RISK FACTORS
An investment in our securities involves a high degree of risk.
You should carefully consider the risks and uncertainties described in this
prospectus and the documents incorporated by reference into this prospectus.
The risks and uncertainties described in this prospectus are not the only ones
we face. Additional risks and uncertainties that we do not presently know about
or that we currently believe are not material may also adversely affect our
business, business prospects, results of operations or financial condition. If
any of the risks and uncertainties described in this prospectus or the
documents incorporated by reference into this prospectus actually occurs, then
our business, results of operations and financial condition could be adversely
affected in a material way. This could cause the market price of the Class B
Common Stock to decline, perhaps significantly, and you may lose part or all
of your investment.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Investing in our common stock involves a high
degree of risk because our business is subject to numerous risks and
uncertainties, as fully described below. The principal factors and
uncertainties that make investing in our common stock risky include, among
others:
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We are a small company with a relatively limited
operating history, which may result in increased risks, uncertainties,
expenses and difficulties, and makes it difficult to evaluate our future
prospects.
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Our revenue growth rate and financial performance in
recent periods may not be indicative of future performance and such growth
may slow over time.
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The COVID-19 pandemic has harmed and could continue
to harm our business, financial condition and results of operations.
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If we fail to effectively manage our growth, our
business, financial condition and results of operations could be adversely
affected.
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We have incurred net losses in the past, and we may
not be able to maintain or increase our profitability in the future.
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Our quarterly results are likely to fluctuate and as
a result may adversely affect the trading price of our common stock.
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If we are unable to build and maintain a diverse and
robust loan funding program, our growth prospects, business, financial
condition and results of operations could be adversely affected.
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Our business is subject to a wide range of laws and
regulations, many of which are evolving, and failure or perceived failure to
comply with such laws and regulations could harm our business, financial
condition and results of operations.
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We rely on strategic relationships with loan
aggregators to attract applicants to our platform, and if we cannot maintain
effective relationships with loan aggregators or successfully replace their
services, or if loan aggregators begin offering competing products, our
business could be adversely affected.
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Substantially all of our revenue is derived from a
single loan product, and we are thus particularly susceptible to fluctuations
in the unsecured personal loan market. We also do not currently offer a broad
suite of products that bank partners may find desirable.
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We are a rapidly growing company with a
relatively limited operating history, which may result in increased risks,
uncertainties, expenses and difficulties, and makes it difficult to evaluate
our future prospects.
We were a small company with limited
operating experience. Our limited operating history may make it difficult to
make accurate predictions about our future performance. Assessing our business
and future prospects may also be difficult because of the risks and
difficulties we face. These risks and difficulties include our ability to:
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Develop and improve the effectiveness and
predictiveness of our ML- AI models;
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Build and maintain and increase the volume of loans
facilitated by our AI lending platform;
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enter into new and maintain existing bank
partnerships;
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successfully build and maintain a diversified loan
funding strategy, including bank partnerships and whole loan sales and
securitization transactions that enhance loan liquidity for the Bank partners
that use our loan funding capabilities;
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successfully fund a sufficient quantity of our
borrower loan demand with low cost bank funding to help keep interest rates
offered to borrowers competitive;
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maintain competitive interest rates offered to
borrowers on our ML-AI platform, while enabling the Bank partners to achieve
an adequate return over their cost of funds, whether through their own
balance sheets or through our loan funding programs;
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successfully build our brand and protect our
reputation from negative publicity;
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Develop and increase the effectiveness of our
marketing strategies, including our direct consumer marketing initiatives;
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continue to expand the number of potential
borrowers;
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successfully adjust our proprietary ML- AI models,
products and services in a timely manner in response to changing
macroeconomic conditions and fluctuations in the credit market;
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comply with and successfully adapt to complex and
evolving regulatory environments.
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protect against increasingly sophisticated
fraudulent borrowing and online theft;
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successfully compete with companies that are
currently in, or may in the future enter, the business of providing online
lending services to financial institutions or consumer financial services to
borrowers;
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enter into new markets and introduce new products
and services;
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effectively secure and maintain the confidentiality
of the information received, accessed, stored, provided and used across our
systems;
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successfully obtain and maintain funding and
liquidity to support continued growth and general corporate purposes;
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attract, integrate and retain qualified employees;
and
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effectively manage and expand the capabilities of
our operations teams, outsourcing relationships and other business
operations.
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If we are not able to timely
and effectively address these risks and difficulties as well as those described
elsewhere in this “Risk Factors” section, our business and results of
operations may be harmed.
The COVID-19 pandemic has harmed and could
continue to harm our business, financial condition and results of operations.
The COVID-19 pandemic has caused extreme
societal, economic, and financial market volatility, resulting in business
shutdowns, an unprecedented reduction in economic activity and significant
dislocation to businesses, the capital markets, and the broader economy. In
particular, the impact of the COVID-19 pandemic on the finances of borrowers on
our platform has been profound, as many have been, and will likely continue to
be, impacted by unemployment, reduced earnings and/or elevated economic
disruption and insecurity.
The COVID-19 pandemic may
lead to a continued economic downturn, which is expected to decrease technology
spending generally and could adversely affect demand for our platforms and
services, in addition to prolonging the foregoing challenges in our business.
We have taken precautionary
measures intended to reduce the risk of the virus spreading to our employees,
partner banks, vendors, and the communities in which we operate, including
temporarily closing our offices and virtualizing, postponing, or canceling
partner bank, employee, or industry events, which may negatively impact our
business. Furthermore, as a result of the COVID-19 pandemic, we have required
all employees who are able to do so to work remotely through the end of the
first quarter of 2021. It is possible that widespread remote work arrangements
may have a negative impact on our operations, the execution of our business
plans, the productivity and availability of key personnel and other employees
necessary to conduct our business, and on third-party service providers who
perform critical services for us, or otherwise cause operational failures due
to changes in our normal business practices necessitated by the outbreak and
related governmental actions. If a natural disaster, power outage, connectivity
issue, or other event occurred that impacted our employees’ ability to work
remotely, it may be difficult or, in certain cases, impossible, for us to
continue our business for a substantial period of time. The increase in remote
working may also result in increased consumer privacy, data security, and fraud risks, and our understanding of applicable legal
and regulatory requirements, as well as the latest guidance from regulatory
authorities in connection with the COVID-19 pandemic, may be subject to legal
or regulatory challenge, particularly as regulatory guidance evolves in
response to future developments.
The extent to
which the COVID-19 pandemic continues to impact our business and results of operations
will also depend on future developments that are highly uncertain and cannot be
predicted, including new information which may emerge concerning the severity
of the disease, the duration and spread of the outbreak, the scope of travel
restrictions imposed in geographic areas in which we operate, mandatory or
voluntary business closures, the impact on businesses and financial and capital
markets, and the extent and effectiveness of actions taken throughout the world
to contain the virus or treat its impact. An extended period of economic
disruption as a result of the COVID-19 pandemic could have a material negative
impact on our business, results of operations, and financial condition, though
the full extent and duration is uncertain. To the extent the COVID-19 pandemic
continues to adversely affect our business and financial results, it is likely
to also have the effect of heightening many of the other risks described in
this “Risk Factors” section.
If we are unable to develop and
continuously improve our ML- AI models or if our ML- AI models contain errors
or are otherwise ineffective, our growth prospects, business, financial
condition and results of operations would be adversely affected.
Our ability to attract potential borrowers
to our proposed ML-AI lending platform and build/increase the number of
ML-AI-powered loans will depend in large part on our ability to effectively
evaluate a borrower’s creditworthiness and likelihood of default and, based on
that evaluation, offer competitively priced loans and higher approval rates.
Further, our overall operating efficiency and margins will depend in large part
on our ability to develop and maintain a high degree of automation in our loan
application process and achieve incremental improvements in the degree of
automation. If our ML- AI models fail to adequately predict the
creditworthiness of borrowers due to the design of our models or programming or
other errors, and our ML- AI models do not detect and account for such errors,
or any of the other components of our credit decision process fails, we may
experience higher than forecasted loan losses. Any of the foregoing could
result in sub-optimally priced loans, incorrect approvals or denials
of loans, or higher than expected loan losses, which in turn could adversely
affect our ability to attract new borrowers and bank partners to our platform,
increase the number of ML-AI-powered loans or maintain or increase the average
size of loans facilitated on our platform.
Our ML- AI models would also
target and optimize other aspects of the lending process, such as borrower
acquisition, fraud detection, default timing, loan stacking, prepayment timing
and fee optimization, and our continued improvements to such models have
allowed us to facilitate loans inexpensively and virtually instantly, with a
high degree of consumer satisfaction and with an insignificant impact on loan
performance. However, such applications of our ML- AI models may prove to be
less predictive than we expect, or than they have been in the past, for a
variety of reasons, including inaccurate assumptions or other errors made in
constructing such models, incorrect interpretations of the results of such
models and failure to timely update model assumptions and parameters.
Additionally, such models may not be able to effectively account for matters
that are inherently difficult to predict and beyond our control, such as
macroeconomic conditions, credit market volatility and interest rate
fluctuations, which often involve complex interactions between a number of
dependent and independent variables and factors. Material errors or
inaccuracies in such ML- AI models could lead us to make inaccurate
or sub-optimal operational or strategic decisions, which could
adversely affect our business, financial condition and results of operations.
Additionally, errors or
inaccuracies in our ML- AI models could result in any person exposed to the
credit risk of ML-AI-powered loans, whether it be us, our bank partners or
investors in our loan funding programs, experiencing
higher than expected losses or lower than desired returns, which could impair
our ability to retain existing or attract new bank partners and investors to
participate in our loan funding programs, reduce the number, or limit the
types, of loans bank partners and investors are willing to fund, and limit our
ability to increase commitments under our warehouse and other debt facilities.
Any of these circumstances could reduce the number of ML-AI-powered loans and
harm our ability to maintain a diverse and robust loan funding program and
could adversely affect our business, financial condition and results of
operations.
Continuing to improve the
accuracy of our ML- AI models would be central to our business strategy.
However, such improvements could negatively impact transaction volume, such as
by lowering approval rates. While we believe that continuing to improve the
accuracy of our ML- AI models is key to our long-term success, those
improvements could, from time to time, lead us to reevaluate the risks
associated with certain borrowers, which could in turn cause us to lower
approval rates or increase interest rates for any borrowers identified as a
higher risk, either of which could negatively impact our growth and results of
operations in the short term.
Risks Related to the
Digital Currency Industry
The characteristics
of digital currency have been, and may in the future continue to be, exploited
to facilitate illegal activity such as fraud, money laundering, tax evasion and
ransomware scams; if any of our customers do so or are alleged to have done so,
it could adversely affect us.
Digital currencies and the digital currency industry are
relatively new and, in many cases, lightly regulated or largely unregulated.
Some types of digital currency have characteristics, such as the speed with
which digital currency transactions can be conducted, the ability to conduct
transactions without the involvement of regulated intermediaries, the ability
to engage in transactions across multiple jurisdictions, the irreversible
nature of certain digital currency transactions and encryption technology that
anonymizes these transactions, that make digital currency particularly
susceptible to use in illegal activity such as fraud, money laundering, tax
evasion and ransomware scams. Two prominent examples of marketplaces that
accepted digital currency payments for illegal activities include Silk Road, an
online marketplace on the dark web that, among other things, facilitated the
sale of illegal drugs and forged legal documents using digital currencies and
AlphaBay, another darknet market that utilized digital currencies to hide the
locations of its servers and identities of its users. Both of these
marketplaces were investigated and closed by U.S. law enforcement authorities.
U.S. regulators, including the Securities and Exchange Commission, or the SEC,
Commodity Futures Trading Commission, or the CFTC, and Federal Trade
Commission, or the FTC, as well as non-U.S. regulators, have taken
legal action against persons alleged to be engaged in Ponzi schemes and other
fraudulent schemes involving digital currencies. In addition, the Federal
Bureau of Investigation has noted the increasing use of digital currency in
various ransomware scams.
While we believe that our risk management and compliance
framework, which includes thorough reviews we conduct as part of our due
diligence process (either in connection with onboarding new customers or
monitoring existing customers), is reasonably designed to detect any such
illicit activities conducted by our potential or existing customers (or, in the
case of digital currency exchanges, their customers), we cannot ensure that we
will be able to detect any such illegal activity in all instances. Because the
speed, irreversibility and anonymity of certain digital currency transactions
make them more difficult to track, fraudulent transactions may be more likely
to occur. We or our potential banking counterparties may be specifically
targeted by individuals seeking to conduct fraudulent transfers, and it may be
difficult or impossible for us to detect and avoid such transactions in certain
circumstances. If one of our customers (or in the case of digital currency
exchanges, their customers) were to engage in or be accused of engaging in
illegal activities using digital currency, we could be subject to various fines
and sanctions, including limitations on our activities, which could also cause
reputational damage and adversely affect our business,
financial condition and results of operations. For more information regarding
the regulatory agencies and regulations to which we are subject, see “—Risks
Related to Regulation”. Lastly, we may experience a reduction in our deposits
if such an incident were to impact one of our customers, even if there was no
wrongdoing on our part.
Risks Related to Our Digital Currency Initiative
The majority of the Bank’s deposits are from businesses involved
in the digital currency industry. As a result, we rely heavily on the success
of the digital currency industry, the development and acceptance of which is
subject to a variety of factors that are difficult to evaluate.
We intend to create a technology-led digital currency
infrastructure platform, including the BEN and cash management solutions,
to facilitate cash transactions for the Bank’s digital currency deposit
customers. This platform would drive growth of a customer base that would
include some of the fastest growing companies within the digital currency
industry, consisting primarily of digital currency exchanges, institutional
investors and other industry participants. See “Prospectus Summary—Digital
Currency Customers.”
The businesses in which these customers engage involve digital
currencies such as bitcoin, other technologies underlying digital currencies
such as blockchain, and services associated with digital currencies and
blockchain. The digital currency industry includes a diverse set of businesses
that use digital currencies for different purposes and provide services to
others who use digital currencies. This is a new and rapidly evolving industry,
and the viability and future growth of the industry and adoption of digital
currencies and the underlying technology is subject to a high degree of
uncertainty, including based upon the adoption of the technology, regulation of
the industry, and price volatility, among other factors. Because the sector is
relatively new, your investment may be exposed to additional risks which are
not yet known or quantifiable.
Bitcoin, the first widely used digital currency, and many other
digital currencies were designed to function as a form of money. However,
digital currencies have only recently become selectively accepted as a means of
payment for goods and services and then only by some retail and commercial
businesses. Use of digital currency by consumers as a form of payment is
limited. Some digital currencies were built for uses other than as a substitute
for fiat money. For example, the Ethereum network is intended to permit the
development and use of smart contracts, which are programs that execute on a
blockchain. The digital asset known as Ether was designed to facilitate
transactions involving smart contracts on the Ethereum network. Many of these
digital currencies are listed on digital currency exchanges and are traded and
purchased as investments by a variety of market participants.
Other factors affecting the further development of the digital
currency industry and our business include, but are not limited to:
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the
adoption and use of digital currencies, including adoption and use as a
substitute for fiat currency or for other uses, which may be adversely
impacted by continued price volatility;
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government
and quasi-government regulation of digital currencies, their use, and
intermediaries and other businesses involved in digital currencies, noting in
particular that the SEC has taken action against several cryptocurrency
operators and has raised questions whether certain digital currency exchanges
must be registered with the SEC to continue operating;
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the
use of digital currencies, or the perception of such use, to facilitate
illegal activity such as fraud, money laundering, tax evasion and ransomware
scams by our customers;
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restrictions
on or regulation of access to and operation of the digital currency exchanges
or other platforms that facilitate trading in digital currencies;
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heightened
risks to digital currency businesses, such as digital currency exchanges, of
hacking, malware attacks, and other cyber-security risks, which can lead to
significant losses;
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developments
in digital currency trading markets, including decreasing price volatility of
digital currencies, resulting in narrowing spreads for digital currency
trading and diminishing arbitrage opportunities across digital currency
exchanges, or increased price volatility, which could negatively impact our
customers and therefore our deposits, either of which in turn may reduce the
benefits of the BEN and negatively impact our business;
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changes
in consumer demographics and public taste and preferences;
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the
maintenance and development of the software protocol of the digital currency
networks;
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the
availability and popularity of other forms or methods of buying and selling
goods and services, including new means of using fiat currencies;
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the
use of the networks supporting digital currencies for developing smart
contracts and distributed applications;
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general
economic conditions and the regulatory environment relating to digital
currencies; and
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increased
regulatory oversight of digital currencies and the costs associated with such
regulatory oversight.
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If any of these factors, or other factors, slows development of
the digital currency industry, it could adversely affect our digital currency
initiative and therefore have a material adverse effect on our business,
financial condition and results of operation. For example, a decline in the
digital currency industry that leads to a decline in deposit balances by
digital currency customers would negatively affect our anticipated sources of
funding. In such circumstances, we may be forced to rely more heavily on other,
potentially more expensive and less stable funding sources. Consequently, a
decline in the growth of the digital currency industry could have a material
adverse effect on our business, financial condition and results of operations.
We may not be able to implement aspects of our growth strategy,
which may impact our position as the leading provider of innovative financial
infrastructure solutions and services to participants in the digital currency
industry and adversely affect our ability to maintain our recent growth and
earnings trends.
We intend to grow, primarily through ML-AI enabled lending
platform and a Blockchain-powered technology platform related to our digital
currency initiative. We may not be able to execute on aspects of our growth
strategy, which may impair our ability to sustain this rate of growth or
prevent us from growing at all. More specifically, we may not be able to
generate sufficient amounts of new loans and deposits within acceptable risk
and expense tolerances or obtain the personnel or funding necessary for
additional growth, which may therefore preclude the proposed Bank from
developing products and services relating to digital currency transaction flows
and collateral, custodian services, international expansion of our customer
base and other potential fintech opportunities.
The success of new or
improved solutions and services depends on several factors, including costs,
timely completion, regulatory approvals, the introduction, reliability and
stability of our solutions and services, differentiation of new or improved
solutions and market acceptance. There can be no assurance that we will be
successful in developing and marketing our digital currency initiative in a
timely manner or at all, or that our new or improved solutions and services
will adequately address market demands. Market acceptance and adoption of
solutions and services within our digital currency initiative will depend on,
among other things, the solutions and services demonstrating a real advantage
over existing products and services, the success of our sales and marketing
teams in creating awareness of our solutions and services, competitive pricing
of such solutions and services, customer recognition of the value of our
technology and the general willingness of potential customers to try new
technologies. In particular, if we are unable to achieve sufficient market
adoption of the BEN, our growth strategy may be adversely affected.
Various factors, such as general economic conditions, conditions
in the digital currency industry and competition with other financial
institutions and infrastructure service providers, may impede or preclude the
growth of our operations. Our business and the growth of our
operations would be dependent on, among other things, the continued success and
growth of the BEN. If conditions in digital currency markets change such that
certain trading strategies currently employed by our institutional investor
customers become less profitable, the benefits of the BEN and the API may be
diminished, resulting in a decrease in our deposit balance and adversely
impacting our growth strategy. In addition, if a competitor or another third
party were to launch an alternative to the BEN (such as the Federal Reserve’s
recently announced plan to develop a virtually real-time payment system for
banks, which is expected to be available as early as 2023), we could lose
noninterest bearing deposits and our business, financial condition, results of
operations and growth strategy could be adversely impacted. Further, we may be
unable to attract and retain experienced employees, which could adversely
affect our growth.
The success of our proposed strategy would also depend on our
ability to manage our growth effectively, which would depend on many factors,
including our ability to adapt the regulatory, compliance, credit, operational,
technology and governance infrastructure to accommodate expanded operations,
particularly as these relate to the digital currency industry. If we are
successful in continuing our growth, we cannot assure you that further growth
would offer the same levels of potential profitability, or that we would be
successful in controlling costs and maintaining asset quality in the face of
that growth. Accordingly, an inability to build and maintain growth, or an
inability to effectively manage growth, could have a material adverse effect on
our business, financial condition and results of operations. The further
development and acceptance of digital currencies and blockchain technology are
subject to a variety of factors that are difficult to evaluate, as discussed
above. The slowing or stopping of the development or acceptance of digital
currency networks and blockchain technology may adversely affect our ability to
continue to grow and capitalize on our digital currency strategy.
The Bank would have large depositor relationships that would be
concentrated in the digital currency industry generally and among digital
currency exchanges in particular, the loss of any of which could force us to
fund our business through more expensive and less stable sources.
The proposed Bank, once acquired, would be exposed to high
customer concentration with our BEN exchange customers. A decision by the
customers of an exchange to exit the exchange or a decision by an exchange to
withdraw deposits or move deposits to our competitors could result in
substantial changes in the Bank’s deposit base. Exchanges present additional
risks because they have been frequent targets and victims of fraud and cyber
attacks and the failure or exit of one or more exchanges as customers could
have a material adverse effect on our business, financial condition and results
of operations.
In addition,
withdrawals of deposits by any one of the Bank’s largest depositors could force
us to rely more heavily on borrowings and other sources of funding for our
business and withdrawal demands, adversely affecting our net interest margin
and results of operations. The Bank may also be forced, because of deposit
withdrawals, to rely more heavily on other, potentially more expensive and less
stable funding sources. Consequently, the occurrence of any of these events
could have a material adverse effect on our business, financial condition and
results of operations.
The prices of digital currencies are extremely volatile.
Fluctuations in the price of various digital currencies may cause uncertainty
in the market and could negatively impact trading volumes of digital currencies
and therefore the extent to which participants in the digital currency industry
demand our services and solutions, which would adversely affect our business,
financial condition and results of operations.
The value of digital currencies is based in part on market
adoption and future expectations, which may or may not be realized. As a
result, the prices of digital currencies are highly speculative. The prices of
digital currencies have been subject to dramatic fluctuations to date. Several
factors may affect price, including, but not limited to:
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Global
digital currency supply, including various alternative currencies which exist,
and global digital currency demand, which can be influenced by the growth or
decline of retail merchants’ and commercial businesses’ acceptance of digital
currencies as payment for goods and services, the security of online digital
currency exchanges and digital wallets that hold digital currencies, the
perception that the use and holding of digital currencies is safe and secure
and regulatory restrictions on their use;
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Changes
in the software, software requirements or hardware requirements underlying a
blockchain network. For example, a fork occurs when there is a change to a
digital currency’s underlying protocol, which creates new rules for the
system. Forks in the future are likely to occur and there is no assurance
that such a fork would not result in a sustained decline in the market price
of digital currencies;
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Changes
in the rights, obligations, incentives, or rewards for the various
participants in a blockchain network;
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The
maintenance and development of the software protocol of digital currencies;
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Digital
currency exchanges deposit and withdrawal policies and practices, liquidity
on such exchanges and interruptions in service from or failures of such
exchanges;
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Regulatory
measures, if any, that affect the use and value of crypto-assets;
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Competition
for and among various digital currencies that exist and market preferences
and expectations with respect to adoption of individual currencies;
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Actual
or perceived manipulation of the markets for digital currencies;
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Actual
or perceived threats that digital currencies and related activities such as
mining have adverse effects on the environment or are tied to illegal
activities; and
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Expectations
with respect to the rate of inflation in the economy, monetary policies of
governments, trade restrictions and currency devaluations and revaluations.
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The digital currency
market is volatile, and changes in the prices and/or trading volume of digital
currencies may adversely impact our growth strategy and our business. In
particular, the impact that changes in prices and/or trading volume of digital
currencies have on our deposit balance from customers in the digital currency
industry is unpredictable, as any reduction in deposits attributable to such
changes may be amplified or mitigated by other developments, such as the
onboarding of new customers, loss of existing customers and changes in our
customers’ operational and trading strategies. We have experienced deposit
fluctuations over the last 18 months, which have been correlated with or
contrary to the price and/or trading volume of digital currencies at various
times. There can be no assurance that a decrease in the value of digital
currencies would not adversely impact the amount of such deposits in the
future. In addition, volatility in the values of digital currencies caused by
the factors described above or other factors may impact the demand for our
services and therefore have a material adverse effect on our business, financial
condition and results of operations.
Risks Related to Cybersecurity and Technology
System failure or cybersecurity breaches of our network security
could subject us to increased operating costs as well as litigation and other
potential losses.
Our computer systems and network infrastructure, including the BEN
and API, could be vulnerable to hardware and cybersecurity issues. Our
operations are dependent upon our ability to protect our computer equipment
against damage from fire, power loss, telecommunications failure or a similar
catastrophic event. We could also experience a breach by intentional or
negligent conduct on the part of employees or other internal sources. Any
damage or failure that causes an interruption in our operations could have a material
adverse effect on our financial condition and results of operations.
Our operations would be dependent upon our ability to protect our
computer systems and network infrastructure, including the BEN, the API, and
our other online banking systems, against damage from
physical break-ins, cybersecurity breaches and other disruptive
problems caused by the internet or other users. Such
computer break-ins and other disruptions would jeopardize the
security of information stored in and transmitted through our computer systems
and network infrastructure, which may result in significant liability, damage
our reputation and inhibit the use of our internet banking services by current
and potential customers. We could also become the target of various cyberattacks
as a result of our focus on the digital currency industry. We regularly add
additional security measures to our computer systems and network infrastructure
to mitigate the possibility of cybersecurity breaches, including firewalls and
penetration testing. However, it is difficult or impossible to defend against
every risk being posed by changing technologies as well as acts of cyber-crime.
Increasing sophistication of cyber criminals and terrorists make keeping up
with new threats difficult and could result in a system breach. Controls
employed by our information technology department and cloud vendors could prove
inadequate. A breach of our security that results in unauthorized access to our
data could expose us to a disruption or challenges relating to our daily
operations, as well as to data loss, litigation, damages, fines and penalties,
significant increases in compliance costs and reputational damage, any of which
could have a material adverse effect on our business, financial condition and
results of operations.
We may not have the resources to keep pace with rapid
technological changes in the industry or implement new technology effectively.
The financial services industry is undergoing rapid technological
changes with frequent introductions of new technology-driven products and
services. In addition to serving customers better, the effective use of
technology increases efficiency and enables financial institutions to reduce
costs. As a result, to stay current with the industry, our business model may
need to evolve as well. Our future success will depend, at least in part, upon
our ability to address the needs of our customers by using technology to
provide products and services that will satisfy customer demands for
convenience as well as to create additional
efficiencies in our operations as we continue to grow and expand our products
and service offerings. We may experience operational challenges as we implement
these new technology enhancements or products, which could impair our ability
to realize the anticipated benefits from such new technology or require us to
incur significant costs to remedy any such challenges in a timely manner. From
time to time, we may modify aspects of our business model relating to our
product mix and service offerings. We cannot offer any assurance that these or
any other modifications will be successful.
The technology relied upon by the Company, including the BEN, the
API and our other on-line banking systems, may not function properly,
which may have a material impact on the Company’s operations and
financial conditions. There may be no alternatives available if
such technology does not work as anticipated. The importance of the BEN, the
API and our other on-line banking systems to the Company’s operations
means that any problems in its functionality would have a material adverse
effect on the Company’s operations. This technology may malfunction because of
internal problems or because of cyberattacks or external security breaches. Any
such technological problems would have a material adverse impact on the
Company’s business model and growth strategy.
Many of our prospective larger competitors have substantially greater
resources to invest in technological improvements. Third parties upon which we
rely for our technology needs may not be able to develop, on a cost-effective
basis, systems that will enable us to keep pace with such developments. As a
result, our larger competitors may be able to offer additional or superior
products compared to those that we will be able to provide, which would put us
at a competitive disadvantage. We may lose customers seeking new
technology-driven products and services to the extent we are unable to provide
such products and services. The ability to keep pace with technological change
is important and the failure to do so could adversely affect our business,
financial condition and results of operations.
Our operations could be interrupted if our third-party service
providers experience operational or other systems difficulties, terminate their
services or fail to comply with banking regulations.
We intend to outsource some of our operational activities and
accordingly depend on relationships with many third-party service providers.
Specifically, we would rely on third parties for certain services, including,
but not limited to, core systems support, informational website hosting,
internet services, online account opening and other processing services. Our
business depends on the successful and uninterrupted functioning of our
information technology and telecommunications systems and third-party service
providers. The failure of these systems, a cybersecurity breach involving any
of our third-party service providers or the termination or change in terms of a
third-party software license or service agreement on which any of these systems
is based could interrupt our operations. Because our information technology and
telecommunications systems interface with and depend on third-party systems, we
could experience service denials if demand for such services exceeds capacity
or such third-party systems fail or experience interruptions. Replacing vendors
or addressing other issues with our third-party service providers could entail
significant delay, expense and disruption of service.
As a result, if these third-party service providers experience
difficulties, are subject to cybersecurity breaches, or terminate their
services, and we are unable to replace them with other service providers,
particularly on a timely basis, our operations could be interrupted. If an
interruption were to continue for a significant period, our business, financial
condition and results of operations could be adversely affected. Even if we can
replace third-party service providers, it may be at a higher cost to us, which
could adversely affect our business, financial condition and results of
operations.
In addition, the Bank’s primary federal regulator, the Federal Reserve,
has issued guidance outlining the expectations for third-party service provider
oversight and monitoring by financial institutions. The federal
banking agencies, including the Federal Reserve, have also issued enforcement
actions against financial institutions for failure in oversight of third-party
providers and violations of federal banking law by such providers when
performing services for financial institutions. Accordingly, our operations
could be interrupted if any of our third-party service providers experience
difficulties, are subject to cybersecurity breaches, terminate their services
or fail to comply with banking regulations, which could adversely affect our
business, financial condition and results of operations. In addition, our
failure to adequately oversee the actions of our third-party service providers
could result in regulatory actions against the Bank, which could adversely
affect our business, financial condition and results of operations.
Risks Related to Our Traditional Banking Business
As a business operating in the financial services industry, our
business and operations may be adversely affected in numerous and complex ways
by weak economic conditions.
After the acquisition of the Bank, our business and operations,
which primarily consist of lending money to clients in the form of loans,
borrowing money from clients in the form of deposits and investing in interest
earning deposits in other banks and securities, are sensitive to general
business and economic conditions in the United States. We would solicit
deposits throughout the United States and, while our primary lending market
would be either the state of California or Georgia, we would purchase and
originate loans throughout the United States. If the U.S. economy weakens, our
growth and profitability from our lending, deposit and investment operations
could be constrained. Uncertainty about the federal fiscal policymaking
process, the medium- and long-term fiscal outlook of the federal government and
future tax rates is a concern for businesses, consumers and investors in the
United States. While there has been an improvement in the U.S. economy since
the 2008 financial crisis as evidenced by a rebound in the housing market,
lower unemployment and higher equity capital markets, economic growth has been
uneven and opinions vary on the strength and direction of the economy.
Uncertainties also have arisen regarding the potential for a reversal or
renegotiation of international trade agreements, the effects of the legislation
commonly known as Tax Cuts and Jobs Act of 2017, or the Tax Act, and the impact
such actions and other policies the current administration may have on economic
and market conditions.
Weak economic conditions are characterized by numerous factors,
including deflation, fluctuations in debt and equity capital markets, a lack of
liquidity and depressed prices in the secondary market for mortgage loans,
increased delinquencies on mortgage, consumer and commercial loans, residential
and commercial real estate price declines and lower levels of home sales and
commercial activity. The current economic environment is characterized by lower
interest rates than historically have been the case, which impacts our ability
to generate attractive earnings through our loan and investment portfolios.
These factors can individually or in the aggregate be detrimental to our
business, and the interplay between these factors can be complex and
unpredictable. Adverse economic conditions could have a material adverse effect
on our business, financial condition and results of operations.
We would face strong competition from financial services companies
and other companies that offer banking services.
We would operate in the highly competitive financial services
industry and face significant competition for customers from financial
institutions located both within and beyond our principal markets. We compete
with commercial banks, savings banks, credit unions, nonbank financial services
companies and other financial institutions operating both within our market
areas and nationally, and in respect of our digital currency initiative,
we also compete with other entities in the digital currency
industry, including a limited number of other banks providing services to the
digital currency industry and digital currency exchanges. In addition, as
customer preferences and expectations continue to evolve, technology has
lowered barriers to entry and made it possible for
banks to expand their geographic reach by providing services over the internet
and for nonbanks to offer products and services traditionally provided by
banks, such as automatic payment systems. The Banking industry is experiencing
rapid changes in technology and, as a result, our future success will depend in
part on our ability to address our customers’ needs by using technology.
Customer loyalty can be influenced by a competitor’s new products, especially
offerings that could provide cost savings or a higher return to the customer.
Increased lending activity of competing banks following the 2008–2009 economic
downturn has also led to increased competitive pressures on loan rates and
terms for high quality credits. We may not be able to compete successfully with
other financial institutions in our markets, and we may have to pay higher
interest rates to attract deposits, accept lower yields to attract loans and
pay higher wages for new employees, resulting in lower net interest margins and
reduced profitability.
Many of our non-bank competitors are not subject to the
same extensive regulations that govern our activities and may have greater
flexibility in competing for business. The financial services industry could
become even more competitive because of legislative, regulatory and
technological changes and continued consolidation. In addition, some of our
current commercial banking customers may seek alternative banking sources as
they develop needs for credit facilities larger than we may be able to
accommodate.
Our inability to compete successfully in the markets in which we
operate could have a material adverse effect on our business, financial
condition or results of operations.
We may not be able to measure and limit our credit risk adequately,
which could lead to unexpected losses.
The business of lending is inherently risky, including risks that
the principal of or interest on any loan will not be repaid in a timely manner
or at all or that the value of any collateral supporting the loan will be
insufficient to cover our outstanding exposure. These risks may be affected by
the financial condition of the borrower, the strength of the borrower’s
business sector and local, regional and national market and economic
conditions. Many of our loans are made to small-
to medium-sized businesses that may be less able to withstand
competitive, economic and financial pressures than larger borrowers. Our risk
management practices, such as monitoring the concentration of our loans within
specific industries, and our credit approval practices may not adequately
reduce credit risk. Further, our credit administration personnel, policies and
procedures may not adequately adapt to changes in economic or any other
conditions affecting customers and the quality of the loan portfolio. A failure
to measure and limit the credit risk associated with our loan portfolio
effectively could lead to unexpected losses and have a material adverse effect
on our business, financial condition and results of operations.
Appraisals and other valuation
techniques we use in evaluating and monitoring loans secured by real property,
other real estate owned and repossessed personal property may not accurately
describe the net value of the asset.
In considering whether to make a loan secured by real property, we
generally require an appraisal of the property. However, an appraisal is only
an estimate of the value of the property at the time the appraisal is made and,
as real estate values may change significantly in relatively short periods of
time (especially in periods of heightened economic uncertainty), this estimate
may not accurately describe the net value of the real property collateral after
the loan is made. As a result, we may not be able to realize the full amount of
any remaining indebtedness when we foreclose on and sell the relevant property.
In addition, we rely on appraisals and other valuation techniques to establish
the value of our other real estate owned, or OREO, and personal property that
we acquire through foreclosure proceedings and to determine certain loan
impairments. If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the
correct value of our OREO, and our allowance for loan losses may not reflect
accurate loan impairments. This could have a material adverse effect on our
business, financial condition or results of operations.
In the case of defaults on loans secured by real estate, we may be
forced to foreclose on the collateral, subjecting us to the costs and potential
risks associated with the ownership of the real property, or consumer
protection initiatives or changes in state or federal law that may
substantially raise the cost of foreclosure or prevent us from foreclosing at
all.
Since we intend to originate loans secured by real estate, we may
have to foreclose on the collateral property to protect our investment and may
thereafter own and operate such property for some period, in which case we
would be exposed to the risks inherent in the ownership of real estate. The
amount that we, as a mortgagee, may realize after a default depends on factors
outside of our control, including, but not limited to, general or local
economic conditions, environmental cleanup liabilities, assessments, interest
rates, real estate tax rates, operating expenses of the mortgaged properties,
our ability to obtain and maintain adequate occupancy of the properties, zoning
laws, governmental and regulatory rules, and natural disasters. Our inability
to manage the amount of costs or size of the risks associated with the
ownership of real estate, or write-downs in the value of other real estate
owned, could have a material adverse effect on our business, financial
condition and results of operations.
Additionally, consumer protection initiatives or changes in state
or federal law may substantially increase the time and expense associated with
the foreclosure process or prevent us from foreclosing at all. Some states in
recent years have either considered or adopted foreclosure reform laws that
make it substantially more difficult and expensive for lenders to foreclose on
properties in default. If new state or federal laws or regulations are
ultimately enacted that significantly raise the cost of foreclosure or raise
outright barriers, such laws could have a material adverse effect on our
business, financial condition and results of operation.
We are subject to claims and litigation pertaining to intellectual
property.
Banking and other financial services companies, such as our Company,
rely on technology companies to provide information technology products and
services necessary to support their day-to-day operations. Technology
companies frequently pursue litigation based on allegations of patent
infringement or other violations of intellectual property rights. In addition,
patent holding companies seek to monetize patents they have purchased or
otherwise obtained. Competitors of our vendors, or other individuals or
companies, may from time to time claim to hold intellectual property sold to us
by our vendors. Such claims may increase in the future as the financial
services sector becomes more reliant on information technology vendors. The
plaintiffs in these actions frequently seek injunctions and substantial
damages.
Regardless of the scope or validity of such patents or other
intellectual property rights, or the merits of any claims by potential or
actual litigants, we may have to engage in protracted litigation. Such
litigation is often expensive, time-consuming, disruptive to our operations and
distracting to management. If we are found to infringe one or more patents or
other intellectual property rights, we may be required to pay substantial
damages or royalties to a third party. In certain cases, we may consider
entering into licensing agreements for disputed intellectual property, although
no assurance can be given that such licenses can be obtained on acceptable
terms or that litigation will not occur. These licenses may also significantly
increase our operating expenses. If legal matters related to intellectual
property claims were resolved against us or settled, we could be required to
make payments in amounts that could have a material adverse effect on our
business, financial condition and results of operations.
Third parties may
assert intellectual property claims relating to the holding and transfer of
digital assets and their source code. Regardless of the merit of any
intellectual property or other legal action, any threatened action that reduces
confidence in long-term viability or the ability of end-users to hold
and transfer the currency may adversely affect an investment in digital
currencies. Additionally, a meritorious intellectual property claim could
prevent investors and other end-users from accessing, holding or
transferring their digital currency, which could force the liquidation of
holdings of such digital currency (if liquidation is possible). As a result,
intellectual property claims against large digital currency participants could
adversely affect the business and operations of digital currency exchanges as
well as our own.
We may not be able to protect our intellectual property rights,
and may become involved in lawsuits to protect or enforce our intellectual
property, which could be expensive, time consuming and unsuccessful.
Competitors may violate our intellectual property rights. To
counter infringement or unauthorized use, litigation may be necessary to
enforce or defend our intellectual property rights, to protect our trade
secrets and/or to determine the validity and scope of our own intellectual
property rights or the proprietary rights of others. Such litigation can be
expensive and time consuming, which could divert management resources and harm
our business and financial results. Potential competitors may have the ability
to dedicate greater resources to litigate intellectual property rights than we
can. Accordingly, despite our efforts, we may not be able to prevent third
parties from infringing upon or misappropriating our intellectual property.
We may be subject to environmental liabilities relating to the
real properties we own and the foreclosure on real estate assets securing loans
in our loan portfolio.
In conducting our business, we may foreclose on and take title to
real estate or otherwise be deemed to be in control of property that serves as
collateral on loans we make. As a result, we could be subject to environmental
liabilities with respect to those properties. We may be held liable to a
governmental entity or to third parties for property damage, personal injury,
investigation and clean-up costs incurred by these parties relating
to environmental contamination, or we may be required to investigate or clean
up hazardous or toxic substances or chemical releases at a property. The costs
associated with investigation or remediation activities could be substantial.
In addition, if we are the owner or former owner of a contaminated site, we may
be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from the property.
The cost of removal or abatement may substantially exceed the
value of the affected properties or the loans secured by those properties, we
may not have adequate remedies against the prior owners or other responsible
parties and we may not be able to resell the affected properties either before
or after completion of any such removal or abatement procedures. If material
environmental problems are discovered before foreclosure, we generally will not
foreclose on the related collateral or will transfer ownership of the loan to a
subsidiary. It should be noted, however, that the transfer of the property or
loans to a subsidiary may not protect us from environmental liability.
Furthermore, despite these actions on our part, the value of the property as
collateral will generally be substantially reduced or we may elect not to
foreclose on the property and, as a result, we may suffer a loss upon
collection of the loan. Any significant environmental liabilities could have a
material adverse effect on our business, financial condition and results of
operations.
The Bank’s mortgage warehouse division
may not continue to provide us with significant noninterest income and interest
income.
A portion of our
lending would involve the funding of single family residential mortgage loans
originated by third party mortgage bankers. Mortgage warehouse fee income would
fluctuate with mortgage warehouse activity. The residential mortgage business
is highly competitive and highly susceptible to changes in market interest
rates, consumer confidence levels, employment statistics, the capacity and
willingness of secondary market purchasers to acquire and hold or securitize
loans, and other factors beyond our control. Additionally, in many respects,
the traditional mortgage origination business is relationship-based, and
dependent on mortgage banker relationships. The loss one or more mortgage
banker relationships could have the effect of reducing the level or rate of
growth of our mortgage warehouse activity. Because of these factors, we cannot
be certain that we will be able to maintain or increase the volume or
percentage of revenue or net income produced by the mortgage warehouse
business.
The Bank’s mortgage warehouse lending business may expose us to
increased lending and other risks.
Risks associated with the Bank’s mortgage warehouse loans include
risks relating to the mortgage bankers to which we provide funding, including
the risk of intentional misrepresentation or fraud; changes in the market value
of mortgage loans originated by the mortgage banker, the sale of which is the
expected source of repayment of the warehouse funding we provide, due to
changes in interest rates during the time in warehouse; and originations of
mortgage loans that are unsalable or impaired, which could lead to decreased
collateral value and the failure of a prospective purchaser of the mortgage
loan to ultimately purchase the loan from the mortgage banker. Any one or a
combination of these events may adversely affect our loan portfolio and may
result in increased delinquencies, loan losses and increased future provision
levels, which, in turn, could adversely affect our business, financial
condition and results of operations.
A lack of liquidity could impair our ability to fund operations
and adversely impact the Bank’s business, financial condition and results of
operations.
Liquidity is essential to the Bank’s business. We would rely on
the Bank’s ability to generate deposits and effectively manage the repayment
and maturity schedules of our loans and investment securities, respectively, to
ensure that we have adequate liquidity to fund our operations. An inability to
raise funds through deposits, borrowings, sales of our investment securities,
sales of loans or other sources could have a substantial negative effect on our
liquidity and our ability to continue our growth strategy.
Additional liquidity
would be provided by the Bank’s ability to borrow from the Federal Home Loan
Bank of San Francisco, or the FHLB, and the Federal Reserve Bank of San
Francisco, or the FRB. The Bank may also borrow funds from third-party
lenders, such as other financial institutions. The Bank’s access to funding
sources in amounts adequate to finance or capitalize our activities, or on
terms that are acceptable to us, could be impaired by factors that affect us
directly or the financial services industry or economy in general, such as
disruptions in the financial markets or negative views and expectations about
the prospects for the financial services industry. Our access to funding
sources could also be affected by one or more adverse regulatory actions
against us.
Any decline in available funding could adversely impact the Bank’s
ability to originate loans, invest in securities, meet our expenses or fulfill
obligations such as repaying our borrowings or meeting deposit withdrawal
demands, any of which could, in turn, have a material adverse effect on our
business, financial condition and results of operations.
By engaging in derivative transactions, we would be exposed to
additional credit and market risk.
By engaging in
derivative transactions, we would be exposed to counterparty credit and market
risk. If the counterparty fails to perform, credit risk exists to the extent of
the fair value gain in the derivative. Market risk exists to the extent that
interest rates change in ways that are significantly different from what was
modeled when we entered into the derivative transaction. The existence of
credit and market risk associated with our derivative instruments could
adversely affect our revenue and, therefore, could have a material adverse
effect on our business, financial condition and results of operations.
We would be dependent on the use of data and modeling in our
management’s decision-making, and faulty data or modeling approaches could
negatively impact our decision-making ability or possibly subject us to
regulatory scrutiny in the future.
The use of statistical and quantitative models and other
quantitative analyses is necessary for bank decision-making, and the employment
of such analyses is becoming increasingly widespread in our operations.
Liquidity stress testing, interest rate sensitivity analysis and
the identification of possible violations of anti-money laundering regulations
are all examples of areas in which we are dependent on models and the data that
underlies them. The use of statistical and quantitative models is also becoming
more prevalent in regulatory compliance. While we are not currently subject to
annual Dodd-Frank Act stress testing and the Comprehensive Capital Analysis and
Review submissions, we believe that model-derived testing may become more
extensively implemented by regulators in the future.
We anticipate data-based modeling will penetrate further into bank
decision-making, particularly risk management efforts, as the capacities
developed to meet rigorous stress testing requirements are able to be employed
more widely and in differing applications. While we believe these quantitative
techniques and approaches improve our decision-making, they also create the
possibility that faulty data or flawed quantitative approaches could negatively
impact our decision-making ability or, if we become subject to regulatory
stress-testing in the future, adverse regulatory scrutiny. Secondarily, because
of the complexity inherent in these approaches, misunderstanding or misuse of
their outputs could similarly result in suboptimal decision-making.
The Bank’s would be subject to interest rate risk as fluctuations
in interest rates may adversely affect our earnings.
Most of the Bank’s banking assets and liabilities would be
monetary in nature and subject to risk from changes in interest rates. Like
most financial institutions, our earnings are significantly dependent on our
net interest income, the principal component of our earnings, which is the
difference between interest earned by us from our interest earning assets, such
as loans and investment securities, and interest paid by us on our interest
bearing liabilities, such as deposits and borrowings. We expect that we will
periodically experience “gaps” in the interest rate sensitivities of our assets
and liabilities, meaning that either our interest bearing liabilities will be
more sensitive to changes in market interest rates than our interest earning
assets, or vice versa. In either case, if market interest rates should move
contrary to our position, this gap will negatively impact our earnings. The
impact on earnings is more adverse when the slope of the yield curve flattens;
that is, when short-term interest rates increase more than long-term interest
rates or when long-term interest rates decrease more than short-term interest
rates. Many factors impact interest rates, including governmental monetary
policies, inflation, recession, changes in unemployment, the money supply,
international economic weakness and disorder and instability in domestic and
foreign financial markets. In addition, the Federal Reserve has stated its
intention to end its quantitative easing program and has begun to reduce the
size of its balance sheet by selling securities, which might also affect
interest rates.
Interest rate
increases often result in larger payment requirements for the Bank’s borrowers,
which increases the potential for default and could result in a decrease in the
demand for loans. At the same time, the marketability of the property securing
a loan may be adversely affected by any reduced demand resulting from higher
interest rates. In a declining interest rate environment, there may be an
increase in prepayments on loans as borrowers refinance their loans at lower
rates. In addition, in a low interest rate environment, loan customers often
pursue long-term fixed rate borrowings, which could adversely affect our
earnings and net interest margin if rates later increase. Changes in interest
rates also can affect the value of loans, securities and other assets. An
increase in interest rates that adversely affects the ability of borrowers to
pay the principal or interest on loans may lead to an increase in nonperforming
assets and a reduction of income recognized, which could have a material
adverse effect on our results of operations and cash flows. Further, when we
place a loan on nonaccrual status, we reverse any accrued but unpaid interest
receivable, which decreases interest income. At the same time, we continue to
incur costs to fund the loan, which is reflected as interest expense, without
any interest income to offset the associated funding expense. Thus, an increase
in the amount of nonperforming assets could have a material adverse impact on
net interest income. If short-term interest rates remain at their historically
low levels for a prolonged period and assuming longer-term interest rates fall
further, we could experience net interest margin compression as our interest
earning assets would continue to reprice downward while our interest bearing
liability rates could fail to decline in tandem. Such an occurrence would reduce
our net interest income and could have a material adverse effect on our
business, financial condition and results of operations.
The potential cessation of LIBOR and the uncertainty over possible
replacements for LIBOR may adversely affect the Bank’s business.
On July 27, 2017, the Chief Executive of the United Kingdom
Financial Conduct Authority, which regulates LIBOR, announced that it intends
to stop persuading or compelling banks to submit rates for the calculation of
LIBOR to the administrator of LIBOR after 2021. The announcement indicates that
the continuation of LIBOR on the current basis cannot and will not be
guaranteed after 2021. It is impossible to predict whether and to what extent
banks will continue to provide LIBOR submissions to the administrator of LIBOR
or whether any additional reforms to LIBOR may be enacted in the United Kingdom
or elsewhere. The potential cessation of LIBOR quotes in 2021 and the
uncertainty over possible replacement rates for LIBOR creates substantial risks
to the Banking industry, including us.
On April 3, 2018, the Federal Reserve Bank of New York commenced
publication of three reference rates based on overnight U.S. Treasury
repurchase agreement transactions, including the Secured Overnight Financing
Rate, which has been recommended as an alternative to U.S. dollar LIBOR by the
Alternative Reference Rates Committee. Further, the Bank of England is
publishing a reformed Sterling Overnight Index Average, comprised of a broader
set of overnight Sterling money market transactions, which has been selected by
the Working Group on Sterling Risk-Free Reference Rates as the alternative rate
to Sterling LIBOR. Central bank-sponsored committees in other jurisdictions,
including Europe, Japan and Switzerland, have, or are expected to, select
alternative reference rates denominated in other currencies. However, at this
time, no consensus exists as to what rate or rates may become accepted
alternatives to LIBOR and it is impossible to predict the cost of transitioning
to or the effect of any such alternatives on the value of LIBOR-based
securities or the outstanding loans with interest rates based on LIBOR that the
Bank had made to borrowers, including certain of the Company’s derivatives,
other securities or financial arrangements given LIBOR’s role in determining
market interest rates globally. If a published LIBOR rate is unavailable after
2021, the interest rates on our subordinated debentures, which are currently
based on the LIBOR rate, will be determined as set forth in the accompanying
offering documents, and the value of such securities may be adversely affected.
Uncertainty as to the nature of alternative reference rates and as to potential
changes or other reforms to LIBOR could also cause confusion that could disrupt
the capital and credit markets more broadly. Currently, the manner and impact of this transition and related developments, as
well as the effect of an alternative reference rate on our future and legacy
funding costs, loan and investment securities portfolios, asset-liability
management and business, is uncertain.
Any future failure to maintain effective internal control over
financial reporting could impair the reliability of our financial statements,
which in turn could harm our business, impair investor confidence in the
accuracy and completeness of our financial reports and our access to the
capital markets and cause the price of our common stock to decline and subject
us to regulatory penalties.
If we fail to maintain effective internal control over financial
reporting, we may not be able to report our financial results accurately and in
a timely manner, in which case our business may be harmed, investors may lose
confidence in the accuracy and completeness of our financial reports, we could
be subject to regulatory penalties and the price of our common stock may
decline.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for evaluating and
reporting on that system of internal control. Our internal control over
financial reporting consists of a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, or GAAP. As a public company, we will be
required to comply with the Sarbanes-Oxley Act and other rules that govern
public companies. We will be required to certify our compliance with
Section 404 of the Sarbanes-Oxley Act beginning with our second annual
report on Form 10-K, which will require us to furnish annually a
report by management on the effectiveness of our internal control over
financial reporting. In addition, our independent registered public accounting firm
may be required to report on the effectiveness of our internal control over
financial reporting beginning as of that second annual report
on Form 10-K.
The accuracy of our financial statements and related disclosures
could be affected if the judgments, assumptions or estimates used in our
critical accounting policies are inaccurate.
The preparation of financial statements and related disclosures in
conformity with GAAP requires us to make judgments, assumptions and estimates
that affect the amounts reported in our consolidated financial statements and
accompanying notes. Our critical accounting policies, which are included in the
section captioned “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in this prospectus, describe those significant
accounting policies and methods used in the preparation of our consolidated
financial statements that we consider critical because they require judgments,
assumptions and estimates that materially affect our consolidated financial
statements and related disclosures. As a result, if future events or regulatory
views concerning such analysis differ significantly from the judgments,
assumptions and estimates in our critical accounting policies, those events or
assumptions could have a material impact on our consolidated financial
statements and related disclosures, in each case resulting in our need to
revise or restate prior period financial statements, cause damage to our
reputation and the price of our common stock and adversely affect our business,
financial condition and results of operations.
There could be material changes to our financial statements and
disclosures if there are changes in accounting standards or regulatory
interpretations of existing standards
From time to time the FASB or the SEC may change the financial
accounting and reporting standards that govern the preparation of our financial
statements. Such changes may result in us being subject to new or changing
accounting and reporting standards. In addition, the bodies that interpret the
accounting standards (such as banking regulators or outside auditors) may
change their interpretations or positions on how new or existing standards
should be applied. These changes may be beyond our control, can
be hard to predict and can materially impact how we record and report our
financial condition and results of operations. In some cases, we could be
required to apply a new or revised standard retrospectively, or apply an
existing standard differently and retrospectively, in each case resulting in
our needing to revise or restate prior period financial statements, which could
materially change our financial statements and related disclosures, cause
damage to our reputation and the price of our common stock, and adversely
affect our business, financial condition and results of operations.
We could recognize losses on investment securities held in our
securities portfolio, particularly if interest rates increase or economic and
market conditions deteriorate.
We invest a percentage of our total assets in investment
securities with the primary objectives of providing a source of liquidity,
providing an appropriate return on funds invested, managing interest rate risk
and meeting pledging requirements. Factors beyond our control can significantly
and adversely influence the fair value of securities in our portfolio. For
example, fixed-rate securities are generally subject to decreases in market
value when interest rates rise. Additional factors include, but are not limited
to, rating agency downgrades of the securities, defaults by the issuer or
individual borrowers with respect to the underlying securities and instability
in the credit markets. Any of the foregoing factors could cause
other-than-temporary impairment in future periods and result in realized
losses. The process for determining whether impairment is other-than-temporary
usually requires difficult, subjective judgments about the future financial
performance of the issuer and any collateral underlying the security to assess
the probability of receiving all contractual principal and interest payments on
the security. Because of changing economic and market conditions affecting
interest rates, the financial condition of issuers of the securities and the
performance of the underlying collateral, we may recognize realized and/or
unrealized losses in future periods, which could have a material adverse effect
on our business, financial condition and results of operations.
We are subject to certain operational risks, including, but not
limited to, customer, employee or third-party fraud and data processing system
failures and errors.
Employee errors and employee or customer misconduct could subject
us to financial losses or regulatory sanctions and seriously harm our
reputation. Misconduct by our employees could include hiding unauthorized
activities from us, improper or unauthorized activities on behalf of our
customers or improper use of confidential information. It is not always
possible to prevent employee errors and misconduct, and the precautions we take
to prevent and detect this activity may not be effective in all cases. Employee
errors could also subject us to financial claims for negligence.
We maintain a system of internal controls to mitigate operational
risks, including data processing system failures and errors and customer or
employee fraud, as well as insurance coverage designed to protect us from
material losses associated with these risks, including losses resulting from
any associated business interruption. If our internal controls fail to prevent
or detect an occurrence, or if any resulting loss is not insured or exceeds
applicable insurance limits, it could adversely affect our business, financial
condition and results of operations.
In addition, we rely heavily upon information supplied by third
parties, including the information contained in credit applications, property
appraisals, title information and employment and income documentation, in
deciding which loans we will originate, as well as the terms of those loans. If
any of the information upon which we rely is misrepresented, either
fraudulently or inadvertently, and the misrepresentation is not detected prior
to loan funding, the value of the loan may be significantly lower than
expected, or we may fund a loan that we would not have funded or on terms that
do not comply with our general underwriting standards. Whether a
misrepresentation is made by the applicant or another third party, we generally
bear the risk of loss associated with the misrepresentation. A loan subject to
a material misrepresentation is typically unsellable
or subject to repurchase if it is sold prior to detection of the
misrepresentation. The sources of the misrepresentations are often difficult to
locate, and it is often difficult to recover any of the resulting monetary
losses we may suffer, which could adversely affect our business, financial
condition and results of operations.
We rely heavily on our executive management team and other key
employees, and we could be adversely affected by the unexpected loss of their
services.
We are led by an experienced core management team with substantial
experience in the markets that we serve, and our operating strategy focuses on
providing products and services through long-term relationship managers and
ensuring that our largest clients have relationships with our senior management
team. Accordingly, our success depends in large part on the performance of
these key personnel, as well as on our ability to attract, motivate and retain
highly qualified senior and middle management. Competition for employees is
intense and the process of locating key personnel with the combination of
skills and attributes required to execute our business plan may be lengthy. If
any of our executive officers, other key personnel or directors leaves us or
our Bank, our financial condition and results of operations may suffer because
of his or her skills, knowledge of our market, years of industry experience and
the difficulty of promptly finding qualified personnel to replace him or her.
Negative public opinion regarding the Company or failure to
maintain our reputation in the communities we serve could adversely affect our
business and prevent us from growing our business.
As a community bank and service provider to the digital currency
industry, our Bank’s reputation within the communities we serve is critical to
our success. We believe we have built strong personal and professional
relationships with our customers and are active members of the communities we
serve. As such, we strive to enhance our reputation by recruiting, hiring and
retaining employees who share our core values of being an integral part of the
communities we serve and delivering superior service to our customers. If our
reputation is negatively affected by the actions of our employees or otherwise,
including because of a successful cyberattack against us or other unauthorized
release or loss of customer information, we may be less successful in
attracting new talent and customers or may lose existing customers, and our
business, financial condition and results of operations could be adversely
affected. In addition, if the reputation of the digital currency industry as a
whole is harmed, including due to events such as cybersecurity breaches, scams
perpetrated by bad actors or other unforeseen developments as a result of the
evolving regulatory landscape of the digital currency industry, our reputation
may be negatively affected due to our connection with the digital currency
industry, which could adversely affect our business, financial condition and
results of operations. Our exposure to and interactions with the digital
currency industry put us at a higher risk of media attention and scrutiny.
Further, negative public opinion can expose us to litigation and regulatory action
and delay and impede our efforts to implement our expansion strategy, which
could further adversely affect our business, financial condition and results of
operations.
We may not be able to raise the additional capital needed, in
absolute terms or on terms acceptable to us, to fund our growth in the future
if we continue to grow at our current pace.
After giving effect to this offering, we believe that we will have
sufficient capital to meet our capital needs for our immediate growth plans.
However, we will continue to need capital to support our longer-term growth
plans. If capital is not available on favorable terms when we need it, we will
have to either issue common stock or other securities on less than desirable
terms or reduce our rate of growth until market conditions become more
favorable. Either of such events could have a material adverse effect on our
business, financial condition and results of operations.
Risks Related to Regulation
There is substantial legal and regulatory uncertainty regarding
the regulation of digital currencies and digital currency activities. This
uncertainty or adverse regulatory changes may inhibit the growth of the digital
currency industry, including our customers, and therefore have a material
adverse effect on the digital currency initiative.
The U.S. Congress, U.S. state legislatures, and a number of U.S.
federal and state regulators and law enforcement agencies, including FinCEN,
U.S. federal banking regulators, SEC, CFTC, the Financial Industry Regulatory
Authority, or FINRA, the Consumer Financial Protection Bureau, or CFPB, the
Department of Justice, the Department of Homeland Security, the Federal Trade
Commission, the Federal Bureau of Investigation, the Internal Revenue Service,
or the IRS, and state banking regulators, state financial services regulators,
and states attorney generals, have been examining the operations of digital
currency networks, exchanges, and digital currency businesses, with particular
focus on the extent to which digital currencies can be used for illegal
activities, including but not limited to laundering the proceeds of illegal
activities, funding criminal or terrorist enterprises, engaging in fraudulent
activities (see “—Risks Related to the Digital Currency Industry”), as well as
whether and the extent to which digital currency businesses should be subject
to existing or new regulation, including those applicable to banks, securities
intermediaries, derivatives intermediaries, or money transmitters.
For example, FinCEN requires firms engaged in the business of
administration, exchange, or transmission of a virtual currency to register
with FinCEN under its money services business licensing regime. The New York
DFS has established a licensing regime for businesses involved in virtual
currency business activity in or involving New York, commonly known as
BitLicense regime. The SEC and CFTC have each issued formal and informal
guidance on the applicability of securities and derivatives regulations to
digital currencies and digital currency activities. The SEC has suggested that,
depending on the circumstances, an initial coin offering, or ICO, may
constitute securities offerings subject to the provisions of the Securities Act
of 1933, as amended, or the Securities Act, and the Securities Exchange Act of
1934, as amended, or the Exchange Act, and that some ICOs in the past have been
illegal, which could, in turn, result in regulatory actions or other scrutiny
against our customers or us. The SEC has also stated that venues that permit trading
of tokens that are deemed securities are required to either register as
national securities exchanges under Section 6 of the Exchange Act or
obtain an exemption. If we or any of our digital currency customers are subject
to regulatory actions relating to illegal securities offerings or are required
to register as a national securities exchange under the Exchange Act, we may
experience a substantial loss of deposits and our business may be materially
adversely affected.
Many state and federal agencies have also issued consumer
advisories regarding the risks posed to users and investors in digital
currencies. U.S. federal and state legislatures, regulators and law enforcement
agencies continue to develop views and approaches to a wide variety of digital currencies
and activities involved in digital currencies and it is likely that, as the
legal and regulatory landscape develops, additional regulatory requirements
could apply to digital currency businesses, including our digital currency
customers and us. U.S. state and federal, and foreign regulators and
legislatures have taken legal actions against digital currency businesses or
adopted restrictions in response to adverse publicity arising from hacks,
consumer harm, criminal activity, or other activities related to digital
currencies. Ongoing and future regulatory actions may alter, perhaps to a
materially adverse extent, the nature of the digital currency industry or the
ability of our customers to continue to operate. This may significantly impede
the viability or growth of our existing funding sources based on deposits from
digital currency business as well as our digital currency initiative. In
addition, we may become subject to additional regulatory scrutiny as a result
of certain aspects of our growth strategy, including our plans to develop
credit products for the purchase of digital currency, custodian services and to
expand our international customer base.
Digital currencies
and digital currency related activities also currently face an uncertain regulatory
landscape in many foreign jurisdictions such as the European Union, China, the
United Kingdom, Australia, Japan, Russia, Israel, Poland, India, Hong Kong,
Canada and Singapore. Various foreign jurisdictions may adopt laws regulations
or directives that affect digital currencies. Such laws, regulations or
directives may conflict with those of the United States and may negatively
impact the acceptance of digital currencies by users, merchants and service
providers
outside the United States and may therefore impede the growth or
sustainability of the digital currency industry in these jurisdictions as well
as in the United States and elsewhere, or otherwise negatively affect the
digital currency industry or our customers, which may adversely affect our
digital currency initiative and could therefore result in a material adverse
effect on our business, financial condition, results of operations and growth
prospects.
Legislative and regulatory actions taken now or in the future may
increase our costs and impact our business, governance structure, financial
condition or results of operations.
Economic conditions that contributed to the financial crisis in
2008, particularly in the financial markets, resulted in government regulatory
agencies and political bodies placing increased focus and scrutiny on the
financial services industry. The Dodd-Frank Act, which was enacted in 2010 as a
response to the financial crisis, significantly changed the regulation of
financial institutions and the financial services industry. The Dodd-Frank Act
and the regulations thereunder have affected both large and small financial
institutions. The Dodd-Frank Act, among other things, imposed new capital
requirements on bank holding companies; changed the base for FDIC insurance assessments
to a bank’s average consolidated total assets minus average tangible equity,
rather than upon its deposit base; raised the standard deposit insurance limit
to $250,000; and expanded the FDIC’s authority to raise insurance premiums. The
Dodd-Frank Act established the CFPB as an independent entity within the Federal
Reserve, which has broad rulemaking authority over consumer financial products
and services, including deposit products, residential mortgages, home-equity
loans and credit cards, and contains provisions on mortgage-related matters,
such as steering incentives, determinations as to a borrower’s ability to repay
and prepayment penalties. Compliance with the Dodd-Frank Act and its
implementing regulations has and may continue to result in additional operating
and compliance costs that could have a material adverse effect on our business,
financial condition, results of operations and growth prospects.
On May 24, 2018, President Trump signed into law the
“Economic Growth, Regulatory Relief and Consumer Protection Act,” or the
Regulatory Relief Act, which amends parts of the Dodd-Frank Act, as well as
other laws that involve regulation of the financial industry. While the
Regulatory Relief Act keeps in place fundamental aspects of the Dodd-Frank
Act’s regulatory framework, it does make regulatory changes that are favorable
to depository institutions with assets under $10 billion, such as the
Bank, and to bank holding companies, or BHCs, with total consolidated assets of
less than $10 billion, such as the Company, and also makes changes to
consumer mortgage and credit reporting regulations and to the authorities of
the agencies that regulate the financial industry. These and other changes are
more fully discussed under “Supervision and Regulation—The Regulatory Relief
Act.” Certain provisions of the Regulatory Relief Act favorable to the Company
and the Bank require the federal banking agencies to either promulgate
regulations or amend existing regulations, and it may take some time for these
agencies to implement the necessary regulations or amendments.
Federal and state regulatory agencies frequently adopt changes to
their regulations or change the way existing regulations are applied.
Regulatory or legislative changes to laws applicable to the financial industry,
if enacted or adopted, may impact the profitability of our business activities,
require more oversight or change certain of our business practices, including
the ability to offer new products, obtain financing, attract deposits, make loans
and achieve satisfactory interest spreads and could expose us to additional
costs, including increased compliance costs. These changes also may require us
to invest significant management attention and
resources to make any necessary changes to operations to comply and could have
a material adverse effect on our business, financial condition and results of
operations.
Changes in tax laws and regulations, or changes in the
interpretation of existing tax laws and regulations, may have a material
adverse effect on our business, financial condition, results of operations and
growth prospects.
We operate in an environment that imposes income taxes on our
operations at both the federal and state levels to varying degrees. We engage
in certain strategies to minimize the impact of these taxes. Consequently, any
change in tax laws or regulations, or new interpretation of existing laws or
regulations, could significantly alter the effectiveness of these strategies.
In December 2017, the
Tax Act was signed into law. The act includes numerous changes to existing U.S.
federal income tax law, including a reduction in the federal corporate income
tax rate from 35% to 21%, which took effect January 1, 2018. The reduction
in the federal corporate income tax rate resulted in an impairment of our net
deferred tax asset based on our reevaluation of the future tax benefit of these
deferrals using the lower tax rate.
Because of the Dodd-Frank Act and related rulemaking, the Bank and
the Company are subject to more stringent capital requirements.
In July 2013, the U.S. federal banking authorities approved the
implementation of regulatory capital reforms of the Basel Committee on Banking
Supervision, which is referred to as Basel III, and issued rules effecting
certain changes required by the Dodd-Frank Act. Basel III is applicable to all
U.S. banks that are subject to minimum capital requirements as well as to bank
and saving and loan holding companies other than those subject to the Federal
Reserve’s Small Bank Holding Company Policy Statement. The Small Bank
Holding Company Policy Statement currently applies to certain holding companies
with consolidated assets of less than $3.0 billion that do not have a
material amount of SEC-registered debt or equity securities
outstanding. While the Company is exempt from the consolidated capital
requirements at June 30, 2019, it will not be eligible for the Small Bank
Holding Company Policy Statement upon the issuance of the equity securities
that are the subject of this registration statement.
Relative to the capital requirements that predated it, Basel III
increased most of the required minimum regulatory capital ratios and introduced
a new common equity Tier 1 capital ratio and the concept of a capital
conservation buffer. Basel III also narrowed the definition of capital by
establishing additional criteria that capital instruments must meet to be
considered additional Tier 1 and Tier 2 capital. The Basel III capital rules
became effective as applied to the Bank on January 1, 2015 and to the
Company on January 1, 2018 prior to the amendment to the Small Bank
Holding Company Statement discussed above. See “Supervision and
Regulation—Capital Adequacy Guidelines.”
Certain ratios calculated under the Basel III rules are sensitive
to changes in total deposits, including the minimum leverage ratio that is
discussed further under “Supervision and Regulation—Capital Adequacy
Guidelines.” Due to the potential volatility of deposits related to our Digital
Currency Initiative, the Bank may be at increased risk of a sudden adverse
change in these ratios.
The failure to meet applicable regulatory capital requirements
could result in one or more of the Bank’s regulators placing limitations or
conditions on our activities, including our growth initiatives, or restricting
the commencement of new activities, and could affect customer and investor
confidence, our costs of funds and FDIC insurance costs, our ability to pay
dividends on our common stock, our ability to make acquisitions, and our
business, results of operations and financial condition.
Federal banking agencies periodically conduct examinations of our
business, including our compliance with laws and regulations, and our failure
to comply with any supervisory actions to which we are or become subject based
on such examinations could adversely affect us.
As part of the Bank regulatory process, the Federal Reserve and
the California Department of Business Oversight, Division of Financial
Institutions, or the DBO, periodically conduct examinations of our business,
including compliance with laws and regulations. If, based on an examination,
one of these federal banking agencies were to determine that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, asset sensitivity, risk management or other aspects of any of our
operations have become unsatisfactory, or that the Company, the Bank or their
respective management were in violation of any law or regulation, it may take
such remedial actions as it deems appropriate. These actions include the power
to enjoin unsafe or unsound practices, to require affirmative actions to
correct any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
our capital levels, to restrict our growth, to assess civil monetary penalties
against us, the Bank or their respective officers or directors, to remove
officers and directors and, if it is concluded that such conditions cannot be
corrected or there is an imminent risk of loss to depositors, to terminate the
Bank’s deposit insurance. If the Bank become subject to such regulatory
actions, our business, financial condition, results of operations and
reputation could be adversely affected.
Our regulators may limit current or planned activities related to
the digital currency industry.
The digital currency industry is relatively new and is subject to
significant risks. The digital currency initiative involves customers and
activities with which regulators, including our primary banking regulators the
Federal Reserve and DBO, may be less familiar and which they may consider
higher risk than those involving more established industries. While we have
consulted, and will continue to consult with, our regulators regarding our
activities involving digital currency industry customers and the digital
currency initiative, in the future a regulator may determine to limit or
restrict one or more of these activities. Such actions could have a material
adverse effect on our business, financial condition, or results of operations.
Financial institutions, such as the Bank, face risks of
noncompliance and enforcement actions related to the BSA and other anti-money
laundering statutes and regulations (in particular, as such statutes and
regulations relate to the digital currency industry).
The BSA, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or
the USA PATRIOT Act, FinCEN and other laws and regulations require financial
institutions, among other duties, to institute and maintain an effective
anti-money laundering program and file suspicious activity and currency
transaction reports as appropriate. To administer the Bank Secrecy Act, FinCEN
is authorized to impose significant civil money penalties for violations of
those requirements and has recently engaged in coordinated enforcement efforts
with the individual federal banking regulators, as well as the U.S. Department
of Justice, Drug Enforcement Administration and the IRS. There is also
increased scrutiny of compliance with the sanctions programs and rules
administered and enforced by the Treasury Department’s Office of Foreign Assets
Control.
The Bank’s compliance with the anti-money laundering laws is in
part dependent on our ability to adequately screen and monitor our customers
for their compliance with these laws. Customers associated with our digital
currency initiative may represent an increased compliance risk given the
prevalence of money laundering activities using digital currencies. We intend
to develop enhanced procedures to screen and monitor these customers, which
include, but are not limited to, system monitoring rules tailored to digital
currency activities, a system of “red flags” specific to various customer types
and activities, the development of and investment in proprietary technology
tools to supplement our third-party transaction monitoring
system, customer risk scoring with risk factors specific to the digital-currency
industry, and the use of various blockchain monitoring tools. We believe these
enhanced procedures adequately screen and monitor our customers associated with
the digital currency initiative for their compliance with anti-money laundering
laws; however, given the rapid developments in digital currency markets and
technologies, there can be no assurance that these enhanced procedures will be
adequate to detect or prevent money laundering activity. If regulators
determine that the Bank’s enhanced procedures are insufficient to address the
financial crimes risks posed by digital currencies, the digital currency
initiative may be adversely affected, which could have a material adverse
effect on our business, financial condition and results of operations.
To comply with regulations, guidelines and examination procedures
in this area, the Bank intend to dedicate significant resources to its
anti-money laundering program. If the Bank’s policies, procedures and systems
are deemed deficient, we could be subject to liability, including fines and
regulatory actions such as restrictions on our ability to pay dividends and the
inability to obtain regulatory approvals to proceed with certain aspects of our
business plans, including acquisitions and de novo branching.
We are subject to anticorruption laws,
including the U.S. Foreign Corrupt Practices Act, or FCPA, and we may be
subject to other anti-corruption laws, as well as anti-money laundering and
sanctions laws and other laws governing our operations, to the extent our
business expands to non-U.S. jurisdictions. If we fail to comply with
these laws, we could be subject to civil or criminal penalties, other remedial
measures, and legal expenses, which could adversely affect our business,
financial condition and results of operations.
We continue to pursue deposit sourcing opportunities outside of
the United States. We are currently subject to anti-corruption laws, including
the FCPA. The FCPA and other applicable anti-corruption laws generally prohibit
us, our employees and intermediaries from bribing, being bribed or making other
prohibited payments to government officials or other persons to obtain or
retain business or gain other business advantages. We may also participate in
collaborations and relationships with third parties whose actions could
potentially subject us to liability under the FCPA or other jurisdictions’
anti-corruption laws. There is no assurance that we will be completely
effective in ensuring our compliance with all applicable anti-corruption laws,
including the FCPA. If we are not in compliance with the FCPA or other
anti-corruption laws, we may be subject to criminal and civil penalties,
disgorgement and other sanctions and remedial measures, and legal expenses,
which could have an adverse impact on our business, financial condition and
results of operations. Similarly, any investigation of any potential violations
of the FCPA or other anti-corruption laws by authorities in the United States
or other jurisdictions where we conduct business could also have an adverse
impact on our reputation, business, financial condition and results of
operations.
We are subject to numerous laws and regulations, designed to
protect consumers, including the Community Reinvestment Act and fair lending
laws, and failure to comply with these laws or regulations could lead to a wide
variety of sanctions.
The Community Reinvestment Act, or CRA, directs all insured
depository institutions to help meet the credit needs of the local communities
in which they are located, including low- and moderate-income
neighborhoods. Each institution is examined periodically by its primary federal
regulator, which assesses the institution’s performance. The Equal Credit
Opportunity Act, the Fair Housing Act and other fair lending laws and
regulations impose nondiscriminatory lending requirements on financial
institutions. The CFPB, the U.S. Department of Justice and other federal
agencies are responsible for enforcing these laws and regulations. The CFPB was
created under the Dodd-Frank Act to centralize responsibility for consumer
financial protection with broad rulemaking authority to administer and carry
out the purposes and objectives of federal consumer
financial laws with respect to all financial institutions that offer financial
products and services to consumers. The CFPB is also authorized to prescribe
rules applicable to any covered person or service provider, identifying and
prohibiting acts or practices that are “unfair, deceptive, or abusive” in any
transaction with a consumer for a consumer financial product or service, or the
offering of a consumer financial product, or service. The ongoing broad
rulemaking powers of the CFPB have potential to have a significant impact on
the operations of financial institutions offering consumer financial products
or services. The CFPB has indicated that it may propose new rules on overdrafts
and other consumer financial products or services, which could have a material
adverse effect on our business, financial condition and results of operations
if any such rules limit our ability to provide such financial products or
services.
A successful regulatory challenge to an institution’s performance
under the CRA, fair lending or consumer lending laws and regulations could
result in a wide variety of sanctions, including damages and civil money
penalties, injunctive relief, restrictions on mergers and acquisitions
activity, restrictions on expansion, and restrictions on entering new business
lines. Private parties may also challenge an institution’s performance under
fair lending laws in private class action litigation. Such actions could have a
material adverse effect on our business, financial condition and results of
operations.
Increases in FDIC insurance premiums could adversely affect our
earnings and results of operations.
The deposits of our Bank are insured by the FDIC up to legal
limits and, accordingly, subject it to the payment of FDIC deposit insurance
assessments as determined according to the calculation described in
“Supervision and Regulation—Deposit Insurance.” To maintain a strong funding
position and restore the reserve ratios of the DIF following the financial
crisis, the FDIC increased deposit insurance assessment rates and charged
special assessments to all FDIC-insured financial institutions. Further
increases in assessment rates or special assessments may occur in the future,
especially if there are significant additional financial institution failures.
Any future special assessments, increases in assessment rates or required prepayments
in FDIC insurance premiums could reduce our profitability or limit our ability
to pursue certain business opportunities, which could have a material adverse
effect on our business, financial condition and results of operations.
The Federal Reserve may require us to commit capital resources to
support the Bank at a time when our resources are limited, which may require us
to borrow funds or raise capital on unfavorable terms.
The Federal Reserve requires a BHC to act as a source of financial
and managerial strength to its subsidiary banks and to commit resources to
support its subsidiary banks. Under the “source of strength” doctrine that was
codified by the Dodd-Frank Act, the Federal Reserve may require a BHC to make
capital injections into a troubled subsidiary bank at times when the BHC may
not be inclined to do so and may charge the BHC with engaging in unsafe and
unsound practices for failure to commit resources to such a subsidiary bank.
Accordingly, we could be required to provide financial assistance to the Bank
if it experiences financial distress.
A capital injection may be required at a time when our resources
are limited, and we may be required to borrow the funds or raise capital to
make the required capital injection. Any loan by a BHC to its subsidiary bank
is subordinate in right of repayment to payments to depositors and certain
other creditors of such subsidiary bank. In the event of a BHC’s bankruptcy,
the Bankruptcy trustee will assume any commitment by the holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank.
Moreover, bankruptcy law provides that claims based on any such commitment will
be entitled to a priority of payment over the claims of the holding company’s
general unsecured creditors, including the holders of any note obligations.
Thus, any borrowing by a BHC for making a capital injection to a subsidiary
bank often becomes more difficult and expensive relative to other corporate borrowings. Borrowing funds or raising capital on
unfavorable terms for such a capital injection may have a material adverse
effect on our business, financial condition and results of operations.
We are exposed to a various types of credit risk due to
interconnectivity in the financial services industry and could be adversely
affected by the insolvency of other financial institutions.
Financial services institutions are interrelated based on trading,
clearing, counterparty or other relationships. We have exposure to many
different industries and counterparties, and routinely execute transactions
with counterparties in the financial services industry, including commercial
banks, brokers and dealers, investment banks and other institutional clients.
Many of these transactions expose us to credit risk in the event of a default
by a counterparty or client. In addition, our credit risk may be exacerbated
when our collateral cannot be foreclosed upon or is liquidated at prices not
sufficient to recover the full amount of the credit or derivative exposure due.
Any such losses could adversely affect our business, financial condition and
results of operations.
Monetary policies and regulations of the Federal Reserve could
adversely affect our business, financial condition and results of operations.
In addition to being affected by general economic conditions, our
earnings and growth are affected by the policies of the Federal Reserve. An
important function of the Federal Reserve is to influence the U.S. money supply
and credit conditions. Among the traditional methods that have been used to
achieve this objective are open market operations in U.S. government
securities, changes in the discount rate for bank borrowings, expanded access
to funds for non-banks and changes in reserve requirements against bank
deposits. More recently, the Federal Reserve has, as a response to the
financial crisis, significantly increased the size of its balance sheet by
buying securities and has paid interest on excess reserves held by banks at the
Federal Reserve. Both the traditional and more recent methods are used in
varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, interest rates on loans and securities, and
rates paid for deposits.
The monetary policies and regulations of the Federal Reserve have
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future. The monetary policies
of the Federal Reserve are influenced by various factors, including inflation,
unemployment, and short-term and long-term changes in the international trade
balance and in the fiscal policies of the U.S. government. Following a
prolonged period in which the federal funds rate was stable or decreasing, the
Federal Reserve has begun to increase this benchmark rate. In addition, the
Federal Reserve Board has stated its intention to end its quantitative easing
program and has begun to reduce the size of its balance sheet by selling
securities. Future monetary policies, including whether the Federal Reserve
will continue to increase the federal funds rate and whether or at what pace it
will continue to reduce the size of its balance sheet, cannot be predicted, and
although we cannot determine the effects of such policies on us now, such
policies could adversely affect our business, financial condition and results
of operations.
Risks Related to an Investment in Our Common Stock
The market price of our common stock may be subject to substantial
fluctuations, which may make it difficult for you to sell your shares at the
volume, prices and times desired.
The market price of our common stock may be highly volatile, which
may make it difficult for you to resell your shares at the volume, prices and
times desired. There are many factors that may affect the market price and
trading volume of our common stock, including, without limitation, the risks
discussed elsewhere in this “Risk Factors” section and:
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actual
or anticipated fluctuations in our operating results, financial condition or
asset quality;
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changes
in general economic or business conditions;
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changes
in digital currency industry conditions;
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the
effects of, and changes in, trade, monetary and fiscal policies, including
the interest rate policies of the Federal Reserve;
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publication
of research reports about us, our competitors or the financial services
industry generally, or changes in, or failure to meet, securities analysts’
estimates of our financial and operating performance, or lack of research
reports by industry analysts or ceasing of coverage;
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operating
and stock price performance of companies that investors deem comparable to
us;
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additional
or anticipated sales of our common stock or other securities by us or our
existing shareholders;
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additions
or departures of key personnel;
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perceptions
in the marketplace regarding our competitors or us;
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significant
acquisitions or business combinations, strategic partnerships, joint ventures
or capital commitments by or involving our competitors or us;
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other
economic, competitive, governmental, regulatory or technological factors
affecting our operations, pricing, products and services; and
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other
news, announcements or disclosures (whether by us or others) related to us,
our competitors, our core markets or the financial services industry.
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The stock market and the market for financial institution stocks
has experienced substantial fluctuations in recent years, which in many cases
have been unrelated to the operating performance and prospects of particular
companies. In addition, significant fluctuations in the trading volume in our
common stock may cause significant price variations to occur. Increased market
volatility may materially and adversely affect the market price of our common
stock, which could make it difficult to sell your shares at the volume, prices
and times desired.
While our growth strategy is focused on the digital currency industry,
investors should not expect that the value of our common stock to be correlated
with the value of digital currencies. Investing in our common stock is not a
proxy for gaining exposure to digital currencies.
While our growth strategy is focused on the digital currency
industry and the majority of the Bank’s deposits are from digital
currency-related activities, investors should not expect that investing in our
common stock is a proxy for gaining exposure to digital currencies. The impact
of fluctuations in prices and/or trading volume of digital currencies on our
deposit balance from customers in the digital currency industry and, by
extension, our profitability, is unpredictable, and the price of our common
stock may not be correlated to the prices of digital currencies.
Though not a proxy for gaining exposure to digital currencies,
market participants may view our common stock as such, which could in turn
attract investors seeking to buy or sell short our common stock
in order to gain such exposure, therefore increasing the price volatility of
our common stock. There may also be a heightened level of speculation in our
common stock as a result of our exposure to the digital currency industry. For
more information regarding the volatility of digital currencies, see “—Risks
Related to Our Digital Currency Initiative—The prices of digital currencies are
extremely volatile. Fluctuations in the price of various digital currencies may
cause uncertainty in the market and could negatively impact trading volumes of
digital currencies and therefore the extent to which participants in the
digital currency industry demand our services and solutions, which would
adversely affect our business, financial condition and results of operations.”
Risks Related to this Offering and Ownership of Shares of Our The
Class B Common Stock
Closing of the offering and escrow of offering proceeds subject to
finalizing acquisition agreement with an One-four branch bank or finalizing a
JV with such.
Until we finalize an acquisition agreement with a Bank, Fintec or
Diigital Currency transaction processing business; or until we finalize our
Joint Venture (JV) agreement with one or more identified One-four branch banks
and commence our planned Bank, Fintec or Digital Currency operations, whether
as a result of: (i) the receipt of sufficient Offering Proceeds from the
issuance and sale of the Class B Common Stock subject to this Offering; or (ii)
receipt of Offering Proceeds together with revenues from our other operations,
our plan is to place the Offering Proceeds in an account established for the
purpose of the holding the proceeds from the sale of the Class B Common
Stock pursuant to this Offering, whether in an escrow, trust or similar
account, until we finalize an acquisition agreement with a Bank, Fintec or
Diigital Currency transaction processing business; or until we finalize our JV
agreement with one or more identified One-four branch banks and commence our
planned Bank, Fintec or Digital Currency operations, of which there can be no
assurance, at which time the Offering Proceeds will be released to the Company
and the Closing of the Offering will occur.
The Class B Common Stock ranks junior to all of our indebtedness
and other liabilities.
In the event of our bankruptcy, liquidation, dissolution or
winding-up of our affairs, our assets will be available to pay obligations on
the Class B Common Stock only after all of our indebtedness and other
liabilities have been paid. The rights of holders of the Class B Common Stock
to participate in the distribution of our assets will rank junior to the prior
claims of our current and future creditors and any future series or class of
stock we may issue that ranks senior to the Class B Common Stock . Also, the
Class B Common Stock effectively ranks junior to all existing and future
indebtedness and to the indebtedness and other liabilities of our existing
subsidiaries and any future subsidiaries. Our existing subsidiaries are, and
future subsidiaries would be, separate legal entities and have no legal
obligation to pay any amounts to us in respect of dividends due on the Class B
Common Stock. If we are forced to liquidate our assets to pay our creditors, we
may not have sufficient assets to pay amounts due on any or all of the Class B
Common Stock then outstanding. We have incurred and may in the future incur
substantial amounts of debt and other obligations that will rank senior to the
Class B Common Stock. At September 30, 2020, we had total liabilities of
$1,088,382.
Future offerings of debt or senior equity securities may adversely
affect the market price of the Class B Common Stock. If we decide to issue debt
or senior equity securities in the future, it is possible that these securities
will be governed by an indenture or other instruments containing covenants
restricting our operating flexibility. Additionally, any convertible or
exchangeable securities that we issue in the future may have rights,
preferences and privileges more favorable than those of the Class B Common
Stock and may result in dilution to owners of the Class B Common Stock. We and,
indirectly, our shareholders, will bear the cost of
issuing and servicing such securities. Because our decision to issue debt or
equity securities in any future offering will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings. The holders of the Class B Common
Stock will bear the risk of our future offerings, which may reduce the market
price of the Class B Common Stock and will dilute the value of their holdings
in us.
There is no existing market for our The Class B Common Stock and
a trading market that will provide you with adequate liquidity may not develop
for our The Class B Common Stock .
The Class B Common Stock is a new issue of securities and
currently no market exists for the Class B Common Stock. We intend to apply to
have our The Class B Common Stock become listed on the NASDAQ Capital Market
and, at the same time, apply for NASDAQ Listing for our Common Stock, which is
currently subject to quotation of the OTC Markets under the symbol “GMPW.”
However, a trading market for the Class B Common Stock may never develop or,
even if one develops, may not be maintained and may not provide you with
adequate liquidity. The liquidity of any market for the Class B Common Stock
that may develop, assuming that we qualify for our planned NASDAQ Listing for
our Common Stock and The Class B Common Stock, of which there can be no
assurance, will depend on a number of factors, including prevailing interest
rates, our financial condition and operating results, the number of holders of
the Class B Common Stock , the market for similar securities and the interest
of securities dealers in making a market in the Class B Common Stock . We
cannot predict the extent to which investor interest in our company will lead
to the development of a trading market in our The Class B Common Stock, or how
liquid that market might be. If an active market does not develop, you may have
difficulty selling your shares of our The Class B Common Stock. The price of
our The Class B Common Stock was determined by the negotiations between us and
the representatives of the underwriters and may not be indicative of prices
that will prevail in the open market following the completion of this offering.
We may issue additional shares of The Class B Common Stock and
additional series of preferred stock that rank on parity with the Class B
Common Stock as to dividend rights, rights upon liquidation or voting rights.
We are allowed to issue additional shares of The Class B Common
Stock and additional series of preferred stock that would rank equally to or
above the Class B Common Stock as to dividend payments and rights upon our
liquidation, dissolution or winding up of our affairs pursuant to our articles
of incorporation and the articles of amendment relating to the Class B Common
Stock without any vote of the holders of the Class B Common Stock. The issuance
of additional shares of The Class B Common Stock and additional series of
preferred stock could have the effect of reducing the amounts available to the
Class B Common Stock issued in this offering upon our liquidation or
dissolution or the winding up of our affairs. It also may reduce dividend
payments on the Class B Common Stock issued in this offering if we do not have
sufficient funds to pay dividends on all The Class B Common Stock outstanding
and other classes or series of stock with equal priority with respect to
dividends.
If our common stock is delisted, your ability to transfer or sell
your shares of the Class B Common Stock may be limited and the market value of
the Class B Common Stock will likely be materially adversely affected.
The Class B Common Stock does not contain provisions that are
intended to protect you if our common stock ceased to be subject to quotation
on the OTC Market. Since the Class B Common Stock has no stated maturity date,
you may be forced to hold your shares of the Class B Common Stock and receive
stated dividends on the Class B Common Stock when, as and if authorized by our
board of directors and paid by us with no assurance as to ever receiving the
liquidation value thereof. Also, if our common stock ceased
to be subject to quotation on the OTC Market, it is likely that the Class B
Common Stock will also ceased to be subject to quotation on the OTC Market.
Accordingly, if our common stock ceased to be subject to quotation on the OTC
Market, your ability to transfer or sell your shares of the Class B Common
Stock may be limited and the market value of the Class B Common Stock will
likely be materially adversely affected.
We will have broad discretion in using the proceeds of this
offering, and we may not effectively spend the proceeds.
We intend to use a portion of the net proceeds of this offering to
fund acquisitions and initiatives to drive additional growth. We will use the
balance for working capital and general corporate purposes, which may include,
developing new products and funding capital expenditures and investments. We
will have significant flexibility and broad discretion in applying the net
proceeds of this offering, and we may not apply these proceeds effectively. Our
management might not be able to yield a significant return, if any, on any
investment of these net proceeds, and you will not have the opportunity to
influence our decisions on how to use our net proceeds from this offering.
The Class B Common Stock is not convertible, and investors will
not realize a corresponding upside if the price of the common stock increases.
The Class B Common Stock is not convertible into the common stock
and earns dividends at a fixed rate. Accordingly, an increase in market price
of our common stock will not necessarily result in an increase in the market
price of our The Class B Common Stock. The market value of the Class B Common
Stock may depend more on dividend and interest rates for other preferred stock,
commercial paper and other investment alternatives and our actual and perceived
ability to pay dividends on, and in the event of dissolution satisfy the
liquidation preference with respect to, the Class B Common Stock.
We are required to comply with certain provisions of Section 404
of the Sarbanes-Oxley Act of 2002 and if we fail to comply in a timely manner,
our business could be adversely effected and the price of the Class B Common
Stock could decline.
Rules adopted by the SEC pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls
over financial reporting, and for certain issuers an attestation of this
assessment by the issuer’s independent registered public accounting firm. The
standards that must be met for management to assess the internal controls over
financial reporting as effective are evolving and complex, and require
significant documentation, testing, and possible remediation to meet the
detailed standards.
We expect to incur expenses and to devote resources to Section 404
compliance on an ongoing basis. It is difficult for us to predict how long it
will take or costly it will be to complete the assessment of the effectiveness
of our internal control over financial reporting for each year and to remediate
any deficiencies in our internal control over financial reporting. As a result,
we may not be able to complete the assessment and remediation process on a
timely basis. In addition, although attestation requirements by our independent
registered public accounting firm are not presently applicable to us, we could
become subject to these requirements in the future and we may encounter
problems or delays in completing the implementation of any resulting changes to
internal controls over financial reporting. In the event that our Chief
Executive Officer or Chief Financial Officer determine that our internal
control over financial reporting is not effective as defined under Section 404,
we cannot predict how the market prices of our shares will be affected;
however, we believe that there is a risk that investor confidence and share
value may be negatively affected.
If we fail to maintain effective internal controls over financial
reporting, the price of our Class B Common Stock may be adversely affected.
Our internal control over financial reporting may have weaknesses
and conditions that could require correction or remediation, the disclosure of
which may have an adverse impact on the price of our Common Stock. We are
required to establish and maintain appropriate internal controls over financial
reporting. Failure to establish those controls, or any failure of those
controls once established, could adversely affect our public disclosures
regarding our business, financial condition or results of operations. In
addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our
internal controls over financial reporting or other matters that may raise
concerns for investors. Any actual or perceived weaknesses that need to be
addressed in our internal control over financial reporting or disclosure of
management’s assessment of our internal controls over financial reporting may
have an adverse impact on the price of our Common Stock.
The JOBS Act allows us to postpone the date by which we must
comply with certain laws and regulations and to reduce the amount of
information provided in reports filed with the SEC. We cannot be certain if the
reduced disclosure requirements applicable to emerging growth companies will
make our Class B Common Stock less attractive to investors.
We are and we will remain an “emerging growth company” until the
earliest to occur of (i) the last day of the fiscal year during which our total
annual revenues equal or exceed $1 billion (subject to adjustment for
inflation), (ii) the last day of the fiscal year following the fifth
anniversary of our IPO (iii) the date on which we have, during the previous
three-year period, issued more than $1 billion in non-convertible debt, or (iv)
the date on which we are deemed a “large accelerated filer” under the
Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so
long as we remain an “emerging growth company” as defined in the JOBS Act, we
may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not “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
non-binding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved.
Under the JOBS Act, emerging growth companies can also delay
adopting new or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption and, will therefore be subject to the same new or revised
accounting standards at the same time as other public companies that are not
emerging growth companies.
We
cannot predict if investors will find our Class B Common Stock less attractive
because we rely on some of the exemptions available to us under the JOBS Act.
If some investors find our Class B Common Stock less attractive as a result,
there may be a less active trading market for our Class B Common Stock and our
stock price may be more volatile. If we avail ourselves of certain exemptions
from various reporting requirements, our reduced disclosure may make it more
difficult for investors and securities analysts to evaluate us and may result
in less investor confidence.
RISKS
RELATED TO OUR INDUSTRY
Our limited operating history
makes evaluating our business and future prospects difficult, and may increase
the risk of your investment.
On
September 15, 2020, the Company spun-off its specialty real estate holding
business to an operating subsidiary and then pivot back to being a technology
company. Going
forward, the Company intends to acquire: (1) a cloud-based machine learning and artificial
intelligence (AI) enabled lending platform; (2) a one-four branch Bank that
serves majority black neighborhoods; and (3) Blockchain-Powered Payment and Financial
Transactions Processing and Digital Currency platform that connects
consumers, banks, and institutional investors. The Company has not been in the
business services and finance
industry before. Thus, in the Bank, Fintec or Digital Currency, the Company is
an early stage company. You must consider the risks and difficulties we face
as an early stage company with limited operating history. If we do not
successfully address these risks, our business, prospects, operating results
and financial condition will be materially and adversely harmed. We have a
very limited operating history on which investors can base an evaluation of our
business, operating results and prospects. We intend to derive our revenues
from lending fees, interest income and digital currency transactions fees.
However, there is no assurance that we could achieve this goal because we are
new to this industry.
RISKS
RELATED TO OUR BUSINESS
Our business, operating results, cash flows and financial
condition are subject to various risks and uncertainties, including, without
limitation, those set forth below, any one of which could cause our actual
operating results to vary materially from recent results or from our
anticipated future results.
We have a limited operating history, and
may not be able to operate our business successfully or generate sufficient
cash flow to sustain distributions to our stockholders.
We have a limited operating history. We currently own three
investment properties. We are subject to many of the business risks and
uncertainties associated with any new business enterprise. We cannot assure you
that we will be able to operate our business successfully or profitably or find
additional suitable investments. Our ability to provide attractive
risk-adjusted returns to our stockholders over the long term is dependent on
our ability both to generate sufficient cash flow to pay an attractive dividend
and to achieve capital appreciation, and we cannot assure you we will do
either. There can be no assurance that we will be able to continue to generate
sufficient revenue from operations to pay our operating expenses and make
distributions to stockholders. The results of our operations and the execution
on our business plan depend on several factors, including the availability of
additional opportunities for investment, the performance of our existing
properties and tenants, the availability of adequate equity and debt financing,
the federal and state regulatory environment relating to the medical-use
cannabis industry, conditions in the financial markets and economic conditions.
Risks Related to Our Real Estate Investments and Operations
Our current real estate portfolio consists
of three investment properties and will likely continue to be concentrated in a
limited number of properties in the future, which subjects us to an increased
risk of significant loss if any property declines in value or if we are unable
to lease a property.
As at December 31, 2019, we owned three
real estate investment properties. We have no tenant nor rental revenues for
the year ended December 31, 2019. As at September 30, 2020 we still owned two
real estate investment properties. Lease payment defaults by any of our future
tenants or a significant decline in the value of any
single property would materially adversely affect our business, financial
position and results of operations, including our ability to make distributions
to our stockholders. A lack of diversification may also increases the potential
that a single underperforming investment could have a material adverse effect
on our cash flows and the price we could realize from the sale of our
properties. Any adverse change in the financial condition of any of our future
tenants would subject us to a significant risk of loss.
In addition, failure by any our future
tenants to comply with the terms of its lease agreement with us could require
us to find another lessee for the applicable property. We may experience delays
in enforcing our rights as landlord and may incur substantial costs in
protecting our investment and re-leasing that property. Furthermore, we cannot
assure you that we will be able to re-lease that property for the rent we
currently receive, or at all, or that a lease termination would not result in
our having to sell the property at a loss. The result of any of the foregoing
risks could materially and adversely affect our business, financial condition
and results of operations and our ability to make distributions to our
stockholders.
General real estate investment risks may adversely affect property
income and values.
Real estate investments are subject to a
variety of risks. If the multifamily properties and other real estate
investments do not generate sufficient income to meet operating expenses,
including debt service and capital expenditures, cash flow and the ability to
make distributions to GMPW's stockholders will be adversely affected. Income
from the multifamily properties may be further adversely affected by, among
other things, the following factors:
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changes in the general or local
economic climate, including layoffs, plant closings, industry slowdowns,
relocations of significant local employers and other events negatively
impacting local employment rates and wages and the local economy;
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local economic conditions in which the
multifamily properties are located, such as oversupply of housing or a reduction
in demand for rental housing;
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the attractiveness and desirability of
our multifamily properties to tenants, including, without limitation, our
technology offerings and our ability to identify and cost effectively
implement new, relevant technologies, and to keep up with constantly changing
consumer demand for the latest innovations;
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inflationary environments in which the
costs to operate and maintain multifamily properties increase at a rate
greater than our ability to increase rents, or deflationary environments
where we may be exposed to declining rents more quickly under our short-term
leases;
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competition from other available
housing alternatives;
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changes in rent control or
stabilization laws or other laws regulating housing;
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the Company’s ability to provide for
adequate maintenance and insurance;
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declines in the financial condition of
our tenants, which may make it more difficult for us to collect rents from
some tenants;
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tenants' perceptions of the safety,
convenience and attractiveness of our multifamily properties and the
neighborhoods where they are located; and
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changes in interest rates and
availability of financing.
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As leases at the multifamily properties expire, tenants may enter into new
leases on terms that are less favorable to the Company. Income and real estate
values also may be adversely affected by such factors as applicable laws,
including, without limitation, the Americans with Disabilities Act of 1990 (the
"Disabilities Act"), Fair Housing Amendment Act of 1988 (the
"FHAA"), permanent and temporary rent control laws, rent
stabilization laws, other laws regulating housing that may prevent the Company
from raising rents to offset increased operating expenses, and tax laws.
Short-term leases
expose us to the effects of declining market rents, and the Company may be
unable to renew leases or relet units as leases expire.
Substantially all of our apartment leases are for a term of one
year or less. If the Company is unable to promptly renew the leases or relet
the units, or if the rental rates upon renewal or reletting are significantly
lower than expected rates, then the Company’s results of operations and
financial condition will be adversely affected. With these short term leases,
our rental revenues are impacted by declines in market rents more quickly than
if our leases were for longer terms.
National and regional economic
environments can negatively impact the Company’s liquidity and operating
results.
The Company's forecast for the national economy assumes growth
of the gross domestic product of the national economy and the economies of the
west coast states. In the event of a recession, the Company could incur
reductions in rental rates, occupancy levels, property valuations and increases
in operating costs such as advertising and turnover expenses. A recession may
affect consumer confidence and spending and negatively impact the volume and
pricing of real estate transactions, which could negatively affect the
Company’s liquidity and its ability to vary its portfolio promptly in response
to changes to the economy. Furthermore, if residents do not experience
increases in their income, they may be unable or unwilling to pay rent
increases, and delinquencies in rent payments and rent defaults may increase.
Rent control, or other changes in
applicable laws, or noncompliance with applicable laws, could adversely affect
the Company's operations or expose us to liability.
The Company must own, operate, manage, acquire, develop and
redevelop its properties in compliance with numerous federal, state and local
laws and regulations, some of which may conflict with one another or be subject
to limited judicial or regulatory interpretations. These laws and regulations
may include zoning laws, building codes, rent control or stabilization laws,
federal, state and local tax laws, landlord tenant laws, environmental laws,
employment laws, immigration laws and other laws regulating housing or that are
generally applicable to the Company's business and operations. Noncompliance
with laws could expose the Company to liability. If the Company does not comply
with any or all of these requirements, it may have to pay fines to government
authorities or damage awards to private litigants, and/or may have to decrease
rents in order to comply with such requirements. The Company does not know
whether these requirements will change or whether new requirements will be
imposed. Changes in, or noncompliance with, these regulatory requirements could
require the Company to make significant unanticipated expenditures, which could
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
In addition, rent control or rent stabilization laws and other
regulatory restrictions may limit our ability to increase rents and pass
through new or increased operating costs to our tenants. There has been a
recent increase in municipalities, including those in which we own properties,
considering or being urged by advocacy groups to consider rent control or rent
stabilization laws and regulations or take other actions which could limit our
ability to raise rents based solely on market conditions. These initiatives and
any other future enactments of rent control or rent stabilization laws or other
laws regulating multifamily housing, as well as any lawsuits against the
Company arising from such rent control or other laws, may reduce rental
revenues or increase operating costs. Such laws and regulations limit our
ability to charge market rents, increase rents, evict tenants or recover
increases in our operating expenses and could reduce the value of our
multifamily properties or make it more difficult for us to dispose of
properties in certain circumstances. Expenses associated with our investment in
these multifamily properties, such as debt service, real estate taxes,
insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from the community.
Furthermore, such regulations may negatively impact our ability to attract
higher-paying tenants to such multifamily properties.
Acquisitions of multifamily properties
involve various risks and uncertainties and may fail to meet expectations.
The Company intends to continue to acquire apartment multifamily
properties. However, there are risks that acquisitions will fail to meet the
Company’s expectations. The Company’s estimates of future income, expenses and
the costs of improvements or redevelopment that are necessary to allow the
Company to market an acquired apartment community as originally intended may
prove to be inaccurate. In addition, following an acquisition, the value and
operational performance of an apartment community may be diminished if
obsolescence or neighborhood changes occur before we are able to redevelop or
sell the community. Also, in connection with such acquisitions, we may assume
unknown liabilities, which could ultimately lead to material costs for us that
we did not expect to incur. The Company expects to finance future acquisitions,
in whole or in part, under various forms of secured or unsecured financing or
through the issuance of partnership units by the Operating Partnership or
related partnerships or joint ventures or additional equity by the Company. The
use of equity financing, rather than debt, for future developments or
acquisitions could dilute the interest of the Company’s existing stockholders.
If the Company finances new acquisitions under existing lines of credit, there
is a risk that, unless the Company obtains substitute financing, the Company
may not be able to undertake additional borrowing for further acquisitions or
developments or such borrowing may be not available on advantageous terms.
Development and redevelopment
activities may be delayed, not completed, and/or not achieve expected results.
The Company pursues development and redevelopment projects and
these projects generally require various governmental and other approvals,
which have no assurance of being received and/or the timing of which may be
delayed from the Company’s expectations. The Company defines development
projects as new multifamily properties that are being constructed or are newly
constructed and are in a phase of lease-up and have not yet reached stabilized
operations, and redevelopment projects as existing properties owned or recently
acquired that have been targeted for additional investment by the Company with
the expectation of increased financial returns through property improvement.
The Company’s development and redevelopment activities generally
entail certain risks, including, among others:
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funds may be expended and management's time devoted to
projects that may not be completed on time or at all;
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construction costs of a project may exceed original estimates
possibly making the project economically unfeasible;
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projects
may be delayed due to, without limitation, adverse weather conditions, labor
or material shortage, or environmental remediation;
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occupancy
rates and rents at a completed project may be less than anticipated;
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expenses
at completed development or redevelopment projects may be higher than
anticipated, including, without limitation, due to costs of environmental
remediation or increased costs for labor, materials and leasing;
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we
may be unable to obtain, or experience a delay in obtaining, necessary
zoning, occupancy, or other required governmental or third party permits and
authorizations, which could result in increased costs or delay or abandonment
of opportunities;
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we
may be unable to obtain financing with favorable terms, or at all, for the
proposed development or redevelopment of a community, which may cause us to
delay or abandon an opportunity; and
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we
may incur liabilities to third parties during the development process, for
example, in connection with managing existing improvements on the site prior
to tenant terminations and demolition (such as commercial space) or in
connection with providing services to third parties (such as the construction
of shared infrastructure or other improvements.)
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These
risks may reduce the funds available for distribution to our stockholders.
Further, the development and redevelopment of multifamily properties is also
subject to the general risks associated with real estate investments. For
further information regarding these risks, please see the risk factor above
titled "General real estate investment risks may adversely affect
property income and values."
Our
apartment multifamily properties may be subject to unknown or contingent
liabilities which could cause us to incur substantial costs.
The
properties that the Company owns or may acquire are or may be subject to
unknown or contingent liabilities for which the Company may have no recourse,
or only limited recourse, against the sellers. In general, the representations
and warranties provided under the transaction agreements related to the sales
of the properties may not survive the closing of the transactions. While the
Company will seek to require the sellers to indemnify us with respect to
breaches of representations and warranties that survive, such indemnification
may be limited and subject to various materiality thresholds, a significant
deductible or an aggregate cap on losses. As a result, there is no guarantee that
we will recover any amounts with respect to losses due to breaches by the
sellers of their representations and warranties. In addition, the total amount
of costs and expenses that may be incurred with respect to liabilities
associated with apartment multifamily properties may exceed our expectations,
and we may experience other unanticipated adverse effects, all of which may
adversely affect our business, financial condition and results of operations.
The
geographic concentration of the Company’s multifamily properties and
fluctuations in local markets may adversely impact the Company’s financial
condition and operating results.
The
geographic concentration of our properties could present risks if local
property market performance falls below expectations. In general, factors that
may adversely affect local market and economic conditions include, among
others, the following:
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the
economic climate, which may be adversely impacted by a reduction in jobs or
income levels, industry slowdowns, changing demographics and other factors;
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local
conditions, such as oversupply of, or reduced demand for, apartment homes;
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declines
in household formation or employment or lack of employment growth;
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rent
control or stabilization laws, or other laws regulating rental housing, which
could prevent the Company from raising rents to offset increases in operating
costs, or the inability or unwillingness of tenants to pay rent increases;
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competition
from other available apartments and other housing alternatives and changes in
market rental rates;
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economic
conditions that could cause an increase in our operating expenses, including
increases in property taxes, utilities and routine maintenance; and
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regional
specific acts of nature (e.g., earthquakes, fires, floods, etc.).
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Because
the Company’s multifamily properties would be primarily located in Southern
California, Northern California, Clark County, Nevada, and Baltimore, Maryland
and other metropolitan area, the Company is exposed to greater economic
concentration risks than if it owned a more geographically diverse
portfolio. The Company is susceptible to adverse developments in California,
Nevada, Maryland and Urban/metropolitan economic and regulatory environments,
such as increases in real estate and other taxes, and increased costs of
complying with governmental regulations. In addition, the State of California
is generally regarded as more litigious and more highly regulated and taxed
than many states, which may reduce demand for the Company’s properties. Any
adverse developments in the economy or real estate markets in California,
Nevada, Maryland and Urban/metropolitan, or any decrease in demand for the
Company’s multifamily properties resulting from the California, Nevada,
Maryland and Urban/metropolitan regulatory or business environments, could
have an adverse effect on the Company’s business and results of operations.
Our success depends on certain key personnel.
Our performance to date has been and will continue to be largely
dependent on the talents, efforts and performance of our senior management and
key technical personnel. It is anticipated that our executive officers will
enter into employment agreements. However, while it is customary to use
employment agreements as a method of retaining the services of key personnel,
these agreements do not guarantee us the continued services of such employees.
In addition, we have not entered into employment agreements with most of our
key personnel. The loss of our executive officers or our other key personnel,
particularly with little or no notice, could cause delays on projects and could
have an adverse impact on our client and industry relationships, our business,
operating results or financial condition.
We rely on highly skilled and qualified personnel, and if we are
unable to continue to attract and retain such qualified personnel it will
adversely affect our businesses.
Our success depends to a significant extent on our ability to
identify, attract, hire, train and retain qualified creative, technical and
managerial personnel. We expect competition for personnel with the specialized
creative and technical skills needed to provide our services will continue to
intensify. We often hire individuals on a project-by-project basis, and
individuals who work on one or more projects for us may not be available to
work on future projects. If we have difficulty identifying, attracting, hiring,
training and retaining such qualified personnel, or incur significant costs in
order to do so, our business and financial results could be negatively
impacted.
If we are unable to effectively manage organizational productivity
and global supply chain efficiency and flexibility, then our business could be
adversely affected.
We need to continually evaluate our organizational productivity
and supply chains and assess opportunities to reduce costs. We must also
enhance quality, speed and flexibility to meet changing and uncertain market
conditions. Our success also depends in part on refining our cost structure and
supply chains so that we have flexibility and are able to respond to market
pressures to protect profitability and cash flow or ramp up quickly and
effectively to meet demand. Failure to achieve the desired level of quality,
capacity or cost reductions could adversely affect our financial results.
Despite our efforts to control costs and increase efficiency in our facilities,
increased competition could still cause us to realize lower operating margins and
profitability.
Our operating results may fluctuate significantly, which may cause
the market price of our common stock to decrease significantly.
Our operating results may fluctuate as a result of a number of
factors, many of which are outside of our control. As a result of these
fluctuations, financial planning and forecasting may be more difficult and
comparisons of our operating results on a period-to-period basis may not
necessarily be meaningful. Accordingly, you should not rely on our annual and
quarterly results of operations as any indication of future
performance. Each of the risk factors described in this “Risks Related to Our
Business” section, and the following factors, may affect our operating results:
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our ability to continue to attract clients for our services and
products;
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the amount and timing of operating costs and capital
expenditures related to the maintenance and expansion of our businesses,
operations and infrastructure;
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our focus on long-term goals over short-term results;
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the results of our investments in high risk products;
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general economic conditions and those economic conditions
specific to our industries;
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changes in business cycles that affect the markets in which we
sell our products and services; and
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geopolitical events such as war, threat of war or terrorist
actions.
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In response to these fluctuations, the value of our common stock
could decrease significantly in spite of our operating performance. In
addition, our business, and the alcoholic beverage business, has historically
been cyclical and seasonal in nature, reflecting overall economic conditions as
well as client budgeting and buying patterns. The cyclicality and seasonality
in our business could become more pronounced and may cause our operating
results to fluctuate more widely.
We have a history of losses, have generated limited revenue to
date, and may continue to suffer losses in the future.
We have a history of losses and have generated limited revenue to
date. We expect to continue to incur losses for the foreseeable future. If we
cannot become profitable, our financial condition will deteriorate, and we may
be unable to achieve our business objectives, including without limitation,
having to cease operations due to a lack of capital.
We will require substantial additional funding, which may not be
available to us on acceptable terms, or at all, and, if not available may
require us to delay, scale back or cease our marketing or product development
activities and operations.
We will require substantial additional capital in order to
continue the marketing of our existing products and complete the development of
our contemplated products. Raising funds in the current economic climate may be
difficult and additional funding may not be available on acceptable terms, or
at all.
The amount and timing of our future funding requirements, both
near- and long-term, will depend on many factors, including, but not limited
to:
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the
number and characteristics of investments or products that we pursue;
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our
potential need to expand operations, including the hiring of additional
employees;
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the
costs of licensing, acquiring or investing in complimentary businesses,
products and technologies;
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the
effect of any competing technological or market developments;
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the
need to implement additional internal systems and infrastructure, including
financial and reporting
systems;
and
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the
economic and other terms, timing of and success of our co-branding,
licensing, collaboration or
marketing
relationships into which we have entered or may enter in the future.
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Some of these factors are outside of our
control. We will require an additional capital infusion in order to get back to
as an operating technology-focused company that design,
manufacture, install and sell Bank, Fintec or Digital Currency , Power Controls,
Battery Technology, Wireless Technology, and Residential utility meters and
remote, mission-critical devices mostly engineered through Artificial
Intelligence, Machine Learning and Robotic technologies. In addition, we
cannot guarantee that future financing will be available in sufficient amounts
or on terms acceptable to us, if at all. If we are unable to raise additional
capital when required or on acceptable terms, we may be required to
significantly delay, scale back or discontinue the development or marketing of
one or more of our products or product candidates or curtail our operations,
which will have a Material Adverse Effect on our business, operating results
and prospects.
We may sell additional equity or debt securities or enter into
other arrangements to fund our operations, which may result in dilution to our
stockholders and impose restrictions or limitations on our business.
We may seek additional funding through a combination of equity
offerings, debt-financings, or other third party funding or other
collaborations, strategic alliances or licensing arrangements. These financing
activities may have an adverse impact on our stockholders’ rights as well as
our operations. For instance, any debt financing may impose restrictive
covenants on our operations or otherwise adversely affect the holdings or the
rights of our stockholders. In addition, if we seek funds through arrangements
with partners, these arrangements may require us to relinquish rights to some
of our technologies, products or product candidates or otherwise agree to terms
unfavorable to us.
Acquisitions we pursue in our industry and related industries
could result in operating difficulties, dilution to our stockholders and other
consequences harmful to our business.
As part of our growth strategy, we may selectively pursue
strategic acquisitions in our industry and related industries. We may not be
able to consummate such acquisitions, which could adversely impact our growth.
If we do consummate acquisitions, integrating an acquired company, business or
technology may result in unforeseen operating difficulties and expenditures,
including:
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increased
expenses due to transaction and integration costs;
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potential
liabilities of the acquired businesses;
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potential
adverse tax and accounting effects of the acquisitions;
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diversion
of capital and other resources from our existing businesses;
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diversion
of our management’s attention during the acquisition process and any
transition periods;
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loss
of key employees of the acquired businesses following the acquisition; and
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inaccurate
budgets and projected financial statements due to inaccurate valuation
assessments of the acquired businesses.
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Foreign acquisitions also involve unique risks related to integration
of operations across different cultures and languages, currency risks and the
particular economic, political and regulatory risks associated with specific
countries.
Our evaluations of potential acquisitions may not accurately
assess the value or prospects of acquisition candidates, and the anticipated
benefits from our future acquisitions may not materialize. In addition, future
acquisitions or dispositions could result in potentially dilutive issuances of
our equity securities, including our common stock, the incurrence of debt,
contingent liabilities or amortization expenses, or write-offs of goodwill, any
of which could harm our financial condition.
Interruption or
failure of our information technology systems could impair our ability to effectively
and timely provide our services and products, which could damage our reputation
and have an adverse impact on our operating results.
Our systems are vulnerable to damage or interruption from
earthquakes, hurricanes, terrorist attacks, floods, fires, power loss,
telecommunications failures, computer viruses or other attempts to harm our
systems, and similar events. Our facilities are located in areas with a high
risk of major earthquakes and are also subject to break-ins, sabotage and
intentional acts of vandalism. Some of our systems are not fully redundant, and
our disaster recovery planning cannot account for all eventualities. The
occurrence of a natural disaster or other unanticipated problems at our Santa
Monica, California facility or manufacturing facility located in Orange County,
California could result in lengthy interruptions in our projects and our
ability to deliver services. An error or defect in the software, a failure in
the hardware, a failure of our backup facilities could delay our delivery of
products and services and could result in significantly increased production
costs, hinder our ability to retain and attract clients and damage our brand if
clients believe we are unreliable. Given our reliance on our industry relationships,
it could also result in a decrease in our revenues and otherwise adversely
affect our business and operating results.
Our insurance policies are expensive and only protect us from some
business risks, which will leave us exposed to significant uninsured
liabilities.
We do not carry insurance for all categories of risk that our
business may encounter. Some of the policies that we generally maintain include
general liability, automobile and property insurance. We do not know, however,
if we will be able to maintain insurance with adequate levels of coverage. In
addition, we do not know if we will be able to obtain and maintain coverage for
the business in which we engage. No assurance can be given that an insurance
carrier will not seek to cancel or deny coverage after a claim has occurred.
Any significant uninsured liability may require us to pay substantial amounts,
which would adversely affect our business, financial condition and business
results.
Our business is subject to the risks of earthquakes, fires,
floods, power outages and other catastrophic events, and to interruption by
manmade problems such as terrorism. A disruption at our production facility
could adversely impact our results of operations, cash flows and financial
condition.
All of our products are produced in one location, which is located
in Southern California. A significant natural disaster, such as an earthquake,
fire or a flood or a significant power outage could have a material adverse
impact on our business, financial condition or operating results. If there were
a catastrophic failure at our major production facility, our business would be
adversely affected. The loss of a substantial amount of inventory – through
fire, other natural or man-made disaster, contamination, or otherwise – could
result in a significant reduction in supply of the affected product or
products. Similarly, if we experienced a disruption in the supply of our
products, our business could suffer. A consequence of any of these supply
disruptions could be our inability to meet consumer demand for the affected
products for a period of time. In addition, there can be no assurance that
insurance proceeds would cover the replacement value of our products or other
assets if they were to be lost. In addition, if a catastrophe such as an
earthquake, fire, flood or power loss should affect one of the third parties on
which we rely, our business prospects could be harmed. Moreover, acts of
terrorism could cause disruptions in our business or the business of our
third-party service providers, partners, customers or the economy as a whole.
Future tax law changes and/or interpretation of existing tax laws
may adversely affect our effective income tax rate and the resolution of
unrecognized tax benefits.
We are subject to income taxation in the U.S. It is possible that
future income tax legislation may be enacted that could have a material impact
on our income tax provision. We believe that our tax estimates are reasonable and appropriate, however, there are
inherent uncertainties in these estimates. As a result, the ultimate outcome
from any potential audit could be materially different from amounts reflected
in our income tax provisions and accruals. Future settlements of income tax
audits may have a material effect on earnings between the period of initial
recognition of tax estimates in the financial statements and the timing of
ultimate tax audit settlement.
Potential liabilities and costs from litigation and other legal
proceedings could adversely affect our business.
From time to time we may be subject to various lawsuits, claims,
disputes and investigations in the normal conduct of our operations. These
include, but are not limited to, commercial disputes, including purported class
actions, employment claims, actions by tax and customs authorities, and
environmental matters. Some of these legal proceedings may include claims for
substantial or unspecified damages. It is possible that some of the actions
could be decided unfavorably and could adversely affect our results of
operations, cash flows or financial condition. In addition, because litigation
and other legal proceedings can be costly to defend, even actions that are
ultimately decided in our favor could have a negative impact on our results of
operations and cash flows. If Tara Spencer enforces the Labor Commission
judgment against the Company for the amount owed, this may result in a material
adverse effect on our financial condition.
Historical financial statements may not be reflective of our
future results of operations, cash flows, and financial condition.
Although we believe that you have been provided access to all
material information necessary to make an informed assessment of our assets and
liabilities, financial position, profits and losses and prospects, historical
financial statements do not represent what our results of operations, cash
flows, or financial position will be in the future.
We
must expend time and resources addressing potential cybersecurity risk, and any breach of our
information security safeguards could have a material adverse effect on the
Company.
The
threat of cyber attacks requires additional time and money to be expended in
efforts to prevent any breaches of our information security protocols. However,
we can provide no assurances that we can prevent all such attempts from being
successful, which could result in expenses to address and remediate such
breaches as well as potentially losing the confidence of our customers who
depend upon our services to prevent and mitigate such attacks on their
respective business. Should a material breach of our information security
systems occur, it would likely have a material adverse impact on our business
operations, our customer relations, and our current and future sales prospects,
resulting in a significant loss of revenue.
Risks Related to Our Common Stock
There currently is only a minimal public market for our common
stock. Failure to develop or maintain a trading market could negatively affect
the value of our common stock and make it difficult or impossible for you to
sell your shares.
There currently is only a minimal public market for shares of our
common stock and an active market may never develop. Our common stock is
currently subject to quotation on the OTC Pink Market operated
by the OTC Market’s Group, Inc. under the symbol “GMPW”. While we plan in
connection with the Closing of the Offering of our Class B Common Stock to
apply for listing of such Class B Common Stock on the NASDAQ Capital Market
and at the same time apply to the NASDAQ Capital Market for listing our Common
Stock, we may not be able to satisfy the listing requirements for our Common
Stock to be listed on the NASDAQ Capital Market which are often more
widely-traded and liquid markets. Some, but not all, of the factors which may
delay or prevent the listing of our Common Stock on a more widely-traded and
liquid market include the following: our stockholders’ equity may be
insufficient; the market value of our outstanding securities may be too low;
our net income from operations may be too low; our common stock may not be
sufficiently widely held; we may not be able to secure market makers for our
common stock; and we may fail to meet the rules and requirements mandated by,
any of the several exchanges and markets to have our common stock listed.
Reference is made to the disclosure under “The Offering” and specifically to
the subcaption “NASDAQ Capital Markets Listing Requirements,” above.
The market price for our common stock is particularly volatile
given our status as a relatively unknown company with a small and thinly traded
public float, limited operating history and lack of profits which could lead to
wide fluctuations in our share price. You may be unable to sell your common
stock at or above your conversion price, which may result in substantial losses
to you.
The market for our common stock is characterized by significant
price volatility when compared to seasoned issuers, and we expect that our
share price will continue to be more volatile than a seasoned issuer for the
indefinite future. The volatility in our share price is attributable to a
number of factors. First, as noted above, our common stock are sporadically and
thinly traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price for our
shares could, for example, decline, precipitously or otherwise, in the event
that a large number of our common stock are sold on the market without
commensurate demand, as compared to a seasoned issuer which could better absorb
those sales without adverse impact on its share price. Secondly, we are a
speculative or “risky” investment due to our limited operating history and lack
of profits to date, and uncertainty of future market acceptance for our
potential products and services. As a consequence of this enhanced risk, more
risk-adverse investors may, under the fear of losing all or most of their
investment in the event of negative news or lack of progress, be more inclined
to sell their shares on the market more quickly and at greater discounts than
would be the case with the stock of a seasoned issuer. Many of these factors
are beyond our control and may decrease the market price of our common stock,
regardless of our operating performance. We cannot make any predictions or
projections as to what the prevailing market price for our common stock will be
at any time, including as to whether our common stock will sustain their
current market prices, or as to what effect that the sale of shares or the
availability of common stock for sale at any time will have on the prevailing
market price.
The application of the “penny stock” rules could adversely affect
the market price of our common stock and increase your transaction costs to
sell those shares.
The SEC has adopted rule 3a51-1 which 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, Rule 15g-9 requires:
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that a broker or dealer approve a person’s account for
transactions in penny stocks, and
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the broker or dealer receives from the investor a written
agreement to the transaction, setting forth the
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identity and quantity of the penny stock to be purchased.
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In order to approve a person’s account for transactions in penny
stocks, the broker or dealer must:
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obtain financial information and investment experience
objectives of the person, and
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make a reasonable determination that the transactions in penny
stocks are suitable for that person and
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the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny
stocks.
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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:
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sets forth the basis on which the broker or dealer made the
suitability determination, and
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that the broker or dealer received a signed, written agreement
from the investor prior to the transaction.
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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 stock.
The application of Rule 144 creates some investment risk to
potential investors; for example, existing shareholders may be able to rely on
Rule 144 to sell some of their holdings, driving down the price of the shares
you purchased.
The SEC adopted amendments to Rule 144 which became effective on
February 15, 2008 that apply to securities acquired both before and after that
date. Under these amendments, a person who has beneficially owned restricted
shares of our common stock for at least six months would be entitled to sell
their securities provided that: (i) such person is not deemed to have been one
of our affiliates at the time of, or at any time during the three months
preceding a sale, (ii) we are subject to the Exchange Act periodic reporting
requirements for at least 90 days before the sale and (iii) if the sale occurs
prior to satisfaction of a one-year holding period, we provide current
information at the time of sale.
Persons who have beneficially owned restricted shares of our
common stock for at least six months but who are our affiliates at the time of,
or at any time during the three months preceding a sale, would be subject to
additional restrictions, by which such person would be entitled to sell within
any three-month period only a number of securities that does not exceed the
greater of either of the following:
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1% of the total number of securities of the same class then
outstanding (shares of common stock as of the date of this Report); or
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the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on Form 144 with respect
to the sale;
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provided, in each case, that we are subject to the Exchange Act
periodic reporting requirements for at least three months before the sale. Such
sales by affiliates must also comply with the manner of sale, current public
information and notice provisions of Rule 144.
Our
common stock may experience volatility in trading or loss in value as a result
of the effects of the coronavirus on the US and global economies.
Uncertainties
surrounding the effects of the coronavirus on the US and global economies has
resulted in an increase in volatility and violent drops in the value of
publicly traded securities. While the price of our common stock has not
experienced such volatility or loss in value, we can offer no assurances that
the long-term effects on the overall US economy will not negatively affect us
in the future.
Fluctuations
in our quarterly revenues may cause the price of our common stock to decline.
Our
operating results have varied significantly from quarter to quarter in the
past, and we expect our operating results to vary from quarter to quarter in
the future due to a variety of factors, many of which are outside of our
control. Therefore, if revenues are below our expectations, this shortfall is
likely to adversely and disproportionately affect our operating results. Accordingly,
we may not attain positive operating margins in future quarters. Any of these
factors could cause our operating results to be below the expectations of
securities analysts and investors, which likely would negatively affect the
price of our common stock.
Our
management and larger stockholders currently exercise significant control over
our Company and will continue to have influence over our Company after the
offering has concluded, and such influence may be in conflict to your
interests.
As
of September 30, 2020, our executive officers and directors beneficially own
approximately 57.32% of our voting power. As a result, these stockholders have
been able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, including the details of this offering.
We do not intend to pay dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. We currently anticipate that we will retain all of
our available cash, if any, for use as working capital and for other general
corporate purposes. Any payment of future dividends will be at the discretion
of our Board of Directors and will depend upon, among other things, our
earnings, financial condition, capital requirements, level of indebtedness,
statutory and contractual restrictions applying to the payment of dividends and
other considerations that the Board of Directors deems relevant. Investors must
rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize a return on their investment. Investors
seeking cash dividends should not purchase our common stock.
Compliance with changing regulations concerning corporate
governance and public disclosure may result in additional expenses.
In recent years, there have been several changes in laws, rules,
regulations and standards relating to corporate governance and public
disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”), the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”)
and various other new regulations promulgated by the SEC and rules promulgated
by the national securities exchanges. The Dodd-Frank Act, enacted in July 2010,
expands federal regulation of corporate governance matters and imposes
requirements on publicly-held companies, including us, to, among other things,
provide stockholders with a periodic advisory vote on executive compensation
and also adds compensation committee reforms and enhanced pay-for-performance
disclosures. While some provisions of the Dodd-Frank Act were effective upon
enactment, others will be implemented upon the SEC’s adoption
of related rules and regulations. The scope and timing of the adoption of such
rules and regulations is uncertain and accordingly, the cost of compliance with
the Dodd-Frank Act is also uncertain.
In addition, Sarbanes-Oxley specifically requires, among other
things, that we maintain effective internal control over financial reporting
and disclosure of controls and procedures.
These and other new or changed laws, rules, regulations and
standards are, or will be, subject to varying interpretations in many cases due
to their lack of specificity. As a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing
bodies, which could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and
governance practices. Our efforts to comply with evolving laws, regulations and
standards are likely to continue to result in increased general and
administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. Further, compliance
with new and existing laws, rules, regulations and standards may make it more
difficult and expensive for us to maintain director and officer liability
insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. Members of our board of
directors and our principal executive officer and principal financial officer
could face an increased risk of personal liability in connection with the
performance of their duties. As a result, we may have difficulty attracting and
retaining qualified directors and executive officers, which could harm our
business. We continually evaluate and monitor regulatory developments and
cannot estimate the timing or magnitude of additional costs we may incur as a
result.
Risks Related to Our Bank, Fintec or Digital Currency Business
Acquisition Strategy
We are dependent upon our ability to successfully complete
acquisitions of One-four branch bank or successful execution of a Joint Venture
agreement with an One-four branch bank to grow our business.
We intend to re-launch our technology focused business model
through acquisitions and Joint Ventures (JV) with willing businesses that
source, design, develop, manufacture, install
and distribute Bank, Fintec or Digital Currency , Power Control, Battery
Technology, Wireless Technology, and Residential utility meters and remote,
mission-critical devices mostly engineered through Artificial Intelligence, Machine
Learning and Robotic technologies.
We also intend to pursue and consummate one or more acquisitions
using part of the Offering Proceeds from the sale of our Class B Common Stock
as well as other funding sources, which have not yet been determined, if any,
to fund any cash portion of the consideration we will pay in connection with
those acquisitions. However, such acquisitions may also be subject to
conditions and other impediments to closing, including some that are beyond our
control, and we may not be able to close any of them successfully, in a timely
manner. In addition, our future acquisitions will be required to be closed
within certain timeframes as negotiated between us and the acquisition target,
and if we are unable to meet the closing deadlines for a given transaction, we
may be required to forfeit payments we have made, if any, be forced to
renegotiate the transaction on less advantageous terms and could fail to
consummate the transaction at all.
Further, we may not be able to identify suitable acquisition
candidates, and even if we were to do so, we may only be able to consummate
them on less advantageous terms. In addition, some of the businesses we would acquire may incur significant losses from
operations, which, in turn, could have a material and adverse impact on our
business, results of operations and financial condition.
We may face unforeseen difficulties in the future in
fully-integrating the operations of One-four branch bank to be acquired using
the proceeds from this offering, or any other businesses we may acquire in the
future. Acquisitions will be an important component of our growth strategy;
however, we will need to integrate these acquired businesses successfully in
order for our growth strategy to succeed and for us to become profitable. We
expect that the management teams of the acquired businesses will adopt our
policies, procedures and best practices, and cooperate with each other in
scheduling events, booking talent and in other aspects of their operations. We
may face difficulty with the integration of One-four branch bank to be acquired
using the proceed from this offering, and any other business we may acquire,
such as coordinating geographically dispersed organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures, the diversion of management’s attention from other business concerns,
the inherent risks in entering markets or lines of business in which we have
either limited or no direct experience; and the potential loss of key
employees, individual service providers, customers and strategic partners of
acquired companies.
Further, we expect that future target companies may have material
weaknesses in internal controls relating to the proper application of accrual
based accounting under the accounting principles generally accepted in the
United States of America (“GAAP”) prior to our acquiring them. The Public
Company Accounting Oversight Board (the “PCAOB”) defines a material weakness as
a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material
misstatement of annual or interim financial statements will not be prevented or
detected on a timely basis. We will be relying on the proper implementation of
our policies and procedures to remedy any such material weaknesses and prevent
any potential material misstatements in our financial reporting. Any such
misstatement could adversely affect the trading price of our common stock,
cause investors to lose confidence in our reported financial information, and
subject us to civil and criminal fines and penalties. If our acquired companies
fail to integrate in these important ways, or we fail to adequately understand
the business operations of our acquired companies, our growth and financial
results could suffer.
We may enter into acquisitions and take actions in connection with
such transactions that could adversely affect our business and results of
operations.
Our future growth rate depends in part on our selective
acquisition of One-four branch bank or successful execution of a Joint
Venture agreement with an One-four branch banks. We may be unable to
identify suitable targets for acquisition or make further acquisitions at
favorable prices. If we identify a suitable acquisition candidate, our ability
to successfully complete the acquisition would depend on a variety of factors
and may include our ability to obtain financing on acceptable terms and
requisite government approvals. In addition, any credit agreements or credit
facilities that we may enter into in the future may restrict our ability to
make certain acquisitions. In connection with future acquisitions, we could
take certain actions that could adversely affect our business, including:
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using a significant portion of our available cash;
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issuing equity securities, which would dilute current
stockholders’ percentage ownership;
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incurring substantial debt;
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incurring or assuming contingent liabilities, known or unknown;
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incurring amortization expenses related to intangibles; and
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incurring large accounting write-offs or impairments.
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We may also enter into joint ventures,
which involve certain unique risks, including, among others, risks relating to
the lack of full control of the joint venture, potential disagreements with our
joint venture partners about how to manage the joint venture, conflicting
interests of the joint venture, requirement to fund the joint venture and its
business not being profitable.
In addition, we cannot be certain that the due diligence
investigation that we conduct with respect to any investment or acquisition
opportunity will reveal or highlight all relevant facts that may be necessary
or helpful in evaluating such investment opportunity. For example, instances of
fraud, accounting irregularities and other deceptive practices can be difficult
to detect. Executive officers, directors and employees may be named as
defendants in litigation involving a company we are acquiring or have acquired.
Even if we conduct extensive due diligence on a particular investment or
acquisition, we may fail to uncover all material issues relating to such
investment, including regarding controls and procedures of a particular target
or the full scope of its contractual arrangements. We rely on our due diligence
to identify potential liabilities in the businesses we acquire, including such
things as potential or actual lawsuits, contractual obligations or liabilities
imposed by government regulation. However, our due diligence process may not
uncover these liabilities, and where we identify a potential liability, we may
incorrectly believe that we can consummate the acquisition without subjecting
ourselves to that liability. Therefore, it is possible that we could be subject
to litigation in respect of these acquired businesses. If our due diligence
fails to identify issues specific to an investment or acquisition, we may
obtain a lower return from that transaction than the investment would return or
otherwise subject ourselves to unexpected liabilities. We may also be forced to
write-down or write-off assets, restructure our operations or incur impairment
or other charges that could result in our reporting losses. Charges of this
nature could contribute to negative market perceptions about us or our shares
of common stock.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following plan of operation provides information which
management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read
along with our financial statements and notes thereto. This section includes a
number of forward-looking statements that reflect our current views with
respect to future events and financial performance. Forward-looking statements
are often identified by words like believe, expect, estimate, anticipate,
intend, project and similar expressions, or words which refer to future events.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from our predictions.
Business Overview
Business Overview
GiveMePower
Corporation operates and manages a portfolio of real estate and financial
services assets and operations to empower black persons in the United States
through financial tools and resources. Givemepower is primarily focused on: (1)
creating and empowering local black businesses in urban America; and (2)
creating real estate properties and businesses in opportunity zones and other
distressed neighborhood across America. This Offering represents the
commencement of the Banking and financial services division of our business.
This Offering will enable GMPW to become a financial technology company
(FINTEC) business that (1) one-to-four branch federally licensed bank in each
jurisdiction, (2) a machine learning (ML) and artificial intelligence (AI) enabled
loan and insurance underwriting platform, (3) blockchain-powered transaction
processing and payment systems, (4) cryptocurrency transaction processing
platform, and (5) emerging cryptocurrency opportunities portfolio; giving
access to the unbanked, underserved residents of majorly black communities
across the United State. This is the fulfillment of mission of operating and
managing a portfolio of real estate and financial services assets and
operations to empower black persons in the United States through financial
tools and resources, with a primary focused on: (1) creating and empowering
local black businesses in urban America; and (2) creating real estate
properties and businesses in opportunity zones and other distressed
neighborhood across America. Our
FINTEC operations would cover the basic areas of traditional banking-digitally
enhance, MLand Ai enabled lending and insurance underwriting, areas of private
equity, business lending and venture capital that invest in young black
entrepreneurs, and seeding their viable business plans/ideas on
block-chain-powered financial services delivery platform that connects, black
entrepreneurs, black borrowers, consumers, banks, and institutional investors. Our real estate
division invests in Opportunity Zones, Affordable Housing, and specialized real
estate properties.
Corporate History
GiveMePower
Corporation (the “PubCo” or “Company”), a Nevada corporation, was incorporated
on June 7, 2001 to sell software geared to end users and developers involved in
the design, manufacture, and construction of engineered products located in
Canada and the United States. GiveMePower was originally incorporated in
Alberta, Canada as GiveMePower.com Inc. on April 18, 2000, to sell software and
web-based services geared to businesses involved in the design, manufacture, and construction of engineered products throughout North
America. Effective September 15, 2000, the Company amended its Articles of
Incorporation to change its corporate name to GiveMePower Inc. The founder of
the Company began the implementation of this business plan under his 100%-owned
private company, Sundance Marketing International Inc. (Sundance). Sundance has
been in existence since 1991 and at one time was a market leader in the
distribution of survey, mapping and infrastructure design software in the
Canadian marketplace. On April 15, 1999, Mr. Walton entered into a license
agreement with Felix Computer Aided Technologies GmbH (Felix) for the exclusive
rights to distribute FCAD software in North America.
On
December 20, 2000, the Company entered into a Plan and Agreement of Reorganization
to undertake a reverse merger with a National Quotation Bureau public company
called TelNet World Communications, Inc. (TelNet). TelNet was originally
incorporated in the State of Utah on March 10, 1972 as Tropic Industries, Inc.
(Tropic). Tropic became United Datacopy, Incorporated on February 24, 1987
which became Pen International, Inc. on March 21, 1994 and then TelNet World
Communications, Inc. on March 4, 1998. TelNet had no operations nor any
working capital when the Company entered into the reverse merger with it. GMP
acquired the rights, title and interest to the domain name, givemepower.com
from Sundance on February 16, 2001. In addition, Sundance agreed to assign its
existing customer base to GMP and further agreed that it would terminate its
license agreement with Felix immediately upon GMP securing its own agreement
with Felix. GMP renegotiated the exclusive rights to co-develop, re-brand and
distribute FCAD software in North America effective February 16, 2001.
Effective July 5, 2001 the Company changed the name of TelNet to GiveMePower
Corporation and changed the domicile from Utah to Nevada.
The
PubCo has been dormant and non-operating since year 2009. PubCo is a public
reporting company registered with the Securities Exchange Commissioner (“SEC”).
In November 2009, the Company filed Form 15D, Suspension of Duty to Report, and
as a result, the Company was not required to file any SEC forms since November
2009.
On
December 31, 2019, PubCo sold one Special 2019 series A preferred share
(“Series A Share”) for $38,000 to Goldstein Franklin, Inc. (“Goldstein”), a
California corporation. One Series A Share is convertible to 100,000,000 shares
of common stocks at any time. The Series A Share also provided with 60% voting
rights of the PubCo. On the same day, Goldstein sold one-member unit of
Alpharidge Capital, LLC (“Alpharidge”), a California limited liability
corporation, representing 100% member owner of Alpharidge. As a result,
Alpharidge become a wholly owned subsidiary of PubCo as of December 31, 2019.
The
transaction above will be accounted for as a “reverse merger” and
recapitalization amongst PubCo, Goldstein, and Alpharidge since the
stockholders of Alpharidge will have the significant influence and the ability
to elect or appoint or to remove a majority of the members of the governing
body of the combined entity immediately following the completion of the
transaction, the stockholders of PubCo will have the significant influence and
the ability to elect or appoint or to remove a majority of the members of the
governing body of the combined entity, and PubCo’s senior management will
dominate the management of the combined entity immediately following the
completion of the transaction. Accordingly, Alpharidge will be deemed to be the
accounting acquirer in the transaction and, consequently, the transaction is
treated as a recapitalization of the PubCo. Accordingly, the assets and
liabilities and the historical operations that are reflected in the financial
statements are those of Alpharidge and are recorded
at the historical cost basis of Alpharidge. As a result, Alpharidge is the
surviving company and the financial statements presented are historical
financial accounts of Alpharidge.
On
September 16, 2020, as part of its sales of unregistered securities to Kid
Castle Educational Corporation, company related to, and controlled by GMPW
President and CEO, the Company, for $3 in cash and 1,000,000 shares of its
preferred stock, acquired 100% interest in, and control of Community Economic
Development Capital, LLC (“CED Capital”), a California Limited Liability
Company, and 97% of the issued and outstanding shares of Cannabinoid
Biosciences, Inc. (“CBDX”), a California corporation. This
transaction was accounted for under the Consolidation Method using the variable
interest entity (VIE) model wherein the Company consolidates all investees
operating results if the Company expects to assume more than 50% of another
entity’s expected losses or gains. The 1,000,000 shares of our
preferred stock sold to Kid Castle Educational Corporation gave to Kid Castle,
approximately 87% voting control of Givemepower Corporation.
The consolidated
financial statements of the Company therefore include its wholly owned
subsidiaries of Alpharidge Capital LLC. (“Alpharidge”), Community Economic Development
Capital, LLC. (“CED Capital”), and Cannabinoid Biosciences, Inc. (“CBDX”), and subsidiaries, in which GiveMePower has a controlling voting
interest and entities consolidated under the variable interest entities (“VIE”)
provisions of ASC 810, “Consolidation” (“ASC 810”), after elimination of
intercompany transactions and accounts.
With the proceeds from this Offering, we intend to actualize our
banking and financial services operations goals which comprises of (1) a one-to-four
branch bank that is federally licensed in each jurisdiction; (2) a machine
learning (ML) and artificial intelligence (Ai) enabled loan and insurance
underwriting platform; (3) blockchain-powered transaction processing and
payment systems; (4) cryptocurrency transaction processing platform; and (5)
emerging cryptocurrency opportunities portfolio; a combination of three of
which would connects consumers, banks, institutional investors, and ensure
access to the unbanked and underserved residents of majorly black communities
across the United State of America. All five sub-divisions would operate together as a modern
digitized banking and financial services provider focusing to giving access to
black entrepreneurs, black borrowers, consumers, banks, and institutional
investors.
General Overview (1) - Proposed Federally licensed one-four branch
bank
Jurisdictionally, GMPW intend to use part of the proceeds from
this Offering to acquire and manage one-four branch bank in each of its
relevant jurisdictional domain. Owning/controlling a bank or banks with
branches across every urban/black neighborhood in the United States is not our
goal. Rather we would be content to own a one-four branch bank in every
relevant jurisdiction to allow us to initiate/conduct ML-Ai enabled and
blockchain-powered digitized banking that is accessible to all black person and
businesses across the United States. We intend to start our banking
acquisition by finding targets that operates one-four branches. We intend to
start with the acquisition of one-four branch bank, whose operation and
back-office would be migrated unto a Blockchain-powered platform to digitize
its entire banking operation to cover and serve all black persons in the United
States. We believe that blockchain technology is one of the most suited
platform to implement, run and manage a U.S. wide digitized banking services
whose reach encompasses most black persons living in the United States. The beauty of such platform is that: (i) Blockchain records
and validates each and every transaction; (ii) Blockchain does not require
third-party authorization; and (iii) Blockchain is decentralized.
Blockchain-powered digitized banking operation would position the
acquired Bank at the forefront on banking innovation while achieving its goals
without compromising traditional banking standards. Key advantages of sitting
the acquired Bank operations on a blockchain-powered platform include
simplification of transactions reliance, transparency, security, compliance and
seamless regulatory reporting. Advantages of operating a blockchain-powered
platform include the followings:
Data Security: The blockchain’s decentralized security detects backdoor hacks
more easily than its alternatives. Blockchain tech secures and privatizes data
through encryption and cryptographically protected passkeys. This is ideally
suited to the Banking industry, where both security and privacy are critical
because ackers disproportionately target financial institutions. Finance hacks
accounted for 8.5 percent of data breaches in 2017, and financial businesses
are 300 times more likely to fall victim to a cyber attack.
Faster,Time-Saving and more reliable payment structures: Blockchain
technology could help decrease recordkeeping costs and in situations where
financial institutions that act as the guarantor of payment between seller and
buyer, where traditional letters of credit require several intermediaries —
banks, financiers, insurers, and export credit agencies — that must all be
paid, Blockchain technology would eliminate some intermediaries while
simultaneously weaning trade financiers off of paper-based systems that cost
time and money.
Loan Syndication: A Blockchain-powered platform could compliment the best
attributes of our proposed ML-AI lending platform because a blockchain-powered
framework would digitize ML-AI loan syndication. Utilizing unified records
systems to create clarity and drive efficiency, blockchain allows remote access
by credentialed parties without sacrificing security and thus, eliminates
inefficiency in loan syndication, which is caused by a lack of transparency
from underwriters.
Clearing and Settlement: Blockchain technology is effective for
clearing and settlement because it facilitates immediate settlement.
Lowered Cost of Record-Keeping and Record-Retention: Blockchain
technology could eliminate some of the risk of complete record loss that comes
with paper-based recordkeeping and reduce the cost of record-keeping because it
is digital, inexpensive to maintain and it stores records in a decentralized
fashion, providing top-flight security and easy accessibility.
Interbank Transactions: Blockchain-powered automation could
facilitate real-time interbank fund verification that would unify banks, reduce
fees and lead to quicker wire transfers at a lower cost.
Blockchain for Anti-Money Laundering (AML) and Counter-Terrorist
Financing (CTF): Data logged on the Blockchain-powered platform is distributed
across hundreds or even thousands of nodes, and effectively making it
impossible to alter the entire decentralized record.
Regulatory Compliances: Blockchain ledgers can store verified, immutable data, so
they’re perfect for sharing files between regulators and compliance
departments. This self-executing technology will
likely cause compliance departments to downsize. That’s a bummer for employees,
but automation could replace this costly error-prone reporting framework.
Increasing Transparency: Blockchain-powered platform could help
build confidence and reputation between the Bank and customers because
blocckchain technology would allow banks to share their compliance efforts with
their customers.
Serving the Unbanked: Studies showed that one of every 13 households in the United
States is unbanked. The poor make up majority of the unbanked in the United States.
Without access to traditional banking or knowledge of how to use it, the poor
are often forced to turn to hostile lenders with predatory interest rates and
fees. Blockchain-powered banking platforms would provide inherent security and
the ability to create a decentralized lending network to serve this population.
Blockchain and cryptocurrency-based solutions could completely replace
predatory businesses like check cashing and payday advances with fairer,
transparent systems.
Notwithstanding our hope to find and
acquire a one-four branch bank as outlined above, there is no assurance that we
could complete this offering, raise the capital to acquire a bank. Even if we
were able to raise the money required to acquire a bank, there is no guarantee
that we’ll find a seller of such. We may not be able to execute on the plan
above because factors related to our limited operating history.
General Overview (2) – Proposed Cloud-Based Machine-Learning and
Artificial Intelligence (AI) Lending and Insurance Underwriting Platform
The completion of this Offering will launch the Company’s
cloud-based machine learning and artificial intelligence lending platform. It
is our believe that Machine-Learning (ML) and Artificial intelligence (AI),
lending and insurance underwriting platform would enable a superior loan
product with improved economics that can be shared between consumers and
lenders. The proposed platform would aggregate consumer demand for high-quality
loans and connects it to our soon-to-be-build network of ML-AI-enabled
investors, lenders and bank partners. Consumers on the ML-AI platform would
benefit from a highly automated, efficient, all-digital experience. Our
prospective bank partners would benefit from access to new customers, lower
fraud and loss rates, and increased automation throughout the lending process.
Credit is a cornerstone of the U.S. economy, and access to
affordable credit is central to unlocking upward mobility and opportunity. The
FICO score was invented in 1989 and remains the standard for determining who is
approved for credit and at what interest rate. (Rob Kaufman, myFico Blog: The
History of the FICO Score, August 2018). While FICO is rarely the only input in
a lending decision, most banks use simple, rules-based systems that consider
only a limited number of variables. Unfortunately, because legacy credit
systems fail to properly identify and quantify risk, millions of creditworthy
individuals are left out of the system, and millions more pay too much to
borrow money. (Patrice Ficklin and Paul Watkins, Consumer Financial Protection
Bureau Blog: An Update on Credit Access and the Bureau’s
First No-Action Letter, August 2019).
The first generation of online lenders focused on bringing credit
online. Analogous to earlier internet pioneers, these companies made shopping
for and accessing credit simpler and easier for consumers and businesses. It
was no longer necessary to stand in line at a bank branch, to sit across the desk from a loan officer and to wait weeks or months for
a decision. These lenders enabled the emergence of personal loan products that
were previously unprofitable for banks to offer. While they brought the credit
process online, they inherited the decision frameworks that banks had used for
decades and did not address the more rewarding and challenging opportunity of
reinventing the credit decision.
GMPW intend to leverage the power of AI to more accurately
quantify the true risk of a loan. The ML- AI models would be built to
continuously self-upgrade, train and refine many critical components of lending
risk analytics and decision-making on a real-time basis. We intend to build
discrete ML- AI models that target fee optimization, income fraud, acquisition
targeting, loan stacking, prepayment prediction, identity fraud and
time-delimited default prediction. These models would be designed to
incorporate multiple lending underwriting variables and utilize training
dataset that accounts for varieties of repayment events. It is also
anticipated that the network effects generated by constantly improving ML- AI
models would provide a significant competitive advantage—and more training data
would lead to higher approval rates and lower interest rates at the same loss
rate.
Our proposed ML-AI driven lending platform and models would be
integrated into, and operationalized in, the acquired Bank. The ML-ML- AI
models would also be provided to other bank partners within a consumer-facing
cloud application that would streamline the end-to-end process of
originating and servicing a loan. The ML-AI lending platform would inhabit a
configurable, multi-tenant cloud application designed to integrate seamlessly
into a bank’s existing technology systems. The configurable platform would
allow each bank to define its own credit policy and determine the significant
parameters of its lending program. The ML-ML- AI models would use and analyze
data from all of our bank partners. As a result, these models would be trained
by specific algorithm to generate optimal loan scenario, and each bank partner
would benefits from participating in a shared ML-AI lending platform that give
credit access to black entrepreneurs, black borrowers, consumers, and viable
platform to banks, and institutional investors.
Loans issued through the proposed ML-AI platform could be retained
by the originating bank partners, distributed to a broad base of institutional
investors and buyers that invest in similar loans or funded by GMPW’s The
Bank’s balance sheet. We intend to enter into nonexclusive agreements with wholesale
loan purchasers and grantor trust entities in that participate in asset-backed
securitizations, or ABS, under which the ABS investors could also outsource
their loan servicing to the acquired Bank.
We expect revenue the ML-AI lending platform would come primarily
comprised of the acquired Bank’s in-house transaction fees in addition to fees
paid by other banks that would us the ML-AI lending platform. We intend to
charge banks referral fees for each loan referred through the ML-AI lending
platform and originated by a bank partner, platform fees for each loan
originated (regardless of its source) and loan servicing fees as consumers
repay their loans. We intend to enter nonexclusive agreements with bank
partners that would, generally have 12-month terms and automatically renew,
subject to certain early termination provisions and minimum fee amounts, and
would not include any minimum origination obligation or origination limits. As
a usage-based platform, we intend to target positive unit economics on each
transaction, resulting in a cash efficient business model that features both
high growth rates and profitability.
Industry Overview
Affordable Credit is Critical to Unlocking Upward Mobility and
Opportunity
With $3.6 trillion of
consumer credit originated between April 2019 and March 2020, (Based on loan
origination dollar amounts published by TransUnion; see the section titled
“Industry, Market and Other Data.”). Credit is a cornerstone of the U.S.
economy. Access to affordable credit is central to unlocking upward mobility
and opportunity. Reducing the price of borrowing for consumers has the
potential to dramatically improve the quality of life for millions of people.
Studies have demonstrated a strong statistical link among access to affordable credit,
personal well-being and income growth.( Kirsten Wysen, Open Source Solutions:
Why Credit Scores and Payday Lending Matter for Health, October 2019). The
average American has approximately $29,800 in personal debt. (
Northwestern Mutual, 2019 Planning & Progress Study: The Debt Debacle,
2019). While access to affordable credit has allowed Americans to purchase and
improve their homes, buy cars, pay for college tuition and cover emergency
expenses, high interest rates can negatively impact a consumer’s financial
health. The U.S. Federal Reserve reports that on average, 10% of household
disposable personal income is spent on debt repayment. (The Federal
Reserve Board, Household Debt Service and Financial Obligations Ratios, or
Federal Reserve Household Debt, December 2019). In addition, 16% of Americans
spend 50% to 100% of their monthly income repaying debt.
Affordable Credit Is Inaccessible for Millions because Existing
Systems Fail to Accurately Quantify Risk
The FICO score was invented in 1989 and has
not fundamentally changed since that time. (Kaufman; see the section titled
“Industry, Market and Other Data”). The FICO score is used by over 90% of
lenders to determine who is approved for credit and at what interest rate. Id.
While FICO is rarely used in isolation, many credit models are simple,
rules-based systems. A leading expert found that bank credit models commonly
incorporate eight to 15 variables, with the more sophisticated models using as
many as 30. (Naeem Siddiqi, Intelligent Credit Scoring: Building and
Implementing Better Credit Risk Scorecards—2nd Edition, 2017).
Unsurprisingly, the world is more complicated than can be represented by these
models, so they are limited in their ability to reliably estimate the
probability of default.
Many borrowers suffer from
the effects of inaccurate credit models. Many are approved for a loan that they
ultimately will be unable to repay, negatively impacting both the consumer and
the lender. Many others may be declined for a loan that they could have
successfully repaid if given the opportunity—again doing harm to both consumer
and lender. According to an ML-AI retrospective study completed in December
2019, four out of five Americans who have taken out a loan have never
defaulted, yet less than half of Americans have access to prime
credit. (The study defined access to prime credit as individuals with
credit reports with VantageScores of 720 or above). Even consumers with high
credit scores tend to pay too much for loans because the rates they pay effectively
subsidize the losses from borrowers who default.
Banks Will Continue to be at the Forefront
of Consumer Lending
Banks have been at the
forefront of consumer lending in the U.S. for more than a century. They benefit
from long-term structural advantages, including a low cost of funding, a unique
regulatory framework, and high levels of consumer trust. Through large and
reliable deposit bases, banks are able to maintain a very low cost of
funds—approximately 1% on average. (Federal
Home Loan Bank of San Francisco, Cost of Funds Index, December 2019). These
cost savings are passed through to borrowers in the form of lower interest
rates, a significant competitive advantage
over non-depository lending institutions.
Banks also benefit from a regulatory framework that allows them to create
nation-wide lending programs that are largely uniform. Given these advantages,
we believe that a partnership-based bank enablement approach will be more
successful than a disruption strategy.
Banks Must Undergo a Digital Transformation to Remain Competitive
The largest four U.S. banks spend an
estimated $38 billion on technology and innovation annually. (Adrian D. Garcia, Bankrate: JPM, Big Banks Spend
Billions on Tech but Innovation Lags, July 2018). These four banks
may attempt to build AI lending models over time, once general market
acceptance has been achieved. However, outside the largest four banks, there
are approximately 5,200 FDIC insured institutions (Federal Deposit Insurance
Corporation, or FDIC, Statistics on Depository Institutions, December
2019.) that are at risk of falling behind. Despite holding over $8
trillion in deposits, (The dollar amount of deposits held by banks, other than
the largest four banks, was aggregated by ML-AI using data provided by the
FDIC; see the section titled “Industry, Market and Other Data.”) we believe
these banks, particularly small to medium-sized banks, have outdated
technology and lack the technical resources of larger banks to fund the
digitization process. At the same time, consumers are increasingly seeking
digital, personalized and automated experiences. (Bain & Company,
Inc., or Bain, Evolving the Customer Experience in Banking, 2017.
PricewaterhouseCoopers LLP, or PwC, Experience Is Everything: Here’s How To Get
It Right, 2018. RedPoint Global and the Harris Poll, or RedPoint Global,
Addressing the Gaps in Customer Experience: A Benchmark Study Exploring the
Ever Evolving Customer Experience and How Marketers and Consumers Are Adapting,
March 2019). A 2017 Bain survey found that approximately 50% of the U.S.
population would be comfortable buying financial products from technology
companies. (Bain; see the section titled “Industry, Market and Other Data.”).
We believe that as consumers, both young and old, move their financial lives
online, small and medium-sized banks will be
increasingly ill-equipped to serve them.
We believe that these trends have been
accelerated by the COVID-19 pandemic, as the lack of access to physical bank
branches has increased the Banking industry’s focus on digital capabilities.
The performance of our platform through this crisis has also given existing and
prospective bank partners an important new data point to underpin their growing
confidence in our solution.
Increasing Recognition from Regulators
Many regulators including the Federal
Deposit Insurance Corporation, or FDIC, the Office of the Comptroller of the
Currency, or OCC, the Federal Reserve and the CFPB increasingly recognize the
opportunity to modernize techniques used in lending. (Board of Governors of
the Federal Reserve System, Consumer Financial Protection Bureau, Federal
Deposit Insurance Corporation, National Credit Union Administration and Office
of the Comptroller of the Currency, Interagency Statement on the Use of
Alternative Data in Credit Underwriting, or FDIC Interagency Statement,
December 2019). In December 2019, these agencies issued an inter-agency
report in support of the use of alternative data in lending decisions. (FDIC
Interagency Statement; see the section titled “Industry, Market and Other
Data.”). Additionally, in November 2019, the CFPB director noted that despite
external uncertainty regarding how AI will fit into regulatory frameworks, the
CFPB is focused on ensuring a path to regulatory clarity because it recognizes
the value AI lending products can offer consumers. (Kathleen L. Kraninger,
Consumer Financial Protection Bureau: Director Kraninger’s Remarks
at TCH-BPI Conference, November 2019).
The ML- AI Lending Platform Opportunity
The ML- AI lending platform and models
would be central to our value proposition in the Banking and financial services
industry. The models would incorporate thousands of variables, which would be
analogous to the columns in a spreadsheet. They would be trained by million
projected repayment events, analogous to rows of data in a spreadsheet.
Interpreting these billions of cells of data would be a sophisticated machine
learning algorithms that enable a more predictive model.
These elements of our
proposed model would be co-dependent; the use of hundreds or thousands of
variables is impractical without sophisticated machine learning algorithms to
tease out the interactions between them. And sophisticated machine learning
would depend on large volumes of training data. Over time, we would be able to
deploy and blend more sophisticated modeling techniques, leading to a more
accurate system. This co-dependency would present a challenge to
others who may aim to short-circuit the development of a competitive model.
While incumbent lenders may have vast quantities of historical repayment data,
their training data will lack the hundreds of columns, or variables, that would
power our model.
Despite their sophistication,
our ML-ML- AI models would be delivered to banks in the form of a simple cloud
application that would shield borrowers from the underlying complexity.
Additionally, our platform would allow banks to tailor lending applications
based on their policies and business needs. The Bank partners could configure
many aspects of their lending programs, including factors such as loan
duration, loan amount, minimum credit score,
maximum debt-to-income ratio and return target by risk grade. Within
the construct of each bank’s self-defined lending program, our platform will enable
the origination of conforming and compliant loans at a
low per-loan cost.
Our proposed ML-AI lending
platform will benefits from powerful flywheel effects that drive continuous
improvements as our business scales. Our ML-AI lending platform would benefit
first from increasingly sophisticated models, variable expansion and rapid
growth of training data. Upgrades to our platform would allow us to offer
higher approval rates and lower interest rates to consumers, which would
increase the number of borrowers on our platform. Upgrades to our platform will
also lead to better borrower selection, which lowers losses and lowers interest
rates to borrowers. The flywheel effect created by self-reinforcing AI
increases the economic opportunity that can be shared by borrowers and lenders
over time.
Proposed ML-AI Lending Platform Ecosystem
The proposed model will connect
consumers, banks and institutional investors through a shared ML-AI lending
platform. Because ML-AI is a new and disruptive technology, and banking is a
traditionally conservative industry, we intend to bring the technology to
market in a way that allows us to grow rapidly and improve on the ML-ML- AI
models, while allowing banks to take a prudent and responsible approach to
assessing and adopting our platform.
On the consumer side, the
ML-AI lending platform aggregate demand on the cloud-based platform, where
consumers would be presented with bank-branded offers from The Bank of our bank
partners. In this way, we hope benefit banks who would have adopted our AI
lending technology. Bank partners would also be allowed to offer ML-AI powered
loans through a white-labeled interface on their own website or mobile
application. Consumers on our platform would be offered unsecured personal loans ranging from $1,000 to $50,000 in size, at APRs
typically ranging from approximately 3.5% to 25.99%, with terms typically
ranging from three to five years, with a monthly repayment schedule and no
prepayment penalty.
On the funding side, The Bank
and the Bank partners could retain loans that align with their business and
risk objectives, while the remainder could be sold to a network of
institutional investors, which have far broader and more diverse capacity to
absorb and distribute risk. This flexible approach would allows banks to adopt
ML-AI lending at their own pace, while we continue to grow and improve our
platform.
Value Proposition to
Consumers
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Higher
approval rates and lower interest rates—We believe ML-AI enabled lending platform would
lead to higher approval rates and lower interest rates because Machine
Learning is capable of utilizing datasets using a methodology specified by
us, simplify loan underwriting, leading to qualifying more borrowers than
high-quality traditional lending models.
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Superior
digital experience—Whether
consumers apply for a loan through ML-AI.com or directly through a bank
partner’s website, the application experience is streamlined into a single
application process and the loan offers provided are firm. In the third quarter
of 2020, approximately 70% of ML-AI-powered loans were instantly approved
with no document upload or phone call required, an increase from 0% in late
2016. Such automation improvements were due in large part to improvements to
our ML- AI models and the application of such models to different aspects of
the loan process, including data verification and fraud detection.
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Value Proposition to
Bank Partners
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Competitive
digital lending experience—We
intend to provide regional banks and credit unions with a cost effective way
to compete with the technology budgets of their much larger competitors.
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Expanded
customer base—We
intend to refer customers that apply for loans through the ML-AI lending
platform to the Bank partners, helping them grow both loan volumes and number
of customers.
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Lower
loss rates—With
a Blockchain-powered loan servicing operation, the loss rate for all
participant in our platform would be lowered because of an in-built
early-warning system and transparency which is the hallmarks of
bockchain-powered transaction processing platforms.
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New
product offering—Personal
loans are one of the fastest-growing segment of credit in the U.S. (Beiseitov; see the section
titled “Industry, Market and Other Data.”). Our Machine learning enabled platform
would help banks provide a product their customers want based on ML
algorithm, rather than letting customers seek loans from competitors.
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Institutional
investor acceptance—Analyses
by credit rating agencies, loan and bond buying institutions, and credit
underwriters would help banks gain confidence that ML-AI-powered loans are subject to significant and constant scrutiny from
experts, the results of which would be often publicly available.
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Notwithstanding our hope and aspiration in mapping out the above
ML-AI lending platform, there is no assurance that we could complete this
offering, raise the capital to acquire of build the ML-AI lending platform.
Even if we were able to raise the money required to acquire or build the ML-AI
lending platform, there is no guarantee that we’ll find a seller of such of be
able to hire engineers to build one from the ground up. We may not be able to
execute on the plan above because factors related to our limited operating
history.
General Overview (3-4) – Proposed Blockchain-Powered Digital
Currency Payment and Financial Transactions Processing platform (“Blackchain”)
We intend to use part of the proceed from this Offering to acquire
an existing, or build-from-the-scratch, a Blockchain-Powered Digital Currency
Payment and Financial Transactions Processing platform (“Blackchain”), with
home in the Bank alongside the ML-AI lending platform. Blockchain-powered
Payment and Financial Transactions Processing platform would also provide
efficient and inexpensive payment platform and merchant services to black
businesses across the United States.
The company would establish an exchange network called Blackchain Exchange Network
(“BEN”), a
Payment and Financial Transactions Processing platform, would be a wholly-owned
subsidiary, the The Bank. We believe Blackchain would be a leading provider of innovative financial infrastructure
solutions and services to participants in the nascent and expanding digital
currency industry. Blackchain business strategy is floating a Blackchain Exchange Network, or
BEN, a virtually instantaneous payment network for participants in the digital currency
industry which would serve as a platform for the development of additional
products and services. The BEN would have a network effect that would make it
valuable as participants and utilization increase, leading to good growth in
BEN transaction volumes. The BEN would enable the The Bank to prioritize, build
and significantly grow noninterest bearing deposit product for digital currency
industry participants, which is expected to provide the majority of our bank
funding in the next two years from finalizing acquisition. This unique source
of funding would be a distinctive advantage over most traditional financial
institutions and allows The Bank to generate revenue from a conservative
portfolio of investments in cash, short term securities and ML-Ai enabled loans
that we believe generate attractive risk-adjusted returns. In addition, use of
the BEN would result in an increase in noninterest income that we believe will
become a valuable source of additional future revenue as we develop and deploy
blockchain-powered, fee-based solutions in connection with our digital currency
initiative. We would also evaluate additional products or product enhancements
specifically targeted at providing further financial infrastructure solutions
to our customers and strengthening BEN network effects.
Blackchain Business Overview
Once acquired, the Federally licensed one-four branch bank would
be such that is already providing banking and financial services including
commercial banking, business lending, commercial and residential real estate
lending and mortgage warehouse lending, all funded primarily by interest
bearing deposits and borrowings. To that up and running banking and financial
services operation, we intend to insert a
Blockchain-powered payment and transaction processing system and digital
currency platform. We intend to pursue digital currency customers and bring
them into the The Bank to bank with the the Bank using digital currency. We
believe we could effectively leverage the traditional commercial bank platform,
the ML-Ai enabled lending platform and the attributes of the BEN to gain
traction in the digital currency banking industry.
We intend to focus on the digital currency initiative as the core
of our future strategy and direction. We intend to build a leadership position
in the digital currency industry as a result of the BEN to enable us to
establish a significant balance of noninterest bearing deposits from digital
currency customer base. Over several post-acquisition years, The Bank would
have transitioned from a traditional asset based bank model focused on loan
generation to a deposit and solutions based model focused on increasing
noninterest bearing deposits and noninterest income. This emphasis on
noninterest bearing deposits and noninterest income, is primarily associated
with digital currency, will likely result in a significant shift in the Bank’s
asset composition with a greater percentage consisting of liquid assets such as
interest earning deposits in other banks and investment securities, and a
corresponding decrease in the percentage of loans. Most of our actions would
be focused on developing and delivering highly scalable and operationally
efficient solutions for The Bank’s digital currency customers.
Proposed Blackchain Digital Currency Initiative
The proposed Blackchain Exchange Network, or BEN, would be a
virtually instantaneous payment network for participants in the digital
currency industry which would serve as a platform for the development of
additional products and services. We plan to leverage the BEN and our
management team’s expertise in the digital currency industry to acquire, or
develop, implement and maintain critical financial infrastructure solutions and
services for many of the U.S. digital currency exchanges and global investors,
as well as other digital currency infrastructure providers that would utilize
the Blackchain as a foundational layer for their products. The BEN would be a
central element of the operations of the Bank digital currency related
customers, which would enable us to grow with the Bank’s current customers and
to attract new customers who can benefit from our innovative solutions and
services. We believe that our management team’s vision and our advanced
approach to compliance would complement the BEN and empower us to build a
leadership position in the digital currency industry by developing additional
infrastructure solutions and services that will facilitate growth in our
business.
GMPW began exploring the Banking and financial services, with a special
focus on, digital currency industry since January 2020 based on market dynamics
which we believed were highly attractive:
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Significant
and Growing Industry: Digital
currency presented a revolutionary model for executing financial transactions
with substantial potential for growth.
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Infrastructure
Needs: In
order to become widely adopted, digital currency would need to rely on many
traditional elements of financial services, including those services that
support funds transfers, customer account controls and other security
measures.
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Regulatory
Complexity as a Barrier to Entry: Providing
infrastructure solutions and services to the digital currency industry would
require specialized compliance capabilities and a management team with a deep
understanding of both the digital currency and the financial services
industries.
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These insights have
been proven correct and we believe they remain true today. In fact, we believe
that the market opportunity for digital currencies, the need for infrastructure
solutions and services and the regulatory complexity have all expanded
significantly since January 2020. We believe that we would be able to address
these market dynamics immediately and over the coming years because we be part
of a group of pioneers trying to address it and that pioneer position would
provide us with a first-mover advantage within the digital currency industry
that would be the cornerstone of how we would take the digital currency
industry by storm.
The digital currency market has grown dramatically over the
years. For example, the aggregate value of the five largest digital currencies
increasing from approximately $10 billion at December 31, 2013. By
October 24, 2019, it has increased to approximately $172.7 billion. We believe
that the total addressable market for digital currency-related financial
services infrastructure solutions and services is significant and that this
market will grow as the market for digital currencies grows. We also believe
that existing solutions do not adequately address the infrastructure needs of
industry participants, and that services enabling industry participants to
efficiently and reliably transfer and hold U.S. dollar deposits are critical to
the industry’s growth. We estimate that the addressable market for fiat
currency deposits related to digital currencies alone is approximately $30 to
$40 billion based on various industry sources as described under “Market
and Industry Data.”
Blackchain Exchange Network
We intend to design
the BEN as a network of digital currency exchanges and digital currency
investors that enables the efficient movement of U.S. dollars between BEN
participants 24 hours a day, 7 days a week, 365 days a year. In this respect,
the BEN would be one of a first-of-its-kind digital currency infrastructure
solution. The BEN would be designed, developed and tested within 12 months
after our acquisition of a federally licensed one-four branch bank with a
limited number of Bank customers. The BEN would then be made available to all
of the Bank’s digital currency related customers after the 12th
month, other than digital currency customers that only use their accounts for
general operating account purposes. We believe that once the rollout is done,
all of the Bank’s eligible digital currency related customers would enroll in
the BEN.
The core function of the BEN would be to allow participants to
make transfers of U.S. dollars from their BEN account at the Bank to the Bank
account of another BEN participant with which a counterparty relationship has
been established, and to view funds transfers received from their BEN
counterparties. Counterparty relationships between parties effecting digital
currency transactions would be established on the BEN to facilitate U.S. dollar
transfers associated with those transactions. The Bank would provide digital
currency investors that are prospective Blackchain clients with the identity of
select participating digital currency exchanges and mutually agreed
counterparties would be identified as such during the Bank’s BEN enrollment
process.
BEN transfers would occur on a virtually instantaneous basis as
compared to electronic funds transfers being sent outside of the Bank, such as
wire transfers and automated clearing house, or ACH, transactions, which can
take from several hours to several days to complete. BEN’s cloud-based
application programming interface, or API, combined with online banking tools,
would allow customers to efficiently control their fiat currency, transact
through the BEN and automate their interactions with BEN’s technology platform.
Customers would value this around-the-clock access to U.S. dollar transactions
and further benefit from the BEN’s network effects—as more users join the BEN,
its value to existing digital currency exchanges and
investor users would increase. These technology tools and the corresponding
network effect would enable us to attract many of the digital currency industry
and market participants as customers. Once BEN is functional and operational,
we intend to focus on continuous development of scalable infrastructure
technology solutions on top of the BEN to address the significant financial
services opportunities that we believe would arise in the digital currency
market. We anticipate that by leveraging the network effects of the BEN in
this way, we believe both that customer adoption of future products could be
significant and that new customer acquisition costs would be affordable.
Compliance
Our digital currency industry solutions and services would be
offered through our subsidiary, Acquired bank, A VALIDLY
JURISDICTIONALLY-CHARTERED commercial bank that is a member of the Federal
Reserve System. Our solutions and services would be built on a commitment and
proprietary approach to regulatory compliance. When we began planning to pursue
digital currency transaction platform in January 2020, many digital currency
industry participants found it difficult to identify a reliable financial
services partner due to the significant financial and human resources required
to navigate the complex and underdeveloped regulatory regimes applicable to
these digital currency customers. To address market demand, we would take a
deliberate approach to developing compliance policies, procedures and controls
designed to specifically address the digital currency industry and to hiring
capable personnel required to implement those controls, policies and
procedures. Over the coming years we intend to develop compliance
capabilities—which would include ongoing monitoring of customer activities and
evaluating a market participant’s ability to actively monitor the flow of funds
of their own customers. We believe these capabilities would be a distinct
competitive advantage for us, and provide a meaningful barrier to entry against
potential competitors, as there is not currently a well-established and easily
navigable regulatory roadmap for competitors to serve digital currency industry
customers. For this reason, our long-term investment priority would be in developing
and enhancing specialized compliance capabilities for the digital currency
banking operation.
Blackchain Business Plan
The success of our
proposed digital currency initiative, Blackchain, would be dependent on its
acceptability and adoption among the customers of the Bank-to-be-purchased the
general digital currency users in general. Successful implementation of
Blackchain and its integration into the Bank would lead to help the Bank to
grow and maintain noninterest bearing deposits from digital currency customers.
The Bank would be able to deploy deposits from its digital currency customers,
as well as deposits from its physical branch into interest earning deposits in
other banks and investment securities, as well as into certain ML-AI Lending
opportunities that provide attractive risk-adjusted returns. The Bank would
deploy deposits into lending opportunities across four categories: commercial
and residential real estate lending, mortgage warehouse lending, correspondent
lending and commercial business lending. Blackchain Bank would also generate an
increasing amount of fee revenue from its digital currency customers related to
transaction volume across its platform, foreign currency transactions, and fee
income related to off-balance sheet deposits, along with fees from the mortgage
warehouse division.
Industry Background
Adoption and commercialization of digital currencies have
significantly expanded since the creation of bitcoin in 2009. Digital
currencies are recognized as an asset class with the prospect to act as a store
of value, a currency with the ability to facilitate
financial transactions, and a worldwide medium of exchange, performing each
function in ways that differ meaningfully from traditional fiat currencies.
Investor interest has grown substantially as the potential uses
and advantages of digital currencies have become better understood. Although
the digital currency market consists of many individual digital currencies, it
is currently concentrated among the five largest digital currencies by market
capitalization. As of January 2, 2021, the market value of the five largest
digital currencies was $773.93 billion, more than 1.00% of the global
money supply.
We believe that
institutional acceptance of the digital currency asset class will continue to
grow as capital flows into institutional investment vehicles and other digital
currency-based business ventures. Currently, there are over 700 cryptocurrency
investment funds with aggregate estimated assets under management of over
$14.3 billion.
In response to the noticeable rapid growth in the industry and
challenges faced by investors, we plan to develop technology solutions,
including the BEN. While innovations, such as the BEN, would enable increasing
numbers of institutional investors to begin investing in digital currencies,
many of the world’s largest investors remain unable to invest in the asset
class due to the continuing limitations of existing infrastructure. We believe
that additional industry innovation will address these infrastructure
challenges, enabling increased and accelerated growth in the industry. Services
such as digital currency borrowing facilities do not currently exist in a
meaningful way, creating significant opportunities for Blackchain to facilitate
growth in the industry and to build a leadership position into many elements of
digital currency infrastructure.
Digital Currency Customers
We currently do not have any digital currency customer. However,
we would have acquired a one-4 branch bank serving majority black
neighborhoods, we intend to aggressively build a digital currency customer base
and we intend to that customer base rapidly through referrals, word-of-mouth,
as many customers would proactively approach us due to the reputation of our
platform and as one of the leading provider of innovative financial
infrastructure solutions and services to participants in the digital currency
industry, which would include unique technology solutions. So far, we have
built a pipeline of 722 digital currency users/owners who are interested in our
services. We are keeping these prospective digital currency customers engaged
on our preparation to launch, the customer onboarding process, which includes
extensive regulatory compliance diligence and integrating of the customer’s
technology stack for those new to the digital currency and are interested in
using our API.
Because our main office is located in California, our customer
roll would include some of the U.S. exchanges and global investors in the
digital currency industry. These market participants generally hold either
or both of two distinct types of funds: (i) those funds that market
participants use for digital currency investment activities, which we refer to
as investor funds, and (ii) those funds that market participants use for
business operations, which we refer to as operating funds.
Our customer ecosystem would also include software developers,
digital currency miners, custodians and general industry participants that need
our solutions and services.
We would always strive to grow our customer ecosystem. By
expanding and deepening our customer relationships, we intend to reinforce and
enhance a leadership position in the industry and to increase the value of the
BEN to all participants. Our relationships with the leaders of the digital
currency industry would be important because these
participants would continue to inform us of the industry’s needs and enable us
to continue advancing our product development to provide relevant solutions and
services for the industry’s most pressing challenges and greatest
opportunities.
Deepening our customer relationships through integration of our
solutions with our customers’ processes and operating systems would create
enhanced value and stronger, long-term relationships with them. We believe the
BEN would become a key tool for many of our digital currency customers who
need, and have come to rely on, the BEN for virtually real-time movement of
their funds. Furthermore, digital currency exchanges that would integrate our
API into their technology infrastructure could attribute incoming client funds,
at scale, without human involvement and in virtually real-time, typically
within a matter of seconds. This solution would enhance our value proposition,
creating even closer relationships with our customers.
To build and maintain a leading position in the digital currency
industry, we would be highly selective in our customer onboarding process to
ensure the integrity of the platform. Many customers would choose us at least
in part because of the attractions of BEN and our potential long-term commitment
to the industry or their belief in our platform’s longevity. Customers would
respect our onboarding and continuous compliance processes, as they would
understand that all our digital currency customers must submit to initial and
continued due diligence by us.
Technology-Driven Solutions for Our Digital Currency Customers
We intend to launch our digital currency initiative in response to
unmet demand for U.S. dollar deposit accounts from many market participants.
Our digital currency initiative solutions and services would also address
various infrastructure shortfalls for market participants, including liquidity
and counterparty risk management as explained in more detail below. Currently,
our digital currency initiative solutions and services proposals are focused on
the BEN, cash management solutions and other deposit account services:
Blackchain Exchange Network (BEN)—We believe that the
BEN would be an innovative, market leading solution and a key point of
differentiation that increases in capability and value by generating a network
effect as additional users join the platform. The BEN would only transfer fiat
U.S. dollars, would only be available to commercial customers and would not be
enabled for customers who are individual investors. The BEN would reduce
industry friction and create a compelling value proposition for market
participants, whether they participate as a digital currency exchange, an
investor or otherwise. BEN participants could efficiently move U.S. dollars
24 hours a day, 7 days a week, 365 days a year between their
Bank accounts and other BEN participants’ Bank accounts, via the BEN API or
online banking system. Multiple steps would be required to create, authorize
and approve a BEN transfer, depending on the channel in which the BEN transfer
is created (online banking system vs. API). Both channels would follow a three
step process by which the sender is authorized as a BEN participant, the
receiver is validated as a BEN participant, and the transfer amount is
confirmed to be available in the originating account. BEN transfers would
settle virtually instantly if all three conditions are met.
The ability to execute these types of transactions in virtually
real-time is particularly valuable for digital currency investors and exchanges
because digital currency trading occurs constantly on a global scale, with no
fixed market hours. Consequently, the BEN would enhance transaction execution
speed, which would mitigate exposure to digital currency pricing fluctuations.
In addition, BEN participants may spend a significant amount of time and
resources developing customized applications that interface directly with our API in a manner that most effectively
facilitates BEN participants’ business models. We believe that these dynamics
not only strengthen our customer relationships, but also serve as an organic,
viral marketing tool. Additional market participants are driven to the BEN as
our customers urge their counterparties in digital currency transactions to
join the BEN to facilitate efficient, predictable and timely transaction
execution.
The following example highlights the benefits that the BEN would
provide to its participants with respect to liquidity and counterparty risk. A
digital currency institutional investor maintains a deposit account with
Blackchain Bank. The institutional investor wishes to move U.S. dollars from
participating Exchange A to participating Exchange B. The institutional
investor can execute the transaction in virtually real-time, outside of
traditional banking hours via the BEN, if the institutional investor, Exchange
A and Exchange B each maintain a deposit account at Blackchain Bank. In
contrast, if the institutional investor seeks to move funds from Exchange A to
Exchange B without the BEN, the transaction would likely need to occur during
traditional banking hours and could take several days to clear. This delay in
transaction execution could limit the institutional investor’s ability to take
advantage of digital currency market movements or require the institutional
investor to keep additional funds at each exchange to take advantage of other
transaction opportunities, resulting in reduced capital efficiency, reduced
liquidity and/or increased counterparty risk.
The graphic below illustrates the various components of a
transaction that could be effected through the BEN as compared to a similar
transaction effected through a traditional execution pathway. As reflected,
transactions on the BEN process in virtually real time as opposed to legacy
transactions that may take from several hours to several days. Legacy
transactions are subject to a number of variables that impact timing such as
the daily cut-off time for the Federal Reserve wire system as well as
incomplete or inaccurate information or wire destinations (country or
recipient) that may require further action to confirm or clear.
Cash Management Solutions—Blackchain cash management solutions
would enable our customers to send, receive and manage payments in a timely,
efficient and scalable manner using the BEN, wire transfers and ACH
transactions. To receive the full benefits of our cash management solutions,
customers need touse their own development resources to build customized
gateways that integrate our API and other solutions into their technology
infrastructure. The Bank would offer a full suite of corporate cash management
solutions from deposit, reporting and reconciliation (remote deposit capture,
online banking, mobile banking, file / reporting automation, API, check
reconciliation), liquidity management (positive pay, ACH positive pay, off
balance sheet deposit sweeps), and payment solutions (domestic and foreign wire
transfers and ACH origination and receipt transactions). The Bank would
dedicate team to work with the customers to expand its technology offerings in
these areas and to solve problems for its customers.
Deposit Account Services— Blackchain would be one of only a small group of institutions
that would offer open deposit accounts and provide ongoing services in a manner
that is designed to be regulatory compliant for digital currency market
participants. Blackchain compliance procedures, would be developed to serve the
digital currency industry, would be designed to enable us to prudently and
efficiently establish deposit accounts for market participants. These deposit
accounts would not consist of any digital currencies but may consist of
investor funds or operating funds. Blackchain deposit accounts would offer a
wide variety of features and security to market participants, including access
to Blackchain cash management solutions, and other relevant business banking
services.
The Company would
comprehensively investigates prospective customers according to the level it
deems necessary and appropriate, based on whether the customer is an “administrator,”
an “exchanger” or a “user” of virtual currencies, which terms are defined in
March 2013 guidance by the U.S. Treasury Department, or the Treasury Department
(with recent interpretive guidance issued in May 2019). Under applicable
regulations, administrators and exchangers are required to register with the
Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, as a
money service business and may also be subject to licensing as money
transmitters under applicable state laws. The Company’s due diligence and
onboarding processes would include, at a minimum, detailed reviews of each
customer’s ownership, management team, business activities and the geographies
in which they operate. For customers such as exchanges which pose a higher
degree of risk or have a higher degree of regulatory obligations, the Company’s
processes would be more extensive and incorporate reputational reviews, reviews
of applicable licensing requirements, plans, and status, and reviews of
customer policies and procedures regarding the Bank Secrecy Act, or BSA,
consumer compliance, information security, Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Dodd-Frank Act, prohibitions
against unfair, deceptive or abusive acts or practices, as well as reviews
of transaction monitoring systems and audit results. The differences in these
processes would result in a variation in the time necessary to complete the
onboarding process, which can range from a matter of days to several weeks.
All regulatory compliance-related responsibilities involving
onboarded customers would be addressed in the Company’s core banking system or
through various additional manual diligence and compliance review processes. No
funds transfer transactions to accounts outside of the Bank would occur on the
BEN, which is simply the means by which internal account transfer transaction
instructions are passed to the Bank’s core banking system through which they
are executed. Since all BEN participants are required to be deposit customers
of the Bank, the Bank satisfies its know your customer, or KYC, obligations at
the time of the customer’s account opening. Transaction instructions would
be passed to the core banking system via the BEN, are executed on the core
banking system, and are subsequently monitored through the Bank’s automated BSA
systems.
Blackchain Competitive Advantages in the Digital Currency Industry
We believe Blackchain, being one of the pioneers, would have
first-mover advantage serving the digital currency industry which would lead to
strategic advantages, many of which would become significant barriers to entry
for potential competitors. We expect that these advantages will enable us to
maintain our leadership position in the industry:
Digital Currency-Focused Strategy—We believe
Blackchain would be a leading provider of innovative financial infrastructure
solutions and services for the digital currency industry. Blackchain would be
one of the few only financial services providers in the United States catering
to our target customer base. These market participants have been underserved by
the legacy financial services community due to a lack of vision and regulatory
complexity associated with the digital currency industry, which we have been
able to overcome because of the in-depth industry knowledge and
strategic foresight of our management team and our robust risk management and
regulatory compliance framework. The focus and mission of our talented
management team is to address this unique market opportunity.
Customer Base— Blackchain
first-mover advantage in the industry would help us to convert majority of the
722 potential digital currency customers in our pipeline within 12 months of
launching. Many of the 722 are already active participants in the digital
currency industry. These recognizable customers could bolster our reputation
and enhance our ability to attract new customers. Blackchain customer network
would also enable us to receive feedback on challenges that the industry
currently faces and anticipates facing in the future. Through active dialogue
with our customers, we would stay at the forefront of industry trends, identify
opportunities early and create solutions to address challenges.
BEN Network Effects—We believe the BEN
would be one of the unique platforms in the industry and its power would grow
with each new BEN participant, thereby attracting more customers and creating
higher levels of customer retention and transaction activity. The Bank would
provide digital currency investors with the identities of participating
exchanges that have authorized the Bank to identify them to new or prospective
BEN participants. Customer attraction to the BEN could come from explaining BEN
advantages to a prospective participant or from encouragement from a customer’s
digital currency exchange counterparty for the customer to enroll in the BEN to
expedite funds transfers. Customer demand for the BEN would be driven by its
availability, ease of use, and instant settlement functionality. BEN benefits
would be quickly understood from the customer’s perspective and provide value
to both sides of a BEN transfer. The BEN’s functionality would save time and
reduce costs and risks to its users, as we described above.
API Integration— Blackchain cloud-based transactional API would enable customers
to build direct access to the BEN and their deposit accounts into their
technology infrastructure. Blackchain would be one of only a small group of
regulated financial institutions that has developed and deployed a
transactional API, which would be an advanced tool that could widely deploy
informational APIs which merely enable the sharing of information. Customers
who would use our API would need to integrate Blackchain API into their systems
because of the increased functionality provided by Blackchain API connection.
Once fully integrated, Blackchain API would provide significant value for the
customers via its direct interface to the Bank core system. For example,
Blackchain exchange customers would use the API attribute client and
counterparty funds programmatically and in virtually real time—a distinct
advantage over traditional cash management systems which require human
intervention to attribute such funds. Even if competitors would develop
competing solutions to Blackchain API, our customers would need to commit
significant time, money and other resources to replace Blackchain solutions or
adopt additional solutions.
While the Bank would not integrate into customer systems, the Bank
would provide tools for sophisticated customers to securely access and interact
with their accounts’ functions over the Bank’s API. The movement toward
application programming interfaces, or open banking, is an initiative that many
U.S. banks have embraced. An application programming interface allows customers
to automate manual processes, scale operations, or innovate on new product
offerings by giving programmatic access to their account history, the ability
to send payments, or the automated reconciliation of their accounts. It is the
customer’s efforts to leverage these tools that may require significant time
and resources on the customer’s part, depending on what the customer is trying
to do. For instance, some of the Bank’s customers could integrate the API with
their systems within a day while other customers could create complex programs
built on the API that would be built over a period of months. Each customer’s
use case and implementation is slightly different, but all would be facilitated
by the same basic APIs, documentation, developer portal, and Blackchain
integration team. The BEN’s ability to permit a customer to make an internal
transfer from their own account to another Blackchain customer’s account would
be one of the functionalities available through and supported by the Bank’s
API.
Robust Risk
Management and Compliance Framework— The Bank would adequately invest in its risk management and
compliance infrastructure. We intend to attract and retain a talented,
dedicated compliance team with substantial experience in regulated financial
institutions, including developing, implementing and monitoring systems to
detect and prevent financial crimes. The Bank risk management and
compliance team would develop a strong risk management and compliance framework
that leverages technology for onboarding and monitoring market participants.
See “Supervision and Regulation.”
Culture of Innovation—We intend to build a culture of innovation that would be driven by
our CEO, Frank I Igwealor, whose career in the financial services and
industries spans over 18 years, starting with a stint at Morgan Stanley through
Goldstein Franklin. Mr. Igwealor understands and would focus our
management team’s attention on the potential long-term impact of digital currencies.
Under Mr. Igwealor’s leadership, Blackchain would develop a broad team of
digital currency, technology and financial services professionals. This team
helps leverage our experience and significant customer base to enable us to
identify and respond to opportunities to innovate and add value the Bank
customers. Blackchain team would collaborate in the design and implementation
of the BEN and coordinate and oversee the development and deployment of our API
to enable us to seamlessly address the needs of our digital currency customers.
We expect the culture of product innovation will enable us to identify, build
and deploy new customer solutions, both within the digital currency initiative
and other potential future initiatives that may be related to new innovations
in the financial services industry.
Digital Currency Solutions and Services Would Drive Blackchain
Business Model
Blackchain digital currency initiative would contribute to the
growth of the Bank’s noninterest bearing deposits, which would drive down the
Bank’s funding costs to among the lowest in the U.S. banking industry. This
would allow the Bank to generate attractive returns on lower risk assets
through increased investments in interest earning deposits in other banks and
securities, as well as funding limited ML-Ai enabled loan growth. The Bank’s
low risk asset strategy would be able to supports a net interest margin that is
lower than what is obtainable in other banks. Our business model is described
more fully below:
Prudently Leveraging Lower-Cost Core Deposit Base—A lower-cost core
deposit base would be a key element of our financial success. We intend to
deploy the deposits into assets that generate attractive risk-adjusted returns.
Our interest earning deposits in other banks and our securities portfolio would
grow substantially as our noninterest bearing deposits attributable to our
digital currency initiative expands.
The Bank would segment its deposits based on their potential
volatility, which would drive the Bank’s choices regarding the assets it funds
with such deposits. Deposits attributable to digital currency exchange customer
funds and investor funds would be assigned the highest potential volatility.
These deposits would be invested primarily in interest earning deposits in other
banks and adjustable rate securities available-for-sale.
The Bank’s portfolio of
securities available-for-sale would be primarily composed of
adjustable rate mortgage-backed securities, collateralized mortgage obligations
and pools of government sponsored student loans. The Bank view
its available-for-sale securities as a conservatively managed
portfolio which offers a source of additional interest income and provides
liquidity management flexibility.
The Bank would have more flexibility in deciding how to deploy its
deposits attributable to digital currency customer operating funds.
Conservative Lending
and Niche Asset Growth—Through the ML-Ai lending platform, the Bank would also
selectively deploy funding into specialty lending businesses, including commercial
and residential real estate lending, small business lending,
entrepreneurship/venture-capital like lending, mortgage warehouse lending,
correspondent lending, and commercial business lending. Under the Leadership of
our management team, the Bank would develop underwriting expertise across these
asset classes and ensure that these loans would offer attractive risk-adjusted
returns.
The Bank would use a portion of our deposits
attributable to digital currency exchange and investor funds as the funding source
for our mortgage warehouse lending activities. We are comfortable with this
strategy because of the short-term nature of our mortgage warehouse assets and
because we can access funding at the Federal Home Loan Bank should we
experience heightened volatility in the deposit balances related to these
digital currency exchange and investor funds.
The Bank would use a portion of the deposits attributable to
operating funds to make loans across our other lending businesses. A
significant portion of the Bank’s portfolio would consist of loans on
residential real estate and both owner-occupied
and non-owner-occupied commercial real estate. The properties
securing these loans would located primarily throughout the Bank’s markets and,
with respect to commercial real estate loans, are generally diverse in terms of
type.
In addition, we
believe there may be attractive opportunities to provide digital currency
borrowing facilities to deepen the Bank’s customer relationships and further
enhance its interest income.
Noninterest Income— The Bank’s noninterest income would primarily be driven by
service fees related to the digital currency customers, mortgage warehouse fee
income and other fees. We anticipate consistent increase in the noninterest
income as our customers grow and their needs develop further, and as we
continue to develop and deploy fee-based solutions in connection with
our digital currency initiative.
Our Growth Strategy
We intend to build a leadership position in the digital currency
industry by combining our management team’s industry vision with our strategic
focus, market position, and technology platform to grow the Bank’s existing
business lines and develop additional market-leading product offerings. Our
strategies to achieve these goals include:
Development and Monetization of the BEN —The competitive
advantage of operating on the BEN would be crucial for exchanges and investors
participating in the digital currency industry. We believe the BEN can grow to
a critical mass of adoption and utilization across the digital currency
industry via expansion of our customer base and an increase in the
functionality of the BEN that may come as a result of our own internal
technology development, strategic relationships, or potential acquisitions. As
we continue to enhance the BEN and its customer ecosystem, we believe the value
of the network will continue to increase, providing us with the opportunity to
earn fees commensurate with the significant value we are providing to our
customers.
Build and Grow Digital Currency-Related Customer Base— The Bank customer
growth would primarily be driven by market participants proactively enrolling
into BEN and by high-quality referrals from existing Bank’s customers who value
our sophisticated and flexible approach to addressing their industry-specific
challenges.
As we build out BEN
technology and brand awareness, we would expect to more deeply penetrate the
universe of existing digital currency-related businesses in need of banking
services. By further extending the breadth of our services, we believe we would
generate an increasing number of high-quality referrals.
Focus on High-Growth Customers—Once we have fully deployed our ML-Ai
lending platform and the Blackchain model, the Bank’s customers base would
experience significant growth as the digital currency industry has rapidly
expanded. We expect these customers to continuously grow, generating additional
deposit potential for us and new opportunities for innovation to address
customer needs.
Develop New Solutions and Services for Our Customers—The Bank would be
developing additional products and services to address the digital currency
industry’s largest opportunities. These products and services are intended to
complement the Bank’s other product and service offerings and, as such, will
not initially comprise a material portion of the Bank’s business. We believe we
are well positioned to capitalize on these opportunities because of BEN
technology platform and competitive advantages. Our future product roadmap
includes:
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Credit
Products—Today,
in accordance with industry practices, digital currency investors must have
funds custodied on an exchange in order to trade on that exchange. We have
identified significant demand from banking customers and prospective
customers for borrowing from the Bank for the purposes of buying digital
currency. This type of credit exists in many established markets but is
largely absent from the nascent and evolving digital currency industry. We
believe the BEN could provide the foundational infrastructure for this
product in the digital currency industry, creating both deeper relationships
with our clients and an attractive source of revenue growth.
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We would be developing this product within the framework of the
Bank’s legal lending authority and conservative credit culture. We plan to use
the Bank’s robust credit underwriting and approval process to ensure that
institutional investor borrowers have the capacity to honor an unconditional
loan repayment obligation. These borrowers would provide digital currency,
initially limited to Bitcoin, or U.S. dollars as collateral in an amount
significantly greater than the line of credit being advanced. The Bank plans to
work with existing digital currency exchange clients to both act as its
collateral custodian for such loans, and to liquidate the collateral in the
event of a decline in collateral coverage below levels required in the
borrower’s loan agreement. In this structure, the exchange client will hold the
borrower’s digital currency collateral and the Bank will use the BEN to fund
the loan directly to the borrower’s account at the exchange. At no time will
the Bank directly hold the pledged digital currency and the borrower’s relationship
with the exchange will be as its customer and not as a third party beneficiary
of the Bank’s collateral agreement with the exchange. In the event of a
collateral deficiency, the exchange could immediately sell the digital currency
collateral and use the BEN to send the resulting funds back to the Bank in
partial or full satisfaction of the borrower’s repayment obligation to the
Bank. The Bank will set collateral coverage ratios at levels intended to yield
collateral liquidation proceeds in excess of the borrower’s loan amount, but
the borrower would remain obligated for the payment of any deficiency
notwithstanding any change in the condition of the exchange, financial or
otherwise. The Bank anticipates that it will offer this credit product to select
institutional clients in the fourth quarter of 2019.
We believe this product will provide greater capital efficiency
for institutional investor clients that wish to transact without needing to
move liquidity on and off different exchanges. Additionally, this will drive
increased volumes through the BEN and reinforce Blackchain’s central role in
the Bank’s clients’ operations. Offering lines of credit would also improve
liquidity within the order book of the exchange clients and enable additional
trading on their platforms.
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Digital
Asset Services—We
have identified significant demand for the Bank to be involved in the custody
and transfer of digital assets between customers. We believe that the digital
currency market lacks sufficient regulated custodians to securely store
digital currency to meet the demand of many institutional investors . We
believe the Bank would be well-positioned to capture market share in this
emerging space given the Bank’s existing investor relationships, the Bank’s
brand and reputation, and our ownership of a federally regulated bank. We
estimate that there are digital asset services currently being sought with
respect to several billions of dollars worth of digital currency-related
assets, and that there are limited potential providers of these services
because traditional banks, trust companies and broker-dealers lack the
infrastructure and expertise to custody, settle and transfer digital
currency. Our growth strategy contemplates the establishment of a qualified
custodian entity as a Company subsidiary to address this market opportunity.
This entity would seek to become a New York State licensed limited liability
trust company through which digital currency activities would be conducted.
The State of New York was strategically chosen due to its established track
record of granting trust charters for digital currency related companies. An
application for this new entity would be submitted at the appropriate time.
Establishment of a custodian to securely store digital currency, initially
limited to Bitcoin, could enhance our ability to offer borrowing facilities
for our digital currency customers in the future (see “—Credit Products”
above). The Bank does not currently have custody or provide settlement or
transfer services of any digital currency assets.
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Expand
Our International Customer Base—Due
to the global nature of the digital currency industry and rapid adoption of
digital currencies as an asset class, we believe we will have the opportunity
to extend the reach of the Bank’s digital franchise into international
markets. As part of this opportunity, we expect to offer products and
services to those markets, as well as to our U.S. customers wishing to access
those markets, that will drive additional growth and strategic value in our
business. For example, we would work with correspondent banking partners,
including a leading global investment bank to provide competitive foreign
exchange alternatives to our clients.
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Other
Potential Fintech Opportunities—We
carefully monitor events and emerging trends in the markets in which we
operate to identify opportunities to further leverage our management team’s
experience and technology-driven approach to developing additional
fintech-related business opportunities to grow our deposits, earn additional
fee income and generate attractive risk adjusted returns. These potential
initiatives may include developing additional applications of BEN API
architecture. We believe the BEN API is an attractive platform to support
business activities that involve frequent transfer transactions between
parties, including, among others, escrow, property/cash
exchanges, non-profit non-governmental organizations,
marketplace firms such as marketplace lenders and other participants in the
sharing economy, and dollar aggregators that facilitate micro investing and
crowdfunding activities. In the pursuit of developing new solutions and
services for our customers, we may from time to time evaluate potential
acquisitions which enable the Company to generate revenues from proprietary
technology which delivers best-in-class infrastructure to the digital
currency industry.
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Capitalize on our
Unique Market Insights—Because of our management team’s vision and our status as a
sought-after partner within the digital currency industry, we see potential
opportunities that many legacy financial services providers as well as digital
currency market participants may not be able to see in the near-term. We
believe that this unique position within the market will enable us to continue
developing next generation financial infrastructure solutions and services and
extend our first-mover advantage. Capitalizing on these opportunities has the
potential to significantly accelerate our growth beyond the drivers visible to
most market participants today and help us grow our position as a leading
provider of innovative financial services infrastructure solutions and services
to the digital currency industry.
General Overview (5) – Proposed Emerging Cryptocurrency Opportunities
Portfolio
The emerging cryptocurrency
opportunities portfolio is the wildcard of our FINTEC business model. While
the goals are clear, because it is a wildcard, there is no outline on what to
expect or how it should be run. GMPW needs these flexibilities because many
established companies are jumping into the crypocurrency opportunities on a
minutes notice. For example, in 2020, Microstrategy decided to move their
treasury into bitcoin as part of their cash management strategy. Marathon
Patent Group moved into cryptocurrency mining as a business model. Overstock
has been in cryptocurrency for a while. Square and Paypal just joined the
bandwagon of American companies that try to find and exploit opportunities in
the crypto currency industry without abandoning their actual businesses.
GMPW’s emerging cryptocurrency opportunities portfolio would not be
different. The company would on an ongoing basis evaluate and consider
investments into potentially viable cryptocurrency opportunities anywhere.
Environmental, Social and Governance
(“ESG”)
We endeavor to provide a richly diverse
work environment that employs the highest performers, cultivates the best ideas
and creates the widest possible platform for success. We are committed to elevating
and supporting the core values of diversity and inclusion, “Total Well-Being”
(which brings together physical, financial, career, social and community
well-being into a cohesive whole), and environmental, social and governance
(“ESG”), which includes sustainability and social responsibility, by actively
engaging in these areas. Each member of the executive team maintains an annual
goal related to these core values, which is evaluated by the Company’s Board of
Trustees. Our goal is to create and sustain an inclusive environment where
diversity will thrive, employees will want to work and tenants will want. We
are committed to providing our employees with encouragement, guidance, time and
resources to learn and apply the skills required to succeed in their jobs. We
provide many classroom and on-line training courses to assist our employees in
interacting with prospects and tenants as well as extensive training for our
customer service specialists in maintaining our properties and improvements,
equipment and appliances. We actively promote from within and many senior
corporate and property leaders have risen from entry level or junior
positions. We monitor our employees’ engagement by surveying them annually and
find most employees say they are proud to work at the Company, value one
another as colleagues, believe in our mission and values and feel their skills
meet their job requirements.
We have a commitment to sustainability and
consider the environmental impacts of our business activities. Sustainability
and social responsibility are key drivers of our focus on creating the best
properties for tenants operate, work and play. We have a dedicated in-house
team that initiates and applies sustainable practices in all aspects of our
business, including investment activities, development, property operations and
property management activities. With its high density, multifamily housing is,
by its nature, an environmentally friendly property type. Our recent
acquisition and development activities have been primarily concentrated in
pedestrian-friendly urban and close-in suburban locations near public
transportation. When developing and renovating our properties, we strive to
reduce energy and water consumption by investing in energy saving technology
while positively impacting the experience of our tenants and the value of our
assets. We continue to implement a combination of irrigation, lighting, HVAC
and renewable energy improvements at our properties that will reduce energy and
water consumption. For 2020, we continue to have an express company-wide goal
for Total Well-Being, which includes enhanced ESG efforts. Employees,
including our executives, will have their performance against our various Total
Well - Being goals evaluated as part of our annual performance review process.
Corporate
Information
We are an “emerging growth company,” as defined in
Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act,
as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act. As such, we are eligible to take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies
that are not “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 of 2002, or 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 non-binding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not
previously approved. If some investors find our securities less attractive as a
result, there may be a less active trading market for our securities and the
prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that
an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for
complying with new or revised accounting standards. In other words,
an “emerging growth company” can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies.
We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of
(1) the last day of the fiscal year (a) following the fifth anniversary of the
completion of this offering, (b) in which we have total annual gross revenue of
at least $1.07 billion, or (c) in which we are deemed to be a large
accelerated filer, which means the market value of our ordinary shares that is
held by non-affiliates exceeds $700 million as of the prior June 30th,
and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt securities during the prior three-year period.
References herein to “emerging growth company” shall have the meaning
associated with it in the JOBS Act.
Plan of Operations
While our major focus is to find, acquire and manage an Bank,
Fintec or Digital Currency, our real estate portfolio is still alive and must
figure in our plan of operation. As of the date of this S-1 Registration, we have two available-for-sale real estate properties
with a carrying amount of $970,148. We bought three single family residences
(SFR) with a cost/carrying amount of $1,452,897, in Los Angeles in 2019. We
bought a fourth property in June 2020. During the nine months ended September
30, 2020, we sold two of the four properties for a total amount of $1,205,000.
In the next twelve months, we plan on selling the remaining two properties and
adding the proceeds obtained from the sales to the Proceeds from this Offering
to finance our Bank, Fintec or Digital Currency business plan.
The Company will
continue to evaluate its projected expenditures relative to its available cash
and to seek additional means of financing in order to satisfy the Company’s
working capital and other cash requirements. Upon completion of the
acquisition of an One-four branch bank or doing
a joint venture (JV) with Bank, Fintec or Digital Currency businesses, our
strategy will subsequently include operating the Bank, Fintec or Digital Currency and related product lines.
Our
Management Strategy
Our
edge is the ability to leverage the expertise of our key managers in cost
control, process improvement, and synergetic collaboration across businesses
and industries to create value, improve margins, and optimize overall
performance of acquired companies. GiveMePower Corporation adopts a
conservative approach to acquisitions and investment; it normally considers
companies that sell close to or below their industry average multiples for
investment or acquisition. GiveMePower Corporation also seeks and acquires
assets and businesses that help it achieve vertical integration in its
industry.
We
will build a team talented in synchronizing optimized business processes across
industries and disciplines from target identification, due diligence, through
portfolio company restructuring, resulting in better resources allocation and
cash-flow, higher significant profitability, and superior returns to
shareholders and investors. In general, our officers will oversee and support
the management team of our acquired businesses by, among other things:
-
recruiting
and retaining talented managers to operate our future businesses by using
structured incentive compensation programs, including minority equity
ownership, tailored to each business;
-
regularly
monitoring financial and operational performance, instilling consistent
financial discipline, and supporting management in the development and
implementation of information systems to effectively achieve these goals;
-
assisting
management of our businesses in their analysis and pursuit of prudent
organic growth strategies;
-
identifying
and working with management to execute on attractive external growth and
acquisition opportunities;
-
identifying
and executing operational improvements and integration opportunities that
will lead to lower operating costs and operational optimization;
-
providing
the management teams of our future businesses the opportunity to leverage
our experience and expertise to develop and implement business and
operational strategies; and
-
forming
strong subsidiary level boards of directors to supplement management in
their development and implementation of strategic goals and objectives.
We believe that our long-term
perspective provides us with certain additional advantages, including the
ability to:
-
recruit
and develop talented management teams for our future businesses that are
familiar with the industries in which our future businesses operate and
will generally seek to manage and operate our future businesses with a
long-term focus, rather than a short-term investment objective;
-
focus
on developing and implementing business and operational strategies to
build and sustain shareholder value over the long term;
-
create
sector-specific businesses enabling us to take advantage of vertical and
horizontal acquisition opportunities within a given sector;
-
achieve
exposure in certain industries in order to create opportunities for future
acquisitions; and
-
develop
and maintain long-term collaborative relationships with customers and
suppliers.
We
intend to continually increase our intellectual capital as we operate our
businesses and acquire new businesses and as our management team identify and
recruit qualified employees for our businesses.
Components of Our Results of Operations
Revenue—We generate revenue primarily from net revenue from trading,
commissions and fees charged on each real estate services transaction closed by
our lead agents or partner agents, and from the sale of homes.
Properties Revenue—Properties revenue
consists of revenue earned when we sell homes that we previously bought
directly from homeowners. Properties revenue is recorded at closing on a gross
basis, representing the sales price of the home.
Intercompany
Eliminations—Revenue earned from transactions between operating segments are
eliminated in consolidating our financial statements. Intercompany transactions
primarily consist of services performed from our real estate services segment
for our properties segment.
Cost of Revenue and Gross Margin
Cost of revenue
consists primarily of home-touring and field expenses, listing expenses, home
costs related to our properties segment, office and occupancy expenses, and
depreciation and amortization related to fixed assets and acquired intangible
assets. Home costs related to our properties segment include home purchase
costs, capitalized improvements, selling expenses directly attributable to the
transaction, and home maintenance expenses.
Gross profit is
revenue less cost of revenue. Gross margin is gross profit expressed as a
percentage of revenue. Our gross margin has and will continue to be affected by
a number of factors, but the most important are the mix of revenue from our
relatively higher-gross-margin real estate services segment and our relatively
lower-gross-margin properties segment, real estate services revenue per
transaction, agent and support-staff productivity, personnel costs and
transaction bonuses, and, for properties, the home purchase costs.
Results of Operations
Three Months ended September 30, 2020
Revenue and net gain
from sales of investments under trading securities ― The Company
recorded $19,187 in net gain from sales of investments under trading securities
for the three months ended September 30, 2020 as compared to $0 for the same
period of September 30, 2019. The Company did not record any other revenue for
the period under review.
Operating Expenses ― Total
operating expenses for the three months ended September 30, 2020 was $22,272 as
compared to $0 in the same period in, 2019.
Net Loss ―
Net loss for three months ended September 30, 2020 was $43,992, as compared to
net loss of $0 for the nine months ended September 30, 2019.
Nine Months ended September 30, 2020, as
Compared to Nine Months ended September 30, 2019
Revenue and
net gain from sales of investments under trading securities ― The
Company recorded $79,194 in net gain from sales of investments under trading
securities and $25,173 in net gain from sales of investment under properties,
for the nine months ended September 30, 2020 as compared to $0 for the same
period of September 30, 2019.
Operating
Expenses ― Total operating expenses for the nine months ended
September 30, 2020 was $128,083 as compared to $0 in the same period in, 2019,
due to increased operating activities during the period ended September 30,
2020.
Net Loss ― Net
loss for nine months ended September 30, 2020 was $132,493, as compared to net
loss of $0 for the nine months ended September 30, 2019.
Financial Condition, Liquidity and Capital Resources
As of September 30,
2020, the Company had a working deficit of $143,052, consisting of $5,340 in
cash, $22,961 in Trading Securities, $152 in accounts receivable, minus $943 of
accrued expense, $1,406 in accrued interest, $5,542 in marginal loan payable,
and $163,632 of line credit.
The Company had
$22,961 inventory of Trading Securities as of September 30, 2020 as compared to
$0 for the period ending December 31, 2019.
For the nine months
ended September 30, 2020, the Company used $21,401 on operating activities,
used $1,014,128 on investing activities and generated $1,040,369 from financing
activities, resulting in an increase in total cash of $4,840 and a cash balance
of $5,340 for the period. For the nine months period ended September 30, 2019,
the Company used cash of $0 in operating activities, used cash of $0 for
investing activities and obtained cash of $0 from financing activities,
resulting in an increase in cash of $0 and a cash balance of $0 at the end of
such period.
Total notes payable for related and unrelated parties increased by
$1,040,357 for the period ended September 30, 2020, compared to the fiscal year
ended December 31, 2019 of $45,517.
As of September 30,
2020, total stockholders’ deficit increased to $76,373 compared to total
stockholders’ equity of $379 as of December 31, 2019.
As of September 30,
2020, the Company had a cash balance of $5,340 (i.e. cash is used to fund
operations). The Company does not believe our current cash balances will be
sufficient to allow us to fund our operating plan for the next twelve months.
Our ability to continue as a going concern is dependent on us obtaining
adequate capital to fund operating losses until we become profitable. If we are
unable to obtain adequate capital, we could be forced to cease operations or
substantially curtail its drug development activities. These conditions raise
substantial doubt as to our ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts and
classification of liabilities should we be unable to continue as a going
concern.
Our principal sources
of liquidity in the past has been cash generated from loans to us by our major
shareholder. In order to be able to achieve our strategic goals, we need to
further expand our business and implement our business plan. To continue to
develop our business plan and generate sales, significant capital has been and
will continue to be required. Management intends to fund future operations
through private or public equity and/or debt offerings. We continue to engage
in preliminary discussions with potential investors and broker-dealers, but no
terms have been agreed upon. There can be no assurances, however, that
additional funding will be available on terms acceptable to us, or at all. Any
equity financing may be dilutive to existing shareholders. We do not currently
have any contractual restrictions on our ability to incur debt and, accordingly
we could incur significant amounts of indebtedness to finance operations. Any
such indebtedness could contain covenants which would restrict our operations.
Our financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties. Our ability to continue as a going concern is dependent upon our
ability to raise additional debt or equity funding to meet our ongoing
operating expenses and ultimately in merging with another entity with
experienced management and profitable operations. No assurances can be given
that we will be successful in achieving these objectives.
We have not
established revenue generating operations and will be dependent upon obtaining
financing to pursue any future extensive acquisitions and activities. The
revenues, if any, generated from our operations or acquisitions may not be
sufficient to fund our operations or planned growth. We will require additional
capital to continue to operate our business, and to further expand our
business. Sources of additional capital through various financing transactions
or arrangements with third parties may include equity or debt financing, bank
loans or revolving credit facilities. We may not be successful in locating
suitable financing transactions in the time period required or at all, and we
may not obtain the capital we require by other means.
We will now be
obligated to file annual, quarterly and current reports with the SEC pursuant
to the Exchange Act. In addition, the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”) and the rules subsequently implemented by the SEC and the
Public Company Accounting Oversight Board have imposed
various requirements on public companies, including requiring changes in
corporate governance practices. We expect these rules and regulations to
increase our legal and financial compliance costs and to make some activities
of ours more time-consuming and costly. In order to meet the needs to comply
with the requirements of the Securities Exchange Act, we will need investment
of capital.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors. As of January 6, 2021, December 31, 2019 and 2018, we
did not have any off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Critical Accounting Policies and Estimates
The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) requires estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes.
The SEC has defined a company’s critical accounting policies as the ones that
are most important to the portrayal of the company’s financial condition and
results of operations, and which require the company to make its most difficult
and subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain.
Based on this
definition, we have identified the critical accounting policies and judgments
addressed which are described in Note 2 to our condensed consolidated financial
statements included elsewhere in this Registration Statement. Although we
believe that our estimates, assumptions and judgments are reasonable, they are
based upon information presently available. Actual results may differ
significantly from these estimates under different assumptions, judgments or
conditions.
DESCRIPTION
OF BUSINESS
Business Overview
GiveMePower Corporation operates
and manages a portfolio of real estate and financial services assets and
operations to empower black persons in the United States through financial
tools and resources. Givemepower is primarily focused on: (1) creating and
empowering local black businesses in urban America; and (2) creating real
estate properties and businesses in opportunity zones and other distressed
neighborhood across America. This Offering represents the commencement of the
Banking and financial services division of our business. This Offering will
enable GMPW to become a financial technology company (FINTEC) that provides
machine learning (ML) and artificial intelligence (AI) enabled banking and financial
services on blockchain-powered platforms, giving access to the unbanked,
underserved, and residents of majorly black communities across the United
State. Our Machine Learning and AI driven banking and financial services
operations would also cover the areas of private equity, business lending and
venture capital that invest in young black entrepreneurs, and seeding their
viable business plans/ideas on block-chain-powered financial services delivery
platform that connects, black entrepreneurs, black borrowers, consumers, banks,
and institutional investors.
Our real estate division invests in Opportunity Zones, Affordable Housing, and
specialized real estate properties.
Corporate History
GiveMePower
Corporation (the “PubCo” or “Company”), a Nevada corporation, was incorporated
on June 7, 2001 to sell software geared to end users and developers involved in
the design, manufacture, and construction of engineered products located in
Canada and the United States. GiveMePower was originally incorporated in
Alberta, Canada as GiveMePower.com Inc. on April 18, 2000, to sell software and
web-based services geared to businesses involved in the design, manufacture,
and construction of engineered products throughout North America. Effective
September 15, 2000, the Company amended its Articles of Incorporation to change
its corporate name to GiveMePower Inc. The founder of the Company began the
implementation of this business plan under his 100%-owned private company,
Sundance Marketing International Inc. (Sundance). Sundance has been in
existence since 1991 and at one time was a market leader in the distribution of
survey, mapping and infrastructure design software in the Canadian marketplace.
On April 15, 1999, Mr. Walton entered into a license agreement with Felix
Computer Aided Technologies GmbH (Felix) for the exclusive rights to distribute
FCAD software in North America.
On
December 20, 2000, the Company entered into a Plan and Agreement of
Reorganization to undertake a reverse merger with a National Quotation Bureau
public company called TelNet World Communications, Inc. (TelNet). TelNet was
originally incorporated in the State of Utah on March 10, 1972 as Tropic
Industries, Inc. (Tropic). Tropic became United Datacopy, Incorporated on
February 24, 1987 which became Pen International, Inc. on March 21, 1994 and
then TelNet World Communications, Inc. on March 4, 1998. TelNet had no
operations nor any working capital when the Company entered into the reverse
merger with it. GMP acquired the rights, title and interest to the domain
name, givemepower.com from Sundance on February 16, 2001. In addition,
Sundance agreed to assign its existing customer base to GMP and further agreed
that it would terminate its license agreement with Felix immediately upon GMP securing
its own agreement with Felix. GMP renegotiated the exclusive rights to
co-develop, re-brand and distribute FCAD software in North America effective
February 16, 2001. Effective July 5, 2001 the
Company changed the name of TelNet to GiveMePower Corporation and changed the
domicile from Utah to Nevada.
The
PubCo has been dormant and non-operating since year 2009. PubCo is a public
reporting company registered with the Securities Exchange Commissioner (“SEC”).
In November 2009, the Company filed Form 15D, Suspension of Duty to Report, and
as a result, the Company was not required to file any SEC forms since November
2009.
On
December 31, 2019, PubCo sold one Special 2019 series A preferred share
(“Series A Share”) for $38,000 to Goldstein Franklin, Inc. (“Goldstein”), a
California corporation. One Series A Share is convertible to 100,000,000 shares
of common stocks at any time. The Series A Share also provided with 60% voting
rights of the PubCo. On the same day, Goldstein sold one-member unit of Alpharidge
Capital, LLC (“Alpharidge”), a California limited liability corporation,
representing 100% member owner of Alpharidge. As a result, Alpharidge become a
wholly owned subsidiary of PubCo as of December 31, 2019.
The
transaction above was accounted for as a “reverse merger” and recapitalization
amongst PubCo, Goldstein, and Alpharidge since the stockholders of Alpharidge
will have the significant influence and the ability to elect or appoint or to
remove a majority of the members of the governing body of the combined entity
immediately following the completion of the transaction, the stockholders of
PubCo will have the significant influence and the ability to elect or appoint
or to remove a majority of the members of the governing body of the combined
entity, and PubCo’s senior management will dominate the management of the
combined entity immediately following the completion of the transaction.
Accordingly, Alpharidge will be deemed to be the accounting acquirer in the
transaction and, consequently, the transaction is treated as a recapitalization
of the PubCo. Accordingly, the assets and liabilities and the historical
operations that are reflected in the financial statements are those of
Alpharidge and are recorded at the historical cost basis of Alpharidge. As a
result, Alpharidge is the surviving company and the financial statements
presented are historical financial accounts of Alpharidge.
On
September 16, 2020, as part of its sales of unregistered securities to Kid
Castle Educational Corporation, company related to, and controlled by GMPW
President and CEO, the Company, for $3 in cash and 1,000,000 shares of its
preferred stock, acquired 100% interest in, and control of Community Economic
Development Capital, LLC (“CED Capital”), a California Limited Liability
Company, and 97% of the issued and outstanding shares of Cannabinoid
Biosciences, Inc. (“CBDX”), a California corporation. This
transaction was accounted for under the Consolidation Method using the variable
interest entity (VIE) model wherein the Company consolidates all investees
operating results if the Company expects to assume more than 50% of another
entity’s expected losses or gains. The 1,000,000 shares of our
preferred stock sold to Kid Castle Educational Corporation gave to Kid Castle,
approximately 87% voting control of Givemepower Corporation.
The consolidated
financial statements of the Company therefore include its wholly owned
subsidiaries of Alpharidge Capital LLC. (“Alpharidge”), Community
Economic Development Capital, LLC. (“CED Capital”), and Cannabinoid
Biosciences, Inc. (“CBDX”), and subsidiaries, in which GiveMePower has a controlling voting
interest and entities consolidated under the variable interest entities (“VIE”)
provisions of ASC 810, “Consolidation” (“ASC 810”), after elimination of
intercompany transactions and accounts.
With the proceeds
from this Offering, we intend to acquire: (1) a one-to-four branch bank that is
federally licensed in each jurisdiction; (2) a machine learning (ML) and
artificial intelligence (Ai) enabled loan and insurance underwriting platform;
(3) blockchain-powered payment systems; (4) cryptocurrency transaction
processing platform; and (5) emerging cryptocurrency opportunities portfolio; a
combination of three of which would connects consumers, banks, institutional
investors, and ensure access to the unbanked and underserved residents of
majorly black communities across the United State of America. All five
sub-divisions would operate together as a modern digitized banking and
financial services provider focusing to giving access to black entrepreneurs,
black borrowers, consumers, banks, and institutional investors.
General Overview (1) - Proposed Federally licensed one-four branch
bank
Jurisdictionally, GMPW intend to acquire and manage one-branch
bank in each of its relevant jurisdictional domain. Owning/controlling a bank
or banks with branches across every urban/black neighborhood in the United
States is not our goal. Rather we would be content to own a one-branch bank in
every relevant jurisdiction to allow us to initiate/conduct blockchain-powered
digitized banking that is accessible to all black person and businesses across
the United States. Thus, we shall start our banking acquisition by finding
targets that operates one-six branches. We intend to start with the
acquisition of one-branch bank, whose operation and back-office would be
migrated unto a Blockchain-powered platform to digitize its entire banking
operation to cover and serve all black persons in the United States. We
believe that blockchain technology is the most suited platform to implement,
run and manage a U.S. wide digitized banking services whose reach encompasses
most black persons living in the United States. The beauty of such platform is
that: (1) Blockchain records and validates each and every transaction; (2)
Blockchain does not require third-party authorization; and (3) Blockchain is
decentralized.
Blockchain-powered digitized banking operation would position the
The Bank at the forefront on banking innovation while achieving its goals
without compromising traditional banking standards. Key advantages of sitting
the The Bank operations on a blockchain-powered platform include simplification
of transactions reliance, transparency, security, compliance and seamless
regulatory reporting. Advantages of operating a blockchain-powered platform
include the followings:
Data Security: The blockchain’s decentralized security detects backdoor hacks
more easily than its alternatives. Blockchain tech secures and privatizes data
through encryption and cryptographically protected passkeys. This is ideally
suited to the Banking industry, where both security and privacy are critical
because ackers disproportionately target financial institutions. Finance hacks
accounted for 8.5 percent of data breaches in 2017, and financial businesses
are 300 times more likely to fall victim to a cyber attack.
Faster,Time-Saving and more reliable payment structures: Blockchain
technology could help decrease recordkeeping costs and in situations where
financial institutions that act as the guarantor of payment between seller and
buyer, where traditional letters of credit require several intermediaries —
banks, financiers, insurers, and export credit agencies — that must all be
paid, Blockchain technology would eliminate some intermediaries while
simultaneously weaning trade financiers off of paper-based systems that cost
time and money.
Loan Syndication: A
Blockchain-powered platform would compliment the best attributes of our
proposed ML-AI lending platform because a blockchain-powered framework would
digitize ML-AI loan syndication. Utilizing unified records systems to create
clarity and drive efficiency, blockchain allows remote access by credentialed
parties without sacrificing security and thus, eliminates inefficiency in loan
syndication, which is caused by a lack of transparency from underwriters.
Clearing and Settlement: Blockchain technology is also
effective for clearing and settlement because it facilitates immediate
settlement.
Lowered Cost of Record-Keeping and Record-Retention: Blockchain
technology could eliminate the risk of complete record loss that comes with
paper-based recordkeeping and reduce the cost of record-keeping because it is
digital, inexpensive to maintain and it stores records in a decentralized
fashion, providing top-flight security and easy accessibility.
Interbank Transactions: Blockchain-powered automation could
facilitate real-time interbank fund verification that would unify banks, reduce
fees and lead to quicker wire transfers at a lower cost.
Blockchain for Anti-Money Laundering (AML) and Counter-Terrorist
Financing (CTF): Data logged on the Blockchain-powered platform is
distributed across hundreds or even thousands of nodes, and effectively making
it impossible to alter the entire decentralized record.
Regulatory Compliances: Blockchain ledgers can store verified, immutable data, so
they’re perfect for sharing files between regulators and compliance
departments. This self-executing technology will likely cause compliance
departments to downsize. That’s a bummer for employees, but automation could
replace this costly error-prone reporting framework.
Increasing Transparency: Blockchain-powered platform could help
build confidence and reputation between the Bank and customers because
blocckchain technology would allow banks to share their compliance efforts with
their customers.
Serving the Unbanked: Studies showed that One of every 13 households in the United
States is unbanked. The poor make up majority of the unbanked in the United
States. Without access to traditional banking or knowledge of how to use it,
the poor are often forced to turn to hostile lenders with predatory interest
rates and fees. Blockchain-powered banking platforms would provide inherent
security and the ability to create a decentralized lending network to serve
this population. Blockchain and cryptocurrency-based solutions could completely
replace predatory businesses like check cashing and payday advances with
fairer, transparent systems.
Notwithstanding our hope to find and
acquire a federally licensed one-four branch bank as outlined above, there is
no assurance that we could complete this offering, raise the capital to acquire
a black bank. Even if we were able to raise the money required to acquire a federally
licensed one-four branch bank, there is no guarantee that we’ll find a seller
of such. We may not be able to execute on the plan above because factors
related to our limited operating history.
General Overview (2) – Proposed Cloud-Based Machine-Learning and
Artificial Intelligence (AI) Lending platform
The completion of
this Offering will launch the Company’s cloud-based machine learning and
artificial intelligence lending platform. It is our believe that
Machine-Learning (ML) and Artificial intelligence (AI), lending platform would
enable a superior loan product with improved economics that can be shared
between consumers and lenders. The proposed platform would aggregate consumer
demand for high-quality loans and connects it to our soon-to-be-build network
of ML-AI-enabled investors, lenders and bank partners. Consumers on the ML-AI
platform would benefit from a highly automated, efficient, all-digital
experience. Our prospective bank partners would benefit from access to new
customers, lower fraud and loss rates, and increased automation throughout the lending
process.
Credit is a cornerstone of the U.S. economy, and access to
affordable credit is central to unlocking upward mobility and opportunity. The
FICO score was invented in 1989 and remains the standard for determining who is
approved for credit and at what interest rate. (Rob Kaufman, myFico Blog: The
History of the FICO Score, August 2018). While FICO is rarely the only input in
a lending decision, most banks use simple, rules-based systems that consider
only a limited number of variables. Unfortunately, because legacy credit
systems fail to properly identify and quantify risk, millions of creditworthy
individuals are left out of the system, and millions more pay too much to
borrow money. (Patrice Ficklin and Paul Watkins, Consumer Financial Protection
Bureau Blog: An Update on Credit Access and the Bureau’s
First No-Action Letter, August 2019).
The first generation of online lenders focused on bringing credit
online. Analogous to earlier internet pioneers, these companies made shopping
for and accessing credit simpler and easier for consumers and businesses. It
was no longer necessary to stand in line at a bank branch, to sit across the
desk from a loan officer and to wait weeks or months for a decision. These
lenders enabled the emergence of personal loan products that were previously
unprofitable for banks to offer. While they brought the credit process online,
they inherited the decision frameworks that banks had used for decades and did
not address the more rewarding and challenging opportunity of reinventing the
credit decision.
GMPW intend to
leverage the power of AI to more accurately quantify the true risk of a loan.
The ML- AI models would be built to continuously self-upgrade, train and refine
many critical components of lending risk analytics and decision-making on a
real-time basis. We intend to build discrete ML- AI models that target fee
optimization, income fraud, acquisition targeting, loan stacking, prepayment
prediction, identity fraud and time-delimited default prediction. These models
would be designed to incorporate multiple lending underwriting variables and
utilize training dataset that accounts for varieties of repayment events. It
is also anticipated that the network effects generated by constantly improving
ML- AI models would provide a significant competitive advantage—and more
training data would lead to higher approval rates and lower interest rates at
the same loss rate.
Our proposed ML-AI driven
lending platform and models would be integrated into, and operationalized in,
the The Bank. The ML-ML- AI models would also be provided to our bank partners
within a consumer-facing cloud application that would streamline
the end-to-end process of originating and servicing a loan. The ML-AI
lending platform would inhabit a configurable, multi-tenant cloud application
designed to integrate seamlessly into a bank’s existing technology systems. The
configurable platform would allow each bank to define its own credit policy and
determine the significant parameters of its lending program. The ML-ML- AI
models would use and analyze data from all of our bank partners. As a result,
these models would be trained by specific algorithm to generate optimal loan
scenario, and each bank partner would benefits from participating in a shared ML-AI
lending platform that give credit access to black
entrepreneurs, black borrowers, consumers, and viable platform to banks, and
institutional investors.
Loans issued through the
proposed ML-AI platform could be retained by the originating bank partners,
distributed to a broad base of institutional investors and buyers that invest
in similar loans or funded by GMPW’s The Bank’s balance sheet. We intend to enter into nonexclusive agreements with
wholesale loan purchasers and grantor trust entities in that participate in
asset-backed securitizations, or ABS, under which the ABS investors could also
outsource their loan servicing to the The Bank.
We expect
revenue the ML-AI lending platform would come primarily comprised of The Bank’s
in-house transaction fees in addition to fees paid by other banks that would us
the ML-AI lending platform. We intend to charge banks referral fees for each
loan referred through the ML-AI lending platform and originated by a bank
partner, platform fees for each loan originated (regardless of its source) and
loan servicing fees as consumers repay their loans. We intend to enter
nonexclusive agreements with bank partners that would, generally have 12-month
terms and automatically renew, subject to certain early termination provisions
and minimum fee amounts, and would not include any minimum origination
obligation or origination limits. As a usage-based platform, we intend to
target positive unit economics on each transaction, resulting in a cash
efficient business model that features both high growth rates and
profitability.
Industry Overview
Affordable Credit is Critical to Unlocking
Upward Mobility and Opportunity
With $3.6 trillion of consumer credit
originated between April 2019 and March 2020, (Based on loan origination dollar amounts published by TransUnion; see
the section titled “Industry, Market and Other Data.”). credit is a cornerstone of the U.S. economy. Access to affordable credit
is central to unlocking upward mobility and opportunity. Reducing the price of
borrowing for consumers has the potential to dramatically improve the quality
of life for millions of people. Studies have demonstrated a strong statistical
link among access to affordable credit, personal well-being and income growth.(
Kirsten Wysen, Open Source Solutions: Why Credit
Scores and Payday Lending Matter for Health, October 2019). The
average American has approximately $29,800 in personal debt. (
Northwestern Mutual, 2019 Planning & Progress Study: The Debt Debacle,
2019). While access to affordable credit has allowed
Americans to purchase and improve their homes, buy cars, pay for college
tuition and cover emergency expenses, high interest rates can negatively impact a consumer’s financial health. The U.S.
Federal Reserve reports that on average, 10% of household disposable personal
income is spent on debt repayment. (The Federal Reserve
Board, Household Debt Service and Financial Obligations Ratios, or Federal
Reserve Household Debt, December 2019). In addition, 16% of Americans spend 50% to 100% of their monthly income
repaying debt.
Affordable Credit Is Inaccessible for
Millions because Existing Systems Fail to Accurately Quantify Risk
The FICO score was invented in 1989 and
has not fundamentally changed since that time. (Kaufman; see the section titled “Industry, Market and Other Data”). The FICO score is used by over 90% of lenders to determine
who is approved for credit and at what interest rate. Id. While
FICO is rarely used in isolation, many credit models are simple, rules-based
systems. A leading expert found that bank credit models commonly incorporate
eight to 15 variables, with the more sophisticated models using as many as 30. (Naeem Siddiqi, Intelligent Credit Scoring:
Building and Implementing Better Credit Risk Scorecards—2nd Edition,
2017). Unsurprisingly, the world is more complicated
than can be represented by these models, so they are limited in their ability
to reliably estimate the probability of default.
Many borrowers suffer from
the effects of inaccurate credit models. Many are approved for a loan that they
ultimately will be unable to repay, negatively impacting both the consumer and
the lender. Many others may be declined for a loan that they could have
successfully repaid if given the opportunity—again doing harm to both consumer
and lender. According to an ML-AI retrospective study completed in December
2019, four out of five Americans who have taken out a loan have never
defaulted, yet less than half of Americans have access to prime credit. (The study defined access to prime credit as
individuals with credit reports with VantageScores of 720 or above). Even
consumers with high credit scores tend to pay too much for loans because the
rates they pay effectively subsidize the losses from borrowers who default.
Banks Will Continue to be at the Forefront
of Consumer Lending
Banks have been at the
forefront of consumer lending in the U.S. for more than a century. They benefit
from long-term structural advantages, including a low cost of funding, a unique
regulatory framework, and high levels of consumer trust. Through large and
reliable deposit bases, banks are able to maintain a very low cost of
funds—approximately 1% on average. (Federal
Home Loan Bank of San Francisco, Cost of Funds Index, December 2019). These
cost savings are passed through to borrowers in the form of lower interest
rates, a significant competitive advantage
over non-depository lending institutions. Banks also benefit from a
regulatory framework that allows them to create nation-wide lending programs
that are largely uniform. Given these advantages, we believe that a
partnership-based bank enablement approach will be more successful than a
disruption strategy.
Banks Must Undergo a Digital
Transformation to Remain Competitive
The largest four U.S. banks spend an
estimated $38 billion on technology and innovation annually. (Adrian D. Garcia, Bankrate: JPM, Big Banks Spend
Billions on Tech but Innovation Lags, July 2018). These four banks
may attempt to build AI lending models over time, once general market
acceptance has been achieved. However, outside the largest four banks, there
are approximately 5,200 FDIC insured institutions (
Federal Deposit Insurance Corporation, or FDIC, Statistics on Depository
Institutions, December 2019.) that are at risk
of falling behind. Despite holding over $8 trillion in deposits, (The dollar amount of deposits held by banks, other
than the largest four banks, was aggregated by ML-AI using data provided by the
FDIC; see the section titled “Industry, Market and Other Data.”) we
believe these banks, particularly small to medium-sized banks, have
outdated technology and lack the technical resources of larger banks to fund
the digitization process. At the same time, consumers are increasingly seeking
digital, personalized and automated experiences. (Bain &
Company, Inc., or Bain, Evolving the Customer Experience in Banking, 2017.
PricewaterhouseCoopers LLP, or PwC, Experience Is Everything: Here’s How To Get
It Right, 2018. RedPoint Global and the Harris Poll, or RedPoint Global,
Addressing the Gaps in Customer Experience: A Benchmark Study Exploring the
Ever Evolving Customer Experience and How Marketers and Consumers Are Adapting,
March 2019). A 2017 Bain survey found that approximately 50% of the
U.S. population would be comfortable buying financial products from technology
companies. (Bain; see the section titled “Industry, Market and Other
Data.”). We believe that as
consumers, both young and old, move their financial lives online, small
and medium-sized banks will be increasingly ill-equipped to
serve them.
We believe that these trends
have been accelerated by the COVID-19 pandemic, as the lack of access to
physical bank branches has increased the Banking industry’s focus on digital
capabilities. The performance of our platform through this crisis has also
given existing and prospective bank partners an important new data point to
underpin their growing confidence in our solution.
Increasing Recognition from Regulators
Many regulators including the Federal
Deposit Insurance Corporation, or FDIC, the Office of the Comptroller of the
Currency, or OCC, the Federal Reserve and the CFPB increasingly recognize the
opportunity to modernize techniques used in lending. (Board of Governors of the Federal Reserve System, Consumer Financial
Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union
Administration and Office of the Comptroller of the Currency, Interagency
Statement on the Use of Alternative Data in Credit Underwriting, or FDIC
Interagency Statement, December 2019). In December 2019, these
agencies issued an inter-agency report in support of the use of alternative
data in lending decisions. (FDIC Interagency
Statement; see the section titled “Industry, Market and Other Data.”). Additionally,
in November 2019, the CFPB director noted that despite external uncertainty
regarding how AI will fit into regulatory
frameworks, the CFPB is focused on ensuring a path to regulatory clarity
because it recognizes the value AI lending products can offer consumers.
(Kathleen L. Kraninger, Consumer Financial Protection Bureau: Director
Kraninger’s Remarks at TCH-BPI Conference, November 2019).
The ML- AI Lending Platform Opportunity
The ML- AI lending platform and models
would be central to our value proposition in the Banking and financial services
industry. The models would incorporate thousands of variables, which would be
analogous to the columns in a spreadsheet. They would be trained by million
projected repayment events, analogous to rows of data in a spreadsheet.
Interpreting these billions of cells of data would be a sophisticated machine
learning algorithms that enable a more predictive model.
These elements of our
proposed model would be co-dependent; the use of hundreds or thousands of
variables is impractical without sophisticated machine learning algorithms to
tease out the interactions between them. And sophisticated machine learning
would depend on large volumes of training data. Over time, we would be able to
deploy and blend more sophisticated modeling techniques, leading to a more
accurate system. This co-dependency would present a challenge to
others who may aim to short-circuit the development of a competitive model.
While incumbent lenders may have vast quantities of historical repayment data,
their training data will lack the hundreds of columns, or variables, that would
power our model.
Despite their sophistication,
our ML-ML- AI models would be delivered to banks in the form of a simple cloud
application that would shield borrowers from the underlying complexity.
Additionally, our platform would allow banks to tailor lending applications
based on their policies and business needs. The Bank partners could configure
many aspects of their lending programs, including factors such as loan
duration, loan amount, minimum credit score,
maximum debt-to-income ratio and return target by risk grade. Within the construct of each bank’s self-defined
lending program, our platform will enable the origination of conforming and
compliant loans at a low per-loan cost.
Our proposed ML-AI lending
platform will benefits from powerful flywheel effects that drive continuous
improvements as our business scales. Our ML-AI lending platform would benefit
first from increasingly sophisticated models, variable expansion and rapid
growth of training data. Upgrades to our platform would allow us to offer
higher approval rates and lower interest rates to consumers, which would
increase the number of borrowers on our platform. Upgrades to our platform will
also lead to better borrower selection, which lowers losses and lowers interest
rates to borrowers. The flywheel effect created by self-reinforcing AI
increases the economic opportunity that can be shared by borrowers and lenders
over time.
Proposed ML-AI Lending Platform Ecosystem
The proposed model will connect
consumers, banks and institutional investors through a shared ML-AI lending
platform. Because ML-AI is a new and disruptive technology, and banking is a
traditionally conservative industry, we intend to bring the technology to
market in a way that allows us to grow rapidly and improve on the ML-ML- AI
models, while allowing banks to take a prudent and responsible approach to
assessing and adopting our platform.
On the consumer side, the
ML-AI lending platform aggregate demand on the cloud-based platform, where
consumers would be presented with bank-branded offers from The Bank of our bank
partners. In this way, we hope benefit banks who would have adopted our AI
lending technology. Bank partners would also be allowed to offer ML-AI powered
loans through a white-labeled interface on their own website or mobile application.
Consumers on our platform would be offered unsecured personal loans ranging
from $1,000 to $50,000 in size, at APRs typically ranging from approximately
3.5% to 25.99%, with terms typically ranging from three to five years, with a
monthly repayment schedule and no prepayment penalty.
On the funding side, The Bank
and the Bank partners could retain loans that align with their business and
risk objectives, while the remainder could be sold to a network of
institutional investors, which have far broader and more diverse capacity to
absorb and distribute risk. This flexible approach would allows banks to adopt
ML-AI lending at their own pace, while we continue to grow and improve our
platform.
Value Proposition to Consumers
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Higher
approval rates and lower interest rates—We believe ML-AI enabled lending platform would
lead to higher approval rates and lower interest rates because Machine
Learning is capable of utilizing datasets using a methodology specified by
us, simplify loan underwriting, leading to qualifying more borrowers than
high-quality traditional lending models.
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Superior
digital experience—Whether
consumers apply for a loan through ML-AI.com or directly through a bank
partner’s website, the application experience is streamlined into a single
application process and the loan offers provided are firm. In the third
quarter of 2020, approximately 70% of ML-AI-powered loans were instantly
approved with no document upload or phone call required, an increase from 0%
in late 2016. Such automation improvements were due in large part to
improvements to our ML- AI models and the application of such models to different aspects of the loan process, including data
verification and fraud detection.
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Value Proposition to Bank Partners
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Competitive
digital lending experience—We
intend to provide regional banks and credit unions with a cost effective way
to compete with the technology budgets of their much larger competitors.
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Expanded
customer base—We
intend to refer customers that apply for loans through the ML-AI lending
platform to the Bank partners, helping them grow both loan volumes and number
of customers.
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Lower
loss rates—With
a Blockchain-powered loan servicing operation, the loss rate for all
participant in our platform would be lowered because of an in-built
early-warning system and transparency which is the hallmarks of
bockchain-powered transaction processing platforms.
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New
product offering—Personal
loans are one of the fastest-growing segment of credit in the U.S. (Beiseitov; see the section
titled “Industry, Market and Other Data.”). Our Machine learning enabled platform
would help banks provide a product their customers want based on ML
algorithm, rather than letting customers seek loans from competitors.
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Institutional
investor acceptance—Analyses
by credit rating agencies, loan and bond buying institutions, and credit
underwriters would help banks gain confidence that ML-AI-powered loans are
subject to significant and constant scrutiny from experts, the results of
which would be often publicly available.
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Notwithstanding
our hope and aspiration in mapping out the above ML-AI lending platform, there is no assurance that we could
complete this offering, raise the capital to acquire of build the ML-AI lending
platform. Even if we were able to raise the money required to acquire or build
the ML-AI lending platform, there is no guarantee that we’ll find a seller of
such of be able to hire engineers to build one from the ground up. We may not
be able to execute on the plan above because factors related to our limited
operating history.
General Overview (3) – Proposed Blockchain-Powered Digital
Currency Payment and Financial Transactions Processing platform (“Blackchain”)
We intend to use part of the proceed from this Offering to acquire
an existing, or build-from-the-scratch, a Blockchain-Powered Digital Currency
Payment and Financial Transactions Processing platform (“Blackchain”), with
home in the Bank alongside the ML-AI lending platform. Blockchain-powered
Payment and Financial Transactions Processing platform would also provide
efficient and inexpensive payment platform and merchant services to black
businesses across the United States.
The company would establish an exchange network called Blackchain Exchange Network
(“BEN”), a Payment and Financial Transactions Processing platform, would be
a wholly-owned
subsidiary, the The Bank. We believe Blackchain would be a leading
provider of innovative financial infrastructure solutions and services to
participants in the nascent and expanding digital currency industry. Blackchain business strategy is
floating a Blackchain Exchange Network, or BEN, a virtually
instantaneous payment network for participants in the digital currency industry
which would serve as a platform for the development of additional products and
services. The BEN would have a network effect that would make it valuable as
participants and utilization increase, leading to good growth in BEN
transaction volumes. The BEN would enable the The Bank to prioritize, build and
significantly grow noninterest bearing deposit product for digital currency
industry participants, which is expected to provide the majority of our bank
funding in the next two years from finalizing acquisition. This unique source
of funding would be a distinctive advantage over most traditional financial
institutions and allows The Bank to generate revenue from a conservative
portfolio of investments in cash, short term securities and ML-Ai enabled loans
that we believe generate attractive risk-adjusted returns. In addition, use of
the BEN would result in an increase in noninterest income that we believe will
become a valuable source of additional future revenue as we develop and deploy
blockchain-powered, fee-based solutions in connection with our digital currency
initiative. We would also evaluate additional products or product enhancements
specifically targeted at providing further financial infrastructure solutions
to our customers and strengthening BEN network effects.
Blackchain Business Overview
Once acquired, the Federally licensed one-four branch bank would
be such that is already providing banking and financial services including
commercial banking, business lending, commercial and residential real estate
lending and mortgage warehouse lending, all funded primarily by interest
bearing deposits and borrowings. To that up and running banking and financial
services operation, we intend to insert a Blockchain-powered payment and
transaction processing system and digital currency platform. We intend to
pursue digital currency customers and bring them into the The Bank to bank with
the the Bank using digital currency. We believe we could effectively leverage
the traditional commercial bank platform, the ML-Ai enabled lending platform
and the attributes of the BEN to gain traction in the digital currency banking
industry.
We intend to focus on the digital currency initiative as the core
of our future strategy and direction. We intend to build a leadership position
in the digital currency industry as a result of the BEN to enable us to
establish a significant balance of noninterest bearing deposits from digital
currency customer base. Over several post-acquisition years, The Bank would
have transitioned from a traditional asset based bank model focused on loan
generation to a deposit and solutions based model focused on increasing
noninterest bearing deposits and noninterest income. This emphasis on
noninterest bearing deposits and noninterest income, is primarily associated
with digital currency, will likely result in a significant shift in the Bank’s
asset composition with a greater percentage consisting of liquid assets such as
interest earning deposits in other banks and investment securities, and a
corresponding decrease in the percentage of loans. Most of our actions would
be focused on developing and delivering highly scalable and operationally
efficient solutions for The Bank’s digital currency customers.
Proposed Blackchain Digital Currency Initiative
The proposed Blackchain Exchange Network, or BEN, would be a
virtually instantaneous payment network for participants in the digital
currency industry which would serve as a platform for the development of
additional products and services. We plan to leverage the BEN and our
management team’s expertise in the digital currency industry to acquire, or
develop, implement and maintain critical financial
infrastructure solutions and services for many of the U.S. digital currency
exchanges and global investors, as well as other digital currency
infrastructure providers that would utilize the Blackchain as a foundational
layer for their products. The BEN would be a central element of the operations
of the Bank digital currency related customers, which would enable us to grow
with the Bank’s current customers and to attract new customers who can benefit
from our innovative solutions and services. We believe that our management
team’s vision and our advanced approach to compliance would complement the BEN
and empower us to build a leadership position in the digital currency industry
by developing additional infrastructure solutions and services that will
facilitate growth in our business.
GMPW began exploring the Banking and financial services, with a special
focus on, digital currency industry since January 2020 based on market dynamics
which we believed were highly attractive:
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Significant
and Growing Industry: Digital
currency presented a revolutionary model for executing financial transactions
with substantial potential for growth.
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Infrastructure
Needs: In
order to become widely adopted, digital currency would need to rely on many
traditional elements of financial services, including those services that
support funds transfers, customer account controls and other security
measures.
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Regulatory
Complexity as a Barrier to Entry: Providing
infrastructure solutions and services to the digital currency industry would
require specialized compliance capabilities and a management team with a deep
understanding of both the digital currency and the financial services
industries.
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These insights have been proven correct and we believe they remain
true today. In fact, we believe that the market opportunity for digital
currencies, the need for infrastructure solutions and services and the
regulatory complexity have all expanded significantly since January 2020. We
believe that we would be able to address these market dynamics immediately and
over the coming years because we be part of a group of pioneers trying to
address it and that pioneer position would provide us with a first-mover
advantage within the digital currency industry that would be the cornerstone of
how we would take the digital currency industry by storm.
The digital currency market has grown dramatically over the
years. For example, the aggregate value of the five largest digital currencies
increasing from approximately $10 billion at December 31, 2013. By
October 24, 2019, it has increased to approximately $172.7 billion. We believe
that the total addressable market for digital currency-related financial
services infrastructure solutions and services is significant and that this
market will grow as the market for digital currencies grows. We also believe
that existing solutions do not adequately address the infrastructure needs of
industry participants, and that services enabling industry participants to
efficiently and reliably transfer and hold U.S. dollar deposits are critical to
the industry’s growth. We estimate that the addressable market for fiat
currency deposits related to digital currencies alone is approximately $30 to
$40 billion based on various industry sources as described under “Market
and Industry Data.”
Blackchain Exchange Network
We intend to design the BEN as a network of digital currency
exchanges and digital currency investors that enables the efficient movement of
U.S. dollars between BEN participants 24 hours a day, 7 days a week, 365 days a
year. In this respect, the BEN would be one of a first-of-its-kind digital
currency infrastructure solution. The BEN would be designed, developed and
tested within 12 months after our acquisition of a Federally licensed one-four
branch bank with a limited number of Bank customers. The BEN would then be made
available to all of the Bank’s digital currency related customers after the 12th
month, other than digital currency customers that only use their accounts for
general operating account purposes. We believe that once the rollout is done,
all of the Bank’s eligible digital currency related customers would enroll in
the BEN.
The core function of the BEN would be to allow participants to
make transfers of U.S. dollars from their BEN account at the Bank to the Bank
account of another BEN participant with which a counterparty relationship has
been established, and to view funds transfers received from their BEN
counterparties. Counterparty relationships between parties effecting digital
currency transactions would be established on the BEN to facilitate U.S. dollar
transfers associated with those transactions. The Bank would provide digital
currency investors that are prospective Blackchain clients with the identity of
select participating digital currency exchanges and mutually agreed
counterparties would be identified as such during the Bank’s BEN enrollment
process.
BEN transfers would occur on a virtually instantaneous basis as
compared to electronic funds transfers being sent outside of the Bank, such as
wire transfers and automated clearing house, or ACH, transactions, which can
take from several hours to several days to complete. BEN’s cloud-based
application programming interface, or API, combined with online banking tools,
would allow customers to efficiently control their fiat currency, transact
through the BEN and automate their interactions with BEN’s technology platform.
Customers would value this around-the-clock access to U.S. dollar transactions
and further benefit from the BEN’s network effects—as more users join the BEN,
its value to existing digital currency exchanges and investor users would
increase. These technology tools and the corresponding network effect would
enable us to attract many of the digital currency industry and market
participants as customers. Once BEN is functional and operational, we intend to
focus on continuous development of scalable infrastructure technology solutions
on top of the BEN to address the significant financial services opportunities
that we believe would arise in the digital currency market. We anticipate that
by leveraging the network effects of the BEN in this way, we believe both that
customer adoption of future products could be significant and that new customer
acquisition costs would be affordable.
Compliance
Our digital currency industry solutions and services would be
offered through our subsidiary, Federally licensed one-four branch bank, A
VALIDLY JURISDICTIONALLY-CHARTERED commercial bank that is a member of the
Federal Reserve System. Our solutions and services would be built on a
commitment and proprietary approach to regulatory compliance. When we began
planning to pursue digital currency transaction platform in January 2020, many
digital currency industry participants found it difficult to identify a
reliable financial services partner due to the significant financial and human
resources required to navigate the complex and underdeveloped regulatory
regimes applicable to these digital currency customers. To address market
demand, we would take a deliberate approach to developing compliance policies,
procedures and controls designed to specifically address the digital currency
industry and to hiring capable personnel required to implement those controls,
policies and procedures. Over the coming years we intend to develop compliance
capabilities—which would include ongoing monitoring of customer activities and
evaluating a market participant’s ability to actively monitor
the flow of funds of their own customers. We believe these capabilities would
be a distinct competitive advantage for us, and provide a meaningful barrier to
entry against potential competitors, as there is not currently a
well-established and easily navigable regulatory roadmap for competitors to
serve digital currency industry customers. For this reason, our long-term
investment priority would be in developing and enhancing specialized compliance
capabilities for the digital currency banking operation.
Blackchain Business Plan
The success of our
proposed digital currency initiative, Blackchain, would be dependent on its
acceptability and adoption among the customers of the Bank-to-be-purchased the
general digital currency users in general. Successful implementation of
Blackchain and its integration into the Bank would lead to help the Bank to
grow and maintain noninterest bearing deposits from digital currency customers.
The Bank would be able to deploy deposits from its digital currency customers,
as well as deposits from its physical branch into interest earning deposits in
other banks and investment securities, as well as into certain ML-AI Lending
opportunities that provide attractive risk-adjusted returns. The Bank would
deploy deposits into lending opportunities across four categories: commercial
and residential real estate lending, mortgage warehouse lending, correspondent
lending and commercial business lending. Blackchain Bank would also generate an
increasing amount of fee revenue from its digital currency customers related to
transaction volume across its platform, foreign currency transactions, and fee
income related to off-balance sheet deposits, along with fees from the mortgage
warehouse division.
Industry Background
Adoption and commercialization of digital currencies have
significantly expanded since the creation of bitcoin in 2009. Digital
currencies are recognized as an asset class with the prospect to act as a store
of value, a currency with the ability to facilitate financial transactions, and
a worldwide medium of exchange, performing each function in ways that differ
meaningfully from traditional fiat currencies.
Investor interest has grown substantially as the potential uses
and advantages of digital currencies have become better understood. Although
the digital currency market consists of many individual digital currencies, it
is currently concentrated among the five largest digital currencies by market
capitalization. As of January 2, 2021, the market value of the five largest
digital currencies was $773.93 billion, more than 1.00% of the global
money supply.
We believe that
institutional acceptance of the digital currency asset class will continue to
grow as capital flows into institutional investment vehicles and other digital
currency-based business ventures. Currently, there are over 700 cryptocurrency
investment funds with aggregate estimated assets under management of over
$14.3 billion.
In response to the noticeable rapid growth in the industry and
challenges faced by investors, we plan to develop technology solutions,
including the BEN. While innovations, such as the BEN, would enable increasing
numbers of institutional investors to begin investing in digital currencies,
many of the world’s largest investors remain unable to invest in the asset
class due to the continuing limitations of existing infrastructure. We believe
that additional industry innovation will address these infrastructure
challenges, enabling increased and accelerated growth in the industry. Services
such as digital currency borrowing facilities do not currently exist in a
meaningful way, creating significant opportunities for Blackchain to facilitate
growth in the industry and to build a leadership position into many elements of
digital currency infrastructure.
Digital Currency Customers
We currently do not have any digital currency customer. However,
we would have acquired a one-4 branch bank serving majority black
neighborhoods, we intend to aggressively build a digital currency customer base
and we intend to that customer base rapidly through referrals, word-of-mouth,
as many customers would proactively approach us due to the reputation of our
platform and as one of the leading provider of innovative financial
infrastructure solutions and services to participants in the digital currency
industry, which would include unique technology solutions. So far, we have
built a pipeline of 722 digital currency users/owners who are interested in our
services. We are keeping these prospective digital currency customers engaged
on our preparation to launch, the customer onboarding process, which includes
extensive regulatory compliance diligence and integrating of the customer’s
technology stack for those new to the digital currency and are interested in
using our API.
Because our main office is located in California, our customer
roll would include some of the U.S. exchanges and global investors in the
digital currency industry. These market participants generally hold either
or both of two distinct types of funds: (i) those funds that market
participants use for digital currency investment activities, which we refer to
as investor funds, and (ii) those funds that market participants use for
business operations, which we refer to as operating funds.
Our customer ecosystem would also include software developers,
digital currency miners, custodians and general industry participants that need
our solutions and services.
We would always strive to grow our customer ecosystem. By
expanding and deepening our customer relationships, we intend to reinforce and
enhance a leadership position in the industry and to increase the value of the
BEN to all participants. Our relationships with the leaders of the digital
currency industry would be important because these participants would continue
to inform us of the industry’s needs and enable us to continue advancing our
product development to provide relevant solutions and services for the
industry’s most pressing challenges and greatest opportunities.
Deepening our customer relationships through integration of our
solutions with our customers’ processes and operating systems would create
enhanced value and stronger, long-term relationships with them. We believe the
BEN would become a key tool for many of our digital currency customers who
need, and have come to rely on, the BEN for virtually real-time movement of
their funds. Furthermore, digital currency exchanges that would integrate our
API into their technology infrastructure could attribute incoming client funds,
at scale, without human involvement and in virtually real-time, typically within
a matter of seconds. This solution would enhance our value proposition,
creating even closer relationships with our customers.
To build and maintain a leading position in the digital currency
industry, we would be highly selective in our customer onboarding process to
ensure the integrity of the platform. Many customers would choose us at least
in part because of the attractions of BEN and our potential long-term
commitment to the industry or their belief in our platform’s longevity.
Customers would respect our onboarding and continuous compliance processes, as
they would understand that all our digital currency customers must submit to
initial and continued due diligence by us.
Technology-Driven Solutions for Our Digital Currency Customers
We intend to launch
our digital currency initiative in response to unmet demand for U.S. dollar
deposit accounts from many market participants. Our digital currency initiative
solutions and services would also address various infrastructure shortfalls for
market participants, including liquidity and counterparty risk management as
explained in more detail below. Currently, our digital currency initiative
solutions and services proposals are focused on the BEN, cash management
solutions and other deposit account services:
Blackchain Exchange Network (BEN)—We believe that the
BEN would be an innovative, market leading solution and a key point of
differentiation that increases in capability and value by generating a network
effect as additional users join the platform. The BEN would only transfer fiat
U.S. dollars, would only be available to commercial customers and would not be
enabled for customers who are individual investors. The BEN would reduce
industry friction and create a compelling value proposition for market participants,
whether they participate as a digital currency exchange, an investor or
otherwise. BEN participants could efficiently move U.S. dollars 24 hours a
day, 7 days a week, 365 days a year between their Bank accounts and
other BEN participants’ Bank accounts, via the BEN API or online banking
system. Multiple steps would be required to create, authorize and approve a BEN
transfer, depending on the channel in which the BEN transfer is created (online
banking system vs. API). Both channels would follow a three step process by
which the sender is authorized as a BEN participant, the receiver is validated
as a BEN participant, and the transfer amount is confirmed to be available in
the originating account. BEN transfers would settle virtually instantly if all three
conditions are met.
The ability to execute these types of transactions in virtually
real-time is particularly valuable for digital currency investors and exchanges
because digital currency trading occurs constantly on a global scale, with no
fixed market hours. Consequently, the BEN would enhance transaction execution
speed, which would mitigate exposure to digital currency pricing fluctuations.
In addition, BEN participants may spend a significant amount of time and
resources developing customized applications that interface directly with our
API in a manner that most effectively facilitates BEN participants’ business
models. We believe that these dynamics not only strengthen our customer
relationships, but also serve as an organic, viral marketing tool. Additional
market participants are driven to the BEN as our customers urge their
counterparties in digital currency transactions to join the BEN to facilitate
efficient, predictable and timely transaction execution.
The following example highlights the benefits that the BEN would
provide to its participants with respect to liquidity and counterparty risk. A
digital currency institutional investor maintains a deposit account with
Blackchain Bank. The institutional investor wishes to move U.S. dollars from
participating Exchange A to participating Exchange B. The institutional
investor can execute the transaction in virtually real-time, outside of
traditional banking hours via the BEN, if the institutional investor, Exchange
A and Exchange B each maintain a deposit account at Blackchain Bank. In
contrast, if the institutional investor seeks to move funds from Exchange A to
Exchange B without the BEN, the transaction would likely need to occur during
traditional banking hours and could take several days to clear. This delay in
transaction execution could limit the institutional investor’s ability to take
advantage of digital currency market movements or require the institutional
investor to keep additional funds at each exchange to take advantage of other transaction
opportunities, resulting in reduced capital efficiency, reduced liquidity
and/or increased counterparty risk.
The graphic below illustrates the various components of a
transaction that could be effected through the BEN as compared to a similar
transaction effected through a traditional execution pathway. As reflected,
transactions on the BEN process in virtually real time as opposed to legacy
transactions that may take from several hours to
several days. Legacy transactions are subject to a number of variables that
impact timing such as the daily cut-off time for the Federal Reserve wire
system as well as incomplete or inaccurate information or wire destinations
(country or recipient) that may require further action to confirm or clear.
Cash Management Solutions—Blackchain cash management solutions
would enable our customers to send, receive and manage payments in a timely,
efficient and scalable manner using the BEN, wire transfers and ACH
transactions. To receive the full benefits of our cash management solutions,
customers need touse their own development resources to build customized
gateways that integrate our API and other solutions into their technology
infrastructure. The Bank would offer a full suite of corporate cash management
solutions from deposit, reporting and reconciliation (remote deposit capture,
online banking, mobile banking, file / reporting automation, API, check
reconciliation), liquidity management (positive pay, ACH positive pay, off
balance sheet deposit sweeps), and payment solutions (domestic and foreign wire
transfers and ACH origination and receipt transactions). The Bank would
dedicate team to work with the customers to expand its technology offerings in
these areas and to solve problems for its customers.
Deposit Account Services— Blackchain would be one of only a small group of institutions
that would offer open deposit accounts and provide ongoing services in a manner
that is designed to be regulatory compliant for digital currency market
participants. Blackchain compliance procedures, would be developed to serve the
digital currency industry, would be designed to enable us to prudently and
efficiently establish deposit accounts for market participants. These deposit
accounts would not consist of any digital currencies but may consist of
investor funds or operating funds. Blackchain deposit accounts would offer a
wide variety of features and security to market participants, including access
to Blackchain cash management solutions, and other relevant business banking
services.
The Company would comprehensively investigates prospective
customers according to the level it deems necessary and appropriate, based on
whether the customer is an “administrator,” an “exchanger” or a “user” of
virtual currencies, which terms are defined in March 2013 guidance by the U.S.
Treasury Department, or the Treasury Department (with recent interpretive guidance
issued in May 2019). Under applicable regulations, administrators and
exchangers are required to register with the Treasury Department’s Financial
Crimes Enforcement Network, or FinCEN, as a money service business and may also
be subject to licensing as money transmitters under applicable state laws. The
Company’s due diligence and onboarding processes would include, at a minimum,
detailed reviews of each customer’s ownership, management team, business
activities and the geographies in which they operate. For customers such as
exchanges which pose a higher degree of risk or have a higher degree of
regulatory obligations, the Company’s processes would be more extensive and
incorporate reputational reviews, reviews of applicable licensing requirements,
plans, and status, and reviews of customer policies and procedures regarding
the Bank Secrecy Act, or BSA, consumer compliance, information security,
Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, prohibitions against unfair, deceptive or abusive acts or practices,
as well as reviews of transaction monitoring systems and audit results. The
differences in these processes would result in a variation in the time
necessary to complete the onboarding process, which can range from a matter of
days to several weeks.
All regulatory compliance-related responsibilities involving
onboarded customers would be addressed in the Company’s core banking system or
through various additional manual diligence and compliance review processes. No
funds transfer transactions to accounts outside of the Bank would occur on the
BEN, which is simply the means by which internal account transfer transaction
instructions are passed to the Bank’s core banking system through which they
are executed. Since all BEN participants are
required to be deposit customers of the Bank, the Bank satisfies its know your
customer, or KYC, obligations at the time of the customer’s account
opening. Transaction instructions would be passed to the core banking
system via the BEN, are executed on the core banking system, and are
subsequently monitored through the Bank’s automated BSA systems.
Blackchain Competitive Advantages in the Digital Currency Industry
We believe Blackchain, being one of the pioneers, would have
first-mover advantage serving the digital currency industry which would lead to
strategic advantages, many of which would become significant barriers to entry
for potential competitors. We expect that these advantages will enable us to
maintain our leadership position in the industry:
Digital Currency-Focused Strategy—We believe
Blackchain would be a leading provider of innovative financial infrastructure
solutions and services for the digital currency industry. Blackchain would be
one of the few only financial services providers in the United States catering
to our target customer base. These market participants have been underserved by
the legacy financial services community due to a lack of vision and regulatory
complexity associated with the digital currency industry, which we have been
able to overcome because of the in-depth industry knowledge and
strategic foresight of our management team and our robust risk management and
regulatory compliance framework. The focus and mission of our talented management
team is to address this unique market opportunity.
Customer Base— Blackchain first-mover advantage in the industry would help us
to convert majority of the 722 potential digital currency customers in our
pipeline within 12 months of launching. Many of the 722 are already active
participants in the digital currency industry. These recognizable customers
could bolster our reputation and enhance our ability to attract new customers.
Blackchain customer network would also enable us to receive feedback on
challenges that the industry currently faces and anticipates facing in the
future. Through active dialogue with our customers, we would stay at the
forefront of industry trends, identify opportunities early and create solutions
to address challenges.
BEN Network Effects—We believe the BEN
would be one of the unique platforms in the industry and its power would grow
with each new BEN participant, thereby attracting more customers and creating
higher levels of customer retention and transaction activity. The Bank would provide
digital currency investors with the identities of participating exchanges that
have authorized the Bank to identify them to new or prospective BEN
participants. Customer attraction to the BEN could come from explaining BEN
advantages to a prospective participant or from encouragement from a customer’s
digital currency exchange counterparty for the customer to enroll in the BEN to
expedite funds transfers. Customer demand for the BEN would be driven by its
availability, ease of use, and instant settlement functionality. BEN benefits
would be quickly understood from the customer’s perspective and provide value
to both sides of a BEN transfer. The BEN’s functionality would save time and
reduce costs and risks to its users, as we described above.
API Integration— Blackchain cloud-based transactional API would enable customers
to build direct access to the BEN and their deposit accounts into their
technology infrastructure. Blackchain would be one of only a small group of
regulated financial institutions that has developed and deployed a
transactional API, which would be an advanced tool that could widely deploy
informational APIs which merely enable the sharing of
information. Customers who would use our API would need to integrate Blackchain
API into their systems because of the increased functionality provided by
Blackchain API connection. Once fully integrated, Blackchain API would provide
significant value for the customers via its direct interface to the Bank core
system. For example, Blackchain exchange customers would use the API attribute
client and counterparty funds programmatically and in virtually real time—a
distinct advantage over traditional cash management systems which require human
intervention to attribute such funds. Even if competitors would develop
competing solutions to Blackchain API, our customers would need to commit
significant time, money and other resources to replace Blackchain solutions or
adopt additional solutions.
While the Bank would not integrate into customer systems, the Bank
would provide tools for sophisticated customers to securely access and interact
with their accounts’ functions over the Bank’s API. The movement toward
application programming interfaces, or open banking, is an initiative that many
U.S. banks have embraced. An application programming interface allows customers
to automate manual processes, scale operations, or innovate on new product
offerings by giving programmatic access to their account history, the ability
to send payments, or the automated reconciliation of their accounts. It is the
customer’s efforts to leverage these tools that may require significant time
and resources on the customer’s part, depending on what the customer is trying
to do. For instance, some of the Bank’s customers could integrate the API with
their systems within a day while other customers could create complex programs
built on the API that would be built over a period of months. Each customer’s
use case and implementation is slightly different, but all would be facilitated
by the same basic APIs, documentation, developer portal, and Blackchain
integration team. The BEN’s ability to permit a customer to make an internal
transfer from their own account to another Blackchain customer’s account would
be one of the functionalities available through and supported by the Bank’s
API.
Robust Risk Management and Compliance Framework— The Bank would
adequately invest in its risk management and compliance infrastructure. We
intend to attract and retain a talented, dedicated compliance team with
substantial experience in regulated financial institutions, including
developing, implementing and monitoring systems to detect and prevent financial
crimes. The Bank risk management and compliance team would develop a
strong risk management and compliance framework that leverages technology for
onboarding and monitoring market participants. See “Supervision and
Regulation.”
Culture of Innovation—We intend to build a culture of innovation that would be driven by
our CEO, Frank I Igwealor, whose career in the financial services and
industries spans over 18 years, starting with a stint at Morgan Stanley through
Goldstein Franklin. Mr. Igwealor understands and would focus our
management team’s attention on the potential long-term impact of digital
currencies. Under Mr. Igwealor’s leadership, Blackchain would develop a
broad team of digital currency, technology and financial services professionals.
This team helps leverage our experience and significant customer base to enable
us to identify and respond to opportunities to innovate and add value the Bank
customers. Blackchain team would collaborate in the design and implementation
of the BEN and coordinate and oversee the development and deployment of our API
to enable us to seamlessly address the needs of our digital currency customers.
We expect the culture of product innovation will enable us to identify, build
and deploy new customer solutions, both within the digital currency initiative
and other potential future initiatives that may be related to new innovations
in the financial services industry.
Digital Currency Solutions and Services Would Drive Blackchain
Business Model
Blackchain digital
currency initiative would contribute to the growth of the Bank’s noninterest
bearing deposits, which would drive down the Bank’s funding costs to among the
lowest in the U.S. banking industry. This would allow the Bank to generate
attractive returns on lower risk assets through increased investments in
interest earning deposits in other banks and securities, as well as funding
limited ML-Ai enabled loan growth. The Bank’s low risk asset strategy would be
able to supports a net interest margin that is lower than what is obtainable in
other banks. Our business model is described more fully below:
Prudently Leveraging Lower-Cost Core Deposit Base—A lower-cost core
deposit base would be a key element of our financial success. We intend to
deploy the deposits into assets that generate attractive risk-adjusted returns.
Our interest earning deposits in other banks and our securities portfolio would
grow substantially as our noninterest bearing deposits attributable to our
digital currency initiative expands.
The Bank would segment its deposits based on their potential
volatility, which would drive the Bank’s choices regarding the assets it funds
with such deposits. Deposits attributable to digital currency exchange customer
funds and investor funds would be assigned the highest potential volatility.
These deposits would be invested primarily in interest earning deposits in
other banks and adjustable rate securities available-for-sale.
The Bank’s portfolio of
securities available-for-sale would be primarily composed of adjustable
rate mortgage-backed securities, collateralized mortgage obligations and pools
of government sponsored student loans. The Bank view
its available-for-sale securities as a conservatively managed
portfolio which offers a source of additional interest income and provides
liquidity management flexibility.
The Bank would have more flexibility in deciding how to deploy its
deposits attributable to digital currency customer operating funds.
Conservative Lending and Niche Asset Growth—Through the ML-Ai
lending platform, the Bank would also selectively deploy funding into specialty
lending businesses, including commercial and residential real estate lending,
small business lending, entrepreneurship/venture-capital like lending, mortgage
warehouse lending, correspondent lending, and commercial business lending.
Under the Leadership of our management team, the Bank would develop
underwriting expertise across these asset classes and ensure that these loans
would offer attractive risk-adjusted returns.
The Bank would use a portion of our deposits
attributable to digital currency exchange and investor funds as the funding
source for our mortgage warehouse lending activities. We are comfortable with
this strategy because of the short-term nature of our mortgage warehouse assets
and because we can access funding at the Federal Home Loan Bank should we
experience heightened volatility in the deposit balances related to these
digital currency exchange and investor funds.
The Bank would use a portion of the deposits attributable to
operating funds to make loans across our other lending businesses. A
significant portion of the Bank’s portfolio would consist of loans on
residential real estate and both owner-occupied
and non-owner-occupied commercial real estate. The properties
securing these loans would located primarily throughout the Bank’s markets and,
with respect to commercial real estate loans, are generally diverse in terms of
type.
In addition, we
believe there may be attractive opportunities to provide digital currency
borrowing facilities to deepen the Bank’s customer relationships and further
enhance its interest income.
Noninterest Income— The Bank’s
noninterest income would primarily be driven by service fees related to the
digital currency customers, mortgage warehouse fee income and other fees. We
anticipate consistent increase in the noninterest income as our customers grow
and their needs develop further, and as we continue to develop and
deploy fee-based solutions in connection with our digital currency
initiative.
Our Growth Strategy
We intend to build a leadership position in the digital currency
industry by combining our management team’s industry vision with our strategic
focus, market position, and technology platform to grow the Bank’s existing
business lines and develop additional market-leading product offerings. Our
strategies to achieve these goals include:
Development and Monetization of the BEN —The competitive
advantage of operating on the BEN would be crucial for exchanges and investors
participating in the digital currency industry. We believe the BEN can grow to
a critical mass of adoption and utilization across the digital currency
industry via expansion of our customer base and an increase in the
functionality of the BEN that may come as a result of our own internal
technology development, strategic relationships, or potential acquisitions. As
we continue to enhance the BEN and its customer ecosystem, we believe the value
of the network will continue to increase, providing us with the opportunity to
earn fees commensurate with the significant value we are providing to our
customers.
Build and Grow Digital Currency-Related Customer Base— The Bank customer
growth would primarily be driven by market participants proactively enrolling
into BEN and by high-quality referrals from existing Bank’s customers who value
our sophisticated and flexible approach to addressing their industry-specific
challenges.
As we build out BEN technology and brand awareness, we would
expect to more deeply penetrate the universe of existing digital
currency-related businesses in need of banking services. By further extending
the breadth of our services, we believe we would generate an increasing number
of high-quality referrals.
Focus on High-Growth Customers—Once we have fully deployed our ML-Ai
lending platform and the Blackchain model, the Bank’s customers base would
experience significant growth as the digital currency industry has rapidly
expanded. We expect these customers to continuously grow, generating additional
deposit potential for us and new opportunities for innovation to address
customer needs.
Develop New Solutions and Services for Our Customers—The Bank would be
developing additional products and services to address the digital currency
industry’s largest opportunities. These products and services are intended to
complement the Bank’s other product and service offerings and, as such, will
not initially comprise a material portion of the Bank’s business. We believe we
are well positioned to capitalize on these opportunities because of BEN
technology platform and competitive advantages. Our future product roadmap
includes:
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Credit
Products—Today,
in accordance with industry practices, digital currency investors must have
funds custodied on an exchange in order to trade on that exchange. We have
identified significant demand from banking customers and prospective
customers for borrowing from the Bank for the purposes of buying digital
currency. This type of credit exists in many established markets but is
largely absent from the nascent and evolving digital currency industry. We
believe the BEN could provide the foundational infrastructure for this
product in the digital currency industry, creating
both deeper relationships with our clients and an attractive source of
revenue growth.
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We would be developing this product within the framework of the
Bank’s legal lending authority and conservative credit culture. We plan to use
the Bank’s robust credit underwriting and approval process to ensure that
institutional investor borrowers have the capacity to honor an unconditional
loan repayment obligation. These borrowers would provide digital currency,
initially limited to Bitcoin, or U.S. dollars as collateral in an amount
significantly greater than the line of credit being advanced. The Bank plans to
work with existing digital currency exchange clients to both act as its
collateral custodian for such loans, and to liquidate the collateral in the
event of a decline in collateral coverage below levels required in the
borrower’s loan agreement. In this structure, the exchange client will hold the
borrower’s digital currency collateral and the Bank will use the BEN to fund
the loan directly to the borrower’s account at the exchange. At no time will
the Bank directly hold the pledged digital currency and the borrower’s
relationship with the exchange will be as its customer and not as a third party
beneficiary of the Bank’s collateral agreement with the exchange. In the event
of a collateral deficiency, the exchange could immediately sell the digital
currency collateral and use the BEN to send the resulting funds back to the
Bank in partial or full satisfaction of the borrower’s repayment obligation to
the Bank. The Bank will set collateral coverage ratios at levels intended to
yield collateral liquidation proceeds in excess of the borrower’s loan amount,
but the borrower would remain obligated for the payment of any deficiency
notwithstanding any change in the condition of the exchange, financial or
otherwise. The Bank anticipates that it will offer this credit product to
select institutional clients in the fourth quarter of 2019.
We believe this product will provide greater capital efficiency
for institutional investor clients that wish to transact without needing to
move liquidity on and off different exchanges. Additionally, this will drive
increased volumes through the BEN and reinforce Blackchain’s central role in
the Bank’s clients’ operations. Offering lines of credit would also improve
liquidity within the order book of the exchange clients and enable additional
trading on their platforms.
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Digital
Asset Services—We
have identified significant demand for the Bank to be involved in the custody
and transfer of digital assets between customers. We believe that the digital
currency market lacks sufficient regulated custodians to securely store
digital currency to meet the demand of many institutional investors . We
believe the Bank would be well-positioned to capture market share in this
emerging space given the Bank’s existing investor relationships, the Bank’s
brand and reputation, and our ownership of a federally regulated bank. We
estimate that there are digital asset services currently being sought with
respect to several billions of dollars worth of digital currency-related
assets, and that there are limited potential providers of these services
because traditional banks, trust companies and broker-dealers lack the
infrastructure and expertise to custody, settle and transfer digital
currency. Our growth strategy contemplates the establishment of a qualified
custodian entity as a Company subsidiary to address this market opportunity.
This entity would seek to become a New York State licensed limited liability
trust company through which digital currency activities would be conducted.
The State of New York was strategically chosen due to its established track
record of granting trust charters for digital currency related companies. An
application for this new entity would be submitted at the appropriate time.
Establishment of a custodian to securely store digital currency, initially
limited to Bitcoin, could enhance our ability to offer borrowing facilities
for our digital currency customers in the future (see “—Credit Products”
above). The Bank does not currently have custody or provide settlement or
transfer services of any digital currency assets.
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Expand
Our International Customer Base—Due
to the global nature of the digital currency industry and rapid adoption of
digital currencies as an asset class, we believe we will have the opportunity
to extend the reach of the Bank’s digital franchise into international
markets. As part of this opportunity, we expect to offer products and
services to those markets, as well as to our U.S. customers wishing to access
those markets, that will drive additional growth and strategic value in our
business. For example, we would work with correspondent banking partners,
including a leading global investment bank to provide competitive foreign
exchange alternatives to our clients.
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Other
Potential Fintech Opportunities—We
carefully monitor events and emerging trends in the markets in which we operate
to identify opportunities to further leverage our management team’s
experience and technology-driven approach to developing additional
fintech-related business opportunities to grow our deposits, earn additional
fee income and generate attractive risk adjusted returns. These potential
initiatives may include developing additional applications of BEN API
architecture. We believe the BEN API is an attractive platform to support
business activities that involve frequent transfer transactions between parties,
including, among others, escrow, property/cash
exchanges, non-profit non-governmental organizations,
marketplace firms such as marketplace lenders and other participants in the
sharing economy, and dollar aggregators that facilitate micro investing and
crowdfunding activities. In the pursuit of developing new solutions and
services for our customers, we may from time to time evaluate potential
acquisitions which enable the Company to generate revenues from proprietary
technology which delivers best-in-class infrastructure to the digital
currency industry.
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Capitalize on our Unique Market Insights—Because of our
management team’s vision and our status as a sought-after partner within the
digital currency industry, we see potential opportunities that many legacy
financial services providers as well as digital currency market participants
may not be able to see in the near-term. We believe that this unique position
within the market will enable us to continue developing next generation
financial infrastructure solutions and services and extend our first-mover
advantage. Capitalizing on these opportunities has the potential to
significantly accelerate our growth beyond the drivers visible to most market
participants today and help us grow our position as a leading provider of
innovative financial services infrastructure solutions and services to the
digital currency industry.
Management Capacity
With the proceeds from this Offering, GiveMePower Corporation (“GMPW”)
fulfill its goal to become a financial technology company (FINTEC) that
provides machine learning (ML) and artificial intelligence (AI) enabled
banking and financial services on blockchain-powered platforms, giving access
to the unbanked, underserved, and residents of majorly black communities across
the United State. We would be empowered to actualize
our banking and financial services operations which comprises of: (1) a
one-four branch Bank, (2) a ML-Ai lending platform, and (3) a
Blockchain-Powered Payment and Financial Transactions Processing, and Digital
Currency platform. We plan to acquire a one-four branch Bank;
acquire and integrate into the Bank, or build-from-the-scratch a Cloud-Based
Machine-Learning and Artificial Intelligence (AI) Lending platform; and acquire
and integrate into the Bank, or build-from-the-scratch a Blockchain-Powered
Payment and Financial Transactions Processing, and Digital Currency platform.
All three would operate together as a modern digitized banking and financial
services provider focusing to giving access to black entrepreneurs, black
borrowers, consumers, banks, and institutional investors..
Our Banking and FINTEC business model is a newly created business
model created in the 3rd quarter of 2020, for the purpose of effecting a
merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar Business acquisition with (1) a one-four branch Bank,
(2) a ML-Ai lending platform, and (3) a Blockchain-Powered Payment and
Financial Transactions Processing, and Digital Currency platform. We have not
selected any specific Bank, Fintec or Digital Currency Business acquisition
target and we have not, nor has anyone on our behalf, initiated any substantive
discussions, directly or indirectly, with any Bank, Fintec or Digital Currency
Business acquisition target.
Our management team is comprised of two business professionals
that have a broad range of experience in executive leadership, strategy
development and implementation, operations management, financial policy and
corporate transactions. Our management team members have worked together in
the past, at Goldstein Franklin, Inc. and other firms as executive leaders and
senior managers spearheading turnarounds, rollups and industry-focused
consolidation while generating shareholder value for many for investors and
stakeholders.
We believe that our management team is well positioned to identify
acquisition opportunities in the marketplace. Our management team's industry
expertise, principal investing transaction experience and business acumen will
make us an attractive partner and enhance our ability to complete a successful
Business acquisition. Our management believes that its ability to identify and
implement value creation initiatives has been an essential driver of past
performance and will remain central to its differentiated acquisition strategy.
Although our management team is well positioned and have
experience to identify acquisition opportunities in the marketplace, past
performance of our management team is not a guarantee either (i) of success
with respect to any Bank, Fintec or Digital Currency business acquisition we
may consummate or (ii) that we will be able to identify a suitable candidate for
our initial Bank, Fintec or Digital Currency acquisition. You should not rely
on the historical performance record of our management team as indicative of
our future performance. Additionally, in the course of their respective
careers, members of our management team have been involved in businesses and
deals that were unsuccessful. Our officers and directors have not had
management experience with Bank, Fintec or Digital Currency companies in the
past.
GiveMePower Corporation, prior to September 15, 2020, used to be a
specialty real estate holding company, focuses on the acquisition, ownership,
and management of specialized industrial properties. The Company’s real estate
business objective is to maximize stockholder returns through a combination of
(1) distributions to our stockholders, (2) sustainable long-term growth in cash
flows from increased rents, which we hope to pass on to stockholders in the
form of increased distributions, and (3) potential long-term appreciation in
the value of our properties from capital gains upon future sale. As a real
estate holding company, the Company is engaged primarily in the ownership,
operation, management, acquisition, development and
redevelopment of predominantly multifamily housing and specialized industrial properties
in the United States.
Business Strategy and Deal Origination
We have not finalized an acquisition target yet,
but making progress in identifying several potential candidates from which we
intend to pick those that meet our criteria for acquisition. Our acquisition and value creation strategy will be to
identify, acquire (1) a one-four branch Bank, (2) a ML-Ai lending platform, and (3)
a Blockchain-Powered Payment and Financial Transactions Processing, and Digital
Currency platform; after bank acquisition, to integrate the ML-AI lending
platform and the Blackchain into the Bank’s operations. Our
Business acquisition strategy will leverage our management team's network of
potential transaction sources, where we believe a combination of our
relationships, knowledge and experience could effect a positive transformation
or augmentation of existing businesses to improve their overall value
proposition.
Our management team's objective is to generate
attractive returns and create value for our shareholders by applying our
disciplined strategy of underwriting intrinsic worth and implementing changes
after making an acquisition to unlock value. While our approach is focused on
the Bank,
Fintec or Digital Currency industries where we have differentiated insights,
we also have successfully driven change through a comprehensive value creation
plan framework. We favor opportunities where we can accelerate the target's
growth initiatives. As a management team we have successfully applied this
approach over approximately 16 years and have deployed capital successfully in
a range of market cycles.
We plan to utilize the network and Finance
industry experience of our Chief Executive Officer and our management team in
seeking an Bank, Fintec or Digital Currency acquisition and
employing our Business acquisition strategy described below. Our CEO is a top
financial professional with designations that include, CPA, CMA, and CFM. He’s
very knowledgeable in the fields of corporate law, real estate, lending,
turnarounds and restructuring. Over the course of their careers, the members of
our management team have developed a broad network of contacts and corporate
relationships that we believe will serve as a useful source of Bank, Fintec or
Digital Currency acquisition opportunities. This network has been
developed through our management team's extensive experience:
·
investing in and operating a wide range of businesses;
·
growing brands through repositioning, increasing household
penetration and geographic expansion; expanding into new distribution channels,
such as e-Commerce, in an increasingly omni-channel world;
·
identifying lessons learned and applying solutions across
product portfolios and channels;
·
sourcing, structuring, acquiring, operating, developing,
growing, financing and selling businesses;
·
developing relationships with sellers, financing providers,
advisors and target management teams; and
·
executing transformational transactions in a wide range of
businesses under varying economic and financial market conditions.
In addition, drawing on their extensive investing
and operating experience, our management team anticipates tapping four major
sources of deal flow:
·
directly identifying potentially attractive undervalued
situations through primary research into Bank, Fintec or Digital Currency industries and
companies;
·
receiving information from our management team's global
contacts about a potentially attractive situation;
·
leads from investment bankers and advisors regarding
businesses seeking a combination or added value that matches our strengths; and
·
inbound opportunities from a company or existing stakeholders
seeking a combination, including corporate divestitures.
We expect this network will provide our
management team with a robust flow of Bank, Fintec or Digital Currency acquisition
opportunities. In addition, we anticipate that target Bank, Fintec or
Digital Currency Business candidates will be brought to our
attention by various unaffiliated sources, which may include investment market
participants, private equity groups, investment banking firms, consultants,
accounting firms and large business enterprises. Upon completion of this
offering, members of our management team will communicate with their network of
relationships to articulate the parameters for our search for a target company
and a potential Business acquisition and begin the process of pursuing and
reviewing potential leads.
Acquisition/Business
acquisition Criteria
Consistent with this strategy, we have identified
the following general criteria and guidelines that we believe are important in
evaluating prospective target Bank, Fintec or Digital Currency businesses. We will
use these criteria and guidelines in evaluating acquisition opportunities.
While we intend to acquire Bank, Fintec or Digital Currency companies that we
believe exhibit one or more of the following characteristics, we may decide to
enter into our initial Bank, Fintec or Digital Currency acquisition with a
target Bank,
Fintec or Digital Currency business that does not meet these criteria and
guidelines. We intend to acquire Bank, Fintec or Digital Currency companies that source,
design, develop, manufacture and distribute high-performance, affordable and
fully Bank, Fintec or Digital Currency :
·
have potential for significant growth, or can act as an
attractive Bank, Fintec or Digital Currency acquisition platform,
following our initial Bank, Fintec or Digital Currency acquisition;
·
have demonstrated market segment, category and/or cost
leadership and would benefit from our extensive network and insights;
·
provide operational platform and/or infrastructure for
variety of Bank, Fintec or Digital Currency models and/or
services, with the potential for revenue, market share, footprint and/or
distribution improvements;
·
are at the forefront of Bank, Fintec or Digital Currency evolution around
changing consumer trends;
·
offer marketing, pricing and product mix optimization
opportunities across distribution channels;
·
are fundamentally sound companies that could be
underperforming their potential and/or offer compelling value;
·
offer the opportunity for our management team to partner with
established target management teams or business owners to achieve
long-term strategic and operational excellence, or, in some cases, where
our access to accomplished executives and the skills of the management of
identified targets warrants replacing or supplementing existing management;
·
exhibit unrecognized value or other characteristics,
desirable returns on capital and a need for capital to achieve the company's
growth strategy, that we believe have been misevaluated by the marketplace
based on our analysis and due diligence review; and
·
will offer an attractive risk-adjusted return for our
shareholders.
These criteria are not intended to be exhaustive.
Any evaluation relating to the merits of a particular initial Bank, Fintec or
Digital Currency Business acquisition may be based, to the extent
relevant, on these general guidelines as well as
other considerations, factors and criteria that our management may deem
relevant. In the event that we decide to enter into our initial Bank, Fintec or
Digital Currency Business acquisition with a target Bank, Fintec or Digital
Currency Business that does not meet the above criteria and
guidelines, we will disclose that the target Bank, Fintec or Digital Currency Business
does not meet the above criteria in our shareholder communications related to
our initial Bank, Fintec or Digital Currency Business acquisition.
Acquisition/Business acquisition Process
In evaluating a
prospective target Bank, Fintec or Digital Currency business, we expect to conduct a
thorough due diligence review that will encompass, among other things, meetings
with incumbent management and employees, document reviews, inspection of Bank, Fintec or
Digital Currency facilities, as well as a review of financial and other
information. We will also utilize our operational and capital allocation
experience.
In order to execute
our business strategy, we intend to:
Assemble a team of
Bank, Fintec or Digital Currency industry and financial experts: For
each potential transaction, we intend to assemble a team of Bank, Fintec or
Digital Currency industry and financial experts to supplement our management's
efforts to identify and resolve key issues facing a target Bank, Fintec or
Digital Currency Business. We intend to construct an operating and financial
plan that optimizes the potential to grow shareholder value. With extensive
experience investing in both healthy and underperforming businesses, we expect
that our management will be able to demonstrate to the target Bank, Fintec or
Digital Currency business and its stakeholders that we have the resources and
expertise to lead the combined company through complex and potentially
turbulent market conditions and provide the strategic and operational direction
necessary to grow the business in order to maximize cash flows and improve the
overall strategic prospects for the company.
Conduct rigorous
research and analysis: Performing
disciplined, fundamental research and analysis is core to our strategy, and we
intend to conduct extensive due diligence to evaluate the impact that a
transaction may have on a target Bank, Fintec or Digital Currency Business.
Business
acquisition driven by trend analysis: We intend to
understand the underlying purchase and industry behaviors that would enhance a
potential transaction's attractiveness. We have extensive experience in
identifying and analyzing evolving industry and consumer trends, and we expect
to perform macro as well as bottoms-up analysis on consumer and industry
trends.
Acquire the target
company at an attractive price relative to our view of intrinsic
value: Combining rigorous analysis as well as input from industry and
financial experts, our management team intends to develop its view of the
intrinsic value of a potential Business acquisition. In doing so, our
management team will evaluate future cash flow potential, relative industry
valuation metrics and precedent transactions to inform its view of intrinsic
value, with the intention of creating a Business acquisition at an attractive
price relative to its view of intrinsic value.
Implement
operational and financial structuring opportunities: Our
management team has the ability to structure and execute a Business acquisition
that will establish a capital structure that will support the growth in
shareholder value and give it the flexibility to grow organically and/or
through strategic acquisitions. We intend to also develop and implement
strategies and initiatives to improve the business' operational and financial
performance and create a platform for growth.
Seek strategic acquisitions and divestitures to further grow
shareholder value: Our management team intends to analyze
the strategic direction of the company, including evaluating potential non-core asset
sales to create financial and/or operational flexibility for the company to
engage in organic and/or inorganic growth. Our management team intends to
evaluate strategic opportunities and chart a clear path to take the Bank, Fintec or Digital
Currency business
to the next level after the Business acquisition.
After the initial Bank, Fintec or
Digital Currency acquisition, our management team intends to apply a rigorous
approach to enhancing shareholder value, including evaluating the experience
and expertise of incumbent management and making changes where appropriate,
examining opportunities for revenue enhancement, cost savings, operating
efficiencies and strategic acquisitions and divestitures and developing and
implementing corporate strategies and initiatives to improve profitability and
long-term value. In doing so, our management team anticipates evaluating
corporate governance, opportunistically accessing capital markets and other
opportunities to enhance liquidity, identifying acquisition and divestiture
opportunities and properly aligning management and board incentives with
growing shareholder value. Our management team intends to pursue
post-merger initiatives through participation on the board of directors,
through direct involvement with company operations and/or calling upon a stable
of former managers and advisors when necessary.
Strategic Approach
to Management. We intend to approach the management of a company as
strategy consultants would. This means that we approach business with
performance-based metrics based on strategic and operational goals, both
at the overall company level and for specific divisions and functions.
Corporate
Governance and Oversight. Active
participation as board members can include many activities ranging from
conducting monthly or quarterly board meetings to chairing standing
(compensation, audit or investment committees) or special committees, replacing
or supplementing company management teams when necessary, adding outside
directors with industry expertise which may or may not include members of our
own board of directors, providing guidance on strategic and operational issues
including revenue enhancement opportunities, cost savings, brand repositioning,
operating efficiencies, reviewing and testing annual budgets, reviewing
acquisitions and divestitures and assisting in the accessing of capital markets
to further optimize financing costs and fund expansion.
Direct Operational
Involvement. Our management team members, through ongoing board service,
intend to actively engage with company management. These activities may
include: (i) establishing an agenda for management and instilling a sense of
accountability and urgency; (ii) aligning the interest of management with
growing shareholder value; (iii) providing strategic planning and management
consulting assistance, particularly in regards to re-invested capital and
growth capital in order to grow revenues, achieve more optimal operating scale
or eliminate costs; (iv) establishing measurable key performance metrics; and
(v) complementing product lines and brands while growing market share in
attractive market categories. These skill sets will be integral to shareholder
value creation.
M&A Expertise
and Add-On Acquisitions. Our management team
has expertise in identifying, acquiring and integrating synergistic,
margin-enhancing and transformational businesses. We intend to, wherever
possible, utilize M&A as a strategic tool to strengthen the financial
profile of a Bank, Fintec or Digital Currency business we acquire, as well as its
competitive positioning. We would seek to enter into accretive Business
acquisitions where our management team or an acquired company's management team
can seamlessly transition to working together as one organization and team.
Access to Portfolio
Company Managers and Advisors. Through their
combined 32+ year history of investing in and controlling businesses, our
management team members have developed strong professional
relationships with former company managers and advisors. When appropriate, we
intend to bring in outside directors, managers or consultants to assist in
corporate governance and operational turnaround activities. The use of
supplemental advisors should provide additional resources to management to address
time intensive issues that may be delaying an organization from realizing its
full potential shareholder returns.
Our acquisition
criteria, due diligence processes and value creation methods are not intended
to be exhaustive. Any evaluation relating to the merits of a particular initial
Bank,
Fintec or Digital Currency acquisition may be based, to the extent relevant, on these
general guidelines as well as other considerations, factors and criteria that
our management may deem relevant. In the event that we decide to enter into our
initial Bank, Fintec or Digital Currency acquisition with a target Bank,
Fintec or Digital Currency that does not meet the above criteria and
guidelines, we will disclose that the target Bank, Fintec or Digital Currency
does not meet the above criteria in our shareholder communications related to
our initial Bank, Fintec or Digital Currency acquisition, which, as discussed
in this prospectus, would be in the form of tender offer documents or proxy
solicitation materials that we would file with the SEC.
Sourcing of
Potential Business acquisition Targets
We believe that the
operational and transactional experience of our management team and their
respective affiliates, and the relationships they have developed as a result of
such experience, will provide us with a substantial number of potential
Business acquisition targets. These individuals and entities have developed a
broad network of contacts and corporate relationships around the world. This
network has grown through sourcing, acquiring and financing businesses and
maintaining relationships with sellers, financing sources and target management
teams. Our management team members have significant experience in executing
transactions under varying economic and financial market conditions. We believe
that these networks of contacts and relationships and this experience will
provide us with important sources of investment opportunities. In addition, we
anticipate that target Bank, Fintec or Digital Currency candidates may be
brought to our attention from various unaffiliated sources, including
investment market participants, private equity funds and large business
enterprises seeking to divest noncore assets or divisions.
Other Acquisition
Considerations
We are not
prohibited from pursuing an initial Bank, Fintec or Digital Currency
acquisition with a company that is affiliated with our sponsor, officers or
directors. In the event we seek to complete our initial Bank, Fintec or Digital
Currency acquisition with a company that is affiliated with our officers or
directors, we, or a committee of independent directors, will obtain an opinion
from an independent investment banking firm or another independent firm that
commonly renders valuation opinions for the type of company we are seeking to
acquire or an independent accounting firm that our initial Bank, Fintec or
Digital Currency acquisition is fair to our company from a financial point of
view.
Unless we complete
our initial Bank, Fintec or Digital Currency acquisition with an affiliated
entity, or our Board of Directors cannot independently determine the fair
market value of the target Bank, Fintec or Digital Currency or businesses, we
are not required to obtain an opinion from an independent investment banking
firm, another independent firm that commonly renders valuation opinions for the
type of company we are seeking to acquire or from an independent accounting
firm that the price we are paying for a target is fair to our company from a
financial point of view. If no opinion is obtained, our shareholders will be
relying on the business judgment of our Board of Directors, which will have significant discretion in choosing the standard used to
establish the fair market value of the target or targets, and different methods
of valuation may vary greatly in outcome from one another. Such standards used
will be disclosed in our tender offer documents or proxy solicitation
materials, as applicable, related to our initial Bank, Fintec or Digital
Currency acquisition.
Members of our
management team may directly or indirectly own our ordinary shares and/or
private placement warrants following this offering, and, accordingly, may have
a conflict of interest in determining whether a particular target Bank, Fintec
or Digital Currency is an appropriate business with which to effectuate our
initial Bank, Fintec or Digital Currency acquisition. Further, each of our
officers and directors may have a conflict of interest with respect to
evaluating a particular Business acquisition if the retention or resignation of
any such officers and directors was included by a target Bank, Fintec or
Digital Currency as a condition to any agreement with respect to our initial
Bank, Fintec or Digital Currency acquisition.
In the future any
of our directors and our officers may have additional, fiduciary or contractual
obligations to other entities pursuant to which such officer or director is or
will be required to present acquisition opportunities to such entity.
Accordingly, subject to his or her fiduciary duties, if any of our officers or
directors becomes aware of an acquisition opportunity which is suitable for an
entity to which he or she has then current fiduciary or contractual
obligations, he or she will need to honor his or her fiduciary or contractual
obligations to present such acquisition opportunity to such entity, and only
present it to us if such entity rejects the opportunity. We do not believe,
however, that any fiduciary duties or contractual obligations of our directors
or officers would materially undermine our ability to complete our Business
acquisition.
Plan of Operations
While our major focus is to find, acquire and manage an Bank,
Fintec or Digital Currency , our real estate portfolio is still alive and must
figure in our plan of operation. As of the date of this S-1 Registration, we have two available-for-sale real estate properties
with a carrying amount of $970,148. We bought three single family residences
(SFR) with a cost/carrying amount of $1,452,897, in Los Angeles in 2019. We
bought a fourth property in June 2020. During the nine months ended September
30, 2020, we sold two of the four properties for a total amount of $1,205,000.
In the next twelve months, we plan on selling the remaining two properties and
adding the proceeds obtained from the sales to the Proceeds from this Offering
to finance our Bank, Fintec or Digital Currency business plan.
The Company will continue to evaluate its projected expenditures
relative to its available cash and to seek additional means of financing in
order to satisfy the Company’s working capital and other cash requirements.
Upon completion of the acquisition of an One-four branch bank or doing a joint venture (JV) with Bank, Fintec
or Digital Currency businesses that source, design, develop, manufacture and
distribute high-performance, affordable and fully Bank, Fintec or Digital
Currency , our strategy will subsequently include distribution of the
Bank, Fintec or Digital Currency and
related product lines to retailers and consumers across North America.
Real Estate Business
Objectives
Although we have pivoted to technology,
our real estate business is still ongoing through our independently managed
sub-subsidiaries including Alpharidge Capital LLC, Community Economic
Development Capital, LLC and Opportunity Zone Capital LLC. Our principal
business objective is to maximize stockholder returns through a combination of
(1) distributions to our stockholders, (2) sustainable long-term growth in cash
flows from increased rents, which we hope to pass on to stockholders in the
form of increased distributions, and (3) potential long-term appreciation in
the value of our properties from capital gains upon future sale.
The Company’s real estate holdings entails the ownership,
operation, management, acquisition, development and redevelopment of
predominantly multifamily housing and specialized industrial properties in the
United States. Additionally, our specialized industrial property strategy is to
acquire and own a portfolio of specialized industrial properties, including multifamily
properties, hemp farms, CBD processing and medical-use cannabis facilities
leased to tenants holding the requisite state licenses to operate in the
regulated medical-use cannabis industry. This strategy includes the following
components:
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Owning
Specialized Real Estate Properties and Assets for Income. We intend to
primarily acquire multifamily housings, economic development real estates,
hemp farms, CBD processing facilities and multifamily properties, hemp farms,
CBD processing and medical-use cannabis facilities leased licensed growers
who will continue their cultivation operations after our acquisition of the
property. We expect to hold acquired properties for investment and to
generate stable and increasing rental income from leasing these properties to
licensed growers.
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Owning
Specialized Real Estate Properties and Assets for Appreciation. We intend to
primarily lease our acquired properties under long-term, triple-net leases.
However, from time to time, we may elect to sell one or more properties if we
believe it to be in the best interests of our stockholders. Accordingly, we
will seek to acquire properties that we believe also have potential for
long-term appreciation in value.
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Expanding
into Additional States Permit Medical-Use Cannabis Cultivation and
Production. We
intend to acquire properties in the United States, with a focus on states
that permit cannabis cultivation for medical use.
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Affordable
Housing.
Our motto is: “acquiring distressed/troubled properties, securing generous
government subsidies, empowering low-income families, and generating
above-market returns to investors.”
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Preserving
Financial Flexibility on our Balance Sheet. We intend to focused on
maintaining a conservative capital structure, in order to provide us
flexibility in financing our growth initiatives.
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As
of September 30, 2020, we owned one investment property in California, and we
expect to continue to expand to other real estate asset classes including hemp
and multifamily properties, hemp farms, CBD processing and medical-use cannabis
facilities. We believe an intense focus on operations is necessary to realize
consistent, sustained earnings growth. Ensuring tenants’ satisfaction,
increasing rents as market conditions allow, maximizing rent collections,
maintaining property occupancy at optimal levels, and controlling operating
costs comprise our principal strategies to maximize property financial results.
We believe a web-based property management and revenue management systems
strengthen on-site operations and allow us to quickly adjust rental rates as
local market conditions change. Lease terms are generally staggered based on
vacancy exposure by property type so lease expirations are matched to each
property's seasonal rental patterns. We generally offer leases ranging from
twelve to fifteen months with individual property marketing plans structured to
respond to local market conditions. In addition, we conduct
ongoing customer service surveys to help ensure timely response to tenants'
changing needs and a high level of satisfaction.
Our Affordable Housing Target Markets
Our multifamily affordable housing target market is focused on
urban and suburban neighborhoods in California, Nevada and Maryland and other
highly urbanized states. We are also open to acquiring properties in
opportunity zone multifamily properties that includes most urban neighborhoods
of the United States, including underserved suburbs of major cities across the
country.
Research Driven Approach to Investments – The
Company believes that successful real estate investment decisions and portfolio
growth begin with extensive regional economic research and local market
knowledge. The Company continually assesses markets where the Company
operates, as well as markets where the Company considers future investment
opportunities by evaluating markets and focusing on the following strategic
criteria:
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Major
metropolitan areas that have regional population in excess of one million;
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Constraints
on new supply driven by: (i) low availability of developable land sites where
competing housing could be economically built; (ii) political growth
barriers, such as protected land, urban growth boundaries, and potential
lengthy and expensive development permit processes; and (iii) natural
limitations to development, such as mountains or waterways;
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Rental
demand enhanced by affordability of rents relative to costs of for-sale
housing; and
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Housing
demand based on job growth, proximity to jobs, high median incomes and the
quality of life including related commuting factors.
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Recognizing that
all real estate markets are cyclical, the Company regularly evaluates the
results of its regional economic, and local market research, and adjusts the
geographic focus of its portfolio accordingly. The Company seeks to
increase its portfolio allocation in markets projected to have the strongest
local economies and to decrease allocations in markets projected to have
declining economic conditions. Likewise, the Company also seeks to
increase its portfolio allocation in markets that have attractive property
valuations and to decrease allocations in markets that have inflated valuations
and low relative yields.
Multifamily Property Operations – The Company
intends to manage its multifamily properties by focusing on activities that may
generate above-average rental growth, tenant retention/satisfaction and
long-term asset appreciation. The Company intends to achieve this by
utilizing the strategies set forth below:
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Property Management – Oversee delivery and quality of the housing
provided to our tenants and manage the properties financial performance.
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Capital Preservation – The Company's asset management
services are responsible for the planning, budgeting and completion of major
capital improvement projects at the Company’s multifamily properties.
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Business Planning and Control – Comprehensive
business plans are implemented in conjunction with significant investment
decisions. These plans include benchmarks for future financial performance
based on collaborative discussions between on-site managers, the operations
leadership team, and senior management.
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Development and Redevelopment – The Company
focuses on acquiring and developing apartment multifamily properties in
supply constrained markets, and redeveloping its existing multifamily
properties to improve the financial and physical aspects of the Company’s
multifamily properties.
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Our Specialized Industrial Properties Target Markets
The targets for our Specialized Industrial Properties are CBD
processing facilities and hemp farms. We believe we are well positioned in
our current markets and have the expertise to take advantage of new
opportunities as they arise. These capabilities, combined with what we believe
is a conservative financial structure, should allow us to concentrate our
growth efforts toward selective opportunities to enhance our strategy of having
a geographically diverse portfolio of assets which meet the requirements of our
tenants.
We continue to operate in our core markets which we believe
provides an advantage due to economies of scale. We believe, where possible, it
is best to operate with a strong base of properties in order to benefit from
the personnel allocation and the market strength associated with managing
multiple properties in the same market. However, consistent with our goal of
generating sustained earnings growth, we intend to selectively dispose of
properties and redeploy capital for various strategic reasons, including if we
determine a property cannot meet our long-term earnings growth expectations.
We try to maximize capital appreciation of our properties by
investing in markets characterized by conditions favorable to multifamily
property appreciation. These markets generally feature the following:
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Strong economic growth leading to household formation and job
growth, which in turn should support higher demand for our properties; and
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An attractive quality of life, which may lead to higher demand
and retention for our properties and allow us to more readily increase rents.
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Subject to market conditions, we intend to continue to seek
opportunities to develop new multifamily properties, and to redevelop,
reposition and acquire existing multifamily properties. We also intend to evaluate
our operating property and land development portfolio and plan to continue our
practice of selective dispositions as market conditions warrant and
opportunities arise.
We expect to maintain a strong balance sheet and preserve our
financial flexibility by continuing to focus on our core fundamentals which
currently are generating positive cash flows from operations, maintaining
appropriate debt levels and leverage ratios, and controlling overhead costs. We
intend to meet our near-term liquidity requirements through a combination of
one or more of the following: cash flows generated from operations, draws on
our unsecured credit facility or other short-term borrowing, proceeds from
property dispositions, other unsecured borrowings, or secured mortgages.
Maintaining a Diversified Portfolio and Allocating Capital to
Accretive Investment Opportunities.
We believe greater portfolio diversification, as defined by
geographic concentration, location within a market (i.e., urban or suburban)
and property quality (i.e., A or B), reduces the volatility of our same-store
growth throughout the real estate cycle, appeals to a wider renter and investor
audience and lessens the market risk associated with owning a homogenous
portfolio.
We are focused on increasing our presence in markets with
favorable job formation, high propensity to rent, low single-family home
affordability, and a favorable demand/supply ratio for multifamily housing.
Portfolio investment decisions consider internal analyses and third-party research.
Our operating focus is on balancing occupancy and rental rates to
maximize our revenue while exercising tight cost control to generate the
highest possible return to our shareholders. Revenue is maximized by
attracting qualified prospects to our properties, cost-effectively converting
these prospects into new tenants and keeping our tenants satisfied so they will
renew their leases upon expiration. While we believe that it is our
high-quality, well-located assets that bring our customers to us, it is the
customer service and superior value provided by our on-site personnel that
keeps them renting with us and recommending us to their friends.
We use technology to engage our tenants, stakeholder and customers
in the way that they want to be engaged. Many of our tenants would utilize our
web-based tenant portal and app which allows them to sign and renew their
leases, review their accounts and make payments, provide feedback and make
service requests on-line or with mobile devices.
Market Opportunity
The Industrial Real Estate Sub-Market
The industrial real
estate sub-market continues to perform well in this real estate cycle.
According to CBRE Group, Inc., the U.S. industrial property vacancy rate
declined to 4.3% in the fourth quarter of 2018, reflecting the 35th consecutive
quarter of positive net absorption. Nearly 30.0 million square feet of
industrial real estate were absorbed in 2018, which resulted in the highest net
asking rents since CBRE Group, Inc. began tracking this metric in 1989.
We believe this supply/demand dynamic creates significant
opportunity for owners of industrial facilities, particularly those focused on
niche categories, as options are limited for tenants requiring specialized
buildings. We intend to capitalize on this opportunity by purchasing
specialized industrial real estate assets that are critical to the hemp and CBD
industry.
STRATEGY
Our Financing Strategy
As part of our plan to finance our
activities, we utilize proceeds from debt and equity offerings and refinancing
to extend maturities, pay down existing debt, fund development and
redevelopment activities, and acquire rental properties. We use mortgage with
reasonable terms on all our acquisitions.
We intend to
meet our long-term liquidity needs through cash flow from operations and the
issuance of equity and debt securities, including common stock, preferred stock
and long-term notes. Where possible, we also may issue limited partnership
interests in our Operating Partnership to acquire properties from existing
owners seeking a tax-deferred transaction. We expect to issue equity and debt
securities at times when we believe that our stock price is at a level that
allows for the reinvestment of offering proceeds in accretive property
acquisitions. We may also issue common stock to permanently finance properties
that were previously financed by debt securities. However, we cannot assure you
that we will have access to the capital markets at times and on terms that are
acceptable to us. Our ability to access the capital markets and to obtain other
financing arrangements is also significantly limited by our focus on serving
the medical-use cannabis industry. Our investment guidelines initially provide
that our aggregate borrowings (secured and unsecured) will not exceed 50% of
the cost of our tangible assets at the time of any new borrowing, subject to
our board of directors' discretion.
We may file a shelf registration
statement, which would subsequently be declared effective by the SEC, which may
permit us, from time to time, to offer and sell common stock, preferred stock,
warrants and other securities to the extent necessary or advisable to meet our
liquidity needs.
Portfolio Management
Our portfolio management strategy involves
the allocation of investment capital to enhance rent growth and increase
long-term capital values through portfolio design, emphasizing land value as
well as location and submarket. We target geographic diversification in our
portfolio in order to reduce the volatility of our rental revenue and to reduce
the risk of undue concentration in any particular market. Similarly, we seek
price point diversification by owning multifamily properties that offer
properties at rents below those asked by competitive new building supply.
Acquisitions and Dispositions
Acquisitions and developments may be
financed from various sources of capital, which may include retained cash flow,
issuance of additional equity and debt, sales of properties and joint venture
arrangements. In addition, the Company may acquire properties in transactions
that include Operating Partnership (OP) Units as consideration for the acquired
properties. Such transactions may, in certain circumstances, enable the
sellers to defer, in whole or in part, the recognition of taxable income or
gain that might otherwise result from the sales.
When evaluating potential acquisitions, we
consider a wide variety of factors, including:
• whether it is located in a
high barrier-to-entry market;
• population growth, cost of
alternative housing, overall potential for economic growth and the tax and
regulatory environment of the community in which the property is located;
• geographic location,
including proximity to jobs, entertainment, transportation, and our existing
communities which can deliver significant economies of scale;
• construction quality,
condition and design of the property;
• current and projected cash
flow of the property and the ability to increase cash flow;
• ability of the property’s projected
cash flows to exceed our cost of capital;
• potential for capital
appreciation of the property;
• ability to increase the
value and profitability of the property through operations and redevelopment;
•
terms of resident leases, including the potential for rent increases;
• occupancy and demand by
tenants for properties of a similar type in the vicinity;
• prospects for liquidity
through sale, financing, or refinancing of the property; and
• competition from existing
multifamily communities and the potential for the construction of new
multifamily properties in the area.
Our Acquisition Process and Underwriting
Criteria
We identify property acquisition
opportunities primarily through relationships developed over time by our
officers with former borrowers, current joint venture partners, real estate
investors and brokers. We are interested in acquiring the following types of
properties:
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Class B or better
properties with strong and stable cash flows in markets where we believe there
exists opportunity for rental growth and further value creation;
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Class B or better
properties that offer significant potential for capital appreciation through
repositioning or rehabilitating the asset to drive rental growth;
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properties available
at opportunistic prices providing an opportunity for a significant appreciation
in value; and
•
development of Class A
properties in markets where we believe we can generate significant returns from
the operation and if appropriate, sale of the development.
We regularly monitor our assets to
increase the quality and performance of our portfolio. Factors we consider in
deciding whether to dispose of a property include:
•
current market price
for an asset compared to projected economics for that asset;
•
potential increases in
new construction in the market area;
•
areas with low job
growth prospects;
•
markets where we do
not intend to establish a long-term concentration; and
•
operating
efficiencies.
Additionally, as part of our strategy, the
Company purchases properties at various stages of occupancy and completion and
may acquire land parcels to hold and/or sell as well as options to buy more
land in the future. The Company may also seek to acquire properties by
providing mezzanine financing/equity and/or purchasing defaulted or distressed
debt that encumbers desirable properties.
The Company has done an extensive
positioning planning of its portfolio into urban and highly walkable, close-in
suburban communities. The Company targets properties and primarily located in
markets and submarkets it believes will remain attractive long-term because
they are primarily located in the urban and high-density suburban areas noted
above.
Buyouts of Joint Venture Partners
From time to time, we acquire our joint
venture partner's equity interest in projects and as a result, these properties
are wholly-owned by us.
Risk Management
As of
September 30, 2020, we owned two real estate investment property. We embrace
portfolio diversification at acquisitions as our main risk management strategy.
We intend to diversify the investment size and location of our portfolio of
properties in order to manage our portfolio-level risk. Over the long term, we
embrace diversification and intend that no single property will exceed 25% of
our total assets.
We expect that single tenants will occupy
our properties pursuant to triple-net lease arrangements in general and,
therefore, the success of our investments will be materially dependent on the
financial stability of these tenants. We expect the success of our future
tenants, and their ability to make rent payments to us, to significantly depend
on the projected growth and development of the applicable state market; as many
of these state markets have a very limited history, and other state markets are
still forming their regulations, issuing licenses and otherwise establishing
the market framework, significant uncertainty exists as to whether these
markets will develop in the way that we or our future tenants project.
We intend to evaluate the credit quality
of our future tenants and any guarantors on an ongoing basis by reviewing,
where available, the publicly filed financial reports, press releases and other
publicly available industry information regarding our future tenants and any
guarantors. In addition, we intend to monitor the payment history data for all
of our future tenants and, in some instances, we monitor our future tenants by
periodically conducting site visits and meeting with the tenants to discuss
their operations. In many instances, we will generally not be entitled to
financial results or other credit-related data from our future tenants.
Plan of Operations
Plan of
Operation for the Next Twelve (12) Months
Although we have pivoted to technology, our real estate business
is still ongoing through our independently managed sub-subsidiaries including
Alpharidge Capital LLC, Community Economic Development Capital, LLC and
Opportunity Zone Capital LLC. As the Company moves ahead to implement its business plan, the
Company will begin to identify and acquire complimentary Bank,
Fintec or Digital Currency businesses
and internally-manage a real estate
holdings focused on affordable housing and specialized properties across the
United States. We plan to
acquire control-stake or minor equity positions in businesses and both single
family residence (SFR) and multi-family and specialized commercial properties
including sale-leaseback transactions and third-party purchases. On specialized
commercial properties we expect to lease our properties on a triple-net lease
basis, where the tenant is responsible for all aspects of and costs related to
the property and its operation during the lease term, including structural
repairs, maintenance, taxes and insurance.
We plan to conduct our affordable housing
business through a traditional umbrella partnership real estate holding company,
in which our properties are owned by our Operating Partnership, directly or
through subsidiaries. We
shall be the sole general partner of our Operating Partnership and own,
directly or through a subsidiary, 100% of the limited partnership interests in our
Operating Partnership.
There
is no assurance that we would be able to put the property to good use such as
renting it to eligible low-income family / tenant. If we are unable to put
them to productive use, we would be forced to sell them and use the money
generated from the sales to pay off the loans used to acquire them.
To
effectively fund our business plan, we must raise additional capital. But
there can be no assurance that we will be able to raise the capital necessary
to acquire, own or hold profitable businesses and real properties. Moreover,
there can be no assurance that we will be able to raise the capital necessary
to execute our business plan and also to acquire, own or hold complimentary
businesses and real properties.
Within
the next twelve months, we intend to use income generated from our operations
to hire employees that would help us to raise capital to build our company.
There is no assurance that we would be able to generate income from our
operations in the near future.
We intend to
implement the following tasks within the next twelve months:
1. Month 1-3: Phase 1 (1-3 months in
duration; complete rehabilitation of the two real estate investment property
including the opportunity zone located property and sell or put them to good
use)
a. Continue to develop and build our
Bank, Fintec or Digital Currency business model by making
acquisitions of Bank, Fintec or Digital Currency.
b. Identify and start conducting due
diligence on acquisition target within the Bank, Fintec or Digital Currency
industry.
c. Identify 2 profitable
complementary businesses to acquire
d. Sign purchase agreement with the
sellers of the 2 profitable complementary businesses and identified above;
e. Acquire and consolidate the
revenue from those two acquisitions.
2. Month 3-6 Phase 2 (1-3 months in
duration; cost control, process improvements, admin & mngt.).
a. Integrate acquisitions into
GMPW’s model – consolidate the management of the acquired businesses and
properties including integration of their accounting and finance systems,
synchronization of their operating systems, and harmonization of their human
resources functions.
b. Complete and file quarterly
reports and other required filings for the quarter
3. Month 6-9: Phase 3 (1-3 months
in duration; $5 million in estimated fund receipt)
a. Identify and acquire 2 profitable
businesses that are complementary/similar properties or assets in the target
market
4. Month 9-12: Phase 4 (1-3 months
duration; use acquired businesses’ free cash flow for more acquisitions)
a. Run the businesses efficiently,
giving employees a conducive and friendly workplace and add value to investors
and shareholders by identifying and reducing excesses and also identifying and
executing growth strategies
b. Acquire 2 profitable businesses
and 4 more properties especially in regions where RE is at or below their
book-value.
5. Operating expenses during the
twelve months would be as follows:
a. For the six months through June
30, 2021, we anticipate to incur general and other operating expenses of
$238,000.
b. For the six months through
December 31, 2021 we anticipate to incur additional general and other operating
expenses of $382,000.
As
noted above, the execution of our current plan of operations requires us to
raise significant additional capital immediately. If we are successful in
raising at least $620,000 in capital, we hope that the Company will have
sufficient cash resources to fund its plan of operations for the next twelve
months. If we are unable to do so, our ability to
continue as a going concern will be in jeopardy, likely causing us to curtail
and possibly cease operations.
We
continually evaluate our plan of operations discussed above to determine the
manner in which we can most effectively utilize our limited cash resources. The
timing of completion of any aspect of our plan of operations is highly
dependent upon the availability of cash to implement that aspect of the plan
and other factors beyond our control. There is no assurance that we will
successfully obtain the required capital or revenues, or, if obtained, that the
amounts will be sufficient to fund our ongoing operations. The inability to
secure additional capital would have a material adverse effect on us, including
the possibility that we would have to sell or forego a portion or all of our
assets or cease operations. If we discontinue our operations, we will not have
sufficient funds to pay any amounts to our stockholders.
Because
our working capital requirements depend upon numerous factors there can be no
assurance that our current cash resources will be sufficient to fund our
operations. At present, we have no committed external sources of capital, and
do not expect any significant product revenues for the foreseeable future.
Thus, we will require immediate additional financing to fund future operations.
There can be no assurance, however, that we will be able to obtain funds on
acceptable terms, if at all.
Competitive Strengths in Affordable
Housing
On affordable housing, all of the
Company’s targeted properties are located in developed areas that include other
properties. The number of competitive properties in a particular area could
have a material effect on the Company’s ability to lease units at its
properties and on the rents charged. The Company may be competing with other
entities that have greater resources than the Company and whose managers have
more experience than the Company’s managers. In addition, other forms of
rental properties provide alternatives to potential renters of our properties.
We believe that, in general, we are
well-positioned to compete effectively for tenants and investments. We believe
our competitive advantages include:
•
a fully integrated
organization with property management, development, redevelopment, acquisition,
marketing, sales and financing expertise;
•
scalable operating and
support systems, which include automated systems to meet the changing
electronic needs of our residents and to effectively focus on our Internet
marketing efforts;
•
access to sources of
capital;
•
geographic
diversification with a presence in markets across the country; and
•
significant presence
in many of our major markets that allows us to be a local operating expert.
Moving forward, we will continue to
optimize lease management, improve expense control, increase resident retention
efforts and align employee incentive plans with our bottom line performance. We
believe this plan of operation, coupled with the portfolio’s strengths in targeting
renters across a geographically diverse platform, should position us for
continued operational upside.
The real estate business is cyclical. Real
estate cycles are generally impacted by many factors, including availability of
equity and debt capital, borrowing cost, rent levels, and asset values. Our
strategy will result in a strong track record of
creating both asset and entity value for the benefit of our shareholders and
partners over these various real estate cycles.
Governmental Regulation
Environmental Matters
Our properties and the operations thereon
are subject to federal, state and local environmental laws, ordinances and
regulations, including laws relating to water, air, solid wastes and hazardous
substances. Our properties and the operations thereon are also subject to
federal, state and local laws, ordinances, regulations and requirements related
to the federal Occupational Safety and Health Act, as well as comparable state
statutes relating to the health and safety of our employees and others working
on our properties. Although we believe that we and our future tenants are in
material compliance with these requirements, there can be no assurance that we
will not incur significant costs, civil and criminal penalties and liabilities,
including those relating to claims for damages to persons, property or the
environment resulting from operations at our properties.
Real Estate Industry Regulation
Generally, the ownership and operation of
real properties are subject to various laws, ordinances and regulations,
including regulations relating to zoning, land use, water rights, wastewater,
storm water runoff and lien sale rights and procedures. These laws, ordinances
or regulations, such as the Comprehensive Environmental Response and Compensation
Liability Act and its state analogs, or any changes to any such laws,
ordinances or regulations, could result in or increase the potential liability
for environmental conditions or circumstances existing, or created by tenants
or others, on our properties. Laws related to upkeep, safety and taxation
requirements may result in significant unanticipated expenditures, loss of our
properties or other impairments to operations, any of which would adversely
affect our cash flows from operating activities.
Our property management activities, to the
extent we are required to engage in them due to lease defaults by tenants or
vacancies on certain properties, will likely be subject to state real estate
brokerage laws and regulations as determined by the particular real estate
commission for each state.
Insurance
We carry comprehensive general liability
coverage on our communities, with limits of liability customary within the
multi-family properties industry to insure against liability claims and related
defense costs. We are also insured, with limits of liability customary within
the real estate industry, against the risk of direct physical damage in amounts
necessary to reimburse us on a replacement cost basis for costs incurred to
repair or rebuild each property, including loss of rental income during the
reconstruction period.
Our primary lines of insurance coverage
are property, general liability and workers’ compensation. We believe that our
insurance coverages adequately insure our multifamily properties against the
risk of loss attributable to fire, earthquake, hurricane, tornado, flood,
terrorism and other perils, and adequately insure us against other risk. Our
coverage includes deductibles, retentions and limits that are customary in the
industry. We have established loss prevention, loss mitigation, claims handling
and litigation management procedures to manage our exposure.
Seasonality
Our business has not been, and we do not
expect it to become subject to, material seasonal fluctuations.
Employees
We
do not have a W-2 employee at the present. Frank Ikechukwu Igwealor, our
President, Chief Executive Officer and Chief Financial Officer, is our only
full-time staff As of January 6, 2021, pending when we could formalize an
employment contract for him. In addition to Mr. Igwealor, we
have three part-time unpaid staff who helps with bookkeeping and administrative
chores. Most of our part-time staff, officers, and directors will devote their
time as needed to our business and are expect to devote at least 15 hours per
week to our business operations. We plan on formalizing employment contract
for those staff currently helping us without pay. Furthermore, in the
immediate future, we intend to use independent contractors and consultants to assist
in many aspects of our business on an as needed basis pending financial
resources being available. We may use independent contractors and consultants
once we receive sufficient funding to hire additional employees. Even then, we
will principally rely on independent contractors for substantially all of our
technical and marketing needs.
The
Company has no written employment contract or agreement with any person.
Currently, we are not actively seeking additional employees or engaging any
consultants through a formal written agreement or contract. Services are
provided on an as-needed basis to date. This may change in the event that we
are able to secure financing through equity or loans to the Company. As our
company grows, we expect to hire more full-time employees.
Transfer Agent
The
transfer agent for our capital stock is Pacific Stock Transfer, with an address
of 6725 Via Austi Pkwy Ste 300, Las Vegas, NV 89119-3553, with a telephone of
702-361-3033.
Properties
Our
headquarters are located in a two-story building in Torrance, California. We
believe that the existing facilities at September 1, 2020, will be adequate to
meet our operational requirements through 2020, although we periodically review
our leased space to in order to ensure such space is secure and suitable for
our current and future needs. We believe that all such facilities are
adequately covered by appropriate property insurance.
Current Holdings of Real Estate
Investments:
In 2019, we bought three single family residences
(SFR) with a cost/carrying amount of $1,452,897, in Los Angeles. We financed
the purchase with borrowing from our controlling shareholder. Our goals for
the properties was to rehabilitee and deliver each of them to eligible
homebuyers as part of our mission of promoting homeownership affordable
housing. As at September 30, 2020, we have two available-for-sale real estate
properties with a carrying amount of $970,148:
|
|
Cost
basis
|
|
|
|
9/30/2020
|
|
|
|
SFR - 11253 S New Hampshire, 90044
|
$
|
359,821
|
|
|
|
SFR - 4904 S Wilton Place 90062
|
|
610,327
|
|
|
|
Total
Holdings of Real Estate Investments
|
$
|
970,148
|
|
|
|
|
|
|
|
|
|
|
Inventory costs include direct home acquisition
costs and any capitalized improvements. The following is the Real Estate
Investments activities for the period under review:
We bought the 11253 S New Hampshire, LA 90044
property in June of 2020 at a cost of 321,498. We financed the purchase with
borrowing from our controlling shareholder. Our goal for the property was to
rehabilitee and resell to eligible homebuyers as part of our mission of
promoting homeownership affordable housing. As of September 30, 2020, we have
expended $38,323 on rehabilitation of the property.
The 4904 S Wilton Place, Los Angeles, CA 90062
property was bought on April 23, 2019 for a total acquisition cost of
$498,983.51. Our goal for the property was to rehabilitee and resell to
eligible homebuyers as part of our mission of promoting homeownership
affordable housing. As of September 30, 2020, we have expended $111,343 on
rehabilitation of the property.
Real estate held for use:
As at September 30, 2020, the Company has no real
estate held for use.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Officers and Board of Directors
The following individuals serve as executive officers and
directors of GiveMePower Corporation as of January 6, 2021:
Name
|
|
Age*
|
|
Position within the Company
|
|
Term
|
Mr. Frank I Igwealor
|
|
49
|
|
Chairman, Director and Chief Executive and Financial Officer
|
|
December 2019 to present
|
Mr. Patience Ogbozor
|
|
35
|
|
Director
|
|
October 2019 to present
|
|
|
|
|
|
|
|
*Age as at December 16, 2020.
Term of Office
Each of our directors is appointed to hold
office until the next annual meeting of our shareholders or until his
respective successor is elected and qualified, or until she resigns or is
removed in accordance with the provisions of the
Nevada Statues. Our officers are appointed by our board of directors
and hold office until removed by the board of directors or until their
resignation.
Background and Business Experience
The business experience during the past
five years of the persons listed above as an Officer or Director of the Company
either presently or during the year ended December 31, 2019 is as follows:
Frank Igwealor, CPA, CMA, JD, MBA, MSRM is a financial manager with broad technical and management
experience in accounting, finance, and business advisory as a principal partner
at Goldstein Franklin, Inc.
since November 2011. Mr. Igwealor is a Certified Financial Manager, Certified
Management Accountant, and Certified Public Accountant. Before Goldstein
Franklin, Mr. Igwealor was the Sr. Vice President and CFO of Los Angeles
Neighborhood Housing between May 2007 and October 2011.
During
the sixteen years prior to his joining Los Angeles Neighborhood Housing as the
chief financial officer, Mr. Igwealor worked in various financial management,
accounting, strategic planning, risk management, restructuring,
recapitalization and turnaround capacities for various big and small businesses
where he helped save or preserve about 252 American jobs that would have
otherwise been lost through liquidations.
Mr.
Igwealor’s business and professional experience include:
(a) 7/2007 to 10/2011 - SVP & CFO
at Los Angeles Neighborhood Housing, Inc., one of Los Angeles largest
affordable housing nonprofit agency.
(b) 11/2004 to 2015 – President and
CEO of Igwealth Franklin, Inc., a Los Angeles private equity firm
(c) 03/2008 to present – Director at
Poverty Solutions, Inc., a Los Angeles based nonprofit that designs and deploys
programs that help low income families divest poverty through education,
employment, and entrepreneurship.
(d) 11/2006 to 04/2007 – Assistant
Controller at SDI Media Group, a Culver City, CA based translation and dubbing
company.
(e) 03/2006 to 09/2006 – SEC
Financial reporting analyst at OSI Systems, Inc., a Hawthorne CA based
manufacturer.
(f) 11/2003 to 11/2004 – Financial
Advisor at Morgan Stanley
Over
the past 26 years in accounting and finance, Mr. Igwealor has always operated
on the premise that a country’s most valuable asset is her human capital – and
that job creation is the essential element to a true and sustainable economic
and prosperity.
During
the past five years, Mr. Igwealor held the following directorships:
1. Igwealth Franklin, Inc. – November 2004 to 2015.
2. Los Angeles Community Capital –
April 2012 to Present.
3. American Community Capital, LP.
– August 2013 to Present.
4. Goldstein Franklin, Inc. – April
2012 to Present.
5.
Kid Castle
Educational Corporation since October 2019
6.
GiveMePower
Corporation since December 2019
Mr.
Igwealor’s professional education includes (1) BA in Accounting from Union
Institute & University; (2) BA in Economics from Union Institute &
University; (3) MBA finance from California State University, Dominguez Hills;
(4) Masters in Risk Management at New York University (in progress); and (5)
Juris Doctor from Southwestern School of Law.
The
company believes that someone with finance and accounting expertise as Mr.
Igwealor would be invaluable to the company’s need of identifying the right
acquisition candidates as well as performing due diligence on those targets.
Ms. Patience C. Ogbozor, Director: Ms. Ogbozor is the President and
CEO of Cannabinoid Biosciences since November 2018. Ms. Ogbozor is a Director of the Company. Ms. Ogbozor also
serves as a director at Goldstein Franklin Inc., Kid Castle Educational
Corporation, Video Rivers Networks, Inc. and Opportunity Zone Capital LLC.
Prior to joining the company’s board, Ms. Ogbozor was with New Haven Pharmacy,
Abuja, from 2013 to 2015.
During
the past five years, Ms. Ogbozor held the following directorships:
1.
Ms. Ogbozor
has been serving as director Goldstein Franklin Inc. since June 1, 2015.
2.
Kid Castle
Educational Corporation since October 2019
3.
GiveMePower
Corporation since December 2019
4.
Opportunity
Zone Capital LLC since February 18, 2020
All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are
elected annually by the board of directors and serve at the discretion of the
board.
Committees of our Board of Directors
Our securities are not quoted on an exchange that has requirements
that a majority of our Board members be independent and we are not currently
otherwise subject to any law, rule or regulation requiring that all or any
portion of our Board of Directors include “independent” directors, nor are we
required to establish or maintain an Audit Committee or other committee of our
Board of Directors.
We have not established any committees, including an Audit
Committee, a Compensation Committee or a Nominating Committee, any committee
performing a similar function. The functions of those committees are being
undertaken by Board of Directors as a whole. Because we have only
three directors, none of whom are independent, we believe that the establishment
of these committees would be more form over substance.
We do not have a policy regarding the consideration of any
director candidates which may be recommended by our stockholders, including the
minimum qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be followed. Our
Board has not considered or adopted any of these policies as we have never
received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our
relative size and lack of directors and officers insurance coverage, we do not
anticipate that any of our stockholders will make such a recommendation in the
near future. While there have been no nominations of additional directors
proposed, in the event such a proposal is made, all members of our Board will participate
in the consideration of director nominees. In considering a director
nominee, it is likely that our Board will consider the professional and/or
educational background of any nominee with a view towards how this person might
bring a different viewpoint or experience to our Board.
None of our directors is an “audit committee financial expert”
within the meaning of Item 401(e) of Regulation S-K. In general, an “audit
committee financial expert” is an individual member of the audit committee or
Board of Directors who:
|
●
|
understands generally U.S. GAAP and financial statements,
|
|
●
|
is able to assess the general application of such principles in
connection with accounting for estimates, accruals and reserves,
|
|
●
|
has experience preparing, auditing, analyzing or evaluating
financial statements comparable to the breadth and complexity to our
financial statements,
|
|
●
|
understands internal controls over financial reporting, and
|
|
●
|
understands
audit committee functions.
|
Family
Relationships
Except
for Patience and Frank who have spousal relationship, none of our directors are
related to any of our other directors and none have any pending legal claims or
litigation against them.
Section 16(a) Compliance.
Section 16(a) of the Securities and
Exchange Act of 1934 requires that directors and executive officers, and
persons who own beneficially more than ten percent (10%) of the Registrant’s
Common Stock, to file reports of ownership and changes of ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Registrant pursuant to Section 16(a). Based solely on the
reports received by the Registrant and on written representations from
reporting persons, the Registrant was informed that our CEO has filed reports
as required under Section 16(a). Based solely on the reports received by the
Registrant and on written representations from reporting persons, the
Registrant was informed that its officers and directors have not filed all
reports as required under Section 16(a).
Code
of Ethics
We have adopted a corporate code of ethics. We
believe our code of ethics is reasonably designed to deter wrongdoing and
promote honest and ethical conduct; provide full, fair, accurate, timely and
understandable disclosure in public reports; comply with applicable laws;
ensure prompt internal reporting of code violations; and provide accountability
for adherence to the code. We
adopted a Code of Ethics and Business Conduct which is applicable to our future
employees and which also includes a Code of Ethics
for our chief executive and principal financial officers and any persons
performing similar functions. A code of ethics is a written standard designed
to deter wrongdoing and to promote:
|
honest
and ethical conduct,
|
|
full,
fair, accurate, timely and understandable disclosure in regulatory filings
and public statements,
|
|
compliance
with applicable laws, rules and regulations,
|
|
the
prompt reporting violation of the code, and
|
|
accountability
for adherence to the code.
|
Our
adopted a code of ethics applies to all our directors, officers and
employees. Our code of ethics is intended to comply with the
requirements of Item 406 of Regulation S-K.
We
will provide our code of ethics in print without charge to any stockholder who
makes a written request to Frank I Igwealor, our President, Chief Executive
Officer and Chief Financial Officer, at GiveMePower
Corporation, 370
Amapola Ave., Suite 200A, Torrance, CA 90501. Any waivers of
the application, and any amendments to, our code of ethics must be made by our
board of directors. Any waivers of, and any amendments to, our
code of ethics will be disclosed promptly on our Internet website.
Directors’ Term of Office.
Our directors are appointed for a one-year
term to hold office until the next annual general meeting of our shareholders
or until removed from office in accordance with our bylaws. All directors
listed above will remain in office until the next annual meeting of our
stockholders, and until their successors have been duly elected and qualified.
There are no agreements with respect to the election of Directors.
Compensation of Directors
We have not established standard
compensation arrangements for our directors and the compensation payable to
each individual for their service on our Board is determined from time to time
by our Board of Directors based upon the amount of time expended by each of the
directors on our behalf. During the 2019 and 2020 fiscal year, none
of our directors received any compensation specifically for their services as a
director.
Audit Committee and Financial Expert,
Compensation Committee, Nominations Committee.
We do not have any of the above-mentioned
standing committees because our corporate financial affairs and corporate
governance are simple in nature at this stage of development and each financial
transaction is approved by our sole officer or director.
Potential Conflicts of Interest.
Since we do not have an audit or
compensation committee comprised of independent Directors, the functions that
would have been performed by such committees are performed by our Board of
Directors. Thus, there is a potential conflict of interest in that our
Directors have the authority to determine issues concerning management
compensation, in essence their own, and audit issues that may affect management
decisions. We are not aware of any other conflicts of interest with any of our
Executives or Directors.
Board’s Role in Risk Oversight.
The Board assesses on an ongoing basis the risks faced by the
Company. These risks include financial, technological, competitive, and
operational risks. In addition, since the Company does not have an Audit
Committee, the Board is also responsible for the assessment and oversight of
the Company’s financial risk exposures.
NASDAQ Rule 4200.
The NASDAQ Rule 4200, which sets forth
several tests to determine whether a director of a listed company is
independent. Rule 4200 provides that a director would not be considered
independent if the director or an immediate family member accepted any
compensation from the listed company in excess of $120,000 during any period of
12 consecutive months within the three years preceding the determination of
independence (excluding compensation for board or board committee service,
compensation paid to an immediate family member as a non-executive employee,
benefits paid under a tax-qualified retirement plan and non-discretionary
compensation).
Director Independence.
In determining whether or not our
directors are considered independent, the Company used the definition of
independence as defined in NASDAQ Rule 4200. Our board of directors has
determined that neither of the members of our board of directors qualifies as
an “independent” director under Nasdaq’s definition of independence.
Our
board of directors is currently composed of Mr. Igwealor, our chief executive
officer and secretary, and Ms patience C Ogbozor, a Director. Neither of them
qualifies as an independent director in accordance with the published listing
requirements of the NASDAQ Global Market. The NASDAQ independence definition
includes a series of objective tests, such as that the director is not, and has
not been for at least three years, one of our employees and that neither the
director, nor any of his family members has engaged in various types of
business dealings with us. In addition, our board of directors has not made a
subjective determination as to each director that no relationships exist which,
in the opinion of our board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director, though
such subjective determination is required by the NASDAQ rules. Had our board of
directors made these determinations, our board of directors would have reviewed
and discussed information provided by the directors and us with regard to each
director’s business and personal activities and relationships as they may
relate to us and our management.
LEGAL
PROCEEDINGS
Involvement in Certain Legal Proceedings.
We are subject to
legal proceedings and claims that arise in the ordinary course of business. We
do not believe that any claims exist where the outcome of such matters would
have a material adverse effect on our consolidated financial position,
operating results or cash flows. However, there can be no assurance such legal
proceedings will not have a material impact on future results.
There are no legal proceedings that have occurred within the past
ten years concerning our directors or officers which involved a criminal
conviction, a criminal proceeding, an administrative or civil proceeding
limiting one’s participation in the securities or banking industries, or a
finding of securities or commodities law violations.
From
time to time we may be involved in litigation relating to claims arising out of
the operation of our business in the normal course of business. Other than as
described below, as of the date of this Registration Statement we are not aware
of potential dispute or pending litigation and are not currently involved in a
litigation proceeding or governmental actions the outcome of which in
management’s opinion would be material to our financial condition or results of
operations. An adverse result in these or other matters may have, individually
or in the aggregate, a material adverse effect on our business, financial
condition or operating results.
On February 20, 2019, Plaintiff Maria De Lourdes Perez filed a
complaint against defendants City of Carson, Goldstein Franklin, Inc., Frank
Igwealor, Healthy Foods Markets, LLC, Optimal Foods, LLC, and Blockchain
Capital LLC. The complaint alleged statutory liability pursuant to government
code section 835, gross negligence, and premises liability for a trip-and-fall
that occurred on April 11, 2018 at a property owned and controlled by Healthy
Foods Markets, LLC. Defendants Goldstein Franklin, Inc., Frank Igwealor,
Optimal Foods, LLC, and Blockchain Capital LLC. had answered the complaint and
also requested a demurrer on the grounds that (1) Defendants are not a proper
party in interest and there was a misjoinder of defendants. Our attorney has
advised that the complaint would not have an adverse impact on Mr. Igwealor or
the Company because the scope of liability is restricted to healthy Food
Markets, LLC.
As of June 23, 2020, except for the complaint listed above, there
was no material proceeding to which any of our directors, officers, affiliates
or stockholders is a party adverse to us. During the past ten years, no present director,
executive officer or person nominated to become a director or an executive
officer of us:
(1) had
a petition under the federal bankruptcy laws or any state insolvency law filed
by or against, or a receiver, fiscal agent or similar officer appointed by a
court for the business or property of such person, or any partnership in which
he was a general partner at or within two years before the time of such filing,
or any corporation or business association of which he was an executive officer
at or within ten years before the time of such filing;
(2) was
convicted in a criminal proceeding or subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(3) was
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining him from or otherwise limiting his involvement in any of 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;
ii. 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; or
(4) was
the subject of any order, judgment or decree, not subsequently reversed,
suspended or vacated, of an 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 (3) (i), above, or to be associated with
persons engaged in any such activity; or
(5) was
found by a court of competent jurisdiction (in a civil action), the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and for which the
judgment has not been reversed, suspended or vacated.
EXECUTIVE
COMPENSATION
Compensation Discussion and Analysis
Compensation Committee
The Board of Directors does not have a
Compensation Committee, the independent directors of the Board oversee the
Company’s executive compensation program. We currently do not have independent
directors on our Board. Compensation for the CEO and the CFO is approved by
the general Board. Compensation for other executive officers and senior
management is determined by the CEO and CFO pursuant to the Board of Directors
delegating to the CEO and CFO authority to do so.
Elements to Executive
Compensation
We intend to develop an executive compensation
policy. The Company’s executive compensation program would be designed to
attract and retain executives responsible for the Company’s long-term success,
to reward executives for achieving both financial and strategic company goals
and to provide a compensation package that recognizes individual contributions
as well as overall business results. The Company’s executive compensation
program would also takes into account the compensation practices of companies
with whom GiveMePower Corporation competes for executive talent.
The two components of the Company’s executive
compensation program are base salary and annual discretionary bonuses. Overall
compensation is intended to be competitive for comparable positions at peer
companies.
Objectives. The objectives of the
Company’s executive compensation policies would be to attract and retain highly
qualified executives by designing the total compensation package to motivate
executives to provide excellent leadership and achieve Company goals; to align
the interests of executives, employees, and
stockholders by establishing cohesive management, financial, operation and
marketing goals that reflect the Company’s strategic growth plan; and to
provide executives with reasonable security, through retirement plan and annual
discretionary bonuses that motivate them to continue employment with the
Company and achieve goals that will make the Company thrive and remain
competitive in the long-run.
Linkage between compensation programs and Company
objective and values. The executive compensation policy would link
executive compensation closely with the Company objectives, which we believe
are dependent on the level of employee engagement, operational excellence, cost
management and profitability achieved. The primary quantifiable measurement of
operational excellence for the Company would be the achievement of
profitability, which is directly related to increasing annual revenue.
Executives’ annual performance evaluations would be based in part on their
achievement of the aforementioned goals and in part on revenue targets that may
be established by the Board of Directors at the beginning of each fiscal year.
The Company currently does not have a defined non-equity incentive plan in
place for its named executives.
The roles of various elements of compensation.
Executive compensation includes base salary, annual discretionary bonuses
awarded by the Board of Directors in conjunction with named executives’ annual
performance evaluations and other annual compensation granted under the
noncontributory defined benefit retirement plan. Collectively, the Board’s
objective is to ensure a total pay package that is appropriate given the
performance of both the Company and the individual named executive.
Governance practices concerning compensation. The
Board of Directors would implemented a number of procedures that the Board
follows to ensure good governance concerning compensation. These include
setting CEO and CFO salaries, authorizing the CEO or the CFO to determine the
salaries of presidents and vice presidents, establishing annual goals for the
Company, reviewing proposals for stock incentive plans, exercising fiduciary
responsibilities over retirement plans, overseeing management development and
succession planning, and keeping adequate records of its activities.
Base Salary
Each executive’s base salary is initially
determined with reference to competitive pay practices of peer companies (where
such information is publicly available) and is dependent upon the executive’s
level of responsibility and experience. The Board uses its discretion, rather
than a formal weighting system, to evaluate these factors and to determine
individual base salary levels. Thereafter, base salaries are reviewed
periodically, and increases are made based on the Board of Director’s
subjective assessment of individual performance, as well as the factors
discussed above.
Annual Discretionary Bonuses
In future years we shall pay variable incentive
compensation to our executives, however, due to our overall performance in
2019, our executive officers were not awarded bonuses.
Summary Compensation Table
The following table covers all compensation
awarded to, earned by, or paid to the named executive officers. The table sets
forth information about the compensation paid or accrued by our chief executive
officer, chief financial officer, and one other most
highly compensated executive officer (our “named officers”) for the last three
completed fiscal years:
SUMMARY COMPENSATION TABLE
|
|
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation ($)
|
|
|
Nonqualified Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Frank I Igwealor
|
|
2020
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(i)
|
|
|
10,000
|
|
Chair,
CEO, CFO
|
|
2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(ii)
|
|
|
—
|
|
|
|
2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(iii)
|
|
|
—
|
|
|
|
|
|
|
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Patience
C Ogbozor, Director
|
|
2020
|
|
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—
|
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—
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—
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—
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—
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—
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—
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(iv)
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—
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2019
|
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—
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—
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—
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—
|
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—
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—
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—
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(ii)
|
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—
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2018
|
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—
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—
|
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—
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—
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—
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—
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—
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(iii)
|
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—
|
|
Notes:
(i)
|
A
hire-on bonus of 10,000,000 shares issued to Mr. Igwealor
|
|
|
(ii)
|
The
company did not record any officer compensation in 2019
|
|
|
(iii)
|
The
company did not record any officer compensation in 2018
|
(iv)
|
Miss
Ogbozor have not received any compensation from the company.
|
Stock Option Grants in the Last Fiscal Year;
Exercises of Stock Options
As at January 6, 2021, there were no grants of
stock options by the Company. There was also no grants of stock options by the
Company during the fiscal year ended December 31, 2019 and 2020. The Company
has never granted any stock options.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial
ownership of shares of our common stock by (i) each person who is known to us
to be the beneficial owner of more than 5% of our common stock; (ii) each
director and named executive officer (defined above) individually; and (iii)
all directors and executive officers as a group. Beneficial ownership of common
stock has been determined for this purpose in accordance with Rules 13d-3 and
13d-5 of the Securities and Exchange Commission, under the Securities Exchange
Act of 1934, as amended. These rules provide, among other things, that a person
is deemed to be the beneficial owner of common stock if such person, directly
or indirectly, has or shares voting power or investment power with respect to
the common stock or has the right to acquire such ownership within sixty days
after the date of this registration statement.
Title of Class
|
|
Name of Beneficial Owner
|
Amount and Nature
|
Percent of Class
|
Cumulative Voting
|
of Beneficial
|
Ownership
|
Power
|
Preferred stock
|
|
Kid Castle Educational Corporation
|
1,000,000
|
100%
|
87.51%
|
Preferred stock
|
(a)
|
Goldstein Franklin, Inc.
|
1
|
100%
|
8.75%
|
Common stock
|
(b)
|
Frank I Igwealor
|
10,000,000
|
23.41%
|
0.88%
|
Common stock
|
(c)
|
Poverty Solutions, Inc.
|
5,000,000
|
11.70%
|
0.44%
|
Common stock
|
(d)
|
Directors and officers as a group
|
10,000,000
|
23.41%
|
64.6300%
|
NOTES:
(a)
The
Special Class A Preferred control share sold to Goldstein Franklin, Inc, which
is convertible into 100 million shares of our Common stock. Same share reverted
to Frank I Igwealor control 100% of Goldstein Franklin, Inc.
(b)
Hire-on-Bonus
paid to Mr. Igwealor upon his acceptance of the CEO position of the Company
(c) Table
reflects information As of January 6, 2021 and based on 42,724,687 shares of
common stock outstanding as at December 16, 2020 and December 31, 2019.
(d) Table
reflects information As of January 6, 2021 and based on 42,724,687 shares of
common stock outstanding as at December 16, 2020 and December 31, 2019.
TRANSACTIONS WITH RELATED PERSONS,
PROMOTERS AND CERTAIN CONTROL PERSONS
Certain Related Party Transactions During the Last Two Fiscal
Years
Certain Relationships and Related Transactions
Our
officers and directors are Mr. Igwealor, our chief executive officer and
secretary, and Ms patience C Ogbozor, a Director are also directors of
Goldstein Franklin Inc.
The Company considers its founders, managing directors, employees,
significant shareholders, and the portfolio Companies to be affiliates. In
addition, companies controlled by any of the above named is also classified as
affiliates.
Line of credit from related party consisted of the following:
|
September 30, 2020
|
|
December 31, 2019
|
September
2019 (line of credit) - Line of credit with maturity date of February 28, 2021 with 0%
interest per annum with unpaid principal balance and accrued interest payable
on the maturity date.
|
$
|
163,632
|
$
|
41,200
|
May
20, 2020 (line of credit) Line of credit with maturity date of May 4, 2025 with 0%
interest per annum with unpaid principal balance and accrued interest payable
on the maturity date.
|
|
766,717
|
|
-
|
July
3, 2020 (30 year term loan) Term loan with maturity date of July 2, 2050 with 3.75%
interest per annum with unpaid principal balance and accrued interest payable
on the maturity date.
|
|
150,000
|
|
-
|
Total
Line of credit - related party
|
|
930,350
|
|
41,200
|
Less
current portion
|
|
(163,632)
|
|
(41,200)
|
Total
Line of credit - related party
|
$
|
766,718
|
$
|
-
|
Goldstein Franklin, Inc. - $190,000 line
of credit
On February 28, 2020, the Company amended its line of credit
agreement to increase it to the amount of $190,000 with maturity date of
February 28, 2021. The line of credit bears interest at 0% per annum and
interest and unpaid principal balance is payable on the maturity date. The
Company had unused line of credit of $26,368 as of September 30, 2020. See NOTE 14 for more details of our related party
transactions.
Related Transactions
The Company had the
following related party transactions:
·
Line
of Credit – On September 15, 2019, the Company entered into a line of credit
agreement in the amount of $41,200 with Goldstein Franklin, Inc. which is owned
and operated by Frank I. Igwealor, Chief Executive Officer of the Company. The
maturity date of the line of credit is February 15, 2020. The line of credit
agreement was amended to the amount of $190,000 and maturity date of February
28, 2021. The line of credit bears interest at 0% per annum and interest and
unpaid principal balance is payable on the maturity date. As at September 30,
2020, the Company had drawn $163,632.36 from the LOC.
·
Line
of credit - On May 5, 2020, the Company entered into a line of credit agreement
in the amount of $1,500,000 with Los Angeles Community Capital, which is owned
and operated by Frank I. Igwealor, Chief Executive Officer of the Company. The
maturity date of the line of credit is May 4, 2025. The line of credit bears
interest at 0% per annum and interest and unpaid principal balance is payable
on the maturity date. The Company had unused line of credit of $1,280,902 As of
September 30, 2020.
In addition, during
the nine months ended September 30, 2020, the Company pursuant to the terms of
loan agreement, paid to an entity controlled by our CEO $95,750 respectively,
as developer’s fees from the sales amount of the two real estate investment properties
sold. Although the $95,750 was less than the 10% of the total sales amount of
$1,205,000, the Company agreed with the lender to take less than 10% in
accommodation because one of the two properties sold had unanticipated cost
overrun.
Real
Property Sales and Loan Repayment to a Related Party Lender
As
at September 30, 2020, we have sold two of our four properties with two
properties left.
We
closed the sale of the 831 E 94th Street property on
February 21, 2020 and used part of the proceeds to payoff $367,128, which was
the total sum borrowed for the property purchase and rehabilitation. The
payment was made to Los Angeles Community Capital, an entity controlled by
CEO. Los Angeles Community Capital was the lender in this transaction.
We
closed the sale of the condominium unit located at 5125 Harold Way #307,
Los Angeles, CA 90027, on April 26, 2020 and used part of the proceeds to
payoff $555,031, which was the total sum borrowed for the property purchase and
rehabilitation. The payment was made to Los Angeles Community Capital, an
entity controlled by CEO. Los Angeles Community Capital was the lender in this
transaction.
Having
used $922,159, part of the proceeds from the two properties sales to pay down
the related party loan, the outstanding balance on the related party loan was
reduced to $561,751 as at September 30, 2020.
Developer’s
Fees paid to a Related Party Lender following the sales of two real properties
As
at September 30, 2020, we have sold two of the three properties with only one
of the three properties left. Following the close of the sales of two of the
properties, we paid out Developer Fee, pursuant to the loan agreement we had
with the lender, Los Angeles Community Capital, an entity controlled by Mr.
Igwealor, who has 100% voting control of Los Angeles Community Capital.
Following
the sale of the 831 E 94th Street property on
February 21, 2020 for $495,000, the agreed upon Developer Fee of $49,500 was
due to Los Angeles Community Capital. However, the Company negotiated the fee down to $24,750 (50% reduction)
because an undiscovered utility lien latter popped up at title/escrow and
reduced the profit by $50,000.
Following
the sale of the 5125 Harold Way property on April 26, 2020 for $710,000, the agreed upon Developer
Fee of $71,000 was due and paid to Los Angeles Community Capital.
In total, the Company paid $95,750 as Developer
Fees to a related party lender,
Los Angeles Community Capital, an entity controlled by our CEO, Mr. Igwealor,
who has 100% voting control of Los Angeles Community Capital.
Thus, during the six months ended September 30, 2020,
the Company pursuant to the terms of its Line of Credit agreement, paid $95,750
as developer’s fees from the sales amount of the two real estate investment properties
sold, to Los Angeles
Community Capital, an entity controlled by our CEO, Mr. Igwealor, who has 100%
voting control of Los Angeles Community Capital.
Although the Company was still able to
recorded $25,173 in net realized gains from the sale of Real Estate
Investment properties during the six months ended September 30, 2020, the
Company would have made more profit (save $95,750) from the sales if the Company
had a different financing mechanism including its own capital.
Notwithstanding the above mentioned possibility of making more
profit from sales of Real Estate Investment properties, there are no guarantees
that we could be able to raise sufficient capital to stand on our own and stop
using the credit line from a related party.
Review,
Approval and Ratification of Related Party Transactions
Given
our small size and limited financial resources, we have not adopted formal
policies and procedures for the review, approval or ratification of
transactions, such as those described above, with our executive officer(s),
Director(s) and significant stockholders. We intend to establish formal
policies and procedures in the future, once we have sufficient resources and
have appointed additional Directors, so that such transactions will be subject
to the review, approval or ratification of our Board of Directors, or an
appropriate committee thereof. On a moving forward basis, our Directors will
continue to approve any related party transaction.
DESCRIPTION OF OUR CAPITAL STOCK
General
We
are authorized to issue 1,200,000,000 shares of Common Stock $0.001 par value per share (the “Common Stock”). We
are also authorized to issue 10,000,000 shares of preferred stock, par value
$0.001(the “Preferred Stock”).
Common Stock
We
are authorized to issue 1,200,000,000 shares of Common Stock $0.001 par value per share. As of January 6, 2021, we had
42,724,687.00 shares of Common Stock outstanding. Our Common Stock is subject
to quotation on the OTC Pink Market under the trading symbol: “GMPW.” Our plan
is to apply for listing of our Common Stock on the NASDAQ Capital Market after
the Closing of the Offering of our Class B Common Stock. See the discussion
under “Description Of The Class B Common Stock” below.
Each share of Common Stock shall have one (1) vote per share for
all purpose. Our Common Stock does not provide a preemptive, subscription or
conversion rights and there are no redemption or sinking fund provisions or
rights. Our Common Stock holders are not entitled to cumulative voting for
election of Board of Directors.
Common Stock – Class B
We
are authorized to issue 1,200,000,000 shares of Common Stock $0.001 par value per share. We have designated 100,000,000
of the Common Stock as Class B. As of January 6, 2021, we had no shares of our
Class B Common Stock issued and outstanding. We plan to apply for listing of
our Class B Common Stock on the NASDAQ Capital Market after the Closing of the
Offering of our Class B Common Stock. See the discussion under “Description Of
The Class B Common Stock” below.
Each share of ordinary shares of our Common Stock and the Class B
Common Stock shall have one (1) vote per share for all purpose. Neither shares
of our Class B nor our shares our Ordinary Common Stock was provided a
preemptive, subscription or conversion rights and there are no redemption or
sinking fund provisions or rights. Our Common Stock holders are not entitled to
cumulative voting for election of Board of Directors.
Dividends
We have not paid any cash dividends to our shareholders. The
declaration of any future cash dividends is at the discretion of our board of
directors and depends upon our earnings, if any, our capital requirements and
financial position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash dividends in the
foreseeable future, but rather to reinvest earnings, if any, in our business
operations.
Transfer Agent and Registrar
The transfer agent
for our capital stock is Pacific Stock Transfer, with an address of 6725 Via
Austi Pkwy Ste 300, Las Vegas, NV 89119-3553, with a telephone of 702-361-3033.
Preferred
Stock
We
have authority to issue 10,000,000 shares of “blank check” Preferred Stock. Our
Board of Directors may issue the authorized Preferred Stock in one or more
series and may fix the number of shares of each series of preferred stock. Our
Board of Directors also has the authority to set the voting powers,
designations, preferences and relative, participating, optional or other
special rights of each series of Preferred Stock, including the dividend
rights, dividend rate, terms of redemption, redemption price or prices,
conversion and voting rights and liquidation preferences. Preferred Stock can
be issued and its terms set by our Board of Directors without any further vote
or action by our stockholders.
Series
A Preferred Stock
As
of December 31, 2019, there are 1 (one) special Preferred Stock share issued
and outstanding. The Preferred shares (i) vote on all matters with the holders
of common stock as if each shares of Series A was converted into 100,000,000
shares of common stock; and, (ii) are convertible into shares of common stock,
at any time in the discretion of the holders of the special preferred shares,
at a ratio of 100,000,000 shares of common stock for each share of special
preferred share.
WE HAVE NOT
AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR
REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY
UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR BUY ANY
SHARES IN ANY STATE OR OTHER JURISDICTION IN WHICH IT IS UNLAWFUL. THE
INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER. YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
In the even that we or the selling stockholder decide to engage or
authorize any dealer, salesperson or person to effect transactions in this
offering, such dealer, person or persons must comply with the requirements of
item 502(b) of Regulation S-K.
Dealer
Prospectus Delivery Obligation
Through and including
,
2021 (the 25th day after the date of this prospectus), all dealers effecting
transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to a
dealer’s obligation to deliver a prospectus when acting as an underwriter and
with respect to an unsold allotment, or subscription.
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF THE CLASS B COMMON STOCK
The description of certain terms of the Class B Common Stock (the
“Class B Common Stock”) in this prospectus does not purport to be complete and
is in all respects subject to, and qualified in its entirety by references to
the relevant provisions of our amended and restated certificate of
incorporation, the certificate of designations establishing the terms of our
Class B Common Stock.
General
Pursuant to our amended and restated certificate of incorporation,
we are currently authorized to designate and issue up to 100,000,000 shares of
Class B Common Stock, par value $0.001 per share, in one or more series and,
subject to the limitations prescribed by our amended and restated certificate
of incorporation and Nevada law, with such rights, preferences, privileges and
restrictions of each class or series of Class B Common Stock, including
dividend rights, voting rights and the number of shares constituting any series
as our board of directors may determine, without any vote or action by our
shareholders.
In connection with this offering, our board of directors will
designate 100,000,000 shares of our authorized Common Stock as Class B Common
Stock, having the rights and privileges described in this prospectus, by
adopting and filing the certificate of designations with the State of Nevada.
Assuming all of the shares of Class B Common Stock offered hereunder are
issued, we will have available for issuance 100,000,000 authorized but unissued
shares of Class B Common Stock. Our board of directors may, without the
approval of holders of the Class B Common Stock or our common stock, designate
additional series of authorized Class B Common Stock ranking junior to or on
parity with the Class B Common Stock or designate additional shares of the
Class B Common Stock and authorize the issuance of such shares. Designation of
a series of our Class B Common Stock ranking senior to the Class B Common Stock
will require approval of the holders of Class B Common Stock, as described
below in “Voting Rights.”
The
transfer agent for our capital stock is Pacific Stock Transfer, with an address
of 6725 Via Austi Pkwy Ste 300, Las Vegas, NV 89119-3553, with a telephone of
702-361-3033.
Quotation
We plan to apply for listing of our Class B Common Stock on the
NASDAQ Capital Market. Companies must meet all of the criteria under at
least one of the three standards below.
Requirements
|
|
Equity Standard
|
|
|
Market Value or Listed
Securities Standard
|
|
|
Net Income Standard
|
Listing Rules
|
|
|
5505(a) and
|
|
|
|
5505(a) and
|
|
|
|
5505(a) and
|
5505(b)(2)
|
5505(b)(2)
|
5505(b)(3)
|
Stockholders’ Equity
|
|
|
$5 million
|
|
|
|
$4 million
|
|
|
|
$4 million
|
Market Value of
Publicly Held Shares
|
|
|
$15 million
|
|
|
|
$15 million
|
|
|
|
$5 million
|
Operating History
|
|
|
2 years
|
|
|
|
-
|
|
|
|
-
|
Market Value of Listed Securities
|
|
|
|
|
|
|
$50 million
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Continuing Operations (latest fiscal year or in
2 of the last 3 fiscal years)
|
|
|
-
|
|
|
|
-
|
|
|
|
$750,000
|
Publicly Held Shares
|
|
|
1 million
|
|
|
|
1 million
|
|
|
|
1 million
|
Round Lot Shareholders
|
|
|
300
|
|
|
|
300
|
|
|
|
300
|
Market Makers
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
Bid Price or
|
|
|
$4
|
|
|
|
$4
|
|
|
|
$4
|
Closing Price
|
|
|
$3
|
|
|
|
$2
|
|
|
|
$3
|
|
|
|
|
|
|
|
|
|
|
|
|
* Currently traded companies qualifying solely under the
Market Value Standard must meet the $50 million Market Value of Listed
Securities and the applicable bid price requirement for 90 consecutive days
before applying.
** To qualify. Under the closing price alternative, a company
must have: (i) average annual revenues of $6 million for 3 years, or (ii) net
tangible assets of $5 million, or (iii) net tangible assets of $2 million and a
3-year operating history, in addition to satisfying the other financial and
liquidity requirements listed above.
Book-Entry Procedures
DTC acts as securities depository for our outstanding common stock
and will also act as securities depository for the Class B Common Stock offered
hereunder. With respect to the Class B Common Stock offered hereunder, we will issue
one or more fully registered global securities certificates in the name of
DTC’s nominee, Cede & Co. These certificates will represent the total
aggregate number of shares of Class B Common Stock. We will deposit these
certificates with DTC or a custodian appointed by DTC. We will not issue
certificates to you for the shares of Class B Common Stock that you purchase,
unless DTC’s services are discontinued as described below.
Title to book-entry interests in the Class B Common Stock will
pass by book-entry registration of the transfer within the records of DTC in
accordance with its procedures. Book-entry interests in the securities may be
transferred within DTC in accordance with procedures established for these
purposes by DTC. Each person owning a beneficial interest in shares of the
Class B Common Stock must rely on the procedures of DTC and the participant
through which such person owns its interest to exercise its rights as a holder
of the Class B Common Stock.
We understand that, under DTC’s existing practices, in the event
that we request any action of the holders, or an owner of a beneficial interest
in a global security, such as you, desires to take any action that a holder is
entitled to take under our amended and restated certificate of incorporation
(including the certificate of designations designating the Class B Common
Stock), DTC would authorize the Direct Participants holding the relevant shares
to take such action, and those Direct Participants and any Indirect
Participants would authorize beneficial owners owning through those Direct and
Indirect Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Any redemption notices with respect to
the Class B Common Stock will be sent to Cede & Co. If less than all of the
outstanding shares of Class B Common Stock are being redeemed, DTC will reduce
each Direct Participant’s holdings of shares of Class B Common Stock in
accordance with its procedures.
In those instances where a vote is required, neither DTC nor Cede
& Co. itself will consent or vote with respect to the shares of Class B
Common Stock. Under its usual procedures, DTC would mail an omnibus proxy to us
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.’s consenting or voting rights to those Direct Participants whose accounts
the shares of Class B Common Stock are credited to on the record date, which
are identified in a listing attached to the omnibus proxy.
Dividends on the Class B Common Stock will be made directly to
DTC’s nominee (or its successor, if applicable). DTC’s practice is to credit
participants’ accounts on the relevant payment date in accordance with their
respective holdings shown on DTC’s records unless DTC has reason to believe
that it will not receive payment on that payment date.
Payments by Direct and Indirect Participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in “street name.” These payments will be the responsibility of the
participant and not of DTC, us or any agent of ours.
DTC may discontinue providing its services as securities
depositary with respect to the Class B Common Stock at any time by giving
reasonable notice to us. Additionally, we may decide to discontinue the
book-entry only system of transfers with respect to the Class B Common Stock.
In that event, we will print and deliver certificates in fully registered form
for the Class B Common Stock. If DTC notifies us that it is unwilling to
continue as securities depositary, or it is unable to continue or ceases to be
a clearing agency registered under the Exchange Act and a successor depositary
is not appointed by us within 90 days after receiving such notice or becoming
aware that DTC is no longer so registered, we will issue the Class B Common
Stock in definitive form, at our expense, upon registration of transfer of, or
in exchange for, such global security.
Global Clearance and Settlement Procedures
Initial settlement for the Class B Common Stock will be made in
immediately available funds. Secondary market trading among DTC’s participants
will occur in the ordinary way in accordance with DTC’s rules and will be
settled in immediately available funds using DTC’s Same-Day Funds Settlement
System.
PLAN OF DISTRIBUTION
The Offering will be made using the services of our management,
who will not be compensated for their services and efforts related to the
Offering of our Class B Common Stock. We also contemplate utilizing the
services of one or more placement agents (collectively, the “Placement
Agents”), which means our management and Placement Agent(s) will attempt to
sell the Class B Common Stock being offered hereby on behalf of the
Company. There is no underwriter for this Offering. To date, we have not yet
retained any Placement Agent nor are we in negotiations with any Placement
Agent but expect that we will utilize one or more Placement Agent(s) and expect
that will enter into a Placement Agent Agreement in the form attached as
Exhibit 10.17 hereto prior to the commencement of the Offering. Reference is
also made to the disclosure under “The Offering” above.
Pursuant to the terms of the Placement Agent Agreement, we will
pay the Placement Agents a cash fee equal to 7% of the gross proceeds received
by the Company from qualified investors from such closing of the sale of Class
B Common Stock as a direct result of the selling efforts and introductions of
each respective Placement Agent.
The Placement Agent Agreement does not give rise to any commitment
by any Placement Agent to purchase any of our securities, and the Placement
Agent will have no authority to bind us by virtue of the Placement Agent
Agreement. Further, the Placement Agent does not guarantee that any such
Placement Agent will be able to raise new capital in any prospective offering.
We will deliver the shares of Class B Common Stock, also referred
to as the “Securities” being issued to the investors upon receipt of investor
funds for the purchase of the Securities offered pursuant to this prospectus.
We expect to deliver the securities being offered pursuant to this prospectus
on or about ______________, 2021.
The following table shows per-share and total cash placement
agent fees we will pay to the placement agent in connection with the
sale of the shares of Class B Common Stock pursuant to this prospectus assuming
the purchase of all of the shares offered hereby, as well as the fees if the
number of shares sold was 33% or 67% of the maximum offered:
|
|
33% of Maximum
|
|
|
67% of Maximum
|
|
|
Maximum
|
Per-share placement agent fee
|
|
$
|
1.38
|
|
|
$
|
1.38
|
|
|
$
|
1.38
|
Total placement agent fee
|
|
$
|
238,392
|
|
|
$
|
484,008
|
|
|
$
|
722,400
|
We have agreed to indemnify the Placement Agent and specified
other persons against some civil liabilities, including liabilities under the
Securities Act of 1933, as amended (the “Act”) and the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and to contribute to payments that
the Placement Agent may be required to make in respect of such liabilities.
Any Placement Agent participating in the Offering may be deemed to
be an underwriter within the meaning of Section 2(a)(11) of the Act, and any
commissions received by them and any profit realized on the
resale of the securities sold by them while acting as principal might be deemed
to be underwriting discounts or commissions under the Act. As underwriters, a
placement agent would be required to comply with the requirements of the Act
and the Exchange Act, including, without limitation, Rule 415(a)(4) under the
Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and
regulations may limit the timing of purchases and sales of shares of Class B
Common Stock by any Placement Agent acting as principal. Under these rules and
regulations, a Placement Agent:
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may not engage in any stabilization activity in connection with
our securities; and
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may not bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities, other than as permitted
under the Exchange Act, until it has completed its participation in the distribution.
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From time to time, one or more of the Placement Agents may provide
us in the future, various advisory, investment and commercial banking and other
services to us in the ordinary course of business, for which it has received
and may continue to receive customary fees and commissions. However, except as
disclosed in this prospectus, we have no present arrangements with any
Placement Agent for any further services.
SHARES ELIGIBLE FOR FUTURE SALE
Sale
of restricted shares
We
are authorized to issue 1,200,000,000 shares of Common Stock $0.001 par value per share. As of January 6, 2021, we had
42,724,687 shares of Common Stock outstanding. Based on the number of
shares of our common stock outstanding as of January
6, 2021, upon the closing of the offering, there would not be any change
to the issued and outstanding shares of our Common Stock because the selling
shareholders’ stock were included in our shares issued and outstanding.
All
of the shares of common stock being sold by the selling will be freely tradable
in the public market without restriction or further registration under the
Securities Act, unless the shares are held by any of our “affiliates” as such
term is defined in Rule 144 of the Securities Act. All “restricted securities”
as such term is defined in Rule 144 that will then be held by our “affiliates”.
These restricted securities will only be eligible for public sale if registered
under the Securities Act or if they qualify for an exemption from registration
under the Securities Act, including the exemptions provided by Rule 144 or Rule
701, which rules are summarized below.
Rule
144
In
general, under Rule 144, as currently in effect, 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 three months
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 (subject to the lock-up agreement
referred to below, if applicable) 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. Rule 144(a)(1) defines an “affiliate” of an issuing
company as a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Directors, officers and holders of ten percent or more of the
Company’s voting securities (including securities which are issuable within the
next sixty days) are deemed to be affiliates of the issuing company. 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 “affiliates,”
then such person is entitled to sell such shares in the public market without
complying with any of the requirements of Rule 144 (subject to the lock-up
agreement referred to below, if applicable). In general, under Rule 144, as
currently in effect, our “affiliates,” as defined in Rule 144, who have
beneficially owned the shares proposed to be sold for at least six months,
including the holding period of any prior owner other than one of our
“affiliates,” are entitled to sell in the public market, upon expiration of any
applicable lock-up agreements and within any three-month period, a
number of those shares of our common stock that does not exceed the greater of:
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1% of the number of common shares then outstanding, which will
equal approximately 427,247 shares of common stock immediately after this
offering (calculated assuming no exercise of the underwriters’ option to
purchase additional shares and no exercise of outstanding options or
warrants); or
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144 with respect
to such sale.
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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 the availability of current public information about us.
Notwithstanding the availability of Rule 144, the holders of substantially all
of our restricted securities have entered into lock-up agreements as
referenced above and their restricted securities will become eligible for sale
(subject to the above limitations under Rule 144) upon the expiration of the
restrictions set forth in those agreements.
Rule
701
The
Rule 701 exemption is not available to Exchange Act reporting companies. In
general, under Rule 701 as currently in effect, any of our employees,
directors, officers, consultants or advisors who acquired common stock from us
in connection with a written compensatory stock or option plan or other written
agreement in compliance with Rule 701 under the Securities Act before the
effective date of the registration statement of which this prospectus is a part
(to the extent such common stock is not subject to a lock-up agreement)
is entitled to rely on Rule 701 to resell such shares. Our affiliates can
resell shares in reliance on Rule 144 without having to comply with the holding
period requirement, and non-affiliates of the Company can resell shares in
reliance on Rule 144 without having to comply with Rule 144’s current public
information and holding period requirements in Rule 144. Accordingly, subject
to any applicable lock-up agreements, under Rule 701 persons who are
non-affiliates may resell those shares without complying with the minimum
holding period or public information requirements of Rule 144, and affiliates
of the Company may resell those shares without compliance with Rule 144’s
minimum holding period requirements.
Selling
Restrictions
This
prospectus does not constitute an offer to sell to, or a solicitation of an
offer to buy from, anyone in any country or jurisdiction (a) in which such
an offer or solicitation is not authorized; (b) in which any person making
such offer or solicitation is not qualified to do so; or (c) in which any
such offer or solicitation would otherwise be unlawful. No action has been
taken that would, or is intended to, permit a public offer of the shares of
common stock or possession or distribution of this prospectus or any other
offering or publicity material relating to the shares in any country or
jurisdiction (other than the United States) where any such action for that
purpose is required. Accordingly, each underwriter has undertaken
that it will not, directly or indirectly, offer or sell any shares or have in
its possession, distribute or publish any prospectus, form of application,
advertisement or other document or information in any country or jurisdiction
except under circumstances that will, to the best of its knowledge and belief,
result in compliance with any applicable laws and regulations and all
offers and sales of shares by it will be made on the same terms.
We
have not authorized and do not authorize the making of any offer of securities
through any financial intermediary on our behalf, other than offers made by the
underwriters and their respective affiliates, with a view to the final
placement of the securities as contemplated in this document. Accordingly, no
purchaser of the shares, other than the underwriters, is authorized to make any
further offer of shares on our behalf or on behalf of the underwriters.
LEGAL MATTERS
No counsel named in this Prospectus as having prepared or
certified any part of this Prospectus or having given an opinion upon the
validity of the securities being registered or upon other legal matters in
connection with the registration or Offering of the Class B Common Stock was
employed on a contingency basis, or had, or is to receive, in connection with
the Offering, a substantial interest, direct or indirect, in the Registrant.
Nor was any such person connected with the registrant as a promoter, managing
or principal underwriter, voting trustee, director, officer, or employee.
The validity of the Class B Common Stock being offered hereby and
other certain legal matters will be passed upon for us by Law Office Of Mary
Shea, Mary Shea, Esq.
EXPERTS
No expert named in this Prospectus as having prepared or certified
any part of this Prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or Offering of the Class B Common Stock was employed on a
contingency basis, or had, or is to receive, in connection with the Offering, a
substantial interest, direct or indirect, in the registrant. Nor was any such
person connected with the registrant as a promoter, managing or principal
underwriter, voting trustee, director, officer, or employee.
The audited financial statements for the years ended December 31,
2019 included in this Prospectus and the Registration Statement have been
audited by Benjamin & Ko, Certified Public Accountants and Consultants, an
independent registered public accounting firm, to the extent and for the periods
set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the
Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of our
common stock being offered by this prospectus. This prospectus, which
constitutes part of that registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules that are part of the registration statement. Some items included in
the registration statement are omitted from the prospectus in accordance with
the rules and regulations of the SEC. For further information with respect to
us and the common stock offered in this prospectus, we refer you to the
registration statement and the accompanying exhibits and schedules filed
therewith. Statements contained in this prospectus regarding the contents of
any contract or any other document that is filed as an exhibit to the
registration statement are not necessarily complete, and each such statement is
qualified in all respects by reference to the full text of such contract or
other document filed as an exhibit to the registration statement.
We file annual reports, quarterly and current reports, proxy
statements and other information with the SEC. The public may read and copy any
materials that we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Room 1580, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC0330. The
SEC maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at www.sec.gov .
All of our reports filed with the SEC (including Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
proxy statements) are accessible through the Investor Relations section of our
website, free of charge, as soon as reasonably practicable after electronic
filing. The reference to our website in this prospectus is an inactive textual
reference only and is not a hyperlink. The contents of our website are not part
of this prospectus, and you should not consider the contents of our website in
making an investment decision with respect to our securities.
Upon
the completion of this offering, we will be subject to the information and
periodic reporting requirements of the Exchange Act and, in accordance
therewith, we will file proxy statements, periodic information and other
information with the SEC. All documents filed with the SEC are available for
inspection and copying at the public reference room and website of the SEC
referred to above. You may access our reports, proxy statements and other
information free of charge at this website as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the SEC. The
information contained in, or that can be accessed through, our website is not
incorporated by reference and is not a part of this prospectus.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
NRS 78.502 of Chapter 78 of the Nevada Private
Corporations Law authorizes a court to award, or a corporation's board of
directors to grant, indemnity to directors and officers under certain
circumstances and subject to certain limitations. The terms of NRS 78.502 of
Chapter 78 of the Nevada Private Corporations Law are sufficiently broad to
permit indemnification under certain circumstances for liabilities, including
reimbursement of expenses incurred, arising under the Securities Act of 1933,
as amended (the Securities Act).
As permitted by the Nevada Private Corporations, we have agreed to
indemnify each of our directors and certain officers against personal
liabilities, including liabilities under the Securities Act and for any breach
of fiduciary duties as a director, except liability for the following:
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any
breach of the director's duty of loyalty to the Registrant or its
stockholders;
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acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
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Under NRS 78.300 of Nevada Private Corporation Law (regarding
unlawful dividends and stock purchases); or
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any transaction from which the director derived an improper
personal benefit.
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As
permitted by the Nevada Private Corporation Law, the Registrant's restated
bylaws that will be in effect at the closing of our initial public offering,
provide that:
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the Registrant is required to indemnify its directors and
executive officers to the fullest extent permitted by the Nevada Private
Corporation Law, subject to very limited exceptions;
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the Registrant may indemnify its other employees and agents as
set forth in the Nevada Private Corporation Law;
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the Registrant is required to advance expenses, as incurred, to
its directors and executive officers in connection with a legal proceeding to
the fullest extent permitted by the Nevada Private Corporation Law, subject
to very limited exceptions; and
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the rights conferred in the bylaws are not exclusive.
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GiveMePower Corporation
1,000,000 Shares of Class B
Common Stock
$10.00 Per Share
Liquidation Preference $10.00 Per Share
PROSPECTUS
_________________________________
___________, 2021
PART
II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the costs and expenses, other than
placement agent commissions, payable in connection with the issuance and
distribution of the Class B Common Stock being registered.
Securities and Exchange Commission registration fee
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$
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1,136.00
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NASDAQ Listing Fees
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$
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40,000.00
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Transfer agent and registrar fees and expenses
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$
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25,000.00
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Accounting fees and expenses
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$
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45,000.00
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Legal fees and expense
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$
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85,000.00
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Miscellaneous
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$
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81,464.00
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Total
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$
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277,600.00
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All amounts are estimates other than the Commission’s registration
fee. We are paying all expenses of the Offering listed above.
Item 14. Indemnification of Directors and Officers.
Under
our Bylaws, every person who was or is a party to, or is threatened to be made
a party to, or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he, or a
person of whom he is the legal representative, is or was a director or officer
of the Company, or is or was serving at the request of the Company as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust, or other enterprise, shall be indemnified
and held harmless to the fullest extent legally permissible under the laws of
the State of Nevada from time to time against all expenses, liability, and loss
(including attorneys’ fees judgments, fines, and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
Such right of indemnification shall be a contract right, which may be enforced
in any manner desired by such person. The expenses of officers and directors
incurred in defending a civil or criminal action, suit, or proceeding must be
paid by the Company as they are incurred and in advance of the final
disposition of the action, suit, or proceeding, upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the company. Such right of indemnification shall
not be exclusive of any other right which such directors, officers, or
representatives may have or hereafter acquire, and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of shareholders, provision
of law, or otherwise.
Without
limiting the application of the foregoing, the Board of Directors may adopt
bylaws from time to time with respect to indemnification, to provide at all
times the fullest indemnification permitted by the laws of the State of Nevada,
and may cause the Company to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Company, or is or was serving
at the request of the Company as a director or officer of another corporation,
or as its representative in a partnership, joint venture,
trust, or other enterprise against any liability asserted against such person
and incurred in any such capacity or arising out of such status, whether or not
the Company would have the power to indemnify such person. The indemnification
provided shall continue as to a person who has ceased to be a director,
officer, employee, or agent, and shall inure to the benefit of the heirs,
executors and administrators of such person.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We
have not entered into any agreements with our directors and executive officers
that require us to indemnify these persons against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred (including
expenses of a derivative action) in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason of
the fact that the person is or was a director or officer of our Company or any
of our affiliated enterprises. We do not maintain any policy of directors’ and
officers’ liability insurance that insures its directors and officers against
the cost of defense, settlement or payment of a judgment under any
circumstances.
Item 15. Recent Sales of Unregistered Securities.
During the last three fiscal years, the Registrant issued and/or
sold the following restricted securities.
Restricted Securities Issued in 2020:
During the period January 1, 2020 through December 31, 2020, the
Company issued a total of 5,000,000 shares of its Common Stock related for cash
to poverty Solutions, Inc. In addition, the Company issued a total of
10,000,000 shares of its Common Stock to it CEO Mr. Frank I Igwealor pursuant
to certain hire-on-bonus agreement.
Restricted Securities Issued in 2019:
During the year ended December 31, 2019, the Company did not issue
any restricted securities.
Restricted Securities Issued in 2018:
During the year ended December 31, 2018, the Company did not issue
any restricted securities.
Restricted Securities Issued in 2017:
During the year ended December 31, 2017, the Company did not issue
any restricted securities.
The Company believes that the offers, sales and issuances of the
securities described above were exempt from registration under the Securities
Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2)
of the Securities Act and/or Rule 506 promulgated thereunder as transactions by
an issuer not involving a public offering. The recipients of securities in each
of these transactions acquired the securities for investment only and not with
a view to or for sale in connection with any distribution thereof.
Each of the recipients of securities in these transactions was an accredited
investor within the meaning of Rule 501 of Regulation D under the Securities
Act and had adequate access, through employment, business or other
relationships, to information about us. The sales of these securities were made
without any general solicitation or advertising.
Item
16. Exhibits and Financial Statement Schedules.
Item 16.
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Exhibits and
Financial Statement Schedules.
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(a)
Exhibits. The
following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER
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DESCRIPTION OF EXHIBIT
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3.5****
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Bylaws of the Registrant
adopted in 2019.
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2.01****
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Securities Purchase Agreement.
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2.02**
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Loan agreement (related party)
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3.1***
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Amended and Restated Articles
of Incorporation of the Registrant
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5.1***
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Opinion of The
Law Office of Mary Shea
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10.1***
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Line of Credit Agreement
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10.2*
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Certificate of
Designation of Class B Common Stock
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10.4*
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Form of Placement
Agent Agreement
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10.5*
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Form of
Securities Purchase Agreement
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21.1*
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List of
subsidiaries of the Registrant.
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23.1*
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Consent of The
Law Office of Mary Shea
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23.2*
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Consent of
Independent Registered Public Accounting Firm.
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101.INS*
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XBRL
Instance Document
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101.SCH*
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XBRL
Taxonomy Extension Schema Document
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101.CAL*
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XBRL
Taxonomy Extension Calculation Linkbase Document
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101.DEF*
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XBRL
Taxonomy Extension Definition Linkbase Document
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101.LAB*
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XBRL
Taxonomy Extension Label Linkbase Document
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101.PRE*
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XBRL
Taxonomy Extension Presentation Linkbase Document
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* Filled herewith
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** Previously filed with the Commission alongside initial
registration filed on August 12, 2020
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*** Previously filed with the Commission previous registration
amendment on June 12, 2020
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**** Previously filed with the Commission previous
registration amendment on May 11, 2020.
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(A)
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 of
1933;
(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 increases 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 a 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 of
1933, 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:
(i)
If the registrant is relying on Rule 430B:
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement; and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B relating to
an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. 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 effective date, 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 effective date; or
(ii)
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 of 1933 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.
(6)
To provide to the underwriters at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
(B)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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
Securities and Exchange Commission 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 of 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.
(C)
The undersigned registrant hereby undertakes that:
(1)
For purposes of determining any liability under the Securities Act of 1933, 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 of 1933,
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.
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 on January 19,
2021.
GIVEMEPOWER
CORPORATION
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By:
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/s/ Frank
I Igwealor
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Frank
I Igwealor
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Chief
Executive Officer, President, & Director
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Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ Frank I Igwealor
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Chief Executive Officer, President, and Director
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January 19, 2021
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Frank I Igwealor
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(Principal Executive Officer, Principal Accounting Officer and
Secretary)
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/s/ Patience C Ogbozor
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Patience C Ogbozor
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Director
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January 19, 2021
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