BTCS Inc. 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 , 2021 or ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commissions file number 001-40792 BTCS Inc. (Exact name of registrant as specified in its charter) Nevada 90-1096644 (State or other jurisdiction of Incorporation or organization) (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 ) 430-6576 Securities registered under Section 12(b) of the Exchange 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) 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 ☒ 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). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 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 Act). Yes ☐ No ☒ As of March 9, 2022, the registrant had 12,549,569 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 $ 31,733,268 , based on the closing sales price of Common Stock of $3.99 on March 9, 2022. Documents Incorporated By Reference Portions of the registrant’s Proxy Statement for the 2022 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021. BTCS INC. TABLE OF CONTENTS Page Item 1. Business 3 Item 1A. Risk Factors 10 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Mine Safety Disclosures 10 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 10 Item 6. Reserved 12 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A. Quantitative And Qualitative Disclosures About Market Risk 33 Item 8. Financial Statements and Supplementary Data 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 Item 9A. Controls and Procedures 34 Item 9B. Other Information 35 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 35 PART III Item 10. Directors, Executive Officers and Corporate Governance 35 Item 11. Executive Compensation 35 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 35 Item 13. Certain Relationships and Related Transactions, and Director Independence 35 Item 14. Principal Accounting Fees and Services 35 PART IV Item 15. Exhibits and Financial Statement Schedules 35 Item 16. Form 10-K Summary 36 2 PART I ITEM 1. BUSINESS INTRODUCTION BTCS is an early entrant in the Digital Asset market and one of the first U.S. publicly-traded companies to focus on Digital Assets and blockchain technologies. Through our blockchain-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 validating transactions on the networks. While this process is similar to Bitcoin mining the consensus mechanism is different. Now we are building on the foundation of our pre-established infrastructure with the development of a Digital Asset Platform. The first feature of the dashboard, which is an open beta, allows users to evaluate their Digital Asset portfolios from multiple exchanges on a single platform. We also are developing and plan to integrate into the platform a Staking-as-a-Service feature that, once launched, will allow users to participate in asset leveraging through securing blockchain protocols. OUR BUSINESS Blockchain Infrastructure Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by 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 impossible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain. 3 In the case of PoW, a miner does “work” using energy-consuming computers and is rewarded for this “work” with Digital Assets. The miner, typically through pools running nodes, validates transactions on the blockchain, essentially converting electricity and computing power into a digital currency reward comprised of transaction fees and newly-minted Digital Assets. Bitcoin is an example of PoW and is by far the largest and most secure PoW blockchain. PoS miners, often referred to as validators in PoS systems, actively operate nodes and validate transactions. Validators are required to stake holdings of a digital currency to participate in the consensus algorithm and are rewarded in tokens for aligning behavior with the rules of the algorithm. Bad behavior can be penalized by “slashing” the validator’s holdings and/or rewards. Validators can also be removed from the network for breaking the rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be properly maintained and secured. 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 delegating 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 PoS-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 its validator nodes 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 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. Apart from Bitcoin and Ethereum, all of the Company’s Digital Asset holdings are in tokens secured by PoS or similar consensus mechanisms that allow for Delegating and asset leveraging. The Company is currently actively operating validator nodes on Ethereum’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 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. Details of the Company’s Digital Assets held can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 4 Digital Asset Platform The Company is also developing a proprietary Digital Asset Dashboard aimed at allowing users to evaluate their crypto portfolio holdings across multiple exchanges and chains on a single platform. The internally-developed dashboard utilizes Digital Asset exchanges’ application programming interfaces (APIs) to read user data and does not allow for the trading of assets. In addition to portfolio monitoring, we are also working to integrate a full 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 number of features we offer may create a sticky user experience across multiple, interrelated products. The Company is also currently developing and planning 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 highly scalable nature of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the premise behind BTCS’ Staking-as-a-Service platform. Digital Asset Treasury Strategy The Company employs a Digital Asset treasury strategy with a primary focus on disruptive protocol layer assets such as Bitcoin which are not able to be staked (i.e. non-productive). They are distinct from Digital Assets used as the foundation for our blockchain infrastructure 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 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. 5 INDUSTRY AND MARKET OVERVIEW (DIGITAL ASSET AND BLOCKCHAIN TECHNOLOGIES) Blockchain and Digital Assets / Cryptocurrencies Generally Distributed blockchain technologies utilize a decentralized and encrypted ledger that is designed to offer a secure, efficient, verifiable, and permanent way of storing records and other information without the need for intermediaries. Digital Assets, which include and are often referred to as cryptocurrencies, serve multiple purposes. They can serve as a medium of exchange, store of value or unit of account, and provide non-financial and next generation uses. Blockchain technologies are being evaluated for a multitude of industries due to the belief in their ability to have a significant impact in many areas of business, finance, information management, and governance. Cryptocurrencies are decentralized currencies that enable near instantaneous transfers. Transactions occur via an open source, cryptographic protocol platform which uses peer-to-peer technology to operate with no central authority. An online network of nodes hosts a public transaction ledger, known as a blockchain, and each cryptocurrency is associated with a source code that comprises the basis for the cryptographic and algorithmic protocols governing its blockchain. In a cryptocurrency network, every peer node has its own copy of the blockchain, which contains records of every historical transaction - effectively containing records of all account balances. Each account is identified solely by its unique public key (making it effectively anonymous) and is secured with its associated private key (a password). The combination of private and public cryptographic keys constitutes a secure digital identity in the form of a digital signature, providing strong control of ownership. No single entity owns or operates a network. The infrastructure is collectively maintained by a decentralized public user base. As a network is decentralized, it does not rely on either governmental authorities or financial institutions to create, transmit or determine the value of the currency units. Rather, the value is determined by market factors, supply and demand for the units, the prices being set in transfers by mutual agreement or barter among transacting parties. Since transfers do not require involvement of intermediaries or third parties, there are currently limited transaction costs in direct peer-to-peer transactions. Units of cryptocurrency can be converted to fiat currencies, such as the U.S. dollar, at rates determined on various exchanges, such as Cumberland, Coinbase, Paxos, Kraken, Gemini, Bitstamp, and others. Cryptocurrency prices are quoted on various exchanges and fluctuate with extreme volatility. 6 We believe certain cryptocurrencies and Digital Assets offer many advantages over traditional, fiat currencies, although many of these factors also present potential disadvantages and may introduce additional risks, including: ● acting as a fraud deterrent, as cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by a sender; ● immediate settlement; ● elimination of counterparty risk; ● no trusted intermediary required; ● lower fees; ● identity theft prevention; ● accessible by everyone; ● transactions are verified and protected through a confirmation process, which prevents the problem of double spending; ● decentralized – no central authority (government or financial institution); and ● recognized universally and not bound by government imposed or market exchange rates. However, cryptocurrencies may not provide all of the benefits they purport to offer at all or at any time. Bitcoin for example was first introduced in 2008 and was first introduced as a means of exchange in 2009. Bitcoin is a consensus network that enables a new payment system and a completely new form of digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, we believe Bitcoin can be viewed as cash for the Internet. The Bitcoin network shares a public ledger called a “blockchain.” This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing users to have full control over sending Bitcoins from their addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in Bitcoins for this service. This process is often called “mining” and is a proof-of-work consensus algorithm. As with many new and emerging technologies, there are potentially significant risks. Businesses (including the Company) which are seeking to develop, promote, adopt, transact or rely upon blockchain technologies and cryptocurrencies have a limited track record and operate within an untested new environment. These risks are not only related to the businesses the Company pursues, but the sector and industry as a whole, as well as the entirety of the concept behind blockchain and cryptocurrency as value. Alternative Digital Assets and Blockchain Technologies Bitcoins are not the only type of Digital Assets founded on math-based algorithms and cryptographic security, although it is considered the most prominent. Other Digital Assets (commonly referred to as “altcoins”, “coins”, “tokens”, or “protocol tokens”), have been developed since the Bitcoin Network’s inception. The Bitcoin Network, however, possesses the “first-to-market” advantage and thus far has captured the majority of the industry’s interest and market share. Ethereum, Cosmos, Avalanche, Solana and other blockchains for example are designed for non-financial and next generation uses (sometimes referred to as blockchain 2.0 projects). These uses include smart contracts and distributed registers built into or built atop their respective blockchains. 7 Business Profile and Risks The decision to pursue blockchain and Digital Asset businesses exposes the Company to risks associated with a new and untested strategic direction. The prices of Digital Assets have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no merit, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. For example, in 2021, Bitcoin’s low price was $28,723 and its high price was $68,789. Government Oversight Blockchain networks are a relatively new technological innovation and the regulatory schemes to which Digital Assets and their blockchain networks may be subject have not been fully explored or developed. Recent actions taken by the SEC in its DAO Report that certain Digital Assets may be securities and actions taken by the CFTC including its July 24, 2017 order approving the first derivative clearing organization for digital currency swaps reflects that we may face increased government regulation and oversight. As stated in this report, the SEC’s July 25, 2017 DAO Report, its Chairman’s remarks and concerns about the “Wild West” nature of the Digital Assets market and reports that its staff is issuing subpoenas, which would adversely affect the Company’s future acquisition of Digital Assets by limiting the amount of Digital Securities it may acquire and creating increased compliance and legal costs. In the future before we acquire or transact in Digital Assets, we may be required to examine how they were originally offered to determine if they were offered as an investment contract or other type of security. Because of legal uncertainties, careful examination of the results of our compliance review will be required by experienced securities counsel. Because we must stay under the requirement under Investment Company Act of 1940 (the “1940 Act”) that no more than 40% of our assets (excluding cash items) constitute investment securities to avoid being deemed an investment company, we will limit the amount of Digital Securities we acquire. If our compliance procedures and legal reviews prove to be incorrect, we may incur the likelihood of prohibitive SEC penalties and/or private lawsuit defense costs and adverse rulings. Following the issuance of the DAO Report, promoters sought to evade it by callings coins “utility tokens” even where the developer retained material future services that affected the profitability and future value of the coins. The SEC quickly stopped one such initial coin offering, which clearly was intended to send a message. More recently, in August 2021 Gary Gensler, the current SEC Chairman, voiced his concerns about and continued intention to regulate Digital Assets, referring to decentralized finance, or DeFi, platforms that focus on Digital Assets as well as the Digital Assets themselves, and concluding by stating that the SEC would “continue to take our authorities as far as they go.” The Company intends to acquire additional Digital Assets. The Company currently owns and plans to expand its Digital Asset holdings, both through staking its existing Digital Asset holdings on PoS blockchain networks and potentially through other means. In order to avoid being an inadvertent investment company within the meaning of the 1940 Act, we actively focus on ensuring that our ownership of assets that are not securities in consultation with legal counsel and that such assets always exceed 60% of our total assets excluding cash items. The ownership of Digital Assets including digital securities may change based on the definition of a security under the Securities Act of 1933 (the “Securities Act”) and applicable court decisions. The key definition is the term “investment contract” and what is an investment contract. In addition to the securities laws and investment company considerations, as our business model and operations continue to evolve, including our Digital Asset platform and its functionality, we may become subject to additional laws and regulations. For example, to the extent we collect, analyze, distribute, or otherwise use data concerning individuals or entities and their holdings and transactions, we may become subject to the ever-growing number of data privacy and security laws within and without the U.S. which often have far-reaching implications for businesses. In general these laws require disclosure and preventative measures designed to protect users from unauthorized access or disclosure of their personal information, and impose fines and sanctions for failure to comply with their requirements. Many Digital Assets have also been subject to skepticism due to concerns about the high energy consumption used in mining on blockchain networks. For example, in September 24, 2021, China declared all transactions in and mining of cryptocurrencies, including Bitcoin, illegal based on concerns of high energy consumption. While our focus is currently on PoS blockchain networks which use relatively lower amounts of energy when compared to PoW, future regulations may arise in response to these concerns that could apply to us and the Digital Asset industry as a whole. Given the growing interest by regulators and other stakeholders, we anticipate that legislation and regulation of cryptocurrencies and other Digital Assets is forthcoming in the future. In 2021 Congress introduced 35 bills related to cryptocurrencies and blockchain technologies. At the state level in the U.S., 33 states and Puerto Rico had pending cryptocurrency-related legislation in the 2021 legislative session, and 17 states enacted legislation or adopted resolutions pertaining to cryptocurrencies in 2021. Given the above developments, both our current and planned operations, and the Digital Asset industry in general, continue to be subject to expanding, complex and uncertain government oversight. See “Risk Factors” beginning on page 16 and “Business” beginning on page 3 for more information. As both the regulatory landscape develops and journalistic familiarity with Digital Assets increases, mainstream media’s understanding of them and the regulation thereof may improve. Regulation of Digital Assets varies from country to country as well as within countries. An increase in the regulation of Digital Assets may affect our proposed business by increasing compliance costs or prohibiting certain or all of our proposed activities. 8 COMPETITION The Company’s current and future competition for our Digital Asset Platform and Staking-as-a-Service feature is centered on the following areas: ● Exchange based companies, such as Coinbase, Kraken, eToro and Binance, which provide Digital Asset custodial solutions and staking to users with certain eligible Digital Assets held on those exchanges. These exchanges have more robust customer bases to attract integrated staking services and may have more resources to enhance their platforms in the future; ● other Digital Asset focused companies, such as Blockdaemon, Allnodes, Everstake, Bison Trails (acquired by Coinbase), Staked (acquired by Kraken), Figment, Foundry, and Stakefish, that offer non-custodial Digital Asset staking and run validator nodes; ● other mobile applications, websites, niche aggregation sites, which offer similar analytic services, such as BNCpro, CoinTracker, Koinly, and Rotki; ● providers of mobile applications and websites, that offer secure storage solutions for Digital Assets; ● existing financial service firms and data analytics firms serving traditional asset markets that choose to offer data analytic solutions for Digital Assets; and ● Digital Asset focused companies that offer exchange, payment processing, and financial services for Digital Assets. Many of our current and potential competitors have greater resources, longer histories, more users, and greater brand recognition. They may devote more resources to technology, infrastructure, marketing and may be able to more rapidly develop their solutions. Other companies also may enter into business combinations or alliances that strengthen their competitive positions. Our small team and relative lack of capital is a competitive disadvantage. ASSETS The Company’s primary assets consist of its Digital Assets and cash as well as its human capital and intellectual property noted below. INTELLECTUAL PROPERTY AND TRADE SECRETS Our business depends in large part on our proprietary technology, particularly with regards to our Digital Asset platform and validator node operations, and our brand. We rely on, and expect to continue to rely on, a combination of trademark, domain name, and trade secret and laws, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our brand and intellectual property rights. GROWTH STRATEGY Digital Asset Platform Development The Company is currently internally developing a proprietary Digital Asset Platform aimed at allowing users to evaluate their crypto portfolio holdings across multiple exchanges and chains on a single platform. The internally-developed dashboard utilizes Digital Asset exchange APIs to read user data and does not allow for the trading of assets. Our strategy has three key phases: first develop a robust platform and open it to public beta testing, second once the platform is open acquire users, and third monetize the platform. Our current focus is on developing the platform. The first feature of the dashboard, which allows users to evaluate their Digital Asset portfolios from multiple exchanges on a single platform, is currently in an open beta. In addition to portfolio monitoring, we are also working to integrate a full 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. 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 highly scalable nature of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the premise behind BTCS’ Staking-as-a-Service platform. We believe that increasing the number of features we offer may create a sticky user experience across multiple, interrelated products. HUMAN CAPITAL RESOURCES We currently have four employees and no part time employees. We consider our relations with our employees to be excellent. See the Risk Factor on page 16 regarding certain of our executive officers. CAPITALIZATION The following table details the Company’s capitalization as of March 9, 2022. Class of Security Shares of Common Stock as Converted Common Stock Issued and Outstanding 12,549,569 Restricted Stock Units Issued (Not Vested) 1,770,741 Options to purchase Common Stock (weighted average exercise price of $2.14) 1,235,000 Warrants to purchase Common Stock (weighted average exercise price of $14.85) 962,794 Total Shares Diluted 16,518,104 9 The table above describes the shares of Common Stock which are outstanding and/or are issuable under outstanding securities. The table above does not include any unvested restricted stock units. Cautionary Note Regarding Forward Looking Statements This report contains forward-looking statements, including our liquidity, our belief that 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, and 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, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the Risk Factors below. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. ITEM 1A. RISK FACTORS Not applicable to smaller reporting companies. However, our principal risk factors are described under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” ITEM 2. PROPERTIES. As of the date of this report, the Company did not have any owned or leased properties. ITEM 3. LEGAL PROCEEDINGS. From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. We know of no material, active or pending legal proceedings against us. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION Our Common Stock is listed and traded on the Nasdaq Stock Market under the symbol “BTCS”. The last reported sale price of our Common Stock on March 9, 2022 was $3.99. HOLDERS As of March 9, 2022, there were 118 stockholders of record of our Common Stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. Shares of Common Stock that are held by financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one stockholder. DIVIDENDS We have not paid any cash dividends through December 31, 2021. On January 5, 2022, the board of directors of the Company declared a non-recurring special dividend of $0.05 for each outstanding share of Common Stock of the Company. The dividend is payable to holders of record as of the close of business on March 17, 2022. Shareholders are being provided the option to receive proceeds of their dividend payable in either cash or Bitcoin. The Bividend and cash equivalent dividend for those not electing to receive a Bividend will be paid as soon practical after the record date. The Company will evaluate the appropriateness of potential future dividends as the Company continues to grow its operations. 10 RECENT SALES OF UNREGISTERED SECURITIES In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission (the “SEC”), during the year ended December 31, 2021, 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 Executive Officers and Non-Employee Director (1) January 1, 2021 275,000 shares of restricted stock units Performance awards Non-Employee Directors (1) April 1, 2021 15,000 shares of restricted stock units Performance awards Executive officer (1) December 1, 2021 29,363 shares of restricted stock units Compensation for services (1) Exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued to an accredited investor and there was no general solicitation. 11 ITEM 6. [RESERVED] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION 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 the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” and elsewhere in this report. OVERVIEW BTCS is an early entrant in the Digital Asset market and one of the first U.S. publicly-traded companies to focus on Digital Assets and blockchain technologies. Through our blockchain-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 validating transactions on the networks. While this process is similar to Bitcoin mining the consensus mechanism is different. Now we are building on the foundation of our pre-established infrastructure with the development of a Digital Asset Platform. The first feature of the dashboard, which is an open beta, allows users to evaluate their Digital Asset portfolios from multiple exchanges on a single platform. We also are developing and plan to integrate into the platform a Staking-as-a-Service feature that, once launched, will allow users to participate in asset leveraging through securing blockchain protocols. Blockchain Infrastructure Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by 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 impossible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain. In the case of PoW, a miner does “work” using energy-consuming computers and is rewarded for this “work” with Digital Assets. The miner, typically through pools running nodes, validates transactions on the blockchain, essentially converting electricity and computing power into a digital currency reward comprised of transaction fees and newly-minted Digital Assets. Bitcoin is an example of PoW and is by far the largest and most secure PoW blockchain. PoS miners, often referred to as validators in PoS systems, actively operate nodes and validate transactions. Validators are required to stake holdings of a digital currency to participate in the consensus algorithm and are rewarded in tokens for aligning behavior with the rules of the algorithm. Bad behavior can be penalized by “slashing” the validator’s holdings and/or rewards. Validators can also be removed from the network for breaking the rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be properly maintained and secured. 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 delegating 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. Apart from Bitcoin and Ethereum, all of the Company’s Digital Asset holdings are in tokens secured by PoS or similar consensus mechanisms that allow for Delegating and asset leveraging. The Company is currently actively operating validator nodes on Ethereum’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 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 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 Bitcoin (BTC) 20.6 54.3 63.6 66.9 90.0 90.0 90.0 90.0 Ethereum (ETH) 985.0 2,304.6 2,554.7 2,674.2 7,732.5 7,878.6 7,992.4 8,097.6 Cardano (ADA) 257,757.4 257,757.4 257,757.4 Kusama (KSM) 123.4 374.2 374.2 Tezos (XTZ) 14,965.6 24,171.9 24,504.2 Solana (SOL) 4,787.5 4,778.6 Polkadot (DOT) 8,032.1 8,032.1 Terra (Luna) 3,584.2 3,584.2 Cosmos (Atom) 3,072.4 3,072.4 Polygon (Matic) 67,114.1 67,114.1 Avalanche (Avax) 2,024.7 2,072.8 Algorand (Algo) 50,583.9 51,102.6 Fair Market Value of Digital Assets at Period End Asset 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 Bitcoin (BTC) $ 132,831 $ 496,027 $ 686,580 $ 1,962,572 $ 5,302,695 $ 3,153,675 $ 3,941,180 $ 4,167,579 Ethereum (ETH)* $ 131,582 $ 521,552 $ 919,748 $ 1,976,126 $ 14,833,709 $ 17,920,148 $ 23,990,541 $ 29,820,477 Cardano (ADA) $ 356,600 $ 545,028 $ 337,716 Kusama (KSM) $ 26,501 $ 123,957 $ 103,866 Tezos (XTZ) $ 45,495 $ 146,914 $ 106,679 Solana (SOL) $ 675,373 $ 813,791 Polkadot (DOT) $ 229,558 $ 214,616 Terra (Luna) $ 138,351 $ 306,353 Cosmos (Atom) $ 111,252 $ 99,761 Polygon (Matic) $ 75,644 $ 169,604 Avalanche (Avax) $ 135,191 $ 226,499 Algorand (Algo) $ 82,381 $ 84,830 Total $ 264,413 $ 1,017,579 $ 1,606,328 $ 3,938,698 $ 20,136,404 $ 21,502,420 $ 30,195,370 $ 36,451,772 QoQ Change -4 % 285 % 58 % 145 % 411 % 7 % 40 % 21 % YoY Change 1,327 % 7,516 % 2,013 % 1,780 % 825 % * Approximately 9 ETH is not staked on Ethereum 2.0’s Beacon Chain. Prices of Digital Assets at Period End Asset 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 Bitcoin (BTC) $ 6,438.64 $ 9,137.99 $ 10,787.63 $ 29,325.50 $ 58,918.83 $ 35,040.84 $ 43,790.89 $ 46,306.45 Ethereum (ETH)* $ 133.59 $ 226.31 $ 360.02 $ 738.95 $ 1,918.36 $ 2,274.55 $ 3,001.68 $ 3,682.63 Cardano (ADA) $ 1.38 $ 2.11 $ 1.31 Kusama (KSM) $ 214.79 $ 331.24 $ 277.55 Tezos (XTZ) $ 3.04 $ 6.08 $ 4.35 Solana (SOL) $ 141.07 $ 170.30 Polkadot (DOT) $ 28.58 $ 26.72 Terra (Luna) $ 38.60 $ 85.47 Cosmos (Atom) $ 36.21 $ 32.47 Polygon (Matic) $ 1.13 $ 2.53 Avalanche (Avax) $ 66.77 $ 109.27 Algorand (Algo) $ 1.63 $ 1.66 12 Digital Asset Platform The Company is also developing a proprietary Digital Asset Platform aimed at allowing users to evaluate their crypto portfolio holdings across multiple exchanges and chains on a single platform. The internally-developed dashboard utilizes Digital Asset exchange APIs to read user data and does not allow for the trading of assets. In addition to portfolio monitoring, we are also working to integrate a full 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 number of features we offer 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 highly scalable nature of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the premise behind BTCS’ Staking-as-a-Service platform. As a result of the pandemic, we have experienced delays in the development of the platform. Digital Asset Treasury Strategy The Company employs a Digital Asset treasury strategy with a primary focus on disruptive protocol layer assets such as Bitcoin which are not able to be staked (i.e. non-productive). They are distinct from Digital Assets used as the foundation for our blockchain infrastructure 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 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. 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. 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). Adjusted EBITDA presented does not include adjustments for impairment of intangible Digital Assets. The following table provides a reconciliation of net income (loss) to Adjusted EBITDA: For the years ended December 31, 2021 2020 Net income (loss) $ (16,049,583 ) $ (2,556,094 ) Adjusted to exclude the following: Depreciation and amortization 1,868,997 355,546 Interest expense 186,740 48,231 Change in fair value of warrant liabilities (3,918,750 ) - Stock-based compensation 15,457,473 - Adjusted EBITDA $ (2,455,123 ) $ (2,152,317 ) 13 RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 For the years ended December 31, $ Change % Change 2021 2020 2021 2021 Revenues Validator revenue $ 1,213,284 $ - $ 1,213,284 N/A % Total revenues 1,213,284 - 1,213,284 N/A Cost of revenues Validator expense 268,346 - 268,346 N/A Gross profit 944,938 - 944,938 N/A Operating expenses: General and administrative $ 1,590,707 $ 421,434 $ 1,169,273 277 % Research and development 712,736 45,450 667,286 1,468 Compensation and related expenses 15,583,258 1,513,015 14,070,243 930 Marketing 180,290 6,350 173,940 2,739 Total operating expenses 18,066,991 1,986,249 16,080,742 810 Other (expenses) income: Interest expense (186,740 ) (48,231 ) (138,509 ) 287 Amortization on debt discount (1,868,059 ) (354,432 ) (1,513,627 ) 427 Change in fair value of warrant liabilities 3,918,750 - 3,918,750 N/A Impairment loss on digital assets/currencies (3,845,899 ) (165,331 ) (3,680,568 ) 2,226 Realized gains (loss) on digital asset/currency transactions 3,054,418 (1,851 ) 3,056,269 165,114 Total other income (expenses) 1,072,470 (569,845 ) 1,642,315 288 Net loss $ (16,049,583 ) $ (2,556,094 ) (13,493,489 ) 528 Validator Revenue Revenue for the years ended December 31, 2021 and 2020 were approximately $1.2 million and $0, respectively. The increase is from our blockchain infrastructure validating revenue as the Company began operating validator nodes during 2021. We believe revenues will increase as the Company continues to expand its blockchain infrastructure efforts. Cost of Revenues Cost of revenues for the years ended December 31, 2021 and 2020 were approximately $0.3 million and $0, respectively. The increase is from our blockchain infrastructure validating operating costs, including, web service hosting fees, and cash and stock-based compensation related to services provided by 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 years ended December 31, 2021 and 2020 were approximately $18.0 million and $2.0 million. The increase is primarily from $15.6 million non-cash contingent bonuses being earned for the achievement of performance milestones as well as $0.7 million in research and development expenses for development of our Digital Asset Platform. 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 year ended December 31, 2021 and 2020 was approximately $1.1 million and $(0.6) million, respectively. The increase in other income is primarily from $4.0 million change in fair value of warrant liabilities and $3.1 million realized gain on Digital Asset/currency transactions and is partially offset by $1.9 million amortization on convertible notes debt discounts and $3.8 million impairment of our Digital Asset holdings. Net loss Net loss for the years ended December 31, 2021 and 2020 were approximately $16.0 million and $2.6 million. The increase is primarily due to increase of both operating expenses and other expenses as discussed above. Net loss attributable to Common Stockholders We incurred approximately $46,000 and $0 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, and $5.0 million and $0 of deemed dividends related to recognition of anti-dilution adjustment to conversion amount for Series C-2 convertible preferred stock for the years ended December 31, 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 million (the “Shares”). During the year ended December 31, 2021, the Company sold a total of 466,791 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $2,979,000 at an average selling price of $6.38 per share, resulting in net proceeds of approximately $2,882,000 after deducting commissions and other transaction costs. Liquidit y 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. 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 December 31, 2021, the Company had approximately $3.1 million of liquid Digital Assets (i.e. non-staked) and $1.4 million of cash compared to $1.0 million of liquid Digital Assets and $0.5 million cash at December 31, 2020. As of December 31, 2021, 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 March 9, 2022, the Company had approximately $3.0 million of cash and the fair market value of the Company’s liquid Digital Assets was approximately $11.6 million. The Company had no notes payable or any other long-term debt outstanding. As of March 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. 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 Flows Cash used in operating activities was $4.9 million during the year ended December 31, 2021 compared to $3.0 million during the year ended December 31, 2020. Cash used in investing activities was $9.5 million during the year ended December 31, 2021 compared to $0 million for the year ended December 31, 2020. Net cash outflow for investing activities was used primarily for the purchase of Digital Assets for blockchain infrastructure operations. Cash provided by financing activities was $15.2 million during the year ended December 31, 2021 compared to $3.4 million for the year ended December 31, 2020. This increase was primarily from proceeds from the issuance of: Series C-2 convertible preferred stock ($1.1 million), a convertible note ($1.0 million), Common Stock and warrants issued pursuant to the Purchase agreement ($8.7 million), Common Stock issued pursuant to the Equity Line Purchase Agreement ($3.0 million), the cash exercise of warrants ($0.4 million), and the proceeds from the Common Stock sold pursuant to the ATM Agreement ($2.8 million). This was partially offset by $2 million repayment of convertible notes during the year. The Company has plans to continue to raise proceeds from the sale of Common Stock and issuance of debt to fund operations as needed. Off Balance Sheet Transactions As of December 31, 2021, 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. 14 CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis: Accounting Treatment of Digital Assets The Company accounts for its Digital Assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles –Goodwill and 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. Digital Assets held are included in the balance sheets as either current assets or other assets 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 average U.S. dollar spot price of the related Digital Asset. On a quarterly basis, Digital Assets are measured at carrying value, net of any impairment losses incurred since receipt. The Company will record impairment losses as the fair value falls below the carrying value of the Digital Assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related 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 Assets are recorded as a component of costs and expenses in our statements of operations. The Company recorded impairment losses of approximately $3.8 million and $0.2 million related to Digital Assets during the years ended December 31, 2021 and December 31, 2020, 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 $3.1 million and ($2,000) during the years ended December 31, 2021 and December 31, 2020, 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. 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 runs its own Digital Asset validator nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is cancelled 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, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain. The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives – the fixed cryptocurrency awards – is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment (“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 fair value of the award on the estimated grant date. 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 often vest over a one-year period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. Expected Volatility - The Company computes stock price volatility over expected terms based on its historical Common Stock trading prices. Risk-Free Interest Rate - The Company bases 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 not historically declared or paid any cash dividends on its common shares and does not plan to pay any recurring 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. Recent Accounting Pronouncements See Note 3 to the financial statements for a discussion of recent accounting standards and pronouncements. 15 RISK FACTORS There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our Common Stock could decline and investors could lose all or part of their investment. Summary Risk Factors Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face: ● We have a limited operating history, particularly with respect to our developing blockchain infrastructure solutions business, Digital Asset platform and potential staking-as-a -service operations ● We have a history of operating losses and expect to continue to experience operating losses in future periods. ● We have an evolving business model which we may be unable to develop, adapt or execute effectively, and we may be unable to manage our growth or implement our business plan as intended or at all. ● We are highly dependent on our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, and Michal Handerhan, our Chief Operating Officer, and the loss of the services of these individuals or other key personnel could materially harm our business. ● Our critical accounting policies may prove to be incorrect, we may need to implement additional finance and accounting systems, procedures and controls, and we face challenges inherent in operating a Digital Asset business which is subject to evolving accounting treatment for which there is limited precedent. ● We may be subject to regulatory actions, private causes of actions such as intellectual property infringement claims, and restrictions and limited access to baking and financial services due to our operations in the Digital Asset industry. ● We face uncertainty arising from large scale events including the recent Omicron variant of the COVID-19 virus and Russia’s invasion of Ukraine. ● A particular Digital Asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a Digital Asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs. ● Digital Assets and our related activities are characterized by numerous other risks and uncertainties, including the possibility for adverse regulatory developments such as bans or restrictions, theft, fraud, hacking, manipulation or malicious coding, price volatility, inaccurate mining pool calculations, the potential for one cryptocurrency to branch into two, variations among and the potential for adverse changes to blockchain algorithms, and other external forces beyond our control described more fully below. ● The future development and growth of Digital Assets such as cryptocurrencies is subject to a variety of factors that are difficult to predict and evaluate, and the market for the Digital Assets we obtain and hold may not grow as we expect or the prices may decline, including due to political or economic crises or other factors which we neither predict nor control. ● The Digital Asset space is subject to continuous regulatory uncertainty, and any adverse regulatory changes or other developments with respect to our operations or the Digital Assets with which we transact may require us to alter our business model or suspend or cease some or all of our operations. ● Our focus on PoS blockhain networks exposes us to risk of loss due to features unique to those networks, including by virtue of being locked in by smart contracts such that we cannot liquidate a portion of the relevant Digital Assets for a period of time during and after the staking process, during which the price or value of the Digital Assets may depreciate. ● We are reliant on a single service provider for cloud computing infrastructure deployed in our blockchain infrastructure solutions business, and are therefore exposed to the risks which may arise from potential adverse developments that may be caused or experienced by such service provider. ● Our Digital Asset platform is still under development and may never be commercialized, and its current or potential additional functions may expose us to additional risks such as cybersecurity threats and the application of data privacy and security laws which are onerous, and could give rise to penalties, compliance costs and other losses or expenses. ● Our stock price may be subject to significant volatility due to a variety of factors, many of which are beyond our control, including its potential connection to the price of one or more of the Digital Assets with which we are or may become involved. Risks Related to Our Company We have a limited operating history, particularly with respect to our new blockchain infrastructure operations which recently commenced and our planned platform and potential Staking-as-a-Service operations that are still under development, and we have a history of operating losses, and expect to incur significant additional operating losses. We have a limited operating history, and only recently commenced our new blockchain infrastructure operations in 2021. Further, we lack an operating history with respect to our planned additional Digital Asset Platform functions and a potential separate Staking-as-a-Service operations, each of which are still in the development stages and may never be fully developed and commercialized as intended or at all. In addition, the PoS blockchain networks on which our operations are centered are a relatively new and evolving means of validating Digital Asset transactions. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations in general, and in the Digital Assets industry in particular with itself remains a relatively new space imbued with risk and uncertainty. We have generated net losses of $16.0 million and $2.6 million for the years ended December 31, 2021 and 2020, respectively. We expect to incur additional net losses over the next several years as we seek to expand operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain. If we are unsuccessful at executing on our business plan, our business, prospects, and results of operations may be materially adversely affected. We have an evolving business model which we may be unable to develop, adapt or execute effectively. As Digital Assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. In 2017, the SEC issued a DAO Report that promoters that use initial coin offerings or token sales to raise capital may be engaged in the offer and sale of securities in violation of the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”). This may cause us to potentially change our future business in order to comply fully with the federal securities laws as well as applicable state securities laws. As a result, to stay current with the industry, our business model may need to evolve in the future as well. From time to time we may modify aspects of our business model relating to our product mix and service offerings. For example, a main component of our current business objective is developing a comprehensive Digital Asset analytics platform which enables users to perform or utilize a variety of functions related to Digital Assets, such as portfolio monitoring, risk assessment and potentially tax preparation all in one place in the hopes of attracting, maintaining and growing a customer base in the long term. However, our investments into and efforts with respect this goal may not come to fruition, including due to adverse developments in regulatory, technological, competitive or other aspects that are beyond our control. We cannot offer any assurance that our current business plan or any other modifications or undertakings with respect thereto will be successful or will not result in harm to the business. In addition, we may not be able to manage our growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. If we are unable to effectively develop, execute and adjust our business plan, or successfully manage our growth, you could lose some or all of your investment. The loss of our executive officers could have a material adverse effect on us. Our success depends on the continued services of our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, and Michal Handerhan, our Chief Operating Officer, who have extensive market knowledge and long-standing industry relationships. In particular, our reputation among and our relationships with key Digital Asset industry leaders are the direct result of a significant investment of time and effort by these individuals to build our credibility in a highly specialized industry. The loss of services of either Charles Allen or Michal Handerhan, could diminish our business and growth opportunities and our relationships with key leaders in the Digital Asset industry and could have a material adverse effect on us. We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements . We are required to comply with a variety of reporting, accounting and other rules and regulations. Compliance with existing requirements is expensive. We may need to implement additional finance and accounting systems, procedures and controls to satisfy our reporting requirements and such further requirements may increase our costs and require additional management time and resources. For example, many Digital Assets, including those on PoS blockchain networks with which we are or may become involved, demonstrate novel and unique accounting challenges, including due to smart contracts affecting the underlying Digital Assets. For the fiscal year ended December 31, 2020, our internal control over financial reporting was determined to be ineffective, and while management believes the deficiencies have been remediated as of December 31, 2021, similar deficiencies could arise in the future. Any such deficiencies, should they arise, could cause investors to lose confidence in our reported financial information, negatively affect the market price of our Common Stock, subject us to regulatory investigations and penalties, and adversely impact our business and financial condition. 16 Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results . Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, estimating valuation allowances and accrued liabilities (including allowances for returns, credit card chargebacks, doubtful accounts and obsolete and damaged inventory), internal use software and website development (acquired and developed internally), accounting for income taxes, valuation of long-lived and intangible assets and goodwill, stock-based compensation and loss contingencies, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Additional complexities can arise with respect to Digital Asset operations. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. Since there has been limited precedence set for financial accounting of Digital Assets other than Digital Securities, it is unclear how we will be required to account for Digital Asset transactions in the future. Since there has been limited precedence set for the financial accounting of Digital Assets other than Digital Securities, it is unclear how we will be required to account for Digital Asset transactions or assets. Furthermore, a change in regulatory or financial accounting standards could result in the necessity to restate our financial statements as has happened in the past. Such a restatement could negatively impact our business, prospects, financial condition and results of operation. If our estimates or judgment relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected. The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Part II, Item. 7 of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, evaluation of tax positions, and the valuation of stock-based awards and Digital Assets we hold, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of analysts and investors, resulting in a decline in the trading price of our Common Stock. We are subject to the information and reporting requirements of the Exchange Act), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to shareholders will cause our expenses to be higher than they would have been if we were privately held. It may be time consuming, difficult and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. 17 Public company compliance may make it more difficult to attract and retain officers and directors. The Sarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs and make certain activities more time consuming and costly. The impact of the SEC’s July 25, 2017 report on Digital Securities (the “DAO Report”) as well as enforcement actions and speeches made by the SEC’s Chairman will increase our compliance and legal costs. As a public company, we also expect that these rules and regulations will make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, or at all. We may be accused of infringing intellectual property rights of third parties. We may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. We expect this risk to increase as we continue to develop and roll-out additional functions in our Digital Asset Platform and potential StaaS operations in the future. The ready availability of damages, royalties and the potential for injunctive relief has increased the defense litigation costs of patent infringement claims, especially those asserted by third parties whose sole or primary business is to assert such claims. Such claims, even if not meritorious, may result in significant expenditure of financial and managerial resources, and the payment of damages or settlement amounts. Additionally, we may become subject to injunctions prohibiting us from using software or business processes we currently use or may need to use in the future or requiring us to obtain licenses from third parties when such licenses may not be available on financially feasible terms or terms acceptable to us or at all. In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements. 18 Banks and financial institutions may not provide banking services, or may cut off services, to businesses that engage in cryptocurrency-related activities. A number of companies that engage in Digital Asset and/or other cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to cryptocurrencies has been to exclude their use for ordinary consumer transactions within China. We also may be unable to obtain or maintain these services for our business. The difficulty that many businesses that provide Bitcoin and/or derivatives on other cryptocurrency-related activities have and may continue to have in finding banks and financial institutions willing to provide them services may be decreasing the usefulness of cryptocurrencies as a payment system and harming public perception of cryptocurrencies, and could decrease their usefulness and harm their public perception in the future. The usefulness of cryptocurrencies as a payment system and the public perception of cryptocurrencies could be damaged if banks or financial institutions were to close the accounts of businesses engaging in Bitcoin and/or other cryptocurrency-related activities. This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock and derivatives on commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively affect our relationships with financial institutions and impede our ability to convert cryptocurrencies to fiat currencies. Such factors could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations and harm investors. Because of the uncertainty arising from the recent strain of the COVID-19 virus, we may sustain a material adverse effect on our business, results of operations, financial condition and future prospects depending upon a variety of factors. The global COVID-19 pandemic and the unprecedented actions taken by U.S. federal, state and local governments and governments around the world in order to stop the spread of the virus had a profound impact on the U.S. and global economy, disrupting global supply chains and creating significant volatility in the oil and gas markets. Although according to the information of the U.S. Bureau of Economic Analysis, the U.S. economy recovered to pre-pandemic levels in the second quarter of 2021 as vaccine rollout and federal aid fueled a surge in consumer spending, there is no guarantee that this growth will be sustained or will not be reversed as the result of the emergence of new variants of the virus, which could be significantly more contagious and cause more severe symptoms, including the Omicron variant. The spread of the Omicron variant and the surge in infections has in the past and may in the future create adverse effects upon our economy and our business. For example, the pandemic, including the recent Omicron variant, has delayed our development efforts with respect to out Digital Asset Platform. It is difficult to project how the pandemic will affect us in the future and whether it will have adverse effects upon the economy or the Company. Because of the Russian invasion of Ukraine, the effect on the capital markets and the economy is uncertain, we may have to deal with a recessionary economy and economic uncertainty including possible adverse affects upon the Digital Asset market and our Common Stock. As a result of the Russian invasion of Ukraine, certain events are beginning to affect the global and U.S. economy including increased inflation, substantial increases in the prices of oil and gas, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in leading market indexes. The duration of this war and its impact are at best uncertain and continuation may result in Internet access issues if Russia, for example, began illicit cyber activities. Ultimately the economy may turn into a recession with uncertain and potentially severe impacts upon our industry. We cannot predict how this will affect our business, our Common Stock price or the market for Digital Assets but the impact may be adverse. Risks Related to Digital Assets A particular Digital Asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a Digital Asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. The SEC and its staff have taken the position that certain Digital Assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given Digital Asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular Digital Asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. Public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ethereum are securities (in their current form). Bitcoin and Ethereum are the only Digital Assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other Digital Asset. With respect to all other Digital Assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular Digital Asset could be deemed a “security” under applicable laws. Similarly, though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given Digital Asset is a security in April 2019, this framework is also not a rule, regulation or statement of the SEC and is not binding on the SEC. 19 Several foreign jurisdictions have taken a broad-based approach to classifying Digital Assets as “securities,” while other foreign jurisdictions, such as Switzerland, Malta, and Singapore, have adopted a narrower approach. As a result, certain Digital Assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of Digital Assets as “securities,” The classification of a Digital Asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. For example, a Digital Asset that is a security in the U.S. may generally only be offered or sold in the U.S. pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in Digital Assets that are securities in the U.S. may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade Digital Assets that are securities in the U.S. are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements. While we do not currently, nor do we plan to, offer, sell, trade, and clear Digital Assets or take custody of others Digital Assets as part of any potential Staking-as-a-Service operations we may undertake, however, Digital Assets we stake and validate transactions for could be deemed to be a “security” under applicable laws. Our blockchain infrastructure operations which entails securing blockchains by processing and validating blockchain transactions (most analogous to Bitcoin mining or operating a Bitcoin mining pool) could be construed as facilitating transactions in Digital Assets; as such we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a blockchain we secure is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to secure blockchains. We are currently seeking legal guidance on the implications of running public validator nodes for delegated proof-of-stake blockchains. Pending that determination, we have disabled the blockchain networks we secure from making payouts to those who delegate to our validator nodes and do not plan to enable such payments unless and until we have received satisfactory legal guidance. We believe that this plan reflects a comprehensive and thorough process to facilitate the application of legal guidance once available to Digital Assets to make an informed risk-based business judgment. However, we recognize that the application of securities laws to the specific facts and circumstances of Digital Assets is a complex and often unpredictable process and subject to change, and staking and securing a blockchain, while similar to Bitcoin mining, does not guarantee any conclusion under the U.S. federal securities laws, particularly given that each Digital Asset and blockchain network is unique. Therefore, if we do conclude that a particular Digital Asset is not a security on advice of our legal counsel, and the SEC or other government agencies or courts disagree with this assessment, we could be held liable for violation of securities laws. In addition, new laws may be implemented that prevent or hinder us from operating in the manner we currently conduct our business or plan to conduct our business, in which case our business may be materially harmed. Further, if any Digital Asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such Digital Asset. For instance, the networks on which such Digital Assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the Digital Asset. Also, such a development may make it difficult for such supported Digital Asset to be traded, cleared, and custodied as compared to other Digital Asset that are not considered to be securities. 20 Because Digital Assets may be determined to be Digital Securities, we may inadvertently violate the 1940 Act and incur large losses as a result and potentially be required to register as an investment company. This would have a material adverse effect on an investment in us. We plan to acquire a portfolio of Digital Assets including Bitcoin, Ethereum and other Digital Assets. There is an increased regulatory examination of Digital Assets and Digital Securities. This has led to regulatory and enforcement activities. As of the date of this filing, we are not aware of any rules that have been proposed to regulate the Digital Assets we hold as securities. We cannot be certain as to how future regulatory developments will impact the treatment of Bitcoins, Ethereum and other Digital Assets under the law. Under the 1940 Act, a company may be deemed an investment company under if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis. Digital Assets we may own in the future may be determined to be Digital Securities by the SEC or a court. Additionally, one or more states may conclude Bitcoin, Ethereum, or other Digital Assets held by us in the future are securities under state securities laws which would require registration under state laws including merit review laws. For example, California defines the term “investment contract” more strictly than the SEC. Future legislation and SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoin, Ethereum, and other Digital Assets are treated for classification and clearing purposes. The SEC’s July 25, 2017 DAO Report expressed its view that Digital Assets may be securities depending on the facts and circumstances. If a Digital Asset we hold were later determined to be a Digital Security, we could inadvertently become an investment company, as defined by the 1940 Act, if the value of the Digital Securities we owned exceeded 40% of our assets excluding cash. We are subject to the following risks: ● Contrary to legal advice, the SEC or a court may conclude that Bitcoin, Ethereum, or other Digital Assets we later acquire to be securities; ● based on legal advice, we may acquire other Digital Assets which we have been advised are not securities but later are held to be securities; and ● we may knowingly acquire Digital Assets that are securities and acquire minority investments in businesses which investments are securities. 21 In the event that the Digital Assets held by us exceed 40% of our total assets, exclusive of cash, we may inadvertently become an investment company. In order to limit our acquisition of Digital Securities to stay within the 40% threshold, we will examine the manner in which a Digital Assets was initially marketed to determine if it may be deemed a Digital Security and subject to federal and state securities laws. Even if we conclude that a particular Digital Asset is not a security under the 1940 Act, certain states take a stricter view which means the Digital Asset may have violated applicable state securities laws. Should the total value of securities which we hold rise to more than 40% of our assets (exclusive of cash) SEC Rule 3a-2 under the 1940 Act allows an issuer to prevent itself from being deemed an investment company if it reduces its holdings of securities to less than 40% of its assets (exclusive of cash) and does not go above the 40% threshold more than once every three years. Accordingly, if changes in the classification of Digital Assets causes us to exceed the 40% threshold, we may experience large losses when we liquidate digital securities as a result of continued volatility. The 40% requirement may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities. To the extent that Digital Assets held by us are deemed by the SEC or a state legislator to fall within the definition of a security, we may be required to register and comply with additional regulation under the Investment Company Act, including additional periodic reporting and disclosure standards and requirements and the registration of our Company as an investment company. Such additional registrations: i) would result in extraordinary, non-recurring expenses, ii) is time consuming and restrictive, iii) would require a restructuring of our operations, and iv) we would be very constrained in the kind of business we could do as a registered investment company, thereby materially and adversely impacting an investment in us. Further, if our examination of a Digital Asset is incorrect, we may incur regulatory penalties and private investor liabilities since Section 5 of the Securities Act is a strict liability statute much like selling spoiled milk and state securities laws generally impose liability for negligence for misrepresentations. In order to comply with the 1940 Act, we anticipate having increased management time and legal expenses in order to analyze which Digital Assets are securities and periodically analyze our total holdings to ensure that we do not maintain more than 40% of our total assets (exclusive of cash) as securities. If our view that the Digital Assets we hold are not securities is challenged by the SEC and courts uphold the challenge, we may inadvertently violate the 1940 Act and incur substantial legal fees in defending our position. The cost of such compliance would result in the Company incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct our operations. The further development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies, which represent a rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The use of Digital Assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs cryptocurrency assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies as a means of payment has not, and may never, occur. The growth of the Digital Assets industry in general, and the use of Digital Assets in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the Digital Assets industry, include but are not limited to: ● continued worldwide growth in the adoption and use of Digital Assets as a medium of exchange; ● government and quasi-government regulation of Digital Assets and their use, or restrictions on or regulation of access to and operation of the Digital Assets systems; ● the maintenance and development of the open-source software protocol of Digital Asset Networks; ● changes in consumer demographics and public tastes and preferences; ● the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies and digital forms of fiat currencies; ● general economic conditions and the regulatory environment relating to Digital Assets; and ● the impact of regulators focusing on Digital Assets and Digital Securities and the costs associated with such regulatory oversight. 22 A decline in the popularity or acceptance of the Bitcoin Network could adversely affect an investment in us. The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any Bitcoin, Ethereum or other Digital Assets we hold or acquire, which would harm investors in our securities. Currently, there is relatively small use of Bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in us. As relatively new products and technologies, Bitcoins and the Bitcoin Network have only recently become widely accepted as a means of payment for goods and services by many major retail and commercial outlets, and use of Bitcoins by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant portion of Bitcoin demand is generated by speculators and investors seeking to profit from the short- or long-term holding of Bitcoins. A lack of expansion by Bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the price of Bitcoin, either of which could adversely impact an investment in us. If a malicious actor or botnet obtains control in excess of 50% of the processing power active on a Digital Asset Network, it is possible that such actor or botnet could manipulate a blockchain in a manner that adversely affects an investment in us. If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining a cryptocurrency, it may be able to alter blockchains on which transactions of cryptocurrency reside and rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new units or transactions using such control. The malicious actor could “double-spend” its own cryptocurrency (i.e., spend the same Bitcoin in more than one transaction) and prevent the confirmation of other users’ transactions for as long as it maintained control. To the extent that such malicious actor or botnet does not yield its control of the processing power on the network, or the cryptocurrency community does not reject the fraudulent blocks as malicious, reversing any changes made to blockchains may not be possible. The foregoing description is not the only means by which the entirety of blockchains or cryptocurrencies may be compromised but is only an example. Although there are no known reports of malicious activity or control of blockchains achieved through controlling over 50% of the processing power on the network, it is believed that certain mining pools may have exceeded the 50% threshold in Bitcoin. The possible crossing of the 50% threshold indicates a greater risk that a single mining pool could exert authority over the validation of Bitcoin transactions. To the extent that the Bitcoin ecosystem, and the administrators of mining pools, do not act to ensure greater decentralization of Bitcoin mining processing power, the feasibility of a malicious actor obtaining control of the processing power will increase because the botnet or malicious actor could compromise more than 50% mining pool and thereby gain control of blockchain, whereas if the blockchain remains decentralized it is inherently more difficult for the botnet of malicious actor to aggregate enough processing power to gain control of the blockchain, may adversely affect an investment in our Common Stock. Such lack of controls and responses to such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin, Ethereum or other Digital Assets we acquire or hold, and harm investors. Bitcoin has forked at least three times and additional forks may occur in the future which may affect the value of Bitcoin held by the Company. Since August 1, 2017, Bitcoin’s blockchain was forked at least three times, each time creating new cryptocurrencies such as Bitcoin Cash, Bitcoin Gold and Bitcoin SV. The forks resulted in a new blockchain being created with a shared history, and a new path forward. The value of the newly created Bitcoin Cash, Bitcoin Gold and Bitcoin SV may or may not have value in the long run and may affect the price of Bitcoin if interest is shifted away from Bitcoin to the newly created Digital Assets. The value of Bitcoin after the creation of a fork is subject to many factors including the value of the fork product, market reaction to the creation of the fork product, and the occurrence of forks in the future. As such, the value of Bitcoin could be materially reduced if existing and future forks have a negative effect on Bitcoin’s value. 23 The decentralized nature of Digital Asset systems may lead to slow or inadequate responses to crises, which may negatively affect our business . The decentralized nature of the governance of Digital Asset systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many Digital Asset systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of cryptocurrency systems leads to ineffective decision making that slows development and growth of such Digital Assets, the value of our Common Stock may be adversely affected. Digital Asset Exchanges are relatively new and therefore may be more exposed to fraud and failure than established, regulated exchanges for other products. To the extent that large Digital Asset Exchanges representing a substantial portion of the Digital Asset volume are involved in fraud or experience security failures or other operational issues, such Exchanges’ failures may result in a reduction in the price of Digital Assets and adversely affect an investment in us. A number of Digital Asset Exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such Exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Exchanges. While smaller Exchanges are less likely to have the infrastructure and capitalization that make larger Exchanges more stable, larger Exchanges are more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems). A lack of stability in an Exchange Market and the closure or temporary shutdown of larger Digital Asset Exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in Digital Assets overall and result in greater volatility in Digital Asset values. These potential consequences of an Exchange’s failure could adversely affect an investment in us. There is a lack of liquid markets, and possible manipulation of blockchain/cryptocurrency-based Digital Assets. Digital Assets that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements and vet issuers; requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The laxer a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility or other assets trading on a ledger-based system, which may adversely affect us. Such circumstances could adversely affect an investment in us. Political or economic crises may motivate large-scale sales of Digital Assets, which could result in a reduction in Digital Asset values and adversely affect an investment in us. Geopolitical or economic crises may motivate large-scale sales of Digital Assets, which could rapidly decrease the price of Digital Assets. For example, market analysts have indicated that in some cases, such as during large scale adverse economic events, trading and market prices of cryptocurrencies such as Bitcoin and Ethereum have correlated to some extent with the movement of equity markets, regardless of the stock or asset class. For example, in March 2020, as global shutdowns ramped up in response to the COVID-19 pandemic, the price of Bitcoin plummeted together with stock prices globally. This trend is contrary to a commonly held conception that buying and holding cryptocurrencies can be used as a “hedge” to investing in the more conventional equity markets, and may eventually result in diminished popularity of cryptocurrencies or Digital Assets in general by the public. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in Digital Assets as investors focus their investment on less volatile asset classes as a means of hedging their investment risk. As an alternative to fiat currencies that are backed by central governments, Digital Assets such as Bitcoin and Ethereum, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Digital Assets either globally or locally. Large-scale sales of Digital Assets would result in a reduction in Digital Asset values and could adversely affect an investment in us. The price of Digital Assets may be affected by the sale of such Digital Assets by other vehicles investing in Digital Assets or tracking cryptocurrency markets. The global market for Digital Assets is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which certain cryptocurrencies are mined permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in Digital Assets or tracking Digital Asset markets form and come to represent a significant proportion of the demand for Digital Assets, large redemptions of the securities of those vehicles and the subsequent sale of Digital Assets by such vehicles could negatively affect Digital Asset prices and therefore affect the value of our Digital Assets. Such events could have a material adversely affect an investment in us. 24 Regulatory changes or actions may alter the nature of an investment in us or restrict the use of Digital Assets in a manner that adversely affects our business, prospects or operations. As Digital Assets have grown in both popularity and market size, governments around the world have reacted differently to Digital Assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. In addition, lawmakers and regulators continue to focus in on the evolving world of Digital Assets, with a view towards designing and implementing an appropriate regulatory framework. For example, in November 2021, President Biden’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, issued a joint report that recommended legislation that would subject issuers and wallet providers for stablecoins, described as Digital Assets that are designed to maintain a stable value relative to a national currency or other reference asset, to increased federal oversight. There are substantial uncertainties on how these or other requirements that may arise would apply in practice, and we may face substantial compliance costs to adjust our current or future operations and product offerings to react to and comply with any laws and regulations which may result. Ongoing and future regulatory actions may impact our ability to continue to operate, and such actions could affect our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations. Current interpretations require the regulation of Bitcoins and other Digital Assets under the CEA by the CFTC, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors. Current and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Bitcoins and other Digital Assets are treated for classification and clearing purposes. In particular, derivatives on these assets are not excluded from the definition of “commodity future” by the CFTC. We cannot be certain as to how future regulatory developments will impact the treatment of Bitcoins and other Digital Assets under the law. Bitcoins have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect an investment in us. Our interactions with a blockchain may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distribute ledger technology. The Office of Financial Assets Control of the U.S. Department of Treasury requires us to comply with its sanction program and not conduct business with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature of blockchain transactions we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s SDN list. Our Company’s policy prohibits any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to selling cryptocurrency assets. Moreover, federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction commonly known as child pornography. Recent media reports have suggested that persons have imbedded such depictions on one or more blockchains. Additionally, the U.S Department of Treasury recently has added sanctions that prevent U.S. persons from using cryptocurrencies to circumnavigate financial sanctions placed on Russia. Because our business requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities literally enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and affect the value of our Common Stock. If federal or state legislatures or agencies initiate or release tax determinations that change the classification of Bitcoins, Ethereum or other Digital Assets as property for tax purposes (in the context of when such Digital Assets are held as an investment), such determination could have a negative tax consequence on our Company or our shareholders. Current IRS guidance indicates that Digital Assets such as Bitcoins should be treated and taxed as property, and that transactions involving the payment of Bitcoins for goods and services should be treated as barter transactions. While this treatment creates a potential tax reporting requirement for any circumstance where the ownership of a Bitcoin passes from one person to another, usually by means of Bitcoin transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may have adversely affect an investment in our Company. 25 On December 5, 2014, the New York State Department of Taxation and Finance issued guidance regarding the application of state tax law to Digital Assets such as Bitcoins. The agency determined that New York State would follow IRS guidance with respect to the treatment of Digital Assets such as Bitcoins for state income tax purposes. Furthermore, they defined Digital Assets such as Bitcoin to be a form of “intangible property,” meaning the purchase and sale of Bitcoins for fiat currency is not subject to state income tax (although transactions of Bitcoin for other goods and services maybe subject to sales tax under barter transaction treatment). It is unclear if other states will follow the guidance of the IRS and the New York State Department of Taxation and Finance with respect to the treatment of Digital Assets such as Bitcoins for income tax and sales tax purposes. If a state adopts a different treatment, such treatment may have negative consequences including the imposition of greater a greater tax burden on investors in Bitcoin or imposing a greater cost on the acquisition and disposition of Bitcoins, generally; in either case potentially having a negative effect on prices in the Bitcoin Exchange Market and may adversely affect an investment in our Company. Foreign jurisdictions may also elect to treat Digital Assets such as Bitcoins differently for tax purposes than the IRS or the New York State Department of Taxation and Finance. To the extent that a foreign jurisdiction with a significant share of the market of Bitcoin users imposes onerous tax burdens on Bitcoin users, or imposes sales or value added tax on purchases and sales of Bitcoins for fiat currency, such actions could result in decreased demand for Bitcoins in such jurisdiction, which could impact the price of Bitcoins and negatively impact an investment in our Company. We may suffer losses due to staking, delegating, and other related services. Digital Assets which utilize PoS consensus mechanisms enable holders to earn rewards by operating nodes and participating in decentralized governance, bookkeeping and transaction confirmation activities on their underlying blockchain networks. We stake certain of our Digital Assets and operate nodes on blockchain networks through our transaction verification services business segment. Most PoS networks require Digital Assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control. If our validators, any third-party service providers, or smart contracts fail to behave as expected, suffer cybersecurity attacks, experience security issues, or encounter other problems, our Digital Assets may be irretrievably lost. In addition, most PoS blockchain networks dictate requirements for participation in the relevant decentralized governance activity, and may impose penalties, or “slashing,” if the relevant activities are not performed correctly, such as if the node operator acts maliciously on the network, “double signs” any transactions, or experience extended downtimes. Slashing penalties can apply due to prolonged inactivity on the blockchain network and inadvertent errors such as computing or hardware issues, as well as more serious behavior such as intentional malfeasance. If we are slashed by the underlying blockchain network, our Digital Assets may be confiscated, withdrawn, or burnt by the network, resulting in permanent losses. Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business. Our blockchain infrastructure operations, including Company owned and run validator nodes on PoS blockchains, are subject to concentration risk as they are consolidated on Amazon Web Services The development and operation of the Company’s validator nodes for staking, as well as the development of the Digital Asset Platform, is hosted on cloud computing by Amazon Web Services (“AWS”). The consolidation of our proprietary technology on AWS subjects the Company to cyber security and other risks that face AWS. We have limited control over AWS, the services it provides us and the safety and security measures related thereto. If AWS fails to maintain the continuous functionality or security of its networks and related hardware on which we rely for our operations, we may be unable to meet our continued obligations or generate revenue we otherwise would, and could suffer substantial losses. For example, some PoS networks implement the slashing penalties described above, wherein the Digital Assets that were staked to allow us to participate in the validation process are taken away from us, if a validator node on which the Digital Asset is staked is offline for a certain amount of time. Additionally, if our or our users’ Digital Assets become subject to unauthorized access or theft due to a cybersecurity breach or any security weaknesses experienced or existing in AWS’s systems, we could experience significant losses, both directly and/or from resulting claims against us by the customer, as well as reputational harm and lost customer relationships. If any of the foregoing or other adverse developments occur as a result of our reliance on a single service provider for our PoS validating operations, it could have a material adverse effect on our business, financial condition and results of operations. 26 Digital Assets staked on Proof of Stake blockchains are locked in smart contracts and may not be accessible and liquid. Digital Assets which utilize PoS consensus mechanisms are locked in smart contracts while staked which limits liquidity of the underlying Digital Asset. This is because under PoS network protocols, in order to participate in the staking process validators such as us are required to enter into smart contracts which, among other things, require the validator to continue to keep a specified number of the Digital Assets owned by the validator “locked-up” in the network for a specified period of time before they can again be sold or transferred by such validator. This lock-up period often extends beyond the time at which the transaction is validated. We currently stake certain of our Digital Assets and operate nodes on blockchain networks through our blockchain infrastructure services business. During times of high volatility or downturns, which are common among Digital Assets for many reasons including those described elsewhere in these Risk Factors, we may be unable to liquidate certain Digital Assets to the extent desired. Further Ethereum staked on Ethereum’s Beacon Chain is locked in a smart contract until Ethereum transitions to its PoS beacon chain and a market exists. We currently carry our staked Ethereum as a non-current long-term asset on our balance sheet. Staked Digital Assets which can be unlocked from a smart contract in less than one year are carried as current assets on our balance sheet. As such we may experience large losses when and if we are able to liquidate our Digital Assets as a result of continued volatility, further if we are unable to liquidate our Digital Assets or Ethereum does not transition to its PoS beacon chain we could suffer material financial losses, which would adversely impact our business. Our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions is uncertain and untested, and we are subject to uncertainty with respect to our potential non-custodial Staking-as-a-Service business and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities. Laws regulating financial services, the internet, mobile technologies, digital, and related technologies inside and outside of the U.S. may impose obligations on us, as well as broader liability. For example, we are required to comply with laws and regulations related to sanctions and export controls enforced by U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC, and U.S. anti-money laundering and counter-terrorist financing laws and regulations, enforced by FinCEN and certain state financial services regulators. U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain governments, countries, or territories that are the target of comprehensive sanctions, currently the Crimea Region of Ukraine, Cuba, Iran, North Korea, Syria, and Venezuela as well as with persons identified on certain prohibited lists. In May 2019, FinCEN issued guidance on the application of FinCEN regulations to certain business models. While the guidance directly addressed Bitcoin mining, it did not address securing PoS blockchains which while similar to Bitcoin mining have technical nuanced differences which could alter the analysis. As such, there can be no guarantee that securing (mining) on PoS blockchain networks will be viewed as compliant, notwithstanding the May 2019 FinCEN guidance. In particular, the nature of blockchains make it technically impossible in all circumstances to prevent or identify transactions with particular persons or addresses. If our current or planned activities are found to constitute “facilitating” or assisting the actions of non-U.S. persons that would be prohibited for U.S. persons to perform directly due to U.S. sanctions, even though we do not take custody of the Digital Assets nor pay delegators to our pools, that could result in material negative consequences for us, including costs related to government investigations, harsh financial penalties, and harm to our reputation. The impact on us related to these matters could be substantial. We are seeking legal guidance on what, if any, controls and procedures need to be put in place and whether our activities could constitute facilitation of any illicit activities under the current regulatory framework. Regulators worldwide frequently study each other’s approaches to the regulation of the digital economy. Consequently, developments in any jurisdiction may influence other jurisdictions. New developments in one jurisdiction may be extended to additional services and other jurisdictions. In addition, digital economies themselves are subject to rapid and unpredictable change that regulators could decide warrants updates or additions to existing regulatory regimes. As a result, the risks created by any new law or regulation in one jurisdiction are magnified by the potential that they may be replicated, affecting our business in another place. Conversely, if regulations diverge worldwide, we may face difficulty adjusting aspects of our business. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our operating results and financial condition. Due to the uncertain application of existing laws and regulations, it may be that, despite our planned regulatory and legal analysis that certain products and services are currently unregulated, such products or services may indeed be subject to financial regulation, licensing, or authorization obligations that we have not obtained or with which we have not complied. As a result, we are at a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition. 27 Security Risks Related to Our Digital Assets Holdings Our Digital Assets may be subject to loss, damage, theft or restriction on access. There is a risk that part or all of our Digital Assets could be lost, stolen, destroyed or become inaccessible. We believe that our Digital Assets will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal our Digital Assets. To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we hold our Digital Assets at exchanges and have also relied on Bitgo Inc.’s (“Bitgo”) enterprise multi-signature storage solution. Nevertheless, the exchanges we utilize or Bitgo’s security systems may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us. Any of these events may adversely affect our operations and, consequently, an investment in us. To the extent that any of our Digital Assets are held by Exchanges, we may face heightened risks from cybersecurity attacks and financial stability of the Exchanges. All Digital Assets not held in a Company’s controlled wallet such as Bitgo’s storage solutions will be held at Exchanges and subject to the risks encountered by those Exchange including DDoS Attacks, other malicious hacking, a sale of the exchange, loss of the Digital Assets by the exchange, security breaches, and unauthorized access of our account by hackers. The Company may not maintain a custodian agreement with the Exchanges that it holds its Digital Assets at. Exchanges do not provide insurance and may lack the resources to protect against hacking and theft. We may be materially and adversely affected if the Exchanges suffer cyberattacks or incur financial problems. The loss or destruction of a private key required to access a Digital Assets may be irreversible. Our loss of access to our private keys could adversely affect an investment in our Company. Digital Assets such as Bitcoin are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the Digital Assets are held. We are required by the operation of the Digital Asset Network to publish the public key relating to a digital wallet in use by us when it first verifies a spending transaction from that digital wallet and disseminates such information into the Network. We safeguard and keep private the private keys relating to our Digital Assets not held at exchanges by utilizing Bitgo’s multi-signature storage solution; to the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, we will be unable to access the Digital Assets held by it and the private key will not be capable of being restored by the Network. Any loss of private keys relating to digital wallets used to store our Digital Assets could adversely affect an investment in us. Security threats to us could result in, a loss of Company’s Digital Assets. Security breaches, computer malware and computer hacking attacks have been a prevalent concern in the Bitcoin Exchange Market since the launch of the Bitcoin Network. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our Bitcoins and other Digital Assets. Any breach of our infrastructure could result in damage to our reputation which could adversely affect an investment in us. Furthermore, we believe that, as our assets continues to grow, it may become a more appealing target for security threats such as hackers and malware. 28 The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data or Bitcoins. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us. In the event of a security breach, we may be forced to cease operations, or suffer a reduction in assets, the occurrence of each of which could adversely affect an investment in us. Incorrect or fraudulent Digital Asset transactions may be irreversible. Digital Asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of Digital Assets or a theft of Digital Assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our Digital Assets could be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party which has received our Digital Assets through error or theft, we will be unable to revert or otherwise recover incorrectly transferred Digital Assets. To the extent that we are unable to seek redress for such error or theft, such loss could adversely affect an investment in us. The limited rights of legal recourse against us, and our lack of insurance protection expose us and our shareholders to the risk of loss of our Digital Assets for which no person is liable. The Digital Assets held by us are not insured. Therefore, a loss may be suffered with respect to our Digital Assets which is not covered by insurance and for which no person is liable in damages which could adversely affect our operations and, consequently, an investment in us. Digital Assets held by us are not subject to FDIC or SIPC protections. We do not and will not hold our Bitcoins and other Digital Assets with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our Digital Assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. Risks Related to Our Digital Asset Platform Development There is substantial doubt that we will be able to develop or commercialize our Digital Asset Platform. We are currently developing a Digital Asset Platform with the ultimate goal of consolidating users’ information so that it can be more easily accessed and reviewed by users. We may not successfully develop this platform in a cost-efficient manner, to the extent sought or at all. If we fail to develop a Digital Asset Platform as intended, it could have a material adverse effect on our business, especially to the extent that we allocate significant capital, labor and other resources to this endeavor rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight. Even if we do successfully develop our platform and bring it to the marketplace, there is no guarantee that we will attract enough users to generate revenue or become profitable. Our competitors, most of whom have greater capital and human resources than we do, may develop technologies that are superior to our platform or commercialize comparable technologies before us, in which case our ability to attract users and generate revenue therefrom could be rendered unlikely or even impossible. If we fail to obtain users for our platform or find an alternative means of commercializing our platform to recoup our investment therein, it will have a material adverse effect on our financial condition. Even if we develop and commercialize our Digital Asset Platform, we may not be able to generate material revenues. The Digital Asset Platform that we are currently developing will require significant time and capital. Even if we do develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material or sufficient to justify the costs we anticipate incurring to develop the platform. Our ability to capitalize on any platform we do develop will depend on a variety of factors and uncertainties beyond our control, including the competition we face and similar or superior services that may already exist by the time we begin marketing our platform, the volatile nature of the blockchain industry generally and the unknown demand for the services we plan to offer through our platform as it is currently envisioned, and the advancement of new technologies which could arise in the future and render our platform partially or completely obsolete. If any of these or other risks come to fruition to prevent our platform from generating material revenue to justify its costs of production, it would have a material adverse effect on our business. 29 The development of our Digital Asset Platform will depend on the successful efforts of our employees. Our platform development effort is completely dependent on our infrastructure. We use internally developed systems for the platform. Any future difficulties developing aspects of our platform may cause delays in bringing our platform to market. If the location where all of our computer and communications hardware is located is compromised, our platform, prospects, could be harmed. We do not currently have a disaster recovery plan which could result in a loss of the platform software. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, the occurrence of any of which could lead to interruptions, delays, loss of critical data or the inability to launch our platform. The occurrence of any of the foregoing risks could harm our business. We are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond to cyber incidents. Our Digital Asset Platform is and will continue to be dependent on the secure operation of our website and systems as well as the operation of the Internet generally. The platform involves reading user data, and storage of user data, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. A number of large Internet companies have suffered security breaches, some of which have involved intentional attacks. From time to time, we and many other Internet businesses also may be subject to a denial of service attacks wherein attackers attempt to block customers’ access to our Website. If we are unable to avert a denial of service attack for any significant period, we could sustain delays in the development of the platform and when launched risk losing future users and have user dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber attacks may target us, our users, or exchanges we read data from in general or the communication infrastructure on which we depend. If an actual or perceived attack or breach of our security occurs, user perception of the effectiveness of our security measures could be harmed and we could lose our future user. Actual or anticipated attacks and risks may cause us to incur increasing costs, and delay development. A person who is able to circumvent our security measures might be able to misappropriate our or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and platform. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. We may become subject to data privacy and data security laws and regulations by virtue of our Digital Asset Platform, which could force us to incur significant compliance costs and expose us to liabilities. By virtue of our platform, including planned additional functions, we may become subject to the various local, state, federal, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer, and processing of personal data. These data protection and privacy laws and regulations and their applicability to our current and future operations and offerings are subject to uncertainty and continue to evolve in ways that could adversely impact our business. These laws could have a substantial impact on our operations, depending in large part on the location of our operations, users, employees and other stakeholders with which we are or become involved. 30 In the United States, state and federal lawmakers and regulatory authorities have increased their attention on the collection and use of user data. For example, California enacted the California Consumer Privacy Act, or CCPA, which became effective in 2020. The CCPA requires covered companies to, among other things, provide new disclosures to California users, and affords such users new privacy rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation. Potential uncertainty surrounding the CCPA and CPRA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, the results of our operations or prospects. Since the CCPA was enacted, other states including Nevada, Maine, Colorado and Virginia have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have also proposed similar legislation. The costs of compliance with, and other burdens imposed by, the CCPA, and similar laws may limit our prospective customer base or the use and adoption of our products and services and/or require us to incur substantial compliance costs, which could have an adverse impact on our business. Additionally, many foreign countries and governmental bodies in which our users may reside, have laws and regulations concerning the collection, use, processing, storage, and deletion of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations are often more restrictive than those in the United States. Such laws and regulations may require companies to implement new privacy and security policies, permit individuals to access, correct, and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, require that certain types of data be retained on local servers within these jurisdictions, and, in some cases, obtain individuals’ affirmative opt-in consent to collect and use personal information for certain purposes. There is a risk that as we develop and offer our platform and other services, we may become subject to one or more of these data privacy and security laws. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection, and information security, it is possible that our practices, offerings, or platform, or third parties on which we rely, could fail. For instance, the overall regulatory framework governing the application of privacy laws to blockchain technology is still highly undeveloped and likely to evolve. Our failure, or the failure by our third-party providers or partners, to comply with applicable laws or regulations and to prevent unauthorized access to, or use or release of personal data, or the perception that any of the foregoing types of failure has occurred, even if unfounded, could subject us to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, potential severe criminal or civil sanctions, fines or damages, reputational harm, or expensive and time-consuming proceedings by governmental agencies and private claims and litigation, any of which could materially adversely affect our business, operating results, and financial condition. We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing the Digital Asset Platform. Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties however, we may not always be able to determine that we are using or accessing protected information or software. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. Accordingly, we could expend significant resources defending against patent infringement and other intellectual property right claims; which could require us to divert resources away from operations. Any damages we are required to pay or injunctions against our continued use of such intellectual property in resolution of such claims may cause a material adverse effect to our business and operations, which could adversely affect the trading price of our securities and harm our investors. 31 Risks Related to our Common Stock Our stock price may be volatile. The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following: ● changes in our industry including changes which adversely affect Bitcoin, Ethereum, and other Digital Assets; ● continued volatility in the price of Bitcoin, Ethereum, and other Digital Assets; ● our ability to obtain working capital financing; ● sales of our securities or those of other companies, or of Digital Assets, due to external forces such as geopolitical turmoil, inflation, federal interest rate adjustments or other events; ● additions or departures of key personnel including our executive officers; ● sales of our Common Stock; ● exercise of our warrants and the subsequent sale of the underlying Common Stock; ● conversion of our convertible notes and the subsequent sale of the underlying Common Stock; ● our ability to execute our business plan; ● operating results that fall below expectations; ● loss of any strategic relationship; ● adverse regulatory developments; and ● economic and other external factors. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock. As a result, you may be unable to resell your shares at a desired price. We have not paid cash dividends in the past and, while we have declared a cash dividend in 2022, we do not expect to pay regular or recurring dividends in the future. Any return on investment may be limited to the value of our Common Stock. We have never paid cash dividends on our Common Stock and, while we declared a cash dividend (which may be paid in Bitcoin if elected by the shareholder) payable to holders of our Common Stock as of March 17, 2022, we do not anticipate paying dividends on a regular or recurring basis for the foreseeable future. Any future payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates. 32 Our articles of incorporation allow for our board to create new series of preferred stock without further approval by our shareholders, which could adversely affect the rights of the holders of our Common Stock. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further shareholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, provide holders of the preferred anti-dilution protection, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing shareholders. Substantial future sales of our Common Stock by us or by our existing shareholders could cause our stock price to fall. Additional equity financings (in addition to the shares issued under the ATM Agreement) or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, and shares issued on the conversion of outstanding notes, could adversely affect the market price of our Common Stock. Sales by existing shareholders of a large number of shares of our Common Stock in the public market or the perception that additional sales could occur could cause the market price of our Common Stock to drop. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 15(a)(1) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 33 ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2021. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective could provide only reasonable assurance with respect to financial statement preparation and presentation. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the framework in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 Internal Control-Integrated Framework”). Based on our evaluation under the 2013 Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2021. 34 Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021. Our Board of Directors has adopted a Code of Ethics applicable to all officers, directors and employees, which is available on our website (http://www.btcs.com) under “Corporate Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Ethics and by posting such information on our website at the address and location specified above. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended December 31, 2021. PART IV ITEM 15. EXHIBITS (a) Documents filed as part of the report. (1) Financial Statements. See Index to Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Financial Statements are filed herewith in response to this Item. (2) Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the financial statements or notes included in this report. (3) Exhibits. See the Exhibit Index. EXHIBIT INDEX Incorporated by Reference Exhibit No. Description Filed/Furnished Herewith Form Exhibit No. Filing Date 2.1 Articles of Merger 8-K/A 3.1 7/31/15 2.2 Agreement and Plan of Merger 8-K/A 3.2 7/31/15 3.1 Articles of Incorporation 10-K 3.1 3/31/11 3.1(a) Amendment No. 1 To Articles of Incorporation 8-K 3.1 3/25/13 3.1(b) Amendment No. 2 To Articles of Incorporation 8-K 3.1 2/5/14 3.1(c) Certificate of Amendment filed February 13, 2017 8-K 3.1 2/16/17 3.1(d) Amendment No. 3 To Articles of Incorporation 8-K 3.1 4/9/19 3.1(e) Certificate of Change – Reverse Split 8-K 3.1 8/17/21 35 3.2 Bylaws of TouchIT Technologies, Inc. S-1 3.2 5/29/08 4.1 Convertible Note dated as of September 18, 2019 8-K 4.1 9/19/19 4.2 Convertible Note dated as of November 7, 2019 8-K 4.1 11/7/19 4.3 Convertible Note dated as of April 17, 2020 8-K 4.1 4/20/20 4.4 Convertible Note dated as of December 16, 2020 8-K 4.1 12/16/20 4.5 Convertible Note dated as of January 15, 2021 8-K 4.1 1/22/21 4.6 2021 Equity Incentive Plan 10-Q 4.2 5/13/21 4.7 Description of Securities (1) 10.1 Employment Agreement - Charles Allen (2) 10-K 10.8 6/23/17 10.1(a) Amendment to Employment Agreement - Charles Allen (2) 10-K 10.15(a) 3/23/20 10.2 Employment Agreement - Michael Handerhan (2) 10-K 10.9 6/23/17 10.2(a) Amendment to Employment Agreement – Michal Handerhan (2) 10-K 10.16(a) 3/23/20 10.3 Employment Agreement – Andrew Lee (2) 10-Q 10-6 8/6/21 10.4 Offer Letter – Michael Prevoznik (1) (2) 10.5 Equity Line Purchase Agreement dated as of May 13, 2019 8-K 10.1 5/16/19 10.6 Registration Rights Agreement dated as of May 13, 2019 8-K 10.2 5/16/19 10.7 Note Exchange Agreement dated as of September 18, 2019 8-K 10.1 9/19/19 10.8 Side Letter dated as of November 7, 2019 8-K 10.1 11/7/19 10.9 Side Letter with Cavalry Fund I LP dated April 17, 2020 8-K 10.1 4/20/20 10.10 Side Letter with Cavalry Fund I LP dated December 16, 2020 8-K 10.1 12/16/20 10.11 Form of Subscription Agreement –Series C-2 Convertible Preferred Stock 8-K 10.1 1/4/21 10.12 Series D Warrant dated as of January 15, 2021 8-K 10.1 1/22/21 10.13 Form of Securities Purchase Agreement, dated March 2, 2021, by and between the Company, the Purchasers, and the Placement Agent* 8-K 10.1 3/4/21 10.14 Placement Agent Agreement dated March 2, 2021 by and between the company and A.G.P./Alliance Global Partners 8-K 10.2 3/4/21 10.15 Common Stock Purchase Warrant dated March 2, 2021, by and between the Company and the Purchasers 8-K 10.3 3/4/21 21.1 List of Subsidiaries (1) 31 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1) 32 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) 101.INS Inline XBRL Instance Document (1) 101.SCH Inline XBRL Taxonomy Extension Schema (1) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase (1) 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase (1) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase (1) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase (1) 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the SEC upon request any omitted information. (1) Filed herein (2) Indicates a management contract or compensatory plan. (3) Furnished herein ITEM 16. FORM 10-K SUMMARY. Not applicable. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 11, 2022. BTCS INC. Date: March 11, 2022 /s/ Charles Allen Charles W. Allen Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of BTCS Inc. and in the capacities and on the dates indicated. Signature Title Date /s/ Charles Allen Chief Executive Officer March 11, 2022 Charles W. Allen (Principal Executive Officer) and Chairman of the Board of Directors /s/ Michael Prevoznik Chief Financial Officer March 11, 2022 Michael Prevoznik (Principal Financial Officer and Principal Accounting Officer) /s/ Michal Handerhan Director March 11, 2022 Michal Handerhan /s/ David Garrity Director March 11, 2022 David Garrity /s/ Carol Van Cleef Director March 11, 2022 Carol Van Cleef /s/ Charlie Lee Director March 11, 2022 Charlie Lee 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of BTCS Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of BTCS Inc. (The “Company”) as of December 31, 2021 and 2020 and the related statements of operations, stockholders’ (deficit) equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 1 Going Concern As described further in Note 9 to the financial statements, the Company has suffered recurring losses from operations and does not have an established source of revenues sufficient to cover all of its operating costs. The ability of the Company to ultimately continue as a going concern is dependent on executing business plan and ultimately to attain profitable operations. The Company’s cash position and liquid Digital Assets are sufficient to support its daily operations over the next twelve months. At December 31, 2021, the Company had approximately $3.1 million of liquid Digital Assets (i.e. non-staked) and $1.4 million of cash. During the year ended December 31, 2021, the Company sold a total of 466,791 shares of Common Stock under the ATM Agreement for aggregate total net proceeds of approximately $2,882,000. The Company’s cash position and liquid Digital Assets are sufficient to support its daily operations over the next twelve months. Accordingly, the Company has determined that these factors alleviate the doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management may to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from private investors, in order satisfy the Company’s business objective for at least one year from the financial statement issuance date. However, the Company has concluded that these plans alleviate the doubt related to its ability to continue as a going concern. We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others: ● We assessed whether the Company’s determination that there alleviation of doubt about its ability to continue as a going concern was adequately disclosed. ● We reviewed and evaluated management's plans including cash flow projections for alleviating the doubt about going concern. Evaluation of the Accounting for and Disclosure of Digital Assets and Cryptocurrencies Held As disclosed in Note 3 to the consolidated financial statements, the Company’s digital assets/cryptocurrencies held as of December 31, 2021, which mainly consist of Ethereum 2.0 and Bitcoin, are accounted for as indefinite-lived intangible assets, and have been included in current assets and long-term assets on the consolidated balance sheet. The Company’s cryptocurrencies as of December 31, 2021 were approximately $12,400,000. We identified the accounting for and disclosure of cryptocurrencies held as a critical audit matter for the following reasons. Currently, no authoritative guidance exists for the accounting for and disclosure of cryptocurrencies held in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for cryptocurrencies held, the associated financial statement presentation and accompanying footnote disclosures. In addition, the accounting for cryptocurrencies involves the Company’s information technology (“IT”) environment as such assets are held in digital wallets. The procedures we performed to address this critical audit matter included the following: ● Assessed certain internal controls over the Company’s digital storage wallets with the assistance of our IT specialist; ● Inquired of management regarding controls over the Company’s digital storage wallets; ● Evaluated management’s rationale for the application of Accounting Standards Codification (“ASC”) 350 to account for its cryptocurrencies held, including management’s processes for evaluating its cryptocurrencies for impairment; ● Evaluated management’s rationale for the inclusion of cryptocurrencies as a current asset and long-term on the balance sheet; and ● Examined supporting sale and cash receipt evidence for cryptocurrency sales, including management’s processes for calculating any gains or losses on sales of cryptocurrencies. Evaluation of the Accounting for and Disclosure of Cryptocurrency Staking Revenue Recognized As disclosed in Note 3, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. During the year ended December 31, 2020, the Company recognized net cryptocurrency staking revenue of approximately $1,200,000. We identified the accounting for and disclosure of cryptocurrency staking revenue recognized as a critical audit matter for the following reasons. Currently, no authoritative guidance exists for the accounting for and disclosure of cryptocurrency staking revenue recognized in accordance with GAAP. The Company’s management has exercised judgment in their determination of how existing GAAP should be applied to the accounting for and disclosure of cryptocurrency staking revenue recognized. In addition, the Company’s cryptocurrency staking hardware that provides computing power for the validator nodes is currently hosted at a third party facility. The primary procedures we performed to address this critical audit matter included the following: ● Evaluated the design of IT general controls over the Company’s IT environment. ● Evaluated management’s rationale for the application of ASC 606 to account for its cryptocurrency awards earned. ● Evaluated management’s disclosures of its cryptocurrency activity in the financial statements; ● Independently confirmed certain financial and performance data directly vouching to the public blockchain data; and ● Compared the Company’s digital wallet records to publicly available blockchain records. /s/ RBSM LLP We have served as the Company’s auditor since 2016. Las Vegas, Nevada March 11, 2022 PCAOB ID: 587 New York | Washington, DC | California | Nevada China | India | Greece Member of ANTEA International with offices worldwide F- 2 BTCS Inc. Balance Sheets December 31, December 31, 2021 2020 Assets: Current assets: Cash $ 1,400,867 $ 524,135 Digital Assets/currencies 3,117,360 995,652 Staked Digital Assets/currencies 623,754 - Prepaid expense 324,551 31,875 Total current assets 5,466,532 1,551,662 Other assets: Property and equipment, net 9,783 230 Staked Digital Assets/currencies - long term 8,625,678 - Total other assets 8,635,461 230 Total Assets $ 14,101,993 $ 1,551,892 Liabilities and Stockholders’ Equity: Accounts payable and accrued expense $ 138,716 $ 26,288 Accrued compensation 7,334 350,376 Convertible notes payable, net - 131,941 Warrant liabilities 1,852,500 - Total current liabilities 1,998,550 508,605 Stockholders’ equity: Preferred stock; 20,000,000 shares authorized at $ 0.001 par value: Series C-1 Convertible Preferred stock: 0 and 29,414 shares issued and outstanding at December 31, 2021 and 2020, respectively; Liquidation preference $ 0.001 per share - 29 Series C-2 Convertible Preferred stock: 0 shares issued and outstanding at December 31, 2021 and 2020; Liquidation preference $ 0.001 per share - - Preferred stock, value - - Common Stock, 97,500,000 shares authorized at $ 0.001 par value, 10,528,212 and 4,201,035 shares issued and outstanding at December 31, 2021 and 2020, respectively 10,529 4,201 Additional paid in capital 147,682,384 120,578,944 Accumulated deficit ( 135,589,470 ) ( 119,539,887 ) Total stockholders’ equity 12,103,443 1,043,287 Total Liabilities and stockholders’ equity $ 14,101,993 $ 1,551,892 The accompanying notes are an integral part of these financial statements. F- 3 BTCS Inc. Statements of Operations 2021 2020 For the years ended December 31, 2021 2020 Revenues Validator revenue $ 1,213,284 $ - Total revenues 1,213,284 - Cost of revenues Validator expense 268,346 - Gross profit 944,938 - Operating expenses: General and administrative $ 1,590,707 $ 421,434 Research and development 712,736 45,450 Compensation and related expenses 15,583,258 1,513,015 Marketing 180,290 6,350 Total operating expenses 18,066,991 1,986,249 Other (expenses) income: Interest expense ( 186,740 ) ( 48,231 ) Amortization on debt discount ( 1,868,059 ) ( 354,432 ) Change in fair value of warrant liabilities 3,918,750 - Impairment loss on Digital Assets/currencies ( 3,845,899 ) ( 165,331 ) Realized gains (loss) on Digital Asset/currency transactions 3,054,418 ( 1,851 ) Total other income (expenses) 1,072,470 ( 569,845 ) Net loss $ ( 16,049,583 ) $ ( 2,556,094 ) Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock ( 45,541 ) - Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock ( 5,020,883 ) - Net loss attributable to Common Stockholders $ ( 21,116,007 ) $ ( 2,556,094 ) Net loss per share attributable to Common Stockholders, basic and diluted $ ( 3.09 ) $ ( 0.86 ) Weighted average number of common shares outstanding, basic and diluted 6,840,665 2,983,425 The accompanying notes are an integral part of these financial statements. F- 4 BTCS Inc. Statement of Stockholders’ (Deficit) Equity For the years ended December 31, 2021 and 2020 Shares Amount Shares Amount Shares Amount Paid-in Capital Accumulated Deficit (Deficit) Equity Series C-1 Convertible Series C-2 Convertible Total Preferred Stock Preferred Stock Common Stock Additional Stockholders’ Shares Amount Shares Amount Shares Amount Paid-in Capital Accumulated Deficit (Deficit) Equity Balance December 31, 2019 29,414 $ 29 - $ - 1,983,047 $ 1,983 $ 116,798,021 $ ( 116,983,793 ) $ ( 183,760 ) Common Stock issued including equity commitment fee, net - - - - 1,523,146 1,523 1,852,517 - 1,854,040 Issuance of common stock, net of offering cost / At-the-market offering Issuance of common stock, net of offering cost / At-the-market offering, shares Issuance of common stock and warrants for cash, net Issuance of common stock and warrants for cash, net, shares Warrant liabilities value related to Issuance of common stock Issuance of Series C-2 convertible preferred stock Issuance of Series C-2 convertible preferred stock, shares Conversion of Series C-1 Convertible Preferred stock Conversion of Series C-1 Convertible Preferred stock, shares Conversion of Series C-2 Convertible Preferred stock Conversion of Series C-2 Convertible Preferred stock, shares Conversion of convertible notes and interest - - - - 694,842 695 746,061 - 746,756 Beneficial conversion features associated with convertible notes payable - - - - - - 1,182,345 - 1,182,345 Beneficial conversion feature of Series C-2 convertible preferred stock Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock Fractional shares adjusted for reverse split Fractional shares adjusted for reverse split, shares Warrant exercise Warrant exercise, shares Stock-based compensation Stock-based compensation, shares Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock Net loss - - - - - - - ( 2,556,094 ) ( 2,556,094 ) Balance December 31, 2020 29,414 $ 29 - $ - 4,201,035 $ 4,201 $ 120,578,944 $ ( 119,539,887 ) $ 1,043,287 Balance 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 - - - - 321,738 322 3,013,683 - 3,014,005 Issuance of Common Stock, net of offering cost / At-the-market offering - - - - 466,791 467 2,831,685 - 2,832,152 Issuance of Common Stock and warrants for cash, net - - - - 950,000 950 8,864,050 - 8,865,000 Warrant liabilities value related to Issuance of Common Stock - - - - - - ( 5,771,250 ) - ( 5,771,250 ) 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 9 - - Conversion of Series C-2 Convertible Preferred stock - - ( 1,100,000 ) ( 6,216,289 ) 4,011,766 4,012 6,212,277 - - 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 - - - 45,541 - - ( 45,541 ) - - Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock - - - 5,020,883 - - ( 5,020,883 ) - - Fractional shares adjusted for reverse split - - 14,477 15 ( 15 ) - - Warrant exercise - - - - 200,000 200 399,800 - 400,000 Stock-based compensation - - - - 342,796 342 15,490,213 - 15,490,555 Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock - - - 179,277 - - - - 179,277 Net loss - - - - - - - ( 16,049,583 ) ( 16,049,583 ) Balance December 31, 2021 - $ - - $ - 10,528,212 $ 10,529 $ 147,682,384 $ ( 135,589,470 ) $ 12,103,443 Balance - $ - - $ - 10,528,212 $ 10,529 $ 147,682,384 $ ( 135,589,470 ) $ 12,103,443 The accompanying notes are an integral part of these financial statements. F- 5 BTCS Inc. Statements of Cash Flows 2021 2020 For the years ended December 31, 2021 2020 Net Cash flows used from operating activities: Net loss $ ( 16,049,583 ) $ ( 2,556,094 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 939 1,114 Amortization on debt discount 1,868,059 354,432 Stock-based compensation 15,490,555 - Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock 179,277 - Validator revenue ( 1,213,284 ) - Change in fair value of warrant liabilities ( 3,918,750 ) Purchase of non-productive Digital Assets/currencies ( 5,761,550 ) ( 908,079 ) 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 3,845,899 165,331 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 292,676 ) ( 7,867 ) Accounts payable and accrued expenses 112,428 44,719 Accrued compensation ( 343,042 ) ( 66,559 ) Net cash used in operating activities ( 4,861,655 ) ( 2,973,003 ) Net cash used in investing activities: Purchase of productive Digital Assets/currencies for validating ( 9,462,279 ) - Purchase of property and equipment ( 10,491 ) - Net cash used in investing activities ( 9,472,770 ) - Net cash provided by financing activities: Proceeds from short term loan - 1,500,000 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 3,014,005 1,854,040 Net proceeds from issuance Common Stock/ At-the-market offering 2,832,152 - Payment to convertible notes principle ( 2,000,000 ) - Net cash provided by financing activities 15,211,157 3,354,040 Net increase in cash 876,732 381,037 Cash, beginning of period 524,135 143,098 Cash, end of period $ 1,400,867 $ 524,135 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 $ 45,541 $ - Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock $ 5,020,883 $ - Conversion of Series C-1 Preferred Stock $ 20 $ - Conversion of Series C-1 Preferred Stock $ 6,216,289 Beneficial conversion feature of Series C-2 convertible preferred stock $ 129,412 $ - Beneficial conversion features associated with convertible notes payable $ 1,000,000 $ 1,182,345 Conversion of convertible note to Common Stock $ - $ 746,756 The accompanying notes are an integral part of these financial statements. F- 6 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and Description of Business and Recent Developments 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 e-commerce marketplace where consumers could purchase merchandise using Digital Assets, including 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 Bitcoin 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 its blockchain infrastructure operations (previously referred to as transaction verification services) with a focus on securing proof-of-stake blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain. The Company is developing a proprietary Staking-as-a-Service platform that would enable users to stake and delegate supported cryptocurrencies through a non-custodial platform to BTCS operated validator nodes. The Company is also developing a proprietary Digital Asset Platform aimed at enabling users to aggregate their 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 Asset exchange APIs to read user data and does not allow for the trading of assets. 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 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 97,500,000 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 Company maintains its books of account and prepares financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). The Company’s fiscal year ends on December 31. F- 7 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Note 3 - Summary of Significant Accounting Policies Basis of presentation The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Reclassifications Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported net income (loss). Concentration of Cash The Company maintains cash balances at 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 December 31, 2021 and 2020, the Company had approximately $ 1.4 million and $ 0.5 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 December 31, 2021 and 2020, the Company had approximately $ 0.9 million and $ 0.2 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 runs its own Digital Asset validator nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is cancelled 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, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain. The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives – the fixed cryptocurrency awards – is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. Cost of Revenue The Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes. Digital Asset Transactions, Translations and Remeasurements The Company accounts for its Digital Assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles –Goodwill and 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. Digital Assets held are included in the balance sheets as either current assets or other assets 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 average U.S. dollar spot price of the related Digital Asset. On a quarterly basis, Digital Assets are measured at carrying value, net of any impairment losses incurred since receipt. The Company will record impairment losses as the fair value falls below the carrying value of the Digital Assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related Digital Asset subsequent to its acquisition. The Digital Assets can only be marked down when impaired and not marked up when their value increases. F- 8 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Such impairment in the value of Digital Assets are recorded as a component of costs and expenses in our statements of operations. The Company recorded impairment losses of approximately $ 3.8 million and $ 0.2 million related to Digital Assets during the years ended December 31, 2021 and December 31, 2020, 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 $ 3.1 million and ($ 2,000 ) during the years ended December 31, 2021 and December 31, 2020, 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 Platform which is being designed to allow user to aggregate and analyze data from Digital 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 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, and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the indefinite life intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions. Income 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. F- 9 BTCS Inc. NOTES TO FINANCIAL STATEMENTS 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). Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC 718 addresses all forms of share-based payment (“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 fair value of the award on the estimated grant date. 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 often vest over a one-year period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. Expected Volatility - The Company computes stock price volatility over expected terms based on its historical Common Stock trading prices. Risk-Free Interest Rate - The Company bases 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 not historically declared or paid any cash dividends on its common shares and does not plan to pay any recurring 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. Advertising Expense Advertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $ 0.2 million and $ 6,000 for the years ended December 31, 2021 and 2020, respectively. Net Loss per Share Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the 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 December 31, 2021 and 2020 because their effect was anti-dilutive: Schedule of Earnings Per Share Anti-diluted As of December 31, 2021 2020 Warrants to purchase Common Stock 962,794 250,323 Series C-1 Convertible Preferred stock - 19,609 Convertible notes - 809,717 Options 1,235,000 - Non-vested restricted stock awards units 29,363 - Total 2,227,157 1,079,649 Convertible Preferred Stock The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification 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. The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging , including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. F- 10 BTCS Inc. NOTES TO FINANCIAL STATEMENTS 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. 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 adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its financial statements and related disclosures. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in 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 U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU No. 2020-06 effective January 1, 2022, and the adoption did not have a material impact 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) F- 11 BTCS Inc. NOTES TO FINANCIAL STATEMENTS The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2021 and 2020: Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis 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 Fair value measured at December 31, 2020 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2020 (Level 1) (Level 2) (Level 3) Liabilities Warrant Liabilities $               - $               - $                  - $                    - Level 3 Valuation Techniques 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 March 2, 2021, the Company entered into a securities purchase agreement (the “Offering”) with certain purchasers pursuant to which the Company agreed to sell an aggregate of (i) 950,000 shares of Common Stock, and (ii) Common Stock warrants (the “Warrants”) to purchase up to 712,500 shares of Common Stock for gross proceeds of $ 9.5 million in a private placement. The closing of the Offering occurred on March 4, 2021. The Warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the Warrants) at the Company. At the time of issuance, the Company maintained control of certain fundamental transactions and as such the Warrants were initially classified in equity. As of December 31, 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 as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as a current liability. A summary of quantitative information with respect to the valuation 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 December 31, 2021, is as follows: F- 12 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities September 14, 2021 December 31, 2021 Risk-free rate of interest 0.79 % 1.26 % Expected volatility 192.2 % 162.5 % Expected life (in years) 4.47 4.18 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 underlying stock price’s daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has 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 changes in the fair value of the Company’s Level 3 financial liabilities for the years ended December 31, 2021 and 2020, that are measured at fair value on a recurring basis: Schedule of Changes in Fair Value and Other Adjustments of Warrants Fair Value of Level 3 financial liabilities December 31, December 31, 2021 2020 Beginning balance $ - $ - Warrant liabilities classification 5,771,250             - Fair value adjustment of warrant liabilities ( 3,918,750 ) - Ending balance $ 1,852,500 $ - Note 5 - Note Payable 2019 Promissory Note (Retired) On November 7, 2019, the Company issued Cavalry Fund I LP (“Cavalry”) a $ 200,000 promissory note (the “2019 Promissory Note”). The 2019 Promissory Note is due on August 7, 2020 and is: (i) convertible at a 20 % discount to the closing price of the Company’s Common Stock on the date before exercise with a floor price of $ 0.20 per share, (ii) shall bear interest at 12 % per annum (payable at maturity) and in the event of default bears interest at a rate of 20 %, (iii) convertible at the Company’s option subject to certain limitations as set forth in the 2019 Promissory Note, and (iv) may be prepaid by the Company. In addition, the Convertible Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the Convertible Note was convertible into 217,392 shares of Common Stock at $ 0.90 per share, but the Company’s fair value of underlying Common Stock was $ 1.20 per share. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the Notes of approximately $ 50,000 with a corresponding credit to additional paid-in capital. On April 6, 2020, the Company issued a total of 73,530 shares of the Company’s Common Stock for the conversion of $ 50,000 of principal on the 2019 Promissory Note. On May 7, 2020, the Company issued a total of 63,274 shares of the Company’s Common Stock for the conversion of the remaining $ 150,000 of principal and $ 2,000 of interest on the 2019 Promissory Note. On May 11, 2020, the Company issued a total of 3,583 shares of the Company’s Common Stock for the conversion of the remaining accrued interest of $ 9,458 on the 2019 Promissory Note. During the year ended December 31, 2020, the Company recorded approximately $ 40,000 in interest expense related to amortization on debt discount related to the 2019 Promissory Note. During the year ended December 31, 2020, the Company recorded interest expense of approximately $ 8,000 . As of December 31, 2020, the principal balance of the 2019 Promissory Note was $ 0 . F- 13 BTCS Inc. NOTES TO FINANCIAL STATEMENTS 2020 April Promissory Note (Retired) On April 17, 2020, the Company issued Cavalry a $ 500,000 promissory note (the “2020 April Promissory Note”) in consideration for $ 500,000 . The 2020 April Promissory Note is (i) due on February 17, 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 $ 0.20 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 2020 April Promissory Note. In addition, this note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the Convertible Note was convertible into 777,001 shares of Common Stock at $ 0.64 per share, but the Company’s fair value of underlying Common Stock was $ 0.99 per share. As such, the Company recognized a beneficial conversion feature, resulting in a discount to this note of approximately $ 269,000 with a corresponding credit to additional paid-in capital. From November 2 to December 3, 2020, the Company issued a total of 520,091 shares of the Company’s Common Stock for the conversion of the $ 500,000 of principal of 2020 April Promissory Note. On December 16, 2020, the Company issued a total of 34,371 shares of the Company’s Common Stock for the conversion of accrued interest of $ 35,298 on the 2020 April Promissory Note. During the year ended December 31, 2020, the Company recorded approximately $ 269,000 in interest expense related to amortization on debt discount related to the 2020 April Promissory Note. During the year ended December 31, 2020, the Company recorded interest expense of approximately $ 35,000 . As of December 31, 2020, the principal balance of the 2020 Promissory Note was $ 0 . 2020 December Promissory Note (Retired) On December 16, 2020, the Company issued Cavalry a $ 1,000,000 promissory note (the “2020 December Promissory Note”) in consideration for $ 1,000,000 . The 2020 December Promissory Note is (i) due on October 16, 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 $ 0.40 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 2020 December Promissory Note. In connection with issuance of the 2020 December Promissory Note, the Company issued a Series C warrant to purchase 200,000 shares of the Company’s Common Stock at an exercise price of $ 2.00 , the Series C warrants were exercised for cash on January 15, 2021, resulting in proceeds of $ 400,000 to the Company. During the year ended December 31, 2021, the Company recorded approximately $ 868,000 amortization of debt discount related to the 2020 December Promissory Note. During the year ended December 31, 2021, the Company recorded interest expense of approximately $ 88,000 for the 2020 December Promissory Note. On September 24, 2021, the Company paid off in full the 2020 December Promissory Note. Repayment to Cavalry consisted of $ 1,000,000 in principal and $ 92,712 in accrued interest, for a total of $ 1,092,712 . Cavalry confirmed the 2020 December Promissory Note had been fully paid and the Company has no further obligations with respect to the note. F- 14 BTCS Inc. NOTES TO FINANCIAL STATEMENTS 2021 January Promissory Note (Retired) On January 15, 2021, the Company issued Calvary a $ 1,000,000 promissory note (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 $ 7.50 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 2021 Promissory Note, the Company issued a Series D warrant to purchase 200,000 shares of the Company’s Common Stock at an exercise price of $ 21.60 per share (the “Series D 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 Series D 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 70,572 shares of Common Stock at $ 14.10 per share, but the Company’s fair value of underlying Common Stock was $ 21.8 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 year ended December 31, 2021, the Company recorded approximately $ 1,000,000 amortization of debt discount related to the 2021 December Promissory Note. During the year ended December 31, 2021, the Company recorded interest expense of approximately $ 99,000 for the 2021 December Promissory Note. On November 12, 2021, the Company paid off in full the 2021 December Promissory Note. Repayment to Cavalry consisted of $ 1,000,000 in principal and $ 98,958 in accrued interest, for a total of $ 1,098,958 . Cavalry confirmed the 2021 December Promissory Note had been fully paid and the Company has no further obligations with respect to the note. Note 6 - Stockholders’ Equity (Deficit) Preferred Stock Series C-2 Preferred Stock The company is authorized to issue 20,000,000 shares of $ 0.001 par value preferred stock. This preferred stock may be issued in one or more series, 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. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by shareholders and could adversely affect the rights and powers, including voting rights, of the holders of Common Stock. In certain circumstances, the issuance of preferred stock could depress the market price of the Common Stock. On January 1, 2021, members of the Company’s management subscribed for 110,000 shares of the Company’s Series C-2 Convertible Preferred Stock (the “Series C-2”), for a total of $ 1,100,000 at $ 10.00 per Share of Series C-2. The Company obtained an independent valuation of the Series C-2 and $ 179,277 of compensation expense was recognized, representing the difference between the fair value and the proceeds received. F- 15 BTCS Inc. NOTES TO FINANCIAL STATEMENTS 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 would have been extended until such time as the vote was 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 basis” 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) simultaneously with the Company’s Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $ 1.70 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. Upon the conversion of Series C-2 into Common Stock on September 14, 2021, the total amortization of the beneficial conversion feature is $ 45,541 and the remaining discount is netted against additional paid in capital. 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 Company 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 Company 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 September 30, 2021, over $13 million of capital was raised and the adjustment to the Conversion Amount was fully triggered. The Company recognized the effect of the down-round protection when capital raises occur 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 $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. On September 14, 2021, the Series C-2 was converted into 4,011,766 shares of Common Stock. F- 16 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Common Stock Reverse Stock Split On August 25, 2021, the Company issued approximately 14,500 shares of Common 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. Issuance of Shares Pursuant to Equity Line of Credit Purchase Agreement During the year ended December 31, 2020, the Company issued 618,658 shares of Common Stock (including 2,421 pro-rata commitment shares) under the second Registration Statement pursuant to the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $ 415,000 . On June 22, 2020, the Company filed a third Registration Statement on Form S-1 seeking to register 904,500 shares. The third Registration Statement was declared effective by the SEC on June 26, 2020. During the year ended December 31, 2020, Company issued 904,500 shares of Common Stock (including 8,430 pro-rata commitment shares) under the third Registration Statement pursuant to the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $ 1,445,000 . On January 28, 2021, the Company filed a fourth Registration Statement on Form S-1 seeking to register 400,000 shares. The fourth Registration Statement was declared effective by the SEC on February 1, 2021. During the year ended December 31, 2021, the Company sold 321,738 shares (inclusive of approximately 17,590 pro-rata commitment shares) available for sale under the fourth Registration Statement for total proceeds of approximately $ 3,015,000 . Issuance of Shares Pursuant to Registered Direct Offering On March 4, 2021, the Company entered into a securities purchase agreement (the “RD Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 950,000 shares of the Company’s Common Stock, at a purchase price per share of $ 10.00 and immediately exercisable five-year warrants to purchase 712,500 shares of Common Stock at an exercise price of $ 11.50 per share. Gross proceeds from the Offering were $ 9.5 million. Net proceeds were $ 8.9 million after deducting placement agent fees and other offering expenses paid for by the Company. The RD Purchase Agreement contains representations, warranties, indemnifications and other provisions customary for transactions of this nature. Pursuant to the RD 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 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 . 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 offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $ 98,767,500 million (the “Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0 % of the aggregate gross proceeds from each sale of Shares. F- 17 BTCS Inc. NOTES TO FINANCIAL STATEMENTS During the year ended December 31, 2021, the Company sold a total of 466,791 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 2,979,000 at an average selling price of $ 6.38 per share, resulting in net proceeds of approximately $ 2,832,000 after deducting commissions and other transaction costs. Issuance of Shares Pursuant to Cash Exercise of Series C Warrants On January 15, 2021, the Company issued 200,000 shares of the Company’s Common Stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise amount of $ 400,000 . Cavalry and the Company entered into an agreement whereby 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 19,609 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, so 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 Shares Due to Conversion of Series C-2 Preferred Stock On September 14, 2021, the Series C-2 was converted into 4,011,766 shares of Common Stock. Please refer to the discussion below. Issuance of Restricted Stock to Service Providers During the year ended December 31, 2021, the Company issued to four service providers a total of approximately 52,800 shares of restricted Common Stock, representing a total fair value of $ 0.6 million. Issuance of Shares Due to Conversion of Notes On April 6, 2020, the Company issued a total of 73,529 shares of the Company’s Common Stock for the conversion of $ 50,000 of principal on the 2019 Promissory Note. On May 7, 2020, the Company issued a total of 63,273 shares of the Company’s Common Stock for the conversion of the remaining $ 150,000 of principal and $ 2,000 of interest on the 2019 Promissory Note. On May 11, 2020, the Company issued a total of 3,582 shares of the Company’s Common Stock for the conversion of the remaining accrued interest of $ 9,458 on the 2019 Promissory Note. From November 2 to December 3, 2020, the Company issued a total of 520,088 shares of the Company’s Common Stock for the conversion of the $ 500,000 of principal of 2020 April Promissory Note. On December 16, 2020, the Company issued a total of 34,370 shares of the Company’s Common Stock for the conversion of accrued interest of $ 35,298 on the 2020 April Promissory Note. 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 2,000,000 shares of Common Stock for issuance pursuant to the 2021 Plan. F- 18 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Options On January 1, 2021, the Board of Directors of the Company approved the grant of 1.2 million stock options with an exercise price of $ 1.90 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) 480,000 options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones. On April 1, 2021, the Company granted 35,000 stock options with an exercise price of $ 10.30 to Charles B. Lee and Carol Van Cleef, directors of the Company. Of the stock options: (i) 14,000 options will vest on April 1, 2022 and (ii) the remaining 21,000 options vest based upon the Company’s stock price meeting certain milestones. The Company records compensation expense for the 14,000 options granted on April 1, 2021 based on the estimated fair value of the options on the deemed grant date using the Black-Scholes formula, utilizing assumptions laid out in the table below. The Company uses historical data to determine exercise behavior, volatility and forfeiture rate of the options. For the 21,000 options granted on April 1, 2021 that vest based upon the Company’s stock price meeting certain milestones, the Company records compensation expense based on the estimated fair value of the options using a Monte-Carlo simulation. The following weighted-average assumptions were used to estimate the fair value of options granted during the year ended December 31, 2021 and 2020 for both the Black-Scholes formula and the Monte-Carlo simulation: Summary of Weighted-average Assumptions Used to Estimate Fair Value For the year ended December 31, 2021 2020 Exercise price $ 2.14 - Term (years) 2.50 - 3.30          - Expected stock price volatility 185.9 % - Risk-free rate of interest 0.34 % - Expected Volatility : The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option. Risk-Free Interest Rate : The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option. Expected Term : The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of 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 on the grant date will be recognized on a straight-line basis over the vesting period. For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized. For awards vesting upon the achievement of the market conditions which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period based on estimation using a Monte-Carlo simulation. F- 19 BTCS Inc. NOTES TO FINANCIAL STATEMENTS A summary of options activity under the Company’s stock option plan for the year ended December 31, 2021 is presented below: 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, 2020 - $ - $ - - Employee options granted 1,235,000 2.14 1,488,000 4.3 Outstanding as of December 31, 2021 1,235,000 $ 2.14 $ 1,488,000 4.3 Options vested and exercisable 725,250 $ 1.96 $ 892,800 4.3 RSUs On January 1, 2021, the Board of Directors of the Company approved 275,000 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 December 31, 2021, all 275,000 restricted stock units vested with a total fair value of approximately $ 2.8 million. 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 and was recorded on the September 14, 2021 vesting date when the listing occurred. On April 1, 2021, the Company granted a total of 15,000 restricted stock units to two non-employee directors of the Company. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of December 31, 2021, all 15,000 restricted stock units vested with a total fair value of approximately $ 0.2 million. 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 and was recorded on the September 14, 2021 vesting date when the listing occurred. On June 28, 2021, the Company granted 50,781 restricted stock units to the Company’s then Chief Financial Officer. The restricted stock units were to vest over a five-year period as follows: 20 % of the 50,781 restricted stock units were to vest on the one-year anniversary of the grant date, and the remaining 80% were to vest monthly over the following four years with vesting occurring on the last day of each respective month. On November 30, 2021, this Chief Financial Officer resigned. The 50,781 restricted stock units granted to this Chief Financial Officer were forfeited accordingly. On December 1, 2021, the Company granted 29,363 restricted stock units to the Company’s current Chief Financial Officer. The restricted stock units are to vest over a five-year period as follows: 20 % of the 29,363 restricted stock units are to vest on the one-year anniversary of the grant date, and the remaining 80% are to vest monthly over the following four years with vesting occurring on the last day of each respective month. The grant date fair value of restricted stock units was approximately $ 0.2 million. F- 20 BTCS Inc. NOTES TO FINANCIAL STATEMENTS A summary of the Company’s restricted stock units granted under the 2021 Plan during the year ended December 31, 2021 are as follows: Summary of Restricted Stock Number of Restricted Stock Units Weighted Average Grant Day Fair Value Nonvested at December 31, 2020 - $ - Granted 370,144 9.42 Vested ( 290,000 ) 10.29 Forfeited ( 50,781 ) 6.42 Nonvested at December 31, 2021 29,363 $ 5.96 Stock-based Compensation Stock-based compensation expense for the year ended December 31, 2021 was approximately $ 15.4 million, comprised of approximately $ 0.3 million restricted Common Stock issued to service providers not pursuant to the 2021 Plan and approximately $ 11.9 million in connection with options issued pursuant to the 2021 Plan. Unrecognized compensation expense for the Company was $ 0.3 million on December 31, 2021. Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues. Stock-based compensation expense for the years ended December 31, 2021 and 2020 was as follows: Schedule of Stock-based Compensation Expense 2021 2020 Employee stock option awards $ 11,932,409 $ - Employee restricted stock units awards 2,993,146 - Non-employee restricted stock awards 352,640 - Series C-2 allocation 179,277 - $ 15,457,473 $ - F- 21 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Stock Purchase Warrants The following is a summary of warrant activity for the years ended December 31, 2021 and 2020: Summary of Warrant Activity Number of Warrants Outstanding as of December 31, 2019 93,821 Issuance of Series C Warrants 200,000 Expiration of warrant ( 43,498 ) Outstanding as of December 31, 2020 250,323 Issuance of Series C Warrants 200,000 Warrants exercise for cash ( 200,000 ) Issuance of Warrants pursuant to Registered Direct Offering 712,500 Fractional shares adjusted for reverse split ( 29 ) Outstanding as of December 31, 2021 962,794 Note 7 - Employment Agreements Charles W. Allen On June 22, 2017, we entered into an employment agreement with Charles Allen (the “Allen Employment Agreement”), whereby Mr. Allen agreed to serve as our Chief Executive Officer and Chief Financial Officer for a period of two ( 2 ) years, subject to renewal, in consideration for an annual salary of $ 245,000 . Additionally, under the terms of the Allen Employment Agreement, Mr. Allen shall be eligible for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Allen shall be entitled to participate in all benefits plans we provide to our senior executive. We shall reimburse Mr. Allen for all reasonable expenses incurred in the course of his employment. The Company shall pay the Executive $ 500 per month to cover telephone and internet expenses. If the Company does not provide office space to the Executive the Company will pay the Executive an additional $ 500 per month to cover expenses in connection with their office space needs. On February 6, 2019 we amended the Allen Employment Agreement whereby the annual salary was increased to $ 345,000 per year effective January 1, 2019, subject to a 4.5% annual increase each subsequent year to adjust for inflation. All other terms of the Allen Employment Agreement remained unchanged including the Annual Increase. For the year ended December 31, 2021, Mr. Allen’s annual salary was $ 376,749 . Michal Handerhan On June 22, 2017, we entered into an employment agreement with Michal Handerhan (the “Handerhan Employment Agreement”), whereby Mr. Handerhan agreed to serve as our Chief Operating Officer and Secretary for a period of two ( 2 ) years, subject to renewal, in consideration for an annual salary of $ 190,000 . Additionally, under the terms of the Handerhan Employment Agreement, Mr. Handerhan shall be eligible for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Handerhan shall be entitled to participate in all benefits plans we provide to our senior executive. We shall reimburse Mr. Handerhan for all reasonable expenses incurred in the course of his employment. The Company shall pay the Executive $ 500 per month to cover telephone and internet expenses. If the Company does not provide office space to the Executive the Company will pay the Executive an additional $ 500 per month to cover expenses in connection with their office space needs. On February 6, 2019 we amended the Handerhan Employment Agreement whereby the annual salary was increased to $ 215,000 per year effective on January 1, 2019, subject to a 4.5 % annual increase each subsequent year to adjust for inflation. All other terms of the Handerhan Employment Agreement remained unchanged including the Annual Increase. For the year ended December 31, 2021 Mr. Handerhan’s annual salary was $ 234,785 . On March 31, 2020, Charles Allen, the Company’s Chief Executive Officer, and Michal Handerhan, the Company’s Chief Operating Officer, agreed to defer 35 % of their cash compensation during the second quarter 2020 (the “Period”) and refrain from making any payments during the Period on accrued and unpaid compensation owed prior to the Period. The Company subsequently paid the deferred compensation for the Period. Andrew Lee On June 28, 2021 we entered into an employment agreement with Andrew Lee (the “Lee Employment Agreement”), whereby Mr. Lee agreed to serve as our Chief Financial Officer in consideration for an annual salary of $ 250,000 . Additionally, under the terms of the Lee Employment Agreement, Mr. Lee shall be eligible for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Lee shall be entitled to participate in all benefits plans we provide to our senior executive. We shall reimburse Mr. Lee for all reasonable expenses incurred in the course of his employment. The Company shall pay the Executive $ 500 per month to cover telephone and internet expenses. If the Company does not provide office space to the Executive the Company will pay the Executive an additional $ 500 per month to cover expenses in connection with their office space needs. On November 4, 2021, Mr. Andrew Lee resigned as the Company’s Chief Financial Officer. In connection with the resignation, the Board of Directors appointed Mr. Charles Allen, the Company’s current Chairman of the Board and Chief Executive Officer as the Company’s interim Chief Financial Officer. Mr. Allen did not receive any additional compensation for his interim role as Chief Financial Officer. Michael Prevoznik On December 1, 2021 we entered into an employment agreement with Michael Prevoznik (the “Prevoznik Employment Agreement”), whereby Mr. Prevoznik agreed to serve as our Chief Financial Officer in consideration for an annual salary of $ 175,000 . Additionally, under the terms of the Prevoznik Employment Agreement, Mr. Prevoznik shall be eligible for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Prevoznik shall be entitled to participate in all benefits plans we provide to our senior executive. We shall reimburse Mr. Prevoznik for all reasonable expenses incurred in the course of his employment. The Company shall pay the Executive $ 500 per month to cover telephone and internet expenses. If the Company does not provide office space to the Executive the Company will pay the Executive an additional $ 500 per month to cover expenses in connection with their office space needs. F- 22 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Termination/Severance Provisions The terms of the Allen Employment Agreement and Handerhan Employment Agreement (collectively the “Employment Agreements”) provide each of Messrs. Allen and Handerhan (the “Executives”) certain, severance and change of control benefits if the Executive resigns from the Company for good reason or the Company terminates him other than for cause. In such circumstances, the Executive would be entitled to a lump sum payment equal to (i) the Executive’s then-current base salary, and (ii) payment on a pro-rated basis of any bonus or other payments earned in connection with any bonus plan to which the Executive was a participant. In addition, the severance benefit for the Executives the employment agreements include the Company continuing to pay for medical and life insurance coverage for up to one year following termination. If, within eighteen months following a change of control (as defined below), the Executive’s employment is terminated by the Company without cause or he resigns from the Company for good reason, the Executive will receive certain severance compensation. In such circumstances, the cash benefit to the Executive will be a lump sum payment equal to two times (i) his then-current base salary and (ii) his prior year cash bonus and incentive compensation. Upon the occurrence of a change of control, irrespective of whether his employment with the Company terminates, each Executive’s stock options and equity-based awards will immediately vest. A “change of control” for purposes of the Employment Agreements means any of the following: (i) the sale or partial sale of the Company to an un-affiliated person or entity or group of un-affiliated persons or entities pursuant to which such party or parties acquire shares of capital stock of the Company representing at least twenty five ( 25 %) of the fully diluted capital stock (including warrants, convertible notes, and preferred stock on an as converted basis) of the Company; (ii) the sale of the Company to an un-affiliated person or entity or group of such persons or entities pursuant to which such party or parties acquire all or substantially all of the Company’s assets determined on a consolidated basis, or (iii) Incumbent Directors (Mr. Allen and Mr. Handerhan) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the board of directors of the Company. Additionally, pursuant to the terms of the Employment Agreements, we have entered into an indemnification agreement with each executive officer. Bonuses On December 14, 2017, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, cash bonuses of $ 75,000 and $ 35,000 , respectively for 2017. The Company further agreed to pay Mr. Allen and Mr. Handerhan contingent cash bonuses of $ 175,000 and $ 75,000 respectively (the “2017 Contingent Bonuses”) which will be deemed earned on the earlier of i) the closing of a merger approved by the Board, ii) the closing of one or many financings in 2018 totaling over $ 1.25 million in gross proceeds, or iii) the Company having cash and the fair market value of Digital Assets valued at over $ 1.5 million. Provided further that the 2017 Contingent Bonuses if deemed earned will only be payable if the Company has at least $ 1.25 million in cash and the fair market value of Digital Assets prior to paying the bonuses. The 2017 Contingent Bonuses are not conditioned upon the continued service of either Mr. Allen or Mr. Handerhan and do not expire. The conditions to earn the 2017 Contingent Bonuses have been achieved and the 2017 Contingent Bonuses have been paid in 2020. On February 6, 2019, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, contingent cash bonuses of $ 256,025 and $ 150,000 , respectively for 2018 (the “2018 Contingent Bonuses”) which will be deemed earned and payable upon the repayment and / or settlement of the $ 200,000 Promissory Note issued on December 18, 2018. On September 18, 2019, the Company exchanged the $ 200,000 Promissory Note and accrued interest of $ 17,973 for a $ 217,973 Convertible Promissory Note due on December 18, 2019 (the “New Note”). From September 18, 2019 through October 16, 2019 the Company issued 193,179 shares of the Company’s Common Stock for the conversion of all $ 217,973 principal on the New Note. The Company subsequently paid all the accrued interest expense of $ 905 on the New Note as such the conditions to earn the 2018 Contingent Bonuses have been achieved and the 2018 Contingent Bonuses have been paid in 2020. F- 23 BTCS Inc. NOTES TO FINANCIAL STATEMENTS On January 19, 2020, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, cash bonuses of $ 15,000 and $ 10,000 , respectively for 2019. The Company also agreed to pay Mr. Allen and Mr. Handerhan contingent cash bonuses of $ 462,000 and $ 235,750 (collectively the “2019 Contingent Bonuses”). The Contingent Cash Bonuses will be earned and payable upon the achievement or satisfaction of any one of the following performance goals or criteria: 1) The Company either: i) consummates a merger with another company which would constitute a change of control, or ii) signs a letter of intent (an “LOI”), approved by the board, to merge with another company which would constitute a change of control, 2) the combined value of the Company’s cash and fair market value of Digital Assets (collectively the “Assets”) at any point in time are: i) greater than or equal to $ 1.25 million, then 25 % of the Contingent Cash Bonuses will be deemed earned and payable, ii) greater than or equal to $ 1.75 million (excluding any portion of Contingent Cash Bonuses previously earned whether paid or accrued), then 25% of the Contingent Cash Bonuses will be deemed earned and payable, iii) greater than or equal to $ 2 million (excluding any portion of Contingent Cash Bonuses previously earned whether paid or accrued), then the remaining 50% of the Contingent Cash Bonuses will be deemed earned and payable, and 3) provided further if the Company and Mr. Allen or Mr. Handerhan agree to exchange their respective Contingent Cash Bonus or a portion thereof for equity securities (not debt) then the above performance criteria do not need to be achieved with respect to the portion of Contingent Cash Bonuses exchanged for equity. The Contingent Cash Bonuses are not conditioned upon the continued service of Mr. Allen or Mr. Handerhan and do not expire. The conditions to earn the 2019 Contingent Bonuses have been achieved and the 2019 Contingent Bonuses have been paid in 2020. The amendments to the Employment Agreements, the 2017 Contingent Bonuses, the 2018 Contingent Bonuses, and the 2019 Contingent Bonuses were approved unanimously by the Board. Accrued compensation As of December 31, 2021 and 2020, the Company had approximately $ 7,000 and $ 350,000 of accrued compensation. Note 8 – Employee Benefit Plans The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100 % of employee contributions. For the year ended December 31, 2021 and 2020, the Company made contributions to the 401(k) Plan of $ 39,000 and $ 0 , respectively. Note 9 – Going Concern - Liquidity The Company follows “ Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ”. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the financial statements, the Company has historically incurred a net loss and has an accumulated deficit at December 31, 2021, a net loss and net cash used in operating activities for the reporting period then ended. The Company is implementing its business plan and generating revenue; however, the Company’s cash position and liquid Digital Assets are sufficient to support its daily operations over the next twelve months. The Company has sustained recurring losses and negative cash flows from operations. Over the past year, the Company’s growth has been funded through a combination of sale of equity (common and preferred stock), promissory notes, and lease financing. As of December 31, 2021, the Company had approximately $ 1.4 million of unrestricted cash and liquid Digital Assets with a carrying value of $ 3.7 million. However, historically the Company has experienced and may continue to experience negative operating margins and negative cash flows from operations, as well as an ongoing requirement for additional capital investment. The Company expects that it will need to raise additional capital to accomplish its business plan over the next several years. The Company expects to seek to obtain additional funding through debt or equity financing. There can be no assurance as to the availability or terms upon which such financing and capital might be available. Note 10 - Income Taxes The Company had no income tax expense due to operating loss incurred for the years ended December 31, 2021 and 2020. The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2021 and 2020 are comprised of the following: Schedule of Deferred Tax Assets and Liabilities 2021 2020 As of December 31, 2021 2020 Deferred tax assets: Net-operating loss carryforward (federal & state) $ 2,287,780 $ 1,937,770 Other (Non-Qualified Stock Options) 209,797 - Total Deferred Tax Assets 2,497,577 1,937,770 Valuation allowance ( 2,497,577 ) ( 1,937,770 ) Deferred Tax Asset, Net of Allowance $ - $ - At December 31, 2021, the Company had net operating loss carry forwards for federal and state tax purposes of approximately $ 10.89 million which begins to expire in 2034 . The 20-year carryforward period has been replaced with an indefinite carryforward period for these NOLs generated in tax years beginning after December 31, 2017 and future years. Accordingly, the amount of NOLs that were generated in the tax year December 31, 2014 in the amount of $ 1,290,156 will expire after December 31, 2034 . The amount of NOLs that were generated in the tax year December 31, 2015 in the amount of $ 1,545,343 will expire after December 31, 2035 . The amount of NOLs that were generated in the tax year December 31, 2016 in the amount of $ 794,762 will expire after December 31, 2036 . The amount of NOLs that were generated in the tax year December 31, 2017 in the amount of $ 1,084,564 will expire after December 31, 2037 . The NOLs generated in the tax years December 31, 2018 in the amounts of $ 6,179,367 and onwards will have an indefinite life per current U.S. federal income tax legislation. Prior to the February 5, 2014 merger, the Company had generated net operating losses, which the Company’s preliminary analysis indicates would be subject to significant limitations pursuant to Internal Revenue Code Section 382. The Company has not completed its IRC Section 382 Valuation, as required and the NOL’s because of potential Change of Ownerships might be completely worthless. Therefore, Management of the Company has recorded a Full Valuation Reserve, since it is more likely than not that no benefit will be realized for the Deferred Tax Assets. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. In case the deferred tax assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2021 and 2020. The valuation allowance increased by approximately $ 0.559 million as of December 31, 2021. F- 24 BTCS Inc. NOTES TO FINANCIAL STATEMENTS The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows: Schedule of Income Tax Rate For the years ended December 31, 2021 2020 Statutory Federal Income Tax Rate ( 21.0 )% ( 21.0 )% State Taxes, Net of Federal Tax Benefit ( 6.5 )% ( 6.3 )% Federal tax rate change 0.0 % 0.0 Other 27.5 % 27.3 Change in Valuation Allowance ( 0.0 )% ( 0.0 )% Income Taxes Provision (Benefit) - % - % The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2021 and 2020. Note 11 - Subsequent Events 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 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 December 31, 2021 to March 9, 2022, the Company sold a total of 1,723,666 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 10,578,000 at an average selling price of $ 6.14 per share, resulting in net proceeds of approximately $ 10,252,000 after deducting commissions and other transaction costs. On January 5, 2022, the Board of Directors of the Company declared a special one-time dividend of $ 0.05 for each outstanding share of Common Stock of the Company. The dividend is payable to holders of record as of the close of business on March 17, 2022 (the “Record Date”). Shareholders are being provided the option to receive proceeds of their dividend payable in either cash (a “Cash Dividend”) or Bitcoin (“Bitcoin Dividend” or “Bividend”). On January 19, 2022, the Board of Directors of the Company approved a base salary increase for the Company’s Chief Operating Officer Michal Handerhan as an amendment to the Handerhan Employment Agreement whereby the annual salary was increased to $ 275,000 per year effective on January 1, 2021, subject to a 4.5 % annual increase each subsequent year to adjust for inflation, pursuant to the 2021 compensation plan. On January 21, 2022, the Board of Directors of the Company approved the formation of a Digital Asset Regulatory Committee comprised of two members: Carol Van Cleef, Chair, and Charles Allen. Effective January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee: Charles Allen, the Company’s Chief Executive Officer, was awarded 173,611 fully-vested shares of Common Stock and Michal Handerhan, the Company’s Chief Operating Officer, was awarded 111,111 fully-vested shares of Common Stock granted under the 2021 Equity Incentive Plan (the “Plan”). Charles Allen, the Company’s Chief Executive Officer, was granted the following restricted stock units (“RSUs”) with vesting terms set forth below: ● 173,611 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 100,000,000 ; ● 173,611 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 150,000,000 ; ● 173,611 RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 200,000,000 ; and ● 173,611 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 400,000,000 . Michal Handerhan, the Company’s Chief Operating Officer, was granted the following RSUs with vesting terms set forth below: ● 111,111 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 100,000,000 ; ● 111,111 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 150,000,000 ; ● 111,111 RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 200,000,000 ; and ● 111,111 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 400,000,000 . F- 25 BTCS Inc. NOTES TO FINANCIAL STATEMENTS Michael Prevoznik, the Company’s Chief Financial Officer, was granted the following RSUs with vesting terms set forth below: ● 55,556 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 100,000,000 , and the time-based criteria set forth below are met; ● 55,556 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 150,000,000 , and the time-based criteria set forth below are met; ● 55,556 RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 200,000,000 , and the time-based criteria set forth below are met; and ● 55,556 RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 400,000,000 , and the time-based criteria set forth below are met. To the extent any market capitalization targets set forth above for Mr. Prevoznik are achieved the RSUs will also be subject to the following five-year vesting schedule: 20 % of the RSUs which have met a market capitalization criteria will vest on the one-year anniversary of the grant date, and the remaining 80 % of the 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 restricted stock units issued to Mr. Allen, Mr. Handerhan, and Mr. Prevoznik 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. The Board of Directors of the Company ratified grants of RSUs to each independent director. David Garrity, Carol Van Cleef and Charles Lee were each granted 31,848 restricted stock units (the “Board Grants”). The Board Grants vest in four equal installments at the end of each calendar quarter. The Board also approved the following annual committee chair fees: $ 15,000 for the Audit Committee Chair, $ 8,000 for the Compensation Committee Chair, and $ 8,000 for the Governance and Nominating Committee (collectively, the “Committee Chair Fees”). The Committee Chair Fees are payable quarterly in four equal installments. On February 22, 2022, the Company appointed Manish Paranjape as Chief Technology Officer of the Company. Since January 2019, Mr. Paranjape has been the Vice President of Technology and Research at Corra, a global digital agency. Prior to that, beginning in July 2013, Mr. Paranjape was the Director of Technology (U.S.) at Corra. Additionally, since March 2021, Mr. Paranjape has been the principal of Kilwar LLC (“Kilwar”), a software development consulting company. Mr. Paranjape will receive a salary of $ 225,000 per year and will be eligible for a performance bonus in an amount and with milestones to be determined by the Board of Directors and the Compensation Committee with the target bonus being one half to two times his then base salary. Additionally, the Company has granted Mr. Paranjape 45,767 restricted stock units (“RSUs”). The RSUs shall vest as follows: (i) one fifth on February 22, 2023, and (ii) the remaining in 48 equal (monthly) increments, with each vesting tranche being subject to continued employment on such applicable vesting date. Manish Paranjape, the Company’s Chief Technology Officer, was also granted the following long-term incentive restricted stock units (the “LTI RSUs”) with vesting terms set forth below: ● 40,046 LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 100,000,000 , and the time-based criteria set forth below are met; ● 40,046 LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 150,000,000 , and the time-based criteria set forth below are met; ● 40,046 LTI RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 200,000,000 , and the time-based criteria set forth below are met; and ● 40,045 LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $ 400,000,000 , and the time-based criteria set forth below are met. To the extent any market capitalization targets set forth above for Mr. Paranjape are achieved the RSUs will also be subject to the following five-year vesting schedule: 20 % of the LTI RSUs which have met a market capitalization criteria will vest on the one-year anniversary of the grant date, and the remaining 80 % of the LTI RSUs which have met a market capitalization criteria will vest 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. Mr. Paranjape was not appointed pursuant to any arrangement or understanding with any person, and Mr. Paranjape does not have any family relationships with any directors or executive officers of the Company. From April 1, 2021 to February 15, 2022, the Company paid approximately $ 205,000 to Kilwar for its consulting services. F- 26