BTCS Inc. (metadata) — Filing identity mismatch
The supplied filing is for TouchIT Technologies, Inc., not BTCS Inc. It is a Form 10-Q for the quarter ended September 30, 2011. The financial statements cover TouchIT’s Turkish operating subsidiaries and state that intercompany transactions were not consolidated. The statements received an accountant’s review, not an audit.
Business context and reporting period
TouchIT designed, manufactured and sold touch-based visual communication products, including interactive whiteboards and touch displays, to education, business and government markets. The company reported both three-month and nine-month results; year-over-year comparisons below generally refer to the nine months ended September 30.
Financial results and condition
| Metric | Reported amount or change |
|---|---|
| Nine-month sales | $1.150 million, versus $2.677 million in 2010; down about 57% using the reported figures. The MD&A instead states a 67% decline. |
| Nine-month gross profit and margin | $126,309; about 11.0% of sales. The filing’s comparative gross-profit figures for 2010 conflict across sections. |
| Nine-month operating result | Loss of $591,442, versus reported operating income of $253,366 in 2010. |
| Nine-month net result | Loss of $355,537, versus income of $261,804 in 2010. |
| Third-quarter result | Sales of $235,560; gross profit of $43,843; operating loss of $122,999.61; net income of $249,128.57, including a reported $206,461.18 gain on discontinued operations. |
| Cash flow and cash | The supplemental cash-flow statement reports $569,608 provided by operating activities, $646,925 used in financing, and $92,735 provided by investing, with ending cash of $65,974. Cash-flow schedules elsewhere contain mislabeled or inconsistent lines. |
| Liquidity and balance sheet | At September 30, cash was $65,974, inventory $107,133, current assets $173,107, and current liabilities $439,673—negative working capital of about $266,566. Total liabilities were $544,590; total assets $173,337; shareholders’ equity was negative $371,253. |
| Debt and shares | Balance sheet lists $104,917 in long-term notes payable. The filing reports 55,839,419 common shares outstanding as of November 11, 2011. |
Material changes versus the prior comparable period
- Sales fell sharply, which management attributed to uncertain customer budgets and disruption during the move of production from Turkey to Taiwan. The filing says shipping was interrupted during the transition, but production had returned to full speed and back orders were being fulfilled.
- Operating results swung from reported profit to a substantial loss as revenue declined while operating expenses remained high. Marketing and selling expense rose to $437,851 from $349,041; general and administrative expense was approximately $279,900 versus $275,980.
- Total assets fell from $2.211 million at September 30, 2010 to $173,337. Receivables and related-party balances were reported as zero at September 30, 2011, while inventory fell to $107,133 from $530,116.
- Current liabilities fell to $439,673 from $1.381 million, principally alongside a reduction in amounts due to related parties. The balance sheet also reports long-term notes payable of $104,917.
Outlook, risks and unusual items
- Management’s January 2011 revenue projection was $9 million; the filing says achieving it would depend on obtaining a large number of tenders. Management expected revenue to grow for the rest of 2011 based on back orders and planned fourth-quarter launches of 42-, 55- and 65-inch interactive LCD products. No updated numerical guidance is provided.
- Management cited a $250,000 revolving credit-facility advance from TCA Global Credit Master Fund and said the facility improved cash flow and reduced collection time on eligible receivables. It expected continued use, subject to eligible receivables and sales.
- On October 21, 2011, after quarter-end, the CEO resigned. The company agreed to repurchase his 16,110,000 shares in exchange for assets and closure of its two Turkish subsidiaries; he agreed to assume Turkish debtor liabilities, while the company assumed non-Turkish debtor and creditor liabilities and received an indemnity against future claims from him.
- The filing identifies foreign-currency, credit, liquidity, demand, product-supply and competitive risks. It also reports three material weaknesses in disclosure controls: undocumented internal controls, insufficient segregation of duties, and inadequate financial-reporting review and supervision. No material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied document names TouchIT Technologies, Inc., despite the request metadata naming BTCS Inc.
- Reconcile the sales decline: reported figures imply about 57%, while the MD&A says 67%; also reconcile the inconsistent 2010 gross-profit figures.
- Review the financial statements and cash-flow schedules for mislabeled or inconsistent amounts, including cash balances reported in different sections.
- Verify the October 2011 subsidiary-closure and share-repurchase terms, the allocation of liabilities, and the resulting post-transaction business and share count.
- Assess short-term liquidity, negative working capital and negative equity, along with the availability and terms of the TCA credit facility.
- Evaluate the reported control weaknesses and the reliability of the reviewed, unaudited financial information.