Having more capital to place large hardware orders can cut both ways. Many resellers of ASICMiner block erupters placed large orders last year and we're not able to sell through their inventory before ASICMiner really undercut them on price. Some of these resellers took a really large financial hit as a result.
There are way too many unanswered questions associated with this offering.
More specifically:
1.) Why does a US based company need a partnership with a Hong Kong investment company (BTCI) unless you are having issues complying with US securities law? This association simply seems like a legal gray area that could get you into a lot of trouble in the future.
2.) I don't see anything in the offering that provides any details about how new shareholders will get their money back. I also don't see any reason why the current owners of the business could not simply take any money raised during this IPO, use it for their own purposes (whatever they may be), pay out very low dividends, and dilute existing shares until they are almost worthless. The current valuation alone makes any shares sold during this IPO almost worthless.
3.) How many existing owners are in the business, and how much of the company do they own?
4.) If your business needs capital, why not follow a more traditional route and go to a bank with a solid business plan and try to get a loan? Have you checked into
http://www.techcolumbus.org? They help small tech businesses get up and running.
5.) If you do treat new shareholders fairly and pay out decent dividends, it will also be hard to grow the business because you will be saddled with new liabilities to your new shareholders. The only way to get around this is to stiff shareholders.
There are certainly risks associated with buying a lot of hardware that may depriciate quickly. However, we would try to hedge against buying any one item, or one item class, so if they drop the price, we should be safe. Even then, the technology involved in mining hardware has maturated significantly. I don't believe we're going to see huge increases in price v. performance, as every company now uses 28nm or at worst, 40nm technology. Furthermore, the rapidly-deteriorating prices (seemingly) only happened with ASICMiner USBs and some of their other products very early on. Unless you got stuck with $200 USB's, the rest of the market did pretty well. For what its worth, we bought the largest number of USB's when they were discontinued - 3,500 units in October. We sold them all at a profit.
Other answers:
1) Early in the year when we were figuring out the best structure to handle both domestic US investors and foreign investors along with the investment being made in crypto-currency, it was planned to keep the two entities (Coin Services LLC and Big Trend Capital Investment Limited) completely separate. This would allow the foreign investment received to fall under Reg. S for an exemption from formal registration and simply withholding under IRS tax laws. (This was the wording you saw in the post).
As such I asked John to provide nominee services while I retained complete control of BTCI Ltd. via a power of attorney and control of the company
seals. Since then, the SEC and the IRS have become more clear on how to define usage of cyptro-currencies and as such and while it was decided to use the same structure we kept the same execution plan and we wanted to keep very clear distinction of the two offerings. We do not need to make it clearly two distinct entities, hence this posting explain and linking the two together for more transparency.
BTCI does hold 40% of the Member Units of Coin Services LLC. This amount of units is the basis of the investment on Havelock for foreign investors. US investors will invest directly with the US LLC via a Reg. D 506c exemption we have obtained from the SEC. To avail ourselves of both exemptions we do need to keep the two offerings separate from each other and will do such through the onshore and offshore entities.
While it seems confusing and complex, our goal is to maintain compliance with the many SEC laws governing private placement and foreign investment. Many other startups who have raised funds in crypto did not take the time, money or effort to keep in compliance and these are the stories we all have recently heard that shake the foundation of crypto investing.
Dividends, based on the Reg. S exemption can be paid from Coin Services to BTCI to pass on to Havelock for distribution to investors and we have tried to structure the dividend payout to have the least amount of withholding taxes as possible to put more return in the hands of the investors.
2) Re: Paying shareholders back - They will recieve 30% of all net profits generated by the company. Profits will be reported every 3 months on a GAAP-basis (or to the best of our abilities). As stated in the initial post and prospectus, we will create a 3-member board consisting of shareholders from Havelock to represent BTCI. These members will have access to any document they request of the company - including general ledgers which show all financial transactions within the company. This way, if any corporate malfeasance takes place, the board members can relay this to shareholders, and take appropriate legal actions.
3) In BTCI, all shareholder accounts are disclosed in the prospectus (approximately 60% being previous investors, and 40% being new as per the IPO). In Coin Services LLC, I own 60%, and BTCI owns 40%.
4) My understanding with the Columbus Tech Angels is that (as per their website), they mostly fund tech companies that work in science/industry, as opposed to retail-centric companies focusing on redistribution for products of a technical nature. I will likely contact them, though, to see what they say. In regards to a bank/business loan, that would be extremely difficult as we have only 1 year of income on our books. I've talked to banks about this already, and they have generally said that you need no less than 2 to approach a bank for a business loan. Alternatively, since Coin Services LLC is a 506c company, we can easily go the traditional route for fundraising via VC. We may still go that route, but I've focused very heavily on working with crypto platforms, as we got our start on Litecoin Global, and I somewhat wanted to keep within the crypto community if it were possible.
5) With 30% of net profits being allocated towards dividend payments to BTCI, I believe that we can use the remaining portion to reinvest quickly into the company to grow out the products and offerings. As per the prospectus, we have a reasonable range of services we want to leverage between retail, mining and contracts. I think all 3 categories complement each other in such a way that we can return a meaningful dividend to our shareholders, while ensuring viability for the offering. That is what we're trying to focus on - viability - as opposed to the (seemingly) losing proposition of yet-another mining bond. As per the last two pages of the propectus, I believe we can have ae very strong BTC-based EPS, even in a future where Bitcoin sees significant appreciation against the dollar. This is why we want both mining *and* (primarily) sales. Each hedge against the other - mining hedges against fiat, and sales hedge against crypto, so we can mitigate BTC volatility in our earnings reports.
