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, 2024. When we refer to the “2025 Quarter” and the “2024 Quarter” we are referring to the three months ended June 30, 2025 and June 30, 2024, respectively. When we refer to the “2025 Period” and the “2024 Period” we are referring to the six months ended June 30, 2025 and June 30, 2024, respectively. Company Overview BTCS Inc. (“BTCS” or the “Company”), short for Blockchain Technology Consensus Solutions, is a publicly traded, Ethereum-first blockchain infrastructure and digital asset treasury company committed to driving scalable revenue and ETH accumulation through its unique capital formation and blockchain infrastructure strategies, collectively referred to as the DeFi/TradFi Flywheel. By combining decentralized finance (“DeFi”) and traditional finance (“TradFi”) mechanisms with its blockchain infrastructure operations, comprising NodeOps (staking) and Builder+ (block building), BTCS provides leveraged exposure to Ethereum (ETH) by integrating scalable revenue generation with a structured, yield-focused ETH accumulation strategy. DeFi/TradFi Flywheel Funding Strategy The DeFi/TradFi Flywheel represents a transformative extension of BTCS’s Ethereum-first strategy, combining innovative financing mechanisms from both decentralized and traditional markets to optimize capital efficiency and grow its ETH treasury. The Company’s planned capital formation approach includes At-The-Market (“ATM”) equity offerings, above market convertible debt issuance, and on-chain borrowing through DeFi protocols, such as Aave. These capital sources are strategically aligned with BTCS’s operating infrastructure, staking rewards from NodeOps, and ETH transaction fees captured through Builder+, creating a self-reinforcing flywheel designed to increase ETH per share while minimizing shareholder dilution. This approach reflects BTCS’s commitment to revenue scalability, ETH accumulation, and capital stewardship. Blockchain Infrastructure: NodeOps (staking) and Builder+ (block building) NodeOps: BTCS operates Ethereum validator nodes through its NodeOps initiative, earning ETH-denominated staking rewards for securing the network. Builder+: BTCS’s proprietary block builder, Builder+, constructs and submits optimized blocks to Ethereum’s blockchain. By leveraging algorithmic strategies, Builder+ competes in the decentralized block space marketplace to capture ETH-denominated transaction fees. It is designed for scalable revenue generation, and its architecture allows for efficient deployment across select EVM-compatible ecosystems, such as Binance Smart Chain (“BSC”). This enables BTCS to expand its infrastructure footprint and generate additional revenue while maintaining a core focus on ETH accumulation. Builder+ is a central driver of BTCS’s growth strategy, reflecting the Company’s emphasis on scalable and efficient revenue generation. Streamlined Focus BTCS has paused further development of its consumer-facing platform ChainQ. Additionally, during the six months ended June 30, 2025, BTCS completed the wind-down of staking-as-a-service and validator operations on Avalanche (AVAX), Cosmos (ATOM), Akash (AKT), and Kava (KAVA), and liquidated the majority of its alt-coin holdings, which also included Axie Infinity (AXS) and NEAR protocol (NEAR). These moves were part of a strategic focus to concentrate on Ethereum-based revenue and ETH accumulation. 29 Crypto Assets The tables below detail BTCS’s quarterly crypto asset holdings for each quarter from Q1 2024 through Q1 2025. Crypto Assets Held as of the End of the Following Calendar Quarters: Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) 7,935 7,978 9,060 9,063 14,659 Cosmos (ATOM) 293,886 307,489 322,547 338,838 355,813 Solana (SOL) 6,821 6,936 7,038 7,155 7,247 Avalanche (AVAX) 18,510 18,510 19,085 19,375 19,628 BNB Chain (BNB) - - - 69 68 Rocket Pool (RPL) - 584 599 609 609 Axie Infinity (AXS) 71,704 77,500 83,546 89,864 - NEAR Protocol (NEAR) 82,867 84,748 86,650 88,682 - Akash (AKT) 129,891 136,042 142,090 148,045 - Kava (KAVA) 358,318 365,364 372,126 379,137 - Kusama (KSM) 8,074 8,362 8,440 - - Polkadot (DOT) 9,386 9,784 9,904 - - Polygon (POL) 518,554 525,405 - - - Cardano (ADA) 268,582 270,264 - - - Mina (MINA) 95,777 96,497 - - - Tezos (XTZ) 26,845 27,440 - - - Evmos (EVMOS) 364,037 367,358 - - - Band Protocol (BAND) 992 992 - - - 30 Fair Market Value of Crypto Assets as of the End of the Following Calendar Quarters: Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) $ 27,235,107 $ 20,767,299 $ 30,198,638 $ 16,529,501 36,444,451 Cosmos (ATOM) 1,975,032 1,452,240 1,995,181 1,482,550 1,458,228 Solana (SOL) 999,138 1,058,786 1,329,855 891,270 1,122,321 Avalanche (AVAX) 542,525 513,465 678,454 363,863 352,714 BNB Chain (BNB) - - - 41,493 44,864 Rocket Pool (RPL) - 6,702 6,779 2,673 3,057 Axie Infinity (AXS) 434,956 390,911 517,820 262,942 - NEAR Protocol (NEAR) 438,780 448,572 424,934 222,326 - Akash (AKT) 466,154 376,836 396,659 172,546 - Kava (KAVA) 158,376 131,275 164,889 164,408 - Kusama (KSM) 191,929 167,245 277,773 - - Polkadot (DOT) 58,218 43,406 65,701 - - Polygon (POL) 290,027 208,271 - - - Cardano (ADA) 105,270 100,930 - - - Mina (MINA) 51,720 53,749 - - - Tezos (XTZ) 21,296 19,309 - - - Evmos (EVMOS) 11,249 7,310 - - - Band Protocol (BAND) 1,221 1,216 - - - Total $ 32,980,998 $ 25,747,522 $ 36,056,683 $ 20,133,572 $ 39,425,635 QoQ Change -15 % -22 % 40 % -44 % 96 % YoY Change 70 % 56 % 43 % -48 % 20 % Prices of Crypto Assets as of the End of the Following Calendar Quarters:* Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) $ 3,432 $ 2,603 $ 3,333 $ 1,824 $ 2,486 Cosmos (ATOM) 6.72 4.72 6.19 4.38 4.10 Solana (SOL) 146 153 189 125 155 Avalanche (AVAX) 29.31 27.74 35.55 18.78 17.97 BNB Chain (BNB) - - - 605 658 Rocket Pool (RPL) - 11.47 11.32 4.39 5.02 Axie Infinity (AXS) 6.07 5.04 6.20 2.93 - NEAR Protocol (NEAR) 5.30 5.29 4.90 2.51 - Akash (AKT) 3.59 2.77 2.79 1.17 - Kava (KAVA) 0.44 0.36 0.44 0.43 - Kusama (KSM) 23.77 20.00 32.91 - - Polkadot (DOT) 6.20 4.44 6.63 - - Polygon (POL) 0.56 0.40 - - - Cardano (ADA) 0.39 0.37 - - - Mina (MINA) 0.54 0.56 - - - Tezos (XTZ) 0.79 0.70 - - - Evmos (EVMOS) 0.03 0.02 - - - Band Protocol (BAND) 1.23 1.23 - - - * The prices have been rounded to the nearest whole dollar for prices above $100 31 Crypto Asset Rewards The tables below detail BTCS’s quarterly crypto assets earned during each of the following quarters: Crypto assets earned from blockchain infrastructure staking activities through NodeOps Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) 72 65 59 70 69 Cosmos (ATOM) 12,565 13,603 15,175 16,313 16,990 Solana (SOL) * 139 97 64 117 92 Axie Infinity (AXS) * 5,772 5,796 6,048 6,318 4,569 Akash (AKT) 6,246 6,151 5,771 5,957 2,272 NEAR Protocol (NEAR) 1,886 1,881 1,960 2,032 1,450 Avalanche (AVAX) * 668 - 569 290 253 Kava (KAVA) 6,632 7,046 7,174 7,011 4,020 Stader (SD) * - - - 126 - Rocket Pool (RPL) * - - 14 10 - Polkadot (DOT) * 376 398 110 9 - Kusama (KSM) * 279 288 75 - - Polygon (POL) * 6,314 6,851 1,575 - - Tezos (XTZ) * 354 594 88 - - Cardano (ADA) * 2,039 1,683 - - - Mina (MINA) 2,880 720 - - - Evmos (EVMOS) * 6,834 3,321 - - - Oasis Network (ROSE) 10,431 - - - - * All or a portion of revenue earned from staking to third-party validator nodes Crypto assets earned from block building through Builder+ Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) 23 152 700 494 912 BNB Chain (BNB) - - - - 638 32 Fair Market Value of Crypto Asset Rewards Earned Recognized as Revenue The following table summarizes the revenues earned from the Company’s operations by revenue segment during the following calendar quarters: Revenue by Segment 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Total revenue from blockchain infrastructure staking activities through NodeOps $ 485,340 $ 334,654 $ 381,958 $ 339,291 $ 262,972 Total revenue from block-building through Builder+ 75,852 404,503 1,939,825 1,349,644 2,509,226 Total revenue $ 561,192 $ 739,157 $ 2,321,783 $ 1,688,935 $ 2,772,198 The tables below detail the fair market value of BTCS’s quarterly crypto assets earned as revenue in each respective segment during the following calendar quarters: Revenue from blockchain infrastructure staking activities through NodeOps Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) $ 241,588 $ 180,487 $ 182,289 $ 186,195 $ 148,351 Cosmos (ATOM) 104,580 69,534 95,552 84,850 74,636 Solana (SOL) * 21,353 14,414 11,071 20,603 14,184 Axie Infinity (AXS) * 36,379 29,236 37,711 18,523 11,953 Akash (AKT) 26,740 17,763 18,043 11,835 3,367 NEAR Protocol (NEAR) 12,500 8,802 10,733 7,472 3,826 Avalanche (AVAX) * 18,491 - 20,764 6,405 4,917 Kava (KAVA) 4,305 2,508 3,198 3,245 1,738 Stader (SD) * - - - 89 - Rocket Pool (RPL) * - - 170 34 - Polkadot (DOT) * 2,619 1,980 465 40 - Kusama (KSM) * 8,108 5,782 1,382 - - Polygon (POL) * 3,758 2,716 523 - - Tezos (XTZ) * 338 419 57 - - Cardano (ADA) * 837 628 - - - Mina (MINA) 2,439 319 - - - Evmos (EVMOS) * 269 66 - - - Oasis Network (ROSE) 1,036 - - - - Total revenue from blockchain infrastructure staking activities through NodeOps $ 485,340 $ 334,654 $ 381,958 $ 339,291 $ 262,972 * All or a portion of revenue earned from staking to third-party validator nodes Revenue from block building through Builder+ Asset 2024 Q2 2024 Q3 2024 Q4 2025 Q1 2025 Q2 Ethereum (ETH) $ 75,852 $ 404,503 $ 1,939,825 $ 1,349,644 $ 2,101,709 BNB Chain (BNB) - - - - 407,517 Total revenue from block-building through Builder+ $ 75,852 $ 404,503 $ 1,939,825 $ 1,349,644 $ 2,509,226 33 Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024 The following tables reflect our operating results for the three and six months ended June 30, 2025 and 2024: For the Three Months Ended June 30, $ Change % Change 2025 2024 2025 2025 Revenues Blockchain infrastructure revenues $ 2,772,198 $ 561,192 $ 2,211,006 394 % Total revenues 2,772,198 561,192 2,211,006 394 % Cost of revenues Blockchain infrastructure costs 2,853,133 168,848 $ 2,684,285 1,590 % Gross profit (80,935 ) 392,344 (473,279 ) (121 )% Operating expenses: General and administrative 659,645 538,956 $ 120,689 22 % Research and development 193,543 163,777 29,766 18 % Compensation and related expenses 793,400 875,491 (82,091 ) (9 )% Marketing 22,861 28,477 (5,616 ) (20 )% Realized (gains) losses on crypto asset transactions 2,777,620 (287,327 ) 3,064,947 (1,067 )% Total operating expenses 4,447,069 1,319,374 3,127,695 237 % Other income (expenses): Interest income 3,569 - 3,569 100 % Interest expense (221,894 ) - (221,894 ) 100 % Change in unrealized appreciation (depreciation) of crypto assets 8,793,161 (5,943,339 ) $ 14,736,500 (248 )% Change in fair value of warrant liabilities (165,300 ) 142,500 (307,800 ) (216 )% Total other income (expenses) 8,409,536 (5,800,839 ) 14,210,375 (245 )% Net income (loss) $ 3,881,532 $ (6,727,869 ) $ 10,609,401 (158 )% For the Six Months Ended June 30, $ Change % Change 2025 2024 2025 2025 Revenues Validator revenue $ 4,461,133 $ 1,012,578 $ 3,448,555 341 % Total revenues 4,461,133 1,012,578 3,448,555 341 % Cost of revenues Validator expense 4,421,792 329,473 4,092,319 1,242 % Gross profit 39,341 683,105 (643,764 ) (94 )% Operating expenses: General and administrative $ 1,218,033 $ 1,026,555 $ 191,478 19 % Research and development 402,794 310,326 92,468 30 % Compensation and related expenses 1,481,602 1,331,270 150,332 11 % Marketing 268,033 86,079 181,954 211 % Realized (gains) losses on crypto asset transactions 4,159,908 (298,014 ) 4,457,922 (1,496 )% Total operating expenses 7,530,370 2,456,216 5,074,154 207 % Other income (expenses): Interest income 3,569 - 3,569 100 % Interest expense (221,894 ) - (221,894 ) 100 % Change in unrealized appreciation (depreciation) of crypto assets (5,737,661 ) 7,159,328 (12,896,989 ) (180 )% Change in fair value of warrant liabilities 59,850 142,500 (82,650 ) (58 )% Total other income (expenses) (5,896,136 ) 7,301,828 (13,197,964 ) (181 )% Net income (loss) $ (13,387,165 ) $ 5,528,717 (18,915,882 ) (342 )% 34 Revenues Revenue for the 2025 Quarter increased to approximately $2,772,000 compared to approximately $561,000 in the 2024 Quarter. The increase was primarily attributable to the continued expansion of our Builder+ operations, which focus on block-building activities across Ethereum and Binance Smart Chain (BSC). During the 2025 Quarter, Builder+ operations contributed approximately $2,509,000 of total revenue, while our NodeOps business contributed approximately $263,000. The significant year-over-year increase in revenue reflects the continued scaling of our Builder+ operations and the commencement of Binance Smart Chain (BSC) block building, which together resulted in a substantial increase in block rewards earned during the period. Block building on BSC contributed approximately $408,000, representing approximately 16% of Builder+ revenue and 15% of overall revenue for the 2025 Quarter. For the 2025 Period, revenue increased to approximately $4,461,000 from approximately $1,013,000 in the 2024 Period, driven by the same factors described above. While we anticipate continued growth in both the number of block rewards and staking rewards earned due to scaling of staked ETH, the fair value of such rewards may fluctuate due to the inherent volatility of crypto asset markets. As a result, the amount of revenue recognized in future periods may be materially impacted by market price movements of the underlying crypto assets at the time of reward receipt or recognition. Cost of Revenues Cost of revenues increased during the 2025 Quarter and 2025 Period, primarily due to higher Validator Payments made to external parties to secure block space as part of our block-building activities under Builder+. Validator Payments totaled approximately $2,813,000 during the 2025 Quarter and approximately $4,293,000 during the 2025 Period. These costs are partially offset by the efficiencies realized in our blockchain infrastructure validating operating costs, including streamlining of infrastructure hosting fees and reduction of services provided by vendors. As we continue to expand block-building operations and increase block production, we expect cost of revenues to rise correspondingly. During the 2025 Quarter, we incurred negative gross margins, as the losses from Builder+ activities outweighed the positive gross margins from our high-margin NodeOps operations. Costs may grow at a greater rate than revenue, particularly in periods of aggressive expansion, which could further pressure gross margins. Operating Expenses General and Administrative Expenses General and administrative expenses increased during the 2025 Quarter and 2025 Period compared to the corresponding periods in 2024. The increase was primarily attributable to higher payments for order flow associated with supporting block-building activities, expanded investor relations services, and higher accounting fees, including increases in audit fees. The growth in general and administrative expenses reflects the Company’s ongoing investment in operational infrastructure to support Builder+ activities and broader public company compliance efforts. We expect general and administrative expenses to fluctuate based on business needs, with potential increases in audit fees as well as order flow costs as operations continue to scale. Research and Development Expenses Research and development expenses increased during the 2025 Quarter and 2025 Period compared to the prior-year periods, primarily due to continued investment in Builder+ strategies and development. The primary focus of research and development activities remained centered on enhancing Builder+ operations, including the commencement of block building on Binance Smart Chain (BSC) during the 2025 Quarter. We expect research and development costs to remain consistent or moderately increase in future periods, with an emphasis on disciplined cost management, particularly for third-party development services. 35 Compensation and Related Expenses Compensation and related expenses decreased during the 2025 Quarter but increased during the 2025 Period compared to the prior-year periods. The decrease in the Quarter was primarily attributable to timing differences in performance-based bonus accruals, while the increase in the Period reflects the addition of employee headcount and accruals for estimated performance-based bonuses tied to operational and financial milestones. The Company continues to rely on non-cash equity-based compensation as a core element of its overall compensation strategy, and we expect total compensation costs to increase in future periods as additional personnel are added and as further accruals for performance-based incentives are recognized. Marketing Expenses Marketing expenses increased during the 2025 Period compared to the 2024 Period, primarily due to expanded advertising campaigns and promotional activities aimed at enhancing brand visibility and supporting business development initiatives. The Company expects that marketing spend will remain at current or higher levels in future periods, in line with strategic growth objectives and broader customer engagement efforts. Realized Losses on Crypto Asset Transactions Realized losses on crypto asset transactions during the 2025 Quarter and 2025 Period were primarily driven by the sale of non-ETH crypto asset holdings, which the Company had held with long-standing unrealized losses that were recognized upon sale. These transactions reflect the Company’s strategic exit from its non-core related operations and holdings. Additional realized gains or losses may be recognized in future periods based on the timing and pricing of crypto asset sales to support operational or liquidity needs. Other Income (Expenses) Interest Income Other income (expense) for the 2025 Quarter and 2025 Period was primarily impacted by changes in the fair value of the Company’s crypto assets and warrant liabilities. Interest income earned on ETH deposited as collateral on the Aave DeFi lending protocol was a new source of other income during the 2025 Quarter. While the impact of interest income was not significant for the 2025 Quarter, we anticipate it to increase in future periods as we increase the amount of ETH deposited as collateral in connection with our planned expanded leverage on DeFi protocol lending. Interest Expense Interest expense during the 2025 Quarter and 2025 Period reflects interest accrued on borrowings under the Aave DeFi lending protocol, as well as interest incurred in connection with the issuance of the May 2025 convertible note. This includes both cash interest paid and the amortization of debt discount over the term of the convertible note. We expect interest expense to increase significantly in future periods as we continue to utilize decentralized borrowings through platforms such as Aave, and as a result of the issuance of an additional $10,000,000 convertible note in July 2025 with terms similar to the May 2025 note. Change in unrealized appreciation (depreciation) of crypto assets The recognition of unrealized depreciation of crypto assets during the 2025 Period, compared to unrealized appreciation during the 2024 Period, contributed significantly to the year-over-year change. These fluctuations reflect movements in the fair market value of the Company’s crypto asset holdings, which are directly influenced by the volatility of crypto markets. Market volatility remains difficult to predict and can materially affect the value of assets reported on our balance sheet and the related effects on our results of operations. Change in fair value of warrant liabilities Additionally, the decrease in the fair value of warrant liabilities during the 2025 Period contributed to a reduction in non-cash expense. The valuation of warrant liabilities is primarily influenced by changes in the Company’s stock price as of each reporting period end, which may fluctuate based on market conditions beyond management’s control. Net income (loss) Net income for the 2025 Quarter increased to approximately $3,882,000, compared to a net loss of approximately $6,728,000 in the 2024 Quarter, resulting in a year-over-year improvement of approximately $10,610,000. The improvement was primarily driven by the positive change in the fair value of the Company’s crypto asset holdings, as crypto markets experienced an uptick during the 2025 Quarter. This resulted in significant unrealized gains on crypto assets, contributing substantially to the net income. Despite this quarterly gain, the Company reported a net loss of approximately $13,387,000 for the 2025 Period, compared to net income of approximately $5,529,000 in the 2024 Period. The six-month loss reflects a carryover of unrealized depreciation recorded in the first quarter of 2025, when markets experienced notable weakness. In addition, realized losses on the sale of several non-ETH crypto asset holdings contributed to the year-to-date net loss. Operating expenses also increased meaningfully, led by higher compensation costs, including increased performance bonus accruals tied to revenue growth and asset values, and a rise in marketing spend to support strategic growth initiatives. Net income (loss) may continue to fluctuate significantly due to the volatility in the crypto asset markets, impacting changes in the fair value of crypto assets during future reporting periods. 36 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, shares of its Common Stock through H.C. Wainwright, subject to the availability of an effective registration statement on Form S-3. The initial ATM sales were conducted under a $100,000,000 shelf registration statement that became effective in September 2021. On October 4, 2024, a new Form S-3 registration statement became effective, increasing the total amount of securities that may be offered and sold under the Company’s shelf registration to $250,000,000. As of the date of this report, there was approximately $104,341,000 available for sale under this Form S-3 registration statement. On July 22, 2025, the Company entered into an amendment to its engagement with H.C. Wainwright in connection with a new Form S-3 registration statement filed on July 23, 2025, to register up to $2,000,000,000 of securities for future issuance (the “New Registration Statement”). The New Registration Statement was approved by the SEC and declared effective on August 1, 2025. As of the date of this report, the Company had not sold any securities under the New Registration Statement. From September 14, 2021 through August 12, 2025, the Company sold a total of 32,762,523 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $163,597,000 at an average selling price of $4.99 per share, resulting in net proceeds of approximately $158,539,000 after deducting commissions and other transaction costs. DeFi Borrowing (Aave) From April 2025 through August 12, 2025, the Company borrowed a total of approximately $52,947,000 in USDT through Aave, a decentralized finance protocol, using Ethereum (ETH) as collateral, and repaid approximately $1,447,000 during the same period. As of August 12, 2025, the Company had approximately $51,702,000 in outstanding borrowings, inclusive of accrued interest, collateralized by approximately 38,400 ETH with a fair market value of approximately $176,062,000, based on the ETH closing price of $4,584 on that date. Borrowings accrue interest at variable rates determined by Aave’s on-chain smart contracts, which adjust dynamically based on protocol liquidity and market demand. ETH collateral posted also accrues variable interest. These rates are published and updated in real-time at aave.com, and the net cost of capital may fluctuate based on protocol-level market conditions. Convertible Notes Payable In May 2025, the Company completed a private placement of Senior Secured Convertible Notes in the aggregate principal amount of approximately $7.8 million, for net cash proceeds of approximately $7.3 million. In connection with the offering, the Company also issued approximately 1.9 million five-year warrants, exercisable at $2.75 per share. The Notes mature in May 2027, bear interest at a rate of 6% per annum, and are convertible into shares of Common Stock at a conversion price of $5.85 per share. In July 2025, the Company entered into an additional private placement of Senior Secured Convertible Notes in the aggregate principal amount of approximately $10.0 million, for net cash proceeds of approximately $9.5 million. In connection with the offering, the Company agreed to issue approximately 879,000 five-year warrants, exercisable at $8.00 per share. The Notes mature in July 2027, bear interest at 6% per annum, and are convertible into shares of Common Stock at a conversion price of $13.00 per share. The Company intends to use the proceeds from both offerings primarily to accelerate the accumulation of Ethereum (ETH), expand operational capacity, and support the continued expansion of its blockchain infrastructure operations. Liquidit y The Company’s consolidated 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 sufficient funds to support its current and future operations, satisfy its obligations as they come due, and otherwise operate on an ongoing basis. As of June 30, 2025, the Company had approximately $639,000 of cash and working capital of approximately $35,514,000. As of August 12, 2025, subsequent to the financing described below, the Company had approximately $4,211,000 of cash and cash equivalents, and the fair market value of the Company’s crypto assets was approximately $323,043,000. As of August 12, 2025, the Company had total debt obligations of approximately $69,563,000, consisting of approximately $51,702,000 under its lending arrangement with Aave Protocol and approximately $17,861,000 convertible notes payable. The Company believes that its existing cash and crypto assets, together with the proceeds from the convertible note financing and the ability to raise additional funds through its ATM Agreement, provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures, strategic funding needs, and contractual obligations for at least the next twelve months from the filing date of this report. This assessment is based on current market conditions, regulatory environment, and the Company’s operational plans, all of which are subject to change. 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 to liquidate to the extent desired, which could materially impact our liquidity position. Additionally, technical issues, network congestion, or regulatory changes could further restrict our ability to access or liquidate these assets. Lock-up periods for our staked crypto assets range from several hours to 30 days. During times of instability in the cryptocurrency markets, the Company may not be able to sell its crypto assets at prices reflecting their perceived value or at all, which could result in substantial losses given the historical volatility of cryptocurrency prices. 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. 37 Cash Flows Cash Used in Operating Activities Cash used in operating activities was approximately $3,236,000 during the 2025 Period, compared to approximately $1,693,000 for the 2024 Period. Significant non-cash adjustments impacting operating cash flows included: ● Positive Adjustments: ○ Approximately $3,845,000 of stock-based compensation, primarily reflecting the issuance of equity-based awards to employees, including performance-based grants. ○ Approximately $4,302,000 of Validator Payments made in native crypto asset tokens as part of our block-building operations. ○ Approximately $5,738,000 of unrealized depreciation of crypto asset holdings due to price volatility. ○ Approximately $4,160,000 of realized losses from crypto asset sales, primarily related to the liquidation of non-core crypto asset holdings. ● Negative Adjustments: ○ Approximately $4,461,000 in revenue earned in native crypto assets, which does not generate immediate cash inflows. ○ Approximately $3,286,000 reduction in accrued compensation, reflecting the payment of performance-based bonuses during the period. We expect non-cash adjustments such as Validator Payments and crypto-denominated revenue to continue growing as Builder+ operations scale across Ethereum and Binance Smart Chain. However, the magnitude of these adjustments will remain sensitive to market conditions and crypto asset price fluctuations. The use of performance-based equity compensation may continue, and given the Company’s recent fundraising efforts and operational scaling, the pace of such accruals could increase in future periods. Cash Used in Investing Activities Net cash used in investing activities was approximately $13,366,000 during the 2025 Period, compared to net cash provided by investing activities of approximately $531,000 in the 2024 Period. The 2025 activity primarily reflects the purchase of approximately $14,179,000 of crypto assets, including approximately $14,130,000 of Ethereum to support validator operations and the Company’s long-term accumulation strategy. The Company also invested $250,000 in a private blockchain-based technology company during the 2025 Period. These purchases were partially offset by proceeds of approximately $1,065,000 from sales of non-core productive crypto assets as we continue to streamline operations. We expect that purchases of ETH and other productive crypto assets will continue in future periods as the Company executes on its ETH treasury accumulation and validator scaling strategies. Cash Provided by Financing Activities Cash provided by financing activities was approximately $15,263,000 during the 2025 Period, compared to approximately $240,000 in the 2024 Period. Financing inflows during the 2025 Period were primarily driven by: ● Net proceeds of approximately $7,306,000 from the May 2025 issuance of senior secured convertible notes and related five-year warrants ● Net proceeds of approximately $4,079,000 from Common Stock sales under the Company’s At-the-Market (“ATM”) equity program. ● Net borrowings of approximately $4,000,000 in USDT via Aave, a decentralized finance (DeFi) lending protocol. The Company also paid debt issuance costs of approximately $123,000 during the 2025 Period. The Company anticipates future financing activity may include additional DeFi borrowings and capital raised through the ATM program or convertible instruments, aligned with its strategy to scale blockchain infrastructure operations and accumulate ETH. Off Balance Sheet Transactions As of June 30, 2025, 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, 2024, 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 - Summary of Significant Accounting Policies to the Unaudited Consolidated Condensed Financial Statements. 38 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, including statements regarding our liquidity, our growth strategy, our ability to generate scalable and efficient revenue, anticipated increases in our revenues and gross margins, and our 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: (i) the rewards and costs associated with staking or validating transactions on blockchains and successfully building blocks on Ethereum’s blockchain; (ii) regulatory issues related to our business model; (iii) fluctuations in the price of our crypto assets; (iv) potential decreases in the value of our crypto assets and rewards; (v) competition, (vi) risks related to the loss or theft of private withdrawal keys resulting in the complete loss of crypto assets and rewards; and (vii) other risks and uncertainties described in our filings with the SEC, including our Form 10-K for the year ended December 31, 2024. 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. 39 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk Not applicable.