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 June 30, 2017March 31, 2020

[  ] 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 (202) 430-6576

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

Securities registered pursuant to Section 12(b) of the Act: None

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, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

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 October 19, 2017,May 8, 2020, there were 200,710,95327,386,184 shares of common stock, par value $0.001, issued and outstanding.outstanding (giving effect to a 1-for-30 reverse stock split effected by the registrant on April 5, 2019).

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 orand 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. Readers should review our risk factors in our filings with the Securities and Exchange Commission (“SEC”) including our 2019 Annual Report on Form S-110-K filed with the SEC on August 10, 2017, as it may be amended.March 23, 2020.

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 FlowsChanges in Stockholders’ Deficit

(Unaudited)

For the Three Months Ended March 31, 2020

For the Three Months Ended March 31, 2019

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

BTCS Inc. and Subsidiaries

Condensed Statements of Cash Flows

(Unaudited)

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

BTCS Inc.

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,Digital Assets, including bitcoin and is currently 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. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining, though in mid-2016 we ceased our transaction verification services operation at our North Carolina facility due to capital constraints. Although our ecommerce marketplace is still online, we are no longer developing, marketing or supporting it.

The Company is an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital Assets and blockchain technologies. Subject to additional financing, the Company plans to create a portfolio of digital assets including bitcoin and other “protocol tokens”acquire additional Digital Assets to provide investors a diversified pure-play exposure to thewith indirect ownership of Digital Assets that are not securities, such as bitcoin and blockchain industries.ether. The Company intends to acquire digital assets through:Digital Assets through open market purchasespurchases. We are not limiting our assets to a single type of Digital Asset and participatingmay purchase a variety of Digital Assets that appear to benefit our investors, subject to the certain limitations regarding Digital Securities. The Company is also seeking to acquire controlling interests in initial digital asset offerings (often referred to as initial coin offerings). Additionally,businesses in the Company may acquire digital assets by resuming its transaction verification services business through outsourced data centers and earning rewards in digital assets by securing their respective blockchains.

Reverse Stock Split and Amendment to Certificate of Incorporation

On February 13, 2017, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada to implement a reverse stock split at a ratio of one-for-60. The reverse stock split became effective immediately.blockchain industry.

The Reverse Stock Split reducedCompany has not participated in any initial coin offerings as it believes most of the numberofferings entail the offering of outstanding shares of Common Stock from 952,756,004 sharesDigital Securities and require registration under the Securities Act and under state securities laws or can only be sold to 15,879,267 shares as of December 31, 2016. All per share amounts and outstanding shares of Common Stock including stock options, restricted stock and warrants,accredited investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been retroactively adjusted(or should be) limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in these consolidated financial statements for all periods presentedinitial coin offerings or from purchasers in such offerings. Further, the Company does not intend to reflectparticipate in registered or unregistered initial coin offerings. The Company will carefully review its purchases of Digital Securities to avoid violating the 1-for-60 Reverse Stock Split. Further, exercise prices1940 Act and seek to reduce potential liabilities under the federal securities laws.

Digital asset blockchains are typically maintained by a network of stock optionsparticipants which run servers which secure their blockchain.

The Company is also internally developing a digital asset data analytics platform to provide information to users, such as tracking of multiple exchanges and warrantswallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications.

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have been retroactively adjusted in these consolidated financial statements for all periods presented to reflect the 1-for-60 Reverse Stock Split. Numbers of shares of the Company’s preferred stock and convertible securities were not affected by the Reverse Stock Split; however, the conversion ratiosor may have been adjusted to reflect the Reverse Stock Split.greater resources than us.

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 unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management, 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 unaudited condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2016.2019.

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

The Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations since inception using proceeds received from capital contributions made by its officers and proceeds in financing transactions. On May 25, 2017, the Company raised $1 million in cash from four institutional investors in exchange for the issuance of 79,368 of a new class of Series C Convertible Preferred Stock (“Series C”) and three types of warrants as described below. The 79,368 Series C shares are initially convertible into 15,873,600 shares of common stock. The Series C is convertible at $0.07 per share or approximately $0.063 per share after giving effect to the additional $1,111,111. The Company is subject to a number of customary covenants and a restriction on the incurrence of indebtedness for one year. Within 120 days, the Company agreed to file a registration statement, now pending, which covers the common stock issuable upon exercise of the registrable securities described below. The registration statement covers 47,302,176 shares of common underlying the Series A Warrants, Additional Warrants, and Bonus Warrants. 15,873,600 Series A Warrants exercisable at $0.085 per share over a five-year period; 15,714,288 Additional Warrants exercisable at $0.085 per share over a period which is the earlier of (i) one-year after the effective date of a registration statement covering the warrant shares, or (ii) three years from the date of issuance. The Additional Warrants are callable by the Company for nominal consideration if the common stock trades above $0.17 per share and the daily volume is more than $50,000 for at least 20 trading days; 15,714,288 Bonus Warrants exercisable at $0.17 per share, over a three-year period. The Bonus Warrants are also callable for nominal consideration but the threshold price is more than $0.30 per share. The total gross proceeds raised were $1 million, with net proceeds of $925,114, after deducting the offering expenses. All of these securities are subject to price protection. For further information on these securities, see Note 9 – Subsequent Events.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Notwithstanding, the Company has limited revenues, limited capital resources and is subject to all of the risks and uncertainties that are typical of an early stage enterprise. Significant uncertainties include, among others, whether the Company will be able to raise the capital it needs to finance its longer termlonger-term operations and whether such operations, if launched, will enable the Company to sustain operations as a profitable enterprise.

BTCS Inc.

Notes to Unaudited Condensed Financial Statements

Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. The Company used approximately $0.9$0.3 million of cash in its operating activities for the sixthree months ended June 30, 2017.March 31, 2020. The Company incurred $34.6$0.4 million net loss for the sixthree months ended June 30, 2017.March 31, 2020. The Company had cash of approximately $17,000$0.3 million and a negative working capital deficiency of approximately $5.5$0.1 million at June 30, 2017, which includes $5.2 million for the fair value of derivative liabilities.March 31, 2020. 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 termlonger-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 equity financing, primarily through the Equity Line Purchase Agreement with Cavalry and seeking to obtain additional equity linked debt or equity financing, however there are currently no other commitments of debt or equity 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. See Note 9 – Subsequent Events.

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 for one year from the issuance of the financial statements. 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.

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

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 20162019 Annual Report.

ConcentrationDigital Assets Translations and Remeasurements

Digital Assets are included in current assets in the balance sheets. Digital Assets are recorded at cost less impairment.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of Cashthe asset. Subsequent reversal of impairment losses is not permitted.

Realized gain (loss) on sale of Digital Assets are included in other income (expense) in the statements of operations.

The Company maintains cash balances at two financial institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturitiesassesses impairment of three months or less when purchased to be cash and cash equivalents. As of June 30, 2017 and December 31, 2016, the Company had $17,000 and $95,000 in cash and cash equivalents. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Derivative Instruments

The Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in accordance with ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities, or ASC 815, as well as related interpretations of this topic. In accordance with this topic, derivative instruments and hybrid instruments are recognized as eitherassets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. We determineDigital Assets quarterly if the fair value of derivative instruments and hybrid instruments baseddigital assets is less than its cost basis. The Company recognizes impairment losses on available market dataDigital Assets caused by decreases in fair value using appropriate valuation models, giving consideration to allthe average U.S. dollar spot price of the rights and obligationsrelated Digital Asset as of each instrument. The Company used a Monte Carlo model to separately value the Warrants issued in connection with the convertible notes in order to take into account the possibility of an adjustment to the exercise price associated with new rounds of financingimpairment date. Such impairment in the future.

value of Digital Assets are recorded as a component of costs and expenses in our statements of operations.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Use of Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, stock-based compensation, the valuation of derivative liabilities, and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, if any, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Convertible Preferred StockBTCS Inc.

Notes to Unaudited Condensed Financial Statements

The Company has evaluated its convertible preferred stock and warrants in accordance with the provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date.

Net Loss per Share

Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock, convertible notes and warrants (using the if-converted method).warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, and the exercise of stock optionsnotes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2017March 31, 2020 and 20162019 because their effect was anti-dilutive:

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (the 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 consolidated financial statements and related disclosures.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

In February 2016, the FASB issued ASU No. 2016-02, Leases (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. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. The amendments in ASU 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2016-08 on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective on January 1, 2020. Early adoption will be available on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

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 consolidated statements of cash flows.

In January 2017, FASB issued ASU No. 2017-01, “Business Combinations – Clarifying the Definition of a Business” (Topic 805) (“ASU No. 2017-01”). ASU 2017-01 provides a framework to use in determining when a set of assets and activities is a business. ASU 2017-01 provides more consistency in applying the business combination guidance, reduces the costs of application, and makes the definition of a business more operable. ASU 2017-01 is effective for interim and annual periods within those annual periods beginning after December 15, 2017. The Company is currently evaluating the impact ASU 2017-01 will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09,Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the consolidated financial statements and disclosures, but does not expect it to have a significant impact.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

In July 2017,2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standardsstandards Update (“ASU”) No. 2017-11,Earnings Per Share2019-12, “Income Taxes (Topic 260)740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).The amendments in Part I of this Update change the classification analysis ofwhich is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subjectexceptions to the specializedgeneral principles in Topic 740 and also clarifies and amends existing guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPSto improve consistent application. This guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update areis effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early2020, with early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.permitted. The Company is currently evaluating the impact of adopting this standard on the consolidatedits financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Note 5 - Fair Value MeasurementsNote Payable

On November 7, 2019, the Company issued a $200,000 promissory note (the “2019 Promissory Note”). The 2019 Promissory Note is due on August 7, 2020 and is: (i) convertible at a 20% discount to the closing price of the Company’s assetscommon stock on the date before exercise with a floor price of $0.02 per share, (ii) shall bear interest at 12% per annum (payable at maturity) and liabilitiesin the event of default bears interest at a rate of 20%, (iii) convertible at the Company’s option subject to certain limitations as set forth in the 2019 Promissory Note, and (iv) may be prepaid by the Company. During the year ended December 31, 2019, the Company recorded approximately $10,000 in interest expense related to amortization on debt discount related to the 2019 Promissory Note. As of December 31, 2019, the Convertible Note had principal balance of $0.2 million, accrued interest on the note payable of approximately $4,000 and approximately $40,000 remaining unamortized debt discount. In addition, the Convertible Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the Convertible Note was convertible into 2,173,913 shares of common stock at $0.09 per share, but the Company’s fair value have been categorized based uponof underlying common stock was $0.12 per share. As such, the Company recognized a fair value hierarchy.

The following table presents information aboutbeneficial conversion feature, resulting in a discount to the Company’s liabilities measured at fair value onNotes of approximately $50,000 with a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of June 30, 2017 and December 31, 2016:

There were no transfers between Level 1, 2 or 3 duringcorresponding credit to additional paid-in capital. During the three months ended June 30, 2017.March 31, 2020, the Company recorded approximately $17,000 in interest expense related to amortization on debt discount related to the 2019 Promissory Note.

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 determineDuring the fair value of positions thatthree months ended March 31, 2020, the Company has classified withinrecorded interest expense of approximately $6,000. As of March 31, 2020, the Level 3 category. As a result,principal balance of the unrealized gains2019 Promissory Note was $0.2 million and losses for assets and liabilities withinaccrued interest on the Level 3 category may include changes in fair value that were attributablenote payable amounted to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.approximately $9,000.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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 six months ended June 30, 2017 is as follows:

Warrant Liabilities

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 6 - Related Party Transactions

On January 30, 2017, the Company received 24,000,000 pre-split shares (400,000 shares post-split) of Common Stock for cancelation for no consideration (the “Escrow Shares”). The Escrow Shares were placed in escrow by Charles Allen our Chief Executive Officer, Chief Financial Officer and Chairman, and Michal Handerhan, our Chief Operating Officer and corporate secretary (collectively, the “Principal Stockholders”) pursuant to a securities escrow agreement dated February 19, 2016 (the “Securities Escrow Agreement”). The Company recorded an adjustment to additional paid-in capital for $400 related to this transaction.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 7 - Notes Payable

On March 9, 2017, the Company completed a securities exchange offer (the “Note Offer”) with its three convertible note holders (the “Note Holders”). Pursuant to the Note Offer the Note Holders agreed to exchange i) $868,897 of 5% Original Issue Discount 10% Senior Convertible Note Due September 16, 2016, originally issued in December 2015 and all accrued interest and liquidated damages owed (collectively the “Senior Notes”), ii) $175,000 of 20% Original Issue Discount Junior Convertible Notes Due December 5, 2016, originally issued in June 2016 and all accrued interest and liquidated damages owed (collectively the “Junior Notes”), iii) $220,002 of 8% Convertible Notes Due June 6, 2017, originally issued in December 2016 and all accrued interest owed (collectively the “Convertible Notes”), and iv) 97,423,579 warrants (the “Senior Warrants”) for 845,631 shares of Series B Convertible Preferred Stock (the “Preferred”). After giving effect to the Note Offer the Company no longer had any Senior Notes, Junior Notes or Convertible Notes outstanding. A gain of $15.9 million was booked for the extinguishment of $90.2 million liabilities associated with convertible notes, warrant liabilities, shortfall shares liabilities and liquidated damages.

Note 86 - Stockholders’ Equity

Reverse Stock Split and Amendment to Certificate of Incorporation

On February 13, 2017,September 5, 2019, the Company filed a Certificate of Amendmentsecond Registration Statement on Form S-1 seeking to its Articles of Incorporation withregister 6,454,000 shares. The second Registration Statement was declared effective by the Secretary of State of Nevada to implement a reverse stock split at a ratio of one-for-60. The reverse stock split became effective immediately. See note 1 – Business Organization and Nature of Operations.SEC on December 20, 2019.

2017 Activities

On February 28, 2017,During the three months ended March 31, 2020, Company issued 4,3706,186,633 shares of Common Stock in connection with(including 24,219 pro-rata commitment shares) under the one-for-60 reverse stock split resulting from the rounding up of fractional shares of Common Stock to the whole shares of Common Stock.

On March 9, 2017, as a result of the Note Offer (described in Note 7) becoming effective, a securities exchange offer made to the Company’s January 19, 2015 investors (the “January Offer”) was accepted by certain of those investors (the “January Investors”). Pursuant to the January Offer the January Investors agreed to exchange i) 12,052,344 shares of common stock owed pursuant to the favored nations provision of the January 19, 2015 subscription agreement (the “January Agreement”), and ii) 30,130,861 warrants owed pursuant to the favored nations provision of the January Agreement for 210,919 shares of Preferred.

On March 9, 2017, as a result of the Note Offer (described in Note 7) becoming effective, a securities exchange offer made to the Company’s April 19, 2015 investors (the “April Offer”) was accepted by certain of those investors (the “April Investors”). Pursuant to the April Offer, the April Investors agreed to exchange i) 20,110,699 shares of Common Stock owed pursuant to the favored nations provision of the April 19, 2015 subscription agreement (the “April Agreement”), and ii) 28,154,980 warrants owed pursuant to the favored nations provision of the April Agreement for 104,391 shares of Preferred.

On March 15, 2017, the Company issued investors who participated in its: i) January 19, 2015 financing and rejected the January Offer, and ii) April 19, 2015 financing and rejected the April Offer an aggregate of 14,517,352 share of Common Stock and 112,782,487 warrants. The Common Stock and warrant issuances were made pursuant to the favored nations provision of the January Agreement and April Agreement.

On March 15, 2017, the Company filed a Certificate of Designation for the Preferred with the Secretary of State of the State of Nevada. The Preferred Certificate of Designation provides authorization for the issuance of 1,160,941 shares of Preferred, par value $0.001.

On March 22, 2017, the Company entered into a Settlement Agreement and Note (the “CSC Agreement”) with CSC Leasing Company (“CSC”) with respect to the equipment lease schedule entered into between CSC and the Company (the “CSC Lease”). Pursuant to the CSC Agreement the Company has agreed to: i) issue CSC 833,333 shares valued at $61,667 of the Company’s common stock (the “Shares”), and ii) pay CSC $200,000 (the “Cash Payment”).

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

On April 4, 2017, the Company entered into a SettlementPurchase Agreement with RK Equity Advisors, LLC and Pickwick Capital Partners, LLC with respect to the tail provisionCavalry resulting in aggregate proceeds of the Engagement Letter dated August 19, 2015. Pursuant to the Settlement Agreement the Company has agreed to: i) terminate the Engagement Letter including all provisions thereof and including any obligations to future fees, and ii) convert the Estimated Liability into 125,000 shares of common stock of the Company, par value $0.001 per share at a price of $0.10 per share. The total value of this transaction is $10,000.approximately $0.4 million

On May 25, 2017, the Company raised $1 million in cash from four institutional investors in exchange for the issuance of $1,111,111 of of Series C. See Note 3- Liquidity, Financial Condition and Management’s Plans.

Between March 15, 2017 and June 30, 2017, the Company issued 24,628,136 shares of Common Stock for the cashless exercise of 37,948,307 warrants.

Between March 28, 2017 and June 30, 2017, the Company issued 32,402,600 shares of Common Stock upon the conversion of 162,013 shares of Series B Convertible Preferred stock.

Note 97 - Subsequent Events

Between July 1, 2017 and October 13, 2017,On April 6, 2020, the Company issued 56,572,046a total of 735,294 shares of the Company’s Common Stock for the cashless exerciseconversion of 72,527,119 warrants.$50,000 of principal on the 2019 Promissory Note. 

Between July 1, 2017 and October 18, 2017,On April 17, 2020, the Company issued 56,148,800 shares of Common Stock uponCavalry Fund I LP (the “Fund”) a $500,000 promissory note (the “2020 Promissory Note”) in consideration for $500,000. The Promissory Note is (i) due on February 17, 2021, (ii) convertible at a 35% discount to the conversion of 280,744 shares of Series B Convertible Preferred stock.

On October 10, 2017, BTCS Inc. (the “Company”) entered into a Securities Purchase Agreement with four investors who committed $750,000 in cash and $250,000 in bitcoin in exchange for a new class of Series C-1 Convertible Preferred Stock (the “Series C-1”) and Series B Warrants exercisable at $0.135 per share (the “October Financing”). The Series C-1 is initially convertible into sharesclosing price of the Company’s common stock on the date before exercise with a floor price of $0.01 per share and (iii) shall bear interest at an effective price $0.08512% per share. Bothannum (payable at maturity). Subject to certain limitations, the Series C-1 and Series B Warrants are subject to adjustment in the event of future salesCompany may force conversion of the Company’s equity securities or common stock equivalents at a lower price, subject to elimination of the price protection on the Exchange Date (which is defined and described below).2020 Promissory Note.

The investors are three institutional investors who were also investors in the Company’sOn May 2017 Series C financing (the “May Financing”) and the Australian entity which7, 2020, the Company previously announced that it had entered intoissued a non-binding lettertotal of intent to merge with (the “Proposed Merger”); this investor made its $250,000 investment in bitcoin (59.381 BTC). The Proposed Merger is still pending and subject to the same contingencies previously announced. Further, the Company can provide no assurances or guarantees it will be able to consummate the Proposed Merger. The terms of the Series C-1 and the Series B Warrants are essentially identical to the May Financing, except that the May Financing had three types of warrants rather than one. The offering is continuing up to a maximum of $1,500,000 in cash, bitcoin and/or ethereum.

At the closing of the October Financing, the institutional investors agreed to release $100,000 from escrow in order to permit the Company to pay its auditors and other expenses (the “First Closing”). Charles Allen, our Chairman, Chief Executive Officer and Chief Financial Officer and Michal Handerhan our Chief Operating Officer (collectively the “Officers”) did not receive any proceeds from the First Closing towards owed out of pocket expenses of approximately $13,000 and accrued and unpaid salaries of approximately $110,000 associated with the Company’s failure to make payroll since July 1, 2017. If the Company does not file this Report (the “10Q”) by October 24^th, the remaining $650,000 of cash (which is being held in escrow) and $250,000 of bitcoin (held by the Company) (collectively the “Remaining Funds”) will be returned to the investors; however, one institutional investor has the power to extend this two week period if it determines the Company is making progress with regard to the 10-Q filing. If the Company files the 10Q prior to October 24^th (as extended) then the escrow agent will release the Remaining Funds to the Company and the Company will have no obligation to return any funds (the “Second Closing”). The Company subsequently received another $100,000 from an institutional investor which is presently being held in escrow pending the filing of the 10-Q. The following table details the total number of632,736 shares of the Company’s common stock potentially issuable as a resultCommon Stock for the conversion of the October Financing.

remaining $150,000 of principal and $2,000 of interest on the 2019 Promissory Note. 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”)SEC on JuneMarch 23, 2017.2020.

Overview

During the past year, we have worked with certain investors to eliminate our debt and raise capital. While we need to raise additional capital, our goal is to re-enterWe are an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital Assets business onceand block chain technologies. To our knowledge, we are ableone of a few public companies intending to raiseacquire both Digital Assets and a controlling interest in one or more businesses in the necessary capital.Digital Asset and blockchain industries.

Digital Asset Initiatives

Subject to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets that appear to benefit our investors, subject to the limitations contained within this report regarding Digital Securities. As of May 8, 2020, the Company had the following Digital Assets:

The Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be) limited to accredited investors. Because we cannot assure youqualify as an accredited investor, we do not intend to acquire coins in initial coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered initial coin offerings. The Company will carefully review its purchases of Digital Securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

The market is rapidly evolving and there can be no assurances that we will be successfulcompetitive with industry participants that have or may have greater resources than us.

Digital Asset Data Analytics Platform

We are also focused on Digital Assets and blockchain technologies. We are currently internally developing a digital asset data analytics platform aimed at aggregating users’ information, such as tracking of multiple exchanges and wallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications. The platform utilizes digital asset exchange APIs to read user data and does not allow for the trading of assets.

Acquisition Initiatives

The Company is also seeking to acquire controlling interests in raisingbusinesses in the capitalblockchain industry as further described in this report. We plan to continue to evaluate other strategic opportunities including acquiring controlling interests in business in this rapidly evolving sector in an effort to enhance shareholder value.

Even though the prices of Digital Assets have been subject to substantial volatility and there remains some regulatory uncertainty, we believe that businesses using blockchain technology and those involved with Digital Assets such as bitcoin and ether, offer upside opportunity and are the types of opportunities that we may pursue.

Our current framework or assuming we can, be able to develop a successful business. Assuming we file the 10-Q and close the C-1 financing, our goalcriteria is to closeseek and evaluate acquisition targets in the proposed merger with the Australianblockchain and Digital Asset company.sector which (i) align with our business model of acquiring Digital Assets or acquiring a controlling interest in one or more blockchain technology related business ventures, and (ii) have sufficient capital to provide working capital. As disclosed in this report we have limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may help us sustain our operations without having us rely on toxic funding structures. Our acquisition activities are spearheaded by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, one of our independent directors who is also seeking acquisition targets on behalf of the Company.

We also monitor blockchain networks and may consider re-entering the digital asset mining business if and when we believe a positive return on investment is achievable. However, given the current network difficulties and price levels to mine both bitcoin and ethereum we do not believe mining offers a positive return on investment at present and have no immediate plans to resume mining.

Going Concern

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, our independent auditors have indicated in their report on our December 31, 20162019 financial statements that there is substantial doubt about our ability to continue as a going concern.

The continuation of our business is dependent upon us raising additional financial support.funds. The issuance of additional equity or convertible debt securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

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 intends to acquire digital assets 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 through outsourced data centers and earning rewards in digital assets by securing their respective blockchains.

We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue.capital raises. While we continue to implement our business strategy, we intend to finance our activities through:

Results of Operations for the Three Months Ended June 30, 2017March 31, 2020 and 20162019

The following table reflects our operating results for the three months ended June 30, 2017March 31, 2020 and 2016:

Revenues2019:

Revenues for the three months ended June 30, 2017 and 2016 were approximately $400 and $142,000, respectively. Revenues represent net revenue earned from the processing of customer transactions through our ecommerce website, through fees earned from our transaction verification service business, and fees charged for hosting services. The decrease of approximately $141,000 in our revenues is mainly a result of the Company suspending its operations at its North Carolina transaction verification services facility in July 2016.

Power and Mining Expenses

Power and mining expenses for the three months ended June 30, 2017 and 2016 were approximately $0 and $115,000, respectively. The decrease 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. Our electricity cost is a variable expense subject to certain demand charges which change based upon on and off peak usage and seasonal billing rates. Our power consumption and resulting electricity cost is determined by the power settings of our transaction verification servers and other ancillary equipment used in the building.

Operating Expenses

Operating expenses for the three months ended June 30, 2017March 31, 2020 and 20162019 were approximately $215,000 and $614,000, respectively. The decrease in operating expenses over the prior year mostly relates to decreases in impairment loss on fixed asset. We impaired all fixed assets and recorded an approximately $241,000 impairment charge during the three months ended June 30, 2016. General and administrative expense also decreases and is primarily due to a $84,000 decrease in depreciation expense after impairment loss on fixed assets in June 2016. The decrease is also a result of the fact that we used less services.

Other Income (Expenses)

Other income for the three months ended June 30, 2017 was approximately $0.8 million and other expenses for the three months ended June 30, 2016 was approximately $27.6 million. The decrease in other expenses over the prior year primarily relates to gain on settlement of derivative liability of $2.1 million, decreases in fair value adjustments for derivative liability shortfall of shares of $14.5 million, fair value adjustments for warrant liabilities of $11.2 million, fair value adjustments for convertible notes of $0.4 million and loss on extinguishment of debt of $2.5 million, and is offset by the increase in loss on issuance of Preferred C of $2.8 million, all of which are non-cash expenses.

Net Income (Loss)

Net income for the three months ended June 30, 2017 was approximately $0.6 million and net loss for the three months ended June 30, 2016 was $28.1 million. The decrease in net loss for the three months ended June 30, 2017 resulted primarily from decreases in fair value adjustments for derivative liability shortfall of shares of $14.5 million, fair value adjustments for warrant liabilities of $11.2 million, fair value adjustments for convertible notes of $0.4 million and loss on extinguishment of debt of $2.5 million, and is offset by the increase in loss on issuance of Preferred C of $2.8$0.3 million.

Results of Operations for the Six Months Ended June 30, 2017 and 2016

The following table reflects our operating results for the six months ended June 30, 2017 and 2016:

Power and Mining Expenses

Power and mining expenses for the six months ended June 30, 2017 and 2016 were approximately $0 and $229,000, respectively. The decrease 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. Our electricity cost is a variable expense subject to certain demand charges which change based upon on and off peak usage and seasonal billing rates. Our power consumption and resulting electricity cost is determined by the power settings of our transaction verification servers and other ancillary equipment used in the building.

Operating Expenses

Operating expenses for the six months ended June 30, 2017 and 2016 were approximately $0.4 million and $1.0 million, respectively. The decrease in operating expenses over the prior year mostly relates to decreases in impairment loss on fixed asset. We impaired all fixed assets and recorded an approximately $241,000 impairment charge during the six months ended June 30, 2016. General and administrative expense also decreases and is primarily due to a $177,000 decrease in depreciation expense after impairment loss on fixed assets in June 2016. The decrease is also a result of the fact that we used less services.

Other ExpensesExpense

Other expense for the sixthree months ended June 30, 2017March 31, 2020 and 20162019 was approximately $34.2 million$97,000 and $29.3 million,$6,000, respectively. The increase in other expenses over the prior yearexpense primarily relates to increasesincrease in fair value adjustments for warrant liabilities of $22.5 million, fair value adjustments for convertible notes of $16.5 millioninterest expense and impairment loss on issuance of Preferred C of $2.8 million, and is offset by gain on settlement of derivative liability of $2.1 million, increase in gain on extinguishment of debt of $18.4 million, and decrease in fair value adjustments for derivative liability shortfall of shares of $14.5 million, all of which are non-cash expenses.digital currencies.

Net Lossloss attributable to common stockholders

Net loss forWe incurred $0 and $95,708 of deemed dividend related to reduction of warrant strike price during the sixthree months ended June 30, 2017March 31, 2020 and 2016 was approximately $34.6 million and $30.2 million,2019, respectively. The decrease in net loss for the six months ended June 30, 2017 resulted primarily from increases in fair value adjustments for warrant liabilities of $22.5 million, fair value adjustments for convertible notes of $16.5 million and loss on issuance of Preferred C of $2.8 million, and is offset by gain on settlement of derivative liability of $2.1 million, increase in gain on extinguishment of debt of $18.4 million, and decrease in fair value adjustments for derivative liability shortfall of shares of $14.5 million.

Liquidity and Capital Resources

Net Cash from Operating Activities

Net cash used in operating activities was approximately $1.0$0.3 million for the sixthree months ended June 30, 2017.March 31, 2020. Net cash used in operating activities for the sixthree months ended June 30, 2017March 31, 2020 was primarily driven by a $34.6$0.4 million net loss and gain on extinguishment of debt of $15.9 million,partially offset by $31.7 million of fair value adjustment for warrant liabilities, $16.8 million of fair value adjustment for convertible notes and $2.8 million ofimpairment loss on issuancedigital currencies of Preferred C.$74,000.

Net cash used in operating activities was approximately $587,000$0.2 million for the sixthree months ended June 30, 2016.March 31, 2019. Net cash used in continuing operationsoperating activities for the sixthree months ended June 30, 2016March 31, 2019 was primarily driven by a $30.2$0.3 million net loss and partially offset by $14.5 millionchanges in operating assets and liabilities of fair value adjustments for derivative liability shortfall of shares, $9.2 million of fair value adjustment for warrant liabilities, $2.5 million loss on extinguishment of debt and $2.3 million of impairment loss related to our investment.$55,000.

Net Cash from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2017 was approximately $1,500 for purchase of property and equipment.

Net cash provided by investing activities from continuing operations for the six months ended June 30, 2016 was approximately $337,000 and primarily due to a refund of lease deposit of $301,000.

Net Cash from Financing Activities

Net cash provided by financing activities was approximately $871,000 for the six months ended June 30, 2017. On May 25, 2017, we received a net $925,114 from four institutional investors in exchange for the issuance of a new class of Series C Convertible Preferred Stock and three types of warrants. We also paid a note holder $54,000 to settle the 2% Promissory Note issued on January 19, 2015.

Net cash provided by financing activities was approximately $192,000$0.4 million for the sixthree months ended June 30, 2016. On June 6, 2016, we received a net $100,000 from issuance of Junior Notes after giving effect to the 20% original issue discount.March 31, 2020. During the sixthree months ended June 30, 2016, weMarch 31, 2020, Company issued 4,125,0006,186,633 shares of Common Stock (including 24,219 pro-rata commitment shares) under the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $0.4 million.

Net cash provided by financing activities was approximately $0.2 million for the three months ended March 31, 2019. It was provided from proceeds from exercise of warrants. During the three months ended March 31, 2019, the Company issued 725,564 shares of Common Stock for the cash exercise of warrantsSeries A Warrants, Additional Warrants, and Bonus Warrants resulting in aggregate proceeds of approximately $92,000.$228,000 to us.

Liquidity

Liquidity

As of May 8, 2020, the Company had approximately $400,286 of cash.

On June 30, 2017,March 31, 2020, we had current assets of approximately $45,000$0.5 million and current liabilities of approximately $5.5$0.6 million, rendering a deficit ofnegative working capital of approximately $5.5$0.1 million.

Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. The Company used approximately $0.3 million which includes $5.2 millionof cash in its operating activities for the non-cash fair value of derivative liabilities. On May 25, 2017, thethree months ended March 31, 2020. The Company raised $1incurred a $0.4 million in cash from four institutional investors in exchangenet loss for the issuancethree months ended March 31, 2020. The Company had cash of 79,368approximately $0.3 million and negative working capital of a new class of Series C Convertible Preferred Stock (“Series C”) and three types of warrants.approximately $0.1 million at March 31, 2020. The total gross proceeds raised was $1 million, with net proceeds of $925,114, after deductingCompany expects to incur losses into the offering expenses.foreseeable future as it undertakes its efforts to execute its business plans.

As described in Note 9 – Subsequent Events, we closed on $100,000 in the October Financing which enabled us to pay for consultants and our auditors to file this Report and the escrow agent is presently holding $750,000 pending the filing of this Report. Upon the filing by October 24^th (or an extended date, if any), we will receive the $750,000 and not have an obligation to return the $250,000 in bitcoin (59.38 bitcoins).

As of the date of this Report, we have approximately $5,200 in available cash, and 58.36 bitcoins (assuming timely filing and elimination of the obligation to return the bitcoin). We then will have sufficient resources to pay the costs associated with the proposed merger and pay our management accrued and future compensation through the anticipated closing date of late 2017.

If we fail to close the proposed merger prior to the end of 2017, we will not have sufficient capital to meet our expenses over the 12 months from then date of this Report. We will require significant additional capital to sustain short-term operations and make the investments needed to execute our longer termlonger-term business plan. Our existing liquidity is not sufficient to fund operations and anticipated capital expenditures for the foreseeable future, and we do not have sufficient cash resources to support our current operations for the next 12 months, and will need additional funding, whether through our $10 million Purchase Agreement or other sources, to resume revenue generating activities. If we attempt to obtain additional debt or equity financing, we cannot provide assurance that such financing will be available to us on favorable terms, if at all. Additionally, if we are able to get a Registration Statement registering shares under the $10 million Purchase Agreement effective, we cannot provide assurance that i) we will be able to keep it current in order to sell shares under the agreement, or ii) that number of shares we are allowed to register pursuant to Rule 415 will generate sufficient proceeds to cover the cost of registering such shares.

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

We continue to incur ongoing administrative and other expenses, including public company expenses, primarily accounting and legal fees, in excess of corresponding (non-financing related) revenue. While we continue to implement its business strategy, it intends to finance its activities through:

Off Balance Sheet Transactions

We are not a party to any off balanceoff-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

Principal Accounting Estimates

In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its most subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on the Company’s financial condition. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.

There were no material changes to our principal accounting estimates during the period covered by this report.

RECENT ACCOUNTING PRONOUNCEMENTS

For information on recent accounting pronouncements, see Note 4 to the Unaudited ConsolidatedCondensed Financial Statements.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements including our liquidity.liquidity and future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the market for microcap companies and our ability to effect a reverse stock split and capital increase as publicly disclosed.

Further information on our risk factors isare contained in our filings with the SEC, including our 2019 Annual Report on Form S-1, as it may be amended.10-K filed with the SEC on March 23, 2020. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2017March 31, 2020 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of June 30, 2017,March 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weaknesses in our internal control over financial reporting:

On September 17, 2018, the Board of Directors of the Company concluded that due to ineffective controls we failed to follow GAAP in accounting for our digital assets. This failure arose from a material weakness which required us to restate our financial statements for the nine months ended September 30, 2018 as well as two other periods. Further, in April 2020, the Company received an oral comment from the Staff of the SEC regarding the classification of Digital Asset transactions as an Investing Activity in its Cash Flow Statement within the Company’s Form 10-K for the year ended December 31, 2019 (“Form 10-K). Prior to the filing of the Form 10-K, in response to a prior SEC comment, the Company agreed to include Digital Assets transactions in its future filings as an Operating Activity but failed to do so in the Form 10-K. The Company intends to amend the Form 10-K to reclassify Digital Asset transactions from an Investing Activity to an Operating Activity on the Cash Flow Statement. 

Remediation Plan

When we have sufficient capital resources, we intend to hire additional accounting staff, and operations and administrative executives and remediate each of the weaknesses in our disclosure controls and internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 Legal Proceedings

None.

ITEM 1A Risk Factors

Not applicable to smaller reporting companies.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3 Defaults Upon Senior Securities

None.

ITEM 4 Mine Safety Disclosures

Not applicable.

ITEM 5 Other Information

None.

ITEM 6 Exhibits

The exhibits listed in the accompanying “Index to Exhibits”“Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX