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BITCOIN SHOP INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission ("SEC") filings. References to "we", "us", "our" or the "Company" are to Bitcoin Shop, Inc., except where the context requires otherwise. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report. Overview We, through our wholly owned subsidiary Bitcoinshop.us LLC, which was formed on July 28, 2013 as a Maryland limited liability company, launched our ecommerce website in August 2013. We are in the business of developing, marketing and operating a website, which offers its users an online marketplace for transacting business in virtual currencies, including Bitcoins, Litecoins and Dogecoins ("Virtual Currency"). The online presence that we operate is hosted, maintained, and developed by us. We have developed a proprietary application and website that allows us to interface with our vendors in order to display up-to-date inventory, and present prices stated in virtual currency based on a market exchange rate stated in United States Dollars ("USD"). The equivalence of Virtual Currency to USD is updated every 1 minute and at each stage through the checkout process. When customers reach our checkout page the equivalence of Virtual Currency to USD is locked in by our payment processor for 15 minutes. The payment processor assumes the currency exchange risk. We, through our ecommerce website, currently list over 140,000 products available for sale; however, we do not take physical possession or title to any inventory. All orders are originated by the customers through our website and are fulfilled by third party vendors. We charge our customers a processing fee and earn a profit margin on each transaction. Customers purchase merchandise on our website in amounts denominated in Virtual Currency. We convert a portion of the Virtual Currency received from our customers as payment, to an amount of USD that is needed to remit payments to third party vendors that ultimately fulfill the orders. Our business strategy is to become a leading virtual currency marketplace where consumers and sellers of products and services can use any virtual currency to transact business. We focus on delivering value and convenience to our online customers while providing a reliable and scalable platform for vendors and sellers. We also plan to evaluate other strategic Virtual Currency opportunities as well as technologies that are complementary to our business strategy in an effort to minimize risks and drive shareholder value. This will include evaluating opportunities that cross market our ecommerce site, diversify our revenue streams and provide on-ramps for new users. -15- -------------------------------------------------------------------------------- Table of Contents Recent Developments On February 6, 2014, we sold an aggregate of 3,750,000 Units in a private placement (the "Private Placement") of our securities to certain investors (the "Investors") at a purchase price of $0.50 per Unit pursuant to subscription agreements (the "Subscription Agreements") for an aggregate purchase price of $1,875,000. The Units sold in the Private Placement are subject to a "Most Favored Nations" provision for a period of 12 months from the closing of the Private Placement in the event the Company issues Common Stock or securities convertible into or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which shall be less than $0.50 per share, subject to certain customary exceptions. Each Warrant is exercisable into ½ share of Common Stock at an exercise price of $1.00 per share. The Warrant may be exercised on a cashless basis. Results of Operations for the Three Months Ended March 31, 2014 The following table reflects our operating results for the three months ended March 31, 2014: Revenues $ 11,374 Operating expenses: Marketing 17,897 General and administrative 1,546,821 Change in fair value of virtual currencies 7,400 Total operating expenses 1,572,118 Loss from operations (1,560,744 ) Other income Fair value adjustments for warrant liabilities 109,000 Net loss $ (1,451,744 ) Revenues Revenues for the three months ended March 31, 2014 amounted to $11,374. Revenues represent net fees earned from the processing of customer transactions through our ecommerce website. Operating Expenses Operating expenses were $1,572,118 for the period ended March 31, 2014. General and administrative expenses primarily consisted of compensation and benefits of $99,216 and legal and stock based compensation of $1,343,794 related to the grant of 6,201,472 stock options to Management on February 5, 2014. -16- -------------------------------------------------------------------------------- Table of Contents Other Expenses Change in Fair value of Derivative Liabilities During the three months ended March 31, 2014, we recognized a gain on derivative liabilities of $109,000, due to the change in fair value of warrants sold in the Private Placement that are subject to a "Most Favored Nations" provision for a period of 12 months from the closing of the Private Placement in the event the Company issues Common Stock. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our condensed consolidated statements of operations. The fair value of the warrants has been estimated using a Monte Carlo simulation. Liquidity and Capital Resources At March 31, 2014, we had working capital of $1,344,999, which consisted of current assets of $1,523,775 and current liabilities of $178,776. Our cash balance at March 31, 2014 was $1,409,131. Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. Our sources of cash during the three months ended March 31, 2014 have primarily come from the sales our Series C Preferred Stock. Our future operating results may be affected by a number of factors including the success of our ecommerce platform, and our continued ability to manage our controllable operating costs effectively. Our capital requirements depend on numerous factors, including the market for our services, additional software development costs, and the resources we devote to developing, marketing, selling and supporting our business, and the timing and extent of establishing additional markets and other factors. Operating activities used $258,631 in cash for the three months ended March 31, 2014. The sources of cash from operating activities, comprised primarily of $1,242,527 of net non-cash charges and a $53,934 increase in accounts payable. The uses of cash from operating activities primarily comprised of a net loss of approximately $1,451,744 and a $106,555 increase in prepaid expenses. Our investing activities used cash of $162,290. On March 20, 2014, we invested $150,000 into Series A preferred units of GoCoin, LLC ("GoCoin"). GoCoin is an international payment processor that enables merchants to accept Bitcoin, Litecoin and Dogecoin payments at the point of checkout in e-commerce transaction. Our financing activities provided cash of $1,821,000 for the three months ended March 31, 2014. On February 6, 2014, the Company sold an aggregate of 3,750,000 Units in the Private Placement at a purchase price of $0.50 per Unit. Net proceeds amounted to $1,813,000. Management believes that we have access to capital resources, which could include potential debt and equity financing arrangements; however, we have no commitments for new financing at this time nor can we provide any assurance that we will be able to raise the capital it will need on commercially acceptable terms if at all. We believe that we currently have sufficient capital resources to sustain operations through at least April 1, 2015. However, if we were to encounter unforeseen circumstances we could be required to undertake various measures to conserve liquidity which could include, among other things, reducing operating expenses and/or suspending the pursuit of our business plan. Off Balance Sheet Transactions We are not a party to any off balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. -17- -------------------------------------------------------------------------------- Table of Contents |