In the world of blockchain-related users, there is an opinion that "99% of all ICO's are scam". My interest led me to checking it out. The result is either Due Diligence or Fraud Investigation (expose) of one of the blockchain projects. I made my choice in favor of the ZRcoin project with the beginning ICO-date on May 11, 2017.
I do not aim at trampling or advertising the project, I am just thinking out loud and make conclusions if the investment in this project is a "good investment" or not.
 
I've always wanted to analyze projects, putting them into institutions and even making money on it. Telling the truth, I have not yet found out how to make money, although there are some suggestions. But I believe that if you at least start doing what you like and what you are skillful at, then it will lead to something.

I hope these Due Diligence will be published on a regular basis and will help PR-managers to avoid participation in an unequal battle with "qualified investors", answering their tricky and meticulous questions about property, available demand, documents and everything related to the project.

Randomly, I came across a ZRcoin project. The project made me interested, because a couple of years ago I graduated from the Moscow Institute of Steel and Alloys, and for this reason I decided to start checking with the project, related to metals. Having invested a little $, I became a minority shareholder and got not only the moral right to analyze the project activity, but also to request the documents necessary for analysis.

I have written this Due Diligence in three parts. At the end of the third part, I have made a formal rating for this project, which will allow investors to evaluate the project quickly to decide whether to enter the project or not. Looking ahead, I will say that this rating is based on the "Marx institutes".


Crypto currency ZRcoin is an option for industrial product – zirconium dioxide. For those who have absolutely no idea about this project, I will leave this video.
http://Https://www.youtube.com/watch?v=Db8yfr5krVY

Acquaintance with the investment offer begins with the main page of the project website www.zrcoin.io

The project team shares with co-investors the following documents, there are only 16 of them (as of August 14, 2017). We will review all the documents, available to investors, one by one, commenting each of them.
 
1) Whitepaper (https://zrcoin.io/files/Whitepaper_ENG.pdf)
 
In any project that issues own crypto currency through ICO, this currency is considered as an obligation (security, as an option), there is a primary document - whitepaper, where a team describes its "venture". I will begin the analysis of the project with this document.

At first glance, the content is a report, the artistry of which overshadows the argumentation. For example, the authors, reporting on the "huge demand" for their products, forget to refer to the source and bring specific figures, specific customers, which are necessary for the assessment of the actual scale of the needs. Nevertheless, in the project blog, the demand for zirconium dioxide at a rate of ~ 150,000 tons / year is indicated. Let it be as it is, and let’s go further on the content and find the project schedule, which is divided into 3 stages. We will consider it in detail.
 
Stage - 1 "Collection of funds (ICO)". The ICO was held from May 11 to June 9, 2017, following the assets that were collected in table "ICO Analysis of ZRcoin" (lines 1-6).

The total amount of collected investments was $10.2 million, which exceeded the minimum required investment of $3.5 million by 2.9 times. And this is an excellent result ☺.
However, it is strange that crowd-investing company had not stopped earlier, because the team has identified the limit of investments in its blog on the medium.com as $7 million.

Thus, there is an interesting question: how much the planned production capacity has increased, because the project team reported that the more it collects, the more powerful industrial asset will be created. And yet, it is a pity that the amount sent for redemption ($400,000) remained at the same level and did not increase in multiple incremental capacity of the asset. In fact, the more productive an asset is, the more revenue it can generate and the more $ of it can be directed to the ransom.

I have never studied the structure of the ICO before, therefore I was very surprised by the fact that only 8.4% was invested by means of $ (refer to the table "ICO Analysis of ZRcoin ")
 
I have never looked at the structure of the ICO before and so I was very surprised by the fact that only 8.4% was invested by means of $ (see the table "Analysis of ICO ZRcoin"
 

http://sf.uploads.ru/t/eqVZ0.png
 
Sources of quotations: Bitcoin ; LITECOIN ; ETHEREUM ; ETH CLASSIC ; WAVES
Bitcoin - https://ru.investing.com/currencies/btc-usd
LITECOIN - https://ru.investing.com/currencies/ltc-usd-chart
ETHEREUM - https://ru.investing.com/currencies/eth-usd
ETH CLASSIC -https://coinmarketcap.com/currencies/ethereum-classic/
WAVES - https://coinmarketcap.com/currencies/waves/

 

Let's have a look at the economics of the ICO process and understand how much ICO is adequate for the real sector.

First of all, let's consider what volatility of the collected investments was for the last two months (June 9 - August 15).

Let's pay attention to lines 8 and 9 in the table. They show that if the project team transferred (deduces) its investment in $, then, taking into account a 0.2% commission for transferring the collected assets to $, investments would be at the "successful" conclusion - $13.1 million and "unsuccessful "- $5.9 million. Successful and unsuccessful means only one thing - a high and low transfer for a period. Looking at these introductory notes, many financiers will obviously understand how to hedge against such volatility by looking at how this is implemented in the "real sector". I am not going to torture my readers and say that for this you need to sell the futures on the Crypto currency with the execution date to the ICO end date. And, until this is implemented, such a strong volatility is very much frightening and to some extent restricts, and to be more precise - does not even allow non-surplus projects to join to the ICO. Let's go further under the Whitepaper text and move to the 2-nd stage in the planned schedule.
 
Stage - 2 Production, including:
2.1) Acquisition of real estate in the Magnitogorsk industrial zone, Russia (July - August 2017)
2.2) Construction of the building and production of industrial equipment for the plant (September - February 2018)
2.3) Commissioning of industrial equipment and start of new production. (February 2018)
2.4) Starting the first sales and shipments of finished products (Synth. ZrO2). (March 2018)

I propose to check whether the project actually acquires real estate and how it will meet relatively harsh deadlines to create an industrial asset.
In order to understand what kind of real estate is meant, let us turn to the relevant documents in the following parts.
Meantime, let’s move to the third stage in the plan-chart.
 
Stage - 3 Reverse ransom
 
In addition to the information on the $400,000 allocated for ransom and the prospects of entering the IPO, there is no more data on how the ransom will be executed, in particular - how the sequence of investors who have the right to sell their options will be formed.

I would like to see that investors primarily need a calculator for their local currency (for example, rubles). How much will the invested ruble bring in X weeks, taking into account all transactions for transfering to cryptocoins and back).

Moreover, investors need to show the available currency risks, which have not been hedged. This is primarily due to the fact that the investment in the crypt is quite risky for an investor, and investors generally do not have the financial expertise to self-assess these risks.

Thus, in this situation there are 3 (!) Currency risks:

I. Crypto currency risk. Since the investment takes place in the crypto currency with the changeable exchange rate. In the period when it is possessed by an investor, but has not yet been invested it in the project.
II. Currency risk of the pair ruble / $. Since the actual costs of real sector projects are calculated in rubles.
III. Currency risk of liabilities taken in $. An enterprise that is a tax resident of the Russian Federation can receive income only in rubles. The $ liabilities on options are an unauthorized "currency mortgage" and it is dealt in a special way, if you remember what happened recently with those who took a mortgage in dollars. Of course, "entrepreneurs" can come up with a scheme in the form of a withdrawal of zirconium at cost to an offshore trading house, and only deal with export sales of zirconium, that is executed in dollars. But this will only reduce the risk of obligations, but will not remove it completely, meanwhile, a risk of "tax audit" will emerge ☺.
 
By the way, looking ahead, I note that I expected to find "some kind of" risk analysis in the section of risks in the business plan, but alas, there is nothing specific. Let’s continue considering the documents that the project team shares with us in the following parts of the DD.
 

The Securities and Exchange Commission of the United States (SEC) in its press release on the incident that occurred with the THE DAO project equated the ICO issued tokens to securities.

I think this is great news, because despite the number of transactions and restrictions that have fallen off, ICO is on the right path to ensuring that investors' rights are protected.
As a result, the era of savagery and absurdity at the ICO comes to an end, and I congratulate everyone on this.
 

● The author is not a professional adviser on investments.
● Articles are personal opinions of the author.
● The author can have a financial share in the securities mentioned in the articles.
● The reader assumes full responsibility for the actions taken due to reading this information.
● The information presented in each article is incomplete, obtained as a result of working only with open data.
● Publicly available information is the only source of information for this article.
 
If you have any interesting suggestions, you can contact me:
Telegram: Artyom779
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Email: artyom.bubnoff@gmail.com

Appeal to the readers :-)
Meanwhile, I continue to collect ZRcoin wallets, to which investors sent their assets, in order to understand if "the funds invested in the ICO were used in a targeted or inappropriate way." Therefore, if you entered on the Pre-ICO, ICO stages, then, please, send the wallet numbers to which you transferred your crypto-funds, to the contacts mentioned above.

CjMapope, thank you for your hones and opinion it's valuable.
This article already have been published on local board)

Yeah, this is for community. You are right. My main think is that investor is not about gambling. Giving some analyses about project can for sure understand success or not success it will be.
I will pay attention to the quality of English and ASAP made correction in text.

But i do not share your assumption about ulterior motive. But it will be positively i guess if you state your assumptions about motive.

IDK if it's joke about some token ) But here's just some analytics.

The second part of the analysis was completed at the stage of studying the business plan and documents for real estate. However, before continuing to consider the documents that the project shares with investors, I would like to draw attention to the financial model of the project, which is pointed in the business plan.
By the way, one of the readers of this series of articles helped to pay attention to this detail, I thank him very much for this and respect ) 
So, there is a footnote under the financial model that "the main taxes have been defined as: profit tax, property tax and value added tax", but the value-added tax (VAT) in the model is not taken into account at all. It is a big guess how the financiers have considered VAT when selling goods.
If you look at the financial model, you can see that the VAT associated with the "investment activity" was pointed out in a separate line, but the VAT associated with the sale of zirconium concentrate and the SFM (slag-forming mixture) is not allocated.
As a result, there is a risk that the revenue of the project under such financial model may be overestimated by ~ 18%, and as a result - all financial and managerial indicators that are somehow connected with taxes are incorrectly calculated. In spite of this fact, I will not revise the estimated project cost and fair value of the token by the 1st quarter of 2018.
So, let’s continue to consider the documents that investors share with the project.

9) Cadastral passport of the land plot with the total area of 1.7 hectares with cad. No. 74:33: 0101002:70, category of land is "land for settlements", use permitted: for the construction of a production base https://zrcoin.io/files/passportlandobject.pdf

The project team provides investors with a cadastral passport for a land plot with a cadastral number 74:33:0101002:70. The land with this cadastral number was taken off the register in 2009. Thus, several questions emerge. The assignee of this land plot is a land plot with a cad. No. 74:33:0101002: 76. And the owner of this land plot is LLC COMPANY METAL PROFILE (TIN: 7704792852) (hereinafter – LLC CMP) from 05/04/2017, that is, before the ICO start and end date, but after the announcement of the project publicly.

I do not quite understand what kind of land that is, and in what legal relations are between the project company (LLC Zircon) and LLC CMP company.

Being a minority shareholder, I would really want to make sure, as well as to understand why the assets (land plot) are not on the SPV balance (LLC Zirkon), but are owned by another company?
And what do I get as a result of the negative development of events in the project: let us say, in the case of bankruptcy? Yes-yes, and in the world of ICO be a procedure similar to the recognition of the project as insolvent there will most likely be introduced. And, accordingly, the introduction of external management and transfer of all property of the project to the bankruptcy estate.

Here is the confirmation of the ownership of this land plot on 12.07.2017

http://www.picshare.ru/view/8263545/

All documents from the Unified State Register are available at:  https://drive.google.com/open?id=0B3xd3gja5tB2MlUwcDRmQ0dFREU

I remind you that ICO had been lasting for 1 month, from May to June 2017. And I want to note that earlier this land plot belonged to Credit Ural Bank JSC, which, apparently, received it as a compensation for the previously granted loan in favor of Pervaya Linia LLC, the guarantor for which was Bakhtina Tatyana Ivanovna (reference to the definition of the district court of Magnitogorsk - http://sudact.ru/regular/doc/201o1aa1ZYdT/ ).
Nevertheless, the connection between CMP LLC and Zircon LLC (ZRcoin project company) has not been identified
(https://drive.google.com/open?id=0B3xd3gja5tB2WkhDbzlPdUpjUFk).

http://www.picshare.ru/view/8263544/

It is interesting how the ZRcoin project team will respond to this. After all, this contradicts the fact that investors' money will be protected by acquired property in the form of equipment and real estate. After all, investors involved in the ICO, financed the purchase of some property (land, shops and production line), getting 49% stake in the project. In turn, the project team added technologies and manages the process of creating an industrial asset, receiving 51% stake.
What registered legal relations exist between LAGATA INVESTMENTS LIMITED and CMP LLC? Or is it not an acquired land plot, and these documents are old and irrelevant?

However, it is logical to expect that the project will indicate cadastral numbers of land plots that will be (or already are) on the balance of the project company.
Let’s continue to examine the documents.

10) Cadastral passport of the shop building, which, by the way, is located on the land plot with cad. No. 74:33:0101002:76 https://zrcoin.io/files/c_passport.pdf
By the way, there where the land plot is mentioned, its cadastral passport was considered earlier.

11) Cadastral passport of the 0,5 hectare land plot with cad. No. 74:33:0000000:321, Category of land: lands of settlements, permitted use: for construction of railway deadlock https://zrcoin.io/files/passportlandobject.pdf
The owner of this land plot is also CMP LLC, and the date is also the same - 05/04/2017

12) Certificate of registration with the Inspectorate of the Federal Tax Service No. 1 (at its location) of Zirkon LLC, dated on February 20, 2017. (https://zrcoin.io/files/sviditelstvooregistracii.jpg)

13) Invitation to the conference for V.N. Merzlyakov (the director of TSEOLIT LCC) (https://zrcoin.io/files/Invite_ICRM2017_Merzlyakov.pdf)

14) Invitation to the conference for V.A. Perepelitsyn (Pervouralsky Dinas Plant OJSC) (https://zrcoin.io/files/Invite_ICRM2017_Perepelitsyn.pdf)

15) Positive response to the request of V.N. Merzlyakov from NITU MISiS on the compliance of the sample with the requirements for zirconium concentrates for the production of refractories (https://zrcoin.io/files/Syth.ZrO2.jpg)

16) Public offer (https://zrcoin.io/files/pub_offer.pdf)
That is exactly the agreement that regulates ICO LAGATA INVESTMENT LIMITED and allows investors to have the right to buy and the right to sell their token (option) at a pre-planned rate.

17) Minutes dated on June 30, 2017 from the meeting with the Magnitogorsk city administration (https://zrcoin.io/files/1.pdf)
Within the framework of the meeting, two issues were considered:
 I) The possibility of building an enterprise for the production of zirconia in Magnitogorsk.
 II) The appropriateness of using the land chosen by investors.
The deadline for responding to issues posed during the meeting is on 07/07/2017.
Responses from authorized persons have not been published yet.

18) The road map for the provision of a land plot located along the Agapovskoye highway for the construction of the plant for the production of zirconium by holding a council under the Governor of the Chelyabinsk region (https://zrcoin.io/files/2.pdf)

A very funny road map, showing the full power of the domestic bureaucracy. As a result of the implementation of this "road map" only within 429.6 calendar days, the project management will have the right to sign a land plot lease with the city))))
How did I find this out? Yes, it is very simple. I transferred working days into calendar days with a coefficient of 1.4 (or 7/5, I think, it is obvious, where these values come from). I got such a value transferring all the days into calendar ones.

It is because of these months of bureaucracy that we are at the bottom of the Doing Business rating. By the way, according to Hernando de Soto's research @HernandodeSotoPeru , who wrote "The Riddle of Capital" - these are the factors that restrain capital, squeezing it. Here is a small clue why there is such a situation in Russia with the economy. Capital (this is what the project has collected as a result of the ICO - your money) is paralyzed by 429.6 calendar days.

And this is the real bottom, because Hernando de Soto even in Peru (and they studied the countries of South America) indicated in his study that he and his team needed 289 days to register a sewing workshop.
Although there is still an example of a worse situation in the Philippines: to register a dwelling house, you need to go through 168 administrative stages in 53 agencies and offices, which takes from 13 to 25 years.
We are between Peru and the Philippines
This, of course, is a lyrical digression from the project, but nonetheless. I think that it could be interesting for readers to see the scale of bureaucracy in Russia.

19 - 21) Zircon LLC payment orders №3-5
https://zrcoin.io/files/4.pdf
https://zrcoin.io/files/5.pdf
https://zrcoin.io/files/3.pdf

- To Ural Urban Institute LLC as an advance payment under the Contract No. 15/17 for the execution of design and survey works from 03.08.2017 in the amount of 2,556,000 rubles. The company does not look like as a "technical" one, but in 2015 its revenue was 423,000 rubles. Thus, we can assume that this contract is significant for the contractor!

- To URAL-OMEGA CJSC
- - as an advance payment under the Contract No. RD-017/073 on July 31, 2012, (For Project Documentation Specification No. 1) in the amount of 480,850 rubles.
- - as a payment for the advance payment under the Agreement No. RD-017/073 on July 31, 2012, (For Equipment Specification No. 2) in the amount of 38,727,600 rubles.

- The company does not look like as a "technical" one, and its revenue in 2015 was 133,671,000 rubles, so this contract is not significant.

There are no questions concerning the selected contractors, but it is worth keeping an eye on Urals Institute of Urbanistics LLC just in case.


Why do I continue analyzing this intricate property? It is simple. I will remind you that ICO was conducted to issue options for end products (zirconium dioxide). The option works like the right to buy / sell a basic asset. As a result, investors gain the right to claim the company to which they invested their assets, payment of ICO at the time of X, in accordance with the project schedule.
And I'm trying to understand what the issuer (LAGATA INVESTMENT LIMITED) and its associated Russian legal entity (Zircon LLC) are covering their obligations under rights arising claiming from the issue of options.
To do this, you need to understand which land is acquired by the project, and which businesses the company chooses as contractors.

Although, to be honest, all these 3 parts are not really about defending the rights of a minority, and not about criticizing or seizing on the project developers. Everything is easier! All this analysis has been conducted to identify the fact that investors are not gamblers, but investors (mean ICO). All this is exclusively about the fact that the project management should provide answers on "certain" questions that can be understood after analyzing the data to identify if it is worth investing or not. And, how much money can be earned by a person who participates in the project encouraged by the project team, in short, by the investor:)


And now, for the sake of simplicity of understanding and the capacity of the analysis of the project, I will give a short evaluation of the project. As a basis, let's take a simple "Marxist model" - production, distribution, exchange, consumption and law, money, capital. For the sake of simplicity of the presentation, I will put all the values in a small table and assign each letter to the "institution" an alphabetic value and give a short answer to what important aspects are disclosed / not disclosed by the project team. Having made such simple perception of all the variety of the project aspects, it is possible to help "investors" to make a decision on investing in a particular project, based on the assigned rating of the project.

http://www.picshare.ru/view/8271586/

As a result, I assigned the rating: p-ec-mcap .
All the letters in the rating are small, because the project did not disclose any aspect thoroughly. The values of "d, r" are absent due to the fact that the "Distribution" is not sufficiently disclosed (as regards the aspect of regulating the activity of the asset) and "Right" is not all clear, especially as regards the land plots that the project leads.
The rest of the project is covered in one of the documents that is provided to investors, but not in sufficient way to make an unambiguous conclusion about whether to invest in the project or not.

Let me know if you like the analysis or not, and point which side of the project you would like to investigate. I hope to start making DD / Expose ICO on a regular basis with your support:))

Nevertheless, it is not very clear why, according to the available data (according to the documents that the project provides) the owner of land plots and capital construction projects is CMP LLC (NOT ZIRCON, an affiliated company of Zirkon). Meanwhile, the company (Zircon LLC) conducts the procedure for obtaining a land plot for rent from the Magnitorsk city administration. Apparently, the project team refused land plots of CMP LLC, however, did not remove for some reason the documents related to these land plots.

Nevertheless, I believe that the whole project will be implemented and everything will be fine)) And the team will provide all the necessary documents and comment on the issues that arise to remove them )) Thus, the rating will grow and I will buy a lot of ZRcoin tokens.


Let's keep a rating record in a special table and say that ¼ quantiles by total rating are investment-attractive projects.
Thus, the first place at the date of publication of this article is occupied by the ZRcoin project, we congratulate the guys )
But, nevertheless, let them answer the questions and doubts that emerged from the results of DD in order to raise their rating and look more attractive in the eyes of potential investors and continue to attract investments in their project in order to increase the speed of introducing their own technology to the masses.


While the ICO is in its infancy and the "development" of the project leaves much to be desired, and a large number of investors do not make demands on the quality of project development. Perhaps due to lack of specialized education.
In my opinion, exactly the "development" can bring the advantages for investors in investing through block chain technologies, when an investor agrees to an investment (there is an auto-acceptance of the investment offer), only on the basis of how much the project is "developed"(That is, the higher the rating, the better) and choosing a comfortable level of uncertainty and risk.

So, let such detailed ICO, combined with the process of auto-acceptance of the investment offer, be called Smart-ICO (By analogy with smart-money)
Let this term be now used by broad masses))

The next part of the analysis will be a bonus part and will consist of analyzing the targeted / non-targeted use of the invested crypt )) so I either will wait for all the wallets, or will provide the information on those wallets that have been sent earlier.

Actually, here are my wallet (with ZRcoin on it):
3P6mLKUhhbfvbtmPFrP1SvZ1JfB8endxLWy

http://wavesexplorer.com/address/3P6mLKUhhbfvbtmPFrP1SvZ1JfB8endxLWy

I hope that I should not expect the questions concerning if I am an investor or not:)

● The author is not a professional adviser on investments.
● Articles are personal opinions of the author.
● The author can have a financial share in the securities mentioned in the articles.
● The reader assumes full responsibility for the actions taken due to reading this information.
● The information presented in each article is incomplete, obtained as a result of working only with open data.
● Publicly available information is the only source of information for this article.

telegram: Artyom779
instagram: artyom_fintechguy
email: artyom.bubnoff@gmail.com