UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JuneSeptember 30, 2016

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 000-55141

BTCS Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (248) 764-1084(202) 430-6576

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of September 19,December 28, 2016, there were 965,756,004 shares of common stock, par value $0.001, issued and outstanding.

BTCS INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1 Financial Statements

BTCS Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Business Organization and Nature of Operations

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada Corporation (the “Company”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online ecommerce marketplace where consumers can purchase merchandise using digital currencies, including bitcoin and is building a diversified company with operations in thecurrently focused on blockchain and digital currency ecosystems. In January 2015, the Company began a rebranding campaign using its BTCS.COM domain (shorthand for Blockchain Technology Consumer Solutions) to better reflect its broadened strategy. The Company released its new website which included broader information on its strategy, and access to its ecommerce site.strategy. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining.mining, though in mid 2016 we ceased our transaction verification services operation at our North Carolina facility due to capital constraints. Although we continue to support our ecommerce marketplace is still online we are no longer developing, marketing or actively marketing it and our support of the ecommerce marketplace is limited.supporting it.

On July 20, 2016, BTCS Digital Manufacturing (“DM”), a wholly owned subsidiary the Company suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company is pursuing the following options: i) seeking additional capital to potentially bring DM back online; ii) a possible sale of DM; iii) and permanently winding down DM’s operations. If the Company ceaseshas subsequently ceased operations at DM, it may relocate its transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations.DM.

On August 8, 2016, DM discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company (“CSC”) were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company has reported the theft to local authorities as well its insurance company regarding next steps.

The Company was incorporated inis currently working through the Stateinsurance company claims process for the benefit of Nevada in 2008 under the name “Hotel Management Systems, Inc.”. On February 5, 2014, the Company entered into an Exchange Agreement with BitcoinShop.us, LLC, a Maryland limited liability company (“BCSLLC”), and the holders of the membership interests in BCSLLC. Upon closing of the Share Exchange, BCSLLC Members transferred all the outstanding membership interests of BCSLLC to the Company in exchange for an aggregate of 100,773,923 shares ofCSC the Company’s common stock (the “Reverse Merger”). As a result, BCSLLC became a wholly-owned subsidiary ofequipment finance provider which owns the Company. Immediately followingstolen serves. CSC would be the Share Exchangepayee with BCSLLC,respect to any insurance proceeds received in connection with the Company discontinued its business as manufacturer of touch screen and touch board products, interactive whiteboard displays and large touch-screens.stolen servers.

The Company is an early entrant in the digital currency market and one of the first U.S. publicly traded companies to be involved with digital currencies.currencies and blockchain technologies. Subject to additional financing, the Company plans to create a portfolio of digital assets including bitcoin and other “protocol tokens” to provide investors a diversified pure-play exposure to the bitcoin and blockchain industries. The Company currently operates a beta ecommerce marketplace which already accepts a variety ofintends to acquire digital currencies, and has been operatingassets through: open market purchases, participating in initial digital asset offerings (often referred to as initial coin offerings). Additionally the Company may acquire digital assets by resuming its transaction verification services business which generate bitcoins (i.e. bitcoin mining).through outsourced data centers and earning rewards in digital assets by securing their respective blockchains.

Note 2 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015.

Note 3 - Liquidity, Financial Condition and Management’s Plans

For the sixnine months ended JuneSeptember 30, 2016 and 2015, the Company recognized a net loss of approximately $30.2$26.9 million and a net loss of approximately $4.6$8.4 million, respectively. The Company had no cash and cash equivalents of approximately $67,000outstanding and a working capital deficiency of approximately $32.0$24.3 million at JuneSeptember 30, 2016, which includes $27.5$20 million for the fair value of derivative liabilities. The Company expects to incur losses into the foreseeable future as it undertakes its efforts to execute its business plans.

The Company will require significant additional capital to sustain its short-term operations and make the investments it needs to execute its longer term business plan. The Company’s existing liquidity is not sufficient to fund its operations and anticipated capital expenditures for the foreseeable future. The Company is currently seeking to obtain additional debt or equity financing, however there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the accompanying consolidated financial statements to reflect the potential effects on the recoverability and classification of assets or liabilities should the Company be unable to continue as a going concern.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The Company continues to incur ongoing administrative and other operating expenses, including public company expenses, in excess of revenues. While the Company continues to implement its business strategy, it intends to finance its activities by:

Note 4 - Summary of Significant Accounting Policies

A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements is as follows:

Transaction Verification Services

Revenue earned from bitcoin processing activities (“Transaction Verification Services”), commonly termed ‘mining’ activities, is recognized at the fair value of the bitcoins received as consideration on the date of actual receipt.

The Company generates revenue by performing computer processing activities for bitcoin generation. In the digital-currency industry such activity is generally referred to as Transaction Verification Services or bitcoin mining. The Company receives consideration for performing such transaction verification activities in the form of bitcoins. Revenue is recorded upon the actual receipt of bitcoins.

Expenses consist of utilities paid to cover our electric costs, rent for our facility and personnel to run our facility. The expenses related to our Transaction Verification Services activities are affected by the level of activities and not the ultimate generation of bitcoins. The Company expenses these costs as they are incurred.

Net Loss per Share

Basic loss per share is computed by dividing net loss applicable to common stock by the weighted-average number of common shares outstanding during the period.

For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted loss per share reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. The following financial instruments were not included in the diluted loss per share calculation as of JuneSeptember 30, 2016 and 2015 because their effect was anti-dilutive:

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

In January 2016, FASB issued ASU No. 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its condensed consolidated financial statements and related disclosures.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

In February 2016, FASB issued ASU No. 2016-02,Leases(Topic (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Revenuefrom Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU No. 2016-08 on its condensed consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09,Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10,Revenue from Contracts with Customer. The new guidance is an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its condensed consolidated statements of cash flows.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Subsequent events

Subsequent events have been evaluated through the date of this filing.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 5 - Property and Equipment

Property and equipment consist of the following at JuneSeptember 30, 2016 and December 31, 2015:

Depreciation expense was approximately $84,000$0 and $68,000$88,000 for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $177,000 and $114,000$202,000 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.

During the sixnine months ended JuneSeptember 30, 2016, the Company purchased fixed assets of approximately $19,000, sold fixed assets amounting to approximately $55,000,$57,000, resulting in loss on sale of fixed assets of $35,000.$11,000.

Due to the financial nature of the Company, as of June 30, 2016, the Company impaired all fixed assets and recorded an approximately $241,000 impairment charge during the three months endedin June 30, 2016.

Note 6 - Investment at Cost

Spondoolies

The Company had total investment of approximately $2.3 million to Spondoolies Tech Ltd. (“Spondoolies”) as of December 31, 2015.

On May 5, 2016, the Company was informed that, on May 4, 2016, a hearing was held in the district court in Beersheva, Israel during which certain parties sought appointment of a temporary liquidator for Spondoolies. As a result of the liquidation the Company is no longer pursuing the acquisition of Spondoolies. The Company assessed impairment for the Spondoolies investment and determined that this investment is not recoverable and as such fully impaired.

During the sixnine months ended JuneSeptember 30, 2016, the Company recorded impairment loss of approximately $2.3 million.

Note 7 - Fair Value Measurements

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents information about the Company’s liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of JuneSeptember 30, 2016 and December 31, 2015:

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

There were no transfers between Level 1, 2 or 3 during the sixnine months ended JuneSeptember 30, 2016.

The following table presents additional information about Level 3 assets and liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Changes in Level 3 liabilities measured at fair value for the sixnine months ended JuneSeptember 30, 2016:

The Company’s derivative liabilities are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the sixnine months ended JuneSeptember 30, 2016 is as follows:

Derivative Liabilities for shortfall of shares

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Warrant Liabilities

Derivative Liabilities for shortfall of shares

Convertible Notes at Fair Value

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Management.

Note 8 - Stock Based Compensation

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. The Company estimates pre-vesting option forfeitures at the time of grant and reflects the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

Stock-based compensation expense was $0 and $1.4$3.6 million for the three months ended JuneSeptember 30, 2016 and 2015, respectively. Stock-based compensation expense was $0 and $2.8$6.4 million for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.

Stock Options

There are no stock options outstanding as of JuneSeptember 30, 2016 and December 31, 2015.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 9 - Related Party Transactions

On February 19, 2016, the Company entered into a securities escrow agreement (the “Securities Escrow Agreement”) with Charles Allen its Chief Executive Officer, Chief Financial Officer and Chairman, and Michal Handerhan, its Chief Operating Officer and corporate secretary (collectively, the “Principal Stockholders”). Pursuant to the Securities Escrow Agreement and for the benefit of the Company’s public shareholders the Principal Stockholders voluntarily agreed to place stock certificates representing 24,000,000 shares of Common Stock (the “Escrow Shares”) into escrow.

The return of 12,000,000 escrowed shares (the “Listing Escrow Shares”) to the Principal Stockholders shall be based upon the successful listing of the Company’s Common Stock on a National Stock Exchange on or before December 31, 2016 (the “Listing Condition”). The Listing Escrow Shares will be returned to the Company for cancelation for no consideration if the Company fails to achieve the Listing Condition. The return of 12,000,000 escrowed shares (the “Merger Escrow Shares”) to the Principal Stockholders shall be based upon the successful consummation of the merger with Spondoolies-Tech Ltd. (“Spondoolies”) on or before December 31, 2016 (the “Merger Condition”). The Merger Escrow Shares will be returned to the Company for cancelation for no consideration if the Company fails to achieve the Merger Condition.

Pursuant to the June 3, 2016 Amendment Agreement (as defined in Note 11 below) the Principal Stockholders each received $86 in connection with their pro-rata portion of the Payment (as defined in Note 11 below). In April 2015, the Principal Stockholders each subscribed for $20,000 in the Subscription Agreement (as defined in Note 11 below) for an aggregate of $40,000.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 10 - Notes Payable

On June 6, 2016, the Company, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Purchaser subscribed for up to $375,000 of a 20% Original Issue Discount Junior Secured Convertible Notes (the “Junior Notes”). The aggregate principal amount of the Junior Notes issued at the initial close is $125,000 and the Company received $100,000 after giving effect to the 20% original issue discount. The lead investor was granted the option to require the Company to sell the Purchasers up to two additional Junior Notes in the principal amount of $125,000 during each of the periods that begin with the Initial Closing Date and end (i) on or before 45 days from the Initial Closing Date, and (ii) on or before 90 days from the Initial Closing Date.

The Junior Notes bears no interest except in the event of default which interest rate is 24% per annum upon the occurrence of an Event of Default (as defined in the Junior Notes), have a maturity date of December 5, 2016 and are convertible (principal, and interest) at any time after the issuance date of the Junior Notes into shares of the Company’s Common Stock at a conversion price equal to $0.30 per share. If an Event of Default has occurred, the Junior Note shall be convertible at 60% of the lowest closing price during the prior twenty (20) trading days of the Company’s Common Stock.

The Junior Notes contains certain covenants, such as restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Junior Notes also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. In addition, subject to limited exceptions, theeach Purchaser will not have the right to convert any portion of the Junior Note if thesuch Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion. The Purchaser may not convert into or otherwise beneficially own in excess of 9.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion.

In connection with the Company’s obligations under the Junior Notes, the Company and its subsidiaries (the “Subsidiaries”) entered into a Security Agreement, Pledge Agreement and Subsidiary Agreement with the lead investor, as agent, pursuant to which the Company and the Subsidiaries granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness, for the benefit of the Purchasers, to secure the Company’s obligations under the Junior Notes. Upon an Event of Default (as defined in the Junior Notes), the Purchaser may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

The use of proceeds from this financing are intended for general corporate purposes. The Company also reimbursed the Purchaser $5,000 for legal fees and expenses from the private placement.

The issuance of the Common Stock is exempt from the registration requirements from the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Common Stock and has not offered securities to the public in connection with such issuance and sale.

Over the course of June 16, 2016 through June 30, 2016, the Company issuedAs a total of 66,466,033 shares of the Company’s Common Stock for: i) the conversion of $581,000 of principal and accrued interest on the Senior Secured Convertible Notes issued December 16, 2015 (the “Senior Notes”), and ii) the exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances. The dates of the issuances and the numbers of shares issued are as follows:

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 236,946,578 shares of our Common Stock issued and outstanding as of June 30, 2016.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

On June 22, 2016 the Company entered into a Standstill and Leak-out Agreement with allresult of the Senior Note holders. The Senior Note holders have agreed notconversions, the Company became obligated to convert any Senior Notes until July 1, 2016. Thereafter, and until September 19, 2016, each Senior Note holder’s daily conversions will be limitedissue, subject to certain limitations, the greater of: (1) $7,500, and (2) five percent of the aggregate dollar valuefollowing additional securities: (i) 6,524,866,433 shares of Common Stock traded during the trading day immediately priorpursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution shares of Common Stock previously disclosed; and (ii) warrants to purchase 16,127,323,911 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution warrants previously disclosed. These figures do not reflect additional warrants to purchase Common Stock issuable to certain investors pursuant to the terms of the warrants issued on December 16, 2016 which includes those anti-dilution warrants previously disclosed. The Company also lowered the conversion date.price of the Company’s outstanding Junior Notes and Senior Notes to $0.00042. The Company does not currently have sufficient authorized and unreserved shares to fulfill its obligations with respect to the issuance of new shares of Common Stock. While no assurances can be made, the Company intends to seek shareholder approval to adjust the Company’s capitalization.

As of the JuneSeptember 30, 2016 the Company did not have sufficient shares of Common Stock to fulfill its obligations with respect to its Notes and warrants and has booked a derivative liability of $14,479,363$7,401,321 to account for the shortfall.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 11 - Stockholders’ Equity

On June 3, 2016, the Company received the last signatureand investors from investors, which investors hold 75% of the units (“Units”) sold to subscribers (“Subscribers”) in the Companya private placement offering (the “Offering”) pursuant to that certain subscription agreement by and between the Company and the Subscribers dated on or aroundas of April 20, 2015 (the “Subscription Agreement”), to entered into an amendment agreement (the “Amendment Agreement”).

Pursuant to the Amendment Agreement, the Company agreed to pay, on a pro-rata basis to all subscribers that purchased Units in the Offering, and in proportion to the respective Units purchased by each subscriber, pursuant to the Subscription Agreement, an aggregate $250,000 (“Payment”) upon the occurrence of the following events and in the amounts and on payment dates set forth in connection with such events: (i) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or less, a payment towards the then-remaining Payment equal to ten-percent (10%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (ii) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or more but less than $1,000,000, a payment towards the then-remaining Payment equal to twenty-percent (20%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (iii) at any of the Company’s fiscal-year-ends payment will be made in the amount of available cash prior to any payments of bonuses payable to Mr. Allen, the Company’s CEO, CFO and Chairman, and Mr. Handerhan, the Company’s COO, Secretary and Director; and (iv) upon closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $1,000,000 or more, a payment of all then-remaining Payment within three (3) business days of the closing of any such equity or debt financing.

In consideration for the Payment, the Subscribers agreed to limit any remedies currently due, if any, or to which they may be entitled in the future, under the “Favored Nations Provision” of the Subscription Agreement, to the additional issuance of Common Stock of the Company and warrants (“Warrants”) to purchase Common Stock up to the Common Stock and Warrants that would not result in each respective Subscriber beneficially owning over 4.99% of the Company’s issued and outstanding Common Stock.

On June 8, 2016, the Company and an investor (the “Investor”) holding a warrant dated January 19, 2015 (the “Warrant”) to purchase 2,325,000 shares (the “Warrant Shares”) of the Company’s Common Stock entered into a warrant exercise agreement (the “Exercise Agreement”).

Pursuant to the Exercise Agreement, the Company agreed to accept as full payment for 500,000 of the Warrant Shares, an aggregate exercise price equal to $27,500 (the “Exercise Price”) and the Investor irrevocably agreed to exercise the Warrant and deliver the Exercise Price within 2 days of the Exercise Agreement.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Over the course of June 8, 2016 through June 28, 2016, the Company issued 4,125,000 shares of Common Stock for the cash exercise of warrants resulting in aggregate proceeds of $91,765 to the CompanyCompany; this includes the $27,500 received in connection with the Exercise Agreement mentioned above.

Over the course of July 1, 2016 through August 1, 2016, the Company issued a total of 728,809,426 shares of the Company’s Common Stock for: i) the conversion of $439,251 of principal and accrued interest on the Senior Notes, and ii) the cashless exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances.

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 965,756,004 shares of our Common Stock issued and outstanding which includes 13,000,000 shares of treasury stock, excluding shares held in treasury there are 952,756,004 shares of our Common Stock issued and outstanding.

As a result of the Senior Note conversions, the Company became obligated to issue, subject to certain limitations, the following additional securities: (i) 6,524,866,433 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution shares of Common Stock previously disclosed; (ii) warrants to purchase 10,280,964,322 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution warrants previously disclosed, and (iii) warrants to purchase 5,845,414,589 shares of Common Stock pursuant to the terms of the warrants issued on December 16, 2016 which includes those anti-dilution warrants previously disclosed. The Company also lowered the conversion price of the Company’s outstanding Senior Notes and Junior Notes to $0.00042.

Note 12 - North Carolina Facility

On July 20, 2016, DM suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company has subsequently ceased operations at DM.

On August 8, 2016, DM discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company reported the theft to local authorities as well its insurance company regarding next steps. The Company is currently working through the insurance company claims process for the benefit of CSC the Company’s equipment finance provider which owns the stolen serves. CSC would be the payee with respect to any insurance proceeds received in connection with the stolen servers.

On September 1, 2016, DM gave cancelation notice to the landlord with respect to the lease of its North Carolina facility.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1213 - Subsequent Events

Over the course of July 1, 2016 through August 1,On December 6, 2016, the Company issued a total of 728,809,426 shares$220,002 Convertible Promissory Notes (the “December 2016 Notes”) to three accredited investors. The December 2016 Notes were issued in connection with a loan of $200,002 and the cancellation of two $10,000 promissory notes previously issued by the Company to two of the investors. The December 2016 Notes are due on June 6, 2017 and bear interest at 8% per annum payable on the maturity date. In connection with the investments, the Company agreed to use its best efforts (no later than 90 days from the original issuance date) to obtain shareholder approval to effectuate a reverse stock split or increase its authorized capital (either, a “Charter Amendment”) in order to permit the exercise and/or conversion of all of the Company’s Common Stock for: i) the conversion of $460,344 of principal and accrued interest on the Senior Notes, and ii) the exercise of warrants. The issuances were exempt from registrationoutstanding securities into common stock including securities owed to holders pursuant to Rule 506 under Regulation D,anti-dilution protection. Further, the investorsDecember 2016 Notes required the Company to designate a series of preferred stock with super voting power and issue it to an executive officer of the Company. In furtherance of that provision, the Company issued 100 shares of Series A Preferred Stock to Charles Allen, its Chief Executive Officer and a director, which provides Mr. Allen with a majority of the Company’s outstanding voting power. See Item 5.03 below. Until such time as the Company effects a Charter Amendment, the December 2016 Notes are sophisticatedconvertible into a preferred stock which shall be designated and familiar with our operations,issued by the Company and there was no solicitation in connectiona Certificate of Designation designating the related rights and preferences of the preferred stock shall be filed with the issuances. The datesSecretary of State of Nevada within 15 days of the issuances andinvestment. After the numbersCharter Amendment is effected, the December 2016 Notes will be convertible into Common Stock. The conversion price of shares issued are as follows:the December 2016 Notes is $0.002 per share.

NoneThe Company may only use the proceeds of the securities were sold through an underwriterDecember 2016 Notes for accrued and accordingly, there were no underwriting discounts or commissions involved. No registration rights were grantedunpaid management compensation (subject to the $50,000 salary limitation as set forth in the April 20, 2015 Subscription Agreement Amended Agreement), unpaid out-of-pocket expenses of employees, legal and accounting fees, and certain other fees and liabilities. The Company may not use any of the purchasers. Following these issuances, there were 952,756,004 shares of our Common Stock issued and outstanding.proceeds towards payments to its outstanding note holders or investors that participated in the Company’s past financings.

As a result of the Senior Note conversions, the Company became obligated to issue, subject to certain limitations, the following additional securities: (i) 6,524,866,433 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution shares of Common Stock previously disclosed; and (ii) warrants to purchase 10,264,097,638 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution warrants previously disclosed. These figures do not reflect additional warrants to purchase Common Stock issuable to certain investors pursuant14 - Liquidated Damages

Pursuant to the terms of the warrants issued on December 16, 2016 which includes those anti-dilution warrants previously disclosed. The Company also lowered the conversion price of the Company’s outstandingSenior Notes and Junior Notes and Senior Notesthe Company is required to $0.00042.issue shares of Common Stock to the holders upon notice of conversion. The Company does not currently have sufficient authorized and unreserved shares of Common Stock to fulfill its obligations with respect to its Senior Note and Junior Note holders and has booked a liquidated damages liability of $1,621,750 for the issuance of new shares of Common Stock. While no assurances can be made, the Company intends to seek shareholder approval to adjust the Company’s capitalization.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statementsnine months ended September 30, 2016.

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includesCertain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,that involve risks and uncertainties. Words such as amended,may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have basedsimilar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, on our current expectations and projections about future events. Thesewhich reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause ourreflect actual results levels of activity, performance or achievements to be materially different from any future results, levels of activity, performancechanges in factors or achievements expressed or implied by suchassumptions affecting 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 mightcould cause or contribute to such a discrepancythese differences include but are not limited to, those describeddiscussed in the Risk Factors contained in our otherForm 10-K filed with the Securities and Exchange Commission (“SEC”) filings. References to “we”, “us”, “our” or the “Company” are to BTCS 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.on February 19, 2016.

Overview

We are an early entrant in the digital currency ecosystemmarket and one of the first U.S. publicly traded companies to be involved with digital currencies. We currently operatecurrencies and blockchain technologies. Subject to additional financing, the Company plans to create a beta ecommerce marketplace which already accepts a varietyportfolio of digital currenciesassets including bitcoin and sinceother “protocol tokens” to provide investors a diversified pure-play exposure to the second half of 2014, enteredbitcoin and blockchain industries. The Company intends to acquire digital assets through: open market purchases, participating in initial digital asset offerings (often referred to as initial coin offerings). Additionally the transaction verification services business, leasing and building out an 83,000 square foot facility and putting into service a suite of servers capable of generating bitcoins (i.e. bitcoin mining). Revenues are earned in ourCompany may acquire digital assets by resuming its transaction verification services business through running ASIC (application-specific integrated circuit) servers at our North Carolina facility. When our serversoutsourced data centers and earning rewards in digital assets by securing their respective blockchains.

Digital asset blockchains are successful in finding and adding a block to the Blockchain we are awarded bitcoins for our efforts, which awarded bitcoins are booked as revenue at the prevailing market price on the day of receipt. The Blockchain istypically maintained by a global network of participants which are running ASIC and otherrun servers which secure the Blockchain.their blockchain. The market is rapidly evolving and there can be no assurances that we will remain competitive with industry participants that have or may acquire facilitieshave greater resources than us.

Blockchain Technology and equipment thatDigital Assets Initiatives

We are less costlyalso focused on digital assets and more efficient.blockchain technologies. Subject to additional financing, we plan to continue to evaluate other strategic opportunities in this rapidly evolving sector in an effort to enhance shareholder value.

Transaction Verification Service Business (bitcoin mining)(digital asset mining e.g. bitcoin)

We believe that with additional funding we may be able to expandresume our low cost transaction verification services business (bitcoin mining)(digital asset mining e.g. bitcoin) and believe this may provide revenue growth. In January 2015, we entered into a two-year lease for an 83,000 square foot facility. Additionally, we have the option to purchase the property for $775,000 less the $10,000 security deposit and all lease payments. In July 2015 we completed the internal build out of our facility which increased our operating capacity to 3 megawatts (mw). On July 20, 2016, we suspended our North Carolina transaction verification services facility operations. We are pursuing the following options: i) seeking additional capital to potentially bring the facility back online; and ii) permanently winding down its operations. If we do not resume operationsare successful in North Carolina, we may relocateresuming our transaction verification services business to otherswe anticipate utilizing outsourced data centers whichand may be more appropriate for the Company’s current scale ofdiversify operations alternatively we may pursueby securing other strategic alternativesblockchains in addition to our transaction verification services business. bitcoins blockchain.

Transaction verification entails running ASIC (application-specific integrated circuit) servers or other specialized servers which solve a set of prescribed complex mathematical calculations in order to add a block to the Blockchaina blockchain and thereby confirm bitcoindigital asset transactions. When we are successful in adding a block to the Blockchain,blockchain, we are awarded a fixed number of bitcoinsdigital assets for our effort. Over time it is anticipated that the rewarded value in newly issued bitcoins of adding a block to the Blockchain will decrease, and we expect to charge transaction fees to verify transactions. Over time as the reward value decreases we believe the lowest cost participants (miners) will set the market rate for transaction fees such that they remain profitable.

E-commerce Marketplace (Discontinued)

We believe our e-commerce marketplace was the first such site to accept bitcoin. Our beta ecommerce marketplace is currently operational and offers up to 250,000 curated products and utilizes our “Intelligent Shopping Engine” to find competitive prices on products from numerous retailers. Products are curated through the application of filters such as popularity, reviews, categories, sales rank and other features which are chosen by management. In early 2014, we began a complete redesign of our ecommerce marketplace to incorporate our Intelligent Shopping Engine as a value added function to our ecommerce marketplace. During 2014,However, many new businesses (such as Dell, Microsoft, Overstock, NewEgg and TigerDirect) opted to accept bitcoin as a form of payment. This posesposed serious competition for our marketplace efforts and has resulted in reduced consumer interest in our e-commerce marketplace. Although our ecommerce marketplace is still online we have ceased all development efforts, are no longer marketing it, and do not currently support it.

Although

Financial Results

We have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. We have generated a net loss from operations of $0.2 million, and $1.1 million for the three and nine months ended September 30, 2016, respectively. We expect to incur additional net expenses over the next several years as we continue to supportmaintain and expand our ecommerce marketplaceoperations. The amount of future losses and when, if ever, we will achieve profitability are uncertain. The Company is currently working on restructuring its liabilities and raising additional funds to pursue its business plan. The Company can provide no longer developingassurances or actively marketingguarantees it will be successful in its efforts to restructure its liabilities or raise additional funds.

Going Concern

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, our support of the ecommerce marketplaceindependent auditors have indicated in their report on our December 31, 2015 financial statements that there is limited. Our market place was launched through the development software that allows ussubstantial doubt about our ability to interface with vendors and search for competitive prices in real time and display up-to-date inventory, and present prices in bitcoin, litecoin or dogecoin according to the exchange rate from USD. The exchange rate is updated frequently and at each stage of the checkout process, when customers reach the checkout page the exchange rate is locked in by our payment processor for 15 minutes and our payment processor assumes the currency exchange risk (unless we choose to accept the digital currency). All marketplace customer orders are fulfilled by third party vendors and we are not involved in the logistics chain, however, we oversee the fulfillment process. Our payment processor allows us to selectcontinue as a ratio of cash versus each respective digital currency we accept. We charge our customers a processing fee of approximately three percent (which management may change from time to time) on transactions if we are not in the affiliate program with the end retailer selling a particular product. If we are a part of an affiliate program we are paid affiliate fees by the retailer which varies depending on both the retailer and by product which can range from one to fifteen percent.going concern.

Results of Operations for the Three Months Ended JuneSeptember 30, 2016 and 2015

The following table reflects our operating results for the three months ended JuneSeptember 30, 2016 and 2015:

The table reflects a relatively low operating loss for the 2016 period and significant cash expenses.

Revenues

Revenues for the three months ended JuneSeptember 30, 2016 and 2015 were approximately $142,000$16,000 and $144,000,$169,000, respectively. Revenues represent net revenue earnedearned: 1) from the processing of customer transactions through our ecommerce website, 2) through fees earned from our transaction verification service business, and 3) from hosting. The net decrease of approximately $2,000$153,000 or 1%91% is a result of an approximately $3,000 decrease from the processing of customer transactions through our ecommerce website, an approximately $20,000$153,000 decrease in fees earned from our transaction verification service business and an approximately $20,000 increase in hosting fees.services business. Fees earned from our transaction verification service business accounted for 84%99% of our revenue for the three months ended JuneSeptember 30, 2016. As a result of the Company suspending its operations at its North Carolina transaction verification services facility in July we anticipateanticipated a substantial decline in our revenue for the third quarter 2016 and going forward.

Power and Mining Expenses

Power and mining expenses for the three months ended JuneSeptember 30, 2016 and 2015 were approximately $115,000$35,000 and $60,000,$102,000, respectively. The increasedecrease in the power and mining expenses is the result of the reduction in mining activities and related electric costs for our transaction verification services business.

Operating Expenses

Operating expenses for the three months ended JuneSeptember 30, 2016 and 2015 were approximately $614,000$194,000 and $2.1$4.2 million, respectively. The decrease in operating expenses over the prior year mostly relates to decreases in general and administrative expenses. General and administrative expense was lower primarily due to a decrease in stock based compensation of approximately $1.4$3.6 million.

Other (Expenses) Income

Other (expenses) income for the three months ended JuneSeptember 30, 2016 and 2015 was approximately ($27.6)$3.5 million and $717,000,$282,000, respectively. The increase in other expensesincome over the prior year mostlyprimarily relates to increases in fair value adjustments for derivative liability shortfall of shares of $14.5$7.1 million, fair value adjustments for convertible notes of ($2.9 million), fair value adjustments for warrant liabilities of $9.7$1.0 million and is offset by liquidated damages of $1.4 million, all of which are non-cash expenses.

Net Income (Loss)

Net income for the three months ended September 30, 2016 was approximately $3.2 million, net loss on extinguishmentfor the three months ended September 30, 2015 was approximately $3.8 million, respectively. The increase in net income for the three months ended September 30, 2016 resulted primarily from fair value adjustments for derivative liability shortfall of debtshares of $2.5$7.1 million and fair value adjustments for convertible notes of $2.9 million.

Results of Operations for the SixNine Months Ended JuneSeptember 30, 2016 and 2015

The following table reflects our operating results for the sixnine months ended JuneSeptember 30, 2016 and 2015:

The table reflects a relatively low operating loss for the 2016 period and significant cash expenses.

Revenues

Revenues for the sixnine months ended JuneSeptember 30, 2016 and 2015 were approximately $341,000$356,000 and $182,000$351,000 respectively. Revenues represent net revenue earnedearned: 1) from the processing of customer transactions through our ecommerce website, 2) through fees earned from our transaction verification service business, and 3) from hosting. The net increase of approximately $159,000$5,000 or 87%2% is a result of an approximately $4,000$19,000 decrease from the processing of customer transactions through our ecommerce website, an approximately $135,000 increase in fees earned from our transaction verification service business, and an approximately $28,000$30,000 increase in hosting fees. Fees earned from our transaction verification service business accounted for 91% of our revenue for the sixnine months ended JuneSeptember 30, 2016. As a result of the Company suspending its operations at its North Carolina transaction verification services facility in July we anticipateanticipated a substantial decline in our revenue for the third quarter 2016 and going forward.

Power and Mining Expenses

Power and mining expenses for the sixnine months ended JuneSeptember 30, 2016 and 2015 was approximately $229,000$264,000 and $77,000,$179,000, respectively.

Operating Expenses

Operating expenses for the sixnine months ended JuneSeptember 30, 2016 and 2015 were approximately $1.0$1.2 million and $3.7$7.8 million, respectively. The decrease in operating expenses over the prior year mostly relates to decrease in stock based compensation of approximately $2.8$6.4 million.

Other Expenses