[Havelock][KCIM] Korb Investments – Establishing my Investment Firm, part 1

[Korbman]

Dividends have been paid today at the standard 1% per unit.

Investors -- When you have a moment, please check your accounts and make sure your balance has been updated properly!

If there are any discrepancies, let me know.

[enygma]

Got the dividends. I planned to reinvest them, however, when I try to buy the IPO, I get an error that the fund symbol is invalid.

[Korbman]

Got the dividends. I planned to reinvest them, however, when I try to buy the IPO, I get an error that the fund symbol is invalid.

Thanks for pointing that out and I just checked and it's doing the same thing for me. I'll talk to Lightbox and see if we can get it sorted out.

[Korbman]

Quick Update:

The previous issue (as pointed out by Enygma) has been resolved. Users and Investors should now be able to purchase Notes without seeing the "Invalid Fund Symbol" error. As always, if you find there are any other issues please let me know!

[Korbman]

As the new year approaches, I have a number of topics to discuss with my investors, and of course both good and bad news.

First and foremost
I hope everyone is enjoying their holiday(s) and I hope everyone will enjoy entering into a New Year! The current offering at 1.0 Bitcoin per Note is set to expire tomorrow, December 31st, 2012 at 4:00pm EST. After that, all Notes can be purchased on the normal market. I will give an update on the final number of Notes sold / total Bitcoins raised once the offering ends. I also have a survey (discussed shortly) regarding what ASIC company we should purchase from (and yes, I am willing to “mix and match”).

With the final Bitcoin total, I will publish the current company financials, which includes up-to-date data on pricing, a full analysis of the months to come, as well as your standard income / balance sheet / cash flow statements.  I welcome all input on the information I disclose, and if anyone finds a discrepancy in the data let me know as soon as possible. Given I’m working solo, it’s always nice to have a second set of eyes to point out something I may have missed or to provide more detail in one area or another.


Now for the most important news.

As I’m sure you’ve all heard by now, there have been quite a number of delays with essentially every company developing ASIC based mining equipment. The most substantial delays have resided with Butterfly Labs (surprise, surprise), but I know bASIC and Avalon have had their share of setbacks as well.
Seeing as I won’t be able to get the hardware (from any company) on time, it is financially infeasible to maintain the current schedule. Unfortunately, these unforeseen circumstances have forced me to propose an Amendment to the current Secured Promissory Note Agreement.  
The Amendment has been written with the sole intention of modifying and extending the current payment schedule.  Interest payments will be extended, and payments on the principal owed will be pushed back by 3 months. What this means is that an extra 3 months of Interest payments have been added, but instead of starting Buybacks in March 2013, they will start in June 2013 and continue on the previous schedule, fully ending in April 2014 (instead of January 2014).

Here is the current link to the contract: https://docs.google.com/open?id=0BxnW49twNMNbSVhHamJkZ1VtZmM
I urge everyone to read it.

Here is a breakdown of each Section for an easier read:
Section #:
1.   States that this is the first amendment to the original contract. I briefly describe the purpose and reason for the change, noting Third Party influences (delays) and current financial infeasibility.
2.   Here is where I describe the changes I propose, which focuses on the second and third sections of the original contract.
...a.   Interest at 1% has been extended by three [3] months, going from November 2012 to the end of May 2013. Interest is at 2% from June 2013 to the end of December 2013. Interest is increased to 4% from January 2014 through March 2014. Interest is increased one last time to 6% for the final months of April and May (though everything should be purchased back in April).
...b.   Principal payments no longer begin in March 2013. Instead, they have been pushed back to June 2013, where they start at the normal 1.10BTC per Note until the end of December 2013. January 2014 starts the purchase at 1.15BTC per Note, and April 2014 marks the final purchase of 1.20BTC per Note.
...c.   An error in the third section has been corrected to note that the Principal rate (previously said “Interest”, which voided that part of the section) will never go below the minimum, which is 1.005x the Par Value (1.0BTC).
3.   The Amendment is valid as of January 7th, 2013, which marks seven [7] days after I give notice (as per the original contract).
4.   In the event of a conflict between the original document and the Amendment, the Amendment governs.
5.   The other unchanged parts of the original contract are still valid.
6.   The original document and the included Amendment now constitute the Final Agreement.
7.   This Amendment may be modified after agreeing with both parties.
8.   In the event of illegality, unenforceability, invalidity, etc, the remainder of the contract and its Amendments are still valid.
9.   Electronic communication (or other forms of communication) is valid statements of agreement, recognized in the same effect as a signature.
10.   You confirm you have the power to agree and bind to the contracts outlined.
11.   [Self Explanatory]

This notice is being sent out to every investor with my Fund. If you feel uncomfortable with the changes or have any input, please tell me!

For those of you who do not wish to accept these changes, please let me know. I will purchase your Notes back at the rate of 1.005 per Note (as per Section Five [5] of the Secured Promissory Note Agreement).  If I have not heard from you before January 7th, 2013, I will presume you are onboard with the changes. NOTE: Still take the survey that was sent out to all investors!

For those of you who understand the changes proposed and the reasons behind them, I thank you. It has been hard enough to hear the news of more delays, let alone draft contract Amendments and modify financial statements accordingly.



With the total funding left over after any early Buybacks, Korb and Co. Investments will be purchasing mining equipment. Since we don’t have nearly enough for the purchase of a Butterfly Labs “Mini-Rig”, we have the option to purchase smaller devices from a variety of companies instead. Here’s where the survey comes in. I want to get a feel for what my Investors think.

Please take into account the information noted below when answering the survey:
Butterfly Labs – Single SC [$1,299]
•   60GH/s
•   1 Watt per GH/s [CLAIMED], the most power efficient.
•   Product Lifetime Warranty and “trade up” program.
•   Terrible PR and constant lack of information, but they do deliver quality products.
•   Shipping Date: Q1 2013

bASIC – ASIC [$1,069]
•   72GH/s
•   Doesn’t come with a PSU. Efficiency is predicted to be about 1.5 Watts per GH/s.
•   Highest MHs per $$ and performance.
•   No Warranty [Unknown].
•   Shipping Date: Q1 2013

Avalon – ASIC [$1,299]
•   66GH/s
•   Unknown Power Consumption. Speculation as high as 400W per unit (6 Watts per GH/s).
•   No Warranty or known trade-in program [Unknown].
•   Standalone unit (just plug in and go).
•   Shipping Date: Early Q1 2013

My personal feelings reside with Butterfly Labs, specifically because they’ve proven themselves with their FPGA units, they have a trade in program (which is handy for future mining purchases), and are the most power efficient. I am, however, starting to seriously consider bASIC, given they’re the most cost effective solution (allowing me to max out BTC per GH/s), but they might be the last to ship.

EDIT: This survey is the only way I'll know your personal feelings on the matters at hand, including both the Amendment and ASIC purchases. If you fail to answer the survey, I will presume you're onboard with anything that goes over the next few months.


I look forward to hearing from each of you in the coming weeks regarding all of this. Any questions, comments, or constructive criticism is absolutely welcome.

Happy New Year everyone!

[niko]

The survey seems open to anyone, not just investors. Vendors might see this as an opportunity to manipulate your decision.

[Korbman]

The survey seems open to anyone, not just investors. Vendors might see this as an opportunity to manipulate your decision.

Noted, and the survey link has been removed from the post. I resubmitted the link through the email that went out to all current Unit Holders.

[molecular]

Hey guys, I'm evaluating investing in KCIM. After failing to do this by reading parts of this thread for 15 minutes I decided to just ask some stupid question that might help me understand before I haively dive into this:

• why are shares offered for BTC 0.92?
• what happens if everything fails because not enough shares are sold? Will I get back the principal in full and when?
• is there a difference between an IPO share and a share I buy on the havlock market?

[niko]

• is there a difference between an IPO share and a share I buy on the havlock market?

As far as you getting the dividends and being able to sell the share, no. The obvious difference is that buying on the market does not help the business grow, yet you expect it to be a successful business and return dividends. If you can buy cheaper on the market, you'll have to evaluate this personal "gain" against the fact that you are not really investing in the business unless you buy IPO.  

[Deprived]

Hey guys, I'm evaluating investing in KCIM. After failing to do this by reading parts of this thread for 15 minutes I decided to just ask some stupid question that might help me understand before I haively dive into this:

• why are shares offered for BTC 0.92?

This one puzzles me.  As far as I can tell any investor could choose not to accept the contract change and sell the shares back at 1.005.  If they were on a platform I traded on I'd buy them back and cash them in for 1.005 myself.

[Korbman]

Let's see if I can help in the scenario

• why are shares offered for BTC 0.92?

The initial IPO ended at the end of December, leading to people purchasing off the market (at market price) instead. The remaining shares from the IPO that were not purchased were also switched over to the market, which is why you'll see some 9000 shares at 1.0BTC each.  

EDIT: The price "0.92" is just the last purchased price..meaning someone wanted some quick cash, so they sold off a few of their Notes at .92 BTC apiece, which gathers attention faster than if you were to offer it at 1.0 or 1.005.

• what happens if everything fails because not enough shares are sold? Will I get back the principal in full and when?

If I wasn't able to sell enough to make any proper purchases, then I was contractually obligated to purchase back any Notes at a rate 1.005x the Par Value (the IPO price of 1.0 BTC per Note). We have, however, raised more than enough bitcoins for a number Singles, which is good news.

Units within my fund are more or less 18 month Notes...meaning investors making purchases from November 1st during the initial offering have accepted an 18 month holding (November 1st, 2012 to April 30th, 2014), which is a pretty typical time span for a Note (compared to a Bond or Bill).

Interest payments are paid each month per Note at 1% until June 2013, where it increases to 2%. During the next 11 months after that, it increases to 4% and then to 6% in the final month (April).

Principal purchases start June 1st, 2013 at a rate of 1.10 BTC per Note. I'm currently scheduled to purchase back 25% of Notes per month, which means if you hold 50 Notes by June, I purchase back 13 in June (leaving you 37 left), then 10 in July (leaving 27), so on and so forth. It will reach the point where I'll be purchasing back 1 Note per month until April when I purchase back everyone's Notes at the final purchase price of 1.20 BTC per Note.

You can use this Google Docs sheet to help calculate your ROI: https://docs.google.com/spreadsheet/ccc?key=0AhnW49twNMNbdDZYUWpjNW93NVJVM0ZKQ3kxVDc2b2c

• is there a difference between an IPO share and a share I buy on the havlock market?

As Niko pointed out, purchasing IPO shares is what helps to grow the fund. This is because you're purchasing Notes from me, instead of from other investors on the open market (which is just trading between investors and not the fund).
If you're looking to grow the fund, then my recommendation would be to purchases the Notes at 1.0 BTC from the open market since (as I noted above) leftover shares were dumped to the market after the IPO closed.

[molecular]

Thanks korbman, niko and deprived for your answers. Especially the google sheet helped clear things up, confirmed some of my assumptions and made me buy a couple of notes.

I still have questions, please excuse if these are naive or stupid... I'm lacking experience in this area.

• About the notes offered below IPO value (at BTC 0.93, for example): you say they would be bought back for 1.05? How (technically) and when could that be made to happen by the owner?
• The IPO seems to have ended... will there be another one?
• What's the worst-case scenario for the investor? I'm assuming the investment can be (partially) lost if money is spent on mining gear and that gear doesn't generate the expected returns. How will the payback plan be modified in such a case (will the principal buyback or the interest payments be the first to suffer?)

[Korbman]

Thanks korbman, niko and deprived for your answers. Especially the google sheet helped clear things up, confirmed some of my assumptions and made me buy a couple of notes.

I still have questions, please excuse if these are naive or stupid... I'm lacking experience in this area.

No worries, always happy to help!

• About the notes offered below IPO value (at BTC 0.93, for example): you say they would be bought back for 1.05? How (technically) and when could that be made to happen by the owner?

Could be bought back at 1.005, equivalent to 0.5% over the initial purchase value. If things go sour, my goal is to ensure that investors still have confidence that they will see their money back by paying them back out of my own pocket.

The only other time I would be forced to purchase back Notes at 1.005 would be in the case of contractual Amendments, where investors have a choice of whether or not they would like to accept the changes to the agreement. In the event that they reject the changes and describe why, the fund will purchase back their Notes at the 0.5% increase above Par.

Other than that, you can't just choose to sell your Notes back to me on a whim at 1.005. There always has to be a valid reason for me to purchase the Notes back..not only is it costing the Fund money, but it's costing me money as well. That's usually why people put their Notes up on the open market...it's a trade-off between liquidity and profit.

• The IPO seems to have ended... will there be another one?

At this point I'd say no, only because there are over 9000 [no pun intended] Notes on the open market being sold at the normal IPO price, 1.0 BTC. These Notes are still owned by the fund, thus purchasing them is equivalent to helping the business grow as if it still had the IPO open.

In reality, I should have followed Lightbox's advice (the owner / operator of Havelock) and started off with an offering of 500 Notes (with more than one IPO as the Notes were sold) instead of the max 10,000 that I was shooting for.
Ah well, live and learn!

• What's the worst-case scenario for the investor? I'm assuming the investment can be (partially) lost if money is spent on mining gear and that gear doesn't generate the expected returns. How will the payback plan be modified in such a case (will the principal buyback or the interest payments be the first to suffer?)

The absolutely worst-case scenario for an investor would be continual scheduling readjustments as a result of ASIC manufacturer fabrication and shipping delays, compounded later when the hardware doesn't perform as advertised. I will pay back all investors. I'm 100% contractually obligated to do so. It's just a matter of the timeframe.

That said, there is still the other scenario: Difficulty and Hash Rate absolutely skyrocket past all of our wildest expectations once ASICs are out.

I've created my buyback schedule based on a difficulty of around 50 million, or about 400TH/s for a network rate...nearly double what I predicted in my October Analysis which took into account all the preorder data I had on hand and some basic statistics of the pools (though I'm due for another analysis of the mining pools). The more likely scenario is that the rate will start off around 200TH/s and increase to 500TH/s over the course of 12 months or so. From what I've noticed over the past 6 months or so is that it usually averages about 7-10 months to break even (for both high end GPUs and FPGAs) at the various difficulties we had (before the reward half...after the split it doubled proportionately). I've been planning around such a timeframe.

[molecular]

Thanks again for your elaborate answers...

Other than that, you can't just choose to sell your Notes back to me on a whim at 1.005.

Oh, allright. I misread depriveds comment (missed the part about the contractual change) as meaning you would always offer buyback. Clearly that wouldn't make sense.

At this point I'd say no, only because there are over 9000 [no pun intended] Notes on the open market being sold at the

lol!

I didn't see these before, my eye got stuck at 0.92 . So that's clear, too.

• What's the worst-case scenario for the investor? I'm assuming the investment can be (partially) lost if money is spent on mining gear and that gear doesn't generate the expected returns. How will the payback plan be modified in such a case (will the principal buyback or the interest payments be the first to suffer?)

The absolutely worst-case scenario for an investor would be continual scheduling readjustments as a result of ASIC [...]

I'm assuming your promise to try to make whole all investors in these bad cases means that on the other hand, should things work out much better than expected, investors will not be payed more either? So there's no chance to make more than planned by good will of fortuna?

If this is the case, then this is about as "non-gambly" as it gets (assuming trust in you and your promises), right? A conservative investment, so to speak?

[Korbman]

• What's the worst-case scenario for the investor? I'm assuming the investment can be (partially) lost if money is spent on mining gear and that gear doesn't generate the expected returns. How will the payback plan be modified in such a case (will the principal buyback or the interest payments be the first to suffer?)

The absolutely worst-case scenario for an investor would be continual scheduling readjustments as a result of ASIC [...]

I'm assuming your promise to try to make whole all investors in these bad cases means that on the other hand, should things work out much better than expected, investors will not be payed more either? So there's no chance to make more than planned by good will of fortuna?

If this is the case, then this is about as "non-gambly" as it gets (assuming trust in you and your promises), right? A conservative investment, so to speak?

I'm all about profit sharing, so if things work out better than expected my goal isn't to just pay at the contractual rates. Up to 75% of all profit will be going back to investors in the form of increased interest payments and higher buyback rates. The reason I say "Up to" is because I can't guarantee paying back investors more than the minimum I've established in my contracts. And of course I won't know for sure until ASICs are in my hand and mining away
The remainder of any profits is put back into my company for use in future investment opportunities. As bitcoin grows, the idea is that these opportunities will begin to flourish as well.

Anyway, yes the idea was to be "non-gamblely". Mining has been a pretty stable (and decently low risk if it's executed correctly) investment for a while, so I figured I'd take it a step further by providing company transparency and legal agreements binding myself to my investors.

[molecular]

allright. I think I understood things fairly well now. This was easier than reading all the documents (which I still might do). Now I can evaluate how much I want to put in on top of the bit I already did.

Thanks for your time (for now).

[Korbman]

allright. I think I understood things fairly well now. This was easier than reading all the documents (which I still might do). Now I can evaluate how much I want to put in on top of the bit I already did.

Thanks for your time (for now).

Glad to hear Molecular, and I see you've taken up some shares off the open market


In other news, I have an update to present to everyone:
I'm happy to report all users have agreed to the contractual amendment, which has gone into effect. Buybacks will now start on June 1st, 2013 unless another amendment comes into effect as a result of more delays (definitely not something I want either).

There has also been an overwhelming amount of input to purchase from Butterfly Labs. Investors have noted they prefer BFL to other competitors because of their history delivering a product, warranty, trade-in program, and efficiency. All of which are valid reasons

We have enough funding to purchase eight [8] Butterfly Labs Single SC units @ 60GH/s a piece. Purchases will be made starting this evening, January 7th, 2013. Chances are I will purchase 4 devices tonight, and 4 between tomorrow and next week.

Cheers,
-Andrew

[molecular]

allright. I think I understood things fairly well now. This was easier than reading all the documents (which I still might do). Now I can evaluate how much I want to put in on top of the bit I already did.

Thanks for your time (for now).

Glad to hear Molecular, and I see you've taken a decent number of shares off the open market

aye. I don't think you should disclose such info publicly, though. I don't mind personally, but some might.

Also note: I actually considered taking IPO shares at 1 BTC instead. But even had I wanted to, I wouldn't have been able to do so because there are none. Instead they are sold on the market at BTC 1.

I can't quite figure out how that came to be.

[molecular]

seems you ordered a single? https://bitcointalk.org/index.php?topic=89685.msg1441767#msg1441767

[Korbman]

seems you ordered a single? https://bitcointalk.org/index.php?topic=89685.msg1441767#msg1441767

Not just a Single .. Four to start

I'll update the fund with the receipt later today. Either Friday or early next week I'll make my next purchase of 4 as well.