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, 2023

[  ] or

☐TRANSITION REPORT PURSUANT TOUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________._______________.

Commission file number: 000-55141001-40792

BTCS Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (202) (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:

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. ☒ 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 9, 2023, there were 200,710,953 13,830,303shares of common stock, par value $0.001, issued and outstanding.

BTCS INC.

TABLE OF CONTENTS

BTCS INC.

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc., unless otherwise indicated.

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. Readers should review our risk factors in our filings with the Securities and Exchange Commission including our Form S-1 filed on August 10, 2017, as it may be amended.

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’ Equity

(Unaudited)

For the Three months Ended March 31, 2023

For the Three months Ended March 31, 2022

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

BTCS Inc.

Statements of Cash Flows

(Unaudited)

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

The accompanying notes are an integral part of these unaudited condensed 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(“BTCS” or 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 bitcoin2008 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 Digitalcrypto asset (also referred to “cryptocurrencies”, “crypto”, or “tokens”) market with a primary focus on blockchain infrastructure and staking. The Company operates validator nodes on various proof-of-stake (“PoS”) and delegated proof-of-stake (“DPoS”) based blockchain networks and stakes the native crypto assets on those blockchains to earn rewards. The Company’s Staking-as-a-Service (“StaaS”) business allows crypto asset holders to earn rewards by participating in network consensus mechanisms through staking and delegating their crypto assets to Company-operated validator nodes (or “nodes”). The Company believes that StaaS provides a more accessible and cost-effective way for crypto asset holders to participate in blockchain networks’ consensus mechanisms, thereby promoting the growth and adoption of blockchain technology. The Company’s recently launched StakeSeeker platform (the “Digital Asset marketPlatform”), currently in beta, is a comprehensive crypto dashboard and oneeducation center designed to empower users to better understand and grow their crypto holdings with innovative portfolio analytics and a non-custodial process to earn staking rewards through direct participation in blockchain consensus algorithms.

The Company’s business is subject to various risks and uncertainties, including risks associated with the evolving regulatory landscape for crypto assets, risks associated with the volatility of crypto asset prices, and risks associated with the development and adoption of blockchain technology. The Company’s future success is dependent on various factors, including the growth of the first U.S. publicly traded companiescrypto asset market, the adoption of blockchain technology, and the Company’s ability to be involved with Digital Assetseffectively operate and grow its blockchain technologies. Subject to additional financing, theinfrastructure operations and StaaS business.

The Company plans to create a portfolioexpand its PoS operations to secure other disruptive blockchain protocols that also allow for delegating and asset leveraging. The growth of digital assets including bitcoinboth StakeSeeker’s user base as well as the number and other “protocol tokens”size of staked cryptocurrencies by delegators to provide investors a diversified pure-play exposureCompany-run validator nodes are critical to the bitcoinCompany’s strategy and blockchain industries. The Company intends to acquire digital assets through: open market purchases and 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.success.

Reverse Stock Split and Amendment to CertificateArticles of Incorporation

On February 13, 2017,August 12, 2021, the Company filed a Certificate of Amendment to its Articles of IncorporationChange with the Nevada Secretary of State to affect a 1-for-10 reverse splitof Nevada to implement a reverse stock split at a ratiothe Company’s class of one-for-60.Common Stock (the “Reverse Split”). The reverse stock splitCertificate of Change became effective immediately.on August 13, 2021.

TheNo fractional shares were issued in connection with the Reverse Stock Split reducedand all such fractional interests were rounded up to the nearest whole number of outstandingshares of Common Stock. The Company now has 97,500,000 shares of Common Stock from 952,756,004 shares 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, have been retroactively adjusted in these consolidated financial statements for all periods presented to reflect the 1-for-60 Reverse Stock Split. Further, exercise prices of stock options and warrants have been retroactively adjusted in these consolidated financial statements for all periods presented to reflect the 1-for-60 Reverse Stock Split.authorized. Numbers of shares of the Company’s preferred stock and convertible securities were not affected by the Reverse Stock Split; however, the conversion ratios have been adjusted to reflect the Reverse Stock Split. The financial statements and notes to the financial statements have been retroactively restated to reflect the Reverse Split.

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 theInterim results of operations for the periods presented have been included. Interim resultsthree months ended March 31, 2023 are not necessarily indicative of results for athe full year.year ended December 31, 2023. 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, 2016.2022.

Note 43 - Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 20162022 Annual Report.

Basis of presentation

The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

Reclassifications

Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported net income (loss).

Concentration of Cash

The Company maintains cash balances at twofour financial institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturities of threesix months or less when purchased to be cash and cash equivalents. As of June 30, 2017March 31, 2023 and December 31, 2016,2022, the Company had $17,000approximately $1.4 million and $95,000$2.1 million in cash and cash equivalents.cash. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Derivative InstrumentsFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of March 31, 2023 and December 31, 2022, the Company had approximately $0.7 million and $1.7 million in excess of the FDIC insured limit, respectively.

Revenue Recognition

The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through staking rewards.

The Company has entered into network-based smart contracts by running its own crypto asset validator nodes as well as by staking crypto assets on nodes run by third-party operators (either directly or through crypto exchanges). Through these contracts, the Company provides cryptocurrency to stake on a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is canceled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for staking the cryptocurrency and validating transactions on blockchain networks, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and is entitled to a fractional share of the fixed cryptocurrency award a third-party node operator receives (less crypto asset transaction fees payable to the node operator or exchanges, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain. The Company’s fractional share of awards received from delegating to a third-party validator node is based on the proportion of cryptocurrency the Company staked to the node to the total cryptocurrency staked by delegators to the node.

The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives - the cryptocurrency award - is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized.

Cost of Revenue

The Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in software maintenance and operations of its nodes.

Crypto Assets Translations and Remeasurements

The Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative featuresits crypto assets as indefinite-lived intangible assets in accordance with ASC Topic 815, Accounting350, Intangibles – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized but assessed for Derivative Instrumentsimpairment 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 the asset. Subsequent reversal of impairment losses is not permitted.

Crypto assets held are included in the balance sheets as either current assets or other assets if they are staked and Hedging Activities,locked up for over one year. The Company’s crypto assets are initially recorded at fair value upon receipt (or “carrying value”). The fair value of crypto assets is determined using the U.S. dollar spot price of the related crypto asset. On a quarterly basis, crypto assets are measured at carrying value, net of any impairment losses incurred since receipt. The Company will record impairment losses as the fair value falls below the carrying value of the crypto assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related crypto asset subsequent to its acquisition. The crypto assets can only be marked down when impaired and not marked up when their value increases.

Such impairment in the value of crypto assets is recorded as a component of costs and expenses in our Statements of Operations. The Company recorded impairment losses related to crypto assets of approximately $95,000 and $3.3 million during the three months ended March 31, 2023, and 2022, respectively.

Impairment losses cannot be recovered for any subsequent increase in fair value until the sale or disposal of the asset. Realized gain (loss) on sale of crypto assets are included in other income (expense) in the Statements of Operations. The Company recorded realized gains (losses) on crypto assets of approximately $17,000 and $71,000 during the three months ended March 31, 2023 and 2022, respectively.

The presentation of purchases and sales of crypto assets on the Statement of Cash Flows is determined by the nature of the crypto assets, which can be characterized as productive (i.e. purchased for purposes of staking) or non-productive. The purchase of non-productive crypto assets and currencies are included as an operating activity, whereas the purchase of productive crypto assets and currencies are included as investing activities in accordance with ASC 815,230-10-20 Investing activities. Productive crypto assets that are staked with a lock-up period of less than 12 months are presented on the Balance Sheet as current assets. Staked crypto assets with remaining lock-up periods of greater than 12 months are presented as long-term other assets on the Balance Sheet.

Internally Developed Software

Internally developed software consists of the core technology of the Company’s Digital Asset Platform, which is being designed to allow users to track, monitor and analyze their aggregate cryptocurrency portfolio holdings by connecting their crypto exchanges and digital wallets as well as related interpretationsproviding a non-custodial delegation process to earn staking rewards on crypto asset holdings. For internally developed software, the Company uses both its own employees as well as the services of this topic. Inexternal vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

ASC 985-20, Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. Some companies use a “tested working model” approach to establishing technological feasibility (i.e., beta version). Under this topic, derivative instrumentsapproach, software under development will pass the technological feasibility milestone when the Company has completed a version that contains essentially all the functionality and hybrid instrumentsfeatures of the final version and has tested the version to ensure that it works as expected.

ASC 350, Intangibles-Goodwill and Other, requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are recognizedmet. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as eitherassets or liabilities inincurred. Certain qualifying costs incurred during the balance sheetapplication development stage are capitalized as property, equipment and are measured at fair valuessoftware. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary project stage is complete, (ii) management with gains or losses recognized in earnings. Embedded derivatives that are not clearlythe relevant authority authorizes and closely relatedcommits to the host contract are bifurcatedfunding of the software project, and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. We determine(iii) it is probable both that the fair valueproject will be completed, and that the software will be used to perform the function intended.

Property and Equipment

Property and equipment consists of derivative instrumentscomputer, equipment and hybrid instruments based on available market data using appropriate valuation models, giving consideration tooffice furniture and fixtures, all of which are recorded at cost. Depreciation and amortization are recorded using the rights and obligationsstraight-line method over the respective useful lives of each instrument. The Company used a Monte Carlo modelthe assets ranging from three to separately valuefive years. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the Warrants issued in connection with the convertible notes in order to take into account the possibilitycarrying amount of an adjustment to the exercise price associated with new rounds of financing in the future.these assets may not be recoverable.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).U.S. 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-livedindefinite life intangible 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 indefinite life intangible assets, 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 StockIncome Taxes

The Company has evaluatedrecognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in its convertible preferred stocktax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized. Should they occur, the Company’s policy is to classify interest and penalties related to tax positions as income tax expense. Since the Company’s inception, no such interest or penalties have been incurred.

Accounting for Warrants

The Company accounts for the issuance of Common Stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of ASC 815, Derivatives and Hedging including consideration(“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of embedded derivatives requiring bifurcation.net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, Under ASC 815, registered Common Stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the convertible preferredbalance sheet as a current liability.

The Company assessed the classification of Common Stock purchase warrants as of the date of each offering and determined that such instruments originally met the criteria for equity classification; however, as a result of the Company no longer being in control of whether the warrants may be cash settled, the instruments no longer qualify for equity classification. Accordingly, the Company classified the warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liabilities” in the statements of operations. The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 4).

Stock-based compensation

The Company accounts for stock-based compensation in accordance with ASC 718 Compensation – Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock could generatepurchase plans and stock incentive shares. Under ASC 718 awards result in a beneficial conversion feature (“BCF”), which arises whencost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a debt or equity security ischarge to operations.

Share-based payment awards exchanged for services are accounted for at the fair value of the award on the estimated grant date.

Options

Stock options issued under the Company’s long-term incentive plans are granted with an embedded conversion option that is beneficialexercise price equal to the investor or in the money at inception because the conversion option has an effective strike price that isno less than the market price of the underlyingCompany’s stock at the commitment date.date of grant and expire up to ten years from the date of grant. These options often vest over a one-year period.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Restricted Stock Units (RSUs)

For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest.

The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period.

Dividends

On January 5, 2022, the Board of Directors (the “Board”) of the Company declared a non-recurring special dividend of $0.05 for each outstanding share of Common Stock of the Company, payable to holders of record as of the close of business on March 17, 2022. The dividend distributions are considered a return of capital as the distributions are in excess of the Company’s current and accumulated earnings and profits. The return of capital distribution reduces the Company’s additional paid in capital balance. The Company will evaluate the appropriateness of potential future dividends as the Company continues to grow its operations. Dividend distributions amounted to $0 and $635,000 during the three months ended March 31, 2023 and 2022, respectively.

Advertising Expense

Advertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $6,000 and $42,000 for the three months ended March 31, 2023 and 2022, respectively.

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, restricted stock units, options 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, 2023 and 20162022 because their effect was anti-dilutive:

Schedule of Earnings Per Share Anti-diluted

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 2016,2019, the FASB issued ASU No. 2016-02, Leases2019-12, Income Taxes (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)740): Simplifying the Accounting for Goodwill Impairment. Income Taxes (“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 Accounting2019-12”), which clarifies whenis intended to accountsimplify various aspects related to accounting for a changeincome taxes. ASU 2019-12 removes certain exceptions to the terms or conditions of a share-based payment award as a modification. Under the newgeneral principles in Topic 740 and also clarifies and amends existing guidance modification accountingto improve consistent application. This guidance 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, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).The amendments in Part I of this Update change the classification analysis of 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 subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS 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 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities,2020, with early adoption permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the amendmentsadoption did not have a material impact on its financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Part I of this UpdateEntity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early2021, 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 evaluatingadopted ASU No. 2020-06 effective January 1, 2022, and the adoption did not have a material 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 - 4 – Fair Value Measurementsof Financial Assets and Liabilities

The Company measures certain assets and liabilities at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

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

The following table presents information about the Company’s liabilitiesthat are 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 June 30, 2017March 31, 2023 and December 31, 2016:2022:

Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis

There were no

The Company did not make any transfers between Level 1, 2 or 3the levels of the fair value hierarchy during the three months ended June 30, 2017.March 31, 2023 and 2022.

The following table presents additional information about

Level 3 Valuation Techniques

Level 3 financial assets consist of private equity investments for which there is no current public market for these securities such that the determination of fair value requires significant judgment or estimation. As of March 31,2023 and December 31, 2022, the Company’s Level 3 investments were carried at original cost of the investments, with a value of $100,000. The Company has elected to apply the measurement alternative under ASC 321, Investments—Equity Securities, for these investments.

Level 3 financial liabilities measured atconsist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value. Both observable and unobservable inputs may be used to determinevalue requires significant judgment or estimation.

Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets andwarrant liabilities within the Level 3 category may include changesare recorded in “change in fair value thatof warrant liabilities” in the Company’s statements of operations.

On March 2, 2021, the Company entered into a securities purchase agreement (the “Offering”) with certain purchasers pursuant to which the Company agreed to sell an aggregate of (i) 950,000 shares of Common Stock, and (ii) Common Stock warrants (the “Warrants”) to purchase up to 712,500 shares of Common Stock for gross proceeds of $9.5 million in a private placement. The closing of the Offering occurred on March 4, 2021.

The Warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the Warrants) at the Company. At the time of issuance, the Company maintained control of certain fundamental transactions and as such the Warrants were attributableinitially classified in equity. As of December 31, 2022, the Company no longer maintained control of certain fundamental transactions as they did not control a majority of shareholder votes. As such, the Company may be required 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 measuredcash settle the Warrants if a fundamental transaction occurs which is outside the Company’s control. Accordingly, the Warrants are classified as liabilities. The Warrants have been recorded at fair value for the six months ended June 30, 2017:

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The Company’s derivative liabilities are measured attheir fair value using the Monte Carlo simulationBlack-Scholes valuation methodology. model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk-free rates, as well as volatility.

The Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as a current liability.

A summary of quantitative information with respect to the weighted average (in aggregate)valuation methodology and significant unobservable inputs (Level 3 inputs) used in measuringfor the Company’s derivativewarrant liabilities that are categorized within Level 3 of the fair value hierarchy forat the six months ended June 30, 2017date of issuance and, as of March 31, 2023 and December 31, 2022, is as follows:

Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities

Convertible Notes at Fair Value

The development and determinationrisk-free interest rate was based on rates established by the Federal Reserve Bank. For the Warrants, the Company estimates expected volatility giving primary consideration to the historical volatility of its Common Stock. The general expected volatility is based on the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibilitystandard deviation of the Company’s Management.

Note 6 - Related Party Transactions

On January 30, 2017,underlying stock price’s daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company received 24,000,000 pre-split shares (400,000 shares post-split) ofhas not historically paid dividends on its Common Stock for cancelation for no consideration (the “Escrow Shares”). and does not expect to pay recurring dividends on its Common Stock in the future.

The Escrow Shares were placedfollowing table sets forth a summary of the changes in escrow by Charles Allen our Chief Executive Officer, Chief Financial Officerthe fair value of the Company’s Level 3 financial assets 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 bookedliabilities for the extinguishmentthree months ended March 31, 2023 and 2022, that are measured at fair value on a recurring basis:

Schedule of $90.2 million liabilities associated with convertible notes, warrant liabilities, shortfall shares liabilitiesChanges in Fair Value and liquidated damages.Other Adjustments of Warrants

Note 8 - 5 – Stockholders’ Equity

ReverseCommon Stock Split and Amendment to Certificate of Incorporation

At The Market Offering Agreement

On February 13, 2017,September 14, 2021, the Company filed a Certificate of Amendmententered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant 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. See note 1 – Business Organization and Nature of Operations.

2017 Activities

On February 28, 2017,which the Company issued 4,370may offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500 million (the “Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares.

During the three months ended March 31, 2023, the Company sold a total of 301,154 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $529,000 at an average selling price of $1.76 per share, resulting in connection with the one-for-60 reverse stock split resulting from the rounding upnet proceeds of fractional sharesapproximately $509,000 after deducting commissions and other transaction costs.

Share Based Payments

Effective January 19, 2023, The Board of Common Stock to the whole shares of Common Stock.

On March 9, 2017, as a resultDirectors of the Note Offer (described in Note 7) becoming effective, a securities exchange offer made toCompany approved the Company’s January 19, 2015 investors (the “January Offer”) was accepted by certainissuance of those investors (the “January Investors”). Pursuant to the January Offer the January Investors agreed to exchange i) 12,052,344 shares$50,000 of common stock owed pursuant to each independent director. The shares will be issued in four equal installments ($12,500) at the favored nations provisionend of each calendar quarter beginning March 31^st, subject to continued service on each applicable issuance date. The number of shares issuable will be based on 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 $61,667closing price 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,on the Company entered into a Settlement Agreement with RK Equity Advisors, LLC and Pickwick Capital Partners, LLC with respectlast trading day prior to the tail provisionend of the Engagement Letter dated August 19, 2015. Pursuant toapplicable calendar quarter. For 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 125,000three months ended March 31, 2023, 27,576 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.were issued to independent directors.

Preferred Stock

On May 25, 2017,Effective January 27, 2023, the Company raised $1 million in cash from four institutional investors in exchange forCompany’s Board of Directors approved the issuance of $1,111,111a newly designated Series V Preferred Stock (“Series V”) on a one-for-one basis to the Company’s shareholders (including restricted stock unit holders). The record date has been set for May 12, 2023 and the payment date is June 2, 2023. The Series V: (i) is non-convertible, (ii) has a 20% liquidation preference over the shares of common stock, (iii) is non-voting and (iv) has certain rights to dividends and distributions (at the discretion of Series C. See Note 3- Liquidity, Financial Conditionthe Board of Directors).

2021 Equity Incentive Plan

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and Management’s Plans.

Betweenapproved by shareholders on March 15, 201731, 2021 and amended on June 30, 2017, the13, 2022. The Company issued 24,628,136has reserved 7,000,000 shares of Common Stock for issuance pursuant to the cashless2021 Plan.

Options

During the three months ended March 31, 2023, the Company granted 20,000 stock options with a weighted average exercise price of $0.63 to non-executive employees.

The following weighted-average assumptions were used to estimate the fair value of options granted on the deemed grant date during the three months ended March 31, 2023 and 2022 for both the Black-Scholes formula:

Schedule of Weighted-Average Assumptions Used to Estimate Fair Value

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of 37,948,307 warrants.options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized. For awards vesting upon the achievement of the market conditions which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period based on estimation using a Monte-Carlo simulation.

Between

A summary of option activity under the Company’s stock option plan for three months ended March 28, 2017 and June 30, 2017,31, 2023 is presented below:

Summary of Option Activity

RSUs

Effective January 2, 2022, the Board of Directors of the Company issued 32,402,600 sharesratified the following arrangements approved by its Compensation Committee:

The Company’s executive officers were granted RSUs as part of Commona long-term incentive plan (“LTI”), with vesting terms set for when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above four defined market capitalization thresholds of $100 million, $150 million, $200 million and $400 million.

Effective February 22, 2022, upon appointment of Manish Paranjape as Chief Technology Officer of the Company, Mr. Paranjape was also granted RSUs as part of the LTI plan, with consistent vesting terms set for when the Company’s market capitalization above the same four defined market capitalization thresholds.

Effective January 1, 2023 (the “LTI RSU Amendment Date”), upon recommendation of the Compensation Committee of the Board of Directors approved an amendment to the LTI plan, whereby the market capitalization threshold targets were lowered to $50 million, $100 million, $150 million, and $300 million.

The RSUs granted to each executive employee are as follows:

Schedule of Restricted Stock Units

To the extent any market capitalization targets set forth above for Mr. Prevoznik and Mr. Paranjape are achieved, the RSUs will also be subject to the following five-year vesting schedule: 20% of the LTI RSUs which have met a market capitalization criteria will vest on the one-year anniversary of the grant date, and the remaining 80% of the LTI RSUs which have met a market capitalization criteria will vest annually on each subsequent calendar year-end date over the four years following the one year anniversary of the grant date.

For awards vesting upon the conversionachievement of 162,013a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest.

The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. As of the LTI RSU Amendment Date, the Company determined the pre-modification and post-modification estimated fair value of the LTI RSUs accounting for the amended market cap criteria. The increase in fair value of the LTI RSUs attributable to the modification was added to the related unrecognized compensation expense in accordance with ASC 718 – Share-Based Compensation, whereby any previously recognized compensation cost that has not vested as of the modification date should be adjusted to reflect the new fair value of the equity awards on the date of the modification.

The following weighted-average assumptions were used to estimate the fair value of options granted during the three months ended March 31, 2023 and 2022 for the Monte-Carlo simulation: 

Schedule of Weighted-Average Assumptions Used to Estimate Fair Value

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the RSUs.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the RSUs.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s RSUs are expected to be outstanding. The expected term is based on the stipulated five-year period from the grant date until the market-based criteria are achieved. If the market-based criteria are not achieved within the five-year period from the grant date, the RSUs will not vest and shall expire.

Vesting Hurdle Price: The vesting hurdle price is determined as the average of the vesting Market Cap criteria divided by the shares outstanding as of Series B Convertible Preferred stock.the valuation dates.

On December 9, 2022, upon recommendation of the Compensation Committee, the Board of Directors approved the grant of 25,000 RSUs to Mr. Prevoznik and Mr. Paranjape each, effective January 1, 2023, which vest annually over a five-year period with the first vesting date being on the one-year anniversary of the execution date of the effective grant date, subject to continued employment on each applicable vesting date.

A summary of the Company’s restricted stock units granted under the 2021 Plan during the three months ended March 31, 2023 are as follows:

Summary of Restricted Stock

Stock Based Compensation

Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues. Stock-based compensation expense for the three months ended March 31, 2023 and 2022 was as follows:

Schedule of Stock-based Compensation Expense

Note 6 – Accrued Expenses

Accrued expenses consist of the following:

Schedule of Accrued Expenses

Accrued compensation and related expenses include approximately $0 and $284,000 related to performance bonus accruals as of March 31, 2023 and December 31, 2022, respectively.

Note 7 – Employee Benefit Plans

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. For the three months ended March 31, 2023 and 2022, the Company made contributions to the 401(k) Plan of $95,000 and $45,000, respectively.

Note 8 – Liquidity

The Company follows “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the financial statements, the Company has historically incurred a net loss and has an accumulated deficit at March 31, 2023, a net loss and net cash used in operating activities for the reporting period then ended. The Company is implementing its business plan and generating revenue; however, the Company’s cash position and liquid crypto assets are sufficient to support its daily operations over the next twelve months.

Note 9 - – Subsequent Events

Between July 1, 2017 and October 13, 2017,The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company issued 56,572,046did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements other than disclosed.

During the period from April 1, 2023 to May 9, 2023, the Company sold a total of 30,558 shares of Common Stock under the ATM Agreement for the cashless exerciseaggregate total gross proceeds of 72,527,119 warrants.

Between July 1, 2017 and October 18, 2017, the Company issued 56,148,800 sharesapproximately $46,000 at an average selling price of Common Stock upon 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 $1.52 per share, (the “October Financing”). The Series C-1 is initially convertible into sharesresulting in net proceeds of approximately $44,000 after deducting commissions and other transaction costs.

On May 11, 2023, the Compensation Committee of the Company’s common stock at an effective price $0.085 per share. Both the Series C-1 and Series B Warrants are subject to adjustment in the eventBoard of future sales 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).

The investors are three institutional investors who were also investors in the Company’s May 2017 Series C financing (the “May Financing”) and the Australian entity which the Company previously announced that it had entered into a non-binding letter 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 of shares of the Company’s common stock potentially issuable as a result of the October Financing.

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

The Company and the investors also entered into a letter agreement (the “Side Letter”) which provided for various waivers of certain investor protection provisions within the May Financing and the October Financing in order to permit the Proposed Merger to occur. The following are the key elements of the Side Letter:

The issuance of the Series C-1 shares and the Series B Warrants is exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof. The institutional investors previously invested in securitiesDirectors of the Company approved a performance based Annual Cash Incentive Plan for the Australian investor has entered intoCompany’s executives for fiscal year 2023. If an executive meets their performance milestones, the executive will receive a non-binding term sheet with respect tobonus, payable in cash and/or equity at the Proposed Merger, the Company did not engage in general solicitation or advertising with regard to the issuance and salediscretion of the securities and has not offered securitiesCompensation Committee, in an amount up to the public in connection with such issuance and sale. Each investor represented that it is an accredited investor and purchased the securities for investment and not with a view54% to distribution.

In connection with the October Financing, the Officers have both notified the Company that in the event the Company is: i) unable to effectuate the Second Closing of this financing, or ii) unable to consummate the Proposed Merger, they intend to terminate their employment and resign as officers and directors104% of the Company.applicable executive’s base salary, as detailed below:

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

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” arethe discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties. Wordsuncertainties, such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimatesobjectives, expectations and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance onintentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements which reflect management’s analysis only as a result of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes ina number of factors, or assumptions affecting forward-looking statements. Factors that could cause or contribute to these differences includeincluding those discussed in the Risk Factors contained in our Annual Report on Form 10-K filedfor the year ended December 31, 2022. When we refer to the “2023 Quarter” and the “2022 Quarter” we are referring to the three months ended March 31, 2023 and March 31, 2022 quarters, respectively.