BTCS Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ . Commission file number: 001-40792 BTCS Inc. (Exact name of registrant as specified in its charter) Nevada 90-1096644 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 9466 Georgia Avenue #124 , Silver Spring , MD 20910 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code ( 202 ) 430-6576 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 BTCS The Nasdaq Stock Market (The Nasdaq Capital Market) Securities registered under Section 12(g) of the Exchange Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of November 8, 2022, there were 13,077,390 shares of common stock, par value $0.001, issued and outstanding. BTCS INC. TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements 4 Condensed Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 4 Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 5 Condensed Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 6 Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited) 7 Notes to the Unaudited Condensed Financial Statements 8 -19 ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 28 ITEM 4 Controls and Procedures 28 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings 29 ITEM 1A Risk Factors 29 ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 29 ITEM 3 Defaults Upon Senior Securities 29 ITEM 4 Mine Safety Disclosures 29 ITEM 5 Other Information 29 ITEM 6 Exhibits 29 Signature 30 2 BTCS INC. As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc. and its consolidated subsidiaries, unless otherwise indicated. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, including our liquidity, our belief that our revenues will increase, our blockchain infrastructure efforts will form the core growth for our Digital Asset Platform, our plans and development of our Digital Asset Platform and the integration of Staking-as-a-Service, our Digital Asset treasury strategy, our belief regarding blockchain, plans to expand the proof-of-stake (“PoS”) operations and other future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “may,” “potential,” “continues,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the rewards and costs associated with staking or validating transactions on blockchains, regulatory issues related to our business model, a drop in the price of our Digital Assets, significant decrease in the value of our digital assets and rewards, loss or theft of the private withdrawal keys resulting in the complete loss of digital assets and reward, and others which are contained in our filings with the SEC, including our Form 10-K for the year ended December 31, 2021. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. 3 PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements BTCS Inc. Balance Sheets September 30, December 31, 2022 2021 (Unaudited) Assets: Current assets: Cash $ 2,888,998 $ 1,400,867 Digital assets/currencies 36,561 3,117,360 Staked digital assets/currencies 2,586,575 623,754 Prepaid expense 207,078 324,551 Total current assets 5,719,212 5,466,532 Other assets: Property and equipment, net 12,330 9,783 Staked digital assets/currencies - long term 5,600,122 8,625,678 Total other assets 5,612,452 8,635,461 Total Assets $ 11,331,664 $ 14,101,993 Liabilities and Stockholders’ Equity: Accounts payable and accrued expense $ 104,631 $ 138,716 Accrued compensation 212,571 7,334 Warrant liabilities 712,500 1,852,500 Total current liabilities 1,029,702 1,998,550 Stockholders’ equity: Common stock, 97,500,000 shares authorized at $ 0.001 par value, 13,053,712 and 10,528,212 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 13,055 10,529 Additional paid in capital 160,374,041 147,682,384 Accumulated deficit ( 150,085,134 ) ( 135,589,470 ) Total stockholders’ equity 10,301,962 12,103,443 Total Liabilities and Stockholders’ Equity $ 11,331,664 $ 14,101,993 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 BTCS Inc. Statements of Operations (Unaudited) 2022 2021 2022 2021 For the Three Months Ended For the Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenues Validator revenue (net of fees) $ 344,196 $ 323,376 $ 1,421,560 $ 776,399 Total revenues 344,196 323,376 1,421,560 776,399 Cost of revenues Validator expense 82,203 71,690 313,972 145,935 Gross profit 261,993 251,686 1,107,588 630,464 Operating expenses: General and administrative $ 432,956 $ 282,558 $ 1,595,296 $ 1,149,506 Research and development 126,857 273,909 448,579 602,178 Compensation and related expenses 669,792 4,747,106 2,731,713 13,788,556 Marketing 8,765 7,559 74,249 10,345 Impairment loss on digital assets/currencies 145,247 208,647 12,347,472 3,777,785 Realized gains on digital asset/currency transactions ( 20,126 ) - ( 489,682 ) ( 3,054,418 ) Total operating expenses 1,363,491 5,519,779 16,707,627 16,273,952 Other income (expenses): Interest expense - ( 58,521 ) - ( 172,603 ) Amortization on debt discount - ( 581,973 ) - ( 1,716,744 ) Change in fair value of warrant liabilities 71,250 2,066,250 1,140,000 2,066,250 Distributions to warrant holders - - ( 35,625 ) - Total other income (expenses) 71,250 1,425,756 1,104,375 176,903 Net loss $ ( 1,030,248 ) $ ( 3,842,337 ) $ ( 14,495,664 ) $ ( 15,466,585 ) Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock - ( 13,188 ) - ( 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 $ ( 1,030,248 ) $ ( 3,855,525 ) $ ( 14,495,664 ) $ ( 20,533,009 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.08 ) $ ( 0.59 ) $ ( 1.15 ) $ ( 3.63 ) Weighted average number of common shares outstanding, basic and diluted 12,952,645 6,518,645 12,616,805 5,660,966 The accompanying notes are an integral part of these unaudited condensed financial statements. 5 BTCS Inc. Statements of Changes in Stockholders’ Equity (Unaudited) For the Nine Months Ended September 30, 2022 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance December 31, 2021 - - 10,528,212 $ 10,529 $ 147,682,384 $ ( 135,589,470 ) $ 12,103,443 Issuance of common stock, net of offering cost / At-the-market offering 2,148,658 2,149 11,092,983 - 11,095,132 Stock-based compensation 376,842 377 2,233,231 - 2,233,608 Dividend distributions - - ( 634,557 ) - ( 634,557 ) Net loss - - - - - ( 14,495,664 ) ( 14,495,664 ) Balance September 30, 2022 - - 13,053,712 $ 13,055 $ 160,374,041 $ ( 150,085,134 ) $ 10,301,962 For the Nine Months Ended September 30, 2021 Shares Amount Shares Amount Shares Amount Capital Deficit Equity Series C-1 Convertible Series C-2 Convertible Additional Preferred Stock Preferred Stock Common Stock Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance December 31, 2020 29,414 $ 29 - $ - 4,201,035 $ 4,201 $ 120,578,944 $ ( 119,539,887 ) $ 1,043,287 Common stock issued including equity commitment fee, net - - - - 321,738 322 3,013,683 - 3,014,005 Issuance of common stock, net of offering cost / At-the-market offering - - - - 41,290 41 219,705 - 219,746 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 13,892,542 - 13,892,884 Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock - - - 179,277 - - - - 179,277 Net loss - - - - - - - ( 15,466,585 ) ( 15,466,585 ) Balance September 30, 2021 - $ - - $ - 10,102,711 $ 10,103 $ 143,472,733 $ ( 135,006,472 ) $ 8,476,364 For the Three Months Ended September 30, 2022 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance June 30, 2022 - - 12,703,794 $ 12,705 $ 159,432,894 $ ( 149,054,886 ) $ 10,390,713 Issuance of common stock, net of offering cost / At-the-market offering 318,070 318 490,374 - 490,692 Stock-based compensation 31,848 32 450,773 - 450,805 Dividend distributions - - - - - Net loss - - - - - ( 1,030,248 ) ( 1,030,248 ) Balance September 30, 2022 - - 13,053,712 $ 13,055 $ 160,374,041 $ ( 150,085,134 ) $ 10,301,962 For the Three Months Ended September 30, 2021 Shares Amount Shares Amount Shares Amount Capital Deficit Equity (Deficit) Series C-1 Convertible Series C-2 Convertible Additional Total Preferred Stock Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balance June 30, 2021 - $ - 1,100,000 $ 6,203,101 5,712,215 $ 5,712 $ 137,959,473 $ ( 131,164,135 ) $ 13,004,151 Common stock issued including equity commitment fee, net - - - - 32,963 33 199,839 - 199,872 Issuance of common stock, net of offering cost / At-the-market offering - - - - 41,290 41 219,705 - 219,746 Warrant liabilities value related to Issuance of common stock - - - - ( 5,771,250 ) - ( 5,771,250 ) Conversion of Series C-2 Convertible Preferred stock ( 1,100,000 ) ( 6,216,289 ) 4,011,766 4,012 6,212,277 - - Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock - - - 13,188 - - ( 13,188 ) - - Fractional shares adjusted for reverse split - 14,477 15 ( 15 ) - - Stock-based compensation - - - - 290,000 290 4,665,892 - 4,666,182 Net loss - - - - - - - ( 3,842,337 ) ( 3,842,337 ) Balance September 30, 2021 - $ - - $ - 10,102,711 $ 10,103 $ 143,472,733 $ ( 135,006,472 ) $ 8,476,364 The accompanying notes are an integral part of these unaudited condensed financial statements. 6 BTCS Inc. Statements of Cash Flows (Unaudited) The accompanying notes are an integral part of these unaudited condensed financial statements. 2022 2021 For the Nine Months Ended September 30, 2022 2021 Net Cash flows used from operating activities: Net loss $ ( 14,495,664 ) $ ( 15,466,585 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 2,862 443 Amortization on debt discount - 1,716,744 Stock-based compensation 2,233,608 13,892,884 Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock - 179,277 Validator revenue ( 1,421,560 ) ( 776,399 ) Blockchain network fees (non-cash) 1,321 - Change in fair value of warrant liabilities ( 1,140,000 ) ( 2,066,250 ) Purchase of non-productive digital assets/currencies - ( 5,761,550 ) Sale of non-productive digital assets/currencies 2,547,322 4,274,491 Realized gain on digital assets/currencies transactions ( 489,682 ) ( 3,054,418 ) Impairment loss on digital assets/currencies 12,347,472 3,777,785 Changes in operating assets and liabilities: Prepaid expenses and other current assets 117,473 ( 440,514 ) Accounts payable and accrued expenses ( 37,842 ) 168,546 Accrued compensation 205,237 ( 348,875 ) Net cash used in operating activities ( 129,453 ) ( 3,904,421 ) Net cash used in investing activities: Purchase of productive digital assets/currencies for validating ( 9,274,055 ) ( 9,462,279 ) Sale of productive digital assets/currencies 432,716 - Purchase of property and equipment ( 5,408 ) ( 4,543 ) Net cash used in investing activities ( 8,846,747 ) ( 9,466,822 ) Net cash provided by financing activities: Dividend distributions ( 630,801 ) - 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 Net proceeds from issuance common stock/ At-the-market offering 11,095,132 219,746 Payment to convertible notes principle - ( 1,092,712 ) Net cash provided by financing activities 10,464,331 13,506,039 Net increase in cash 1,488,131 134,796 Cash, beginning of period 1,400,867 524,135 Cash, end of period $ 2,888,998 $ 658,931 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-2 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 The accompanying notes are an integral part of these unaudited condensed financial statements. 7 BTCS Inc. Notes to Unaudited Condensed Financial Statements Note 1 - Business Organization and Nature of Operations BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada corporation (the “Company”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online 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 released a new website which included broader information on its strategy. The Company’s blockchain infrastructure operations focuses on securing next-generation blockchains and operating validator nodes on various proof of stake-based blockchain networks, earning rewards of additional Digital Assets by authenticating and validating transactions on the networks. The Company is in the late stages of developing a Digital Asset Platform that would enable users to aggregate their Digital Asset portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally developed platform utilizes Digital Asset exchange APIs to read user data and does not allow for the trading of assets. We also are developing an integrated proprietary Staking-as-a-Service feature on the Digital Asset Platform that would enable users to participate in asset leveraging through securing blockchain protocols and to stake and delegating supported cryptocurrencies to BTCS operated validator nodes through a non-custodial platform. 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 accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management, reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of results for the full year ended December 31, 2022. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2021. 8 Note 3 - Summary of Significant Accounting Policies There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Annual Report. Basis of presentation The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Reclassifications Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported net income (loss). Concentration of Cash The Company maintains cash balances at two financial institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturities of nine months or less when purchased to be cash and cash equivalents. As of September 30, 2022 and December 31, 2021, the Company had approximately $ 2.9 million and $ 1.4 million in cash. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 . As of September 30, 2022 and December 31, 2021, the Company had approximately $ 2.5 million and $ 0.9 million in excess of the FDIC insured limit, respectively. Revenue Recognition The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606 , Revenue from Contracts with Customers . The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through staking rewards. The Company has entered into network-based smart contracts by running its own Digital Asset validating nodes as well as by staking Digital Assets with staking pools on nodes run by third-party operators (either directly or through exchanges). Through these contracts, the Company provides cryptocurrency to stake on a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is canceled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for staking the cryptocurrency and validating transactions on blockchain networks, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and is entitled to a fractional share of the fixed cryptocurrency award a third-party staking pool operator receives (less digital asset transaction fees payable to the pool operator or exchanges, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain. The Company’s fractional share of awards received by a third-party staking pool is based on the proportion of cryptocurrency the Company staked to the staking pool node to the total cryptocurrency staked by all pool participants validating blockchain transactions. 9 The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives - the cryptocurrency 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 at the time of receipt. The satisfaction of the performance obligation for transaction verification services occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. Cost of revenue The Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in software maintenance and operations of its nodes. Digital Assets 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. 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 related to Digital Assets of approximately $ 12.3 million and $ 3.8 million during the nine months ended September 30, 2022, and 2021, respectively Impairment losses cannot be recovered for any subsequent increase in fair value until the sale or disposal of the asset. Realized gain (loss) on sale of Digital Assets are included in other income (expense) in the statements of operations. The Company recorded realized gains (losses) on Digital Assets of approximately $ 490,000 and $ 3.1 million during the nine months ended September 30, 2022 and 2021, respectively. The presentation of purchases and sales of Digital Assets on the Statement of Cash Flows is determined by the nature of the Digital Assets, which can be characterized as productive (i.e. purchased for purposes of staking) or non-productive. The purchase of non-productive Digital Assets and currencies are included as an operating activity, whereas the purchase of productive Digital Assets and currencies are included as investing activities in accordance with ASC 230-10-20 Investing activities. Productive Digital Assets that are staked with a lock-up period of less than 12 months are presented on the Balance Sheet as current assets. Staked Digital Assets with remaining lock-up periods of greater than 12 months are presented as long-term other assets on the Balance Sheet. 10 Internally Developed Software Internally developed software consists of the core technology of the Company’s Digital Asset Platform, which is being designed to allow users to track, monitor and analyze their aggregate cryptocurrency portfolio holdings by connecting their Digital Asset exchanges and digital wallets as well as providing a non-custodial delegation process to earn staking rewards on Digital Asset holdings. 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. 11 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. Options Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options 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. 12 Restricted Stock Units (RSUs) For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest. The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. Dividends On January 5, 2022, the board of directors of the Company declared a non-recurring special dividend of $0.05 for each outstanding share of Common Stock of the Company, payable to holders of record as of the close of business on March 17, 2022. The dividend distributions are considered a return of capital as the distributions are in excess of the Company’s current and accumulated earnings and profits. The return of capital distribution reduces the Company’s additional paid in capital balance. The Company will evaluate the appropriateness of potential future dividends as the Company continues to grow its operations. Dividend distributions amounted to $ 635,000 and $ 0 during the nine months ended September 30, 2022 and 2021, respectively. Advertising Expense Advertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $ 74,000 and $ 10,000 for the nine months ended September 30, 2022 and 2021, 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 September 30, 2022 and 2021 because their effect was anti-dilutive: Schedule of Earnings Per Share Anti-diluted 2022 2021 As of September 30, 2022 2021 Warrants to purchase common stock 945,837 962,823 Convertible notes - 285,429 Options 1,285,000 - Non-vested restricted stock awards units 1,612,350 - Total 3,843,187 1,248,252 13 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 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. 2019-12 effective January 1, 2021, 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) The following table presents the Company’s assets and liabilities that are measured at fair value at September 30, 2022 and December 31, 2021: Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis Fair value measured at September 30, 2022 Total at September 30, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2022 (Level 1) (Level 2) (Level 3) Liabilities Warrant Liabilities $ 712,500 $  - $  - $ 712,500 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 14 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 September 30, 2022 and December 31, 2021, is as follows: Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities September 30, 2022 December 31, 2021 Risk-free rate of interest 4.06 % 1.26 % Expected volatility 157.1 % 162.5 % Expected life (in years) 3.43 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 nine months ended September 30, 2022 and 2021, 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 September 30, September 30, 2022 2021 Beginning balance $ 1,852,500 $ - Warrant liabilities classification - - Fair value adjustment of warrant liabilities ( 1,140,000 ) - Ending balance $ 712,500 $ - 15 Note 5 - Stockholders’ Equity 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. 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. During the nine months ended September 30, 2022, the Company sold a total of 2,148,658 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 11,454,000 at an average selling price of $ 5.33 per share, resulting in net proceeds of approximately $ 11,095,000 after deducting commissions and other transaction costs. 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 and amended on June 13, 2022. The Company has reserved 7,000,000 shares of Common Stock for issuance pursuant to the 2021 Plan. Options During the three months ended September 30, 2022, the Company granted 50,000 stock options with a weighted average exercise price of $ 1.51 to non-executive employees. The following weighted-average assumptions were used to estimate the fair value of options granted on the deemed grant date during the nine months ended September 30, 2022 and 2021 for both the Black-Scholes formula and the Monte-Carlo simulation formula, applicable to 2021 options granted: Summary of Weighted-average Assumptions Used to Estimate Fair Value For the nine months ended September 30, 2022 2021 Exercise price $ 1.51 $ 0.21 Term (years) 5.00 2.25 - 3.05 Expected stock price volatility 165.8 % 185.9 % Risk-free rate of interest 2.77 % 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 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. 16 A summary of option activity under the Company’s stock option plan for nine months ended September 30, 2022 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, 2021 1,235,000 $ 2.14 $ 1,488,000 4.3 Employee options granted 50,000 1.51 - 4.8 Outstanding as of September 30, 2022 1,285,000 $ 2.11 $ - 3.6 Options vested and exercisable as of September 30, 2022 1,229,750 $ 2.10 $ - 3.5 RSUs Effective January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee: The Board of Directors of the Company 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 in 2022. The Company’s executive officers were granted RSUs as part of a long-term incentive plan (“LTI”), with vesting terms set for when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above four defined market capitalization thresholds of $ 100 million, $ 150 million, $ 200 million and $ 400 million. Effective February 22, 2022, upon appointment of Manish Paranjape as Chief Technology Officer of the Company, Mr. Paranjape was also granted RSUs as part of the LTI plan, with consistent vesting terms set for when the Company’s market capitalization above the same four defined market capitalization thresholds. The RSUs granted to each executive employee are as follows: Schedule of Restricted Stock Units Total Market Cap Vesting Thresholds Officer Name Title Grant Date RSUs Granted $ 100 million $ 150 million $ 200 million $ 400 million Charles Allen Chief Executive Officer 1/2/2022 694,444 173,611 173,611 173,611 173,611 Michal Handerhan Chief Operations Officer 1/2/2022 444,444 111,111 111,111 111,111 111,111 Michael Prevoznik Chief Financial Officer 1/2/2022 222,224 55,556 55,556 55,556 55,556 Manish Paranjape Chief Technology Officer 2/22/2022 160,184 40,046 40,046 40,046 40,046 1,521,296 380,324 380,324 380,324 380,324 To the extent any market capitalization targets set forth above for Mr. Prevoznik and Mr. Paranjape are achieved, the RSUs will also be subject to the following five-year vesting schedule: 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. For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest. The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. 17 The following weighted-average assumptions were used to estimate the fair value of options granted during the nine months ended September 30, 2022 and 2021 for the Monte-Carlo simulation: Schedule of Weighted-Average Assumptions Used to Estimate Fair Value Nine Months Ended September 30, 2022 2021 Vesting Hurdle Price $ 19.39 - Term (years) 5.00 - Expected stock price volatility 103.7 % - Risk-free rate of interest 1.32 % - Expected Volatility : The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the RSUs. Risk-Free Interest Rate : The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the RSUs. Expected Term : The Company’s expected term represents the weighted-average period that the Company’s RSUs are expected to be outstanding. The expected term is based on the stipulated 5 year period from the grant date until the market based criteria are achieved. If the market-based criteria are not achieved within the five year period from the grant date, the RSUs will not vest and shall expire. Vesting Hurdle Price: The vesting hurdle prices are determined by taking the vesting Market Cap criteria divided by the shares outstanding as of the valuation dates. Effective September 30, 2022, Mr. David Garrity resigned as a director of BTCS, Inc. The Board of Directors of the Company agreed to fully vest Mr. Garrity’s remaining unvested restricted stock units ( 7,962 shares) and pay Mr. Garrity approximately $ 5,600 , which represents the remaining 2022 director fees. A summary of the Company’s restricted stock units granted under the 2021 Plan during the nine months ended September 30, 2022 are as follows: Summary of Restricted Stock Number of Restricted Stock Units Weighted Average Grant Day Fair Value Nonvested at December 31, 2021 29,363 $ 5.96 Granted 1,662,607 3.29 Vested ( 79,620 ) 3.14 Forfeited - - Nonvested at September 30, 2022 1,612,350 $ 3.35 Stock Based Compensation Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues. Stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 was as follows: Schedule of Stock-based Compensation Expense 2022 2021 2022 2021 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Employee bonus stock awards $ - $ - $ 894,027 $ - Employee stock option awards 16,455 1,638,516 98,901 10,298,844 Employee restricted stock unit awards 434,349 3,027,665 1,182,053 3,029,040 Non-employee restricted stock awards 30,480 75,000 202,218 237,806 Series C-2 Allocation - - - 179,277 Stock-based compensation $ 481,284 $ 4,741,181 $ 2,377,199 $ 13,744,967 18 Note 6 – Accrued Expenses Accrued expenses consist of the following: Schedule of Accrued Expenses September 30, 2022 December 31, 2021 Compensation and related expenses $ 212,571 $ 7,334 Accounts Payable 100,875 138,372 Other 3,757 343 Accrued Expenses $ 317,203 $ 146,050 Accrued compensation and related expenses include approximately $ 209,000 related to performance bonus accruals as of September 30, 2022. Note 7 - Employee Benefit Plans The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100 % of employee contributions. For the nine months ended September 30, 2022, the Company made contributions to the 401(k) Plan of $ 45,000 . Note 8 – Liquidity The Company follows “ Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ”. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the financial statements, the Company has historically incurred a net loss and has an accumulated deficit at September 30, 2022, 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. Note 9 - 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 October 1, 2022 to November 8, 2022, the Company sold a total of 23,678 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 33,000 at an average selling price of $ 1.38 per share, resulting in net proceeds of approximately $ 31,000 after deducting commissions and other transaction costs. On October 1, 2022, the Board of Directors of BTCS Inc. appointed Melanie Pump as a new independent director of the Board. Ms. Pump was also appointed as the Chairperson of the Audit and Compensation Committees. As compensation for her service as a director and Chairperson of the Committees, Ms. Pump will receive: (i) annual cash compensation of $ 25,000 and $ 5,000 for each Committee ($ 10,000 in total), and (ii) 7,962 restricted stock units which will vest on December 31, 2022. 19 ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those discussed in the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2021. When we refer to the “2022 Quarter” and the “2021 Quarter” we are referring to the three months ended September 30, 2022 and September 30, 2021 quarters, respectively. Further, when we refer to the “2022 Period” and the “2021 Period” we are referring to the nine months ended September 30, 2022 and September 30, 2021 periods, respectively. Additionally, the twelve months ending December 31, 2022 is referred to as “Fiscal 2022.” Overview BTCS is an early entrant in the Digital Asset market and one of the first U.S. publicly-traded companies to focus on Digital Assets and blockchain technologies. Through our blockchain-infrastructure operations, we secure disruptive next-generation blockchains and operate validator nodes on various proof-of-stake blockchain networks, earning rewards of additional Digital Assets by authenticating and validating transactions on the networks. The Company is in the late stages of developing a Digital Asset Platform that would enable users to aggregate their Digital Asset portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally developed platform utilizes Digital Asset exchange APIs to read user data and does not allow for the trading of assets. We also are developing an integrated proprietary Staking-as-a-Service feature on the Digital Asset Platform that would enable users to participate in asset leveraging through securing blockchain protocols and to stake and delegating supported cryptocurrencies to BTCS operated validator nodes through a non-custodial platform. Blockchain Infrastructure Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain. There are currently two main consensus mechanisms used to secure blockchains: i) proof-of-work (“PoW”), in which nodes dedicate computational resources, and ii) proof-of-stake (“PoS”), in which nodes dedicate financial resources. The intention behind both PoW and PoS is to make it practically impossible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain. In the case of PoW, a miner does “work” using energy-consuming computers and is rewarded for this “work” with Digital Assets. The miner, typically through pools running nodes, validates transactions on the blockchain, essentially converting electricity and computing power into a digital currency reward comprised of transaction fees and newly-minted Digital Assets. Bitcoin is an example of PoW and is by far the largest and most secure PoW blockchain. PoS miners, often referred to as validators in PoS systems, operate nodes and validate transactions. Validators are required to stake holdings of a digital currency to participate in the consensus algorithm and are rewarded in tokens for aligning behavior with the rules of the algorithm. Bad behavior can be penalized by “slashing” the validator’s holdings and/or rewards. Validators can also be removed from the network for breaking the rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be properly maintained and secured. Compared to PoW, PoS blockchains require less energy. Depending on the PoS blockchain protocol, native token holders have the opportunity to leverage their asset holdings by either running their own validator (“Validating”) or delegating their rights to a validator (“Delegating” or “Staking”). With Delegating or Staking, token holders 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 administerial capabilities of running a node 24/7 that requires regular, maintenance and industry expertise. BTCS uses its blockchain infrastructure to operate validator nodes on various proof of stake-based blockchain networks. In connection with the validation of transactions occurring on those blockchain networks, BTCS will stake the Digital Assets native to those blockchains on the validator nodes it operates in order to earn staking rewards. BTCS may also use its blockchain infrastructure to validate and authenticate 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 “SaaS”). A SaaS provider maintains an administerial role in validating transactions on a given PoS network on behalf of its delegators by maintaining the validator nodes we operate to ensure they remain online and ready to validate transactions. 20 All of the Company’s Digital Asset holdings are in tokens secured by PoS or similar consensus mechanisms. The Company is currently actively operating validator nodes on Ethereum, Cosmos, Kava, Tezos, Avalanche, Kusama, Polygon, Mina, Akash and Cardano. The Company has also staked the following tokens Polkadot, Algorand, Axie Infinity, Oasis and Solana. Building on that base, the Company plans to expand its PoS operations to secure other disruptive blockchain protocols that also allow for Delegating and asset leveraging. The Company believes its blockchain infrastructure efforts will form the core growth for its Digital Asset Platform. The Company utilizes cloud infrastructure to operate and run its validator nodes and does not maintain its own physical assets, but may add this infrastructure in the future. The table below describes our Digital Asset holdings as of the end of the third quarter of 2021 until the end of the 2022 Period. Digital Assets Held at Period End Asset 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 Bitcoin (BTC) 90 90 90 - - Ethereum (ETH) 7,992 8,098 8,196 8,283 8,380 Cardano (ADA) 257,757 257,757 257,757 260,555 262,860 Kusama (KSM) 374 374 5,278 5,550 6,297 Tezos (XTZ) 24,172 24,504 70,453 71,369 72,578 Solana (SOL) 4,788 4,779 7,043 7,136 7,238 Polkadot (DOT) 8,032 8,032 38,816 39,986 23,905 Terra (LUNA) 3,584 3,584 3,621 - - Cosmos (ATOM) 3,072 3,072 80,474 86,613 91,181 Polygon (MATIC) 67,114 67,114 454,486 466,022 474,207 Avalanche (AVAX) 2,025 2,073 14,273 14,594 14,888 Algorand (ALGO) 50,584 51,103 51,197 51,201 51,201 Axie Infinity (AXS) 22,322 31,763 37,402 Kava (KAVA) 183,966 264,917 280,293 Band Protocol (BAND) 992 Mina (MINA) 71,297 Oasis Network (ROSE) 349,661 Akash (AKT) 103,730 21 Fair Market Value of Digital Assets at Period End Asset 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 Bitcoin (BTC) 3,941,180 4,167,579 4,098,481 - - Ethereum (ETH)* 23,990,541 29,820,477 26,894,723 8,840,595 11,128,675 Cardano (ADA) 545,028 337,716 294,320 119,555 114,190 Kusama (KSM) 123,957 103,866 992,851 267,583 265,505 Tezos (XTZ) 146,914 106,679 262,023 101,102 103,210 Solana (SOL) 675,373 813,791 863,854 239,700 240,377 Polkadot (DOT) 229,558 214,616 826,875 281,496 150,964 Terra (LUNA) 138,351 306,353 373,005 - - Cosmos (ATOM) 111,252 99,761 2,325,374 651,909 1,186,824 Polygon (MATIC) 75,644 169,604 735,034 222,466 368,671 Avalanche (AVAX) 135,191 226,499 1,383,403 247,059 256,021 Algorand (ALGO) 82,381 84,830 47,492 16,115 18,044 Axie Infinity (AXS) 1,416,264 461,649 470,116 Kava (KAVA) 828,742 468,634 423,326 Band Protocol (BAND) 1,215 Mina (MINA) 42,085 Oasis Network (ROSE) 21,330 Akash (AKT) 26,881 Total 30,195,370 36,451,772 41,342,441 11,917,864 14,817,434 QoQ Change 40 % 21 % 13 % -71 % 24 % YoY Change 1780 % 825 % 105 % -45 % -51 % * Approximately 9 ETH is not staked. 22 Prices of Digital Assets at Period End Asset 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 Bitcoin (BTC) $ 43,791 $ 46,306 $ 45,539 $ 19,785 $ 19,432 Ethereum (ETH) $ 3,002 $ 3,683 $ 3,282 $ 1,067 $ 1,328 Cardano (ADA) $ 2.11 $ 1.31 $ 1.14 $ 0.46 $ 0.43 Kusama (KSM) $ 331 $ 278 $ 188 $ 48 $ 42 Tezos (XTZ) $ 6.08 $ 4.35 $ 3.72 $ 1.42 $ 1.42 Solana (SOL) $ 141 $ 170 $ 123 $ 34 $ 33 Polkadot (DOT) $ 28.58 $ 26.72 $ 21.30 $ 7.04 $ 6.32 Terra (LUNA) $ 38.60 $ 85.47 $ 103 $ - $ - Cosmos (ATOM) $ 36.21 $ 32.47 $ 28.90 $ 7.53 $ 13.02 Polygon (MATIC) $ 1.13 $ 2.53 $ 1.62 $ 0.48 $ 0.78 Avalanche (AVAX) $ 66.77 $ 109 $ 96.92 $ 16.93 $ 17.20 Algorand (ALGO) $ 1.63 $ 1.66 $ 0.93 $ 0.31 $ 0.35 Axie Infinity (AXS) $ 63.45 $ 14.53 $ 12.57 Kava (KAVA) $ 4.50 $ 1.77 $ 1.51 Band Protocol (BAND) $ 1.22 Mina (MINA) $ 0.59 Oasis Network (ROSE) $ 0.06 Akash (AKT) $ 0.26 * The prices have been rounded to the nearest whole dollar for prices above $100 The following table presents the Fair Market Value of Digital Assets held compared to the GAAP Book Value reported on the Company’s balance sheet. September 30, 2022 December 31, 2021 Book Value Fair Value Book Value Fair Value Bitcoin (BTC) $ - $ - $ 2,600,426 $ 4,167,579 Ethereum (ETH) 5,633,111 11,128,675 8,642,983 29,820,477 Cardano (ADA) 106,883 114,190 258,527 337,716 Kusama (KSM) 237,906 265,505 81,296 103,866 Tezos (XTZ) 87,412 103,210 62,651 106,679 Solana (SOL) 189,103 240,377 248,698 813,791 Polkadot (DOT) 143,413 150,964 182,570 214,616 Terra (LUNA) - - 80,968 306,353 Cosmos (ATOM) 532,006 1,186,824 46,174 99,761 Polygon (MATIC) 156,353 368,671 68,362 169,604 Avalanche (AVAX) 206,808 256,021 50,190 226,499 Algorand (ALGO) 14,157 18,044 43,948 84,830 Axie Infinity (AXS) 437,876 470,116 - - Kava (KAVA) 394,140 423,326 - - Band Protocol (BAND) 1,076 1,215 - - Mina (MINA) 40,180 42,085 - - Oasis Network (ROSE) 16,322 21,330 - - Akash (AKT) 26,513 26,881 - - Total $ 8,223,259 $ 14,817,434 $ 12,366,792 $ 36,451,772 23 Digital Asset Platform The Company is in the late stages of developing a proprietary Digital Asset Platform aimed at allowing users to evaluate their crypto portfolio holdings across multiple exchanges and wallets on a single platform. The internally-developed dashboard utilizes APIs to read user data and does not allow for the trading of assets. In addition to portfolio monitoring, we are also working to integrate a full suite of additional analytical, tracking and reporting features. We believe that increasing the number of features we offer may create a sticky user experience across multiple, interrelated products. The Company is also currently developing and plans to integrate into the Digital Asset Platform a proprietary Staking-as-a-Service feature aimed at allowing users to delegate supported cryptocurrencies to BTCS operated validator nodes through a non-custodial platform. Delegation (or “staking”) involves committing (or locking) Digital Assets on a blockchain network to support and secure the network and allows delegators to earn native token rewards on their staked assets during the duration of their stake. Validator node operators charge a fee on delegated staked asset rewards earned in addition to earning rewards on their own staked assets. In turn, the highly scalable nature of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the premise behind BTCS’ Staking-as-a-Service platform. Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 The following tables reflect our operating results for the three and nine months ended September 30, 2022 and 2021: For the Three Months Ended September 30, $ Change % Change 2022 2021 2022 2022 Revenues Validator revenue $ 344,196 $ 323,376 $ 20,820 6 % Total revenues 344,196 323,376 20,820 6 Cost of revenues Validator expense 82,203 71,690 10,513 15 Gross profit 261,993 251,686 10,307 4 Operating expenses: General and administrative $ 432,956 $ 282,558 $ 150,398 53 % Research and development 126,857 273,909 (147,052 ) (54 ) Compensation and related expenses 669,792 4,747,106 (4,077,314 ) (86 ) Marketing 8,765 7,559 1,206 16 Impairment loss on digital assets/currencies 145,247 208,647 (63,400 ) (30 ) Realized gains on digital asset/currency transactions (20,126 ) - (20,126 ) N/A Total operating expenses 1,363,491 5,519,779 (4,156,288 ) (75 ) Other income (expenses): Interest expense - (58,521 ) 58,521 (100 ) Amortization on debt discount - (581,973 ) 581,973 (100 ) Change in fair value of warrant liabilities 71,250 2,066,250 (1,995,000 ) (97 ) Distributions to warrant holders - - - N/A Total other income (expenses) 71,250 1,425,756 (1,354,506 ) 95 Net loss $ (1,030,248 ) $ (3,842,337 ) 2,812,089 (73 ) 24 For the Nine Months Ended September 30, $ Change % Change 2022 2021 2022 2022 Revenues Validator revenue $ 1,421,560 $ 776,399 $ 645,161 83 % Total revenues 1,421,560 776,399 645,161 83 Cost of revenues Validator expense 313,972 145,935 168,037 115 Gross profit 1,107,588 630,464 477,124 76 Operating expenses: General and administrative $ 1,595,296 $ 1,149,506 $ 445,790 39 % Research and development 448,579 602,178 (153,599 ) (26 ) Compensation and related expenses 2,731,713 13,788,556 (11,056,843 ) (80 ) Marketing 74,249 10,345 63,904 618 Impairment loss on digital assets/currencies 12,347,472 3,777,785 8,569,687 227 Realized gains on digital asset/currency transactions (489,682 ) (3,054,418 ) 2,564,736 84 Total operating expenses 16,707,627 16,273,952 433,675 3 Other income (expenses): Interest expense - (172,603 ) 172,603 (100 ) Amortization on debt discount - (1,716,744 ) 1,716,744 (100 ) Change in fair value of warrant liabilities 1,140,000 2,066,250 (926,250 ) (45 ) Distributions to warrant holders (35,625 ) - (35,625 ) N/A Total other income (expenses) 1,104,375 176,903 927,472 (524 ) Net loss $ (14,495,664 ) $ (15,466,585 ) 970,921 (6 ) 25 Validator Revenue The increase in revenue during the 2022 Quarter and 2022 Period as compared to the 2021 Quarter and 2021 Period is from the expansion of our blockchain infrastructure validating revenue. We believe revenues may increase for the period ending December 31, 2022 as a result of an improvement in market prices of the Digital Assets we have earned and/or purchased, rebounding from 2022 market low prices in June 2022. Cost of Revenues The 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. Operating Expenses The decrease in operating expenses in the 2022 Quarter is primarily due to the $4.7 million non-cash contingent bonuses granted to employees and our non-employee directors during the 2021 Quarter for the achievement of performance milestones. The increase in operating expenses in the 2022 Period is primarily due to the $12.3 million impairment loss on Digital Assets (“Digital Asset Impairment”) in the 2022 Period, compared to only $3.8 million Digital Asset Impairment in the 2021 Period. This is partially offset by the $13.3 million non-cash contingent bonuses granted to employees and our non-employee directors during the 2021 Period for the achievement of performance milestones. We believe operating expenses will remain consistent as the Company continues to utilize equity-based bonus incentives as a core part of our 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. The 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 for 2022. Other Income (Expenses) The changes 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. Net loss The decrease in our net loss for the periods reported was primarily due to the decrease in operating expenses and changes 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. 26 Liquidity and Capital Resources ATM Financing On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500. From the period September 14, 2021 through November 8, 2022, the Company sold a total of 2,639,127 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $14,465,000 at an average selling price of $5.48 per share, resulting in net proceeds of approximately $14,008,000 after deducting commissions and other transaction costs. Liquidit y The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At September 30, 2022, the Company had $2.9 million of cash. We 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 November 8, 2022, the Company had approximately $2.6 million of cash and the fair market value of the Company’s liquid Digital Assets was approximately $3.3 million, which excludes $11.1 million of staked Ethereum. The Company has no outstanding debt. As of November 8, 2022, the Company also has approximately $17.6 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 stock price. The Company believes that the existing cash and liquid Digital Assets held by us, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement, provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at least the next twelve months. Cash Flows Cash used in operating activities was approximately $130,000 during the 2022 Period compared to $3.9 million for the 2021 Period. Cash used in investing activities was $8.8 million during the 2022 Period compared to $9.5 million for the 2021 Period. Net cash outflow for investing activities was used primarily for the purchase of Digital Assets for our blockchain infrastructure operations. Cash provided by financing activities was $10.5 million during the 2022Period compared to $13.5 million for the 2021 Period. The cash inflows from financing activities were primarily from proceeds from the Common Stock sold pursuant to the ATM Agreement ($11.1 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. 27 Off Balance Sheet Transactions As of September 30, 2022, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. RECENT ACCOUNTING PRONOUNCEMENTS For information on recent accounting pronouncements, see Note 3 to the Unaudited Condensed Financial Statements. ITEM 3 Quantitative and Qualitative Disclosures About Market Risk Not applicable. ITEM 4 Controls and Procedures Evaluation of Disclosure Controls and Procedures 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 September 30, 2022. 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 September 30, 2022. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act 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. 28 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings None. ITEM 1A Risk Factors Not applicable to smaller reporting companies. ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds None. ITEM 3 Defaults Upon Senior Securities None. ITEM 4 Mine Safety Disclosures Not applicable. ITEM 5 Other Information None. ITEM 6 Exhibits The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BTCS Inc. November 10, 2022 By: /s/ Charles Allen Charles W. Allen Chief Executive Officer (Principal Executive Officer) 30 EXHIBIT INDEX Incorporated by Reference Filed or Furnished Exhibit # Exhibit Description Form Date Number Herewith 3.1 Amended and Restated Articles of Incorporation, as of May 2010 10-K 3/31/11 3.1 3.1(a) Certificate of Amendment to Articles of Incorporation - Increase Authorized Capital 8-K 3/25/13 3.1 3.1(b) Certificate of Amendment to Articles of Incorporation - Increase Authorized Capital 8-K 2/5/14 3.1 3.1(c) Certificate of Amendment to Articles of Incorporation - Reverse Stock Split 8-K 2/16/17 3.1 3.1(d) Certificate of Amendment to Articles of Incorporation - Reverse Stock Split 8-K 4/9/19 3.1 3.1(e) Certificate of Change – Reverse Split 8-K 8/17/21 3.1 3.2 Bylaws S-1 5/29/08 3.2 3.2(a) Amendment No. 1 to the Bylaws 8-K 4/12/22 3.1 4.1 2021 Equity Incentive Plan DEF 14A 4/26/22 Annex A 31.1 Certification of Principal Executive and Financial Officer (302) Filed 31.2 Certification of Principal Financial Officer (302) Filed 32.1 Certification of Principal Executive and Principal Financial Officer (906) Furnished** 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). ** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BTCS Inc., 9466 Georgia Avenue #124, Silver Spring, MD 20910, Attention: Corporate Secretary. 31