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 March 31, 2023 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) 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 May 9, 2023, there were 13,830,303 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 March 31, 2023 (unaudited) and December 31, 2022 4 Condensed Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited) 5 Condensed Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited) 6 Condensed Statements of Cash Flows for the Three months Ended March 31, 2023 and 2022 (unaudited) 7 Notes to the Unaudited Condensed Financial Statements 8-21 ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 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, the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc., unless otherwise indicated. 3 PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements BTCS Inc. Balance Sheets March 31, December 31, 2023 2022 (Unaudited) Assets: Current assets: Cash 1,443,058 $ 2,146,783 Crypto assets/currencies 1,066 982 Investments, at value (Cost $ 100,000 ) 100,000 100,000 Staked crypto assets/currencies 7,854,755 1,826,307 Prepaid expense 93,449 123,727 Total current assets 9,492,328 4,197,799 Other assets: Property and equipment, net 9,999 11,152 Staked crypto assets/currencies - long term - 5,708,624 Total other assets 9,999 5,719,776 Total Assets $ 9,502,327 $ 9,917,575 Liabilities and Stockholders’ Equity: Accounts payable and accrued expense $ 41,954 $ 76,727 Accrued compensation 3,429 295,935 Warrant liabilities 498,750 213,750 Total current liabilities 544,133 586,412 Stockholders’ equity: Common stock, 97,500,000 shares authorized at $ 0.001 par value, 13,799,745 and 13,107,149 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 13,800 13,108 Additional paid in capital 161,839,971 160,800,263 Accumulated deficit ( 152,895,577 ) ( 151,482,208 ) Total stockholders’ equity 8,958,194 9,331,163 Total Liabilities and Stockholders’ Equity $ 9,502,327 $ 9,917,575 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 BTCS Inc. Statements of Operations (Unaudited) 2023 2022 For the Three Months Ended March 31, 2023 2022 Revenues Validator revenue (net of fees) $ 311,508 $ 563,015 Total revenues 311,508 563,015 Cost of revenues Validator expense 82,014 137,869 Gross profit 229,494 425,146 Operating expenses: General and administrative $ 609,829 $ 650,289 Research and development 201,625 136,718 Compensation and related expenses 462,090 1,423,896 Marketing 6,243 41,793 Impairment loss on crypto assets/currencies 94,907 3,307,428 Realized gains on crypto asset/currency transactions ( 16,831 ) ( 71,110 ) Total operating expenses 1,357,863 5,489,014 Other income (expenses): Change in fair value of warrant liabilities ( 285,000 ) ( 641,250 ) Distributions to warrant holders - ( 35,625 ) Total other income (expenses) ( 285,000 ) ( 676,875 ) Net loss $ ( 1,413,369 ) $ ( 5,740,743 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.10 ) $ ( 0.47 ) Weighted average number of common shares outstanding, basic and diluted 13,673,126 12,245,278 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 Three months Ended March 31, 2023 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance December 31, 2022 13,107,149 $ 13,108 $ 160,800,263 $ ( 151,482,208 ) $ 9,331,163 Issuance of common stock, net of offering cost / At-the-market offering 301,154 301 508,482 - 508,783 Stock-based compensation 391,442 391 531,226 - 531,617 Dividend distributions - - - - - Net loss - - - ( 1,413,369 ) ( 1,413,369 ) Balance March 31, 2023 13,799,745 $ 13,800 $ 161,839,971 $ ( 152,895,577 ) $ 8,958,194 For the Three months Ended March 31, 2022 Additional Total Common Stock Additional Paid-in Accumulated Stockholders’ (Deficit) Shares Amount Capital Deficit Equity Balance December 31, 2021 10,528,212 $ 10,529 $ 147,682,384 $ ( 135,589,470 ) $ 12,103,443 Balance 10,528,212 $ 10,529 $ 147,682,384 $ ( 135,589,470 ) $ 12,103,443 Issuance of common stock, net of offering cost / At-the-market offering 1,790,576 1,791 10,511,976 - 10,513,767 Stock-based compensation 297,222 297 1,288,977 - 1,289,274 Dividend distributions - - ( 634,557 ) - ( 634,557 ) Net loss - - - ( 5,740,743 ) ( 5,740,743 ) Balance March 31, 2022 12,616,010 $ 12,617 $ 158,848,780 $ ( 141,330,213 ) $ 17,531,184 Balance 12,616,010 $ 12,617 $ 158,848,780 $ ( 141,330,213 ) $ 17,531,184 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. 2023 2022 For the Three Months Ended March 31, 2023 2022 Net Cash flows used from operating activities: Net loss $ ( 1,413,369 ) $ ( 5,740,743 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,153 797 Stock-based compensation 531,617 1,289,274 Validator revenue ( 311,508 ) ( 563,015 ) Blockchain network fees (non-cash) - 1,321 Change in fair value of warrant liabilities 285,000 641,250 Realized gain on crypto assets/currencies transactions ( 16,831 ) ( 71,110 ) Impairment loss on crypto assets/currencies 94,907 3,307,428 Changes in operating assets and liabilities: - Prepaid expenses and other current assets 30,278 9,382 Accounts payable and accrued expenses ( 34,773 ) ( 36,329 ) Accrued compensation ( 292,506 ) ( 4,125 ) Capital shares payable - 75,002 Dividends payable - distributions to warrant holders - 35,625 Net cash used in operating activities ( 1,126,032 ) ( 1,055,243 ) Net cash used in investing activities: Purchase of productive crypto assets/currencies for validating ( 134,019 ) ( 8,521,726 ) Sale of productive crypto assets/currencies 47,543 310,149 Purchase of investments - - Purchase of property and equipment - ( 2,558 ) Net cash used in investing activities ( 86,476 ) ( 8,214,135 ) Net cash provided by financing activities: Dividend distributions - ( 400,194 ) Net proceeds from issuance common stock/ At-the-market offering 508,783 10,513,767 Net cash provided by financing activities 508,783 10,113,573 Net increase in cash ( 703,725 ) 844,195 Cash, beginning of period 2,146,783 1,400,867 Cash, end of period $ 1,443,058 $ 2,245,062 Supplemental disclosure of non-cash financing and investing activities: Dividends payable $ - $ 230,606 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 (“BTCS” or the “Company”) was incorporated in 2008 and is an early entrant in the crypto asset (also referred to “cryptocurrencies”, “crypto”, or “tokens”) market with a primary focus on blockchain infrastructure and staking. The Company operates validator nodes on various proof-of-stake (“PoS”) and delegated proof-of-stake (“DPoS”) based blockchain networks and stakes the native crypto assets on those blockchains to earn rewards. The Company’s Staking-as-a-Service (“StaaS”) business allows crypto asset holders to earn rewards by participating in network consensus mechanisms through staking and delegating their crypto assets to Company-operated validator nodes (or “nodes”). The Company believes that StaaS provides a more accessible and cost-effective way for crypto asset holders to participate in blockchain networks’ consensus mechanisms, thereby promoting the growth and adoption of blockchain technology. The Company’s recently launched StakeSeeker platform (the “Digital Asset Platform”), currently in beta, is a comprehensive crypto dashboard and education center designed to empower users to better understand and grow their crypto holdings with innovative portfolio analytics and a non-custodial process to earn staking rewards through direct participation in blockchain consensus algorithms. The Company’s business is subject to various risks and uncertainties, including risks associated with the evolving regulatory landscape for crypto assets, risks associated with the volatility of crypto asset prices, and risks associated with the development and adoption of blockchain technology. The Company’s future success is dependent on various factors, including the growth of the crypto asset market, the adoption of blockchain technology, and the Company’s ability to effectively operate and grow its blockchain infrastructure operations and StaaS business. The Company plans to expand its PoS operations to secure other disruptive blockchain protocols that also allow for delegating and asset leveraging. The growth of both StakeSeeker’s user base as well as the number and size of staked cryptocurrencies by delegators to Company-run validator nodes are critical to the Company’s strategy and success. 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 months ended March 31, 2023 are not necessarily indicative of results for the full year ended December 31, 2023. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2022. 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 2022 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 four financial institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturities of six months or less when purchased to be cash and cash equivalents. As of March 31, 2023 and December 31, 2022, the Company had approximately $ 1.4 million and $ 2.1 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 March 31, 2023 and December 31, 2022, the Company had approximately $ 0.7 million and $ 1.7 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 crypto asset validator nodes as well as by staking crypto assets on nodes run by third-party operators (either directly or through crypto 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 node operator receives (less crypto asset transaction fees payable to the node 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 from delegating to a third-party validator node is based on the proportion of cryptocurrency the Company staked to the node to the total cryptocurrency staked by delegators to the node. 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 award - is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. Cost of Revenue The Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in software maintenance and operations of its nodes. Crypto Assets Translations and Remeasurements The Company accounts for its crypto 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. Crypto 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 crypto assets are initially recorded at fair value upon receipt (or “carrying value”). The fair value of crypto assets is determined using the U.S. dollar spot price of the related crypto asset. On a quarterly basis, crypto 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 crypto assets at any time during the period, as determined using the lowest U.S. dollar spot price of the related crypto asset subsequent to its acquisition. The crypto assets can only be marked down when impaired and not marked up when their value increases. Such impairment in the value of crypto assets is recorded as a component of costs and expenses in our Statements of Operations. The Company recorded impairment losses related to crypto assets of approximately $ 95,000 and $ 3.3 million during the three months ended March 31, 2023, and 2022, 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 crypto assets are included in other income (expense) in the Statements of Operations. The Company recorded realized gains (losses) on crypto assets of approximately $ 17,000 and $ 71,000 during the three months ended March 31, 2023 and 2022, respectively. The presentation of purchases and sales of crypto assets on the Statement of Cash Flows is determined by the nature of the crypto assets, which can be characterized as productive (i.e. purchased for purposes of staking) or non-productive. The purchase of non-productive crypto assets and currencies are included as an operating activity, whereas the purchase of productive crypto assets and currencies are included as investing activities in accordance with ASC 230-10-20 Investing activities. Productive crypto assets that are staked with a lock-up period of less than 12 months are presented on the Balance Sheet as current assets. Staked crypto 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 crypto exchanges and digital wallets as well as providing a non-custodial delegation process to earn staking rewards on crypto 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 are 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 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 (the “Board”) 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 $ 0 and $ 635,000 during the three months ended March 31, 2023 and 2022, respectively. Advertising Expense Advertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $ 6,000 and $ 42,000 for the three months ended March 31, 2023 and 2022, 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 March 31, 2023 and 2022 because their effect was anti-dilutive: Schedule of Earnings Per Share Anti-diluted 2023 2022 As of March 31, 2023 2022 Warrants to purchase common stock 712,500 962,794 Options 1,170,000 1,235,000 Non-vested restricted stock awards units 1,631,399 1,668,084 Total 3,513,899 3,865,878 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 U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU No. 2020-06 effective January 1, 2022, and the adoption did not have a material impact on its financial statements and related disclosures. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements. Note 4 – Fair Value of Financial Assets and Liabilities The Company measures certain assets and liabilities at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. 14 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 following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of March 31, 2023 and December 31, 2022: Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis Fair Value Measured at March 31, 2023 Total at March 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2023 (Level 1) (Level 2) (Level 3) Assets Investments $ 100,000 $ - $ - $ 100,000 Liabilities Warrant Liabilities $ 498,750 $ - $ - $ 498,750 Fair Value Measured at December 31, 2022 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2022 (Level 1) (Level 2) (Level 3) Assets Investments $ 100,000 $ - $ - $ 100,000 Liabilities Warrant Liabilities $ 213,750 $ - $ - $ 213,750 The Company did not make any transfers between the levels of the fair value hierarchy during the three months ended March 31, 2023 and 2022. 15 Level 3 Valuation Techniques Level 3 financial assets consist of private equity investments for which there is no current public market for these securities such that the determination of fair value requires significant judgment or estimation. As of March 31,2023 and December 31, 2022, the Company’s Level 3 investments were carried at original cost of the investments, with a value of $ 100,000 . The Company has elected to apply the measurement alternative under ASC 321, Investments—Equity Securities , for these investments. 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, 2022, 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 March 31, 2023 and December 31, 2022, is as follows: Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities March 31, 2023 December 31, 2022 Risk-free rate of interest 3.60 % 3.99 % Expected volatility 144.8 % 152.8 % Expected life (in years) 2.93 3.18 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 assets and liabilities for the three months ended March 31, 2023 and 2022, 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 Assets March 31, March 31, 2023 2022 Beginning balance $ 100,000 $ - Purchases - - Unrealized appreciation (depreciation) - - Ending balance $ 100,000 $ - Fair Value of Level 3 Financial Liabilities March 31, March 31, 2023 2022 Beginning balance $ 213,750 $ 1,852,500 Warrant liabilities classification - - Fair value adjustment of warrant liabilities 285,000 641,250 Ending balance $ 498,750 $ 2,493,750 16 Note 5 – Stockholders’ Equity Common Stock 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 three months ended March 31, 2023, the Company sold a total of 301,154 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 529,000 at an average selling price of $ 1.76 per share, resulting in net proceeds of approximately $ 509,000 after deducting commissions and other transaction costs. Share Based Payments Effective January 19, 2023, The Board of Directors of the Company approved the issuance of $ 50,000 of common stock to each independent director. The shares will be issued in four equal installments ($ 12,500 ) at the end of each calendar quarter beginning March 31 st , subject to continued service on each applicable issuance date. The number of shares issuable will be based on the closing price of the Company’s common stock on the last trading day prior to the end of the applicable calendar quarter. For the three months ended March 31, 2023, 27,576 shares of common stock were issued to independent directors. Preferred Stock Effective January 27, 2023, the Company’s Board of Directors approved the issuance of a newly designated Series V Preferred Stock (“Series V”) on a one-for-one basis to the Company’s shareholders (including restricted stock unit holders). The record date has been set for May 12, 2023 and the payment date is June 2, 2023. The Series V: (i) is non-convertible, (ii) has a 20% liquidation preference over the shares of common stock, (iii) is non-voting and (iv) has certain rights to dividends and distributions (at the discretion of the Board of Directors) . 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 March 31, 2023, the Company granted 20,000 stock options with a weighted average exercise price of $ 0.63 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 three months ended March 31, 2023 and 2022 for both the Black-Scholes formula: Schedule of Weighted-Average Assumptions Used to Estimate Fair Value For the Three Months Ended March 31, 2023 2022 Exercise price $ 0.63 $ - Term (years) 5.00 - Expected stock price volatility 152.8 % - % Risk-free rate of interest 3.99 % - % 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. 17 A summary of option activity under the Company’s stock option plan for three months ended March 31, 2023 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, 2022 1,150,000 $ 2.15 $ - 3.3 Employee options granted 20,000 0.63 14,600 4.8 Outstanding as of March 31, 2023 1,170,000 $ 2.12 $ 14,600 3.0 Options vested and exercisable as of March 31, 2023 1,135,000 $ 2.16 $ - 3.0 RSUs Effective January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee: 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. Effective January 1, 2023 (the “LTI RSU Amendment Date”), upon recommendation of the Compensation Committee of the Board of Directors approved an amendment to the LTI plan, whereby the market capitalization threshold targets were lowered to $ 50 million, $ 100 million, $ 150 million, and $ 300 million. 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 $ 50 million $ 100 million $ 150 million $ 300 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 annually on each subsequent calendar year-end date over the four years following the one year anniversary of the grant date. 18 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. As of the LTI RSU Amendment Date, the Company determined the pre-modification and post-modification estimated fair value of the LTI RSUs accounting for the amended market cap criteria. The increase in fair value of the LTI RSUs attributable to the modification was added to the related unrecognized compensation expense in accordance with ASC 718 – Share-Based Compensation , whereby any previously recognized compensation cost that has not vested as of the modification date should be adjusted to reflect the new fair value of the equity awards on the date of the modification. The following weighted-average assumptions were used to estimate the fair value of options granted during the three months ended March 31, 2023 and 2022 for the Monte-Carlo simulation: Schedule of Weighted-Average Assumptions Used to Estimate Fair Value Three Months Ended March 31, 2023 (Post-Modification) 2022 (Original Grants) Vesting Hurdle Price $ 3.81 - $30.52 $ 8.07 - $36.99 Term (years) 4.00 5.00 Expected stock price volatility 97.30 % 103.72 % Risk-free rate of interest 4.10 % 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 five -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 price is determined as the average of the vesting Market Cap criteria divided by the shares outstanding as of the valuation dates. 19 On December 9, 2022, upon recommendation of the Compensation Committee, the Board of Directors approved the grant of 25,000 RSUs to Mr. Prevoznik and Mr. Paranjape each, effective January 1, 2023, which vest annually over a five-year period with the first vesting date being on the one-year anniversary of the execution date of the effective grant date, subject to continued employment on each applicable vesting date. A summary of the Company’s restricted stock units granted under the 2021 Plan during the three months ended March 31, 2023 are as follows: Summary of Restricted Stock Number of Restricted Stock Units Weighted Average Grant Day Fair Value Nonvested at December 31, 2022 1,590,552 $ 3.34 Granted 50,000 0.63 Vested ( 9,153 ) 4.37 Nonvested at March 31, 2023 1,631,399 $ 3.25 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 months ended March 31, 2023 and 2022 was as follows: Schedule of Stock-based Compensation Expense 2023 2022 For the Three Months Ended March 31, 2023 2022 Employee bonus stock awards $ - $ 894,027 Employee stock option awards 3,307 69,634 Employee restricted stock unit awards 267,338 341,990 Non-employee restricted stock awards 15,908 82,081 Stock-based compensation $ 286,553 $ 1,387,732 20 Note 6 – Accrued Expenses Accrued expenses consist of the following: Schedule of Accrued Expenses March 31, 2023 December 31, 2022 Compensation and related expenses $ 3,429 $ 295,935 Accounts Payable 41,954 76,727 Accrued Expenses $ 45,383 $ 372,662 Accrued compensation and related expenses include approximately $ 0 and $ 284,000 related to performance bonus accruals as of March 31, 2023 and December 31, 2022, respectively. 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 three months ended March 31, 2023 and 2022, the Company made contributions to the 401(k) Plan of $ 95,000 and $ 45,000 , respectively. 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 March 31, 2023, 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 crypto 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 April 1, 2023 to May 9, 2023, the Company sold a total of 30,558 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $ 46,000 at an average selling price of $ 1.52 per share, resulting in net proceeds of approximately $ 44,000 after deducting commissions and other transaction costs. On May 11, 2023, the Compensation Committee of the Board of Directors of the Company approved a performance based Annual Cash Incentive Plan for the Company’s executives for fiscal year 2023. If an executive meets their performance milestones, the executive will receive a bonus, payable in cash and/or equity at the discretion of the Compensation Committee, in an amount up to 54 % to 104 % of the applicable executive’s base salary, as detailed below: ● Charles Allen, the Company’s Chief Executive Officer is eligible to receive up to 104 % of his base salary. Mr. Allen’s current base salary is $ 411,419 ; ● Michal Handerhan, the Company’s Chief Operating Officer is eligible to receive up to 68 % of his base salary. Mr. Handerhan’s base salary is $ 287,375 ; ● Michael Prevoznik, the Company’s Chief Financial Officer is eligible to receive up to 54 % of his base salary. Mr. Prevoznik’s base salary is $ 235,125 ; ● Manish Paranjape, the Company’s Chief Technology Officer is eligible to receive up to 54 % of his base salary. Mr. Paranjape’s base salary is $ 235,125 . 21 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, 2022. When we refer to the “2023 Quarter” and the “2022 Quarter” we are referring to the three months ended March 31, 2023 and March 31, 2022 quarters, respectively. Company Overview BTCS Inc. is an early entrant in the cryptocurrency market and a publicly-traded U.S. company focused on blockchain infrastructure and staking. The Company specializes in operating validator nodes on various Delegated proof-of-stake (“DPoS”) and proof-of-stake (“PoS”) based blockchain networks and stakes the native crypto assets on the validator nodes it operates to earn rewards in connection with the validation of transactions occurring on those blockchain networks. BTCS plans to expand its PoS operations to secure other disruptive blockchain protocols that allow for delegating, which presents a significant growth opportunity for the company. BTCS’s business model is focused on Staking-as-a-Service (StaaS), allowing crypto asset holders to earn rewards by participating in network consensus mechanisms through staking and delegating their crypto assets to Company operated validator nodes. As a non-custodial validator operator, the company receives a percentage of token holders’ staking rewards generated as a validator node fee, for our ministerial role in hosting the validator node. This creates an opportunity for scalable revenue and business growth with limited additional costs. The company’s StaaS strategy provides a more accessible and cost-effective way for crypto asset holders to participate in blockchain networks’ consensus mechanisms, promoting the growth and adoption of blockchain technology. The company’s internally-developed dashboard, StakeSeeker, is a non-custodial platform that allows users to learn how to earn staking rewards through direct participation in blockchain consensus algorithms and analyze their crypto portfolios across exchanges and wallets through a comprehensive crypto dashboard and education center. 22 The table below describes BTCS’s quarterly crypto asset holdings as of the 2022 Quarter through the 2023 Quarter. Crypto Assets Held at Period End Asset 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 Bitcoin (BTC) 90 - - - - Ethereum (ETH) 8,196 8,283 8,380 8,454 8,524 Cardano (ADA) 257,757 260,555 262,860 262,860 262,860 Kusama (KSM) 5,278 5,550 6,297 6,493 6,767 Tezos (XTZ) 70,453 71,369 72,578 73,486 74,765 Solana (SOL) 7,043 7,136 7,238 7,371 7,493 Polkadot (DOT) 38,816 39,986 23,905 7,280 7,526 Terra (LUNA) 3,621 - - - - Cosmos (ATOM) 80,474 86,613 91,181 96,318 102,298 Polygon (MATIC) 454,486 466,022 474,207 480,825 486,806 Avalanche (AVAX) 14,273 14,594 14,888 17,178 17,178 Algorand (ALGO) 51,197 51,201 51,201 - - Axie Infinity (AXS) 22,322 31,763 37,402 42,030 46,482 Kava (KAVA) 183,966 264,917 280,293 290,909 304,968 Band Protocol (BAND) 992 992 992 Mina (MINA) 71,297 74,177 79,937 Oasis Network (ROSE) 349,661 359,607 2,569,991 Akash (AKT) 103,730 107,405 110,213 NEAR Protocol (NEAR) 74,702 75,724 Fair Value of Crypto Assets at Period End Asset 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 Bitcoin (BTC) $ 4,098,481 $ - $ - $ - $ - Ethereum (ETH)* 26,894,723 8,840,595 11,128,675 10,117,237 15,530,133 Cardano (ADA) 294,320 119,555 114,190 64,786 104,861 Kusama (KSM) 992,851 267,583 265,505 149,981 236,070 Tezos (XTZ) 262,023 101,102 103,210 52,720 83,614 Solana (SOL) 863,854 239,700 240,377 73,426 158,625 Polkadot (DOT) 826,875 281,496 150,964 31,410 47,720 Terra (LUNA) 373,005 - - - - Cosmos (ATOM) 2,325,374 651,909 1,186,824 900,440 1,144,459 Polygon (MATIC) 735,034 222,466 368,671 364,714 544,815 Avalanche (AVAX) 1,383,403 247,059 256,021 187,286 304,341 Algorand (ALGO) 47,492 16,115 18,044 - - Axie Infinity (AXS) 1,416,264 461,649 470,116 253,943 389,893 Kava (KAVA) 828,742 468,634 423,326 166,752 270,486 Band Protocol (BAND) 1,215 1,396 1,857 Mina (MINA) 42,085 32,187 62,101 Oasis Network (ROSE) 21,330 12,291 156,698 Akash (AKT) 26,881 19,938 34,510 NEAR Protocol (NEAR) 93,785 150,854 Total 41,342,441 11,917,864 14,817,434 12,522,292 19,221,037 QoQ Change 13 % -71 % 24 % -15 % 53 % YoY Change 105 % -45 % -51 % -66 % -54 % 23 Prices of Crypto Assets at Period End Asset 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2023 Q1 Bitcoin (BTC) $ 45,539 $ 19,785 $ 19,432 $ 16,547 $ 28,478 Ethereum (ETH) 3,282 1,067 1,328 1,197 1,822 Cardano (ADA) 1.14 0.46 0.43 0.25 0.40 Kusama (KSM) 188 48.21 42.16 23.10 34.89 Tezos (XTZ) 3.72 1.42 1.42 0.72 1.12 Solana (SOL) 123 33.59 33.21 9.96 21.17 Polkadot (DOT) 21.30 7.04 6.32 4.31 6.34 Terra (LUNA) 103 - - - - Cosmos (ATOM) 28.90 7.53 13.02 9.35 11.19 Polygon (MATIC) 1.62 0.48 0.78 0.76 1.12 Avalanche (AVAX) 96.92 16.93 17.20 10.90 17.72 Algorand (ALGO) 0.93 0.31 0.35 0.17 0.23 Axie Infinity (AXS) 63.45 14.53 12.57 6.04 8.39 Kava (KAVA) 4.50 1.77 1.51 0.57 0.89 Band Protocol (BAND) 1.22 1.41 1.87 Mina (MINA) 0.59 0.43 0.78 Oasis Network (ROSE) 0.06 0.03 0.06 Akash (AKT) 0.26 0.19 0.31 NEAR Protocol (NEAR) 1.26 1.99 * The prices have been rounded to the nearest whole dollar for prices above $100 The following table presents the Fair Value of Crypto Assets held compared to the GAAP Book Value reported on the Company’s balance sheet. March 31, 2023 December 31, 2022 Book Value Fair Value Book Value Fair Value Ethereum (ETH) $ 5,817,449 $ 15,530,133 $ 5,708,624 $ 10,117,237 Cardano (ADA) 63,178 104,861 63,178 64,786 Kusama (KSM) 148,883 236,070 142,242 149,981 Tezos (XTZ) 52,853 83,614 51,651 52,720 Solana (SOL) 62,006 158,625 60,012 73,426 Polkadot (DOT) 32,168 47,720 30,859 31,410 Terra (LUNA) - - - - Cosmos (ATOM) 630,782 1,144,459 568,359 900,440 Polygon (MATIC) 167,117 544,815 161,293 364,714 Avalanche (AVAX) 182,964 304,341 182,964 187,286 Algorand (ALGO) - - - - Axie Infinity (AXS) 277,651 389,893 245,443 253,943 Kava (KAVA) 161,459 270,486 165,426 166,752 Band Protocol (BAND) 982 1,857 982 1,396 Mina (MINA) 34,267 62,101 32,002 32,187 Oasis Network (ROSE) 110,927 156,698 12,045 12,291 Akash (AKT) 18,765 34,510 17,993 19,938 NEAR Protocol (NEAR) 94,370 150,854 92,840 93,785 Total $ 7,855,821 $ 19,221,037 $ 7,535,913 $ 12,522,292 24 Results of Operations for the Three Months Ended March 31, 2023 and 2022 The following tables reflect our operating results for the three months ended March 31, 2023 and 2022: For the Three Months Ended March 31, $ Change % Change 2023 2022 2023 2023 Revenues Validator revenue $ 311,508 $ 563,015 $ (251,507 ) (45 )% Total revenues 311,508 563,015 (251,507 ) (45 )% Cost of revenues Validator expense 82,014 137,869 (55,855 ) (41 )% Gross profit 229,494 425,146 (195,652 ) (46 )% Operating expenses: General and administrative $ 609,829 $ 650,289 $ (40,460 ) (6 )% Research and development 201,625 136,718 64,907 47 % Compensation and related expenses 462,090 1,423,896 (961,806 ) (68 )% Marketing 6,243 41,793 (35,550 ) (85 )% Impairment loss on crypto assets/currencies 94,907 3,307,428 (3,212,521 ) (97 )% Realized gains on crypto asset/currency transactions (16,831 ) (71,110 ) 54,279 76 % Total operating expenses 1,357,863 5,489,014 (4,131,151 ) (75 )% Other income (expenses): Change in fair value of warrant liabilities (285,000 ) (641,250 ) 356,250 (56 )% Distributions to warrant holders - (35,625 ) 35,625 N/A % Total other income (expenses) (285,000 ) (676,875 ) 391,875 58 % Net loss $ (1,413,369 ) $ (5,740,743 ) $ 4,327,374 (75 )% 25 Validator Revenue The decrease in revenue during the 2023 Quarter as compared to the 2022 Quarter is primarily due to a drop in the fair value of our crypto assets earned as rewards for staking since the market’s highs in Q1 of 2022. Although we believe the number of tokens we earn from staking and revenue recognized will increase as we continue to expand our blockchain infrastructure efforts, we recognize that volatility in the cryptocurrency markets may impact the market prices of the crypto assets we earn from staking. Cost of Revenues The decrease in cost of revenues is due to efficiencies realized in our blockchain infrastructure validating operating costs, including streamlining of web service hosting fees and reduction of 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 2023 Quarter is primarily due to the $3.3 million impairment loss on crypto assets (which we refer to as a “Crypto Asset Impairment”) during the 2022 Quarter, compared to only a $95,000 Crypto Asset Impairment during the 2023 Quarter. In addition, the decrease is also due to the non-cash $1.3 million equity-based contingent bonuses granted to employees and our non-employee directors during the 2022 Quarter for the achievement of performance milestones compared to only $271,000 equity-based compensation during the 2023 Quarter. We believe operating expenses will increase as the Company continues to utilize equity-based compensation incentives as a core part of our compensation strategy. Additionally, volatility in the cryptocurrency markets will subject the Company to the possibility of additional impairment charges on its crypto asset holdings. Other Income (Expenses) The changes in other income for the years reported was primarily due to the increase 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 2023 Quarter was primarily due to the decrease in operating expenses and changes in other income (expenses) as discussed above. We believe that our net loss may increase as the Company incurs increased costs related to the development of its Digital Asset Platform and incurs additional Crypto Asset Impairment losses due to volatility in the cryptocurrency 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 May 10, 2023, the Company sold a total of 2,970,839 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $15,040,000 at an average selling price of $5.06 per share, resulting in net proceeds of approximately $14,562,000 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. As of March 31, 2023, the Company had approximately $1.4 million of cash. We view our crypto assets as long-term holdings and we do not plan to engage in regular trading of crypto assets. Further certain of our staked crypto assets may be locked up depending on the specific blockchain protocol and we may be unable to unstake them in a timely manner in order to liquidate to the extended desired. During times of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. As of May 10, 2023, the Company had approximately $1.1 million of cash and the fair value of the Company’s liquid crypto assets was approximately $18.9 million, which includes $14.6 million of staked Ethereum considered to be liquid after the successful Shanghai upgrade on Ethereum’s network in April 2023. The Company has no outstanding debt. As of May 10, 2023, the Company also has approximately $6.4 million available under the ATM Agreement over the next twelve months under the Form S-3 baby shelf rules, although, the amount that we may raise under the Form S-3 may increase or decrease based upon our stock price. The Company believes that the existing cash and liquid crypto 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 $1.1 million during the 2023 Quarter compared to $1.1 million for the 2022 Quarter. Cash used in investing activities was $86,000 during the 2023 Quarter compared to $8.2 million for the 2022 Quarter. Net cash outflow for investing activities was used primarily for the purchase of crypto assets for our blockchain infrastructure operations. Cash provided by financing activities was $509,000 during the 2023 Quarter compared to $10.1 million for the 2022 Quarter. The cash inflows from financing activities were entirely from proceeds from the Common Stock sold pursuant to the ATM Agreement. 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 March 31, 2023, 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. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, including our liquidity, our belief that our blockchain infrastructure efforts will form the core growth for our Digital Asset Platform, our plans and development of our Digital Asset Platform and the integration of Staking-as-a-Service, our belief regarding blockchain, expected increase in our revenues and gross margins and future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “may,” “potential,” “continues,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. The results anticipated by any or all of these forward-looking statements might not occur. Important factors 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 crypto assets, significant decrease in the value of our crypto assets and rewards, loss or theft of the private withdrawal keys resulting in the complete loss of crypto 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, 2022. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. ITEM 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 March 31, 2023. 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 March 31, 2023. 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 On May 11, 2023, the Compensation Committee of the Board of Directors of the Company approved a performance based Annual Cash Incentive Plan for the Company’s executives for fiscal year 2023. If an executive meets their performance milestones, the executive will receive a bonus, payable in cash and equity at the discretion of the Compensation Committee, in an amount up to 54% to 104% of the applicable executive’s base salary, as detailed below: ● Charles Allen, the Company’s Chief Executive Officer is eligible to receive up to 104% of his base salary. Mr. Allen’s current base salary is $411,419; ● Michal Handerhan, the Company’s Chief Operating Officer is eligible to receive up to 68% of his base salary. Mr. Handerhan’s base salary is $287,375; ● Michael Prevoznik, the Company’s Chief Financial Officer is eligible to receive up to 54% of his base salary. Mr. Prevoznik’s base salary is $235,125; ● Manish Paranjape, the Company’s Chief Technology Officer is eligible to receive up to 54% of his base salary. Mr. Paranjape’s base salary is $235,125. 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. May 12, 2023 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 2.1 Articles of Merger 8-K/A 7/31/15 3.1 2.2 Agreement and Plan of Merger 8-K/A 7/31/15 3.2 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 Stock Split 8-K 8/17/21 3.1 3.1(f) Certificate of Designation – Series V 8-K 1/31/23 3.1 3.1(g) Certificate of Amendment to the Series V Certificate of Designation 8-K 4/19/23 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 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