What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 180 added, 138 removed, 97 unchanged (77% of the section changed)

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

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

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 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.”

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.”

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

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Through our blockchain-infrastructure operations, we secure disruptive next-generation blockchains and operate validator

nodes on various proof of stake-based blockchain networks, earning rewards of additional Digital Assets by actively validating transactions

nodes on various proof-of-stake blockchain networks, earning rewards of additional Digital Assets by authenticating and validating transactions

on the networks.

While this process is similar to Bitcoin mining the consensus mechanism is different.

Now we are building on the foundation

of our pre-established infrastructure with the development of a Digital Asset Platform.

The first feature of the dashboard, which is

an open beta, allows users to evaluate their Digital Asset portfolios from multiple exchanges on a single platform.

We also are developing

and plan to integrate into the platform a Staking-as-a-Service feature that, once launched, will allow users to participate in asset

leveraging through securing blockchain protocols.

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.

Infrastructure

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of PoW and is by far the largest and most secure PoW blockchain.

miners, often referred to as validators in PoS systems, actively operate nodes and validate transactions.

Validators are required to

stake holdings of a digital currency to participate in the consensus algorithm and are rewarded in tokens for aligning behavior with

the rules of the algorithm.

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

Bad behavior can be penalized by “slashing” the validator’s holdings and/or rewards.

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.

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.

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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.

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

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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.

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.

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

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BTCS may also use its blockchain infrastructure to validate and

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

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”).

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;

(2) monitoring the nodes it is operating to ensure they remain online,

ready to validate transactions;

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

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.

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.

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.

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

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in the future.

Company currently holds the following Digital Assets which are core to its blockchain infrastructure efforts.

The table also includes

Bitcoin which is not core to our infrastructure operations.

table below describes our Digital Asset holdings as of the end of the third quarter of 2021 until the end of the 2022 Period.

Assets Held at Period End

Infinity (AXS)

Bitcoin (BTC)

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Band Protocol (BAND)

Oasis Network (ROSE)

Market Value of Digital Assets at Period End

Infinity (AXS)

Bitcoin (BTC)

Ethereum (ETH)*

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Band Protocol (BAND)

Oasis Network (ROSE)

Approximately 9 ETH is not staked.

of Digital Assets at Period End

Infinity (AXS)

Bitcoin (BTC)

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Band Protocol (BAND)

Oasis Network (ROSE)

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

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

Bitcoin (BTC)

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Polygon (MATIC)

Avalanche (AVAX)

Algorand (ALGO)

Axie Infinity (AXS)

Band Protocol (BAND)

Oasis Network (ROSE)

Asset Platform

Company is also developing a proprietary Digital Asset Platform aimed at allowing users to evaluate their crypto portfolio holdings across

multiple exchanges and chains on a single platform.

The internally-developed dashboard utilizes Digital Asset exchange APIs to read user

data and does not allow for the trading of assets.

In addition to portfolio monitoring, we are also working to integrate a full suite

of other features including decentralized exchanges, wallets, risk metrics and potentially a way for users to calculate end-of year-reports

for tax purposes.

We believe that increasing the number of features we offer may create a sticky user experience across multiple, interrelated

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.

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.

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

a fee on users’ staked asset rewards earned in addition to earning an APY on staked assets.

In turn, the highly scalable nature

of both staking Digital Assets as well as allowing users to stake Digital Assets to earn token rewards is the premise behind BTCS’

Staking-as-a-Service platform.

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

(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.

of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

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,

Validator revenue

Total revenues

Cost of revenues

Validator expense

Operating expenses:

income (expenses):

on debt discount

in fair value of warrant liabilities

Distributions

to warrant holders

General and administrative

Research and development

Compensation and related expenses

Impairment loss on digital assets/currencies

Realized gains on digital asset/currency transactions

Total operating expenses

Other income (expenses):

Interest expense

Amortization on debt discount

Change in fair value of warrant liabilities

Distributions to warrant holders

Total other income (expenses)

$ (1,030,248 )

$ (3,842,337 )

the Six Months Ended

and administrative

and development

and related expenses

loss on digital assets/currencies

gains on digital asset/currency transactions

For the Nine Months Ended

September 30,

Validator revenue

Total revenues

Cost of revenues

Validator expense

Operating expenses:

income (expenses):

on debt discount

in fair value of warrant liabilities

Distributions

to warrant holders

General and administrative

Research and development

Compensation and related expenses

(11,056,843 )

Impairment loss on digital assets/currencies

Realized gains on digital asset/currency transactions

Total operating expenses

Other income (expenses):

Interest expense

Amortization on debt discount

Change in fair value of warrant liabilities

Distributions to warrant holders

Total other income (expenses)

$ (14,495,664 )

$ (15,466,585 )

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 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

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

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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.

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.

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

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.

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.

our compensation strategy.

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

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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.

measures will result in cost savings of approximately $141,000 for 2022.

Income (Expenses)

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

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.

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

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.

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and Capital Resources

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.

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

non-staked) and

$3.2 million of cash.

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 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.

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

At September 30, 2022, the Company had $2.9 million of cash.

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

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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.

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 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 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.

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.

used in operating activities was approximately $130,000 during the 2022 Period compared to $3.9 million for the 2021 Period.

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.

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).

was partially offset by a one-time return of capital distribution of $635,000 made to record holders as of March 17, 2022.

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

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.

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

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

ACCOUNTING PRONOUNCEMENTS

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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