Author Topic: Prospectus for BlockTrades public offering  (Read 4893 times)

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Offline dannotestein

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Prospectus for BlockTrades public offering
« on: February 17, 2016, 10:02:43 pm »
I've created this thread to disclose information about BlockTrades and the public offering we're planning. Because of security laws, please note that this offering is NOT available to US and Cayman Islands citizens and residents.

Overview of BlockTrades
BlockTrades was formed to take advantage of opportunities created by the recent rise of cryptocurrency  technologies. BlockTrades takes a three-pronged approach to revenue generation:

1) Direct sales to consumers of cryptocurrency and cryptocurrency services
2) Licensing of commercial off-the-shelf and customizable software products
3) Contract-based development of custom software

Most of BlockTrades' current revenue is derived from the operation of the BlockTrades website that provides fast and convenient purchasing of various cryptocurrencies. BlockTrades also licenses use of the backend engine used by our website on an OEM basis. Currently this backend is licensed to OpenLedger to handle deposits and withdrawals in return for a 50% share of the market-trading fees collected for the assets it supports. BlockTrades has also undertaken several custom software development contracts and has pending negotiations for future software contracts as a means of providing development capital to support its long term business strategy.

BlockTrades' long term strategy is to create a worldwide network for the seamless exchange of fiat and cryptocurrencies and to profit from service fees associated with support of that network. We also envision a number of other businesses that we can build around that network: management of public offerings, loan origination services,  reputation management services, escrow arrangements, etc.

Corporate Structure
BlockTrades was founded on June 1, 2015 and operates as an exempt corporation under Cayman Islands law. One important side-effect of this structure is that the company is exempt from corporate income tax. It also simplifies many regulatory aspects of the company's operation in the cryptocurrency space as Cayman Islands currently has few if any restrictions associated with cryptocurrency. It's possible that this may change in the future, but it should be noted that Cayman Islands is a hub for financial institutions due to its liberal policies regarding new innovations in fintech and this is one of the primary reasons that BlockTrades was founded in this jurisdiction.

Management
Dan Notestein, President/CEO
Dan's primary responsibilities as president include exploration of new business opportunities, planning and development of new software platforms, and exploratory contract negotiations. Dan is also a founder and president of SynaptiCAD, the primary software development contractor used by BlockTrades. Dan has a Master's Degree in Electrical Engineering and Computer Technology from University of Texas.

Donna Mitichell, VP of Operations and Legal Compliance
Donna's primary responsibilities include management of legal compliance issues associated with cryptocurrencies, management of partner relationships, accounting, and general counsel to BlockTrades. Donna is also Vice President of Marketing for SynaptiCAD. Donna's educational background includes a Master's in Electrical Engineering from Virgina Tech and a  Juris Doctorate degree from Concord Law School. She is an inactive member of the California Bar association.

Futher information on Dan and Donna's industry experience can be found at: http://www.syncad.com/manateam.htm


Discussion of Pro Forma Financial Statements
The initial financial statements for BlockTrades can found at: https://docs.google.com/spreadsheets/d/1r_fJc2K_0a51N80ZwQOvbjFOi9MjYA_SUFZgT78nKbw/edit?usp=sharing

For liability reasons, I'm presenting the financial statements as Pro-Forma documents, but to the best of my knowledge they are computed using generally accepted accounting principles (GAAP). In particular, I am not excluding any “one-time” expenses, although I have highlighted such expenses to show “Operating Income Before Expenses Paid” from our web site separate from expenses associated with its initial development and payments made for that development. This allows a clearer picture of the profits generated from normal purchases by customers excluding fixed costs associated with development of the system and annual legal fees for maintenance of the corporation. Total Equity is also computed using GAAP and represents the expected equity that would be returned to shareholders if all the company's cryptocurrency assets were liquidated and all outstanding loans were paid off (ignoring any additional value attainable from the sale of intangible assets such as the backend software, web site, brand name, etc).

Company Valuation, Offer Price and Mechanism, Restrictions on Offer
BlockTrades has a “book value” of approximately $311K USD (current “liquid” equity of 241K + 70K in intangible assets for development of backend engine). We used a 7x multiple on the company's current book value to get a pre-money valuation of 7 x 311K = 2177K. We'll be offering 1 million shares at an initial price of $2.17 USD equivalent per share.  The shares will be initially purchasable via the BlockTrades website using multiple cryptocurrencies and priced in each cryptocurrency based on the cryptocurrency's current market value. Share ownership will be distributed and accounted for using the digital token “TRADE” (a user-issued asset on BitShares network) and will be solely transferable on the BitShares Distributed Exchange.

Subscribers to this offer will be required to supply their real name, address of residence, a valid email address for notices of shareholder meetings, and an affirmation that they are not citizens or residents of the United States or the Cayman Islands as this offer is not available to US or Cayman Islands citizens/residents. The BitShares accounts to which the TRADE shares are transferred will automatically be entered onto a white list on the BitShares blockchain that will enable those accounts to trade these shares with other members of the white list. The blockchain share holdings data in concert with the company's private database of shareholder contact information will be used to compute the Registry of Members as required by Cayman Islands law.

Timing of the Offer
We have not yet finalized the date at which we will begin offering the shares as we first need to make changes to our website to support the requirements for the offering, but we hope to do so within the next month. In the meantime, I'm happy to respond to any questions about our business or this offering.

For more details about why we're making this previously unplanned public offering, the restriction against purchase by US and Cayman Island citizens and residents, and the corresponding methodology we've chosen for share accounting, see this thread:
https://bitsharestalk.org/index.php/topic,21499.0.html
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Offline bytemaster

Re: Prospectus for BlockTrades public offering
« Reply #1 on: February 17, 2016, 10:27:57 pm »
Nice work Dan!
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline abit

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Re: Prospectus for BlockTrades public offering
« Reply #2 on: February 18, 2016, 12:28:03 am »
[member=11]dannotestein[/member] in the Profit and Loss Statement, could you please classify the income / current assets by sources? For example how much income is from directly trading on the website / in-wallet bridge service, how much from revenue share by tech support, how much from software development? Thanks!
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Offline cass

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Re: Prospectus for BlockTrades public offering
« Reply #3 on: February 18, 2016, 01:46:25 am »
Great!
█║▌║║█  - - -  The quieter you become, the more you are able to hear  - - -  █║▌║║█

Offline ebit

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Re: Prospectus for BlockTrades public offering
« Reply #4 on: February 18, 2016, 01:49:39 am »
 +5%
#sharebits dannotestein 1 ROSE

Offline btstip

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Re: Prospectus for BlockTrades public offering
« Reply #5 on: February 18, 2016, 01:51:30 am »
Hey ebit, here are the results of your tips...
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Offline Riverhead

Re: Prospectus for BlockTrades public offering
« Reply #6 on: February 18, 2016, 02:33:58 am »

Excellent prospectus. I wish I could participate but sadly I live in the land of the "free".

Best of luck!!

Offline dannotestein

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Re: Prospectus for BlockTrades public offering
« Reply #7 on: February 18, 2016, 02:47:30 am »
[member=11]dannotestein[/member] in the Profit and Loss Statement, could you please classify the income / current assets by sources? For example how much income is from directly trading on the website / in-wallet bridge service, how much from revenue share by tech support, how much from software development? Thanks!
Currently essentially all the income I've reported is from purchases from the web site, none from service contracts or revenue sharing arrangement with OpenLedger.

Revenue from service contracts performed by BlockTrades has been relatively small to date, and we have fully expensed them as payments to SynaptiCAD, which has performed the actual coding work (BlockTrades doesn't directly employ any programmers), leaving BlockTrades with zero net income from those contracts. This was done to avoid having to compute Subpart F income on our US tax returns for what were relatively small profits.

We have not yet computed profit associated with the sharing arrangement with OpenLedger, but I believe that it is a relatively small amount currently, although it has the potential to grow significantly with increased utilization of the BitShares exchange.

As a side note, we haven't published actual revenue for BlockTrades (i.e. total funds sent to BlockTrades to purchase cryptocurrency), nor do we currently have a readily available calculation for it, although we could do it by writing some code to query our transaction database. Instead, we decided to using a mark-to-market account method for accounting for profit from the web site, which dramatically simplifies our accounting procedure. Essentially with a mark-to-market method, we only need to compute the current and past value of the assets in our inventory to calculate profit over a period of time. We automatically track this value on a daily basis (converted to a US dollar equivalent, as that's the "functional currency" we selected), so this makes it easy for us to determine our profit over any given period of time. Here's more information on mark-to-market accounting, for those interested: https://en.wikipedia.org/wiki/Mark-to-market_accounting

For other future profit centers, such as service contracts and software sales, we'll need to use the more familiar method of accounting using revenue - expenses = profit, of course. For that, we have trusty, reliable, and annoying QuickBooks.
« Last Edit: February 18, 2016, 02:49:30 am by dannotestein »
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Offline abit

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Re: Prospectus for BlockTrades public offering
« Reply #8 on: February 18, 2016, 10:46:46 am »
So you generated more than 200K profit with 29K initial fund in half a year from the direct exchange service only? It's amazing. Although due to the mark-to-market account method, some reasons could be pumping of the coins which you're holding, I still think you did a good job.  +5%

Maybe better to use a daily average of values of your assets in a period to value the shares? If as you mentioned "Majority of assets held in BTC", I think there would be no big difference to the result.

By the way, would you like to pay for translating your offer and/or related documents into Chinese? I think [member=20]ebit[/member] would glad to help. China is a big market for your offer imo.
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Offline xeroc

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Re: Prospectus for BlockTrades public offering
« Reply #9 on: February 18, 2016, 10:51:54 am »
Very cool .. +5%
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

Offline cylonmaker2053

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Re: Prospectus for BlockTrades public offering
« Reply #10 on: February 18, 2016, 01:41:57 pm »
Very cool except for us super free Americans blocked from buying...


Offline dannotestein

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Re: Prospectus for BlockTrades public offering
« Reply #11 on: February 18, 2016, 03:25:55 pm »
So you generated more than 200K profit with 29K initial fund in half a year from the direct exchange service only? It's amazing. Although due to the mark-to-market account method, some reasons could be pumping of the coins which you're holding, I still think you did a good job.  +5%

Maybe better to use a daily average of values of your assets in a period to value the shares? If as you mentioned "Majority of assets held in BTC", I think there would be no big difference to the result.

We could use a daily average of our assets, which would stabilize the numbers on a day-to-day basis, but the reality is that our assets are worth whatever they are worth on a given day, so averaging just masks the painful or happy reality of the current value :-) In general, as you guessed, the swings aren't too big, since our primary holdings are in BTC, but they do "matter". For example, in large part due to the rise of BTC in the past 2 days, we're up about 7K from the posted spreadsheet. Generally I believe that over time these swings just average out, and our long term profit is therefore from the convenience and safety offered by our site.

I should point out, that while we're very happy with the profits we've made from the cryptocurrency website so far, this isn't really where we've planned to make our long term profits. We've always felt that the largest profits will come with technology that acts as a better bridge between cryptocurrencies and fiat currencies. That said, we do plan to begin actively promoting the site before too long to the larger cryptocurrrency community, as it has been a good profit center.

Quote
By the way, would you like to pay for translating your offer and/or related documents into Chinese? I think [member=20]ebit[/member] would glad to help. China is a big market for your offer imo.
Yes, this sounds like a great idea, especially if he's willing to accept payment in some form of cryptocurrency, since that's what BlockTrades primarily deals in. Have him PM me if he's interested.
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Offline CLains

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Re: Prospectus for BlockTrades public offering
« Reply #12 on: February 18, 2016, 08:56:23 pm »
Great prospectus. Looking forward to the public offering :D

Offline cylonmaker2053

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Re: Prospectus for BlockTrades public offering
« Reply #13 on: February 18, 2016, 09:08:32 pm »
What % of the company are you guys putting up for sale? How much do you expect to retain?

Offline dannotestein

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Re: Prospectus for BlockTrades public offering
« Reply #14 on: February 18, 2016, 10:10:20 pm »
What % of the company are you guys putting up for sale? How much do you expect to retain?
We're planning to sell 50% to foreign investors to get out of the US classification of a controlled foreign company. For now we plan to retain the rest.

At some point in the future we may see if there's some way we can open up the investment opportunity to a limited number of US citizens, but this would likely only be available to accredited investors (i.e. high networth individuals) or personal contacts, pending changes to current US security laws. And to maintain an assurance that the company was 50% foreign held, we would probably need to track it with a different UIA.
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