UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20212022
[ ] 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)
| Nevada | 90-1096644 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
9466 Georgia Avenue #124 , Silver Spring, MD | 20910 | |
| (Address of principal executive offices) | (Zip Code) |
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:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 | BTCS | The Nasdaq Stock Market (The Nasdaq Capital Market) |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 every Interactive Data File required to be submitted 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 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.
| Large accelerated filer | Accelerated filer |
| Non-accelerated filer | Smaller reporting company |
| Emerging growth company |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 11, 2021,9, 2022, there were 57,123,458 shares of common stock, par value $0.001, issued and outstanding. The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $11,756,692, based on the closing sales price of Common Stock of $2.54 on May 9, 2022.
BTCS INC.
TABLE OF CONTENTS
| 2 |
BTCS INC.
As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc. and its consolidated subsidiaries, unless otherwise indicated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations,report contains forward-looking statements, including our liquidity, our belief that our revenues will increase, our blockchain infrastructure efforts will form the core growth for our Digital Asset Platform, our plans and development of our Digital Asset Dashboard and the integration of Staking-as-a-Service, our Digital Asset treasury strategy, our belief regarding blockchain, plans to expand the PoS operations and other future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “may,” “potential,” “continues,” “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. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the rewards and costs associated with staking or validating transactions on blockchains, continued drop in crypto prices, significant decrease in value of our digital assets and rewards while locked up, loss or theft of the private withdrawal keys resulting in the complete loss of digital assets and reward, and others which are contained in our filings with the SEC, including our Form 10-K for the year ended December 31, 2020 and our Prospectus filed with the SEC on February 16, 2021. 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.
| 3 |
PART I - FINANCIAL INFORMATION
BTCS Inc.
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,245,062 | $ | 1,400,867 | ||||
| Digital assets/currencies | 2,617,730 | 3,117,360 | ||||||
| Staked digital assets/currencies | 6,601,777 | 623,754 | ||||||
| Prepaid expense | 315,169 | 324,551 | ||||||
| Total current assets | 11,779,738 | 5,466,532 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 11,544 | 9,783 | ||||||
| Staked digital assets/currencies - long term | 8,684,238 | 8,625,678 | ||||||
| Total other assets | 8,695,782 | 8,635,461 | ||||||
| Total Assets | $ | 20,475,520 | $ | 14,101,993 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Accounts payable and accrued expense | $ | 106,144 | $ | 138,716 | ||||
| Accrued compensation | 3,209 | 7,334 | ||||||
| Capital shares payable | 75,002 | - | ||||||
| Dividends payable | 266,231 | - | ||||||
| Warrant liabilities | 2,493,750 | 1,852,500 | ||||||
| Total current liabilities | 2,944,336 | 1,998,550 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, shares authorized at $ par value, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 12,617 | 10,529 | ||||||
| Additional paid in capital | 158,848,780 | 147,682,384 | ||||||
| Accumulated deficit | (141,330,213 | ) | (135,589,470 | ) | ||||
| Total stockholders’ equity | 17,531,184 | 12,103,443 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 20,475,520 | $ | 14,101,993 | ||||
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | 3,367,249 | $ | 524,135 | ||||
| Digital assets/currencies | 4,567,385 | 995,652 | ||||||
| Prepaid expense | 453,259 | 31,875 | ||||||
| Total current assets | 8,387,893 | 1,551,662 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 18 | 230 | ||||||
| Staked digital assets/currencies | 7,735,390 | - | ||||||
| Total other assets | 7,735,408 | 230 | ||||||
| Total Assets | $ | 16,123,301 | $ | 1,551,892 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Accounts payable and accrued expense | $ | 68,555 | $ | 26,288 | ||||
| Accrued compensation | 1,501 | 350,376 | ||||||
| Convertible notes payable, net | 694,037 | 131,941 | ||||||
| Total current liabilities | 764,093 | 508,605 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock; 20,000,000 shares authorized at $0.001 par value: | ||||||||
| Series B Convertible Preferred stock: 0 shares issued and outstanding at March 31, 2021 and December 31, 2020; Liquidation preference $0.001 per share | - | - | ||||||
| Series C-1 Convertible Preferred stock: 0 and 29,414 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively; Liquidation preference $0.001 per share | - | 29 | ||||||
| Series C-2 Convertible Preferred stock: 1,100,000 and 0 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively; Liquidation preference $0.001 per share | 5,988,261 | - | ||||||
| Common stock, 975,000,000 shares authorized at $0.001 par value, 55,891,645 and 42,011,617 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 55,890 | 42,010 | ||||||
| Additional paid in capital | 135,637,119 | 120,541,135 | ||||||
| Accumulated deficit | (126,322,062 | ) | (119,539,887 | ) | ||||
| Total stockholders’ equity | 15,359,208 | 1,043,287 | ||||||
| Total Liabilities and stockholders’ equity | $ | 16,123,301 | $ | 1,551,892 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
BTCS Inc.
Condensed Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Validator revenue | $ | 563,015 | $ | 72,524 | ||||
| Total revenues | 563,015 | 72,524 | ||||||
| Cost of revenues | ||||||||
| Validator expense | 137,869 | 14,996 | ||||||
| Gross profit | 425,146 | 57,528 | ||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 650,289 | $ | 553,981 | ||||
| Research and development | 136,718 | 82,933 | ||||||
| Compensation and related expenses | 1,423,896 | 7,337,679 | ||||||
| Marketing | 41,793 | 1,421 | ||||||
| Total operating expenses | 2,252,696 | 7,976,014 | ||||||
| Other income (expenses): | ||||||||
| Interest expense | - | (54,247 | ) | |||||
| Amortization on debt discount | - | (562,096 | ) | |||||
| Change in fair value of warrant liabilities | (641,250 | ) | - | |||||
| Distributions to warrant holders | (35,625 | ) | - | |||||
| Impairment loss on digital assets/currencies | (3,307,428 | ) | (1,301,764 | ) | ||||
| Realized gains (loss) on digital asset/currency transactions | 71,110 | 3,054,418 | ||||||
| Total other income (expenses) | (3,913,193 | ) | 1,136,311 | |||||
| Net loss | $ | (5,740,743 | ) | $ | (6,782,175 | ) | ||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | - | (16,176 | ) | |||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | - | (4,822,220 | ) | |||||
| Net loss attributable to common stockholders | $ | (5,740,743 | ) | $ | (11,620,571 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.47 | ) | $ | (2.43 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 12,245,278 | 4,777,894 | ||||||
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | ||||||||
| Staking revenue | $ | 72,524 | $ | - | ||||
| Total revenues | 72,524 | |||||||
| Cost of revenues | ||||||||
| Staking expenses | 14,996 | - | ||||||
| Gross profit | 57,528 | - | ||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 553,981 | $ | 124,228 | ||||
| Research and development | 82,933 | - | ||||||
| Compensation and related expenses | 7,337,679 | 146,300 | ||||||
| Marketing | 1,421 | 2,690 | ||||||
| Total operating expenses | 7,976,014 | 273,218 | ||||||
| Other (expenses) income: | ||||||||
| Interest expense | (54,247 | ) | (6,022 | ) | ||||
| Amortization on debt discount | (562,096 | ) | (16,606 | ) | ||||
| Impairment loss on digital assets/currencies | (1,301,764 | ) | (74,425 | ) | ||||
| Realized gains on digital asset/currency transactions | 3,054,418 | - | ||||||
| Total other income (expenses) | 1,136,311 | (97,053 | ) | |||||
| Net loss | $ | (6,782,175 | ) | $ | (370,271 | ) | ||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | (16,176 | ) | - | |||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | (4,822,220 | ) | - | |||||
| Net loss attributable to common stockholders | $ | (11,620,571 | ) | $ | (370,271 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.24 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 47,780,223 | 23,004,360 | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
BTCS Inc.
Statements of Changes in Stockholders’ (Deficit) Equity
(Unaudited)
For the Three Months Ended March 31, 2022
| Additional | Total | |||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||
| Balance December 31, 2021 | - | - | 10,528,212 | $ | 10,529 | $ | 147,682,384 | $ | (135,589,470 | ) | $ | 12,103,443 | ||||||||||
| Issuance of common stock, net of offering cost / At-the-market offering | 1,790,576 | 1,791 | 10,511,976 | - | 10,513,767 | |||||||||||||||||
| Stock-based compensation | 297,222 | 297 | 1,288,977 | - | 1,289,274 | |||||||||||||||||
| Dividend distributions | - | - | (634,557 | ) | - | (634,557 | ) | |||||||||||||||
| Net loss | - | - | - | - | - | (5,740,743 | ) | (5,740,743 | ) | |||||||||||||
| Balance March 31, 2022 | - | - | 12,616,010 | $ | 12,617 | $ | 158,848,780 | $ | (141,330,213 | ) | $ | 17,531,184 | ||||||||||
For the Three Months Ended March 31, 2021
| Series C-1 Convertible | Series C-2 Convertible | Additional | Total | |||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance December 31, 2020 | 29,414 | $ | 29 | - | $ | - | 4,201,035 | $ | 4,201 | $ | 120,578,944 | $ | (119,539,887 | ) | $ | 1,043,287 | ||||||||||||||||||||
| Common stock issued including equity commitment fee, net | - | - | - | - | 171,814 | 172 | $ | 2,012,541 | - | 2,012,713 | ||||||||||||||||||||||||||
| Issuance of common stock and warrants for cash, net | - | - | - | - | 950,000 | 950 | $ | 8,855,500 | - | 8,856,450 | ||||||||||||||||||||||||||
| Issuance of Series C-2 convertible preferred stock | - | - | 1,100,000 | 1,100,000 | - | - | $ | - | - | 1,100,000 | ||||||||||||||||||||||||||
| Conversion of Series C-1 Convertible Preferred stock | (29,414 | ) | (29 | ) | - | - | 19,609 | 20 | $ | (167 | ) | - | (176 | ) | ||||||||||||||||||||||
| Beneficial conversion features associated with convertible notes payable | - | - | - | - | - | - | $ | 1,000,000 | - | 1,000,000 | ||||||||||||||||||||||||||
| Beneficial conversion feature of Series C-2 convertible preferred stock | - | - | - | (129,412 | ) | - | - | $ | 129,412 | - | - | |||||||||||||||||||||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | - | - | 16,176 | - | - | $ | (16,176 | ) | - | - | ||||||||||||||||||||||||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | - | - | 4,822,220 | - | - | $ | (4,822,220 | ) | - | - | ||||||||||||||||||||||||||
| Warrant exercise | - | - | - | - | 200,000 | 200 | $ | 398,000 | - | 398,200 | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 46,579 | 47 | $ | 7,539,094 | - | 7,539,141 | ||||||||||||||||||||||||||
| Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock | - | - | - | 179,277 | - | - | - | - | 179,277 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (6,782,175 | ) | (6,782,175 | ) | |||||||||||||||||||||||||
| Balance March 31, 2021 | - | $ | - | 1,100,000 | $ | 5,988,261 | 5,589,037 | $ | 5,590 | $ | 135,674,928 | $ | (126,322,062 | ) | $ | 15,346,717 | ||||||||||||||||||||
| Series C-1 | Series C-2 | |||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Additional | Total | |||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) Equity | ||||||||||||||||||||||||||||
| Balance December 31, 2020 | 29,414 | $ | 29 | - | $ | - | 42,011,617 | $ | 42,010 | $ | 120,541,135 | $ | (119,539,887 | ) | $ | 1,043,287 | ||||||||||||||||||||
| Common stock issued including equity commitment fee, net | - | - | - | - | 1,718,144 | 1,718 | 2,012,541 | - | 2,014,259 | |||||||||||||||||||||||||||
| Issuance of common stock and warrants for cash, net | - | - | - | - | 9,500,000 | 9,500 | 8,855,500 | - | 8,865,000 | |||||||||||||||||||||||||||
| Issuance of Series C-2 convertible preferred stock | - | - | 1,100,000 | 1,100,000 | - | - | - | - | 1,100,000 | |||||||||||||||||||||||||||
| Conversion of Series C-1 Convertible Preferred stock | (29,414 | ) | (29 | ) | - | - | 196,094 | 196 | (167 | ) | - | - | ||||||||||||||||||||||||
| Beneficial conversion features associated with convertible notes payable | - | - | - | - | - | - | 1,000,000 | - | 1,000,000 | |||||||||||||||||||||||||||
| Beneficial conversion feature of Series C-2 convertible preferred stock | - | - | - | (129,412 | ) | - | - | 129,412 | - | - | ||||||||||||||||||||||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | - | - | 16,176 | - | - | (16,176 | ) | - | - | |||||||||||||||||||||||||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | - | - | 4,822,220 | - | - | (4,822,220 | ) | - | - | |||||||||||||||||||||||||||
| Warrant exercise | - | - | - | - | 2,000,000 | 2,000 | 398,000 | - | 400,000 | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 465,790 | 466 | 7,539,094 | - | 7,539,560 | |||||||||||||||||||||||||||
| Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock | - | - | - | 179,277 | - | - | - | - | 179,277 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (6,782,175 | ) | (6,782,175 | ) | |||||||||||||||||||||||||
| Balance March 31, 2021 | - | $ | - | 1,100,000 | $ | 5,988,261 | 55,891,645 | $ | 55,890 | $ | 135,637,119 | $ | (126,322,062 | ) | $ | 15,359,208 | ||||||||||||||||||||
For the Three Months Ended March 31, 2020
| Series C-1 Convertible | Additional | Total | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance December 31, 2019 | 29,414 | $ | 29 | 19,831,521 | $ | 19,830 | $ | 116,780,174 | $ | (116,983,793 | ) | $ | (183,760 | ) | ||||||||||||||
| Common stock issued including equity commitment fee, net | - | - | 6,186,633 | 6,187 | 406,824 | 413,011 | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | (370,271 | ) | (370,271 | ) | |||||||||||||||||||
| Balance March 31, 2020 | 29,414 | $ | 29 | 26,018,154 | $ | 26,017 | $ | 117,186,998 | $ | (117,354,064 | ) | $ | (141,020 | ) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
BTCS Inc.
Condensed Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net Cash flows used from operating activities: | ||||||||
| Net loss | $ | (5,740,743 | ) | $ | (6,782,175 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 797 | 212 | ||||||
| Amortization on debt discount | - | 562,096 | ||||||
| Stock-based compensation | 1,289,274 | 7,539,560 | ||||||
| Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock | - | 179,277 | ||||||
| Validator revenue | (563,015 | ) | (72,524 | ) | ||||
| Blockchain network fees (non-cash) | 1,321 | |||||||
| Change in fair value of warrant liabilities | 641,250 | - | ||||||
| Purchase of non-productive digital assets/currencies | - | (5,761,549 | ) | |||||
| Sale of non-productive digital assets/currencies | - | 4,274,491 | ||||||
| Realized gain on digital assets/currencies transactions | (71,110 | ) | (3,054,418 | ) | ||||
| Impairment loss on digital assets/currencies | 3,307,428 | 1,301,764 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 9,382 | (421,384 | ) | |||||
| Accounts payable and accrued expenses | (36,329 | ) | 42,267 | |||||
| Accrued compensation | (4,125 | ) | (348,875 | ) | ||||
| Capital shares payable | 75,002 | - | ||||||
| Dividends payable - distributions to warrant holders | 35,625 | - | ||||||
| Net cash used in operating activities | (1,055,243 | ) | (2,541,258 | ) | ||||
| Net cash used in investing activities: | ||||||||
| Purchase of productive digital assets/currencies for validating | (8,521,726 | ) | (7,994,887 | ) | ||||
| Sale of productive digital assets/currencies | 310,149 | - | ||||||
| Purchase of property and equipment | (2,558 | ) | - | |||||
| Net cash used in investing activities | (8,214,135 | ) | (7,994,887 | ) | ||||
| Net cash provided by financing activities: | ||||||||
| Dividend distributions | (400,194 | ) | - | |||||
| Proceeds from exercise of warrants | - | 400,000 | ||||||
| Proceeds from issuance of Series C-2 convertible preferred stock | - | 1,100,000 | ||||||
| Net proceeds from issuance of convertible notes | - | 1,000,000 | ||||||
| Net proceeds from issuance of common stock and warrants for cash | - | 8,865,000 | ||||||
| Net proceeds from issuance of common stock | - | 2,014,259 | ||||||
| Net proceeds from issuance common stock/ At-the-market offering | 10,513,767 | - | ||||||
| Payment to convertible notes principle | - | - | ||||||
| Net cash provided by financing activities | 10,113,573 | 13,379,259 | ||||||
| Net increase in cash | 844,195 | 2,843,114 | ||||||
| Cash, beginning of period | 1,400,867 | 524,135 | ||||||
| Cash, end of period | $ | 2,245,062 | $ | 3,367,249 | ||||
| Supplemental disclosure of non-cash financing and investing activities: | ||||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | $ | - | $ | 16,176 | ||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | $ | - | $ | 4,822,220 | ||||
| Conversion of Series C-1 Preferred Stock | $ | - | $ | 196 | ||||
| Beneficial conversion feature of Series C-2 convertible preferred stock | $ | - | $ | 129,412 | ||||
| Beneficial conversion features associated with convertible notes payable | $ | - | $ | 1,000,000 | ||||
| Dividends payable | $ | 230,606 | $ | - | ||||
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net Cash flows used from operating activities: | ||||||||
| Net loss | $ | (6,782,175 | ) | $ | (370,271 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 212 | 339 | ||||||
| Amortization on debt discount | 562,096 | 16,606 | ||||||
| Stock-based compensation | 7,539,560 | - | ||||||
| Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock | 179,277 | |||||||
| Staking revenue | (72,524 | ) | - | |||||
| Purchase of non-productive digital assets/currencies | (5,761,549 | ) | - | |||||
| Sale of non-productive digital assets/currencies | 4,274,491 | - | ||||||
| Realized gain on digital assets/currencies transactions | (3,054,418 | ) | - | |||||
| Impairment loss on digital assets/currencies | 1,301,764 | 74,425 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (421,384 | ) | 15,740 | |||||
| Accounts payable and accrued expenses | 42,267 | (4,973 | ) | |||||
| Accrued compensation | (348,875 | ) | (9,409 | ) | ||||
| Net cash used in operating activities | (2,541,258 | ) | (277,543 | ) | ||||
| Net cash used in investing activities: | ||||||||
| Purchase of productive digital assets/currencies for staking | (7,994,887 | ) | - | |||||
| Net cash used in investing activities | (7,994,887 | ) | - | |||||
| Net cash provided by financing activities: | ||||||||
| Proceeds from exercise of warrants | 400,000 | - | ||||||
| Net proceeds from issuance of convertible notes | 1,000,000 | - | ||||||
| Net proceeds from issuance of common stock and warrants for cash | 8,865,000 | - | ||||||
| Net proceeds from issuance of common stock | 2,014,259 | 413,011 | ||||||
| Proceeds from issuance of Series C-2 convertible preferred stock | 1,100,000 | - | ||||||
| Net cash provided by financing activities | 13,379,259 | 413,011 | ||||||
| Net increase in cash | 2,843,114 | 135,468 | ||||||
| Cash, beginning of period | 524,135 | 143,098 | ||||||
| Cash, end of period | $ | 3,367,249 | $ | 278,566 | ||||
| Supplemental disclosure of non-cash financing and investing activities: | ||||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | $ | 16,176 | $ | - | ||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | $ | 4,822,220 | $ | - | ||||
| Conversion of Series C-1 Preferred Stock | $ | 196 | $ | - | ||||
| Beneficial conversion feature of Series C-2 convertible preferred stock | $ | 129,412 | $ | - | ||||
| Beneficial conversion features associated with convertible notes payable | $ | 1,000,000 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
BTCS Inc.
Notes to Unaudited Condensed 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 ecommercee-commerce marketplace where consumers could purchase merchandise using digital assets,Digital Assets, including bitcoin.Bitcoin. The Company is currently focused on blockchain and digital currency ecosystems. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoinBitcoin mining, though in mid-2016 we ceased our mining operation at our North Carolina facility due to capital constraints. In January 2015, the Company began a rebranding campaign using its BTCS.com domain to better reflect its broadened strategy. The Company recently released its new website which included broader information on its strategy.
In the first quarter of 2021, the Company resumed itsThe Company’s blockchain infrastructure operations (previously referred to as transaction verification services) with a focusfocuses on securing proof-of-stakenext-generation blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations can broadly be defined asoperating validator nodes on various proof of stake-based blockchain networks, earning a reward for securing a blockchainrewards of additional Digital Assets by processing andactively validating transactions on that blockchain.the networks. The Company is developing a proprietary staking-as-a-service platformDigital Asset Platform that would enable clients to stake and delegate supported cryptocurrencies through a non-custodial platform.
The Company is also developing a proprietary digital asset data analytics platform aimed at enabling users to aggregate their Digital Asset portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally developed platform utilizes digital assetDigital Asset exchange APIs to read user data and does not allow for the trading of assets. We also are developing and plan to integrate into the Digital Asset Platform a proprietary Staking-as-a-Service feature that would enable users participate in asset leveraging through securing blockchain protocols and to stake and delegate supported cryptocurrencies through a non-custodial platform to BTCS operated validator nodes.
The Company employs a digital asset treasury strategy with a primary focus on disruptive non-security protocol layer assets such as bitcoin and ethereum. The Company receives digital assets from its blockchain infrastructure solutions business and acquires digital assets through open market purchases. The Company is not limiting its assets to a single type of digital asset and may hold a variety of digital assets. 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 competitive with industry participants that have or may have greater resources than us.
Amendment to Articles of Incorporation
On August 12, 2021, the Company filed a Certificate of Change with the Nevada Secretary of State to affect a 1-for-10 reverse split of the Company’s class of Common Stock (the “Reverse Split”). The Certificate of Change became effective on August 13, 2021.
No fractional shares were issued in connection with the Reverse Split and all such fractional interests were rounded up to the nearest whole number of shares of Common Stock. The Company now has shares of Common Stock authorized. Numbers of shares of the Company’s preferred stock were not affected by the Reverse Split; however, the conversion ratios have been adjusted to reflect the Reverse 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 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 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. Interim results for the three months ended March 31, 2022 are not necessarily indicative of results for athe full year.year ended December 31, 2022. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2020.2021.
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 investments from third-party investors as well as from officers and directors of the Company.
| 8 |
During the first quarter of 2021, the Company received net proceeds of approximately $13.3 million from the issuance of a convertible note, issuances of common stock and warrants, and the issuance of Series C-2 convertible preferred stock. Therefore, the Company has adequate cash to fund its operations for at least the next twelve months.
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 20202021 Annual Report.
Staking RevenueBasis 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 runs its own digital asset validating nodesmaintains cash balances at two financial institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturities of six months or less when purchased to be cash and cash equivalents. As of March 31, 2022 and December 31, 2021, the Company had approximately $2.2 million and $1.4 million in cash. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.
Financial 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, 2022 and December 31, 2021, the Company had approximately $1.7 million and $0.9 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:
| ● | Step 1: Identify the contract with the customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
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.contracts by running its own Digital Asset validating nodes as well as by staking Digital Assets with staking pools on nodes run by third-party operators (either directly or through exchanges). Through these contracts, the Company provides cryptocurrency to stake on a node for the purpose of processing and 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 validating transactions and 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 staking pool operator receives (less digital asset transaction fees payable to the pool operator or exchanges, which are immaterial and are recorded as a deduction from revenue), for successfully processing, validating and/or adding a block to the blockchain. The Company’s fractional share of awards received by a third-party staking pool is based on the proportion of cryptocurrency the Company staked to the staking pool node to the total cryptocurrency staked by all pool participants validating blockchain transactions.
| 9 |
The provision of processing and 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 fixed cryptocurrency awards - is noncasha 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 onat the datetime of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactionstransaction verification services 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 processing and 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 basedstock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.
Digital Assets Translations and Remeasurements
The Company accounts for its Digital Assets as indefinite-lived intangible assets are included in the balance sheets as either current assets or other assets if they are stakedaccordance with ASC 350, Intangibles –Goodwill and locked up for over one year. Digital assets are recorded at cost less impairment.
Other. 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 the asset. Subsequent reversal of impairment losses is not permitted.
Realized gain (loss) on sale of digital assetsDigital Assets held are included in the balance sheets as either current assets or other income (expense) inassets if they are staked and locked up for over one year. The Company’s Digital Assets are initially recorded at fair value upon receipt (or “carrying value”). The fair value of Digital Assets is determined using the statementsaverage U.S. dollar spot price of operations. We assign costs to transactions onthe related Digital Asset. On a first-in, first-out basis.
quarterly basis, Digital Assets are measured at carrying value, net of any impairment losses incurred since receipt. The Company assesseswill record impairment of digital assets quarterly iflosses as the fair value falls below the carrying value of digital assets is less than its cost basis. The Company recognizes impairment losses on digital assets caused by decreases in fair valuethe Digital Assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related digital asset as of each impairment date. Digital Asset subsequent to its acquisition. The Digital Assets can only be marked down when impaired and not marked up when their value increases.
Such impairment in the value of digital assetsDigital Assets are recorded as a component of costs and expenses in our statements of operations. The Company recorded impairment losses of approximately $3.3 million and $1.3 million related to Digital Assets during the three months ended March 31, 2022 and 2021, 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 Digital Assets are included in other income (expense) in the statements of operations. The Company recorded realized gains (losses) on Digital Assets of approximately $70,000 and $3 million during the three months ended March 31, 2022 and 2021, respectively.
The presentation of purchases and sales of Digital Assets on the Statement of Cash Flows is determined by the nature of the Digital Assets, which can be characterized as productive (i.e. purchased for purposes of staking) or non-productive. The purchase of non-productive Digital Assets and currencies are included as an operating activity, whereas the purchase of productive Digital Assets and currencies are included as investing activities in accordance with ASC 230-10-20 Investing activities. Productive Digital Assets that are staked with a lock-up period of less than 12 months are presented on the Balance Sheet as current assets. Staked Digital 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 consisting of the core technology of the Company’s digital asset data analytics platformDigital Asset Platform which is being designed to allow user to aggregate and analyze data from digital assetDigital Asset exchanges. For internally developed software, the Company uses both its own employees as well as the services of external 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 approach, software under development will pass the technological feasibility milestone when the Company has completed a version that contains essentially all the functionality and features 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 met. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment and software. 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 the relevant authority authorizes and commits to the funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended.
Property and Equipment
Property and equipment consists of computer, equipment and office furniture and fixtures, all of which are recorded at cost. Depreciation and amortization is recorded using the straight-line method over the respective useful lives of the assets ranging from three to five years. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.
Use of Estimates
The accompanying unaudited condensed financial statements have been prepared in conformity with 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 indefinite life intangible assets, stock-based compensation, the valuation of derivative liabilities, the valuation of convertible preferred stock 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, 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.
Stock-based compensationIncome Taxes
The Company recognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in its tax 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 (“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 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 balance 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).
| 11 |
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 (“SBP”) awards including shares issued under employee stock purchase plans and stock incentive shares. Under ASC 718 awards result in a cost 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 charge to operations.
Share-based payment awards exchanged for services are accounted for at the estimated grant date fair value of the award. award on the estimated grant date.
Options
Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generallyoften 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.
Expected Term - 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 of options representsusing a Monte Carlo simulation that incorporates pricing inputs covering the period thatfrom the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting togrant date through the end of its contractual term.the derived service period.
Dividends
Expected Volatility -
On January 5, 2022, the board of directors of the Company declared a non-recurring special dividend of $ 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 computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate - The Company baseswill evaluate the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.
Expected Dividend - The Company has never declared or paid any cashappropriateness of potential future dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.continues to grow its operations. Dividend distributions amounted to $635,000 and $0 during the three months ended March 31, 2022 and 2021, respectively.
Convertible Preferred StockAdvertising Expense
The Company appliesAdvertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $42,000 and $1,000 for the accounting standards for distinguishing liabilities from equity when determining the classificationthree months ended March 31, 2022 and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.2021, respectively.
Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.
The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
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 Company’s convertible preferred stock, convertible notes, restricted stock units, options and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, notes 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 March 31, 20212022 and 20202021 because their effect was anti-dilutive:
Schedule of Earnings Per Share Anti-diluted
| As of March 31, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase common stock | 962,794 | 962,794 | ||||||
| Series C-1 Convertible Preferred stock | - | 3,989,767 | ||||||
| Convertible notes | - | 149,366 | ||||||
| Options | 1,235,000 | - | ||||||
| Non-vested restricted stock awards units | 1,668,084 | - | ||||||
| Total | 3,865,878 | 5,101,927 | ||||||
| 12 |
| As of March 31, | ||||||||
| 2021 | 2020 | |||||||
| Warrants to purchase common stock | 9,627,915 | 920,424 | ||||||
| Series C-1 Convertible Preferred stock | - | 196,093 | ||||||
| Series C-2 Convertible Preferred stock | 39,897,668 | - | ||||||
| Convertible notes | 1,493,652 | 4,032,258 | ||||||
| Total | 51,019,235 | 5,148,775 | ||||||
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluatingadopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact of this standard 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 Entity’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 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, 2021, with early adoption permitted. The Company is currently evaluatingadopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact of this standard on its 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 4 - Fair Value of Financial Assets and Liabilities
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 Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company uses three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The following table presents the Company’s assets and liabilities that are measured at fair value at March 31, 2022 and December 31, 2021:
Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis
| Fair value measured at March 31, 2022 | ||||||||||||||||
| Total at March 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Liabilities | ||||||||||||||||
| Warrant Liabilities | $ | 2,493,750 | $ | - | $ | - | $ | 2,493,750 | ||||||||
| Fair value measured at December 31, 2021 | ||||||||||||||||
| Total at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Liabilities | ||||||||||||||||
| Warrant Liabilities | $ | 1,852,500 | $ | - | $ | - | $ | 1,852,500 | ||||||||
| 13 |
Note 5 - Note Payable
Level 3 Valuation Techniques
2020 December Promissory Note
Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value 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 the warrant liabilities are recorded in “change in fair value of warrant liabilities” in the Company’s statements of operations.
On December 16, 2020,March 2, 2021, the Company issued Cavalry Fund I LP (“Cavalry”entered into a securities purchase agreement (the “Offering”) with certain purchasers pursuant to which the Company agreed to sell an aggregate of (i) 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 $1,000,000 promissory note (the “2020private 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 initially classified in equity. As of December Promissory Note”) in consideration31, 2021, 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 cash 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 their fair value using the Black-Scholes valuation 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 $1,000,000.as derivative liabilities. The 2020 December Promissory Note is (i) dueCompany classifies these derivative warrant liabilities on October 16, 2021, (ii) convertible atthe balance sheet as a 35% discountcurrent liability.
A summary of quantitative information with respect to the closing pricevaluation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and, as of March 31, 2022 and December 31, 2021, is as follows:
Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities
March 31, 2022 | December 31, 2021 | |||||||
| Risk-free rate of interest | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life (in years) | ||||||||
| Expected dividend yield | - | - | ||||||
The risk-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 standard deviation of the Company’s commonunderlying 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 date before exercise with a floor price of $0.04 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations,fact that the Company may force conversionhas not historically paid dividends on its Common Stock and does not expect to pay recurring dividends on its Common Stock in the future.
The following table sets forth a summary of the 2020 December Promissory Note. In connection with issuance ofchanges in the 2020 December Promissory Note, the Company issued a Series C warrant to purchase 2,000,000 sharesfair value of the Company’s common stock at an exercise price of $0.20, the Series C warrants were exercisedLevel 3 financial liabilities for cash on January 15, 2021, resulting in proceeds of $400,000 to the Company.
During the three months ended March 31, 2022 and 2021, the Company recorded interest expensethat are measured at fair value on a recurring basis:
Schedule of approximately $29,589 for the 2020 December Promissory Note. AsChanges in Fair Value and Other Adjustments of March 31, 2021, the principal balance of the 2020 December Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $35,000.Warrants
| Fair Value of Level 3 financial liabilities | ||||||||
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | 1,852,500 | $ | - | ||||
| Warrant liabilities classification | - | - | ||||||
| Fair value adjustment of warrant liabilities | 641,250 | - | ||||||
| Ending balance | $ | 2,493,750 | $ | - | ||||
During the three months ended March 31, 2021, the Company recorded approximately $315,000 amortization of debt discount related to the 2020 December Promissory Note.
2021 Promissory Note
On January 15, 2021, the Company issued Calvary the 2021 Promissory Note in consideration for $1,000,000. The 2021 Promissory Note is (i) due on November 15, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.75 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2021 Promissory Note.
In connection with issuance of the Note, the Company issued a Series D warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $2.16 per share (the “Warrant”). Detachable warrants issued in a bundled transaction with debt and equity offerings are accounted for on a separate basis. The allocation of the issuance proceeds to the base instrument and to the warrants depends on the accounting classification of the separate warrant as equity or liability. If the warrants are classified as equity, then the allocation is made based upon the relative fair values of the base instrument and the warrants following the guidance in ASC 470-20-25-2. In this case, the Warrant is equity-classified, with the fair value at issuance was approximately $3,580,000. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the 2021 Promissory Note of approximately $782,000 with a corresponding credit to additional paid-in capital.
In addition, the 2021 Promissory Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the 2021 Promissory Note was convertible into 705,716 shares of common stock at $1.41 per share, but the Company’s fair value of underlying common stock was $2.18 per share. As such, the Company recognized a beneficial conversion feature, resulting in an additional discount to the 2021 Promissory Note of approximately $218,000 with a corresponding credit to additional paid-in capital.
During the three months ended March 31, 2021, the Company recorded interest expense of approximately $24,658 for the 2021 Promissory Note. As of March 31, 2021, the principal balance of the 2021 Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $25,000.
During the three months ended March 31, 2021, the Company recorded approximately $247,000 amortization of debt discount related to the 2021 Promissory Note.
Note 65 - Stockholders’ Equity
PreferredCommon Stock
TheReverse Stock Split
On August 25, 2021, the Company is authorized to issue up to 20,000,000issued approximately shares of preferred stock. This preferredCommon Stock in connection with the 1-for-10 Reverse Split resulting from the rounding up of fractional shares of Common Stock to the whole shares of Common Stock. The financial statements have been retroactively restated to reflect the reverse stock split.
At The Market Offering Agreement
On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may be issued in one or more series,offer and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders.
On January 1, 2021, members of the Company’s management subscribed for 1,100,000sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to be designated Series C-2 Convertible Preferred Stock$98,767,500 million (the “Series C-2”“Shares”), for a total of $1,100,000 at $1.00 per Share of Series C-2.. The Company obtained an independent valuationwill pay H.C. Wainwright a commission rate equal to 3.0% of the Series C-2 and $179,277aggregate gross proceeds from each sale of compensation expense was recognized, representing the difference between the fair value and the proceeds received.Shares.
The Series C-2 is not mandatorily redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate of Designation required that the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking shareholder ratification of the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month anniversary of the Initial Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107% of (i) the Stated Value per share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the SEC prior to the Vote Deadline but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline shall be extended until such time as the vote is conducted. The Series C-2 holders were not entitled to vote on the ratification. The call provision would have been automatically triggered if the ratification of the issuance was not approved in a special meeting of stockholders prior to the twelve-month anniversary of the Initial Issuance Date. The Company held the meeting within the required period and the Series C-2 is no longer redeemable.
Based on the guidance in ASC 480-10-S99 (“ASR 268”), a redeemable equity instrument is not to be included in permanent equity. Rather, it should be reported between long-term debt and stockholders’ equity, without a subtotal that might imply it is a part of stockholders’ equity (i.e., “temporary equity” or “mezzanine capital”). ASR 268 specifies that redeemable stock is any type of equity security, including common or preferred stock, when it has any condition for redemption which is not solely within the control of the issuer without regard to probability.
The Series C-2 Certificate of Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote Deadline. Stockholder approval was not considered to be “solely within the Company’s control.” Stockholder approval occurred on March 31, 2021, at which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially classified in temporary equity under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021.
The holders of Series C-2 shall be entitled to receive dividends or distributions on each share of Series C-2 on an “as converted” into Common Stock when and if dividends are declared on the Common Stock by the Board of Directors. Dividends shall be paid in cash or property, as determined by the Board of Directors.
At any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series C-2 held by such Holder into validly issued, fully paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneous with the Corporation’s Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $.17 which resulted in a beneficial conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date.
The Conversion Amount may be adjusted due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Corporation after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Corporation raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of March 31, 2021, $12,915,008 of Capital Raised triggered an adjustment to the Conversion Amount. The Company recognized the effect of the down-round protection when the capital raises occurred as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $4,822,220 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. As of March 31, 2021, the Series C-2 was convertible into 39,897,669 shares of common stock.
Common Stock
Issuance of Shares Pursuant to Equity Line of Credit Purchase Agreement
On January 28, 2021, the Company filed a registration statement on Form S-1 seeking to register 4,000,000 shares (the “Registration Statement”). The Registration Statement was declared effective by the SEC on February 1, 2021.
During the three months ended March 31, 2021,2022, the Company issued 1,718,144sold a total of shares of common stock (including 117,545 pro-rata commitment shares)Common Stock under the Registration Statement pursuant to the equity lineATM Agreement for aggregate total gross proceeds of credit purchase agreement with Cavalry (the “Equity Line”)approximately $10,849,000 at an average selling price of $per share, resulting in aggregate net proceeds of $2,014,259 (net of $750 of transfer agent fees) and $2,015,008 in gross proceeds at a per share price of $1.173 (inclusive of the pro-rata commitment shares).
Issuance of Shares Pursuant to Registered Direct Offering
On March 4, 2021, the Company closed on a securities purchase agreement (the “Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 9,500,000 shares of the Company’s common stock, at a purchase price per share of $1.00 and immediately exercisable five-year warrants to purchase 7,125,000 shares of common stock at an exercise price of $1.15 per share (the “Warrants” and together with the common stock, the “Securities”). The gross proceeds from the offering was $9.5 million, beforeapproximately $10,514,000 after deducting fees payable to the placement agentcommissions and other estimated offering expenses payable by the Company, and the net proceeds were $8.9 million.transaction costs.
The Purchase Agreement contains representations, warranties, indemnification and other provisions customary for transactions of this nature. Pursuant to the Purchase Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed not to, and not to publicly disclose the intention to, sell or otherwise dispose of, any shares of common stock or any securities convertible into, or exchangeable or exercisable for, common stock, for a period ending 60 days after the date of the prospectus supplement for this offering.
The Company also entered into a placement agent agreement (the “PA Agreement”) with A.G.P./Alliance Global Partners (“AGP”), pursuant to which AGP agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors), and reimbursed the placement agent for its legal fees and other accountable expenses in the amount of $40,000.
Issuance of Shares Pursuant to Cash Exercise of Series C Warrants
On January 15, 2021, the Company issued 2,000,000 shares of the Company’s common stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise price of $400,000. Cavalry and the Company entered into an agreement whereby the Cavalry would exercise early for cash provided that the Company register the underlying shares of common stock within 30 days of exercise.
Issuance of Shares Due to Conversion of Series C-1 Preferred Stock
On March 30, 2021, the Company issued 196,094 shares of common stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion, there were no Series C-1 shares outstanding and the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series C-1.
Issuance of Restricted Stock to Service Providers
During the three months ended March 31, 2021, the Company issued to RedChip Companies Inc. and Launchnodes LTD, two service providers of the Company, 400,000 and 65,790 shares of restricted common stock respectively, with a total fair value of $0.5 million.
2021 Equity Incentive Plan
The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021. The Company has reserved 20,000,000 shares of common stockCommon Stock for issuance pursuant to the 2021 Plan. The Company is currently seeking shareholder approval to increase the reserved amount under the 2021 Plan to shares.
Options
On January 1, 2021, the Board of Directors of the Company approved the grant of 12 million stock options with an exercise price of $0.19$ under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options: (i) 4.8 million options will vestvested on and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones.
Summary of Option Activity
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2021 | 1,235,000 | $ | 2.14 | $ | 1,488,000 | |||||||||||
| Employee options granted | - | - | - | |||||||||||||
| Outstanding as of March 31, 2022 | 1,235,000 | $ | 2.14 | $ | 2,736,000 | |||||||||||
| Options vested and exercisable as of March 31, 2022 | 1,205,250 | $ | 1.94 | $ | 2,736,000 | |||||||||||
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RSUs
Effective January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee:
The Board of Directors of the Company recordsratified grants of RSUs to each independent director. David Garrity, Carol Van Cleef and Charles Lee were each granted restricted stock units (the “Board Grants”). The Board Grants vest in four equal installments at the end of each calendar quarter in 2022. As of March 31, 2022, RSUs vested and are reflected as capital shares payable on the Balance Sheet amounting to approximately $.
The Company’s executive officers were granted RSUs as part of a 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.
Schedule of Restricted Stock Units
| Market Cap Vesting Thresholds | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
| Officer Name | Title | Grant Date | RSUs Granted | $ 100 million | $ 150 million | $ 200 million | $ 400 million | |||||||||||||||||
| Charles Allen | Chief Executive Officer | 1/2/2022 | 694,444 | 173,611 | 173,611 | 173,611 | 173,611 | |||||||||||||||||
| Michal Handerhan | Chief Operations Officer | 1/2/2022 | 444,444 | 111,111 | 111,111 | 111,111 | 111,111 | |||||||||||||||||
| Michael Prevoznik | Chief Financial Officer | 1/2/2022 | 222,224 | 55,556 | 55,556 | 55,556 | 55,556 | |||||||||||||||||
| Manish Paranjape | Chief Technology Officer | 2/22/2022 | 160,184 | 40,046 | 40,046 | 40,046 | 40,046 | |||||||||||||||||
| 1,521,296 | 380,324 | 380,324 | 380,324 | 380,324 | ||||||||||||||||||||
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: % 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 % of the LTI RSUs which have met a market capitalization criteria will vest monthly over the four years following the one year anniversary of the grant date.
In addition to the vesting criteria set forth above, while the Company is listed on the Nasdaq, the vesting and delivery of the shares of Common Stock underlying the LTI RSUs are subject to the receipt of shareholder approval approving an increase in the Plan or the creation of a new plan as required under Nasdaq rules.
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 options basedunits with explicit service conditions is recognized on a straight-line basis over the estimatedlonger 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 options on the deemed grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the Black-Scholes-Merton option pricing formula withperiod from the assumptions included ingrant date through the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rateend of the options.derived service period.
| 16 |
The following weighted-average assumptions were used to estimate the fair value of options granted during:during the three months ended March 31, 2022 and 2021 for the Monte-Carlo simulation:
Schedule of Weighted-average Assumptions Used to estimate Fair Value
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Vesting Hurdle Price | $ | |||||||
| Term (years) | .00 | |||||||
| Expected stock price volatility | % | |||||||
| Risk-free rate of interest | % | |||||||
| Three-Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Dividend yield | 0.0 | % | 0.0 | % | ||||
| Expected volatility | 0.0 | % | 0.0 | % | ||||
| Risk-free interest rate | 0.0 | % | 0.0 | % | ||||
| Expected term | 0.0 years | 0.0 years | ||||||
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.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 option.RSUs.
Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock optionsRSUs are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of 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 a service condition, compensation cost measured onstipulated year period from the grant date until the market based criteria are achieved. If the market based criteria are not achieved within the period from the grant date, the RSUs will be recognized on a straight-line basis overnot vest and shall expire.
Vesting Hurdle Price: : The vesting hurdle prices are determined by taking the vesting period. For awards vesting uponMarket Cap criteria divided by the achievementshares outstanding as of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized.valuation dates.
A summary of option activity under the Company’s stock option plan for three months ended March 31, 2021 is presented below:
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2020 | - | $ | - | $ | - | - | ||||||||||
| Employee options issued | 12,000,000 | 0.19 | 10,080,000 | 5.0 | ||||||||||||
| Outstanding as of March 31, 2021 | 12,000,000 | $ | 0.19 | $ | 10,080,000 | 5.0 | ||||||||||
| Options vested and exercisable | 7,200,000 | $ | 0.19 | $ | 6,048,000 | 5.0 | ||||||||||
RSUs
On January 1, 2021, the Board of Directors of the Company approved 2.75 million restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of March 31, 2021, the restricted stock units remained unvested. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date. Because the listing on a national securities exchange is not deemed probable of occurring until the event occurs, compensation cost measured on the deemed grant date will not be recognized until the listing actually occurs.
A summary of the Company’s restricted stock units granted under the 2021 Plan during the three months ended March 31, 20212022 are as follows:
Summary of Restricted Stock
| Number of Restricted Stock Units | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2020 | - | $ | - | |||||
| Granted | 2,750,000 | 2,832,500 | ||||||
| Nonvested at March 31, 2021 | 2,750,000 | $ | 2,832,500 | |||||
| Number of Restricted Stock Units | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2021 | 29,363 | $ | 5.96 | |||||
| Granted | 1,662,607 | 3.29 | ||||||
| Vested | (23,886 | ) | 3.14 | |||||
| Forfeited | - | - | ||||||
| Nonvested at March 31, 2022 | 1,668,084 | $ | 3.34 | |||||
Stock Based Compensation
Stock-based compensation expense for the three months ended March 31, 20212022 was approximately $7.0 million, comprised of $59,000 for the issuance of restricted common stock to service providers not pursuant to the 2021 Plan and approximately $7.0 million in connection with options issued pursuant to the 2021 Plan. Unrecognized compensation expense for the Company’s was $5.2 million at March 31, 2021. $4.7 million of the unrecognized compensation expense is expected to be recognized on January 1, 2022, $0.3 million expected to be amortized through September 2022 and $0.1 million through February 2024. Share-based$million. Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues.
Schedule of Stock-based Compensation Expense
For the Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Employee bonus stock awards | $ | 894,027 | $ | - | ||||
| Employee stock option awards | 69,634 | 7,039,560 | ||||||
| Employee restricted stock unit awards | 341,990 | - | ||||||
| Non-employee restricted stock awards | 82,081 | 62,640 | ||||||
| Series C-2 Allocation | - | 179,277 | ||||||
| Stock-based compensation | $ | 1,387,732 | $ | 7,281,477 | ||||
| 17 |
Note 6 – Accrued Expenses
Accrued expenses consist of the following:
Schedule of Accrued Expenses
| March 31, 2022 | December 31, 2021 | |||||||
| Compensation and related expenses | $ | 3,209 | $ | 7,334 | ||||
| Accounts Payable | 102,387 | 138,716 | ||||||
| Other | 3,757 | - | ||||||
| Accrued Expenses | $ | 109,352 | $ | 146,050 | ||||
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%100% of employee contributions. DuringFor the three months ended March 31, 2021,2022, the Company made contributions to the 401(k) Plan of $39,000.$45,000.
Note 8 - Subsequent Events
On April 1, 2021,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 its legal counsel 48,544 fully-vested did 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 March 31, 2022 to May 9, 2022, the Company sold a total of shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $46,000 at an average selling price of $per share, resulting in net proceeds of approximately $44,000 after deducting commissions and other transaction costs.
On May 12, 2022, the Compensation Committee of the Board of Directors of the Company approved a performance based Annual Cash Incentive Plan for the Company’s common stockexecutives for fiscal year 2022. If an executive meets their performance milestones, the executive will receive a $50,000 pre-payment of legal fees.
On April 1, 2021, the Company issued Kilwar LLC 13,637 fully-vested sharescash bonus in amount up to 48% to 107% of the Company’s common stock in connection with an Information Technology Services Agreement related to the development of its data analytics platform.applicable executive’s base salary, as detailed below:
| ● | Charles Allen, the Company’s Chief Executive Officer is eligible to receive up to 107% of his base salary. Mr. Allen’s current base salary is $393,702; | |
| ● | Michal Handerhan, the Company’s Chief Operating Officer is eligible to receive up to 60% of his base salary. Mr. Handerhan’s base salary is $275,000; | |
| ● | Michael Prevoznik, the Company’s Chief Financial Officer is eligible to receive up to 50% of his base salary. Mr. Prevoznik’s base salary is $175,000; | |
| ● | Manish Paranjape, the Company’s Chief Technology Officer is eligible to receive up to 48% of his base salary. Mr. Paranjape’s base salary is $225,000. |
On May 6, 2021, the Company issued 1,169,632 shares of common stock (including 46,667 pro-rata commitment shares) pursuant to the Equity Line with Cavalry resulting in aggregate proceeds of $800,000.
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 for the year ended December 31, 20202021. When we refer to the “2022 Quarter” and our Prospectus filed with the SEC on February 16, 2021.“2021 Quarter” we are referring to the three months ended March 31, 2022 and March 31, 2021 quarters, respectively. Additionally, the twelve months ending December 31, 2022 is referred to as “Fiscal 2022.”
Overview
We areBTCS is an early entrant in the digital assetDigital Asset market and one of the first U.S. publicly tradedpublicly-traded companies to focus on digital assetsDigital Assets and blockchain technologies. Through our blockchain infrastructureblockchain-infrastructure operations, we secure disruptive next-generation blockchains and operate validator nodes on various proof of stake-based blockchain networks, earning rewards of additional Digital Assets by actively processing and validating blockchain transactions andon the networks. While this process is similar to Bitcoin mining the consensus mechanism is different. Now we are rewardedbuilding on the foundation of our pre-established infrastructure with digital assets. We are also developingthe development of a digital asset data analytics platformDigital Asset Platform. The first feature of the dashboard, which is an open beta, allows users to consolidate crypto tradesevaluate their Digital Asset portfolios from multiple exchanges on a single platform. Digital assetsWe also are coredeveloping and plan to our corporate treasury strategy withintegrate into the platform a primary focus on disruptive non-security protocol layer assets.Staking-as-a-Service feature that, once launched, will allow users to participate in asset leveraging through securing blockchain protocols.
Blockchain Infrastructure
Blockchain infrastructure solutionsoperations can broadly be defined as earning a reward for securing a blockchain by processing and validating transactions on that blockchain. There are currently two main consensus mechanisms used to secure blockchains: i), proof-of-work (“PoW”), in which nodes dedicate computational resources, and ii) proof-of-stake (“PoS”), in which nodes dedicate financial resources. The intention behind both PoW and PoS is to make it practically infeasibleimpossible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain.
WithIn the case of PoW, a miner does “work” using energy consumingenergy-consuming computers and is rewarded for this “work” with digital assets.Digital Assets. The miner, typically through pools running nodes, is validatingvalidates transactions on the blockchain, essentially converting electricity and computing power into a digital currency reward comprised of transaction fees and newly minted digital assets.newly-minted Digital Assets. Bitcoin is an example of thisPoW and is by far the largest and most secure PoW blockchain.
With PoS miners, often referred to as validators in PoS systems, actively operate nodes and validate transactions andtransactions. Validators are required to stake their holdings of a digital currency to participate in the consensus algorithm such that badand are rewarded in tokens for aligning behavior with the rules of the algorithm. Bad behavior can be penalized by “slashing” the minersvalidator’s holdings and/or rewards. PoS requires less energy/electricityValidators can also be removed from the network for breaking the rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be consumed and can give cryptocurrency holders who actively operate nodes and validate transactions a reward in the base cryptocurrency, provided that they “stake” their holdings. Miners who break the rules or fail to do the required “work” are penalized by “slashing,” their rewards or staked digital assets thus bad behavior among miners is discouraged and the blockchain isproperly maintained and secured. Cardano, Polkadot,Compared to PoW, PoS blockchains require less energy.
Depending on the PoS blockchain protocol, native token holders have the opportunity to leverage their asset holdings by either delegating their rights to a validator (“Delegating”), staking their token holdings in a staking pool (“Staking”), or running their own validator (“Pooling”). With Delegating, token holders indirectly participate by maintaining control of their private keys and ethereum 2.0delegating their tokens to an existing validator. Therefore, delegating is more akin to assigning voting rights of stock to another person or entity via a power of attorney. With Pooling, an operator and token holder combine tokens in order to improve the constituents’ collective odds of validating new blocks, and typically the operator takes custody of token holders funds i.e. private keys. If chosen for validation, the group is rewarded in tokens. With both Delegating and Pooling, the validator operators earn a fee for providing the technical capabilities of running a node 24/7 that requires regular, active maintenance and industry expertise.
BTCS uses its blockchain infrastructure to operate validator nodes on various proof of stake-based blockchain networks. In connection with the validation of transactions occurring on those blockchain networks, BTCS will stake the Digital Assets native to those blockchains on the validator nodes it operates in order to earn staking rewards. BTCS may also use its blockchain infrastructure to validate and sign transactions on behalf of customers that delegate their validation and voting rights to BTCS-operated validator nodes (referred to as “Staking-as-a-Service” or “StaaS”).
A StaaS provider maintains an active role in validating transactions on a given PoS network on behalf of its delegators by (1) arranging transactions using software to stake the relevant Digital Assets; (2) monitoring the nodes it is operating to ensure they remain online, ready to validate transactions; and (3) verifying transactions on the network when required to earn rewards.
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Apart from Bitcoin and Ethereum, all of the Company’s Digital Asset holdings are examples ofin tokens secured by PoS blockchains.
or similar consensus mechanisms that allow for Delegating and asset leveraging. The Company is currently actively operates 240operating validator nodes on the ethereumEthereum’s beacon chain, Cardano, Tezos, Avalanche, Kusama, and Cosmos. The Company has also staked the following tokens Polkadot, Terra, Algorand, and Solana. Building on that base, the Company plans to expand its PoS operations to secure other disruptive blockchain protocols. protocols that also allow for delegating.
The Company believes its blockchain infrastructure efforts will form the core growth for its Digital Asset Platform. The Company utilizes cloud infrastructure to operate and run its validator nodes and does not maintain its own physical assets, but may add this infrastructure in the future.
The Company currently holds the following Digital Assets which are core to its blockchain infrastructure efforts. The table also includes Bitcoin which is not core to our infrastructure operations.
Digital Assets Held at Period End
| Asset | 2021Q1 | 2021Q2 | 2021Q3 | 2021Q4 | 2022Q1 | |||||||||||||||
| Bitcoin (BTC) | 90 | 90 | 90 | 90 | 90 | |||||||||||||||
| Ethereum (ETH) | 7,733 | 7,879 | 7,992 | 8,098 | 8,196 | |||||||||||||||
| Cardano (ADA) | 257,757 | 257,757 | 257,757 | 257,757 | ||||||||||||||||
| Kusama (KSM) | 123 | 374 | 374 | 5,278 | ||||||||||||||||
| Tezos (XTZ) | 14,966 | 24,172 | 24,504 | 70,453 | ||||||||||||||||
| Solana (SOL) | 4,788 | 4,779 | 7,043 | |||||||||||||||||
| Polkadot (DOT) | 8,032 | 8,032 | 38,816 | |||||||||||||||||
| Terra (LUNA) | 3,584 | 3,584 | 3,621 | |||||||||||||||||
| Cosmos (ATOM) | 3,072 | 3,072 | 80,474 | |||||||||||||||||
| Polygon (MATIC) | 67,114 | 67,114 | 454,486 | |||||||||||||||||
| Avalanche (AVAX) | 2,025 | 2,073 | 14,273 | |||||||||||||||||
| Algorand (ALGO) | 50,584 | 51,103 | 51,197 | |||||||||||||||||
| Axie Infinity (AXS) | 22,322 | |||||||||||||||||||
| Kava (KAVA) | 183,966 |
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Fair Market Value of Digital Assets at Period End
| Asset | 2021Q1 | 2021Q2 | 2021Q3 | 2021Q4 | 2022Q1 | |||||||||||||||
| Bitcoin (BTC) | $ | 5,302,695 | $ | 3,153,675 | $ | 3,941,180 | $ | 4,167,579 | $ | 4,098,481 | ||||||||||
| Ethereum (ETH)* | $ | 14,833,709 | $ | 17,920,148 | $ | 23,990,541 | $ | 29,820,477 | $ | 26,894,723 | ||||||||||
| Cardano (ADA) | $ | 356,600 | $ | 545,028 | $ | 337,716 | $ | 294,320 | ||||||||||||
| Kusama (KSM) | $ | 26,501 | $ | 123,957 | $ | 103,866 | $ | 992,851 | ||||||||||||
| Tezos (XTZ) | $ | 45,495 | $ | 146,914 | $ | 106,679 | $ | 262,023 | ||||||||||||
| Solana (SOL) | $ | 675,373 | $ | 813,791 | $ | 863,854 | ||||||||||||||
| Polkadot (DOT) | $ | 229,558 | $ | 214,616 | $ | 826,875 | ||||||||||||||
| Terra (LUNA) | $ | 138,351 | $ | 306,353 | $ | 373,005 | ||||||||||||||
| Cosmos (ATOM) | $ | 111,252 | $ | 99,761 | $ | 2,325,374 | ||||||||||||||
| Polygon (MATIC) | $ | 75,644 | $ | 169,604 | $ | 735,034 | ||||||||||||||
| Avalanche (AVAX) | $ | 135,191 | $ | 226,499 | $ | 1,383,403 | ||||||||||||||
| Algorand (ALGO) | $ | 82,381 | $ | 84,830 | $ | 47,492 | ||||||||||||||
| Axie Infinity (AXS) | $ | 1,416,264 | ||||||||||||||||||
| Kava (KAVA) | $ | 828,742 | ||||||||||||||||||
| Total | $ | 20,136,404 | $ | 21,502,420 | $ | 30,195,370 | $ | 36,451,772 | $ | 41,342,441 | ||||||||||
| QoQ Change | 411 | % | 7 | % | 40 | % | 21 | % | 13 | % | ||||||||||
| YoY Change | 7516 | % | 2013 | % | 1780 | % | 825 | % | 105 | % |
* Approximately 9 ETH is not staked on Ethereum 2.0’s Beacon Chain.
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Prices of Digital Assets at Period End
| Asset | 2021Q1 | 2021Q2 | 2021Q3 | 2021Q4 | 2022Q1 | |||||||||||||||
| Bitcoin (BTC) | $ | 58,919 | $ | 35,041 | $ | 43,791 | $ | 46,306 | $ | 45,539 | ||||||||||
| Ethereum (ETH) | $ | 1,918 | $ | 2,275 | $ | 3,002 | $ | 3,683 | $ | 3,282 | ||||||||||
| Cardano (ADA) | $ | 1.38 | $ | 2.11 | $ | 1.31 | $ | 1.14 | ||||||||||||
| Kusama (KSM) | $ | 215 | $ | 331 | $ | 278 | $ | 188 | ||||||||||||
| Tezos (XTZ) | $ | 3.04 | $ | 6.08 | $ | 4.35 | $ | 3.72 | ||||||||||||
| Solana (SOL) | $ | 141 | $ | 170 | $ | 123 | ||||||||||||||
| Polkadot (DOT) | $ | 28.58 | $ | 26.72 | $ | 21.30 | ||||||||||||||
| Terra (LUNA) | $ | 38.60 | $ | 85.47 | $ | 103 | ||||||||||||||
| Cosmos (ATOM) | $ | 36.21 | $ | 32.47 | $ | 28.90 | ||||||||||||||
| Polygon (MATIC) | $ | 1.13 | $ | 2.53 | $ | 1.62 | ||||||||||||||
| Avalanche (AVAX) | $ | 66.77 | $ | 109 | $ | 96.92 | ||||||||||||||
| Algorand (ALGO) | $ | 1.63 | $ | 1.66 | $ | 0.93 | ||||||||||||||
| Axie Infinity (AXS) | $ | 63.45 | ||||||||||||||||||
| Kava (KAVA) | $ | 4.50 |
* The prices have been rounded to the nearest whole dollar for prices above $100
Digital Asset Platform
The Company is not currently securing PoW blockchains, such as bitcoin’s blockchain, but may in the future.
The Company is developing a proprietary staking-as-a-service platform to allow users to stake and delegate supported cryptocurrencies through a non-custodial platform.
Digital Asset Data Analytics Platform
We are also developing a proprietary digital asset data analytics platformDigital Asset Platform aimed at enablingallowing users to aggregateevaluate their crypto portfolio holdings fromacross multiple exchanges and wallets intochains on a single platform to view and analyze performance, risk metrics, and potential tax implications.platform. The internally developed platforminternally-developed dashboard utilizes digital assetDigital Asset exchange APIs to read user data and does not allow for the trading of assets. AsIn addition to portfolio monitoring, we are also working to integrate a resultfull suite of other features including decentralized exchanges, wallets, risk metrics and potentially a way for users to calculate end-of year-reports for tax purposes. We believe that increasing the pandemic,number of features we have experienced delaysoffer may create a sticky user experience across multiple, interrelated products.
The Company is also currently developing and plans to integrate into the Digital Asset Platform a proprietary Staking-as-a-Service feature aimed at allowing users to delegate supported cryptocurrencies through a non-custodial platform to BTCS operated validator nodes. Staking allows users to generate an annual percentage yield (“APY”) on their staked assets whereas validator node operators charge a fee on users’ staked asset rewards earned in addition to earning an APY on staked assets. In turn, the developmenthighly scalable nature of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the platform, however, on April 1, 2021 we engaged an information technology service provider to assist with the further development and acceleration of thepremise behind BTCS’ Staking-as-a-Service platform.
Digital Asset Treasury Strategy
The Company employs a digital assetDigital Asset treasury strategy with a primary focus on disruptive non-security protocol layer assets such as bitcoin and ethereum. The Company receives digital assetsBitcoin which are not able to be staked (i.e. non-productive). They are distinct from itsDigital Assets used as the foundation for our blockchain infrastructure solutions business and acquires digital assets through open market purchases. operations previously discussed. The Company’s Digital Asset treasury holding is comprised of 90 Bitcoins as set forth above.
The Company is not limiting its assets to a single type of digital assetDigital Asset and may hold a variety of digital assets.Digital Assets. The Company will carefully review its purchases of digital securities to avoid violating the Investment Company Act of 1940 Act and seek to reduce potential liabilities under the federal securities laws.
The following tables reflect our digital assets held and their fair market values at period end:
| Digital Assets Held at Period End | ||||||||||||||||||||||||||||
| Asset | 2019Q3 | 2019Q4 | 2020Q1 | 2020Q2 | 2020Q3 | 2020Q4 | 2021Q1 | |||||||||||||||||||||
| BTC | 14.9 | 20.6 | 20.6 | 54.3 | 63.6 | 66.9 | 90.0 | |||||||||||||||||||||
| QoQ Change | 38 | % | 0 | % | 163 | % | 17 | % | 5 | % | 34 | % | ||||||||||||||||
| ETH | 584.7 | 985.0 | 985.0 | 2,304.6 | 2,554.7 | 2,674.2 | 7,732.5 | * | ||||||||||||||||||||
| QoQ Change | 68 | % | 0 | % | 134 | % | 11 | % | 5 | % | 189 | % | ||||||||||||||||
| Fair Market Value of Digital Assets at Period End | ||||||||||||||||||||||||||||
| Asset | 2019Q3 | 2019Q4 | 2020Q1 | 2020Q2 | 2020Q3 | 2020Q4 | 2021Q1 | |||||||||||||||||||||
| BTC | $ | 123,733 | $ | 148,406 | $ | 132,831 | $ | 496,027 | $ | 686,580 | $ | 1,962,572 | $ | 5,302,695 | ||||||||||||||
| QoQ Change | 20 | % | -10 | % | 273 | % | 38 | % | 186 | % | 170 | % | ||||||||||||||||
| YoY Change | 1,222 | % | 3,892 | % | ||||||||||||||||||||||||
| ETH | $ | 105,175 | $ | 127,662 | $ | 131,582 | $ | 521,552 | $ | 919,748 | $ | 1,976,126 | $ | 14,833,709 | ||||||||||||||
| QoQ Change | 21 | % | 3 | % | 296 | % | 76 | % | 115 | % | 651 | % | ||||||||||||||||
| YoY Change | 1,448 | % | 11,173 | % | ||||||||||||||||||||||||
| Total | $ | 228,908 | $ | 276,068 | $ | 264,413 | $ | 1,017,579 | $ | 1,606,328 | $ | 3,938,698 | $ | 20,136,404 | ||||||||||||||
| QoQ Change | 21 | % | -4 | % | 285 | % | 58 | % | 145 | % | 411 | % | ||||||||||||||||
| YoY Change | 1,327 | % | 7,516 | % | ||||||||||||||||||||||||
* 7,724.5 ETH is staked on ethereum’s 2.0 beacon chain and the remaining approximately 9 ETH is not staked.
As of May 11, 2021 the fair market value of our digital assets was $37.7 million.
The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.
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Non-GAAP financial measure
In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance and the economic realities of our business specifically, but not limited to, the accounting for digital assets.business. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense (including stock-based compensation issued to service providers), which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
We calculate Adjusted EBITDA as net income (loss), adjusted to exclude, depreciation and amortization, interest expense, change in fair value of warrant liabilities, and stock-based compensation expense (including stock-based compensation issued to service providers), and. Adjusted EBITDA presented does not include adjustments for impairment of intangible digital assets.Digital Assets.
The following table provides a reconciliation of net income (loss) to Adjusted EBITDA:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net income (loss) | $ | (5,740,743 | ) | $ | (6,782,175 | ) | ||
| Adjusted to exclude the following: | ||||||||
| Depreciation and amortization | 797 | 562,096 | ||||||
| Interest expense | - | 54,247 | ||||||
| Change in fair value of warrant liabilities | 641,250 | - | ||||||
| Stock-based compensation | 1,364,276 | 7,281,477 | ||||||
| Adjusted EBITDA | (3,734,420 | ) | 1,115,645 | |||||
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) | $ | (6,782,175 | ) | $ | (370,271 | ) | ||
| Adjusted to exclude the following: | ||||||||
| Depreciation and amortization | 562,096 | 16,606 | ||||||
| Interest expense | 54,247 | 6,022 | ||||||
| Stock-based compensation | 7,281,477 | - | ||||||
| Impairment of intangible digital assets | 1,301,764 | 74,425 | ||||||
| Adjusted EBITDA | 2,417,409 | (273,218 | ) | |||||
Results of Operations for the Three Months Ended March 31, 20212022 and 20202021
The following table reflects our operating results for the three months ended March 31, 20212022 and 2020:2021:
| For the Three Months Ended | ||||||||||||||||
| March 31, | $ Change | % Change | ||||||||||||||
| 2022 | 2021 | 2022 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| Validator revenue | $ | 563,015 | $ | 72,524 | $ | 490,491 | 676 | % | ||||||||
| Total revenues | 563,015 | 72,524 | 490,491 | 676 | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Validator expense | 137,869 | 14,996 | 122,873 | 819 | ||||||||||||
| Gross profit | 425,146 | 57,528 | 367,618 | 639 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | $ | 650,289 | $ | 553,981 | $ | 96,308 | 17 | % | ||||||||
| Research and development | 136,718 | 82,933 | 53,784 | 65 | ||||||||||||
| Compensation and related expenses | 1,423,896 | 7,337,679 | (5,913,784 | ) | (81 | ) | ||||||||||
| Marketing | 41,793 | 1,421 | 40,372 | 2,841 | ||||||||||||
| Total operating expenses | 2,252,696 | 7,976,014 | (5,723,318 | ) | (72 | ) | ||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | - | (54,247 | ) | 54,247 | (100 | ) | ||||||||||
| Amortization on debt discount | - | (562,096 | ) | 562,096 | (100 | ) | ||||||||||
| Change in fair value of warrant liabilities | (641,250 | ) | - | (641,250 | ) | N/A | ||||||||||
| Distributions to warrant holders | (35,625 | ) | - | (35,625 | ) | N/A | ||||||||||
| Impairment loss on digital assets/currencies | (3,307,428 | ) | (1,301,764 | ) | (2,005,664 | ) | 154 | |||||||||
| Realized gains (loss) on digital asset/currency transactions | 71,110 | 3,054,418 | (2,983,308 | ) | 98 | |||||||||||
| Total other income (expenses) | (3,913,193 | ) | 1,136,311 | (5,049,505 | ) | 444 | ||||||||||
| Net loss | $ | (5,740,743 | ) | $ | (6,782,175 | ) | 1,041,342 | (15 | ) | |||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | - | (16,176 | ) | 16,176 | (100 | ) | ||||||||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | - | (4,822,220 | ) | 4,822,220 | (100 | ) | ||||||||||
| Net loss attributable to common stockholders | $ | (5,740,743 | ) | $ | (11,620,571 | ) | 5,879,828 | (51 | ) | |||||||
| 24 |
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | ||||||||
| Staking revenue | $ | 72,524 | $ | - | ||||
| Total revenues | 72,524 | |||||||
| Cost of revenues | ||||||||
| Staking expenses | 14,996 | - | ||||||
| Gross profit | 57,528 | - | ||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 553,981 | $ | 124,228 | ||||
| Research and development | 82,933 | - | ||||||
| Compensation and related expenses | 7,337,679 | 146,300 | ||||||
| Marketing | 1,421 | 2,690 | ||||||
| Total operating expenses | 7,976,014 | 273,218 | ||||||
| Other (expenses) income: | ||||||||
| Interest expense | (54,247 | ) | (6,022 | ) | ||||
| Amortization on debt discount | (562,096 | ) | (16,606 | ) | ||||
| Impairment loss on digital assets/currencies | (1,301,764 | ) | (74,425 | ) | ||||
| Realized gains on digital asset/currency transactions | 3,054,418 | - | ||||||
| Total other income (expenses) | 1,136,311 | (97,053 | ) | |||||
| Net loss | $ | (6,782,175 | ) | $ | (370,271 | ) | ||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | (16,176 | ) | - | |||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | (4,822,220 | ) | - | |||||
| Net loss attributable to common stockholders | $ | (11,620,571 | ) | $ | (370,271 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.24 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 47,780,223 | 23,004,360 | ||||||
Validator Revenue
Revenue for the three months ended March 31, 20212022 and 20202021 were approximately $73,000$563,000 and $0,$73,000, respectively. The increase is from our blockchain infrastructure solutions stakingvalidating revenue. We believe revenues will increase as the Company continues to expand its blockchain infrastructure efforts.
Cost of Revenues
Cost of revenues for the three months ended March 31, 20212022 and 20202021 were approximately $15,000$138,000 and $0,$15,000, respectively. The increase is from our blockchain infrastructure stakingvalidating operating costs, including, web service hosting fees, and cash and stock-based compensation related to services provided by vendor.vendors. We believe our cost of revenues will increase as we continue to ramp up our business. However, we believe gross margin will improve as we add scale to our blockchain infrastructure operations, leading to improved gross profits.
Operating Expenses
Operating expenses for the three months ended March 31, 20212022 and 20202021 were approximately $8.0$2.2 million and $0.3 million, respectively.$8.0 million. The increasedecrease is primarily from stock compensationdue to $7.3 million non-cash contingent bonuses granted to employees and our non-employee director.director during 2021 for the achievement of performance milestones. The equity compensation was not valued based on the Company’s stock price of $0.19, the last closing date prior to the date of issuance of January 1, 2021 but instead, in accordance with GAAP, valued as of March 31, 2021 (the date the Company received stockholder ratification). On that date, the Company’s stock price was $1.03 which caused the significant corresponding stock compensation expense. We believe operating expenses will remain consistent as the Company continues to utilize equity-based bonus incentives as a core part of its compensation strategy.
Other Income (Expenses)
Other income (expenses) for the three months ended March 31, 20212022 and 20202021 was approximately $1.1$(3.9) million and $(0.1)$1.1 million, respectively. The decreaseincrease in other expensesincome is primarily due to a $3.1 million realized gain on digital asset/currency transactions, partially offset by $1.3from $3.3 million impairment loss on digital assets/currencies and $0.6 million amortizationchange in fair value of debt discount and interest expense on our convertible notes.warrant liabilities.
Net loss
Net loss for the three months ended March 31, 20212022 and 20202021 was approximately $6.8$5.7 million and $0.4$6.8 million, respectively. The increasedecrease is primarily due to increasethe decrease of operating expenses and increase in other income (expense) as discussed above.
Net loss attributable to common stockholders
We incurred approximately $32,000$0 and $0$16,000 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, and $0 and $4.8 million and $0 of deemed dividends related to recognition of anti-dilution adjustment to the conversion amount for Series C-2 convertible preferred stock for the three months ended March 31, 2022 and 2021, and 2020, respectively.
Liquidity and Capital Resources
Recent Financing
On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may 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. From the period September 14, 2021 through May 9, 2022, the Company sold a total of 2,268,742 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $13,874,000 at an average selling price of $6.12 per share, resulting in net proceeds of approximately $13,440,000 after deducting commissions and other transaction costs.
Liquidity
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.
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Net
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At March 31, 2022, the Company had approximately $2.6 million of liquid Digital Assets (i.e. non-staked) and $2.2 million of cash.
As of March 31, 2022, we held approximately 90 bitcoins that composed a majority of our non-staked liquid Digital Asset balance. We do not believe we will need to sell any of our bitcoins within the next twelve months to meet our working capital requirements, although we may from time to time sell bitcoins as part of treasury management operations, including to increase our cash balances. The Bitcoin market historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of instability in the Bitcoin market, we may not be able to sell our bitcoins at reasonable prices or at all. As a result, our bitcoins are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. In addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to which the tax deduction may be limited.
We view our crypto asset investments as long-term holdings and we do not plan to engage in regular trading of crypto assets. During times of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.
As of May 9, 2022, the Company had approximately $1.9 million of cash and the fair market value of the Company’s liquid Digital Assets was approximately $8.7 million, which excludes $18.7 million of staked Ethereum. The Company had no notes payable or any other long-term debt outstanding. As of May 9, 2022, the Company also has approximately $18.2 million available under the At the Market Offering Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise under the Form S-3 may increase or decrease based upon our then stock price. The Company believes that the existing cash and liquid Digital Assets held by us, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement, provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at least the next twelve months.
Cash from Operating ActivitiesFlows
ForCash used in operating activities was $1.1 million during the three months ended March 31, 2021, net cash used in operating activities was2022 compared to $2.5 million which was primarily driven by a $6.8 million net loss and $5.8 million purchase of non-productive digital currencies, $3.1 million realized gain on non-productive digital assets/currencies transaction, and partially offset by sale of non-productive digital assets/currencies of $4.3 million and impairment loss on digital currencies of $1.3 million and stock-based compensation of $7.5 million.
Forfor the three months ended March 31, 2020, net cash2021.
Cash used in operatinginvesting activities was approximately $0.3$8.2 million which was primarily driven by a $0.4 million net loss and partially offset by impairment loss on digital currencies of $74,000.
Net Cash from Investing Activities
Forduring the three months ended March 31, 2021, net cash used in investing activities was2022 compared to $8.0 million which was from $8.0 million of purchase of productive digital assets/currencies for staking.
For the three months ended March 31, 2020, there were no2021. Net cash outflow for investing activities.activities was used primarily for the purchase of Digital Assets for blockchain infrastructure operations.
Net Cash from Financing Activities
Forprovided by financing activities was $10.1 million during the three months ended March 31, 2021, net cash provided by financing activities was approximately2022 compared to $13.4 million which was primarily driven by approximately $2.0 million aggregate proceeds from issuance of 1,718,144 shares of common stock under our Equity Line, $1.0 million proceeds from issuance of convertible notes, $8.9 million net proceeds from issuance of common stock and warrants for cash, $0.4 million from the cash exercise of Series C Warrants, and $1.1 million proceeds from issuance of Series C-2 convertible preferred stock.
For the three months ended March 31, 2020, net2021. The cash provided byinflows from financing activities was approximately $0.4 million, which was relatedwere primarily from proceeds from the Common Stock sold pursuant to the ATM Agreement ($10.5 million). This was partially offset by a one time return of capital distribution of $635,000 made to record holders as of March 17, 2022. The Company has plans to continue to raise proceeds from the sale of Common Stock and issuance of 6,186,633 shares of common stock under the Equity Line with Cavalry.
Liquidity
As of May 11, 2021, the Company had $4.036 million of cash.
On March 31, 2021, we had current assets of $8.4 million, long term assets of $7.7 million, and current liabilities of $0.8 million, rendering working capital of $7.6 million.
During the first quarter of 2021, the Company received gross proceeds of approximately $13.0 million from the issuance of a convertible note, the issuance of common stock and warrants, and the issuance of Series C-2 convertible preferred stock. Therefore, the Company has adequate cashdebt to fund its operations for at least the next twelve months.as needed.
Off Balance Sheet Transactions
We areAs of March 31, 2022, there were no off-balance sheet arrangement and we were not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.
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RECENT ACCOUNTING PRONOUNCEMENTS
For information on recent accounting pronouncements, see Note 43 to the Unaudited Condensed Financial Statements.
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,Our management, with the participation of our Chief Executive Officer who is alsoand our Chief Financial Officer, ofhave evaluated the effectiveness of the design and operation of ourCompany’s disclosure controls and procedures as(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,Act) as of March 31, 20212022. Our disclosure controls and procedures are designed to ensureprovide reasonable assurance that information required to be disclosed by us in the reports filedthat we file or submitted by ussubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms includingof the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by usa company in the reports filedthat it files or submitted by ussubmits under the Exchange Act is accumulated and communicated to ourthe company’s management, including ourits principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on thatthis evaluation, our Chief Executive Officermanagement concluded that as of March 31, 2021, 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:as of March 31, 2022.
Remediation Plan
We are actively seeking to hire a full time Chief Financial Officer 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.
None.
Not applicable to smaller reporting companies.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, during the quarter ended March 31, 2022, we have issued securities without registration under the Securities Act, as described below.
| Name or Class of Investor | Date of Sale | No. of Securities | Reason for Issuance | |||
| Non-Employee Directors (1) | January 2, 2022 | 95,544 shares of restricted stock units | Performance awards |
| (1) | Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued to accredited investors and there was no general solicitation. |
ITEM 3 Defaults Upon Senior Securities
None.
ITEM 4 Mine Safety Disclosures
Not applicable.
None.On May 12, 2022, the Compensation Committee of the Board of Directors of the Company approved a performance based Annual Cash Incentive Plan for the Company’s executives for fiscal year 2022. If an executive meets their performance milestones, the executive will receive a cash bonus in amount up to 48% to 107% of the applicable executive’s base salary, as detailed below:
| ● | Charles Allen, the Company’s Chief Executive Officer is eligible to receive up to 107% of his base salary. Mr. Allen’s current base salary is $393,702; | |
| ● | Michal Handerhan, the Company’s Chief Operating Officer is eligible to receive up to 60% of his base salary. Mr. Handerhan’s base salary is $275,000; | |
| ● | Michael Prevoznik, the Company’s Chief Financial Officer is eligible to receive up to 50% of his base salary. Mr. Prevoznik’s base salary is $175,000; | |
| ● | Manish Paranjape, the Company’s Chief Technology Officer is eligible to receive up to 48% of his base salary. Mr. Paranjape’s base salary is $225,000. |
The exhibits listed in the accompanying “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.
| BTCS Inc. | ||
| May 13, | ||
| By: | /s/ Charles Allen | |
| Charles W. Allen | ||
| Chief Executive Officer | ||
| (Principal Executive | ||
EXHIBIT INDEX
| ** | This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
| + | Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request. |
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BTCS Inc., 9466 Georgia Avenue #124, Silver Spring, MD 20910, Attention: Corporate Secretary.