BTCS Inc. — Filing identity and period
Important identity mismatch: The supplied filing is TouchIT Technologies, Inc.’s Form 10-Q for the quarter ended March 31, 2013—not a BTCS Inc. filing. The financial information is for TouchIT Tech KS and TouchIT Education, described as combined but not consolidated; intercompany balances and transactions exist. TouchIT designs and markets interactive whiteboards and LCD/LED products, using third-party manufacturing.
The statements are unaudited and were subject to an independent accountant’s review, not an audit. The accountant expressed limited assurance, not an audit opinion.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $376,611 | $219,882 |
| Gross profit / margin | $109,545 / 29.1% | $59,626 / 27.1% |
| Operating income (loss) | $26,409 | $(84,958) |
| Net income (loss) | $35,430 | $(84,958) |
| Operating cash flow | $295,451 | $204,492 |
- Revenue increased about 71%; management attributed growth to new resellers and increased LCD/LED sales. LCD/LED products contributed $249,782 of Q1 2013 sales, versus $30,791 a year earlier.
- Gross margin improved about 2 percentage points. Operating margin was about 7.0%, compared with a loss margin of about 38.6% in Q1 2012; net margin was about 9.4%.
- At March 31, cash was $40,365, receivables $70,256, inventory $101,360, and current assets $211,981. Current liabilities were $537,941, implying a current ratio of about 0.39.
- Current liabilities included $208,597 in trade payables, $223,499 due to related parties, and $105,844 in other current liabilities. The balance sheet reports no borrowings or noncurrent liabilities; however, the filing also discusses an amended TCA note and a receivables factoring facility. Debt and facility balances are not clearly reconciled in the supplied filing text.
- Total assets were $617,334, including a $400,000 asset described as a “Fully Reporting Public Shell.” Equity was $79,393. Cash increased $33,952 during the quarter; investing cash flow was reported as zero.
Material changes, outlook, and risks
- Compared with Q1 2012, the company moved from an operating and net loss to profit, while revenue grew and marketing and administrative costs declined.
- Management said demand exceeded supply and expected revenue growth through the rest of 2013, citing new LED products, retail relationships, and expanded reseller and distributor channels. It expected LCD products to represent 75% of revenue by Q4 2013 and believed LED products could improve margins. These are expectations, not formal financial guidance.
- The plan of operation says achieving business objectives depends on raising additional capital until operations generate adequate revenue. Management also said it expected to use its credit facility as the business grows.
- Risks identified include product constraints, demand and preference changes, competition, loss of key executives, regulatory and legal developments, financing needs, and foreign-exchange exposure. No material legal proceedings or off-balance-sheet arrangements were reported.
- Management reported three material weaknesses in internal controls: lack of written control documentation, insufficient segregation of duties, and inadequate financial-reporting review and supervision. It said additional analyses and procedures were performed; no control changes were made during the quarter.
- After quarter-end, two officers agreed to exchange accrued service amounts of $10,000 each for 45 million restricted shares apiece. The filing also reports 228,064,419 shares outstanding as of May 10, 2013 and says Ronald Murphy resigned as officer and director that day, remaining a sales consultant.
Important facts for investors to verify
- Confirm the issuer: this document is for TouchIT Technologies, Inc., not BTCS Inc.
- Reconcile the share counts: the filing gives differing share figures, including 76,064,419 in a note and 228,064,419 as of May 10; verify the post-quarter 90 million-share agreements and dilution.
- Clarify the TCA convertible note, its stated conversion price of $0.00003 per share, the Bibby receivables facility and guarantees, and how these obligations are reflected in the balance sheet and cash flows.
- Assess collectability and valuation of the $400,000 “Fully Reporting Public Shell” asset, and the company’s ability to meet current liabilities and obtain additional capital.
- Review the unremediated internal-control weaknesses and the lack of consolidation of intercompany balances and transactions when evaluating the reported figures.