Form S-1
You appear to be a shell company, as defined in Rule 405. In particular, we note that you appear to have nominal operations and nominal assets. Please disclose that you are a shell company on your prospectus cover page and add a risk factor that highlights the consequences of your shell company status.Rest of the question
Discuss the prohibition on the use of Form S-8 by shell companies; enhanced reporting requirements imposed on shell companies; and the conditions that must be satisfied before restricted and control securities may be resold in reliance on Rule 144. Also describe the potential impact on your ability to attract additional capital. Alternatively, provide us with a detailed analysis addressing why the individual factors set forth in the definition of the term shell company are not applicable to you.
Rule
405 under the Securities Act of 1933, as amended (the “Securities Act”) defines a shell company as “a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB, that has: (1) no or nominal operations; and (2) either: (i) no or nominal assets; (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.” The Company is not considered a “shell” company under this definition as our business plan is well formed and our operations and assets exceed the classificationRead in the reply ↗Rest of the answer
as “nominal”.
1901 N Moore St. | Suite
700 | Arlington, VA 22209 | (248) 764-1084
Although the “asset” component of the definition of Shell contained in Rule 405 is one prong of this analysis, the first essential element of the definition seeks to assess “activity” levels of registrants. Without being an inactive company, the asset tests do not appear to be relevant in the determination of Shell status under Rule 405. By way of analogy, the importance of activity is identified specifically in components of Rule 144, when referencing the Shell definition. Rule 144 (i)(1) excludes companies from the definition of Shell company that are development stage companies pursuing an actual business, a business combination shell company (as defined in Rule 405) or an asset-backed issuer. These provisions provide special guidance and provide additional factors required when considering the Shell status of an issuer that is operating but may not have significant assets reported on its financial statements to satisfy the second tier inquiry. We nonetheless provide below an explanation of why the Company does not meet the “inactivity” element of the Shell definition, and further explain why even if it did, it has significant assets.
Company’s Operations
As explained in our Registration Statement, our principal business is conducted through our wholly-owned subsidiaries, BitcoinShop.us,
LLC (“BitcoinShop”) and BTCS Digital Manufacturing (“BTCS Digital”). As further described in our Registration
Statement, we have been actively involved in developing and continue to expand various areas of business: (i) a beta ecommerce marketplace which accepts a variety of digital currencies and continues to be enhanced by adding new functions designed to add value to the customer experience; (ii) a beta storage solution designed to securely store digital currency; (iii) a transaction verification services business capable of generating bitcoins (i.e. bitcoin mining); (iv) a new focus on integrating our blockchain technologies and capabilities into other uses outside of bitcoin mining.
BitcoinShop has, since July 28, 2013, and the Company at a consolidated level has, since February 5, 2014, been engaged in various digital currency platforms. As noted in the Registration Statement, we host and maintain a web ecommerce marketplace that offers over
250,000 products, for which customers have an option to pay using digital currencies. Since its inception, BitcoinShop has strove to enhance its ecommerce marketplace with value added services. For example, in early 2014, we redesigned the ecommerce marketplace and added our “Intelligent Shopping Engine” functionality, which allows customers to find completive prices on products from over 250 retailers.
Furthermore, we have a history of expanding on our existing technologies, know-how and capabilities to develop additional sources of growth and/or revenue. For example, through our wholly owned subsidiary BTCS Digital, we added a transaction verification business with the capacity to mine bitcoins and to apply our technologies to providing secure verification services. Recently, we purchased
100 digital currency mining servers for a purchase price of $223,500 and used digital currency mining servers for $14,480, which servers were put into service in an 83,000 square foot facility we recently leased. In fact, as disclosed in the Amendment, we generated $175,753 in revenues during the six month period ended June 30, 2015 from our transaction verification business.
Company Has More than Nominal Assets we continue to believe that based solely on the fact that the Company has consistently had material operations and has added to those operations it does not meet the Shell definition in Rule 405, set forth below is a description of our more than “nominal” assets. As of June 30, 2015, we had an aggregate of $2,006,211 of non-financial and non-cash assets consisting of websites, equipment and a 6.6% investment interest in Spondoolies Tech Ltd., a transaction verification server manufacturer. Notably, our equipment has been and continues to yield revenues. In addition, we anticipate that we will be able to leverage the capabilities of our servers to increase our revenues.
set forth in the Amendment and our recently filed Form 10-Q for the period ended June 30, 2015, our assets include:
● $303,240
– Cash
● $46,100
– Digital Currencies
● $54,577
– Prepaid Expense and Other Current Assets
● $497,558
– Property and Equipment
● $1,500,000
– Investment (approximately 6.6% of Spondoolies Tech Ltd.)
● $8,653
– Websites
● $61,515
– Deposits
We note that you are registering the offer and resale of 42,106,460 shares of common stock previously issued or to be issued upon conversion of outstanding warrants. Nonaffiliates of the company appear to hold 75,526,419 shares of your common stock.Rest of the question
Based on the number of shares being registered relative to the number of shares of common stock held by non-affiliates, it appears that the purported secondary offering by these persons may be a primary offering under Rule 415(a)(1)(x) of the Securities Act and that they are distributing the securities on the company’s behalf. As such, please revise to identify these persons as underwriters in the prospectus. In addition, since you are not eligible to rely on Rule 415(a)(1)(x) of Regulation C, the offering by the underwriters must be conducted at a fixed price for the duration of the offering. See Rule 415(a)(4). Please revise accordingly. Alternatively, provide a detailed analysis as to why this offering should not be considered an indirect primary offering registering shares by or on behalf of the registrant. Refer to Securities Act Rules Compliance and Disclosure Interpretation 612.09, available on our website.
noted in the Compliance and Disclosure Interpretation 612.09 reference by the Staff, determining whether an offering is a secondary one, as opposed to an offering on behalf of the issuer, is a factual analysis with various considerations. Such factual considerations, as highlighted in the Compliance and Disclosure Interpretation 612.09, are: (i) how long the selling shareholders have held the shares; (ii) the circumstances under which they received them; (iii) their relationship to the issuer; (iv) the amount of shares involved; (v) whether they are in the business of underwriting securities;Read in the reply ↗Rest of the answer
and (vi) whether under all circumstances it appears that they are acting as conduits for the issuer.
the specific factors referenced in CDI 612.09 are set forth in the tables provided below in response to the Staff’s specific comments, the Company would like to advise the Staff of the following:
● Since the commencement of the fund raising activities, the Company is currently unaware of any selling shareholder who has used a registration statement to sell our securities.
As such, there is no evidence that the Company has in the past utilized the registration process under Rule 415(a)(1) to indirectly offer its securities to the public.
● A majority of the securities issued to the selling shareholders were issued over six months ago, making most of the securities available for resale pursuant to Rule 144; provided that the warrants held by the selling shareholders are exercised on a cashless basis.
The Company is filing a registration statement to register the resale of the shares to fulfill a contractual obligation, even though it is unlikely that many of the shareholders will ever need to use the Company’s registration statement to sell their shares.
As CDI 612.09 gives consideration to the length of time the Company’s securities have been owned, the Company believes the foregoing demonstrates that a majority of the holders in the registration statement should not be viewed as “underwriters” under the Securities Act.
following chart provides relevant information about each selling shareholder, the securities they seek to resell and their relationship to the Company:
Selling
Shareholder
Date and Manner of Acquisition
Relationship with
Company
Consideration
Paid
In the Business of Underwriting
Alpha Capital Anstalt
-April 20, 2015 (“April Units”)
- October 3, 2014 - Private Purchase*
- $250k for 833,334 April Units, and
- $18.6k for 620,908 common shares
No
Andrew Zimmitti
- $10k for 33,334 April Units
Charles Arlen Kiser Jr
Former officer
- $2.5k for 8,334 April Units
Darwin Ret LLC
- $50k for 166,667 April Units
DLS Investments, LLC
- $250k for 833,334 April Units
GRQ Consultants Inc Roth 401k FBO Barry Honig
- $125k for 416,667 April Units
Kristopher D. Brown
- $5k for 16,667 April Units
Lincoln Park Capital Fund, LLC
- $105k for 350,000 April Units
Mike H. Ference
Richard Molinsky
- $25k for 83,334 April Units
R-Squared Partners, LLC
WillowDale Investments, LLC
- $1 m for 3,333,334 April Units
Zheng Zhi Zui
Carol Van Cleef
- April 20, 2015 (“Adv. Shares”)
Shareholder - Advisor
- $50k for 166,667 April Units, and
- $6k for 46,524 Adv. Shares
James G. Van Cleef
- $12.5k for 41,667 April Units
Patricia A. Kelly
Cynthia Jones
February 20, 2015
- $14.48k for equipment purchase
Sandor Capital Master Fund
- $36k for 1,200,000 common shares
Cavalary Fund I LP
- $10k for 300,000 common shares
Hudson Bay Master Fund Ltd
-January 19, 2015 (“Jan Units”)
- $100k for 1,000,000 Jan Units, and
- $200k for 666,667 April Units
Michal Handerhan
- February 6, 2015 Share Exchange
Officer / Director
- $5k for 50,000 Jan Units,
- $20k for 66,667 April Units, and
- ~$274 for 1,383,333 common shares
ATG Capital LLC
- $25k for 83,334 Jan Units, and
- $25k for 250,000 April Units
Charles W. Allen
- February 6, 2014 - Share Exchange
- $353 for 1,783,333 common shares
Deane A. Gilliam
- $250k for 2,500,000 Jan Units
Jane S. Vanderpoel
- $23k for 230,000 Jan Units
Peter P. Kelly
- $20k for 200,000 Jan Units
Timothy Andrew Sidie
- $5k for 50,000 Jan Units, and
- ~$198 for 1,000,000 common shares
Chord Advisors, LLC
- February 19, 2015 - Private Purchase*
- March 5, 2015 - Conversion of Payables
- April 22, 2015 - Conversion of Payables
- April 24, 2015 - Conversion of Payables
- May 4, 2015 - Conversion of Payables
Shareholder - Consultant
- $30 for 30,000 common shares
- $85,000 AP converted to 326,923 common shares
- $25,730 AP converted to 83,000 common shares
- $10,000 AP converted to 32,258 common shares
- $5,000 AP converted to 16,129 common shares
Sichenzia Ross Friedman Ference LLP
- February 18, 2015 - Private Purchase*
- February 18, 2015 - Conversion of Payables
- $615 for 123,077 common shares
- $40,000 AP converted to 153,846 common shares
Kyle Douglas Cline
- February 25, 2015 - Private Purchase*
- $660 for 550,000 common shares
RedChip Companies Inc.
June 16, 2015
-NA warrants issues for IR services
Alliance Funds LLC
- $135 for 27,010 common shares
- $18,694 AP converted to 71,900 common shares
*All shares issued in Private Purchases were originally issued by the company on February 6, 2014 as part of the Share Exchange
We note your disclosure in Note 4 to your financial statements that “[t]he Company redirected its focus from its e-commerce marketplace efforts to its transaction verification services business during the third quarter and fourth quarter in 2014.” Please review and revise your filing to ensure that this strategic decision and its resulting implications for your business are fully and clearly described throughoutRest of the question
your filing, including, but not limited to the summary and business discussions as well as MD&A.
Our summary and business discussions, as well as our MD&A section, was updated in the Amendment to reflect the change in focus.
We note, to provide clarity, that we have not abandoned our e-commerce marketplace but have concentrated our focus on our transaction verification related businesses and investments in order to take advantage of our belief in the higher growth prospects in this business segment. Read in the reply ↗
With respect to every third-party statement in your prospectus, such as the statistics provided by Bitcoin Foundation and Blockchain.info, please provide us with the relevant portions of the industry research reports you cite.Rest of the question
To expedite our review, please clearly mark each source to highlight the applicable portion or section containing the statistic, and cross-reference it to the appropriate location in your prospectus. Lastly, please tell us whether any of the reports were prepared for you.
We have provided relevant citations where such statistical information remains. However, many such references were removed from the
Registration Statement. Read in the reply ↗
Please supplementally provide us with copies of any graphical materials or artwork you intend to use in your prospectus. Upon review of such materials, we may have further comments. For guidance, refer to our Securities Act Forms Compliance and Disclosure Interpretation 101.02.
have supplementally (as correspondence on EDGAR simultaneously herewith) provided such graphical materials. However, many of such graphical material were removed from the Registration Statement. Furthermore, to the extent we include any additional graphical materials or artwork in subsequent version of the prospectus, we will supplementally provide those to the Staff. Read in the reply ↗
We note reference to price adjustment and anti-dilution features in your descriptions of recent warrant grants. To the extent that the common shares being registered underlie warrants that have adjustment features where the exercise price adjusts if the company sells shares at a price lower than the warrant exercise price, please confirm to us your understanding that additional issuances pursuant to such warrantRest of the question
agreements would not be covered by Rule 416(a) and will require a separate registration statement and fee.
confirm our understanding that additional issuances would not be covered and will require a separate registration statement and fee. Read in the reply ↗
Please revise to disclose that this offering constitutes you initial public offering and clarify that you are registering the sale of common stock issued to the selling security holders as well as common stock underlying outstanding warrants exercisable at varying prices. In addition, to comply with Rule 421(d), please eliminate the multiple parenthetical phrases from the cover page.Rest of the question
Refer to Item 502 of Regulation S-K.
For the reasons provided in our response to Comment #2 above, we do not believe that this resale offering constitutes our initial public offering. We have, however, removed the parenthetical phrases on the cover page.
Prospectus
Summary
Our Business, Read in the reply ↗
Please expand your disclosure here or elsewhere in the summary to briefly discuss your history of net losses for the periods presented.
expanded our disclosure to discuss our history of net losses in the Amendment. Read in the reply ↗
You prominently present data on the technical capacity of your facilities, and state that your new facility is anticipated to handle over 10 megawatts (mw) of power and can potentially house up to 40,000 TH/s of mining servers. Yet you do not provide context for this information that would allow investors to compare this data with that of your competitors or with any industry standard.Rest of the question
Please revise to provide context to this disclosure or relocate such disclosure to portions of your document where you discuss the technical requirements of your business.
condensed our disclosure to provide context on the current capabilities of the facilities. Read in the reply ↗
You state that your marketplace offers 250,000 “curated” products. Please clarify here and in Business the process by which you curate your product list and whether this entails each product being evaluated by your staff.
clarified this disclosure in the Amendment. Read in the reply ↗
Please tell us what consideration you gave to expanding your disclosure here and in your business section to describe with specificity your fee structure for affiliates and nonaffiliates.
No numbered answer found in the reply. Read the reply ↗
You state that you currently operate a beta e-commerce marketplace. Please revise to describe with more detail the operational status of your marketplace. Ensure that you include similar disclosures in your business section.
clarified the operations and status of the beta e-commerce marketplace throughout the Amendment. Read in the reply ↗
You state that in 2015 you issued common stock to Sichenzia Ross Friedman Ference LLP, pursuant to certain conversion agreements for settling outstanding legal fee balances. You also indicate that Sichenzia Ross Friedman Ference will be opining on the validity of the securities being offered in this transaction.Rest of the question
Accordingly, please tell us why you believe such interest is not required to be disclosure pursuant to Item 509 of Regulation S-K.
added disclosures to our “Experts” and “Legal Matters” sections of the Amendment. Read in the reply ↗
Please explain your basis for assuming that the 22,116,684 of shares issuable upon exercise of warrants will be outstanding following this offering.
Since we continue to believe that this is a resale offering, if the 22,116,684 shares of common stock issuable upon exercise of the selling shareholders’ warrants are to be sold pursuant to the prospectus and the Registration Statement, our issued and outstanding shares will be increased. At this time none of these such warrants have been exercised. Read in the reply ↗
Expand your risk factor disclosures to include a separately captioned risk factor discussing your history of net losses, or tell us why you believe that such a risk factor is not required.
added a risk factor disclosing and discussing the risks related to our history of net losses. Read in the reply ↗
We note your disclosure on page 61 that as with other currencies, bitcoins can be used to purchase illegal goods or fund illicit activities. We also note your reference on the same page to Silk Road. Tell us whether you considered expanding your disclosure in this section to address risks pertaining to whether your ecommerce site could be utilized to facilitate illegal purchases or transactions.Rest of the question
Also disclose in your business section whether you have adopted any policies or controls with respect to the products sold by thirdparties on your marketplace.
expanded our disclosure in this section to address risks pertaining to the utilization of our e-commerce site to facilitate illegal transactions. We further included a discussion about our controls to protect against such risks. Read in the reply ↗
Please add a separately captioned risk factor disclosing the minimum number of months that you will be able to conduct your planned operations using currently available capital resources. In addition, disclose the minimum additional dollar amount you will require to fund your business activities for the next 12 months.
added a risk factor disclosing and discussing our capital resources and the amount of time such resources will sustain operations.
Furthermore, we disclosed the dollar amount we anticipated needing to fund our activities for the next 12 months. Read in the reply ↗
We note disclosures in Mr. Allen’s professional biography on page 67, indicating that Mr. Allen currently serves as an officer for other entities, such as Allen Consulting, LLC. Please add a risk factor that discusses the possible conflicts of interests involving your CEO and whether you have a policy in place to resolve such conflicts.
added a risk factor disclosing and discussing the risks related to any conflicts our CEO has with performance of duties to Allen
Consulting, LLC and the Company. Read in the reply ↗
You state that if you are unable to comply with the Sarbanes-Oxley Act’s internal control requirements, you may not be able to obtain the independent auditor certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.Rest of the question
However, as a smaller reporting company you will not be required to obtain an auditor attestation with respect to management’s conclusion about the effectiveness of internal controls over financial reporting, for so long as you remain a smaller reporting company. Please revise your disclosure accordingly or advise.
expanded our disclosure to address our status as a smaller reporting company and the requirement for auditor attestation. Read in the reply ↗
You state that during your assessment of the effectiveness of internal control over financial reporting as of March 31, 2015, management identified a significant deficiency “related to presence of weakness in our disclosure control and procedure resulting from limited internal audit functions.” Please revise the caption of this risk factor to state clearly that you identified a deficiency in your internal controlRest of the question
over financial reporting. In addition, in an appropriate location, include a more detailed discussion of the remedial steps you intend to take to address the weakness and of the material costs, if any.
revised the caption of the risk factor and added a discussion of the presence of weakness and remedial steps we intend to take.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Overview, Read in the reply ↗
The disclosure in your overview is repetitive of the disclosure in your summary and business sections. Please consider revising your disclosure in this section to address instead how you earn revenues and income and generate cash, to identify the key opportunities, challenges and risks you face as well as to discuss any known material trends and uncertainties and their impact on your business.Rest of the question
See Item 303(a) of Regulation S-K, and for guidance, refer to Section III.A of Release No. 33-8350.
expanded our disclosure in the overview section to address how we earn revenues or anticipate to earn revenues and to identify opportunities, challenges and risks we face. Read in the reply ↗
We note your disclosure on page 43, where you state that “over time it is anticipated that the rewarded value of adding a block to the Blockchain will decrease, and we expect to charge transaction fees to verify transactions.” Tell us what consideration you gave to discussing in your overview the challenges resulting from this anticipated trend.Rest of the question
Results of Operations for the Year Ended December 31, 2014 and for the Period from July 28,
enhanced the disclosure to discuss these challenges and the alternative source of revenues we anticipate instead.
Results of Operations for the Year Ended December 31, 2014 and for the Period from July 28, 2013 (Inception) Through December 31, 2013, Read in the reply ↗
We note that for the year ended December 31, 2014, the company earned $20,405 in processing fees from e-commerce transactions from your BTCS marketplace website. Please clarify the currency in which these transactions were processed (e.g., U.S. dollar, bitcoin, dogecoin).Rest of the question
In addition, considering the company’s refocus from its e-commerce marketplace business to its transaction verification services business, as noted on page F7, tell us whether you expect to continue to earn revenues from the e-commerce transactions verification services business in the future.
enhanced the disclosures in this section to specify the currency in which revenues are generated and the currency in which our revenues are presented in our financial statements. Read in the reply ↗
Please explain further how you generate revenues from your transaction services business. In your response, tell us the number of transactions processed and the average fee per transaction during fiscal 2014 and the interim period to date in fiscal 2015.Rest of the question
Also, clarify whether the amounts recorded in revenue during these periods represent fees earned by the company for the successful mining of bitcoin on a customer’s behalf, or whether these amounts represent successful bitcoin mining performed by the company on its own behalf.
connection with our response to Comment #21, we’ve enhanced our disclosure to address the requested information and discussions.
However, we do not monitor the number of transactions processed nor do we monitor the fees earned per transaction. Instead, as explained in the Amendment, our current source of revenues is the bitcoins that we earn from the processing power of our servers. Read in the reply ↗
Please revise to disclose the monthly lease payments due on the 83,000 square foot facility in North Carolina. Also, revise to more fully describe, and quantify, the leasehold improvements and capital expenditures that will be required in order to fully implement your transaction verification service business plan.Rest of the question
In addition, disclose the monthly electricity costs that you expect to incur once you are fully operational.
enhanced our disclosure to address the requested information and discussions. However we do not know the monthly eclectic cost once fully operational as it will depend on the amount of electricity used which is a function of products we have not yet purchased.
Therefore any discussion would be speculation and is not addressed.
Business, Read in the reply ↗
This section contains lengthy descriptions of the market of bitcoins relative to the portions of your discussion describing your business. Your business discussion should be specifically tailored to your business focus and should describe your industry insofar as it is relevant to an understanding of your business plan.Rest of the question
Please revise to refocus the presentation in this section on your current business and opportunity.
revised our disclosures to tailor our industry discussion to those industry descriptions connected to and relevant to our business focuses. Read in the reply ↗
You provide information on the growth of the Bitcoin Network’s total hashrate on page 52, and the historical price of bitcoins on page 57. Revise the narrative presentations accompanying the graphs in this section to clarify how the information in the graphs relates to your business opportunity.
referenced chart was removed from the Amendment. Read in the reply ↗
You provide information on regulatory responses to the emergence of bitcoins, however, much of the information presented is from 2014. To the extent that more recent information is available regarding how the referenced financial regulatory agencies intend to regulate bitcoins and bitcoin-related companies, ensure that you update this section to incorporate this information.
referenced information was updated or removed in the Amendment. Read in the reply ↗
Please explain to us how you determined that you had only two named executive officers for fiscal 2014. In this regard, we note that Mr. Sidie is described as your Chief Technology Officer on page 71. Refer to Item 402(m)(2)(ii) of Regulation S-K.
Compensation disclosures for Mr. Sidie were provided in the executive compensation section of the Amendment. Read in the reply ↗
Please revise your disclosure in this section to present together all of the information relating to a single transaction rather than presenting the information in chronological order. For instance, It appears that you discuss payments on the January 19, 2015 Handerhan Note in three separate paragraphs. In addition, where a loan has been paid in full, please include language clarifying this.
revised the disclosures in order to group together the presentation by transaction, as opposed to chronology. Read in the reply ↗
Please disclose how you determined the dollar value of the mining hardware Mr. Allen sold to you in exchange for payment. Refer to Item 404(a)(6) of Regulation S-K.
enhanced the discussion by including the basis on which our Board of Directors determined the value of the equipment purchased. Read in the reply ↗
We note that you have not disclosed the financial terms of the transactions with Kamron Inc. and ASB Trading that occurred in 2013. Please revise your disclosure to provide this information. Refer to Instruction 2 to Item 404(d) of Regulation S-K.
enhanced our disclosure to include the requested information. Read in the reply ↗
Footnote 32 states that “[e]ach of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities.” Beneficial ownership disclosure in this table is based on voting and/or investment power. See Instruction 2 to Item 403 of Regulation S-K and Exchange Act Rule 13d-3.Rest of the question
To the extent that you retain these disclaimers, please provide us with a legal analysis supporting your belief that beneficial ownership disclaimers are proper outside of filings on Schedules 13D and 13G.
amended the footnote to remove such disclaimer language. Read in the reply ↗
Please revise your disclosure to state the facts relied upon to make the claimed exemption available for each transaction, and disclose the total number of unaccredited investors who participated in each transaction. Refer to Item 701 of Regulation S-K.
amended the section to include a reference to the exemption claimed for each transaction.
Exhibits, Read in the reply ↗
We note that you have incorporated by reference certain promissory notes that have not been executed. For example, exhibit numbers 10.23, 10.45, and 10.49 do not appear to have been executed and are filed as “form of” agreements. Please file executed copies of these agreements with your next amendment.Rest of the question
Additionally, to the extent you are relying on Instruction 2 to Item 601 of Regulation S-K in filing “form of” exhibits for these or other documents, ensure that you provide a schedule containing the information required by that instruction.
filed the executed instruments as replacement exhibits with the Amendment.
****
Company hereby acknowledges the following:
● should the Commission or the staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing;
● the action of the Commission or the staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and company may not assert staffRead in the reply ↗Rest of the answer
comments and the declaration of effectiveness as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We note your response to prior comment 3 and revised disclosure regarding your shift in focus towards your transaction verification service, though you continue to support and develop your ecommerce marketplace. Please revise your disclosure throughout to more specifically explain, and quantify to the extent possible, the nature of this strategic shift and describe in more detail the extent of the ongoing supportRest of the question
and development of your Ecommerce Marketplace. Also, tell us what consideration you gave to including a separately captioned risk factor under “Risks Related to Our Ecommerce Business” alerting investors to any material risks resulting from this shift in focus.
Company will still be involved in both the transaction verification service as well as the ecommerce marketplace. We have revised the disclosure in the filing to further describe our business. We do not believe that expanding our business to include transaction verification services requires any additional risk factors related to our ecommerce business. Read in the reply ↗
We reissue prior comment 7 in part. Please revise your disclosure to clarify that you are registering the sale of common stock issued to the selling security holders as well as common stock underlying outstanding warrants exercisable at varying prices.
No numbered answer found in the reply. Read the reply ↗
Revise your summary to disclose that your independent auditors have indicated in their report on your December 31, 2014 financial statements that there is substantial doubt about your ability to continue as a going concern.
Company disclosed that its independent auditors have indicated in their report on the December 31, 2014 financial statements that there is substantial doubt about the Company’s ability to continue as a going concern. Read in the reply ↗
We note your response to our prior comment 14. Tell us whether the warrant holders have agreed to exercise their warrants in connection with the offering and if so please revise the filing to indicate as such. If not, please remove the effect of the 22,116,684 shares issuable upon exercise of warrants from the amount of common stock outstanding following this offering and revise footnotes (1) and (2) accordingly.
No numbered answer found in the reply. Read the reply ↗
We note your discussion on page 11 regarding your historical cash burn rate for the six months ended June 30, 2015. Please revise your liquidity disclosures to include a discussion of the minimum number of months that you will be able to conduct your planned operations using currently available capital resources. Please refer to FRC 501.03(a) and Section IV of SEC Interpretive Release 33-8350.
No numbered answer found in the reply. Read the reply ↗
We note your response to prior comment 28, where you state that the referenced information was updated or removed in this amendment. We are unable to locate, however, any updates to your disclosures reflecting regulatory developments since 2014. It appears that your filing should reflect recent developments pertaining to the regulation of bitcoins by the U.S.Rest of the question
Commodity Futures Trading Commission as well as any other material regulatory developments. Additionally, we note that you have deleted disclosure pertaining to the regulation of bitcoins in foreign jurisdictions. Please advise why you believe that such information is not material to an understanding of your business or further revise to include this information. Refer to Item 101(h)(4)(i)( ix) of Regulation S-K.
Additionally, the Company has included disclosure pertaining to the regulation of bitcoins in foreign jurisdictions. Read in the reply ↗
We note your revised disclosure in response to prior comment 32, where you quantify the amounts of the transactions with your former management. Specifically, you state that the transaction with Kamron Inc. was valued at $61,413 and ASB Trading at $35,286.Rest of the question
However, this information does not appear to reconcile to the information included in the Asset Purchase and Debt Assumption Agreement filed as exhibit 10.10 to your Form 8-K filed on February 6, 2015, and incorporated by reference into this filing, where the related party liabilities were payable in the amount of $28,585.79 to Andi Brabin and $55,913.40 to Ronnie Murphy as of February 5, 2014. Please advise.
disclosure has been updated to reflect the amounts as set forth in the Asset Purchase and Debt Assumption Agreement filed as exhibit
10.10 to our Form 8-K filed on February 6, 2014. Read in the reply ↗
We reissue prior comment 34, insofar as you have not revised your disclosure to state the facts relied upon to make the claimed exemptions available for each transaction. We specifically note that in some instances you have not provided the date of sale nor provided the total number of unaccredited investors, where you rely on Rule 506, who participated in each transaction. Refer to Item 701 of Regulation S-K.
All of the listed offerings and sales were deemed to be exempt under Section 4(a)(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of accredited investors, and transfer was restricted by us in accordance with the requirements of the Securities Act of 1933.
No offers were made to unaccredited investors. We have provided the dates, or ranges of dates of sale or conversion, as applicable. Read in the reply ↗
We note your revisions in response to prior comment 6, where you refer to the CFTC Order that found that bitcoins are properly defined as commodities. Please expand your disclosure to explain with more specificity the impact on your business resulting from this regulatory development. Additionally, ensure that you update your risk factor disclosure on page 25 to reflect these developments.
We do not believe the CFTC Order will be applicable to our business. As a result, the CFTC Order will have no impact on our business.
We have updated our risk factor disclosure to reflect these recent developments. Read in the reply ↗
We note your amended disclosure under the caption Recent Sales of Unregistered Securities, stating that you issued 40,000 shares of common stock to RK Equity Advisors, LLC on October 29, 2015. You also indicate that Mr. Allen founded RK Equity Capital Markets LLC and RK Equity Investment Corp. It appears, based on this relationship, that discussion of this transaction is warranted.Rest of the question
Refer to Instruction 1 to Item 404(a) and Item 404(d) of Regulation S-K and advise.
Our filings have indicated that Mr. Allen was a Managing Director at RK Equity Capital Markets LLC (“RK”) and focused on natural resources investment banking and added to RK’s capital markets efforts. In August, 2012 Mr. Allen co-founded
RK Equity Investment Corp. (“RKEIC”). Our filings do not indicate that Mr. Allen was the founder of RK Equity Capital
Markets LLC. The Company, however, issued 40,000 shares of common stock to RK Equity Advisors,
LLC. While RK Equity Advisors LLC has a similar name to RK Equity Capital Markets LLC and RK Equity Investment Corp.Read in the reply ↗Rest of the answer
they are completely separate legal entities. Mr. Allen is not and has never been an officer, director, member, shareholder or employee of RK Equity Advisors LLC and no related party disclosures are required.
Note 12 to your financial statements indicates that on October 14, 2015, you issued shares of your common stock to an individual investor; however, it does not appear that you have provided updated disclosure in this section. Please revise or advise.
have revised the disclosure in this section. Read in the reply ↗
We note your response to prior comment 1 and your corresponding amendments in the filing. Please provide us with an analysis supporting your view that the findings in the CFTC Order are not applicable to your business.
Staff seeks our analysis supporting our view that the findings in the CFTC Order are not applicable to our business. Our business can be best described as the ownership and operation computer hardware and software for the mining and generation of bitcoins via blockchain algorithms. Once we own bitcoins obtained through our efforts and assets, we can sell the bitcoins as principal to third parties for cash.
CFTC Order issued September 17, 2105 (See Release PR7231-15) (the “Order”) represents the first action against an unregistered bitcoin options trading platform.Read in the reply ↗Rest of the answer
As noted in the Order, Coinflip, Inc./Derivabit conducted activity related to commodity options transactions without complying with the Commodity Exchange Act and CFTC Regulations, specifically “operating a facility for the trading or processing of commodity options without complying with the CEA or CRTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options.” The Order further notes Coinflip operated an online facility named Derivabit, offering to connect buyers and sellers of Bitcoin option contracts, and the charges involved conducting activity related to commodity options transactions. The Company neither operates an online facility offering to connect buyers and sellers of Bitcoin, or Bitcoin option contracts, and thus our analysis concludes that the findings are not applicable to the Company’s business.
Order also for the first time noted the CFTC has reached the conclusion that Bitcoin and other virtual currencies are properly defined as commodities and therefore subjected the online facility and options contracts to CFTC jurisdictional reach. Our amendments to the filing, and statements throughout the filing, describe the Bitcoin asset as constituting a commodity, which in the future could be subjected to regulation and which faces risks associated with commodities, in general. Accordingly, the Staff’s statement that we have determined through our analysis that we are not subject to the CFTC Order misstates our position inasmuch as we believe and the filings acknowledge Bitcoin is viewed by regulators as a currency, but that the CFTC Order as it relates to an online platform and options trading is inapplicable to our business.
We note your response to prior comment 3. However, it appears from your recent developments discussion that you have not updated this section to include the issuance of 80,000 shares of your common stock to RK Equity Advisors LLC. Please revise accordingly and review your document to ensure that it is updated to reflect any other interim developments.
We will revise the disclosure in this section to add the issuance of 80,000 shares to RK Equity Advisors in the Recent Sales of Unregistered
Securities section.
Signatures, Read in the reply ↗
It appears that the signature page does not conform to the requirements of Form S-1. In your next amendment, ensure that you provide the dates on which the registration statement was signed by the company and board members.
dates on the signature page will be provided in the next filed amendment. Read in the reply ↗
