BTCS Inc. 10-Q

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, 2023. When we refer to the “2024 Quarter” and the “2023 Quarter” we are referring to the three months ended June 30, 2024 and June 30, 2023, respectively. When we refer to the “2024 Period” and the “2023 Period” we are referring to the six months ended June 30, 2024 and June 30, 2023, respectively. Company Overview BTCS Inc. is a Nasdaq listed company operating in the blockchain technology sector since 2014 and is one of the only U.S. publicly traded companies with a primary focus on proof-of-stake blockchain infrastructure. Our core focus is on driving scalable growth through a diverse range of business streams leveraging and built on top of our core and proven blockchain infrastructure operations. Blockchain Infrastructure The Company operates validator nodes on various delegated proof-of-stake and proof-of-stake based blockchain networks, with an emphasis on Ethereum. We earn native token rewards by validating transactions across various blockchain networks by staking our crypto assets on validator nodes operated by BTCS and third parties. Our evaluation of blockchain networks involves comprehensive due diligence procedures, including assessments of blockchain quality, reward potential, and the technical challenges associated with running validator nodes. Criteria for assessing blockchain quality encompass factors such as i) market and on-chain statistics, ii) liquidity, iii) potential blockchain utility, iv) history and milestones, v) growth and development roadmap, vi) use cases, vii) community interest, vii) quality of documentation, viii) decentralization, and ix) any other publicly available information. StakeSeeker – Staking-as-a-Service BTCS’s Staking-as-a-Service (“StaaS”) business model allows for crypto asset holders to earn token 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 a crypto asset 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 alternative for crypto asset holders to participate in blockchain networks’ consensus mechanisms, promoting the growth and adoption of blockchain technology. The Company’s internally-developed “StakeSeeker” platform is a personal finance software and education center with a comprehensive crypto dashboard for crypto asset holders to connect, monitor, track, and analyze their crypto portfolios across exchanges and wallets in a single analytics platform. The StakeSeeker dashboard reads user data from digital wallets and utilizes application programming interfaces (APIs) to read data from crypto exchanges and does not allow for the trading or custody of crypto assets. StakeSeeker’s Stake Hub functions as an educational center, offering users guidance on the delegation of their crypto assets to our non-custodial validator nodes, along with the ability to monitor such delegation activities through data analysis. StakeSeeker does not provide or facilitate direct, crypto asset delegation or transaction execution on our platform. The Stake Hub’s primary role is to offer instructional support and tracking capabilities. There is no active process for crypto asset delegation through the Stake Hub dashboard; it is primarily a monitoring tool. Crypto asset holders are able to delegate to our validator nodes without signing up for our StakeSeeker platform; conversely, crypto asset holders can delegate to validator nodes not operated by the Company and sign up for StakeSeeker to utilize our software and data analytics. The StakeSeeker platform is currently free-to-use for registered users and is not currently generating revenue. The Company is not a broker-dealer or an investment advisor and does not provide any such related services. 27 A StaaS provider maintains a ministerial role in validating transactions on a given dPoS network on behalf of its Delegators by (1) using open-source software to stake the relevant crypto assets; (2) monitoring and maintaining the nodes it is operating to ensure the computers remain online to validate transactions; and (3) verifying transactions on the network when required. As a non-custodial StaaS provider, we do not hold or take possession of any Delegator funds, crypto assets, or crypto asset rewards at any point during the staking or delegation process. Delegation does not involve the transfer of crypto asset ownership to a Validator. During the process of staking, delegated crypto assets remain in the Delegator’s digital wallets. The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. The blockchain network does not distribute any of the Delegator’s earned crypto rewards to BTCS. At no point does the Validator gain access, control, or custody of the original staked crypto assets or the earned crypto rewards through staking to its node. Therefore, the Company does not have any exposure to the custodial risks that a crypto exchange would have related to excessive redemptions or withdrawals of crypto assets, suspension of redemptions, or withdrawals. Further, we do not issue or hold crypto assets on behalf of third parties and have no exposure to the risks an exchange would have with respect to loans, rehypothecation, or margin. The following table details the blockchain networks on which BTCS operates nodes that support third-party delegations as part of our staking-as-a-service operations, including the amount of third-party crypto assets delegated to our non-custodial validator nodes, as of June 30, 2024: Validator Fee Delegated Crypto Assets Delegated Crypto Assets Blockchain Network Percentage % (Native Tokens) ($USD) Cosmos 5 %* 112,000 ATOM $ 749,997 Akash 5 %* 171,000 AKT $ 612,071 Oasis 5 % 2,359,000 ROSE $ 234,963 Kava 5 %* 28,000 KAVA $ 12,351 Total $ 1,609,382 * indicates the minimum required by the blockchain network. Builder+ – Ethereum Block Building In January 2024, we introduced “Builder+”, an Ethereum block builder. Builder+ utilizes algorithms to construct optimized blocks for on-chain validation. The Company aims to maximize the value of gas fees earned by increasing the number of blocks we purchase while minimizing Validator Payments required for purchasing block space. The following table further details the operational results of Builder+ for the three and six months ended June 30, 2024. For the Three Months Ended June 30, For the Six Months Ended June 30, 2024 2023 2024 2023 Asset Token Rewards Revenue ($USD) Token Rewards Revenue ($USD) Token Rewards Revenue ($USD) Token Rewards Revenue ($USD) Ethereum (ETH) Gas fees earned from blocks proposed 23 $ 75,853 - $ - 34 $ 108,886 - $ - Validator payments for block space (28 ) $ (92,499 ) - $ - (51 ) $ (158,112 ) - $ - Net ETH earned from Ethereum block building through Builder+ (5 ) $ (16,646 ) - $ - (17 ) $ (49,226 ) - $ - ChainQ – AI Analytics On July 10, 2024, the Company announced the public launch of the ChainQ beta. ChainQ is an AI-powered blockchain data and analytics platform, designed to allow users to query real-time and historical on-chain blockchain data. Through comprehensive indexing of public blockchain data from our Blockchain Infrastructure operations, ChainQ is intended to provide an intuitive and straightforward platform for users to access on-chain data. 28 Crypto Assets The tables below detail BTCS’s quarterly crypto asset holdings as of the end of each quarter beginning with the 2023 Quarter and ending the 2024 Quarter. Crypto Assets Held at the End of the Following Calendar Quarters: Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) 7,833 7,748 7,815 7,868 7,935 Cardano (ADA) 263,293 264,751 265,254 266,543 268,582 Kusama (KSM) 6,946 7,246 7,313 7,796 8,074 Tezos (XTZ) 25,375 25,760 26,174 26,492 26,845 Solana (SOL) 7,621 7,752 7,845 7,964 6,839 Polkadot (DOT) 7,882 8,284 8,650 9,010 9,386 Cosmos (ATOM) 243,472 256,784 270,098 281,264 293,886 Polygon (MATIC) 492,965 499,548 506,010 512,241 518,554 Avalanche (AVAX) 17,824 17,824 17,842 17,842 18,510 Axie Infinity (AXS) 50,955 55,584 60,552 65,932 71,704 Kava (KAVA) 315,362 327,862 345,394 351,685 358,318 Band Protocol (BAND) 992 992 992 992 992 Mina (MINA) 81,377 84,257 90,017 92,897 95,777 Oasis Network (ROSE) 2,600,279 2,626,600 2,647,629 2,663,766 - Akash (AKT) 113,063 115,735 119,071 123,646 129,891 NEAR Protocol (NEAR) 77,389 79,067 80,267 80,981 82,867 Evmos (EVMOS) 295,422 322,693 345,777 357,203 364,037 29 Fair Market Value of Crypto Assets at the End of the Following Calendar Quarters: Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) $ 15,141,859 $ 12,948,491 $ 17,829,264 $ 28,700,380 $ 27,235,107 Cardano (ADA) 75,553 67,259 157,615 173,350 105,270 Kusama (KSM) 175,352 138,166 329,353 377,395 191,929 Tezos (XTZ) 20,452 17,569 26,379 37,118 21,296 Solana (SOL) 144,010 165,849 796,327 1,613,543 1,001,728 Polkadot (DOT) 40,763 34,009 70,879 86,858 58,218 Cosmos (ATOM) 2,261,411 1,859,407 2,860,870 3,455,299 1,975,032 Polygon (MATIC) 325,857 266,400 491,138 514,187 290,027 Avalanche (AVAX) 231,941 164,759 687,713 964,888 542,525 Axie Infinity (AXS) 302,966 254,967 535,546 726,572 434,956 Kava (KAVA) 305,501 207,289 301,429 374,932 158,376 Band Protocol (BAND) 1,260 1,121 2,174 2,223 1,221 Mina (MINA) 39,579 32,095 122,007 115,192 51,720 Oasis Network (ROSE) 128,686 109,516 363,571 366,108 - Akash (AKT) 63,311 94,686 291,574 592,956 466,154 NEAR Protocol (NEAR) 107,088 89,660 293,204 591,162 438,780 Evmos (EVMOS) 26,069 24,089 43,886 28,612 11,249 Total 19,391,658 16,475,332 25,202,929 38,720,775 32,983,588 QoQ Change 1 % -15 % 53 % 54 % -15 % YoY Change 63 % 11 % 101 % 101 % 70 % Prices of Crypto Assets at the End of the Following Calendar Quarters:* Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) $ 1,933 $ 1,671 $ 2,281 $ 3,648 $ 3,432 Cardano (ADA) 0.29 0.25 0.59 0.65 0.39 Kusama (KSM) 25.24 19.07 45.04 48.41 23.77 Tezos (XTZ) 0.81 0.68 1.01 1.40 0.79 Solana (SOL) 18.90 21.40 101.51 202.60 146.48 Polkadot (DOT) 5.17 4.11 8.19 9.64 6.20 Cosmos (ATOM) 9.29 7.24 10.59 12.28 6.72 Polygon (MATIC) 0.66 0.53 0.97 1.00 0.56 Avalanche (AVAX) 13.01 9.24 38.54 54.08 29.31 Axie Infinity (AXS) 5.95 4.59 8.84 11.02 6.07 Kava (KAVA) 0.97 0.63 0.87 1.07 0.44 Band Protocol (BAND) 1.27 1.13 2.19 2.24 1.23 Mina (MINA) 0.49 0.38 1.36 1.24 0.54 Oasis Network (ROSE) 0.05 0.04 0.14 0.14 0.10 Akash (AKT) 0.56 0.82 2.45 4.80 3.59 NEAR Protocol (NEAR) 1.38 1.13 3.65 7.30 5.30 Evmos (EVMOS) 0.09 0.07 0.13 0.08 0.03 * The prices have been rounded to the nearest whole dollar for prices above $100 30 Crypto Asset Rewards The tables below detail BTCS’s quarterly crypto assets earned during each of the following quarters: Crypto assets earned from BTCS validator nodes Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) 108 85 67 65 72 Cosmos (ATOM) 10,662 13,312 13,314 11,166 12,565 Akash (AKT) 2,851 2,671 3,337 4,575 6,246 Kava (KAVA) 10,394 12,500 17,532 6,292 6,632 Mina (MINA) 1,440 2,880 5,760 2,880 2,880 Oasis Network (ROSE) 30,287 26,321 21,029 16,137 10,431 Kusama (KSM) 180 300 67 10 279 Avalanche (AVAX) 646 - 18 - 668 NEAR Protocol (NEAR) 1,665 1,606 1,200 714 - Evmos (EVMOS) 32,236 27,271 30,084 - - Tezos (XTZ) 435 385 414 - - Crypto assets earned from Ethereum block building through Builder+ Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) - - - - 11 23 Crypto assets earned from staking to third-party validator nodes Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Axie Infinity (AXS) 4,474 4,629 4,967 5,381 5,772 Solana (SOL) 128 131 93 119 139 Polygon (MATIC) 6,158 6,276 6,462 6,230 6,314 Polkadot (DOT) 356 402 366 360 376 Evmos (EVMOS) - - - 11,426 6,834 Cardano (ADA) 433 1,458 503 1,289 2,039 Tezos (XTZ) - - - 318 354 NEAR Protocol (NEAR) - - - - 1,886 31 Fair Market Value of Crypto Asset Rewards Earned Recognized as Revenue The tables below detail the fair market value of BTCS’s quarterly crypto assets earned as revenue during the following calendar quarters: Revenue earned from BTCS validator nodes Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) $ 201,121 $ 151,699 $ 131,903 $ 188,078 $ 241,588 Cosmos (ATOM) 109,787 106,982 116,726 121,074 104,580 Akash (AKT) 1,159 2,263 5,341 18,746 26,740 Kava (KAVA) 9,351 9,523 13,033 5,252 4,305 Mina (MINA) 1,070 1,234 4,818 3,646 2,439 Oasis Network (ROSE) 1,735 1,183 1,688 2,218 1,036 Kusama (KSM) 4,960 6,416 1,193 475 8,108 Avalanche (AVAX) 8,403 - 714 - 18,491 NEAR Protocol (NEAR) 2,841 2,050 1,834 4,422 - Evmos (EVMOS) 5,862 2,016 2,929 - - Tezos (XTZ) 432 288 337 - - Total revenue earned from BTCS blockchain infrastructure operations $ 346,721 $ 283,654 $ 280,516 $ 343,911 $ 407,287 Revenue earned from Ethereum block building through Builder+ Asset 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Ethereum (ETH) $ - $ - $ - $ - $ 33,033 $ 75,853 Total revenue earned from Ethereum block building through Builder+ $ - $ - $ - $ - $ 33,033 $ 75,853 Revenue earned from staking to third-party validator nodes Asset 2023 Q2 2023 Q3 2023 Q4 2024 Q1 2024 Q2 Axie Infinity (AXS) $ 29,313 $ 23,755 $ 34,595 $ 48,322 $ 36,379 Solana (SOL) 2,581 2,860 3,620 15,372 21,353 Polygon (MATIC) 5,057 3,676 5,143 5,731 3,758 Polkadot (DOT) 1,957 1,898 1,999 2,957 2,619 Evmos (EVMOS) - - - 940 268 Cardano (ADA) 124 399 252 753 837 Tezos (XTZ) - - - 367 338 NEAR Protocol (NEAR) - - - - 12,500 Total revenue earned from staking to third-party validator nodes $ 39,032 $ 32,588 $ 45,609 $ 74,442 $ 78,052 Total revenue earned $ 385,753 $ 316,242 $ 326,125 $ 451,386 $ 561,192 32 Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023 The following tables reflect our operating results for the three and six months ended June 30, 2024 and 2023: For the Three Months Ended June 30, $ Change % Change 2024 2023 2024 2024 Revenues Blockchain infrastructure revenues (net of fees) $ 561,192 $ 385,753 $ 175,439 45 % Total revenues 561,192 385,753 175,439 45 % Cost of revenues Blockchain infrastructure costs 168,848 113,612 55,236 49 % Gross profit 392,344 272,141 120,203 44 % Operating expenses: General and administrative $ 538,956 $ 617,569 $ (78,613 ) (13 )% Research and development 163,777 180,903 (17,126 ) (9 )% Compensation and related expenses 875,491 578,496 296,995 51 % Marketing 28,477 2,723 25,754 946 % Realized (gains) losses on crypto asset transactions (287,327 ) 568,031 (855,358 ) (151 )% Total operating expenses 1,319,374 1,947,722 (628,348 ) (32 )% Other income (expenses): Change in unrealized appreciation (depreciation) on crypto assets (5,943,339 ) 355,033 (6,298,372 ) (1,774 )% Change in fair value of warrant liabilities 142,500 142,500 - - % Total other income (expenses) (5,800,839 ) 497,533 (6,298,372 ) (1,266 )% Net income (loss) $ (6,727,869 ) $ (1,178,048 ) (5,549,821 ) (471 )% For the Six Months Ended June 30, $ Change % Change 2024 2023 2024 2024 Revenues Validator revenue $ 1,012,578 $ 697,261 $ 315,317 45 % Total revenues 1,012,578 697,261 315,317 45 % Cost of revenues Validator expense 329,473 195,626 133,847 68 % Gross profit 683,105 501,635 181,470 36 % Operating expenses: General and administrative $ 1,026,555 $ 1,227,398 $ (200,843 ) (16 )% Research and development 310,326 382,528 (72,202 ) (19 )% Compensation and related expenses 1,331,270 1,040,586 290,684 28 % Marketing 86,079 8,966 77,113 860 % Realized gains on crypto asset transactions (298,014 ) 560,477 (858,491 ) (153 )% Total operating expenses 2,456,216 3,219,955 (763,739 ) (24 )% Other income (expenses): Change in unrealized appreciation (depreciation) on crypto assets 7,159,328 6,648,240 511,088 8 % Change in fair value of warrant liabilities 142,500 (142,500 ) 285,000 (200 )% Total other income (expenses) 7,301,828 6,505,740 796,088 12 % Net loss $ 5,528,717 $ 3,787,420 1,741,297 46 % 33 Revenues The increase in revenue during the 2024 Quarter and Period as compared to the 2023 Quarter and Period is primarily due to the increase in fair value of our crypto assets earned as rewards for staking as the market prices of crypto assets continued to be elevated during 2024 Period compared to 2023 Period. The increase is also partially due to an increase in the block rewards earned from our Ethereum block building activities during the 2024 Quarter and 2024 Period. Although we believe the number of block rewards and 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 crypto asset markets may impact the market prices of the crypto assets we earn from staking. Cost of Revenues The increase in the cost of revenues during the 2024 Period as compared to the 2023 Period is due to the Validator Payments made to purchase block space as part of our Ethereum block building activities during the 2024 Quarter and Period. Thes additional costs are partially offset by the 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, particularly our strategy to increase the number and value of block production, requiring additional purchases of block space from Validators. Summary of Accounting Principle Change in Ethereum Block Building Revenues and Costs During the second 2024 Quarter, the Company implemented a change in accounting principle related to the presentation of revenues and costs associated with our Ethereum block building operations. This change, made under ASC 606, now presents gas fees earned as gross revenue and Validator Payments as cost of revenues, rather than netting them against each other. This correction, applied retrospectively, better reflects the economic substance of our transactions and provides enhanced transparency. The change does not impact gross profit, net income, or balance sheet items, but it does result in increased reported revenues and costs for the three months ended March 31, 2024. Operating Expenses General and administrative expenses consist of director compensation, legal and professional fees and other personnel and related costs. The decrease in the 2024 Period was primarily due to a decrease of approximately $140,000 in legal service and related administrative costs from the 2023 Period, driven primarily by services surrounding the Series V Preferred Distribution and related listing on Upstream Exchange incurred during the first half of 2023. We are uncertain as to whether our future investigation legal expenses related to the SEC’s current investigation of the Company will have a material impact on our operating expenses during the balance of 2024 or thereafter. Additionally, we incurred higher accounting fees related to our audits and Form S-3 registration during the 2024 Period, which is partially offset by other reduced costs resulting from cost cutting measures for other professional fees during the 2024 Period. Research and development expenses decreased during the 2024 Period from the 2023 Period as the Company focused on the beta release of our proprietary StakeSeeker platform in the first quarter 2023, including responding to user feedback and continued planned feature development and incorporation onto the platform. Research and development in the 2024 Period focused on the launch of Builder+ operations as well as the further development of ChainQ, which launched in July 2024. We anticipate research and development costs to remain consistent as we continue to expand on technological solutions in the blockchain sector with a focus on cost management of our third-party development team. Compensation and related expenses increased during the 2024 Period resulting from the addition of employee headcount during the 2024 Quarter. We believe our compensation expenses will increase from those reported in the 2024 Period as the Company continues to utilize non-cash equity-based compensation incentives as a core part of our compensation strategy and anticipate accruals for 2024 performance-based bonus incentives in future reporting periods. Marketing costs increased during the 2024 Period as the Company incurred costs associated with the purchase of transaction traffic to bolster Ethereum block production as part of the ramp up of Builder+ operations. The Company may have additional expenditures for transaction traffic in order to further increase Ethereum block building activities. The realized gains on crypto asset transactions increased during the 2024 Period as the Company sold certain crypto assets from our blockchain infrastructure operations in order to fund operating activities. The Company may realize additional gains (losses) in the future resulting from the sale of crypto assets earned are sold to meet cash needs. Other Income (Expenses) The changes in other income for the 2024 Quarter and Period were primarily attributed to the recognition of the change in unrealized appreciation on crypto assets resulting from the increase in the fair market value of the Company’s crypto assets during the 2024 Period compared to the 2023 Period and the decrease in the fair market value of the Company’s crypto assets during the 2024 Quarter. Changes in the unrealized appreciation or depreciation of crypto assets are directly influenced by the volatility in crypto markets, which can be challenging for management to predict. Furthermore, the changes in other income for the 2024 Quarter were partially driven by the decrease in the fair value of warrant liabilities throughout the period. This non-cash expense is influenced by the value of our stock price at the end of each quarter, a factor that we cannot predict. Net income (loss) The increase in net income for the 2024 Period compared to the 2023 Period is primarily attributable to larger increases in fair value of our crypto assets during the 2024 Period compared to the 2023 Period. The decrease in net loss for the 2024 Quarter compared to the 2023 Quarter is primarily attributable to the peel back of the crypto market during the 2024 Quarter, resulting in declines in the market prices of our crypto assets and reporting of unrealized depreciation in the 2024 Quarter. We acknowledge that our net income (loss) may exhibit significant fluctuations due to the volatility in the crypto asset markets, impacting changes in the fair value of crypto assets during future reporting periods. 34 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 (assuming an effective registration statement on Form S-3), 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 August 16, 2024, the Company sold a total of 4,790,475 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $17,938,000 at an average selling price of $3.74 per share, resulting in net proceeds of approximately $17,350,000 after deducting commissions and other transaction costs. Our Form S-3 expired on August 14, 2024. The Company filed a new Form S-3 on February 14, 2024. As a result of SEC comments, the new Form S-3 has not yet gone effective and therefore we may not sell shares under the ATM Agreement. 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 June 30, 2024, the Company had approximately $537,000 of cash and working capital of approximately $33,005,000. As of August 16, 2024, the Company had approximately $562,000 of cash and cash equivalents and the fair market value of the Company’s liquid crypto assets was approximately $25,291,000. The Company has no outstanding debt. The Company believes that the existing cash and liquid crypto assets held by us provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at least the next 12 months. Certain of our staked crypto assets may be locked up for varying durations, depending on the specific blockchain protocol, and we may be unable to unstake them in a timely manner in order to liquidate to the extent desired. Lock-up periods for our staked crypto assets range from several hours to six months. 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. Cash Flows Cash used in operating activities was approximately $1,693,000 during the 2024 Period compared to approximately $2,046,000 for the 2023 Period. The largest non-cash adjustment to our operating cash flows consisted of approximately $7,159,000 change in in unrealized appreciation on crypto assets during the 2024 Period, which is based on volatility in the crypto asset market and cannot be accurately predicted. Cash provided by investing activities was approximately $531,000 during the 2024 Period compared to cash used in investing activities of approximately $84,000 for the 2023 Period. Net cash inflows from investing activities resulted from the sale of crypto assets. We anticipate similar levels of sales of additional crypto assets in future quarters as we fund operating activities from crypto earned as staking revenues. Cash provided by financing activities was approximately $240,000 during the 2024 Period compared to approximately $927,000 for the 2023 Period. The cash inflows from financing activities were entirely from proceeds from the Common Stock sold pursuant to the ATM Agreement. The Company plans to continue to raise proceeds from the sale of Common Stock to fund operations as needed. 35 Off Balance Sheet Transactions As of June 30, 2024, 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. Critical Accounting Policies and Estimates We discussed the material accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”. There has been no material change in critical accounting policies or estimates during the period covered by this report. 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 business, including but not limited to Builder+, StakeSeeker, and ChainQ, plans to expand our PoS operations, growth opportunities for the Company, 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, 2023. 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.