BTCS Inc., a provider of ecommerce and bitcoin transaction verification services, suffered a $10 million-plus net loss in 2015 despite a revenue gain, according to a 10-K form filed with the U.S. Securities Exchange Commission for fiscal 2015.
The statement noted net losses of $14,757,016 and $10,047,036 in 2014 and 2015, respectively. Total revenues were $38,214 and $506,190 for 2014 and 2015, respectively. Revenues came from processing customer transactions through the ecommerce website and from fees for transaction verification services.
Focus Shifts To Mining
Formerly Bitcoin Shop, Inc., BTCS in February 2014 entered the business of hosting an online ecommerce marketplace where consumers purchase merchandise using digital currencies. While the company continues to develop its ecommerce marketplace, it has shifted its focus to transaction verification service business, also known as bitcoin mining. The company is building a diversified company with operations in the blockchain and digital currency ecosystems.
Gross profit was $31,468 and $216,091 for 2014 and 2015, respectively. Gross profit improved from 2014 to 2015, despite an increase in power and mining expenses incurred; that cost jumped from $6,746 in 2014 to $290,099 in 2015.
Operating expenses improved in 2015. Total operating expenses fell from $14,593,437 in 2014 to $8,414,390 in 2015.
Total assets rose from $273,802 in 2014 to $3,232,853 in 2015. Total current liabilities also rose, from $266,120 in 2014 to $6,022,773 in 2015.
Company May Need Funding
As of Dec. 31, 2015, the company had a cash position equal to $124,535. It may require additional funds for anticipated operations and further expansion. If not successful in securing additional financing, the company may have to delay, reduce the scope of or eliminate one or more business activities, downsize general and administrative infrastructure, or seek other measures to avoid insolvency.
“We expect to incur additional net expenses over the next several years as we continue to maintain and expand our existing operations,” the statement noted. “The amount of future losses and when, if ever, we will achieve profitability are uncertain. If we are unsuccessful at executing on our business plan, our business, prospects, and results of operations may be materially adversely affected.”
The company has never paid cash dividends on its common stock and does not anticipate doing so in the near future. If it does not pay dividends, its common stock may be less valuable because a return on investment will only occur if the stock price appreciates.
BTCS has invested in five digital currency companies to build a universal digital currency platform. One of these is GoCoin LLC, an international payment platform enabling online and retail merchants to accept bitcoin, litecoin and dogecoin. Another partner is Bitvault Inc., which operates under the Gem brand and offers a software development toolkit to allow clients to develop multi-signature storage solutions to store bitcoin. BCTC has also invested in Spondoolies Tech Ltd. ASIC servers for its transaction verification services business.
The company cited competitors as companies that design and build ASIC servers and are engaged in transaction verification services through the use of their own ASIC servers, such as KNC Miner, Bitmain, 21 Inc., Bitfury, Avalon and BW. Competitors also include companies engaged in transaction verification services that have lower operating costs.
Market Forces Examined
The statement summarizes market forces that could impact the company’s future.
The development and acceptance of digital currency systems are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the acceptance or development of the bitcoin network could adversely affect an investment in the company.
There is currently relatively small use of bitcoins in the commercial and retail marketplace in comparison to use by speculators, contributing to price volatility that could adversely affect investment in BTCS.
Amendments to the bitcoin network’s protocols and software could adversely affect investment in BTCS. The extent to which bitcoin network users and miners install such software upgrade(s) could adversely affect an investment in BTCS.
Malware is also cited as a threat. Should a malicious actor or botnet gain control more than 50 percent of the processing power active on the bitcoin network, such an actor or botnet could manipulate the blockchain in a manner that adversely affects investment in BTCS.
Regulatory Challenges Summarized
The filing devoted attention to the regulatory environment, given its potential impact investment in bitcoin companies.
As bitcoins have increased, the Federal Reserve Board, the U.S. Congress and certain U.S. agencies (e.g., FinCEN and the Federal Bureau of Investigation) have started to examine the bitcoin industry. Regulators such as the New York State Department of Financial Services and the California Department of Financial Institutions have also examined the industry.
In addition, the U.S. District Court for the Eastern District of Texas ruled that bitcoin is a currency or form of money; two Commodities Futures Trading Commission (CFTC) commissioners said derivatives based on bitcoins are subject to the same regulation as those based on commodities; and the IRS released guidance treating bitcoins as property that is not currency for federal income tax purposes.
In 2014, the governor of California signed a bill that removed state-level prohibitions on the use of alternative forms of currency or value (including bitcoins). The bill indirectly authorized bitcoin use as an alternative form of money in the state.
Currently, neither the SEC nor the CFTC has asserted regulatory authority over bitcoins, although in testimony before the Senate Committee on Agriculture, Nutrition and Forestry in 2014, CFTC Chairman Timothy Massad said the CFTC has jurisdiction over derivative instruments such as futures and swaps based on digital currencies.
To the extent that bitcoins are determined to be a security, commodity future or other regulated asset, or to the extent that a government exerts regulatory authority over bitcoin, trading or ownership in bitcoins could be adversely affected.
States could collect taxes on the sale of BTCS merchandise or the merchandise of third parties that the company sells on its website.
Cybersecurity Threat Noted
Cybersecurity threats also present a business risk. Should the company be unable to avert a denial of service attack for any significant period, it could suffer substantial revenue loss from lost sales and customer dissatisfaction.
Cyberattacks can target BTCS, its customers, its suppliers, banks, payment processors, ecommerce in general or the communication infrastructure on which the company depends. Any compromise of security could result in a violation of privacy and other laws, legal and financial exposure, damage to reputation, and a loss of confidence in security measures.
The common stock is currently quoted on the OTCQB under the symbol “BTCS” since March 5, 2014.
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