What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2022-11-10 · 117 added, 184 removed, 93 unchanged (76% of the section changed)

9 unchanged sentences

When we refer to the “2023 Quarter” and the “2022 Quarter” we are referring to

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

Further, when we refer to the “2022 Period”

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

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

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

publicly-traded companies to focus on Digital Assets and blockchain

technologies.

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

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

on the networks.

The Company is in the late stages of developing a Digital Asset Platform that would enable users to aggregate their

Digital Asset portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics,

and potential tax implications.

The internally developed platform utilizes Digital Asset exchange APIs to read user data and does not

allow for the trading of assets.

We also are developing an integrated proprietary Staking-as-a-Service feature on the Digital Asset Platform

that would enable users to participate in asset leveraging through securing blockchain protocols and to stake and delegating supported

cryptocurrencies to BTCS operated validator nodes through a non-custodial platform.

Infrastructure

infrastructure operations can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain.

There are currently two main consensus mechanisms used to secure blockchains:

i) proof-of-work (“PoW”), in which nodes dedicate

computational resources, and ii) proof-of-stake (“PoS”), in which nodes dedicate financial resources.

The intention behind

both PoW and PoS is to make it practically impossible for any single malicious actor to have enough computational power or ownership

stake to successfully attack the blockchain.

the case of PoW, a miner does “work” using energy-consuming computers and is rewarded for this “work” with Digital

The miner, typically through pools running nodes, validates transactions on the blockchain, essentially converting electricity

and computing power into a digital currency reward comprised of transaction fees and newly-minted Digital Assets.

Bitcoin is an example

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

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.

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.

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

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

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

tokens to an existing validator.

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

a power of attorney.

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

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

With both Delegating and Validating,

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

maintenance and industry expertise.

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

In connection with

the validation of transactions occurring on those blockchain networks, BTCS will stake the Digital Assets native to those blockchains

on the validator nodes it operates in order to earn staking rewards.

BTCS may also use its blockchain infrastructure to validate and

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

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

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.

The Company utilizes

cloud infrastructure to operate and run its validator nodes and does not maintain its own physical assets, but may add this infrastructure

in the future.

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

the three months ended March 31, 2023 and March 31, 2022 quarters, respectively.

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.

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

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.

table below describes BTCS’s quarterly crypto asset holdings as of the 2022 Quarter through the 2023 Quarter.

Assets Held at Period End

10 unchanged sentences

Oasis Network (ROSE)

Market Value of Digital Assets at Period End

NEAR Protocol (NEAR)

Value of Crypto Assets at Period End

Bitcoin (BTC)

9 unchanged sentences

Oasis Network (ROSE)

Approximately 9 ETH is not staked.

of Digital Assets at Period End

NEAR Protocol (NEAR)

of Crypto Assets at Period End

Bitcoin (BTC)

9 unchanged sentences

Oasis Network (ROSE)

NEAR Protocol (NEAR)

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

following table presents the Fair Value of Crypto Assets held compared to the GAAP Book Value reported on the Company’s

balance sheet.

September 30, 2022

March 31, 2023

December 31, 2022

Bitcoin (BTC)

Ethereum (ETH)

8 unchanged sentences

Oasis Network (ROSE)

Asset Platform

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.

(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:

NEAR Protocol (NEAR)

of Operations for the Three Months Ended March 31, 2023 and 2022

following tables reflect our operating results for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

September 30,

Validator revenue

6 unchanged sentences

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 )

For the Nine Months Ended

September 30,

Validator revenue

Total revenues

Cost of revenues

Validator expense

Operating expenses:

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

Impairment loss on crypto assets/currencies

Realized gains on crypto asset/currency transactions

Total operating expenses

Other income (expenses):

Interest expense

Amortization on debt discount

Change in fair value of warrant liabilities

3 unchanged sentences

$ (5,740,743 )

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,

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

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.

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

2 unchanged sentences

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

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 $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.

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

our compensation strategy.

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

impairment charges on its Digital Asset holdings.

Company is evaluating additional opportunities to reduce costs.

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

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

committee chair fees for 2022 to $5,000.

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

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

Collectively, these cost-cutting

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

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.

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.

Income (Expenses)

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.

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

(expense) as discussed above.

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

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

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.

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.

and Capital Resources

4 unchanged sentences

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.

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.

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.

During times of instability

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

As a result, our Digital

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

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.

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.

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.

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.

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.

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.

used in operating activities was approximately $1.1 million during the 2023 Quarter compared to $1.1 million for the 2022 Quarter.

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 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.

investing activities was used primarily for the purchase of crypto assets for our blockchain infrastructure operations.

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 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.

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.

Balance Sheet Transactions

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.

of March 31, 2023, 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.

ACCOUNTING PRONOUNCEMENTS

information on recent accounting pronouncements, see Note 3 to the Unaudited Condensed Financial Statements.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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.

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.

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.

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

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future

developments or otherwise, except as may be required by law.

3 Quantitative and Qualitative Disclosures About Market Risk

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