BTCS Inc. 10-K

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