Form S-1
You indicate that your new line of business focuses on open market purchases of digital assets and investing in initial digital asset offerings. Revise to describe with more specificity the types of digital assets that you intend to invest in and any parameters or criteria that you will use to make such investment determinations.Rest of the question
Expand to briefly discuss the nature of your current operations and identify the types of digital currencies that you currently hold.
BTCS intends to engage in Digital Asset mining, purchasing Digital Assets in open market transactions, and purchasing
Digital Assets in initial coin offerings. The Amendment specifics the types of Digital Assets that BTCS may acquire and certain parameters that will influence BTCS’ acquisition decisions including increased compliance and legal costs. The Amendment also lists the Digital Assets currently held by BTCS. The prospectus complies with the comment and adds information concerning
Digital Assets currently owned. See the discussion at pages 1, 3, 26, 33 and 45. Read in the reply ↗
We note your Form 8-K filed on August 21, 2017 indicating that you signed a letter of intent to merge with Blockchain Global Limited. Expand your summary to discuss the risks and challenges relating to consummating the merger, including any regulatory risks related to Blockchain Global Limited’s business.Rest of the question
Additionally, tell us whether the operations of BCG’s Technology Consultancy business, which you state includes the preparation and support of initial coin offerings, and the operations of the ACX.io Exchange will trigger any obligations under the federal securities laws, including, but not limited to, any requirements to register as a national securities exchange, alternative trading system or broker-dealer.
Blockchain Global Limited (“BCG”) has represented to us that they do not have United States customers nor do they operate an exchange in the United States. BCG has represented to BTCS that they are compliant with Australian laws and that they do not underwrite or act as a broker with respect to their business. As such, BTCS does not believe, based on BCG representations that BCG would be subject to any requirements to register as a national securities exchange, alternative trading system or broker-dealer.
However, the Amendment addresses risks arising from the above-mentioned issues.Read in the reply ↗Rest of the answer
Further, BCG has delayed providing due diligence materials to BTCS. If after receipt of and review of appropriate documentation we perceive the risks are material, we may elect to terminate discussions. See discussion at pages 11, 12, 19, 34 and 45.
The disclosure on pages 20-21 briefly describes why you do not believe that BTCS, Inc. is an investment company under the Investment Company Act of 1940. Please provide further information needed to conduct an analysis under sections 3(a)(1)(A) and 3(a)(1)(C) of the 1940 Act and any other provision of the 1940 Act upon which BTCS, Inc. is relying to exclude it from the definition of an investment company.Rest of the question
In particular, list all assets held by BTCS, Inc. and the value you assign to each on an unconsolidated basis. Ensure that your analysis also addresses your plans to participate in initial coin offerings.
The nature and value of our Digital Assets as of a recent date has been added at page 26. Section 3(a)(1) of the Investment
Company Act of 1940 (the “1940 Act”) provides that an investment company is an issuer that:
(A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities… (C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of theRead in the reply ↗Rest of the answer
value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis. 1
15 U.S.C.A. § 80a-3 does not believe that it would be considered an Investment Company under 3(a)(1)(C) of the 1940 Act because BTCS will not own or propose to acquire investment securities having a value exceeding 40 per centum of the value of BTCS’s total assets.
BTCS recognizes that some Digital Assets may be securities and does not intend to acquire securities, in the form of Digital Assets, which exceed 40 per centum of the value of BTCS’s total assets. BTCS discloses at pages 7, 10, 11 and 41 that its compliance costs will be higher in order to comply with the 1940 Act and the federal and state securities laws.
does not believe that it would hold itself out as being engaged primarily, or proposing to engage primarily, in the business of investing, reinvesting, or trading in securities. In Securities and Exchange Commission v. Fifth Ave. Coach Lines, Inc., the Second Circuit placed emphasis on the word primarily, stating that “whether a company is engaged primarily in the business of investing, its total activities of all sorts must be considered.”2
In Securities and Exchange Commission v. National Presto Industries, the Seventh Circuit found that “what matter are the company’s history, the way the company represents itself to the investing public today, the activities of its officers and directors, the nature of its assets, and the sources of its income…. More important ... [is whether] the nature of the assets and income of the company, disclosed in the annual reports filed with the Commission and in reports sent to stockholders, was such as to lead investors to believe that the principal activity of the company was trading and investing in securities.”3 does not engage or intend to engage primarily in the business of investing in securities but rather in mining Digital Assets.
Its acquisition of tokens in digital coin offerings will be carefully limited to avoid the 40 % limit. The Securities and Exchange
Commission’s analyzed whether tokens were a security in its July 25, 2017, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 (the “Report”). The Report suggests applying the Howey test to determine if a specific token constitutes a security. BTCS intends to verify that tokens and Digital Assets acquired by BTCS do not cause BTCS to acquire securities to the extent that BTCS would be required to register as an Investment Company under the 1940 Act. We are mindful of a recent speech by the Chairman of the Commission that tokens are likely to be deemed to be securities.
Rather than referring to “Digital Assets” generally, revise your risk factor disclosure to distinguish between the types of assets you are referring to and any uncertainties specific to that category of currency.
As defined on page 1 of the prospectus, Digital Assets are tokens “based upon a computer-generated math-based and/or cryptographic protocol that may, among other things, be used to buy and sell goods or pay for services.” Bitcoin is one such Digital Asset.
BTCS plans to acquire and create a portfolio of Digital Assets including Bitcoin. The Amendment discloses uncertainties pertaining to Bitcoin starting on page 10. In the prospectus, we distinguish between Digital Assets and Digital Securities.Read in the reply ↗Rest of the answer
See pages
7, 10-11, and 41.
Due to the novelty and continuously evolving nature of Digital Assets, it is impossible to state with sufficient certainty which Digital
Assets BTCS will be acquiring. BTCS intends to acquire Digital Assets which in its opinion may appreciate in value. Additionally, due to the continuously evolving nature of Digital Assets it is impossible to state with sufficient certainty which Digital Assets, if any, contain specific uncertainties that are different from other Digital Assets. Digital Assets all face similar risks except to the extent that Digital Securities present far reaching risks under the federal and state securities law. As of the date of this letter BTCS believes that there are over 1,000 tokens that could constitute Digital Assets and it would be impractical for
BTCS to analyze risk factors for each type of Digital Asset. However, the Amendment expands on the risk factors listed in the prospectus and discloses additional risk factors which intend to provide an accurate and full disclosure of the risks BTCS will encounter. See pages 10, 11, 17, 20, and 21.
In light of your stated intent to invest in digital tokens and participate in initial coin offerings, expand your risk factors to address the specific risks related to investing in and holding these types of assets. Expand to discuss with specificity the impact on your business if your assets are deemed to be securities for the purposes of federal securities laws.Rest of the question
Further, to the extent that your proposed merger with Blockchain Global Limited raises any other regulatory obligations under the federal securities laws, ensure that you discuss any resulting material risks to your business.
We have expanded our disclosure as requested at pages 7, 10, 17, 20 and 21. Please see our response to Comment 2. Read in the reply ↗
In light of your stated intent to invest in assets other than bitcoins, expand your disclosure to describe the nature and characteristics of these assets. Although your discussion addresses the implications related to the possibility of bitcoins being deemed securities, expand to address the various types of digital currencies and assets that you intend to hold, which you state includes protocol tokens.Rest of the question
Revise your disclosure under Government Oversight on page 42 to address the regulatory treatment of these assets.
As stated in above, BTCS believes that there are over 1,300 tokens that could constitute Digital Assets and it would be impractical for BTCS to analyze risk factors for each type of Digital Asset. The Amendment discloses the nature, characteristics, and regulatory treatment of some types of Digital Assets and tokens which BTCS may hold in the future. See pages 1, 3, 11 and 15. We have provided a table listing our portfolio of Digital Assets as of a recent date. We have updated the recent regulatory changes at pages 41-45. Read in the reply ↗
Revise your principal stockholder table to include beneficial ownership of all classes of voting securities, including Class B and C common stock. See Item 403 of Regulation S-K.
BTCS does not have Class B or C common stock. We assume the Staff meant preferred stock. The Amendment revises the beneficial ownership table accordingly at page 50. Read in the reply ↗
We note instances where you refer to your fiscal year ended as June 30, whereas elsewhere you state that your fiscal year end is December 31. Revise or advise.
BTCS’s fiscal year ends on December 31. The Amendment reflects the December 31 fiscal year end. See page 30. Read in the reply ↗
Please update your financial statements and related financial information included in the filing, as necessary, to comply with Rule 3-12 of Regulation S-X.
The Amendment updates BTCS’ financial statements and related financial information to reflect the 135 day age requirement in Rule 3-12 of Regulation S-X.
Should the staff have any additional questions or comments after reviewing this response letter, we would appreciate an opportunity to discuss these comments or questions with the staff prior to the distribution of another comment letter. Please direct any questions concerning this response letter to Michael D. Harris, the Company’s legal counsel, at 561-471-3507, mharris@nasonyeager.com. Read in the reply ↗
It is unclear whether the digital assets you currently hold and intend to hold are securities. Please provide a detailed analysis explaining why you believe Bitcoin, Ether, Dash and Monero, and any other digital assets that are likely to be held by the company are not securities as defined in Section 2(a)(1) of the Securities Act.Rest of the question
Your analysis should address substantive differences between each form of digital asset and how those differences affect your conclusions.
Amendment 3 updates the Registration Statement to reflect our beliefs on whether each of the Digital Assets held by the Company are securities. Additionally, attached as Exhibit A is a supplemental memorandum containing a more formal legal analysis citing cases and other authorities supporting our conclusion. The required disclosure has been added at pages 41 - 42.
The Company recognizes the economic reality that most initial coin offerings involve the offer and sale of a security.
Disclosure has been added to follow the Commission’s action in the Munchee case. See page 41. Read in the reply ↗
We note that the company intends to limit its holdings of digital assets that are securities so that such holdings are less than 40% of its portfolio. Please provide a detailed description of the process and framework the company will use for determining which digital assets to add to its portfolio.
As stated in the Registration Statement, the Company currently limits its holdings of Digital Assets that are securities so that securities are less than 40% of its assets, excluding cash. See pages 21, 41-42. In the future the Company intends to apply a similar analysis to that provided on Exhibit A to ensure that it does not acquire virtual currency or digital assets which would cause securities to constitute more than 40% of such assets. The additional costs to the Company and risks of being an investment company are disclosed at page 21. Read in the reply ↗
With respect to bitcoins (and other digital assets) that the company mines, disclose whether the company plans to hold the mined assets or trade them.
As disclosed in the registration statement, the Company does not currently have any mining operations but may resume its mining operations through outsourced data centers if it receives additional capital. To the extent that the Company resumes mining operations, we do not intend to trade the Digital Assets, we have revised our disclosure accordingly to reflect our position. The required disclosure has been added at pages 1, 21, and 33. Read in the reply ↗
Expand your disclosure to describe the company’s custodial practices for digital assets, to the extent they are material. Also, we note recent news reports that digital wallets have been subject to hacking. To the extent you have experienced a material cybsersecurity incident related to your digital wallets, tell us about the incident(s) and any material consequences and risks to your business.
The Company does not use a custodian to secure its Digital Assets. We have revised our disclosure to include a new risk factor since only bitcoin is held in a wallet. See page 21. The Company has not experienced any material cybersecurity related incidents since we entered the business in 2014. Read in the reply ↗
We note your revisions in response to prior comments 1 and 4. However, to the extent that your definition of Digital Securities includes any tokens obtained through participating in initial coin offerings, expand the definition to briefly identify these categories of assets.
We have not participated in any initial coin offerings because most initial coin offerings appear to offer tokens which constitute
Digital Securities. See the answer to comment 2. We have revised the description of our business accordingly. The required disclosure has been added at pages 1, 26, 41-42. Read in the reply ↗
Describe how you intend to distinguish between financial accounting for Digital Assets and Digital Securities, and clarify what precedents you refer to with regard to accounting for Digital Securities. Explain how you will value your digital assets and whether the same methodology will be used to value all digital assets.
The requested disclosure has been added in the Management Discussion and Analysis at page 26. There is currently no authoritative literature under accounting principles generally accepted in the United States which specifically addresses the accounting for
Digital Assets, including digital currencies. Therefore, by analogy we are recording Digital Assets similar to financial instruments under ASC 825, Financial Instruments, because the economic nature of these Digital Assets is most closely related to a financial instrument such as an investment in a foreign currency.Read in the reply ↗Rest of the answer
Digital Securities are typically uncertificated securities, the ownership and transfer of which are recorded on a proprietary or open source ledger that may be publicly distributed. Therefore, we believe that such securities would be considered a financial instrument in accordance with ASC 825. Because Digital Assets and Digital
Securities will be accounted for in accordance with ASC 825, such securities would be valued in accordance with ASC 820, Fair
Value Measurements. An expanded version of this analysis has been added as a disclosure at page 26.
You state that you will attempt to limit your acquisitions of Digital Securities to “stay within the 40% threshold.” To provide context to this risk, please expand your discussion to briefly discuss the nature and impact of this provision of the Investment Company Act.
In the Amendment we have expanded our discussion to address the nature and impact of the 40% threshold of the Investment Company
Act upon the Company and its acquisition of Digital Assets. The required disclosure has been added at pages 21 and 42.
Disclosure has also been added at page 21 concerning the limited one year cure period. Read in the reply ↗
You disclose that you have been advised by BCG that they have raised money from offshore investors and they have not attempted to comply with Regulation S under the Securities Act. You further note that these transactions may result in a liability for BTCS. Describe the scope of any potential liability.
We have added disclosure at pages 11 and 34. As we note, any liability to the Company arising from BCG’s non-compliance with Regulation S would only arise at the subsidiary level if the Company closes its acquisition of BCG. The status of this proposed acquisition and the limited likelihood of it occurring has been disclosed at pages 11 and 34. Read in the reply ↗
We note your response to prior 2. Tell us how BCG ensures that they do not have any United States customers, and describe the compliance used.
We have been unable to obtain this information from BCG. Read in the reply ↗
Your risk factor caption indicates that you may incur unknown liabilities under foreign laws. However, the body of your risk focuses on the potential U.S. liabilities. Expand to discuss: any potential regulatory implications, in Australia or other jurisdictions, where BCG has cryptocurrency exchanges; whether BCG’s ICO and token sales consultancy business is impacted by any developments under Australian law; andRest of the question
whether BCG’s facilities in China are impacted by the regulatory updates in the PRC referred to on pages 14 and 19.
Given the limited likelihood this acquisition will occur, we do not believe these potential liabilities are material since a reasonable investor would not want to know this before buying or selling our common stock.
Should the staff have any additional questions or comments after reviewing this response letter, we would appreciate an opportunity to discuss these comments or questions with the staff prior to the distribution of another comment letter. Please direct any questions concerning this response letter to Michael D.Read in the reply ↗Rest of the answer
Harris, the Company’s legal counsel, at 561-471-3507, mharris@nasonyeager.com.
Please refer to prior comment 1 and provide a detailed legal analysis as to why each digital asset that you intend to acquire, hold or trade, is not a security as defined in Section 2(a)(1) of the Securities Act. We note that you did not provide an analysis for Dash and Monero and your response is unclear as to why the company believes that Ether is not a security.Rest of the question
As part of your response, address the distinct characteristics of each kind of digital asset and specifically conclude whether the digital asset is a security.
As of March 6, 2018, the Company has no Dash or Monero and does not intend to re-acquire any digital assets other than bitcoin and ether, until such time as the Company has sufficient working capital to cover the costs associated with performing a legal analysis to determine whether the digital asset is a digital security. Amendment 4 updates the Registration Statement to reflect our beliefs on whether ether is a security.Read in the reply ↗Rest of the answer
As for ether, our lawyers believe that ether is not a security for the same reasons previously expressed for bitcoin and that the Exhibit A provided as part of the filing for Amendment No. 3 is equally applicable, except as discussed below. The required disclosure has been added at page 40. Ether was initially offered by the Etherium Foundation as part of a pre-sale in 2014. When ether was initially sold it may have been a security. However, due to the Etherium Foundation focusing on non-essential updates to the platform and limiting its role in support of the Etherium platform in contrast to the development of ether, the Company believes that ether is no longer a security, to the extent it ever was.
Company is not relying upon the efforts of others to profit from its investment in ether any more than it would if it acquired the euro, gold, wine or art. Ether as a virtual currency will rise or fall in value apart from any efforts of its developer or the Ethereum Foundation. Our lawyers believe that ether is no longer a security (to the extent it ever was a security) for the same reason the Howey orange grove in the hypothetical fact scenario ceased to be a security. Assume that following the Howey decision in the Supreme Court, there was a foreclosure sale of the Howey In the Hills orange grove at which a lender sold the orange grove and related equipment to a Florida rancher who bought it in a general partnership in which his corporation was the sole partner. The partnership operated the orange grove for 10 years. It seems clear that the partnership was not a security.
Assume further the partnership sold the orange grove land including the trees and equipment to another rancher. We are sure the
Staff recognizes that whether or not an instrument or factual scenario is an investment contract is determined by the underlying facts and circumstances. Just as the Supreme Court using a facts and circumstances test held in Howey that the sale of the orange grove interests involved an investment contract, it would be unreasonable to conclude that grower one sold a security to grower two in our hypothetical. The same reasoning applies to ether.
Further, as mentioned in the Commission’s Report, ether is a virtual currency originally created by the Ethereum Foundation that operates digitalized contracts on a decentralized blockchain platform called the Ethereum Blockchain.1 The Report refers to ether as a “virtual currency” which was used to purchase DAO tokens. In the Report the Commission concluded that the DAO tokens under discussion were securities. As such, the Company does not believe that ether is a security.
U.S. Securities and Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Release No. 81207, July 25, 2017.
We note your responses to prior comments 1 and 2 that the company will ensure that the holdings of digital assets that constitute securities will not be greater than 40% of total assets. Please provide a detailed description of the process and framework the company will use in managing its digital assets to stay below this 40% threshold.Rest of the question
Your description should include how the company will determine whether a particular digital asset is a security and who will make such determination. Please include in your analysis how you will be able to limit your holdings to less than 40% of total assets given the volatility of digital assets. Please expand your risk factors to discuss the impact of volatility on the company.
The Company recognizes the risk that its securities may exceed the 40% test particularly since those securities with an active trading market, whether Apple stock or a cryptocurrency security that actively trades, must be marked to the market. Accordingly, the Company will create software alerts to notify management so it can take prompt action when the value of its investment securities passes a certain threshold, i.e. 35%.Read in the reply ↗Rest of the answer
Further in the future the Company, subject to available resources, plans to acquire or develop tools that permit automatic liquidation to avoid exceeding the 40% threshold. Ultimately, if our procedures are insufficient due to the volatility, there is a one-year cure period. See the disclosure in the prospectus at page 39. In terms of determining whether a particular digital asset is a security, the Company will rely on experienced securities counsel to provide written advice before it acquires a digital asset. We recognize that reliance on counsel may not be a defense to a 1940 Act registration violation.
A risk factor on volatility has been added at page 11 of the prospectus.
We also note your response to comment 5 but your disclosures still indicate that you may participate in initial coin offerings. If you do not intend to participate in initial coin offerings, please revise the disclosures accordingly.Rest of the question
If you intend to participate in initial coin offerings, please provide a detailed analysis as to the process and framework the company will use in determining whether to participate in an initial coin offering.
We do not intend to participate in initial coin offerings. Our prospectus has been updated at page 1. Read in the reply ↗
Please refer to prior comment 9 and tell us how BCG ensures that they do not have United States customers. You should disclose the basis for BCG’s representation that it does not have customers in the United States or disclose clearly that you are not able to verify this information.
The Company terminated the BCG transaction and filed a Form 8-K on February 5, 2018. Read in the reply ↗
In response to prior comment 10, you state in the response letter that you believe there is “limited likelihood” that the acquisition will occur. Please revise your disclosure to reflect this belief. To the extent that you are still in discussions with BCG to merge, discuss the potential foreign liabilities of BCG’s digital asset activities.
Should the staff have any additional questions or comments after reviewing this response letter, we would appreciate an opportunity to discuss these comments or questions with the staff prior to the distribution of another comment letter. Please direct any questions concerning this response letter to Michael D. Harris, the Company’s legal counsel, at 561-471-3507, mharris@nasonyeager.com. Read in the reply ↗
We note you disclose on page 40 that your counsel has advised you that it is “more likely than not that ether is not a security” but that “due to cost considerations [y]our counsel has not completed a full analysis as to whether or not ether is a security.” We also note that you have determined that the bitcoin you hold is approximately 70% of your eligible assets and that you intend to monitor its value daily.Rest of the question
We note you disclose on page 11 that “[r]egardless of the internal procedures [you] take to avoid surpassing the 40% test, future volatility during the course of a day may cause [you] to exceed the 40% limit.” We also note you disclose that “it will never be practical” for you to register under the Investment Company Act of 1940. Please be advised that, at this time, we are unable to conclude that ether is not a security. With respect to ether and any new digital asset that you acquire or intend to acquire, we expect you will continue to monitor the value of your eligible assets to maintain appropriate amounts of your digital assets so that you are not required to register as an investment company or that you will promptly register as an investment company if your digital asset holdings exceed a permitted value.
understand the Staff’s position and will continue to monitor the valuation of our digital assets and endeavor to remain below the 40% limit. We recognize we need to comply with all applicable laws and if required we will promptly register as an Investment Company or cease operations.
Prospectus
Summary, Read in the reply ↗
Your revised disclosure in response to prior comment 3 suggests that your decision not to participate in initial coin offerings is solely based on the fact that you “cannot qualify as an accredited investor.” Regardless of whether you qualify as an accredited investor, please provide an unqualified statement as to whether you intend to participate in registered initial coin offerings.
We have revised the disclosure accordingly to include a statement that we do not intent to participate in registered or unregistered initial coin offerings.
See pages 1, 24, and 31 of the prospectus. Read in the reply ↗
You disclose that you plan to continue to evaluate “other strategic opportunities” in digital assets and blockchain technologies. Please expand your disclosure to discuss the type(s) of opportunities that you may pursue, and provide a detailed description of the process and framework that you will use to evaluate them.
Even though the prices of digital assets have fallen substantially and there remains some regulatory uncertainty, we believe that businesses using blockchain technology and those involved with digital assets such as bitcoin, offer upside opportunity and are the types of opportunities that we may pursue. Our process and framework involve our management leveraging their industry networks, which have been built over many years of working in the industry, to identify and approach potential acquisition targets and gauge their interest in merging with us.Read in the reply ↗Rest of the answer
Our acquisition activities are spearheaded by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, an independent director who is also seeking acquisition targets. Once we reach a point where any merger might be deemed probable our process would involve the entire board of directors and they would be provided due diligence materials and other documents, and ample time to review such material consistent with their fiduciary duties and the goal of creating value for our shareholders.
current framework or criteria is to seek and evaluate acquisition targets in the blockchain and digital asset sector which are:
i) synergistic to our business model, and ii) have sufficient capital to provide working capital and cover public company expenses.
The requirement that a potential target have sufficient capital is a result of our inability to have this registration statement declared effective which has severely limited our ability to raise non-toxic capital. As disclosed in our prospectus we have limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may help us sustain our operations without having us rely on toxic funding structures. This framework naturally reduces the addressable universe of targets as many companies seeking to access the public markets are doing so for access to non-toxic funding.
Notwithstanding your consideration as to whether you are an investment company under the Investment Company Act, please analyze for us whether you are otherwise an investment company as defined in ASC 946.
The Company has evaluated the accounting guidance in ASC 946-10-15-6 that sets forth the fundamental characteristics of an investment company under
U.S. GAAP. Additionally, we have included an analysis of the implementation guidance in ASC 946-10-55-4 through 55-10 that illustrates these concepts. The Company has reviewed the accounting guidance below and concludes that the Company does not have the fundamental characteristics of an investment company for U.S. GAAP purposes under ASC 946.Read in the reply ↗Rest of the answer
Responsive information has been taken directly from the Company’s updated public filings including the prospectus.
U.S.
GAAP describes the following fundamental characteristics of an investment company:
946-10-15-6
An investment company has the following fundamental characteristics:
a.
It is an entity that does both of the following:
Obtains funds from one or more investors and provides the investor(s) with investment management services
Commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income, or both.
b.
The entity or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income.
946-10-55-4:
An investment company should have no substantive activities other than its investing activities and should not have significant assets or liabilities other than those relating to its investing activities, subject to the exception in the following paragraph.
946-10-55-5:
An investment company may provide investing-related services (for example, investment advisory or transfer agent services) to other entities, directly or indirectly through an investment in an entity that provides those services, as long as those services are not substantive. However, an investment company may provide substantive investing-related services, directly or indirectly through an investment in an entity that provides those services, if the substantive services are provided to the investment company only.
describe our business activities and our intentions as follows in our Annual Report:
Subject to additional financing, the Company plans to create a portfolio of Digital Assets including bitcoin and other “protocol tokens” to provide investors a diversified pure-play exposure to the bitcoin and blockchain industries. The Company intends to acquire Digital Assets through open market purchases. The Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital Securities and require registration under the Securities Act and under state securities laws. Since about July 2017, initial coin offerings using Digital Securities have been (or should be) limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial coin offerings or from purchasers in such offerings. Additionally, the Company may acquire Digital Assets by resuming its transaction verification services business through outsourced data centers and earning rewards in Digital Assets by securing their respective blockchains. The Company will carefully review its purchases of Digital Securities to avoid violating the Investment Company Act of 1940 (the “Investment Company”) and seek to reduce potential liabilities under the federal securities laws.
As described above, the Company is in the early stages of a Digital Assets business, including bitcoin and other “protocol tokens” and is working on building a business to obtain digital assets and which may entail running specialized servers which solve a set of prescribed complex mathematical calculations in order to add a block to a blockchain and thereby confirm
Digital Asset transactions. Further, the Company does not provide investment services or investment management services to other entities. The Company does not have significant assets or liabilities other than those relating to cash and digital assets as it is in the early stages of building its business.
Of note, the 1940 Act sets out a three-pronged definition of an investment company. The prong that causes operating companies the most trouble is the 40% Test contained in Section 3(a)(1)(C). Under this section, companies with “investment securities” comprising more than 40% of their “total assets (exclusive of Government securities and cash items)” can fall within the definition of investment company. Under Rule 3a-1, a company that fails the 40% Test will nevertheless be excluded from the definition of investment company if no more than 45% of the value of its “total assets (exclusive of Government securities and cash items)” are derived from “investment securities,” and no more than 45% of its net income after taxes is attributable to “investment securities.” In applying both the 40% Test and the 45% Tests, Government securities and cash items are excluded from investment securities. We do not believe that bitcoin meet the definition of an investment security and we would therefore not be in violation of Section 3(a)(1)(C) as of March 31, 2018. This is further supported by Jay Clayton’s recent testimony in front of Congress on April 27, 2018 where he commented on bitcoin as a security stating before the United
States House Appropriations Committee that “A pure medium of exchange, the one that’s most often cited, is Bitcoin, as a replacement for currency, that has been determined by most people to not be a security.” Since the transcript of Mr.
Clayton’s testimony on the Commission’s website includes only his planned remarks and does not contain his answers to questions from Representative, we refer to a link on The U.S. House of Representatives Committee on Appropriations website here:
https://appropriations.house.gov/calendar/eventsingle.aspx?EventID=395258, his statements on digital currencies begin at 32min and 16 seconds into the video. Therefor we believe that it is no longer our consideration as to whether we are an investment company, but rather that it has been clearly defined by implications made by the SEC Chairman in front of Congress. Our focus on bitcoin has kept us under the 40% limit; further we and our counsel believe that ether, our other cryptocurrency, is not presently a security.
GAAP provides the following guidance on sources of evidence of the entity’s business purpose and substantive activities:
946-10-55-6:
Evidence of the entity’s business purpose and substantive activities may be included in the entity’s offering memorandum, publications distributed by the entity, and other corporate or partnership documents that indicate the investment objectives of the entity. Evidence of the entity’s business purpose and substantive activities also may include the manner in which the entity presents itself to other parties (such as potential investors or potential investees). For example, an entity that presents its business to its investors as having the objective of investing for capital appreciation has characteristics that are consistent with the business purpose and substantive activities of an investment company. Alternatively, an entity that presents itself as an investor whose objective is jointly developing, producing, or marketing products with its investees has characteristics that are inconsistent with the business purpose and substantive activities of an investment company.
See our response above, which includes an excerpt of the description of our business purpose and plans of substantive activities as described in the prospectus at page 1. Our investor relations materials further support our goal of creating a portfolio of digital assets including bitcoin and other “protocol tokens”, potentially acquiring digital assets by resuming our transaction verification services business and identifying additional acquisition opportunities in the blockchain space. Our characteristics are inconsistent with the business purpose and substantive activities of an investment company. Further, we have been involved in the bitcoin and blockchain industry since 2013 and our activities to date and our proposed activities are not one of an investment company. For example, in 2014, 2015 and 2016 a substantial portion of our revenue was derived from our digital currency mining operation and we also had revenue from our ecommerce platform in 2013, 2014, 2015, 2016 and 2017.
GAAP provides the following additional guidance on exit strategies of investment companies:
946-10-55-7:
An entity’s investment plans also provide evidence of its business purpose and substantive activities. Accordingly, an investment company whose business purpose and substantive activities include realizing capital appreciation should have an exit strategy for how it plans to realize the capital appreciation of its investments. Although the entity may not yet have determined the specific method or timing of disposing of an investment, the fact that it has identified potential exit strategies through which it can realize capital appreciation provides evidence that its business purpose and substantive activities are consistent with those of an investment company. The entity need not document specific exit strategies for each individual investment held for the purpose of realizing capital appreciation but should identify potential exit strategies for different types or portfolios of investments held with the purpose of realizing capital appreciation.
Disposal of investments only during liquidation or to satisfy investor redemptions are not exit strategies. Therefore, an entity should have a plan to dispose of its investments before liquidation when its business purpose and substantive activities include realizing capital appreciation. An investment company whose business purpose and substantive activities are to invest for returns only from investment income does not require an exit strategy for its investments.
In its investment presentation, the Company presents itself as “an early mover in the blockchain and digital currency ecosystems and the first “Pure Play” U.S. public company focused on bitcoin and blockchain technologies.” It discusses looking at acquisitions and growth in the blockchain space versus exit plans for capital appreciation. Further, we have a history of looking to grow through acquisition and while non-of those plans have come to fruition our future plans are consistent with our past actions.
GAAP provides the following additional guidance regarding activities that would be inconsistent with the characteristics of an investment company:
946-10-55-8:
An entity would not be an investment company if the entity or its affiliates obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. Examples of relationships and activities that would be inconsistent with the characteristics of an investment company include any of the following:
The entity or its affiliates acquire, use, exchange, or exploit the processes, assets, or technology of an investee or its affiliates.
This includes the entity or its affiliates having disproportionate or exclusive rights to acquire assets, purchase an asset from an investee if the asset’s development is deemed successful).
There are other arrangements between the entity or its affiliates and an investee or its affiliates to jointly develop, produce, market, or provide products or services.
c.
An investee or its affiliates provide financing guarantees or assets to serve as collateral for borrowing arrangements of the entity or its affiliates to provide returns or with the objective of providing returns other than capital appreciation or investment income. The guidance in this paragraph does not prohibit an investment company from using its investments in its investees as collateral for any of its borrowings.
d.
An affiliate of the entity holds an option to purchase from the entity ownership interests in an investee at an amount other than fair value.
e.
There are transactions between the entity or its affiliates and an investee or its affiliates that meet any of the following:
They are on terms that are unavailable to entities that are not affiliates of the investee.
They are not at fair value or are not conducted at arm’s length.
They represent a substantive portion of the investee’s or the entity’s business activities, including business activities of affiliates of the entity or affiliates of the investee.
946-10-55-9:
An investment company may have a strategy to invest in more than one investee in the same industry, market, or geographical area to benefit from synergies that increase the returns from capital appreciation and investment income from those investments. Transactions between an entity’s investees should not affect the entity’s assessment of whether it is an investment company unless those transactions result in the entity obtaining returns or benefits other than capital appreciation or investment income.
Company has the objective of obtaining returns from capital appreciation or investment income. As discussed above, the Company is attempting to provide investors a diversified pure-play exposure to the bitcoin and blockchain industries.
GAAP provides the following additional guidance with respect to activities that an investment company may perform for its investees:
946-10-55-10:
An investment company may provide both of the following services to an investee, either directly or through an investment in an entity that provides those services, only if those services are provided for the purpose of maximizing returns from capital appreciation, investment income, or both (rather than other benefits) and do not represent a separate substantial business activity or separate substantial source of income for the investment company:
Assistance with day-to-day management of the operations of an investee.
Financial support, such as a loan, capital commitment, or guarantee.
described above, the Company provides services to develop substantial business activities designed to further the Company’s overall business strategies and are not for the sole purpose of maximizing returns from capital appreciation of securities and/or investment income on investees. The Company does not currently have any investee
We note your assertion that there is currently no authoritative literature applicable to your digital assets. Please analyze for us whether your digital assets meet the definition of an intangible asset and the consideration you gave to the application of that accounting to digital assets you acquired from others and digital assets you obtained through mining.
Digital assets technically meet the definition of an intangible asset, as intangible assets are those that lack physical substance. This model results in holdings of digital assets being recorded at the cost of acquisition, subject to impairment. That is, the model will only capture declines in the value of the digital assets, not increases.
our opinion, while digital assets meet the strict definition of intangible assets, this model does not best reflect the nature and economics of digital assets, which have unique characteristics that differ from most intangible assets.Read in the reply ↗Rest of the answer
While digital assets have no physical substance, many are traded on exchanges (unlike other intangibles), are designed to be accepted as payment for other goods and services (which is very infrequent for intangibles), and their value is subject to significant volatility. The
Company believes these differences are fundamental and point to the appropriateness of a fair value model.
This position is reflected in and consistent with “PWC’s Point of View Cryptocurrencies” (March 2018). Notwithstanding this accounting discussion, the Company will fully comply with the Commission’s accounting rules as administered by the
Staff.
Please note that the Company has only acquired digital assets from others. Although it may be a strategy going forward, the Company does not currently have digital assets that were obtained through mining. However, we would view the assets the same whether we acquired them from others via a fee for acquisition or obtained them through mining via verification services.
Should the staff have any additional questions or comments after reviewing this response letter, we would appreciate an opportunity to discuss these comments or questions with the staff prior to the distribution of another comment letter. Please direct any questions concerning this response letter to Michael D. Harris, the Company’s legal counsel, at 561-471-3507, mharris@nasonyeager.com.
Your response to prior comment 4 refers to information on your website indicating that you are “the first pure-play” U.S. public company involved with digital assets and block chain technologies. Your disclosure states that you plan to provide your investors with a “diversified pure-play exposure to bitcoin and blockchain technologies.” Please define the term “diversified pure-play” and explain what distinguishesRest of the question
you from other public companies with similar goals and operations.
Pure-play refers to a company that focuses only on a particular product or activity. We do not intend to operate outside of the Digital
Asset industry, and, as such, we are a pure-play company within the Digital Asset industry. We consider ourselves to be a diversified pure-play business because we are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital
Assets that appear to benefit our investors, or acquire businesses in the Digital Asset industry, subject to the limitations contained within the Amendment regarding Digital
Securities.Read in the reply ↗Rest of the answer
To our knowledge we are one of a few public companies intending to acquire both Digital Assets and businesses in the Digital Asset industry.
In order to provide clarification to investors regarding our goals and operations we have removed the term “diversified pure-play” from the Amendment on pages 1, 29, and 40 and have added disclosure regarding our company’s focus on pages 1, 29, and 40. For obvious reasons we have not edited the past financial statements attached to the
Amendment and two remaining references in the financial statements refer to the term “diversified pure-play.”
We have however updated our disclosure in our financial statements for the period ending June 30, 2018.
In the glossary, you state that digital assets are commonly referred to as “cryptocurrency or virtual currency.” Please clarify that the use of these terms is not indicative of the regulatory or accounting distinction of digital assets and that digital assets therefore may be deemed securities or other types of assets. In addition, explain that not all digital assets function as a medium of exchange.
We have added explanatory language to the definition of Digital Asset on page iii. Read in the reply ↗
We note that your portfolio will focus only on bitcoin and “other protocol tokens.” Please explain how protocol tokens differ from other types of tokens, and discuss whether there are any material challenges related to this limitation. Further, clarify how your portfolio will provide investors with exposure to bitcoin and blockchain industries.
have amended the definition of Digital Asset to state that the use of the word “token” is not indicative of any regulatory or accounting distinction with the term Digital Asset. Additionally, we have changed the word “exposure” to “indirect ownership of” on pages 1 and 29.
anticipate that our holdings will include Digital Assets that are not securities, such as bitcoin and ether, which will thus provide investors with indirect ownership of Digital Assets and, if we can make any acquisitions, one or more companies in the blockchain industry since our business strategy will focus exclusivelyRead in the reply ↗Rest of the answer
on the Digital
Asset industry and related business ventures.
have removed the term “protocol tokens” from the text of the Amendment on pages 1, 29, and 40. For obvious reasons we have not edited the financial statements attached to the Amendment and two remaining references in the financial statements refer to the term “protocol tokens.” We have update our disclosure in the footnotes for our financial statements for the period ending June 30, 2018.
We note the prospectus does not include the information that you provided in response to prior comment 3. Please revise. Further, we note that such response indicates that you may otherwise pursue strategic opportunities involving the acquisition of “businesses using blockchain technology and those involved with digital assets.” Please clarify how such opportunities may be different from, and synergistic to, yourRest of the question
creation of a portfolio of digital assets and the potential resumption of your transaction verification services. Explain the scope of the blockchain technology applications and digital asset activities that you would consider acquiring. In this regard, we note prior disclosure indicating that you were pursuing a company that owns and operates a digital asset exchange.
have added language to the Amendment regarding our current business model framework and acquisition criteria on pages
1 and 41.
Owning
Digital Assets and acquiring businesses naturally differ but each provides a unique opportunity within the Digital Asset industry. Acquiring Digital Assets and acquiring businesses are synergistic because they are in the same Digital Asset industry, however, they are by their very nature, different business opportunities since one involves acquiring assets whereas the other involves acquiring new companies and pursuing related but distinct businessRead in the reply ↗Rest of the answer
opportunities.
are seeking to acquire businesses using blockchain technology and those involved with Digital Assets including those that are similar to our current and past business ventures of acquiring Digital Assets and Digital Asset mining. While it is impossible to list all potential Digital Asset or blockchain related business ventures that we would consider engaging in, we intend to evaluate a variety of different related business ventures to determine whether they are potential acquisition targets. Blockchain companies currently operate in a variety of business, finance, real estate, and technology related sectors in order to bring the verification systems associated with decentralized blockchain technology into new markets.
There are a variety of blockchain related businesses that we would consider entering into business ventures with in order to expand our business into the Digital Asset and blockchain market.
evaluating potential Digital Asset and blockchain technology acquisitions, we intend to analyze the scope of the business involvement with Digital Assets and blockchain technology and the potential future ventures of the business regarding their blockchain technology and any future ventures. As discussed in our prior response letter, with the assistance of our counsel we intend to verify that
Digital Assets and business acquired by us do not cause us to acquire securities to the extent that we would be required to register as an Investment Company under the Investment Company Act of 1940.
You state that you plan to create a portfolio of digital assets. In order to facilitate our evaluation of your analysis of ASC 946, please tell us what this means and clarify your business purpose for creating this portfolio. In this regard, explain whether you intend to use the portfolio as part of your operations and, if so, how; or tell us whether you intend to hold these assets for appreciation.
have revised the disclosure of our purpose to clarify that the sole objective of BTCS is not to create a portfolio of
Digital Assets but rather to acquire Digital Assets and controlling interests in companies within the blockchain industry.
We have removed the term “portfolio” from the Amendment apart from two remaining references in the financial statements. Read in the reply ↗
In response to comment 5, you state the “company has the objective of obtaining returns from capital appreciation or investment income.” Please explain further how this statement supports your conclusions that you do not meet the fundamental characteristics of an investment company pursuant to ASC 946-10-15-6.
ASC
946-10-15-6 states that “An investment company has the following fundamental characteristics:
a) is an entity that does both of the following:
Obtains funds from one or more investors and provides the investor(s) with investment management services
Commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income, or both.
b) entity or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normallyRead in the reply ↗Rest of the answer
attributable to ownership interests or that are other than capital appreciation or investment income.
do not meet the fundamental characteristics of an investment company pursuant to ASC 946-10-15-6 because we do not provide investment management services and our sole business purpose and only substantive activities are not to invest our funds solely for returns from capital. We have disclosed that subject to additional capital we may resume our transaction verification services business
(i.e. Digital Asset mining) and are looking to acquire a controlling interest in blockchain companies. As such, we do not believe that we meet the fundamental characteristics of an investment company pursuant to ASC 946-10-15-6.
A comparison of your December 31, 2017 Form 10-K to your March 31, 2018 Form 10- Q suggests that you have changed classifications on the statements of operations and cash flows related to your digital assets. Please identify the changes for us and provide an analysis, with specific citation to authoritative literature, supporting the appropriateness of the revised classifications.
Given our lack of cash we decided to temporarily suspend our digital asset operations until we are recapitalized. Therefore, effective
January 1, 2018, we decided that realized losses on the sale of Digital Assets and the revaluation of Digital Assets should be recorded as a component of other (expenses) income and proceeds from the sale of Digital Assets should be classified as investing activities until we resume our digital asset operations. We are unaware of any authoritative literature concerning the classification of Digital Assets.Read in the reply ↗Rest of the answer
Considering that BTCS is no longer in the Digital Asset mining business we determined that any profits and realized losses should be recorded in this fashion.
Note
4. Summary of Significant Accounting Policies
You state in your response to prior comment 5 that your digital assets meet the definition of an intangible asset. While we continue to assess your responses related to investment company accounting, please note that we are unable to identify a scope exception in ASC 350-30 that permits the measurement of intangible assets at fair value in each reporting period.Rest of the question
Please describe for us your basis for measuring your digital assets at fair value. If your digital assets are within the scope of ASC 350-30, please revise your accounting to comply with those requirements.
While digital assets may meet the definition of an intangible asset in ASC 350-30, paragraph 15-3 states that only the following transactions are within its scope:
a.
Intangible assets acquired individually or with a group of other assets (but not the recognition and initial measurement of those acquired in a business combination or an acquisition by a not-for-profit entity) b.
assets (other than goodwill) that an entity recognizes in accordance with Subtopic 805-20 or 958-805 after they have been initially recognized and measured, except for those identified in the following paragraphRead in the reply ↗Rest of the answer
c.
Costs of internally developing identifiable intangible assets that an entity recognizes as assets note that we were receiving consideration in 2016 in exchange for providing verification services (a revenue transaction) rather than acquiring an intangible asset either individually, as a group, or as part of a business combination. Therefore, we concluded that the revenue transaction is not within the scope of the transactions listed in ASC 350-30-15-3(a) and (b).
Under
ASC 350-30-25-3, the costs of internally developing intangible assets are recognized as an expense when incurred. PwC’s
Point of View, Cryptocurrencies Time to Consider Plan B (March 2018), provides the following further guidance that might apply to the recognition of intangible assets for miners:
When a Digital Asset is purchased, the intangible asset would be measured at the price paid or consideration given to obtain the Digital
Asset. However, the question for miners is more complicated. Unlike a direct purchase, miners are awarded units, but they incur costs of computing equipment, electricity, and other expenses. At issue for the miners is whether the associated costs should be capitalized as an intangible asset or expensed.
There is not a lot of guidance on accounting for the costs incurred to internally-develop intangible assets, but it generally limits capitalization. Notwithstanding, existing guidance may not preclude capitalization for certain costs incurred by miners to obtain
Digital Assets. Miners may need to analogize to other areas of US GAAP where explicit guidance exists (e.g., internal-use software or film production).
miners of Digital Assets, this would mean capitalizing as an intangible asset the costs of the computing equipment, electricity, and other expenses incurred in performing the verification service. This would result in a different amount that is recognized as an intangible asset than a company that purchases an equal amount of the Digital Asset on an exchange.
further issue with classifying Digital Assets as an intangible asset is the impairment model associated with the subsequent accounting for intangible assets. Presumably, a Digital Asset would be subject to amortization, in which case it would be subject to impairment if it is subsequently determined to have a finite useful life. Because the prices of many Digital Assets are extremely volatile, there are practical challenges with making judgments associated with when the intangible assets are “more likely than not” to be impaired.
Digital Assets meet the technical definition of intangible assets in ASC 350-30, that definition was developed based on guidance that was issued more than 40 years ago in APB Opinion No. 17, Intangible Assets, which did not contemplate the nature of Digital
Assets. Rather, the guidance focuses on intangible assets like trademarks, patents, and customer relationships that are typically held for long periods of time and do not have quoted prices in active markets.
Due to the issues noted above, we concluded that the Digital Assets received in exchange for performing a verification service is not within the scope of the three transactions listed in ASC 350-30 and that it would not be appropriate to analogize to the guidance in ASC 350-30 for the subsequent measurement of Digital Assets. Rather, BTCS concluded that it is more appropriate to analogize to the guidance in ASC 825 on accounting for financial instruments in order to subsequently measure the Digital Assets that it receives in exchange for providing verification services.
Should the staff have any additional questions or comments after reviewing this response letter, we would appreciate an opportunity to discuss these comments or questions with the staff prior to the distribution of another comment letter. Please direct any questions concerning this response letter to Michael D. Harris, BTCS’s legal counsel, at 561-471-3507, mharris@nasonyeager.com.
We do not believe that the digital assets you hold meet the requirements in ASC 825 to permit application of fair value option. Based on your responses, we also understand that the digital assets you hold are not rights to cash or ownership interests in an entity.Rest of the question
Therefore, it appears that the subsequent measurement of your digital assets is subject to the requirements for indefinite-lived intangible assets in ASC 350-30. We also note that your digital assets are not productive assets and therefore cash flows from their purchase or sale do not appear to meet the definition of investing activities. If our understanding is correct, please revise your financial statements accordingly.
Inc. (the “Company”) submits this letter in response to the Staff’s letter dated August 21, 2018 (the “Comment
Letter”). In the Comment Letter the Staff concluded that the Company had not complied with generally accepted accounting principles (“GAAP”) in its treatment of its Digital Assets.
Following communications with the Staff, the Company concluded that the Staff’s position was correct with respect to GAAP, and the
Company filed a Form 8-K on September 21, stating that it had agreed to amend its financial statements for the year ended December
31, 2017 contained in the Form 10-K forRead in the reply ↗Rest of the answer
that year and in the Form 10-Qs for the periods ended March 31 and June 30, 2018.
The
Company is filing a Form 10-K/A and Form 10-Q/As restating its financial statements for the year ended December 31, 2017 and the periods ended March 31 and June 30, 2018. The Company is also filing an amendment to its Registration Statement on Form S-1 containing the revised financial statements.
In addition to restating its audited financial statements for the year ended December 31, 2017, the Form 10-K/A has been updated to the most recent practicable date, except for those line items which are required to be stated at December 31, 2017 and December
31, 2016. The Form S-1 contains not only the restated financial statements but disclosure which is similar to the disclosure in the Form 10-K/A, except for those items expressly only required in the Form 10-K and simple changes such as using the word “prospectus” or the phrase “Form 10-K/A”.
We note that you are registering an additional 55,000,000 shares of common stock underlying Series C Warrants that were issued for no consideration in October 2018. Given the number of shares being registered for resale on behalf of the selling shareholders in relation to the number of your outstanding shares held by non-affiliates, the transaction appears to be a primary offering.Rest of the question
Please provide us with your analysis as to why you believe this is not a primary offering such that the selling shareholders are identified as underwriters and the shares are offered at a fixed price. For guidance, refer to Compliance and Disclosure Interpretations, Securities Act Rules, Question 612.09.
We have eliminated the common stock issued upon exercise of the Series C Warrants. This reduces the number of shares that we attempting to register for resale under the Amendment from 122,939,632 to 67,939,632. Based upon the table below, we respectfully submit that the offering contemplated by the Registration Statement is a valid offering by or on behalf of the selling shareholders that may be registered for sale on a continuous basis pursuant to Rule 415(a)(1)(i) under the Securities Act of 1933.
following table sets forth the Registered Shares as set forth in Amendment# 7 and Amendment#Read in the reply ↗Rest of the answer
8 as well as the Registered Shares as a percent of BTCS’ non-affiliate public float.
#7
(10/12/2018)
#8
(10/31/2018)
You state that the Series C Warrants were issued for no consideration. We note, however, that the form of warrant that has been filed as an exhibit indicates that the warrants were issued “for value received.” Please reconcile, and describe the value or benefit that you received in exchange for such issuance.Rest of the question
If you received no value or benefit, please provide a legal analysis as to whether the warrants were validly issued and fully paid under state law.
Our counsel agrees that Nevada law does not permit the issuance of warrants to the holders of an outstanding class or series except on a pro rata basis. Since the warrants were not issued on a pro rata basis, we have cancelled them pursuant to a letter agreement executed by each Series C Warrant holder. A copy of the form of response letter is filed as Exhibit
10.32. An appropriate change has been made at page 39 of the Prospectus. Read in the reply ↗
Also in this review: company letter, 2018-08-28