BTCS Inc. (filed as Bitcoin Shop, Inc.) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The filing identifies the registrant as Bitcoin Shop, Inc., formerly TouchIt Technologies, Inc.; its e-commerce subsidiary launched in August 2013. The February 2014 share exchange was accounted for as a reverse merger, with Bitcoinshop.us LLC treated as the accounting acquirer.
Business context and results
The company operated an online marketplace listing more than 140,000 products, allowing customers to pay in Bitcoin, Litecoin, and Dogecoin. Third-party vendors fulfilled orders; the company recognized revenue net of vendor costs, as transaction processing fees and markups.
| Metric | Q1 2014 / March 31, 2014 |
|---|---|
| Revenue | $11,374 |
| Operating expenses | $1,572,118 |
| Operating loss | $1,560,744 |
| Warrant fair-value gain | $109,000 |
| Net loss | $1,451,744; basic and diluted loss per share of $0.01 |
| Operating cash flow | $(258,631) |
| Investing cash flow | $(162,290) |
| Financing cash flow | $1,821,000 |
| Cash | $1,409,131 |
| Working capital | $1,344,999 |
| Total assets | $1,689,288 |
| Current liabilities | $178,776, including $118,239 in warrant liabilities |
The filing presents no prior-year comparable income statement or cash-flow period, so year-over-year changes in results cannot be assessed from this report. Compared with December 31, 2013, cash rose from $9,052 and total assets from $35,567, largely following the private placement. No borrowings or debt balance are reported. A conventional gross margin is not provided; revenue is reported net of transaction costs.
Material changes and unusual items
- On February 6, the company raised $1.875 million gross, or $1.813 million net, by selling 3.75 million units at $0.50 each. Each unit included Series C convertible preferred stock and a warrant for half a common share at a $1.00 exercise price.
- General and administrative expense included $1,343,794 of stock-based compensation. The company granted 6,201,472 options; grant-date fair value was reported as $17,860,239, with $16,516,445 of unrecognized compensation cost remaining at quarter-end.
- The company recorded a $109,000 gain from remeasuring warrant liabilities, which are Level 3 fair-value measurements. The liability was $118,239 at March 31.
- On March 20, the company invested $150,000 in GoCoin, a virtual-currency payment processor; the investment was carried at cost.
- Common shares outstanding were 124,956,204 at March 31 and 138,976,535 as of May 14, 2014. The filing reports conversions of Series B preferred shares into common stock during the quarter.
Outlook, risks, and controls
Management estimated that available capital would fund operations through at least April 1, 2015, but stated that the company had limited revenue and capital resources and no committed future financing. Management cautioned that additional financing might not be available on acceptable terms, or at all; unforeseen circumstances could require cost reductions or suspension of the business plan. No specific revenue or earnings guidance was provided.
Management identified the early-stage nature of the business and its ability to grow revenue, control costs, and obtain capital as key uncertainties. The company relied on third-party vendors for fulfillment and a payment processor for currency conversion. It also held virtual currencies subject to fair-value changes. Disclosure controls were deemed ineffective as of March 31, and material weaknesses were cited in complex GAAP/SEC reporting and segregation of duties. A consultant had been engaged, but remediation was not complete. Management reported no material change to previously disclosed risk factors and no legal proceedings.
A subsequent-event disclosure reports an Arlington office sublease running April 14, 2014 through May 31, 2015, with $65,213 of rent paid in advance and a $4,815 security deposit.
Key facts investors should verify
- Confirm the registrant’s identity and corporate history: this filing is under Bitcoin Shop, Inc., despite the BTCS Inc. request metadata.
- Assess whether the very low reported revenue can support the company’s expense base and whether management’s stated cash runway remains achievable.
- Review the valuation assumptions and potential dilution associated with stock options, preferred shares, warrants, and the warrant liability.
- Check the status of internal-control remediation and the company’s ability to produce reliable SEC reporting.
- Verify subsequent share-count changes, financing needs, and the performance and carrying value of the GoCoin investment.