What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-13 · 134 added, 202 removed, 101 unchanged (77% of the section changed)

9 unchanged sentences

When we refer to the “2022 Quarter” and the “2021 Quarter” we are referring to

the three months ended March 31, 2022 and March 31, 2021 quarters, respectively.

Additionally, the twelve months ending December 31,

2022 is referred to as “Fiscal 2022.”

the three months ended June 30, 2022 and June 30, 2021 quarters, respectively.

Further, when we refer to the “2022 Period”

and the “2021 Period” we are referring to the six months ended June 30, 2022 and June 30, 2021 periods, respectively.

Additionally,

the twelve months ending December 31, 2022 is referred to as “Fiscal 2022.”

is an early entrant in the Digital Asset market and one of the first U.S.

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Compared to PoW, PoS blockchains require less energy.

on the PoS blockchain protocol, native token holders have the opportunity to leverage their asset holdings by either delegating their

rights to a validator (“Delegating”), staking their token holdings in a staking pool (“Staking”), or running

their own validator (“Pooling”).

With Delegating, token holders indirectly participate by maintaining control of their private

keys and delegating their tokens to an existing validator.

Therefore, delegating is more akin to assigning voting rights of stock to

another person or entity via a power of attorney.

With Pooling, an operator and token holder combine tokens in order to improve the constituents’

collective odds of validating new blocks, and typically the operator takes custody of token holders funds i.e.

private keys.

for validation, the group is rewarded in tokens.

With both Delegating and Pooling, the validator operators earn a fee for providing the

technical capabilities of running a node 24/7 that requires regular, active maintenance and industry expertise.

on the PoS blockchain protocol, native token holders have the opportunity to leverage their asset holdings by either running their own

validator (“Validating”) or delegating their rights to a validator (“Delegating” or “Staking”).

Delegating or Staking, token holders indirectly participate in blockchain networks by maintaining control of their private keys and delegating

their tokens to an existing validator.

Therefore, Delegating is more akin to assigning voting rights of stock to another person or entity

via a power of attorney.

With Validating, a node operator and token holder combine tokens in order to improve the node’s collective

odds of earning token rewards for successfully validating new transactions and blocks on the network.

With both Delegating and Validating,

the validator operators earn a fee for providing the technical capabilities of running a node 24/7 that requires regular, active maintenance

and industry expertise.

uses its blockchain infrastructure to operate validator nodes on various proof of stake-based blockchain networks.

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sign transactions on behalf of customers that delegate their validation and voting rights to BTCS-operated validator nodes (referred

to as “Staking-as-a-Service” or “StaaS”).

StaaS provider maintains an active role in validating transactions on a given PoS network on behalf of its delegators by (1) arranging

to as “Staking-as-a-Service” or “SaaS”).

SaaS provider maintains an active role in validating transactions on a given PoS network on behalf of its delegators by (1) arranging

transactions using software to stake the relevant Digital Assets;

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and (3) verifying transactions on the network when required to earn rewards.

from Bitcoin and Ethereum, all of the Company’s Digital Asset holdings are in tokens secured by PoS or similar consensus mechanisms

that allow for Delegating and asset leveraging.

The Company is currently actively operating validator nodes on Ethereum’s beacon

chain, Cardano, Tezos, Avalanche, Kusama, and Cosmos.

The Company has also staked the following tokens Polkadot, Terra, Algorand, and

Building on that base, the Company plans to expand its PoS operations to secure other disruptive blockchain protocols that also

allow for delegating.

from Ethereum, all of the Company’s Digital Asset holdings are in tokens secured by PoS or similar consensus mechanisms that allow

for Delegating and asset leveraging.

The Company is currently actively operating validator nodes on Ethereum’s Beacon Chain, Cosmos,

Kava, Tezos, Avalanche, Kusama, Polygon and Cardano.

The Company has also staked the following tokens Polkadot, Algorand, Axie Infinity

Building on that base, the Company plans to expand its PoS operations to secure other disruptive blockchain protocols that

also allow for delegating.

Company believes its blockchain infrastructure efforts will form the core growth for its Digital Asset Platform.

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Assets Held at Period End

Bitcoin (BTC)

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Infinity (AXS)

Market Value of Digital Assets at Period End

Bitcoin (BTC)

Ethereum (ETH)*

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Approximately 9 ETH is not staked on Ethereum 2.0’s Beacon Chain.

Infinity (AXS)

Approximately 9 ETH is not staked.

of Digital Assets at Period End

Bitcoin (BTC)

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Infinity (AXS)

The prices have been rounded to the nearest whole dollar for prices above $100

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Company is also currently developing and plans to integrate into the Digital Asset Platform a proprietary Staking-as-a-Service feature

aimed at allowing users to delegate supported cryptocurrencies through a non-custodial platform to BTCS operated validator nodes.

aimed at allowing users to delegate supported cryptocurrencies to BTCS operated validator nodes through a non-custodial platform.

allows users to generate an annual percentage yield (“APY”) on their staked assets whereas validator node operators charge

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Staking-as-a-Service platform.

Asset Treasury Strategy

Company employs a Digital Asset treasury strategy with a primary focus on disruptive protocol layer assets such as Bitcoin which are

not able to be staked (i.e.

non-productive).

They are distinct from Digital Assets used as the foundation for our blockchain infrastructure

operations previously discussed.

The Company’s Digital Asset treasury holding is comprised of 90 Bitcoins as set forth above.

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 Investment Company Act of 1940 and seek to reduce potential liabilities

under the federal securities laws.

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.

financial measure

addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our

operating performance.

We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability

with past financial performance and the economic realities of our business.

However, Adjusted EBITDA is presented for supplemental informational

purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information

presented in accordance with GAAP.

Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense

(including stock-based compensation issued to service providers), which has recently been, and will continue to be for the foreseeable

future, a significant recurring expense for our business and an important part of our compensation strategy.

In addition, other companies,

including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate

their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

A reconciliation

is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to

their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

calculate Adjusted EBITDA as net income (loss), adjusted to exclude, depreciation and amortization, interest expense, change in fair

value of warrant liabilities, and stock-based compensation expense (including stock-based compensation issued to service providers).

Adjusted EBITDA presented does not include adjustments for impairment of intangible Digital Assets.

following table provides a reconciliation of net income (loss) to Adjusted EBITDA:

Three Months Ended March 31,

Net income (loss)

$ (5,740,743 )

$ (6,782,175 )

Adjusted to exclude the following:

Depreciation and amortization

Interest expense

Change in fair value of warrant liabilities

Stock-based compensation

Adjusted EBITDA

of Operations for the Three Months Ended March 31, 2022 and 2021

following table reflects our operating results for the three months ended March 31, 2022 and 2021:

For the Three Months Ended

Validator revenue

Total revenues

Cost of revenues

Validator expense

of Operations for the Three and Six Months Ended June 30, 2022 and 2021

following tables reflect our operating results for the three and six months ended June 30, 2022 and 2021:

the Three Months Ended

and administrative

and development

and related expenses

loss on digital assets/currencies

gains on digital asset/currency transactions

operating expenses

General and administrative

Research and development

Compensation and related expenses

Total operating expenses

income (expenses):

on debt discount

in fair value of warrant liabilities

Distributions

to warrant holders

other income (expenses)

Interest expense

Amortization on debt discount

Change in fair value of warrant liabilities

Distributions to warrant holders

Impairment loss on digital assets/currencies

Realized gains (loss) on digital asset/currency transactions

Total other income (expenses)

$ (7,724,673 )

$ (4,842,073 )

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

Net loss attributable to common stockholders

the Six Months Ended

and administrative

and development

and related expenses

loss on digital assets/currencies

gains on digital asset/currency transactions

operating expenses

income (expenses):

on debt discount

in fair value of warrant liabilities

Distributions

to warrant holders

other income (expenses)

$ (13,465,416 )

$ (11,624,248 )

for the three months ended March 31, 2022 and 2021 were approximately $563,000 and $73,000, respectively.

The increase is from our blockchain

infrastructure validating revenue.

We believe revenues will increase as the Company continues to expand its blockchain infrastructure

of revenues for the three months ended March 31, 2022 and 2021 were approximately $138,000 and $15,000, respectively.

The increase is

from our blockchain infrastructure validating operating costs, including, web service hosting fees, and cash and stock-based compensation

related to services provided by vendors.

We believe our cost of revenues will increase as we continue to ramp up our business.

we believe gross margin will improve as we add scale to our blockchain infrastructure operations, leading to improved gross profits.

expenses for the three months ended March 31, 2022 and 2021 were approximately $2.2 million and $8.0 million.

The decrease is

primarily due to $7.3 million non-cash contingent bonuses granted to employees and our non-employee director during 2021 for the achievement

of performance milestones.

The equity compensation was not valued based on the Company’s stock price of $0.19, the last closing

date prior to the date of issuance of January 1, 2021 but instead, in accordance with GAAP, valued as of March 31, 2021 (the date the

Company received stockholder ratification).

On that date, the Company’s stock price was $1.03 which caused the significant corresponding

stock compensation expense.

We believe operating expenses will remain consistent as the Company continues to utilize equity-based bonus

incentives as a core part of its compensation strategy.

increase in revenue during the 2022 Quarter and 2022 Period as compared to the 2021 Quarter and 2021 Period is from our blockchain infrastructure

validating revenue.

We believe revenues will decrease for the period ending September 30, 2022 and potentially for the remainder of 2022

as a result of decline in market prices of the Digital Assets we have earned and/or purchased.

increase in cost of revenues is due to our blockchain infrastructure validating operating costs, including, web service hosting fees,

and cash and stock-based compensation related to services provided by vendors.

We believe our cost of revenues will increase as we continue

to ramp up our business.

However, we believe gross margin will improve as we add scale to our blockchain infrastructure operations and

reduce costs as a result of increased operational efficiencies, leading to improved gross profits.

increase in operating expenses in the 2022 Quarter is primarily due to the $8.9 million impairment loss on Digital Assets (“Digital

Asset Impairment”) in the 2022 Quarter, compared to only $2.3 million Digital Asset Impairment in the 2021 Quarter.

This is partially

offset by the $1.6 million non-cash contingent bonuses granted to employees and our non-employee directors during the 2021 Quarter for

the achievement of performance milestones.

increase in operating expenses in the 2022 Period is primarily due to the $12.2 million Digital Asset Impairment in the 2022 Period,

compared to only $3.6 million Digital Asset Impairment in the 2021 Period.

This is partially offset by the $8.7 million non-cash contingent

bonuses granted to employees and our non-employee directors during the 2021 Period for the achievement of performance milestones.

believe operating expenses will remain consistent as the Company continues to utilize equity-based bonus incentives as a core part of

its compensation strategy.

However, volatility in the Digital Asset markets will subject the Company to the possibility of additional

impairment charges on its Digital Asset holdings.

Company is evaluating additional opportunities to reduce costs.

As part of our cost cutting measures, in June 2022, the Board of Directors

reduced all director fees for 2022 from $50,000 to $25,000 and reduced the Audit, Compensation and Nominating and Corporate Governance

committee chair fees for 2022 to $5,000.

Additionally, Charles Allen and Michal Handerhan, the Company’s Chief Executive Officer

and Chief Operating Officer, respectively, agreed to forfeit $25,000 of their annual base salaries for 2022.

Collectively, these cost-cutting

measures will result in cost savings of approximately $141,000, which the Company will see primarily in the next two quarters.

Income (Expenses)

income (expenses) for the three months ended March 31, 2022 and 2021 was approximately $(3.9) million and $1.1 million, respectively.

The increase in other income is primarily from $3.3 million impairment loss on digital assets/currencies and $0.6 million change in fair

value of warrant liabilities.

loss for the three months ended March 31, 2022 and 2021 was approximately $5.7 million and $6.8 million, respectively.

is primarily due to the decrease of operating expenses and increase in other income (expense) as discussed above.

loss attributable to common stockholders

incurred approximately $0 and $16,000 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock,

and $0 and $4.8 million of deemed dividends related to recognition of anti-dilution adjustment to the conversion amount for Series C-2

convertible preferred stock for the three months ended March 31, 2022 and 2021, respectively.

increase in other income for the periods reported was primarily due to the decrease in the fair value of warrant liabilities.

This non-cash

expense is driven by the value of our stock price at the end of each quarter which we cannot predict.

increase in our net loss for the periods reported was primarily due to the increase in operating expenses and increase in other income

(expense) as discussed above.

We believe that our net loss will increase as the Company incurs increased costs related to the development

of its Digital Asset Platform and incurs additional Digital Asset Impairment losses due to volatility in the Digital Asset markets.

and Capital Resources

September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C.

& Co., LLC, as agent (“H.C.

Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through

Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500.

From the period

September 14, 2021 through May 9, 2022, the Company sold a total of 2,268,742 shares of Common Stock under the ATM Agreement for aggregate

total gross proceeds of approximately $13,874,000 at an average selling price of $6.12 per share, resulting in net proceeds of approximately

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.

shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500.

From the period September 14, 2021

through August 8, 2022, the Company sold a total of 2,559,122 shares of Common Stock under the ATM Agreement for aggregate total gross

proceeds of approximately $14,340,000 at an average selling price of $5.60 per share, resulting in net proceeds of approximately $13,888,000

after deducting commissions and other transaction costs.

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.

is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate

Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates

continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

Liquidity is the

ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate

on an ongoing basis.

At March 31, 2022, the Company had approximately $2.6 million of liquid Digital Assets (i.e.

At June 30, 2022, the Company had approximately $2.5 million of liquid Digital Assets (i.e.

non-staked) and

$3.2 million of cash.

of March 31, 2022, we held approximately 90 bitcoins that composed a majority of our non-staked liquid Digital Asset balance.

believe we will need to sell any of our bitcoins within the next twelve months to meet our working capital requirements, although we

may from time to time sell bitcoins as part of treasury management operations, including to increase our cash balances.

The Bitcoin market

historically has been characterized by significant volatility in its price, limited liquidity and trading volumes compared to sovereign

currencies markets, relative anonymity, a developing regulatory landscape, susceptibility to market abuse and manipulation, and various

other risks inherent in its entirely electronic, virtual form and decentralized network.

During times of instability in the Bitcoin market,

we may not be able to sell our bitcoins at reasonable prices or at all.

As a result, our bitcoins are less liquid than our existing cash

and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

addition, upon sale of our bitcoin, we may incur additional taxes related to any realized gains or we may incur capital losses as to

which the tax deduction may be limited.

view our crypto asset investments as long-term holdings and we do not plan to engage in regular trading of crypto assets.

of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all.

our crypto assets are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for

us to the same extent as cash and cash equivalents.

of May 9, 2022, the Company had approximately $1.9 million of cash and the fair market value of the Company’s liquid Digital

Assets was approximately $8.7 million, which excludes $18.7 million of staked Ethereum.

The Company had no notes payable

or any other long-term debt outstanding.

As of May 9, 2022, the Company also has approximately $18.2 million available under the At

the Market Offering Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise

under the Form S-3 may increase or decrease based upon our then stock price.

The Company believes that the existing cash and liquid Digital

Assets held by us, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement,

view our Digital Assets as long-term holdings and we do not plan to engage in regular trading of Digital Assets.

During times of instability

in the market of Digital Assets, we may not be able to sell our Digital Assets at reasonable prices or at all.

As a result, our Digital

Assets may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.

As of August 8, 2022, the Company

had approximately $3.2 million of cash and the fair market value of the Company’s liquid Digital Assets was approximately $4.4 million,

which excludes $14.8 million of staked Ethereum.

The Company has no outstanding debt.

As of August 8, 2022, the Company also has approximately

$17.7 million available under the At the Market Offering Agreement under the Form S-3 baby shelf rules, although, the amount that we may

raise under the Form S-3 may increase or decrease based upon our then stock price.

The Company believes that the existing cash and liquid

Digital Assets held by us, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement,

provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at

least the next twelve months.

used in operating activities was $1.1 million during the three months ended March 31, 2022 compared to $2.5 million for the three months

ended March 31, 2021.

used in investing activities was $8.2 million during the three months ended March 31, 2022 compared to $8.0 million for the three months

ended March 31, 2021.

Net cash outflow for investing activities was used primarily for the purchase of Digital Assets for blockchain

infrastructure operations.

provided by financing activities was $10.1 million during the three months ended March 31, 2022 compared to $13.4 million for the three

months ended March 31, 2021.

The cash inflows from financing activities were primarily from proceeds from the Common Stock sold pursuant

to the ATM Agreement ($10.5 million).

This was partially offset by a one time return of capital distribution of $635,000 made to record

holders as of March 17, 2022.

The Company has plans to continue to raise proceeds from the sale of Common Stock and issuance of debt

to fund operations as needed.

used in operating activities was approximately $0.7 million during the six months ended June 30, 2022 compared to $(3.3) million for

the six months ended June 30, 2021.

used in investing activities was $8.8 million during the six months ended June 30, 2022 compared to $8.5 million for the six months ended

June 30, 2021.

Net cash outflow for investing activities was used primarily for the purchase of Digital Assets for our blockchain infrastructure

provided by financing activities was $10.0 million during the six months ended June 30, 2022 compared to $14.2 million for the six months

ended June 30, 2021.

The cash inflows from financing activities were primarily from proceeds from the Common Stock sold pursuant to the

ATM Agreement ($10.6 million).

This was partially offset by a one-time return of capital distribution of $635,000 made to record holders

as of March 17, 2022.

The Company has plans to continue to raise proceeds from the sale of Common Stock to fund operations as needed.

Balance Sheet Transactions

of March 31, 2022, there were no off-balance sheet arrangement and we were not a party to any off-balance sheet transactions.

of June 30, 2022, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions.

no guarantees or obligations other than those which arise out of normal business operations.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis