or connectivity and will remediate these vulnerabilities within a reasonable timeframe not to exceed ninety (90) days from discovery, and (ii) conduct regular security assessments of any code that Company owns or controls, and will remediate any vulnerabilities found during these assessments within a reasonable timeframe not to exceed ninety (90) days from discovery.
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7. Encryption.
7.1 Encryption 111 Transit Company will ensure that all access to Ministerio de Hacienda Data and Personal Data is protected by Transport Layer Security, I PSec, or equivalent protocols. Company will only use encryption algorithms and protocols that comply with industry best practices and that are approved in the then-current version of the National Institute of Standards and Technology Special Publication 800-52. An alternative algorithm or protocol may only be used upon Ministerio de Hacienda's prior written consent
7.2 Encryption at Rest. All Ministerio de Hacienda Data and Personal Data at rest in persistent storage (such as spinning disk, SSD, and flash drive or other removable media) must be encrypted. The granularity of encryption will be commensurate with the use case and risks of this data (for example, on a single-user system, whole-disk encryption will meet the requirement, but on a multi-tenant system with registered data, field-level encryption is required).
8. PCI Compliance. If Company stores, accesses, or processes any Payment Card information in connection with the Services, Company represents and warrants that it will, and each of the Service Providers will, (i) at all times comply with and will have a program to assure its continued compliance with the Payment Card Industry Data Security Standards ("PCI DSS") published by the PCI Security Standards Council, as the PCI DSS may be amended, supplemented, or replaced from time to time; (ii) report in writing to Ministerio de Hacienda, at least annually, proof of such compliance with the PCI DSS, as determined by a Qualified Security Assessor (OSA); and (iii) promptly report in writing to Ministerio de Hacienda upon becoming aware of Company's or a Service Provider's non-compliance or likely non-compliance with PCI DSS for any reason.
9. Cooperation with Ministerio de Hacienda Security Investigations. Company agrees to fully cooperate with Ministerio de Hacienda in security investigations, except to the extent prohibited by Applicable Law. Company will provide any and all logs surrounding the systems that are under investigation using the following requirements:
Logging of the systems and network should include details about the access and actions of the users, errors, events, etc. across all its information systems.
| · | These logs must be protected and not removed or modified by unauthorized Entities. |
| · | Ninety (90) days of relevant log data must be readily available - with historic data securely warehoused separately — for analysis by Ministerio de Hacienda should the need for such information arise. |
| · | All systems administrator logs and user logs should be registered, regardless of the privileges any system administrator or user has. |
| · | All systems should be configured with the same time and date; Network Time Protocol (NTP) for clock synchronization is required. |
Except when prohibited by Applicable Law, upon Company having knowledge that a Company employee or other Representative of Company has violated any of the data use or data security obligations or restrictions in a Service Addendum or has caused Company to violate any agreement between Company and Ministerio de Hacienda, Company will provide Ministerio de Hacienda information regarding such violation.
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10. Security Reports and Assessments.
10.1 Security Report.
Within one hundred eighty (180) days of the effective date of a Service Addendum; and within ten (10) days of each anniversary thereof (or as may otherwise be reasonably requested by Ministerio de Hacienda), Company will deliver to Ministerio de Hacienda a report prepared (no more than one (1) year prior to such date) by an audit firm and such report must describe Company's systems and security controls implemented and used at the locations involved in Company's provision of the Services governed by the Service Addendum (such report, the "Security Report"). The third-party auditor must be a widely-used and reputable auditor in the financial services industry in the applicable jurisdiction and with respect to the United States must be a national major auditing firm. The Security Report must be a SOC 2 Type II report that has been prepared in accordance with the American Institute of Certified Public Accountants' Trust Service Principles/Criteria (including security, availability, processing integrity, confidentiality, and privacy). Where a SOC 2 Type II report cannot be procured or where it is not a common report in the applicable jurisdiction, Company may provide a mutually agreed upon widely accepted equivalent (e.g., a SOC2 Type I report during an initial period). Company will use its best commercially reasonable efforts to cause each Service Provider to also provide Ministerio de Hacienda a Security Report in accordance with the foregoing requirements.
10.2 Security Assessment.
If Company or a Service Provider faits to comply with the Security Report obligations set forth above in Section 10.1 (Security Report), then, at any time, Ministerio de Hacienda will have a right to perform a security assessment (as set forth in this Section 10.2) on Company or such Service Provider. During any period of time in which Ministerio de Hacienda has the right to perform a security assessment on Company or a Service Provider, upon five (5) days' advanced written notice (except in emergency situations, where as much notice as reasonably practicable will be given), Company will permit, or will cause the Service Provider to permit, Ministerio de Hacienda or its designated Representative to review and access Company's or the Service Provider's (as applicable) books, records, third-party audit and examination reports, systems, facilities, controls, processes, procedures, and information regarding: (i) the use, processing, storage, treatment, and security of data, including Ministerio de Hacienda Data and Personal Data; (ii) the management of employees and Service Providers, including with respect to the foregoing obligations in Section 3 (Personnel Screening); and (iii) in the event of a Data Breach Incident (as defined in Section 12 (Data Breach) below), to locate the source and scope of the breach and provide Ministerio de Hacienda with any material information related to Ministerio de Hacienda, its Affiliates, Users, Ministerio de Hacienda Data, or Personal Data, with respect to such Data Breach incident (any such review and access, a "Security Assessment"). Any such Security Assessment will be conducted during normal business hours and in a manner designed to cause minimal disruption to Company's or the Service Provider's (as applicable) ordinary business activities. For purposes of this provision, an emergency situation will include any situation posing imminent risk of harm or damage (as determined by Ministerio de Hacienda) to Ministerio de Hacienda's or its Affiliates' respective systems or data, including the Bitcoin Digital Platform, Ministerio de Hacienda Data, or Personal Data, or any situation that could expose Ministerio de Hacienda or its Affiliates to legal, financial, or business liability, or cause Ministerio de Hacienda or its Affiliates to violate any Applicable Law.
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10.3 Correction of Non-Compliance.
If a Security Assessment or Security Report reveals any non-compliance by Company or a Service Provider of its obligations under or in connection with a Service Addendum, Company will promptly remedy, or cause the Service Provider to promptly remedy, such non-compliance at its sole expense, and Ministerio de Hacienda or its designated Representative may perform, upon Ministerio de Hacienda's notice to Company, at any time, subsequent Security Assessments to verify the sufficiency of such remedial efforts and ongoing compliance with such obligations. Company will be responsible for, and promptly reimburse Ministerio de Hacienda for, the cost of any Security Assessment that reveals noncompliance by Company or any Service Provider.
11. Incident Response. Company must ensure an incident response ("IR") program is in place following industry best practices. The process should include steps to follow-up on suspicious activity and investigate potential or actual security breaches in line with the following:
| · | Detection. An initial assessment and triage of any suspicious activity or other suspected incident must be conducted within twelve (12) hours of detection. An initial incident report — quantifying and categorizing the incident — must be drafted for information technology personnel or information security officers and shared with Ministerio de Hacienda no more than seventy-two (72) hours after detection for analysis. |
| · | Analysis (active IR required). A complete assessment and triage of the incident, including containment, eradication, evidence preservation, and initial recovery must be conducted. |
| · | Recovery (no active IR required). The final collection of evidence, analysis and forensic investigation, including remediation and full recovery, must be conducted. A full incident report must be shared with Ministerio de Hacienda within twenty-four (24) hours of the termination of this phase. |
| · | Post-incident (actions). Once the incident is adequately handled, the IR team must issue a 'post mortem' report detailing the cause and cost of the incident and the steps the organization should take to prevent future incidents. |
12. Data Breach. If Company becomes aware of any unauthorized access to or misuse of Ministerio de Hacienda Data or Personal Data or Company's or a Service Provider's Technology that stores or has access to Ministerio de Hacienda Data or Personal Data (a "Data Breach Incident"), Company will: (i) immediately notify Ministerio de Hacienda of such Data Breach Incident (which, in any case, may not occur more than seventy two (72) hours after becoming aware that such Data Breach Incident may have occurred), and (ii) will work with Ministerio de Hacienda's security staff to contain, mitigate, and resolve the Data Breach Incident in accordance with the IR protocols set forth in this Exhibit. Such notice will describe when and where the Data Breach Incident occurred, the effect on Ministerio de Hacienda, its Affiliates, the Users, Ministerio de Hacienda Data, and Personal Data, and Company's planned corrective action in response to the Data Breach Incident.
| 23 |
13. Destruction of Data. With respect to a Service Addendum, Company will destroy Ministerio de Hacienda Data and Personal Data within its possession or control upon the later of the time that (i) that such Ministerio de Hacienda Data or Personal Data (as applicable) is no longer required for Company to perform its obligations under the Service Addendum (including any obligations that survive expiration or termination of the Service Addendum), or (ii) Company no longer needs to retain such Ministerio de Hacienda Data or Personal Data (as applicable) to comply with Applicable Law. For clarity, in the case of (i) or (H), Company will only retain the minimum amount of Ministerio de Hacienda Data or Personal Data (as applicable) required for Company to perform its obligations or comply with Applicable Law (as applicable) and for only so long as required. Company will, (a) destroy such data, and any derivative works thereof, within a reasonable period not to exceed ninety (90) days from such time set forth in the foregoing (i) or (ii), (b) use industry best practices to ensure that the data cannot be recovered, and (c) certify in writing to Ministerio de Hacienda that it has met the foregoing obligations. Upon Ministerio de Hacienda's request, Company will destroy all Ministerio de Hacienda Data or Personal Data specified by Ministerio de Hacienda, including as required for Ministerio de Hacienda to comply with Applicable Law (e.g., Ministerio de Hacienda's requirement under Applicable Law to delete Personal Data in response to a User's request). Company will cause the Service Providers to comply with the foregoing data deletion requirements with respect to any Ministerio de Hacienda Data or Personal Data within their possession or control.
14. Service Providers. Company will use reasonable best efforts to cause all Service Providers to comply with (i) all data use, disclosure, and retention rights and restrictions, and data security obligations, that apply to Company under a Service Addendum, and (ii) comply with the obligations set forth in this Exhibit B as if each such Service Provider was Company hereunder, including with respect to, each such Service Provider's personnel, systems, and networks, and the Ministerio de Hacienda Data and Personal Data it possesses, controls, or can otherwise access in connection with a Service Addendum.
| 24 |
EXHIBIT C
FORM OF SERVICE ADDENDUM
This Service Addendum ("Service Addendum") is hereby entered into by [Company Entity], a [Company Type] organized and existing under the laws of [Company State and Country], ("Company Entity"), and [Ministerio de Hacienda Entity] ("[Ministerio de Hacienda Entity]"), and is effective as of [•] ("Service Addendum Effective Date"). The Service Addendum adopts and incorporates by reference the terms and conditions of the Master Services Agreement (the "MSA") entered into by [Company Name] and [Ministerio de Hacienda de El Salvador], effective as of [MSA Effective Date]. In this Service Addendum, Company Entity and Ministerio de Hacienda Entity are each referred to as a "Party" or collectively as the "Parties". Capitalized terms used but not defined in this Service Addendum will have the meanings set forth in the MSA.
1. Defined Terms. For purposes of this Service Addendum, the following terms will have the following meanings:
"Defined Term 1" means [definition]. "Defined Term 2" means [definition]. "Defined Term 3" means [definition].
2. Scope of Services.
[Insert Scope of Services for this Service Addendum]
3. Permitted Service Providers.
Pursuant to Section 2.6 of the MSA, Ministerio de Hacienda Entity hereby provides consent for the following Service Providers to perform Services for Company Entity in connection with this Service Addendum:
· [List of Service Providers]
4. Work Schedule and Deliverables. The relevant milestones, completion dates, and terms associated with this Service Addendum are as follows:
| Line Item |
Service | Completion Date |
| 1 | ||
| 2 | ||
| 3 |
The relevant deliverables associated with this Service Addendum are as follows:
| Line Item |
Description of Deliverable | Delivery Date | Delivery Location |
| 1 |
| 25 |
5. Fees. The Service Fees associated with the Services set forth in this Service
Addendum are as follows:
| Item | Fees Structure | Responsible Party |
| Total: |
6. Service Addendum Term. This Service Addendum will terminate on the last Completion Date for the Services identified above, unless terminated earlier in accordance with Section 6 of the MSA.
7. Reporting.
[Insert Reporting provision for this Service Addendum]
8. Relationship Management.
[The Ministerio de Hacienda RM Team for this Service Addendum consists of the following individuals: [•]]
9. Representatives.
[Ministerio de Hacienda designates the following Representatives for this Service Addendum: [•]]
10. Data Use, Disclosure and Retention.
[Insert provision regarding the use, disclosure and retention of Data by the Company/Company Entity]
11. Audit.
[Insert applicable Audit provisions for this Service Addendum]
12. Performance Bond.
[Insert details about any Performance Bond that is required for this Service Addendum.]
13. Other Service Addendum-Specific Terms and Conditions.
[Insert Specific Terms and Conditions for this Service Addendum]
[SIGNATURE PAGE FOLLOWS]
| 26 |
By signing below, each Party acknowledges that it has read, and agrees to, all the terms of this Service Addendum.
| [COMPANY ENTITY] | [MINISTERIO DE HACIENDA ENTITY] |
| Signature: | Signature: |
| Name: | Name: |
| Title: | Title: |
| 27 |
Exhibit 10.25
GOVERNMENT OF EL
SALVADOR
MINISTRY OF THE TREASURY
TERMS
OF REFERENCE FOR DIRECT HIRING CD No 04/2021
|
CONTRACT N' 51/2021
We, José Alejandro Zelaya Villalobo, of legal age, public accountant, of this address, with my Single Identity Document {number}, acting on behalf of the MINISTRY OF FINANCE, with Tax Identification {number}, in capacity of Minister, appointed by Executive Agreement number two hundred and sixty-eight issued in Presidential House on the twenty-ninth day of July of two thousand twenty, published in the Official Journal number one hundred and fifty-four Volume number four hundred and twenty-eight on the thirtieth day of July of two thousand twenty, who in this instrument will refer to myself THE CONTRACTOR, on the one hand, and on the other, Carlos Miguel Rivas Carrillo, Employee, thirty-three years old, of the address of Santa Tecla, Department of La Libertad, with my Unique Identity Document {number}, and with Tax Identification {number}, acting as Sole Proprietor and Legal Representative, of the Company ATHENA HOLDINGS EL SALVADOR, SOCIEDAD ANÓNIMA DE CAPITAL VARIABLE, abbreviated AHES, S.A. DE C.V., with Tax Identification {number}, of Salvadoran nationality, of the domicile of San Salvador, through: a) Public Deed of Constitution of the Company ATHENA HOLDINGS EL SALVADOR, A PUBLIC LIMITED COMPANY WITH VARIABLE CAPITAL, abbreviated AHES, S.A. DE C.V., granted in the city of San Salvador, Department of San Salvador on the sixth day of November of the year two thousand twenty, before the notarial offices of Sandra Larissa Merino Perez; whom is registered in the Register of Commerce of the Register of Companies, the fourth day of December of two thousand twenty, of which it consists that their name, nationality, nature, and domicile are as set out above, that the time limit is indeterminate; and that its purpose is the import and administration of ATMs; educational services in the field of virtual currencies; advice and consultancy on virtual matters, among others, establishing in Clause XI that the Administration of the Company, may be entrusted to a Sole Proprietor Administrator and his respective Alternate or to a Board of Directors composed of three Owner Directors and at least one Alternate, to be called: Director President, Vice President Director, and Secretary Director, lasting in the office for one term of seven years; similarly, Clause XII states that legal, judicial and extrajudicial of the Company, as well as the use of the social signature, will correspond to the sole Administrator Owner or the President Director of the Board of Directors, being able to appear, grant, subscribe and sign all kinds of acts, businesses, contracts, documents, instruments and deeds of any class and nature, among other powers conferred in the same instrument; and in Clause XXII, it is agreed to appoint me Sole Proprietor Administrator, for the first period of seven years, counted from the inscription in the Register of Commerce of said Public Deed of Constitution which is in force to date, so I am fully entitled to grant acts such as the present; who in this instrument will be referred to as THE CONTRACTOR, and in the qualities before expressed WE MANIFEST: That we have agreed to grant and in effect we grant from the Direct Contracting process CD No. 04/2021, called "ATM SERVICE OPERATIONS FINANCIAL DERIVATIVES OF THE CRYPTOCURRENCY BITCOIN AT A NATIONAL LEVEL", this contract in accordance with the Law on Procurement and Contracting of the Public Administration, which in hereinafter referred to as LACAP, its Regulation hereinafter referred to as RELACAP, and the clauses detailed below: l) OBJECT OF THE CONTRACT: The contractor undertakes to provide the ATM Service for financial operations derived from the Bitcoin cryptocurrency at the level national, with a validity of up to three years from the date of subscription of this instrument, in accordance with the following Terms of Reference and General Conditions:
| 1 |
GOVERNMENT
OF EL SALVADOR
MINISTRY OF THE TREASURY
1. ATM TERMS OF REFERENCE
ATMs shall ensure the following services and features:
Description
| 1. | That they accept payment in bitcoin on-chain and lightning network. | |
| 2. | Bank grade equipment to accept and issue U.S. dollars. | |
| 3. | Vaults for cash of 12 gauge rolled steel. | |
| 4. | Auditable locks that allow you to review the records of when and who opens the vault. | |
| 5. | 21" high-definition touch screen. | |
| 6. | Camera for capturing users for compliance with money and asset laundering prevention. | |
| 7. | Dedicated scanner for QR code captures. | |
| 8. | Printing receipts on thermal paper. | |
| 9. | Integrated ups to help against eventual power outages. |
| 10. | Custom units with design indicated by the Ministry of Finance through 10 of the Contract Administrator. |
| 11. | Training on the use of ATMs. |
| 12. | Transfer of securities between the ATM and the financial institution (withdrawal and supply). |
| 13. | Depreciation of the equipment, |
| 14. | Leasing of space for ATM location. |
| 15. | Electric power costs. |
| 16. | ATM software usage. |
| 17. | ONCHAIN transactions (network free). |
| 2 |
GOVERNMENT OF EL SALVADOR
MINISTRY OF THE TREASURY
Description
| 18. | Consumable inputs (thermal paper). |
| 19. | Repair and maintenance of the ATM. |
| 20. | Market (social media, CM, among others). |
| 21. | Customer service management. |
| 22. | Development of management, legal, operational, accounting and financial structure. |
| 23. | Municipal taxes and fees. |
| 24. | Insurance policy against failure of the ATM and values contained in the vault. |
| 25. | ATMs must ensure that cash can be entered and withdrawn. |
| 26. | Customer service line available 24 hours a day, 7 days a week. |
| 27. | Development of the software for the integration of the ATM with the Government API. |
| 28. | Management of KYC/AML under Salvadoran legislation and international standards. |
| 29. | The Contractor shall submit to the Contract Administrator, a monthly statistical report on the service provided in this Contract. |
2. TECHNICAL CONDITIONS OF THE ATMs
Description
| 1. | ATMS installation time: maximum 35 calendar days from the day following the signing of this agreement and order of commencement by the Administrator of Contract. |
| 2. | Installation of the ATMs at the national level determined by the Administrator of the Contract. In these points, wireless internet service will be guaranteed for the operation of ATMs, as well as the security of equipment. |
| 3. | The Ministry of Finance may reduce or increase the quantity of ATMs during the execution of the contract, in accordance with the institutional requirements of the pay the contractor the ATMs which are enabled to supply the service. |
| 4. | The replacement of the ATMs, by damages will be immediately. |
| 3 |
GOVERNMENT
OF EL SALVADOR
MINISTRY OF THE TREASURY
(II) CONTRACTUAL DOCUMENTS: The following documents form an integral part of the contract; request, reasoned resolution, additions (if any), clarifications (if any), offer, decision toward, guarantee of performance of contract and other documents emanating from the This contract, the four are complementary to each other and shall be jointly concluded.
III) SOURCE OF RESOURCES, PRICE AND FORM OF PAYMENT: The obligations arising from the present instrument will be covered from the Fund of the General Budget of the Nation, which has verified the corresponding allocated budget, in the fiscal year two thousand twenty-one. The Contractor undertakes to cancel the Contractor: a) for the installation of two hundred ATMs nationwide, a single payment of (US $339,000.00) including the Property Transfer Tax and the Provision of Services; and b) for the monthly service of two hundred ATMs, the amount of (US $282,500. 00), being the unit price per ATM of (US $1,412. 50), including the Tax on the Transfer of Goods and to the Provision of Services. The one-time payment for installation of two hundred ATMs at national level shall be made once the proof of application has been submitted and thereof, subscribed by the contractor and the contract administrator. Payments monthly for the service of two hundred ATM nationwide modality twenty-four hours, seven days a week, will be carried out within sixty working days after the remaining corresponding, or within thirty days for companies. qualified as MYPES, provided for presentation of the original receipt record signed by the Contractor and the Contract Administrator or proof of delivery in the name of the Ministry of Finance. The payments detailed above are the Ministry of Finance's Directive at the end of the account banking established by the Contratista by means of affidavit for bank account submitted to the Department of Treasury. The procedure of withdrawal of the Quedan should be realized within three working days after the minutes have been signed.
IV) VALIDITY: The validity of this Agreement is up to three years from the subscription of this instrument.
IV) WARRANTY: To ensure compliance with the obligations arising from this contract the contractor will grant in favor of the State and Government of El Salvador in the Field of Finance: Guarantee of Performance of Contract, in accordance with article thirty-five of the LACAP, which must be bond issued by banks and insurance companies authorized by the Superintendency of the Financial System of El Salvador, in this case is established for an amount equivalent to ten (10%) percent of the total contracted value, and whose validity will exceed in ninety (90) calendar days to the contractual term, counted from the date of subscription of the contract.
(VI) ADMINISTRATION OF THE CONTRACT: The monitoring of the fulfillment of the contractual obligations will be in charge of the Contract Administrator and among other powers will have those established in articles eighty-two Bis and one hundred and twenty-two of LACAP; forty-two and third paragraphs and seventy-four, seventy-five second paragraph, seventy-seven, eighty-eighty-one of RELACAP and as applicable as set out in the Procedures Manual for the Procurement Management Cycle and Contracting of public administration institutions will also issue the start order the contractor's Performance Assessment and shall forward it to the Department of Institutional Acquisitions and Contracting within eight working days after the end of the contractual term. In the event that the Contract Administrator is replaced, regardless of the reason or there is modification in the position, only the Executive Agreement will be modified corresponding, being the responsibility of the head of the requesting unit the procedure and the referred copy thereof to the Financial Directorate and the Procurement and Contracting Department, in addition to informing the contractor about the change made.
VII) RECEIPTS: It will be up to the Contract Administrator in coordination with the contractor, the preparation and signature of the minutes of receipt in accordance with article eighty-two bis literals e) and f) of the LACAP, which contain at least what is laid down in Article seventy-seven of RELACAP and distribute them within three working days after they are subscribed, as follows: To the contractor and the Department of Acquisitions and Institutional Contracting.
| 4 |
GOVERNMENT
OF EL SALVADOR
MINISTRY OF THE TREASURY
VIII) MODIFICATION: By common agreement the present contract may be modified or extended in its term and validity before the expiration of its term, of compliance with the provisions of Articles eighty-three A and eighty-three B of LACAP; likewise the amount of the contract may be amended if it is necessary to make variations to the quantities originally agreed, in such cases the terms and amounts of the Guarantee of Performance of Contract must be modified or extended; the contracting institution must issue the corresponding resolution which will be signed by the legal representative and subsequently the amendment, will be signed by the Holder and the Contractor, which shall form part of this contract.
VIII) EXTENSION: By common agreement on this contract may be extended in accordance with articles eighty-three of LACAP and seventy-five of RELACAP, in such cases the time limits must be modified or extended and amounts of the Contract Performance Guarantee; for which the contracting institution shall issue the corresponding resolution that will be signed by the Holder and subsequently the extension of the contract, will be signed by the Owner and the Contractor, which will be part of this contract.
(X) ASSIGNMENT: Unless expressly authorized by the contractor, the contractor may not transfer or assign in any capacity, the rights and obligations arising from this contract. The transfer or assignment made without the aforementioned authorization will lead to the expiration of the contract, and it will also proceed to effect the Guarantee of Compliance of Contract.
XI) SANCTIONS: In case of non-compliance the commission is expressly subject to the penalties arising from the LACAP either the imposition of the fine for late payment, disqualification, extinction, which shall be imposed following due process by the contracting party, to whose jurisdiction it submits for the purposes of its imposiciion.
(XII) GROUNDS FOR CONTRACTUAL TERMINATION: The present contract will be terminated for the following reasons: By the expiration, by mutual agreement between the contracting parties or by revocation.
(XII) TERMINATION BILATERAL Contracting Party may agree to the termination of the contractual obligations in any moment, as long as there is no other cause of end to the Contractor and for reasons of public interest make the term of the contract or inconvenient, without more responsibility than that which corresponds to the execution of the portion of the actual service realized.
XIV) CONFLICT RESOLUTION: In case of conflict both parties are subject to headquarters judicial for this purpose as a special domicile the city of San Salvador, of whose tribunals they submit.
XV) INTERPRETATION OF THE CONTRACT: The contract reserves the right to interpret this contract, in accordance with the Constitution de la República, LACAP, RELACAP, other applicable law, and the General Principles of Administrative Law and in the manner in which most agrees with the interests of the contracting party, in respect of the service, which is the subject of this instrument, in this case, the instructions may be issued in writing. The Contractor expressly accepts such provision issued in this respect by the contracting party.
XVI) SOCIAL RESPONSIBILITY: In case it is it will be confirmed by the Directorate-General for Labor Inspection of the Ministry of Labor and Social Security, non-compliance by the offer with the prohibits the use of child labor and the protection of adolescent workers; or whether or not the conduct available under Article 158 Roman V) b) of the LACAP, relating to the invocation of false facts in order to obtain the award of the contract. Shall mean that the non-compliance of the directorate in question has been found, if during the process of reinspection it is determined that there was correction for having committed an infringement or on the contrary a punitive procedure, and in the case shall the final resolution.
| 5 |
GOVERNMENT
OF EL SALVADOR
MINISTRY OF THE TREASURY
XVII) LEGAL FRAMEWORK: The legal framework applicable to this Contract Direct, the Law on Procurement and Contracting of the Public Administration and its Regulations, and in subsidiary form the Laws of the Republic of El Salvador, applicable to this type of process.
XVIII) NOTIFICATIONS AND COMMUNICATIONS: The contractor signals the place to receive notifications on Department of Institutional Procurement and Contracting of the Ministry of Finance, {address} San Salvador and the contractor points for the same. The following address shall be added to the following {address}, Colonia San Benito, San Salvador or email [email protected]. In order to change the place to receive notice from the contractor, the latter shall communicate in writing to the Department of Procurement and Contracting Institution l. San Salvador, thirty days of the month of July of the year two thousand twenty-one.
| 6 |
GOVERNMENT OF EL
SALVADOR
MINISTRY OF THE TREASURY
| 7 |
Exhibit 10.26
TERMS OF REFERENCE FOR DIRECT HIRING CD No 04/2021 "ATM AND POS SERVICE FOR FINANCIAL OPERATIONS DERIVED FROM THE CRYPTOCURRENCY BITCOIN AT THE NATIONAL LEVEL"
|
CONTRACT N’ 56/2021
We, José Alejandro Zelaya Villalobo, of legal age, public accountant, of this domicile, with my Single Document of ldentity number zero three million seven hundred and forty-nine thousand two hundred-zero, acting in the name and representation of the MINISTERIO DE HACIENDA, with Number of Identification Tax zero six hundred fourteen-zero ten mil one hundred and eleven-zero zero three-two, as Ministro, named by Executive Agreement number two hundred and sixty-eight issued in the Presidential House on the twenty-ninth day of July of two thousand and twenty, published in the Official Gazette number one hundred and fifty-four Lathe number four hundred and twenty-eight of the thirty of July of two thousand twenty, who in this instrument or will call me THE CONTRACTOR, on the one hand, and on the other, Eric Lloyd Gravengaard, of legal age, of American nationality, identifying me with my Passport number P FOUR NINE NINE TWO FIVE THREE THREE FOUR ZERO, issued by the Department of State of the United States. United States of America the seventeenth of December de two thousand twelve and with expiration date the sixteenth of December of two thousand twenty-two, person who speaks, reads, writes and understands the Spanish language, acting as Executive Director of the Company ATHENA BITCOIN INC., according to documentation forming part of this instrument, a duly organized legal person existing under the laws of the United States of America, with domicile in the city of Glendale, the State of California and the United States of America, incorporated in the State of Delaware, Secretary of State, Division of Corporations as stated in certificate of incorporation of ATHENA BITCOIN, INC., whose purpose is established in the corresponding instrument of constitution that is an integral part of this Contract; in this sense the joy of the faculties to grant acts such as the present; who in this instrument will call me THE CONTRACTOR, and in the qualities expressed above WE MANIFEST: That we agreed to grant and in effect we grant from the process of Direct Contracting CD No. 09/2021, called "SUPPLY OF SERVICES FOR THE DEVELOPMENT OF CHIVO WALLET", and this contract of in accordance with the Law on Acquisitions and Contracting of the Public Administration, hereinafter referred to as LACAP, its Regulations hereinafter referred to as RELACAP, and the clauses that are detailed hereinto: I) OBJECT OF THE CONTRACT: The Contractor undertakes to provide the SUPPLY OF SERVICES FOR THE DEVELOPMENT OF THE CHIVO WALLET APPLICATION, from the planning, integration and start-up, in accordance with the Contracting Term. The following General Conditions should also be considered:
| 1 |
No.
|
Description |
| 1 | The Contractor assumes all the services to auxilaries, is to say those that are inherent, necessary or habitual to fulfill the object of the contract. |
| 2 | The Contractor shall only use personal who is duly trained, experienced and qualified to provide the services. |
| 3 | All the necessary technology should be provided so that the Ministerio de Hacienda uses or makes available the services for digital platform of Bitcoin as contemplated in the services described in the Terms of of the Contract |
| 4 | The Contractor must comply with the condition of ownership of intellectual property as established in the Terms of the Contract. |
| 5 | The Contractor provides a dedicated team for the integration and development of the services.
The Ministerio de Hacienda through the contract administrator, may request weekly reviews, conciliation reviews of reports, and revision of activities and operations to discuss any specific problem that may arise with the services. |
| 6 | Reports on the execution of the service must be provided to the Contract Administrator |
II) CONTRACTUAL DOCUMENTS: They are an integral part of the contract the following documents: request, reasoned resolution, addends (if any), claims (if any), Terms of the Contract, offer, adjudicative resolution, guarantee of compliance with the contract and other documents that emanate from this contract, which are complementary amongst them and will be interpreted jointly. III) SOURCE OF RESOURCES, PRICE AND METHOD OF PAYMENT: The obligations arising from this instrument shall be covered by the Budget Of the Nation, for which purpose it has been seen the corresponding budgetary allocation. The Contractor undertakes to cancel to the Contractor the total amount of up to FOUR MILLION EIGHT HUNDRED AND FORTY-SIX THOUSAND 00/100 DOLLARS OF THE UNITED STATES OF AMERICA (US$4,846,000.00), which includes the lmpuesto to the Transferencia of Movable Goods and the Provision of Services, plus service fee of one per cent par ATMs, previous contract amendment managed by the Contract Administrator. The form of payments for payments is set out in the relevant economic offer. Payments shall be made within sixty days after the receipt of the remain applicable, or within thirty days for companies such as MYPES, provide for the presentation of the original receipt certificate signed by the Contractor and the Contract Administrator or proof of delivery in the name of the Treasury. The payments detailed above are made in the Financial Statement of the Ministry of Finance through deposit in the bank account provided by the Contractor for a Bank Account which he submits to the Institutional Department of Treasury.
| 2 |
The procedure for the recall of the Remain must be completed within three days after having subscribed the act of reception. IV) TERM AND VALIDITY: The place for the execution of the services setout in this instrument is for the period from August to December of two thousand and twenty one. The term of this contract is from its date of subscription until the month of December two thousand and one. V) WARRANTIES: To ensure compliance with the obtained number of these contracts, the contractor shall award in favor of the State and Government of the Treasury: Guarantee of Performance of the Contract, under Article Thirty-Five of the LACAP, which must be issued by banks and insurance companies authorized by the Superintendence of the Financial System of El Salvador, in this case is established for an amount equivalent to ten (10%) percent of the amount It shall have a period of nine months from the date of subscription of this contract and shall be delivered to the Departmento de Adquisiciones y Contrtaciones Instucionales of the Ministerio de Hacienda, within the fifteen days, after the date of subscription of this instrument . VI) ADMINISTRATION OF THE CONTRACT: The follow-up to the compliance of the contractual obligations will be in charge of the Administrator of Contract designated by the corresponding Agreement that is an integral part of this contract and among other attributions will have those established in the articles eighty-two Bis y one hunderd twenty six if the LACAP; forty-two second and third subparagraphs and seventy-four, seventy and five second subparagraph, seventy-seven, eighty-eighty-one of the RELACAP and the applicable to what is stated in the Manual of Procedures for the Ciclo de Gestion of Acquisitions and Contracting of the lnstituciones of the Public Administration, in addition, will issue the order of initiation The corresponding , the Evaluation of the Performance of the contractor and shall forward it to the Department of Procurement and Contracting within eight working days after the end of the contractual contract. In the event that the Administrator of Contract is substitute, regardless of the reason or there is modification in the position, only the corresponding Executive Agreement will be modified, being the responsibility of the head of the unit to solicit before the processing and remission of copy of the same to the Financial Direction and to the Institutional Department of Acquisitions and Contracting, in addition to informing the contractor about the changes made. VII) MINUTES OF RECEPTION: Corresponds to the Administrator of Contract in coordination with the contractor, the elaboration and signature of the minutes of reception of accordance with the article eighty-two bis literal e) and f) of LACAP, which should at least contain what is in Article seventy seven of the RELACAP and shall be distributed in the period of three working days after subscribed, like this: To the contractor and to the Institutional Department of Procurement and Contracting l. VIII) MODIFICATION: By common agreement the present contract may be modified or extended in its place and validity before the expiry of the term, in accordance with provisions of articles eighty-three A and eighty-three B of the LACAP; also, the amount of the contract maybe modified if it is necessary to introduce variations to the original established amount. In this case it is necessary to modify or extend the amounts of the Warranty of compliance of the Contract; the corresponding resolution shall be issued by the Holder and subsequently the Corresponding Resolution and subsequently the Title, signed by the Title And the Contractor, which shall form part of this agreement.
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IX) EXTENSION: By common agreement, this contract may be extended in accordance with the provisions of articles eighty three of the LACAP and seventy-five of the RELACAP, in such cases it must be modified or extend the deadlines and amounts of the Guarantee of Compliance with Contract; for which the contracting institution will file the corresponding resolution that will be signed by the Holder and subsequently the extension of the contract. X) ASSIGNMENT: Upon the express authorization of the contractor, the contractor may not transfer or assign to any title, the rights and obligations arising from this contract. The transfer or cessation carried out without the authorization referred to above will give rise to the expiry of the contract, proceeding also to make effective the Guarantee of Control Policy. XI) SANCTIONS: In case of non-compliance or the contractor expressly submits to the sanctions emanating from the LACAP either fine for late payment, disqualification, extinction, which will be imposed following due process by the contractor, to whose competence is subject for the effects of its imposition. XII). GROUNDS FOR CONTRACTUAL TERMINATION: This contract will be terminated for the following reasons: For the expiration by mutual agreement between the parties against t antis or by revocaci6n. XIII) TERMINATION. The Contracting Party may agree to the termination of the contractual obligations at any time, provided that there is no cause of inaction attributable to the Contractor and that for reasons of public interest make unnecessary or inconvenient the term of the contract, without any responsibility than to which corresponds to the execution of the portion already supplied. XIV) CONFLICT RESOLUTION: In case of conflict, both parties submit to the courts of to the city of San Salvador, to whose courts they submit.
XV) INTERPRETATION OF THE CONTRACT: The contracting party reserves the right to interpret this contract, in accordance with the Constitution of the Republic, LACAP, RELACAP, and other applicable legislation, and the General Principles of Administrative Law and in the manner that best suits the interests of the contractor, with in respect of the provision which is the subject of this instrument, in such a case, may give written instructions which are appropriate in this regard. The committee expressly accepts the provisions and undertakes to comply strictly with the instructions issued by the contracting party in this regard. XVI) SOCIAL RESPONSIBILITY: In the event that the General Directorate of Labour Inspection of the Ministry of Labour and Social Security is found to be in breach by the offeror of the regulations prohibiting child labour and the protection of the person employed; the corresponding procedure shall be initiated for the purpose of committing or not committing within the present purchasing order procedure, or during the execution of the conduct which is disposed in Article 158 Romano V) literal b) of the LACAP, in relation to the invocation of false facts to obtain the award of the contract. Failure to comply with the abovementioned shall be deemed to have been established if, during the re-inspection procedure, it is determined that there was a remedy for having committed an infringement, or on the contrary it is referred to the disciplinary procedure, and in the latter case it must have been to complete the procedure to know the final resolution. XVII) LEGALFRAMEWORK: The legal framework applicable to this direct contract, la Ley de Adquisiciones y Contrataciones de la Administracion Publica y and its regulation, and in subsidiary form the laws of the Republic of El Salvador, applicable to this type of proceeding. XVIII) NOTIFICATIONS AND COMMUNICATIONS: The contractor designates as a place to receive notification the Departmento de Adquisiciones y Contrataciones lnstitucional of the Ministerio de Hacienda, Boulevard Los Heroes numero mil doscientos treinta y uno, San Salvador and the hired party designates to the same effect, even for the imposition of sanctions, if any, the address designated in the of bidder identification form. In the event of a change of place for the reception of notices from the contractor, the latter shall be due to the contract to the Institutional Department of Procurement and Contracting. San Salvador, at twenty days of the month of August two thousand and twenty one.
/s/ José Alejandro Zelaya Villalobo José Alejandro Zelaya Villalobo Ministro de Hacienda LA CONTRATANTE |
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/s/ Eric Lloyd Gravengaard Eric Lloyd Gravengaard Director Ejecutivo y Representante Legal de la Sociedad ATHENA BITCOIN INC. LA CONSTRATISTA |
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Exhibit 10.27
ATHENA SERVICE ADDENDUM 1
This Service Addendum ("Service Addendum") is hereby entered into by Athena Bitcoin Global, a Corporation organized and existing under the laws of Nevada, USA ("Company" or "Athena"), and [Ministerio de Hacienda Entity] ("[Ministerio de Hacienda]"), and is effective as of [•] ("Service Addendum Effective Date"). The Service Addendum adopts and incorporates by reference the terms and conditions of the Master Services Agreement (the "MSA") entered into by [Athena) and [Ministerio de Haciendaa de Et Salvador], effective as of [MSA Effective Date]. In this Service Addendum, Company Entity and Ministerio de Hacienda Entity are each referred to as a "Party" or collectively as the "Parties". Capitalized terms used but not defined in this Service Addendum will have the meanings set forth in the MSA.
1. Defined Terms. For purposes of this Service Addendum, the following terms will have the following meanings:
"Athena Platform" means the (i) customer-facing user interface and (ii) all back-end functionality necessary to provide the Bitcoin Digital Platform services that are under the ownership or control of Athena.
"Blockchain" means the technology that stores data and operations as an account book where all records are linked and encrypted to protect the security and privacy of operations, guaranteeing their immutability. Blockchain works like a decentralized database made up of computers that belong to a peer-to-peer network.
"Chivo Ecosystem" means the Services set forth in Section 2.1 that are performed by Company for Ministerio de Hacienda.
"Chivo Website" means that certain website developed by Company pursuant to this Service Addendum for accessing the Bitcoin Chivo Wallet.
"Databases" means the organized set of Personal Data of Users, originated in the operation of the Bitcoin Digital Platform, which may be (i) the subject of any operation or set of operations from the following: collection, storage, use, circulation, or deletion and (ii) subject to the terms of laws of El Salvador and their regulatory decrees, including alt modifications, clarifications or replacements.
"Settlement Account" has the meaning set forth in Section 11.4 of this Service Addendum.
"USA Solution" means the Services set forth in Section 2.2 that are performed by Company for Ministerio de Hacienda.
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2. Description of Services.
2.1 Phase 1: Chivo Ecosystem. Company shall perform planning, development and integration Services related to the Bitcoin Digital Platform by August 15, 20211 (the "Chivo Ecosystem") that will include the following features and functionality:
2.1.1 Integration with KYC / AML providers;
2.1.2. Integration with SMS.providers;..
2.1.3 Account recovery functions;
2.1.4 All features and functionality of the Chivo Ecosystem shall be exclusively used by Chivo Users;
2.1.5 Wallet lock/unlock functionality;
2.1.6 Functionality to airdrop USD 30 in BTC to all El Salvador citizens that have successfully registered;
2.1.7 Instant exchange of BTC / USD;
2.1.8 Allow for sending USD and BTC to Chivo Users for free;
2.1.9 Allow Chivo Users to receive USD and BTC from any Bitcoin Chivo Wallet for free;
2.1.10 Allow Chivo Users to receive BTC in their Bitcoin Chivo Wallets;
2.1.11 Automatic BTC / USD conversion functionality;
2.1.12 Integration with custodial provider;
2.1.13 Integration with ATM;
2.1.14 integration with TDD / TDC on ramp2;
1 Note to Draft: Please confirm date.
2 Note to Draft: Please define "TDD / TDC on ramp".
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2.1.15 All Chivo Users to receive BTC using the Lightning Network;
2.1.16 Provide for a web solution for the Bitcoin Digital Platform;
2.1.17 Integration of a website payment button to the Bitcoin Digital Platform; and
2.1.18 A Merchant Mode for the Bitcoin Chivo Wallet held by a business, merchant or similar entity that provides the following functionality:
2.1.19 Support for certain Android POS hardware as approved by Company; 2.1.19.1 Allow Users to print receipts;
2.1.19.2 Allow Users to receive BTC from any third-party Bitcoin wallet;
2.1.19.3 Allow for withdrawals of BTC from Bitcoin Chivo Wallets;
2.1.19.4 Allow for BTC withdrawals to the Lightning Network;
2.1.19.5 Allow for BTC withdrawals to third-party Bitcoin wallets; and
2.1.19.6 Receive BTC from any external third-party Bitcoin wallets,
2.2 Phase 2: USA-Based Activities. Company shall perform planning, development and integration Services related to the Bitcoin Digital Platform by September 7, 20213 (the "USA Solution") that will include the following features and functionality:
2.2.1 Installation of ATMs at El Salvador Consulates in USA. Company shall provision and install ATMs at El Salvador consulates located throughout the USA ("Consulate ATMs"). Annex 1 to this Service Addendum contains the initial list of Consulate ATMs. The Parties may mutually agree to add or amend the list of Consulate ATMs at any time during the Service Addendum Term. Users shall not be charged for any purchase of Bitcoins sent to Bitcoin Chivo Wallets. Ministerio de Hacienda and Company will mutually agree upon a fee structure for all such transfers under which Ministerio de Hacienda will be charged for each purchase.
3 Note to Draft: Please confirm date.
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2.2.2 Pricing and Liquidity at Athena ATMs. For all Consulate ATMs and other ATMs operated by Athena at different locations indicated by the Ministerio de Hacienda. Ministerio de Hacienda shall use commercially reasonable efforts to sell BTC to Company at a price determined by Ministerio de Hacienda to provide Company with sufficient BTC to operate such ATMs. For all ATMs labelled as "Chivo ATMs", Users will receive an exchange rate between USD — BTC for all transactions at such ATMs that is determined by Ministerio de Hacienda. Company shall pay Ministerio de Hacienda for all of its purchases of BTC from Ministerio de Hacienda within 15 calendar days of such purchases by sending a wire transfer of USD to an account designated by Ministerio de Hacienda, or by such other means to which the Parties may agree.
3. Additional Company Obligations. In addition to the deliverables described above, Company represents, warrants and covenants to:
3.1 Provide Ministerio de Hacienda with the designs and source codes of the Chivo Website;
3.2 Ensure that the Athena Platform meets minimum industry standards in terms of functionality, security, efficiency and scalability;
3.3 Provide functional and commercial support services of the Athena Platform;
3.4 Execute functional, security, integration and load/stress tests of the Athena Platform and all other deliverables prior to delivery to Ministerio de Hacienda;
3.5 Create an automatic mechanism for software version management of all deliverables;
3.6 Create a backup and restoration process, which must be tested regularly by Company;
3.7 Allow for the segmentation of responsibilities through User profiles;
3.8 Create audit logging functionality on the Athena Platform;
3.9 Ensure the transfer of functional and operational knowledge of the Athena Platform to the personnel designated by Ministerio de Hacienda for this purpose;
3.10 Ensure compliance with information security and software development controls established by Ministerio de Hacienda;
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3.11 Carry-out and submit to Ministerio de Hacienda internal audit reports;
3.12 Ensure that Ministerio de Hacienda has access to all transactional information made by Users, as well as to the Databases;
3.13 Refrain from making changes to the Athena Platform that are not authorized by Ministerio de Hacienda;
3.14 Use all data and information provided by Ministerio de Hacienda, including in the Databases, exclusively for the purposes indicated in this Service Addendum;
3.15 Establish a formal process for information security and cybersecurity;
3.16 Assign personnel for the contracted tasks in accordance with the profiles defined by the Parties for each position;
3.17 Follow all recommendations and suggestions that Ministerio de Hacienda provides, immediately and in a timely manner, creating opportunities for improvement to its processes and ensuring the proper execution of this Service Addendum;
3.18 Participate in all planning and control meetings of activities that Ministerio de Hacienda schedules in accordance this Service Addendum;
3.19 Comply with the purpose and scope of this Service Addendum;
3.20 Directly contract with all personnel who will develop applications for Company for this Service Addendum;
3.21 Timely pay all salaries, social benefits, and related payments to employees and contractors of Company that will be involved in developing or providing the Services set forth in this Service Addendum in accordance with all current applicable labor regulations;
3.22 Provide immediate notice to Ministerio de Hacienda about the occurrence of any event or circumstance that alters the normal development and / or execution of this Service Addendum;
3.23 Ensure that during the execution of this Service Addendum, the procedures necessary to ensure the quality of the service are complied with and guaranteed to Ministerio de Hacienda;
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3.24 Adopt all appropriate and sufficient control measures in accordance with Applicable Law, aimed at preventing Ministerio de Hacienda's operation of the Athena Platform from being used as an instrument for the concealment, management, investment or use in any form of money or other assets derived from criminal activities or destined to its financing, or to give the appearance of legality to criminal activities or to the transactions and funds associated with them; and
3.25 Perform any other activity that is required for the adequate and complete fulfillment of this Service Addendum.
4. Additional Ministerio de Hacienda Obligations. Ministerio de Hacienda represents, warrants and covenants to:
4.1 Provide a website under the Ministerio de Hacienda subdomain for the deployment of the Chivo Website;
4.2 Pay the Fees associated with this Service Addendum in accordance with the terms of the MSA and Service Addendum;
4.3 Provide the necessary information to Company for the execution of this Service Addendum;
4.4 Carry out periodic reviews of compliance with the terms of this Service Addendum and promote the pertinent actions to ensure its timely execution;
4.5 Inform Company of the minimum security measures established by Ministerio de Hacienda for the execution of this Service Addendum;
4.6 Address any concerns and provide reasonable support to Company in solving problems and inconveniences;
4.7 Define precisely and with the required speed all functional issues that Company requires for execution of this Service Addendum (e.g., participating banks, SMS service provider, operator users, call center company, etc.);
4.8 Adopt all appropriate and sufficient control measures in accordance with Applicable Law, aimed at preventing Ministerio de Hacienda's operation of the Bitcoin Digital Platform from being used as an instrument for the concealment, management, investment or use in any form of money or other assets derived from criminal activities or destined to its financing, or to give the appearance of legality to criminal activities or to the transactions and funds associated with them; and
4.9 Perform any other activity that is required for the adequate and complete fulfillment of this Service Addendum.
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5. Services Fees
5.1 Service Fees for Phase 1 (Chivo Ecosystem) Company shall charge Ministerio de Hacienda a Service Fee of USD 2 million plus IVA on August 15, 2021 for the initial services performed by Company for the Chivo Ecosystem Company shall charge Ministerio de Hacienda an additional Service Fee of USD 2 million plus IVA on September 7, 2021. For the period beginning August 9, 2021 and ending December 31, 2021, Company shall charge Ministerio de Hacienda a Service Fee of USD 124,000 plus IVA4 per month (the "Software Maintenance Fee") for software support and improvements to the Chivo Ecosystem to maintain its uninterrupted 24/7 operation. Ministerio de Hacienda may, at its sole discretion, elect to continue to pay the Software Maintenance Fee in 2022, on a month by month basis, for the continuation of such software support and improvements services.
5.2 Service Fees for Phase 2 (USA Solution) For each Consulate ATM installed and operated, Company shall charge Ministerio de Hacienda a Monthly Fee of $1,750 For the period prior to December 31, 2021, Company shall charge Ministerio de Hacienda a Service Fee of 1.0% of all purchases made using ATMs that are part of Company's USA Solution, plus all reasonable, documented expenses that have been agreed to by the Parties. For the period beginning January 1, 2022 and ending on December 31, 2022, Company shall charge Ministerio de Hacienda a Service Fee of 0.5% of all Bitcoin purchases made using ATMs that are part of Company's USA Solution, plus all reasonable, documented expenses that have been agreed to by the Parties.
5.3 Service Fees for Phase 3 (Chivo Website) The Company shall not charge Ministerio de Hacienda any Service Fees or other charges for Services related to development of Chivo Website, as described in Section Error i No se encuentra el origen de la referencia.
5.4 Early Termination Fees. If Ministerio de Hacienda elects to terminate this Service Addendum prior to September 7, 2021 pursuant to Section 6.6 of the MSA, then Ministerio de Hacienda shall pay a one-time fee of USD 100,000 (plus any VAT) (the "No-Go Fee") to Company. For the avoidance of doubt, Ministerio de Hacienda shall not be obligated to pay the No-Go Fee to Company if (i) the MSA or this Service Addendum is terminated by Company pursuant to any clause in Section 6 of the MSA, or (ii) the MSA or this Service Addendum is terminated by Ministerio de Hacienda pursuant to any clause in Section 6 of the MSA except Section 6.6.
5.5 Payment Terms. Company shall issue invoices to Ministerio de Hacienda for all Service Fees and Ministerio de Hacienda shall pay all properly invoiced amounts due to Company within 30 days after Ministerio de Hacienda's receipt of such invoice, except for any amounts disputed by Ministerio de Hacienda in good faith. Without prejudice to any other right or remedy it may have, Ministerio de Hacienda may set off at any time any amount owing to it by Company against any amount payable by Ministerio de Hacienda to Company under this Service Addendum, including by setting off against the funds in Company's Settlement Account.
4 Note to Draft: Please define IVA (or confirm if this should be VAT or some other tax-related acronym).
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5.6 Fees for Additional Services. The Parties will discuss any Fees associated with any new integrations, additional evolutionary development or new functionality that are agreed by the Parties.
6. Intellectual Property.
6.1 Assignment of Patrimonial Rights. Company hereby assigns to Ministerio de Hacienda, Company's entire right, title, and interest in and to the rights of use, exploitation, registration, and any other right that implies the provision and economic exploitation of the entire development of the Chivo Website, including, but not limited to literary, artistic, musical, audiovisual works, software, software, characters, inventions, utility models, industrial designs and distinctive signs (the "Assigned Patrimonial Rights"). Company acknowledges and agrees that Ministerio de Hacienda and its designees, may freely exercise the Assigned Patrimonial Rights in any country in the world. The Assigned Patrimonial Rights may consist of works commissioned for development by contractors of the Company for the Chivo Website. The Parties agree that the exercise of the Assigned Patrimonial Rights will not give rise to additional payments in favor of Company or any third party by Ministerio de Hacienda.
6.2 Advertising or Merchandising Products. Ministerio de Hacienda will have the exclusive right to create, license and use any type of advertising or merchandising products in relation to the Chivo Website. The economic rights derived from the sale, distribution or any type of economic exploitation are the exclusive property of Ministerio de Hacienda. Ministerio de Hacienda will have no obligation to pay Company in relation to the production, marketing or any other type of economic exploitation of the advertising products.
6.3 Custody and Management of Databases. In the event that Company gains access to Ministerio de Hacienda Databases during the execution of this Service Addendum, Company undertakes to guard them and use them exclusively for the execution of this Service Addendum. Company must encrypt the information that it receives from Ministerio de Hacienda and ensure that such Databases remain encrypted, even for when used internally by Company. Company will have perimeter security tools and tools that prevent data loss and information leakage.
6.3.1 Ministerio de Hacienda may at any time request the results of audits performed by Company to corroborate the proper custody and use of the Databases delivered by Ministerio de Hacienda.
6.3.2 Upon termination of this Service Addendum, Company will return the Databases with the security and delivery conditions agreed with the contract supervisor and in accordance with Ministerio de Hacienda policies. Likewise, Company must destroy all copies that it may have created and document such destruction by endorsement and signature of a Company supervisor.
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6.4 Protection of Personal Data. The Parties agree that they will comply with all applicable data protection laws, and other regulations that modify, clarify or supplement it from time to time.
6.5 Ownership of Information. Company declares and accepts that all the data and information provided by Ministerio de Hacienda pursuant to this Service Addendum is the exclusive property of Ministerio de Hacienda. Such information may not be used by Company for any other purposes other than this Service Addendum, without prior written authorization of Ministerio de Hacienda.
6.6 Information Security and Cybersecurity. Company will be subject to the following obligations related to information security and cybersecurity:
6.6.1 Company will maintain suitable security devices and tools to protect its networks and technological infrastructure.
6.6.2 Company will establish and maintain an information security and cybersecurity program aligned with international best practices, which includes but is not limited to aspects such as information security for physical, digital, virtual and cyberspace elements independent of their transit and location. Company must deliver an annual certification to the Ministerio de Hacienda contract supervisor. This program should at a minimum include:
6.6.3 Formal training, at least once a year, and permanent awareness-raising for officials who directly or indirectly carry out the development of the Service Addendum, on issues related to information security, cybersecurity and physical security;
6.6.4 Protection in advance against threats and or risks that may affect Ministerio de Hacienda information;
6.6.5 An incident management and response process that allows identifying and documenting, among other items, the root cause of the incident, the effects and impacts caused, the details about the response and closure plan, as well as maintaining digital evidence;
6.6.6 Processes, procedures and control mechanisms for the protection and prevention of information leakage, considering its life cycle (generation, storage, distribution, use and disposal); and
6.6.7 Procedures and adequate mechanisms for managing access control to information.
6.6.8 Company must notify the Ministerio de Hacienda contract supervisor of any changes in its information security and cybersecurity procedures, including physical security, that affect the initially agreed security and service conditions, which must be approved by Ministerio de Hacienda.
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6.6.9 Company will delete all the information provided by Ministerio de Hacienda through secure erasure tools or mechanisms, following the best practices of the industry in these processes, when Ministerio de Hacienda requests such deletion or at the termination of this Service Addendum, recording the procedure in minutes in which the mechanism used is specified, which must be delivered to the Ministerio de Hacienda contract supervisor.
6.6.10 For contracts that include any type of cloud-hosted service, Company undertakes to comply with current regulations, standards and best practices defined in the industry, as well as any policies established by Ministerio de Hacienda for this purpose which will be shared with the Company, which are an integral part of this Service Addendum.
7. Service Addendum Term. This Service Addendum will commence on the Service Addendum Effective Date and terminate on December 31, 2022, unless terminated earlier in accordance with Section 6 of the MSA ("the "Service Addendum Term").
8. Permitted Service Providers. Pursuant to Section 2.6 of the MSA, Ministerio de Hacienda Entity hereby provides consent for the following Service Providers to perform Services for Company Entity in connection with this Service Addendum:
· [List of Service Providers]
9. Relationship Management. The Ministerio de Hacienda RM Team assigned by Company for this Service Addendum consists of the following individuals:
1.1
10. Representatives. Ministerio de Hacienda designates the following Representatives for this Service Addendum:
[•1
11. Other Service Addendum-Specific Terms and Conditions.
11.1 Compliance with Applicable Law. Company represents, warrants and covenants that it has obtained and is in compliance with all permits, licenses, certifications, approvals, registrations, consents, authorizations, franchises, variances, exemptions, orders and Applicable Law necessary to perform the Services pursuant to this Service Addendum. The provision of the Services by Company pursuant to this Service Addendum (i) does not, and will not, in any way be in violation of any Applicable Law. The manner in which with the Services will be performed by Company will obviate the need of Ministerio de Hacienda to enter into any license or obtain any regulatory consent.
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11.2 Risk of Loss. The risk of loss of all funds in transit shall be on Company until all proceeds (whether in USD or BTC) have entered the account or accounts designated by Ministerio de Hacienda for each transaction on the Athena Platform. This includes all losses due to (i) a disruption of information flow and (H) a disruption of cash flow.
11.3 Bitcoin Exchange Rates. Company represents, warrants and covenants to use its reasonable best efforts to (i) buy Bitcoins at the lowest available market rates and (ii) sell Bitcoins at the highest available market rates for alt transactions performed using the Athena Platform.
11.4 Settlement Account. Company will at all times maintain a depository account with Ministerio de Hacienda in the form of a Bitcoin Chivo Wallet for the purposes of funds pursuant to this Service Addendum, for billing and payment of fees, charges and expenses due hereunder, and for all other purposes described hereunder or determined to be appropriate by Ministerio de Hacienda (the "Settlement Account"). Ministerio de Hacienda may access the funds in the Settlement Account to offset against any liabilities of Company to Ministerio de Hacienda under this Service Addendum.
11.5 Independence and Autonomy. Company represents, warrants and covenants that it will have the technical, administrative, managerial and inherent autonomy of its quality, and therefore, the expenses and risks demanded by the execution of this Service Addendum, the contracting of the suitable workers necessary for the development of the same, the payment of salaries, social benefits, compensation of any kind and liquidation of all benefits arising from the labor relations between the aforementioned workers and Company. Ministerio de Hacienda shall not be responsible from paying these obligations or from any obligation derived from work accidents or professional diseases suffered by the Company's workers. For the purposes set forth herein, Company represents, warrants and covenants to:
11.5.1 Carry out at its own risk and expense, the selection process of the suitable personnel who will assist it in the execution of the contracted object;
11.5.2 Carry out the process of induction, training, staffing and training of the personnel involved in the provision and execution of the contracted object;
11.5.3 Promote the information security awareness of its employees;
11.5.4 Sign a confidentiality agreement with its employees and contractors;
11.5.5 Require personnel not bound by a work contract, their affiliation and monthly contributions to health and pension systems established in the current regulations on the matter; and
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11.5.6 Comply with the security measures adopted by Ministerio de Hacienda, forcing itself to present at the beginning of the contract a list with the names and surnames of the officials that it designated for the fulfillment of the same, with their respective identification number, and must inform in writing and immediately to Ministerio de Hacienda, withdrawals or replacements that occur during the execution of the same.
11.6 Company Knowledge. For the purposes of this Service Addendum, Company represents, warrants and covenants to know the necessary and sufficient information required to execute and fulfill the purpose of this Service Addendum. Consequently, Company may not request additional payments under any circumstances, nor may it exonerate itself from any obligation contained in this Service Addendum, citing as a reason the lack or inadequate information received or the wrong interpretation thereof. In the event that new requirements are requested by Ministerio de Hacienda, they must be negotiated by the Parties and established in a new document modifying this Service Addendum.
11.7 Authenticity of the Information. Company represents, warrants and covenants that the information delivered to Ministerio de Hacienda, either physically or digitally, is real and authentic. Therefore, no responsibility can be discharged in the event of any type of claim or discussion about the authenticity of the information contained therein, and will guarantee the ideal means for its delivery, complying with the information security measures and the guidelines determined by Ministerio de Hacienda and applicable regulations.
11.8 Anti-Fraud. Company will be solely and exclusively responsible for any damage, loss or damage derived from economic fraud caused to Ministerio de Hacienda, its workers, clients or third parties and that materializes during any phase of the Service Addendum. Company represents, warrants and covenants to implement, monitor and update the necessary controls in order to avoid the occurrence of fraud in accordance with the risk levels of the operation, guaranteeing due diligence and professional care.
11.9 Anti-Corruption and Anti-Bribery. Company represents, warrants and covenants that it complies and will comply with the regulations that are applicable to it regarding anti-corruption practices. Company represents, warrants and covenants not to give or offer bribes to officials of Ministerio de Hacienda and its Entities, in connection with the execution, execution, termination and liquidation of this Service Addendum. Company will give instructions to its officials, managers, partners and external advisers, demanding that they comply with the provisions of this clause and the current regulations on anti-corruption.
11.10 Administration System For The Prevention Of Money Laundering And Terrorism Financing ("SARLAFT"). Company represents, warrants and covenants that it is not on any of the lists established at the national or international level for the control of money laundering and financing of terrorism. Company also represents, warrants and covenants that its employees, shareholders, members of the board of directors or partners, their legal representatives and their fiscal auditor are not on said lists and Company undertakes to update the information annually or in a shorter time in case changes occur in the information provided to Ministerio de Hacienda. Company authorizes to: (i) reveal its personal and business information, if required by a competent Government Authority in El Salvador such as the Attorney General's Office in the terms provided for the disclosure of Confidential Information provided for in the MSA and this Service Addendum; and (ii) to be consulted in databases.
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Company represents, warrants and covenants that the resources used for the fulfillment of the obligations under the MSA and this Service Addendum do not come or will come from illicit activities such as money laundering, their source crimes, terrorism and financing of terrorism or crimes against the constitutional order, crimes against the public administration or that in any way violate the laws of the Ministerio de Hacienda of El Salvador, morals or good customs. Company represents, warrants and covenants to implement measures to prevent their operations from being used without its knowledge and consent as instruments for the concealment, management, investment or use in any form of money or other assets from criminal activities or to give appearance of legality to these activities. Company authorizes them to be consulted in databases.
Ministerio de Hacienda may unilaterally and immediately terminate this Service Addendum in the event that Company, its partners or shareholders, controllers and or their administrators become: (i) bound by the competent Government Authorities to any type of investigation for crimes of terrorism, money laundering, its source crimes, financing of terrorism or any crime against the constitutional order or crimes against the public administration; (ii) included in lists for the control of money laundering and financing of terrorism administered by any national or foreign authority, including but not limited to the list of the Office for the Control of Assets Abroad ("OFAC") issued by the Office of the Treasury of the United States of North America, the list of the United Nations Organization and other public lists related to the issue of money laundering and financing of terrorism; or (iii) investigated or convicted by the competent Government Authorities in any type of judicial process related to the commission of crimes of the same or similar nature to those indicated in this clause.
11.11 Declaration of the Origin of Funds. Company represents, warrants and covenants that its assets and the economic sources that allow it to develop its corporate purpose are not the result of illicit activities, such as drug trafficking, frontman, illicit enrichment, terrorism, money laundering, trafficking of narcotics, kidnapping extortion and or human trafficking. Company represents, warrants and covenants that it does not operate in countries considered tax havens, countries sanctioned by OFAC and non-cooperating countries and that the constitution of the company is not under the bearer share scheme.
11.12 Continuity and Contingency Plan. Company represents, warrants and covenants to have duly updated continuity and contingency plans to execute and deliver the Services in this Service Addendum.
11.13 Applicability of Best Practices. Company as a specialized, professional and expert company represents, warrants and covenants that it will use the best practices established in the national and international standards that apply to the Service Addendum subject matter. Company represents, warrants and covenants that its management systems are fully aligned and integrated with said standards and best practices. For technology contracts, Company represents, warrants and covenants to use security standards and best practices, including without limitation the OWASP (Open Web Application Security Project), OSSTM (Open Source Security Testing Methodology Manual) and other applicable standards such as the NIST series.
SIGNATURE PAGE FOLLOWS
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By signing below, each Party acknowledges that it has read, and agrees to, all the terms of this Service Addendum.
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Annex 1
List of Consulate ATMs
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ATHENA SERVICE ADDENDUM 2
This Service Addendum ("Service Addendum") is hereby entered into by Athena Bitcoin Holdings of El Salvador, a [Company Type] organized and existing under the laws of El Salvador, ("Company Entity"), and [Ministerio de Hacienda Entity] ("[Ministerio de Hacienda Entity]"), and is effective as of [•] ("Service Addendum Effective Date"). The Service Addendum adopts and incorporates by reference the terms and conditions of the Master Services Agreement (the "MSA") entered into by Athena Bitcoin Global and [Ministerio de Haciendaa de El Salvador], effective as of [MSA Effective Date]. In this Service Addendum, Company Entity and Ministerio de Hacienda Entity are each referred to as a "Party" or collectively as the "Parties". Capitalized terms used but not defined in this Service Addendum will have the meanings set forth in the MSA.
1. Scope of Services.
This non-exclusive Service Addendum covers the importation, setup, and distribution of POS terminals for the purposes of making available to businesses in El Salvador a working and tested Chivo POS handheld terminal ("Chivo POS Terminals"). Each Chivo POS Terminal will be an Android device with a printer of a type approved by the Ministerio de Hacienda for running the Bitcoin Chivo Wallet in Merchant Mode.
2. Permitted Service Providers.
Pursuant to Section 2.6 of the MSA, Ministerio de Hacienda Entity hereby provides consent for the following Service Providers to perform Services for Company Entity in connection with this Service Addendum:
· [Credit Card processor]
· DocuSign
3. Work Schedule and Deliverables. The relevant milestones, completion dates, and terms associated with this Service Addendum are as follows:
| Line Item |
Service | Completion Date |
| 1 | Importation of 950 Chivo POS Terminals to El Salvador that are capable of running the Bitcoin Chivo Wallet in Merchant Mode, including printing of receipts; Setup of same including installation of Bitcoin Chivo Wallet |
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| 2 | Distribution of Chivo POS Terminals to businesses in El Salvador including initial setup for the businesses and execution of POS Rental Agreement (in a form to be mutually agreed to by the Parties). | September 7 |
| 3 | Monthly collection of rents from businesses that have received Chivo POS Terminals. |
The relevant deliverables associated with this Service Addendum are as follows:
| Line Item |
Description of Deliverable | Delivery Date | Delivery Location |
| 1 | Training materials for Chivo POS Terminals. | ||
| 2 |
Standardized POS Rental Agreement for businesses to sign that includes initial set-up fees and monthly charges. |
||
| 3 |
4. Fees. The Service Fees associated with the Services set forth in this Service Addendum are as follows:
| Item | Fees Structure | Responsible Party |
| Service 1 | $400 per POS Terminal | Ministerio de Hacienda |
| Service 2 | [Fee schedule for setup] |
Business that has received Chivo POS Terminals |
| Service 3 | All monthly rents to be collected are to be remitted to the Ministerio de Hacienda less any processing fees imposed by Service Providers | Company |
| Total: | ||
| 5. | Service Addendum Term. This Service Addendum will terminate on the last Completion Date for the Services identified above, unless terminated earlier in accordance with Section 6 of the MSA. |
| 6. | Intellectual Property. |
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6.1 Assignment of Patrimonial Rights. Company hereby assigns to Ministerio de Hacienda, Company's entire right, title, and interest in and to the rights of use, exploitation, registration, and any other right that implies the provision and economic exploitation of the entire development of the Chivo Website, including, but not limited to literary, artistic, musical, audiovisual works, software, software, characters, inventions, utility models, industrial designs and distinctive signs (the "Assigned Patrimonial Rights"). Company acknowledges and agrees that Ministerio de Hacienda and its designees, may freely exercise the Assigned Patrimonial Rights in any country in the world. The Assigned Patrimonial Rights may consist of works commissioned for development by contractors of the Company for the Chivo Website. The Parties agree that the exercise of the Assigned Patrimonial Rights will not give rise to additional payments in favor of Company or any third party by Ministerio de Hacienda.
6.2 Advertising or Merchandising Products. Ministerio de Hacienda will have the exclusive right to create, license and use any type of advertising or merchandising products in relation to the Chivo Website. The economic rights derived from the sale, distribution or any type of economic exploitation are the exclusive property of Ministerio de Hacienda. Ministerio de Hacienda will have no obligation to pay Company in relation to the production, marketing or any other type of economic exploitation of the advertising products.
6.3 Custody and Management of Databases. In the event that Company gains access to Ministerio de Hacienda Databases during the execution of this Service Addendum, Company undertakes to guard them and use them exclusively for the execution of this Service Addendum. Company must encrypt the information that it receives from Ministerio de Hacienda and ensure that such Databases remain encrypted, even for when used internally by Company. Company will have perimeter security tools and tools that prevent data loss and information leakage.
6.3.1 Ministerio de Hacienda may at any time request the results of audits performed by Company to corroborate the proper custody and use of the Databases delivered by Ministerio de Hacienda.
6.3.2 Upon termination of this Service Addendum, Company will return the Databases with the security and delivery conditions agreed with the contract supervisor and in accordance with Ministerio de Hacienda policies. Likewise, Company must destroy all copies that it may have created and document such destruction by endorsement and signature of a Company supervisor.
6.4 Protection of Personal Data. The Parties agree that they will comply with all applicable data protection laws, and other regulations that modify, clarify or supplement it from time to time.
6.5 Ownership of Information. Company declares and accepts that all the data and information provided by Ministerio de Hacienda pursuant to this Service Addendum is the exclusive property of Ministerio de Hacienda. Such information may not be used by Company for any other purposes other than this Service Addendum, without prior written authorization of Ministerio de Hacienda.
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6.6 Information Security and Cybersecurity. Company will be subject to the following obligations related to information security and cybersecurity:
6.6.1 Company will maintain suitable security devices and tools to protect its networks and technological infrastructure.
6.6.2 Company will establish and maintain an information security and cybersecurity program aligned with international best practices, which includes but is not limited to aspects such as information security for physical, digital, virtual and cyberspace elements independent of their transit and location. Company must deliver an annual certification to the Ministerio de Hacienda contract supervisor. This program should at a minimum include:
6.6.2.1 Formal training, at least once a year, and permanent awareness- raising for officials who directly or indirectly carry out the development of the Service Addendum, on issues related to information security, cybersecurity and physical security;
6.6.2.2 Protection in advance against threats and or risks that may affect Ministerio de Hacienda information;
6.6.2.3 An incident management and response process that allows identifying and documenting, among other items, the root cause of the incident, the effects and impacts caused, the details about the response and closure plan, as well as maintaining digital evidence;
6.6.2.4 Processes, procedures and control mechanisms for the protection and prevention of information leakage, considering its life cycle (generation, storage, distribution, use and disposal); and
6.6.2.5 Procedures and adequate mechanisms for managing access control to information.
6.6.3 Company must notify the Ministerio de Hacienda contract supervisor of any changes in its information security and cybersecurity procedures, including physical security, that affect the initially agreed security and service conditions, which must be approved by Ministerio de Hacienda.
6.6.4 Company will delete all the information provided by Ministerio de Hacienda through secure erasure tools or mechanisms, following the best practices of the industry in these processes, when Ministerio de Hacienda requests such deletion or at the termination of this Service Addendum, recording the procedure in minutes in which the mechanism used is specified, which must be delivered to the Ministerio de Hacienda contract supervisor.
6.6.5 For contracts that include any type of cloud-hosted service, Company undertakes to comply with current regulations, standards and best practices defined in the industry, as well as any policies established by Ministerio de Hacienda for this purpose which will be shared with the Company, which are an integral part of this Service Addendum.
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7. Permitted Service Providers. Pursuant to Section 2.6 of the MSA, Ministerio de Hacienda Entity hereby provides consent for the following Service Providers to perform Services for Company Entity in connection with this Service Addendum:
· [List of Service Providers]
8. Relationship Management. The Ministerio de Hacienda RM Team assigned by Company for this Service Addendum consists of the following individuals:
· [ • ]
9. Representatives. Ministerio de Hacienda designates the following Representatives for this Service Addendum:
§ [ • ]
10. Other Service Addendum-Specific Terms and Conditions.
10.1 Compliance with Applicable Law. Company represents, warrants and covenants that it has obtained and is in compliance with all permits, licenses, certifications, approvals, registrations, consents, authorizations, franchises, variances, exemptions, orders and Applicable Law necessary to perform the Services pursuant to this Service Addendum. The provision of the Services by Company pursuant to this Service Addendum (i) does not, and will not, in any way be in violation of any Applicable Law. The manner in which with the Services will be performed by Company will obviate the need of Ministerio de Hacienda to enter into any license or obtain any regulatory consent.
10.2 Risk of Loss. The risk of loss of all funds in transit shall be on Company until all proceeds (whether in USD or BTC) have entered the account or accounts designated by Ministerio de Hacienda for each transaction on the Athena Platform. This includes all losses due to (i) a disruption of information flow and (ii) a disruption of cash flow.
10.3 Bitcoin Exchange Rates. Company represents, warrants and covenants to use its reasonable best efforts to (1) buy Bitcoins at the lowest available market rates and (ii) sell Bitcoins at the highest available market rates for all transactions performed using the Athena Platform.
10.4 Settlement Account. Company will at all times maintain a depository account with Ministerio de Hacienda in the form of a Bitcoin Chivo Wallet for the purposes of funds pursuant to this Service Addendum, for bitting and payment of fees, charges and expenses due hereunder, and for all other purposes described hereunder or determined to be appropriate by Ministerio de Hacienda (the "Settlement Account"). Ministerio de Hacienda may access the funds in the Settlement Account to offset against any liabilities of Company to Ministerio de Hacienda under this Service Addendum.
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10.5 Independence and Autonomy. Company represents, warrants and covenants that it will have the technical, administrative, managerial and inherent autonomy of its quality, and therefore, the expenses and risks demanded by the execution of this Service Addendum, the contracting of the suitable workers necessary for the development of the same, the payment of salaries, social benefits, compensation of any kind and liquidation of all benefits arising from the labor relations between the aforementioned workers and Company. Ministerio de Hacienda shall not be responsible from paying these obligations or from any obligation derived from work accidents or professional diseases suffered by the Company's workers. For the purposes set forth herein, Company represents, warrants and covenants to:
10.5.1 Carry out at its own risk and expense, the selection process of the suitable personnel who will assist it in the execution of the contracted object;
10.5.2 Carry out the process of induction, training, staffing and training of the personnel involved in the provision and execution of the contracted object;
10.5.3 Promote the information security awareness of its employees:
10.5.4 Sign a confidentiality agreement with its employees and contractors;
10.5.5 Require personnel not bound by a work contract, their affiliation and monthly contributions to health and pension systems established in the current regulations on the matter; and
10.5.6 Comply with the security measures adopted by Ministerio de Hacienda, forcing itself to present at the beginning of the contract a list with the names and surnames of the officials that it designated for the fulfillment of the same, with their respective identification number, and must inform in writing and immediately to Ministerio de Hacienda, withdrawals or replacements that occur during the execution of the same.
10.6 Company Knowledge. For the purposes of this Service Addendum, Company represents, warrants and covenants to know the necessary and sufficient information required to execute and fulfill the purpose of this Service Addendum. Consequently, Company may not request additional payments under any circumstances, nor may it exonerate itself from any obligation contained in this Service Addendum, citing as a reason the lack or inadequate information received or the wrong interpretation thereof. In the event that new requirements are requested by Ministerio de Hacienda, they must be negotiated by the Parties and established in a new document modifying this Service Addendum.
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10.7 Authenticity of the Information. Company represents, warrants and covenants that the information delivered to Ministerio de Hacienda, either physically or digitally, is real and authentic. Therefore, no responsibility can be discharged in the event of any type of claim or discussion about the authenticity of the information contained therein, and will guarantee the ideal means for its delivery, complying with the information security measures and the guidelines determined by Ministerio de Hacienda and applicable regulations.
10.8 Anti-Fraud. Company will be solely and exclusively responsible for any damage, loss or damage derived from economic fraud caused to Ministerio de Hacienda, its workers, clients or third parties and that materializes during any phase of the Service Addendum. Company represents, warrants and covenants to implement, monitor and update the necessary controls in order to avoid the occurrence of fraud in accordance with the risk levels of the operation, guaranteeing due diligence and professional care.
10.9 Anti-Corruption and Anti-Bribery. Company represents, warrants and covenants that it complies and will comply with the regulations that are applicable to it regarding anticorruption practices. Company represents, warrants and covenants not to give or offer bribes to officials of Ministerio de Hacienda and its Entities, in connection with the execution, execution, termination and liquidation of this Service Addendum. Company will give instructions to its officials, managers, partners and external advisers, demanding that they comply with the provisions of this clause and the current regulations on anti-corruption.
10.10 Administration System For The Prevention Of Money Laundering And Terrorism Financing "SARLAFT . Company represents, warrants and covenants that it is not on any of the lists established at the national or international level for the control of money laundering and financing of terrorism. Company also represents, warrants and covenants that its employees, shareholders, members of the board of directors or partners, their legal representatives and their fiscal auditor are not on said lists and Company undertakes to update the information annually or in a shorter time in case changes occur in the information provided to Ministerio de Hacienda. Company authorizes to: (i) reveal its personal and business information, if required by a competent Government Authority in El Salvador such as the Attorney General's Office in the terms provided for the disclosure of Confidential Information provided for in the MSA and this Service Addendum; and (ii) to be consulted in databases.
Company represents, warrants and covenants that the resources used for the fulfillment of the obligations under the MSA and this Service Addendum do not come or will come from illicit activities such as money laundering, their source crimes, terrorism and financing of terrorism or crimes against the constitutional order, crimes against the public administration or that in any way violate the laws of the Ministerio de Hacienda of El Salvador, morals or good customs. Company represents, warrants and covenants to implement measures to prevent their operations from being used without its knowledge and consent as instruments for the concealment, management, investment or use in any form of money or other assets from criminal activities or to give appearance of legality to these activities. Company authorizes them to be consulted in databases.
Ministerio de Hacienda may unilaterally and immediately terminate this Service Addendum in the event that Company, its partners or shareholders, controllers and or their administrators become: (i) bound by the competent Government Authorities to any type of investigation for crimes of terrorism, money laundering, its source crimes, financing of terrorism or any crime against the constitutional order or crimes against the public administration; (ii) included in lists for the control of money laundering and financing of terrorism administered by any national or foreign authority, including but not limited to the list of the Office for the Control of Assets Abroad ("OFAC") issued by the Office of the Treasury of the United States of North America, the list of the United Nations Organization and other public lists related to the issue of money laundering and financing of terrorism; or (iii) investigated or convicted by the competent Government Authorities in any type of judicial process related to the commission of crimes of the same or similar nature to those indicated in this clause.
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10.11 Declaration of the Origin of Funds. Company represents, warrants and covenants that its assets and the economic sources that allow it to develop its corporate purpose are not the result of illicit activities, such as drug trafficking, frontman, illicit enrichment, terrorism, money laundering, trafficking of narcotics, kidnapping extortion and or human trafficking. Company represents, warrants and covenants that it does not operate in countries considered tax havens, countries sanctioned by OFAC and non-cooperating countries and that the constitution of the company is not under the bearer share scheme.
10.12 Continuity and Contingency Plan. Company represents, warrants and covenants to have duly updated continuity and contingency plans to execute and deliver the Services in this Service Addendum.
10.13 Applicability of Best Practices. Company as a specialized, professional and expert company represents, warrants and covenants that it will use the best practices established in the national and international standards that apply to the Service Addendum subject matter. Company represents, warrants and covenants that its management systems are fully aligned and integrated with said standards and best practices. For technology contracts, Company represents, warrants and covenants to use security standards and best practices, including without limitation the OWASP (Open Web Application Security Project), OSSTM (Open Source Security Testing Methodology Manual) and other applicable standards such as the NIST series.
[SIGNATURE PAGE FOLLOWS]
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By signing below, each Party acknowledges that it has read, and agrees to, all the terms of this Service Addendum.
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Exhibit 10.34
Thank you for using an Athena Bitcoin ATM!
IMPORTANT WARNINGS and TERMS OF SERVICE
DO NOT use this ATM to send money to a government agency, social security (SSA), IRS, FBI, police, or local utilities!!
DO NOT send bitcoin if someone (e.g., a new employer) paid you to send bitcoin. Fake checks and illegal activity risk is high!
Are you making a large purchase? Several thousand dollars? If you've been asked to insert a large amount STOP and think about what you are doing! Your SSN or identity might be stolen, but buying Bitcoin will not fix this.
HANG UP on anyone you are speaking with and CALL US FIRST at: 312-690-4466 !
All Bitcoin, Litecoin, Bitcoin Cash, and Ethereum sales are final once you have begun to insert cash.
You accept full responsibility for any transaction conducted through our ATM. Our "We Buy" and "We Sell" rates include our exchange fee for this ATM. By proceeding with the transaction, you understand that Athena Bitcoin Inc.'s sole responsibility is to deliver that bitcoin or other crypto asset to the address shown to you on the ATM screen. It is your responsibility to double-check that that address is correct for your purposes.
You pledge that: any address used to receive crypto currency is owned by you; all crypto currency will be used for lawful purposes (including HODLing); and all cash inserted into this ATM was legally obtained.
You further agree to follow all instructions given to you by the ATM or an Athena Bitcoin employee and to obey all restrictions, including purchase limits. Athena reserves the right to refuse service to anyone at any time and to take steps to prevent usage of our services for those who violate our policies (including freezes on purchases). You also agree to receive text messages regarding this transaction to your mobile phone (standard rates apply, unless you are special, then special rates apply).
Refunds that can be given by check will incur a $100 or 15% fee, whichever is greater. They will also take up to 60 business days.
Ethereum (ETH) must be transferred to an address controlled by the user purchasing it. IF YOU ARE BUYING A TOKEN, SEND ETHER TO YOUR ADDRESS FIRST.
By tapping "I agree" you are accepting all Athena Bitcoin Inc.'s Terms of Service
Exhibit 10.35
Athena Crypto Exchange FAQ and Terms of Service
What is ACE?
ACE was created to provide high-touch investment services for digital currency and digital assets. We wanted to specifically fill the value and convenience gap between the Athena Bitcoin ATM network and existing OTC platforms requiring very high investment amounts. Unlike typical exchanges, ACE prioritizes education, ease of use, and safety. We want to partner with each client to make sure they understand their digital asset investment and provide them with a quick and simple way to make a trade.
What assets do you support?
ACE-approved clients have access to buy and sell the following digital currencies: Bitcoin (BTC/XBT), Ethereum (ETH), and Litecoin (LTC). More assets might be available upon request. Just ask our traders!
There is a minimum of $10,000 per coin per transaction.
What payment forms do you accept?
Bank wires are the only accepted payment form at this time.
What are the fees?
ACE does not charge a commission on any transaction. Rather, you will be quoted a spread over the phone based on the relevant index that is competitive with the market. The price quoted to you is all-inclusive, and there will be no additional fees charged by ACE. As in all markets, spreads depend on liquidity and market conditions. Spreads are fully negotiated at the time of trade.
How does this work?
| · | Approved ACE account holders will be able to call our dedicated trading line between 9 am and 5 pm Central time. | |
| · | Our trader will ask for the amount and type of cryptocurrency you would like to purchase or sell to us. | |
| · | You will send a wire directly to us, if purchasing, or send your crypto asset to an address provided by our trader. | |
| · | Once you send us the payment in either USD or digital currency, we will begin the delivery process so that you receive your digital currency or US dollars. You will be emailed a confirmation and receipt for your completed trade and which should be used for your own accounting and tax purposes. |
What is your delivery process?
Once the wire funds are received by ACE, the delivery process begins…
– If a customer is selling their digital currency to ACE, then ACE will transfer USD into the customer’s account
– If the customer is purchasing digital currency, then the client will be sent a small test transaction. ACE will select the amount and the customer will not know the amount of the test transaction. The customer will confirm the amount over a phone call with an ACE representative.
| · | Once the test transaction is received and confirmed, the digital currency balance will be sent to the customer. | |
| · | Customers will receive a receipt of their digital currency purchase or sale for their own accounting and tax reporting purposes |
Can you help me store my digital currency?
| · | Among the advantages of being our client and using our service is the opportunity to speak with a live specialist. We are digital currency experts who will answer any question regarding purchase and sales of digital assets and their security. | |
| · | We can help you setup your own secure storage and best practices. We believe in digital currency as a tool for financial independence, so we do not offer custodial accounts like most exchanges. We would rather teach you how to secure your own coins and tokens. | |
| · | ACE does not custody digital currency after purchase and payment by you. We deliver digital currency to you and our experts can instruct you how to custody your digital currency. |
Exhibit 14.1
Our Code of Ethics
Compliance With Law
All employees, officers and directors of Athena Bitcoin Global and its subsidiaries (collectively the “Company”) should respect and comply with all of the laws, rules and regulations of the U.S. and other countries, and the states, counties, cities and other jurisdictions, in which the Company conducts its business or the laws, rules and regulations which are applicable to the Company, including the Sarbanes-Oxley Act of 2002, the Banking Secrecy Act of 1970, and the Patriot Act of 2001, and all applicable rules and regulations of the Securities & Exchange Commission and FinCEN. Such legal compliance should include, without limitation, compliance with the “insider trading” prohibitions of the federal securities laws applicable to the Company and its employees, officers, and directors. Generally, employees, officers and directors who have access to or knowledge of confidential or non-public information from or about the Company are not permitted to buy, sell, or otherwise trade in the Company’s securities, whether or not they are using or relying upon that information. This restriction extends to sharing or tipping others about such information; especially since the individuals receiving such information might utilize such information to trade in the Company’s securities.
Conflicts of Interest
All employees, officers and directors of the Company should be scrupulous in avoiding a conflict of interest with regard to the Company’s interests. A “conflict of interest” exists whenever an individual’s private interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of the Company. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. It is almost always a conflict of interest for a Company employee to work simultaneously for a competitor, customer, or supplier. You are not allowed to work for a competitor as a consultant or Board member. The best policy is to avoid any direct or indirect business connection with our customers, suppliers, or competitors, except on our behalf. Conflicts of interest may also arise when an employee, officer or director, or members of his or her family, receives improper personal benefits as a result of his or her position in the Company, whether received from the Company or a third party. Loans to, or guarantees of obligations of, employees, officers and directors and their respective family members may create conflicts of interest. Federal law prohibits loans to directors and executive officers made after July 30, 2002. Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with the Company’s legal counsel. Any employee, officer or director who becomes aware of a conflict or potential conflict should bring it to the attention of the Company’s Chief Executive Officer.
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Corporate Opportunities
Employees, officers, and directors are prohibited from (a) taking for themselves personal opportunities that properly belong to the Company or are discovered through the use of corporate property, information or position; (b) using corporate property, information or position for personal gain; and (c) competing with the Company. Employees, officers, and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.
Confidentiality
Employees, officers, and directors of the Company must maintain the confidentiality of confidential information entrusted to them by the Company or its suppliers or customers, except when disclosure is authorized by senior management or required by laws, regulations, or legal proceedings. Whenever feasible, employees, officers and directors should consult legal counsel if they believe they have a legal obligation to disclose confidential information. Confidential information includes all non-public information that might be of use to competitors of the Company, or harmful to the Company or its customers if disclosed.
Fair Dealing
Each employee, officer and director should endeavor to deal fairly with the Company’s customers, suppliers, competitors, officers, and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice. We seek to outperform our competition fairly and honestly. We seek competitive advantages through superior performance, never through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited.
Protection and Proper Use of Company Assets
All employees, officers and directors should protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. All Company assets should be used for legitimate business purposes.
Accurate Books and Records
All transactions by or on behalf of the Company shall be accurately reflected on its books and in its records.
Accounting Complaints
The Company’s policy is to comply with all financial reporting and accounting regulations applicable to the Company. If any employee, officer, or director of the Company has concerns or complaints regarding questionable accounting or auditing matters of the Company, then he or she is encouraged to submit those concerns or complaints to the Board of Directors.
Reporting Any Illegal or Unethical Behavior
Employees are encouraged to talk to supervisors, managers, officers or other appropriate personnel about observed illegal or unethical behavior and, when in doubt, about the best course of action in a particular situation. Employees, officers, and directors who are concerned that violations of this Code or that other illegal or unethical conduct by employees, officers or directors of the Company have occurred or may occur should either contact their supervisor or superiors. If they do not believe it appropriate or are not comfortable approaching their supervisors or superiors about their concerns or complaints, then they may contact the company’s legal counsel. Legal counsel for the Company is not an employee of the Company, and owes a fiduciary duty to the Company as its client, and not any one of its officers, directors or employees. If any employee, officer or director’s concerns or complaints require confidentiality, including keeping his or her identity anonymous, then this confidentiality will be protected, subject to applicable law, regulation, or legal proceedings.
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No Retaliation
The Company will not permit retaliation of any kind by or on behalf of the Company and its employees, officers and directors against good faith reports or complaints of violations of this Code or other illegal or unethical conduct.
Public Company Reporting
As a public company, the Company’s filings with the Securities and Exchange Commission must be accurate and timely. Depending on his or her position with the Company, an employee, officer, or director may be called upon to provide necessary information to assure that the Company’s public reports are complete, fair, and understandable. The Company expects employees, officers, and directors to take this responsibility very seriously and to provide prompt accurate answers to inquiries related to the Company’s public disclosure requirements.
Document Retention
Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation please consult the Company’s legal counsel or Chief Compliance Officer.
Penalties for Failure to Adhere to Code of Ethics
Any employee who ignores or violates this Code and any supervisor or superior who penalized a subordinate for attempting in good faith to comply with this Code, including for reporting suspected violations of this Code, will be subject to disciplinary action by the Company, including immediate dismissal.
Amendment/Modification
This Code may be amended, modified, or waived by the Company’s Board of Directors.
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Exhibit 21.1
List of Subsidiaries
Set forth below are the Company’s wholly-owned subsidiaries:
Athena Bitcoin, Inc. incorporated in Delaware
Athena Holdings El Salvador, S.A. de C. V. incorporated in El Salvador
Athena Holdings Colombia, SAS incorporated in Colombia
Athena Holding Company S.R.L. incorporated in Argentina
Athena Bitcoin S. de R. L. de C. V. incorporated in Mexico
Athena Holdings of PR LLC incorporated in Puerto Rico
Athena Holdings of PR LLC incorporated in Puerto Rico
Athena Bitcoin Inc. owns directly or indirectly 100% of the voting rights to all the named subsidiaries.
| a. | Athena Bitcoin Global owns 100% of outstanding shares of Athena Bitcoin Inc | |
| b. | Athena Bitcoin Inc. owns 99% of Athena Holdings El Salvador SA de CV and Eric Gravengaard holds 1% on behalf of the Company. | |
| c. | Athena Bitcoin Inc. beneficially owns and controls Athena Holdings SAS which is nominally owned by Eric Gravengaard 95% and Matias Goldenhörn 5%. | |
| d. | Athena Bitcoin Inc. beneficially owns and controls Athena Holding Company SRL which is nominally owned by Eric Gravengaard 45%, Gilbert Valentine 45%, and Matias Goldenhörn 10%. | |
| e. | Athena Bitcoin Inc. owns 2,999 Shares of Athena Bitcoin SRL de CV and Eric Gravengaard owns 1 Share on behalf of the Company. | |
| f. | Athena Bitcoin Inc. is the sole member of Athena Holdings of PR LLC | |
| g. | Athena Bitcoin Inc. owns 100% Athena Business Holdings Panama S.A. |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Form S-1-A2 of our report dated March 31, 2022, relating to the financial statements of Athena Bitcoin Global as of December 31, 2021 and 2020 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
May 16, 2022
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