The hearing on WESCO’s motion to lift Bcause’s bankruptcy protection and/or to remove the bankruptcy court’s stay on a lower court’s order to pay WESCO continued on Monday, June 24. WESCO, an electrical equipment supplier, has asked the court to accelerate Bcause’s payments to WESCO to avoid the risk of Bcause dissipating the currently $900,000 in cash it has on hand before it pays WESCO.
At the end of the second day of testimony and argument, Judge Janet Baer adjourned the case indefinitely. At first she said she was denying the motion, finding in favor of Bcause and the other creditors, She also emphasized that her decision was without prejudice and that WESCO would be free to re-file the motion. WESCO’s attorney asked that the decision not be entered so that it would be easier and faster for all parties to continue the action than to re-file as a new motion and Judge Baer agreed.
In announcing her decision, Judge Baer said that while WESCO’s motion had merit, “We are not there yet.” As Bcause’s attorney stated in his closing argument, the law requires the court to ask, “Is there a plan that could be proposed?” and find the answer to be “No” in order for the court to grant the motion. The judge told Bcause that it had a lot of work to do to get to a recovery plan that was confirmable by the court.
Currently, Bcause’s operations are cash flow positive generating $70,000 per month. But it has $12.8 million in debts. As Fred Grede noted in his testimony on Friday, Bcause’s present success is based on fixed margins – long term electrical contracts matched with long term customer agreements lock in a steady profit.
The customer contracts start expiring in November. There are only three economically meaningful customers. Grede told the court on Friday that SBI had already told them they are getting out of the mining business and St. Bitts had recently tried to exercise certain early contract termination rights. Grede had said he thought it did not bode well for those two potential renewals. Tom Flake denied having any concerns about them renewing because the price of bitcoin has been rising recently. Who would walk away from that?
Then there is BMG, the third customer. BMG is the customer who loaned Bcause $8 million last October, though without any documentation. The loan is being repaid by crediting BMG’s monthly invoice for $70,000 each month, and half of the debt will be converted into equity. Since the bankruptcy filing in April, Bcause cannot continue the monthly forgiveness. Flake told the court that, although he had not spoken with them, he was confident that BMG would renew. In her final remarks, while she was chiding Bcause for not having a firmer grasp on their revenue prospects, Judge Baer suggested that the renewal conversation with BMG would be very interesting in light of BMG now paying $70,000 more per month for services.
Flake also told the court he has been in discussions with SBI, the largest shareholder and largest customer, to lease otherwise unused miners from SBI so that Bcause could mine bitcoin for its own account. Even though any returns on the strategy depend directly on the price of bitcoin, Flake estimates that net income will be $42,000 per month. Flake did not mention whether Bcause would seek court approval to lease the miners while it is in bankruptcy.
There was some confusion about Bcause’s plans for launching a spot market, which the company projects will be very profitable. On Monday it seemed that they had heard Grede’s remarks on Friday about people being unwilling to deal with a bankrupt entity, because the plan now calls for Bcause Spot, LLC to receive all of the $2 million or so of new money that is needed to pay Nasdaq and operate the market. Flake has not discussed the plan with Nasdaq, but he believes they will support it because this will be the only cryptocurrency trading platform for which they provide software.
Flake said he has verbal commitments from two current investors for a contribution of $350,000 to help pay off the money owed Nasdaq. He is confident that the other shareholders will be willing to put in enough money to launch spot, although he has not spoken to any of them about it.
Bcause and the creditors told the court that they were working on a plan that would, among other things, leave the current owners with 80% of the equity in the company. WESCO’s attorney had earlier asked Flake if it such a great company why don’t they find a buyer for it. Judge Baer echoed that idea later. She also said that she had seen resolutions that had left the original owners with only 5% equity, but everyone was happy because it worked for all of them (when the alternative was going out of business).
Even though she ruled against WESCO, Judge Baer often seemed to share WESCO’s attorney’s concerns about Bcause’s business practices. Flake was questioned about Bcause’s property insurance coverages and he had to admit that the multi million dollar assets were covered with a policy limited to $425,000 in losses. Judge Baer has ordered a hearing on the matter of adequate insurance scheduled for Tuesday, July 2.
Bcause is supposed to have a confirmable plan for recovery by August 11, three months after filing for bankruptcy. Judge Baer warned Bcause that they need to present a complete, executable plan that reflects agreements with customers, service providers and creditors. She will hold a hearing on that plan on August 7.