UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20202021

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 000-55141

BTCS Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (202) 430-6576

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [  ] No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 8, 2020,11, 2021, there were 27,386,18457,123,458 shares of common stock, par value $0.001, issued and outstanding (giving effect to a 1-for-30 reverse stock split effected by the registrant on April 5, 2019).outstanding.

BTCS INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATIONBTCS INC.

As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc. and its consolidated subsidiaries, unless otherwise indicated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report, includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’sincluding in Management’s Discussion and Analysis of Financial Condition and PlanResults of Operation.”Operations, contains forward-looking statements including our liquidity and future business plans. Forward-looking statements also include statements in whichcan be identified by words such as “expect,“anticipates,” “anticipate,“intends,” “intend,“plans,” “plan,“seeks,” “believe,“believes,” “estimate,“estimates,” “consider” or“expects” and similar expressions are used.references to future periods.

Forward-looking statements are not guarantees ofbased on our current expectations and assumptions regarding our business, the economy and other future performance. They involveconditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks uncertainties and assumptions.changes in circumstances that are difficult to predict. Our futureactual results and shareholder values may differ materially from those expressed incontemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. ReadersThey are cautioned notneither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to put undue reliance on anydiffer materially from those in the forward-looking statements. Readers should review our risk factorsstatements are contained in our filings with the Securities and Exchange Commission (“SEC”)SEC, including our 2019 Annual Report on Form 10-K for the year ended December 31, 2020 and our Prospectus filed with the SEC on March 23, 2020.February 16, 2021. 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.

PART I - FINANCIAL INFORMATION

ITEM 1 Financial Statements

BTCS Inc.

Condensed Balance Sheets

The accompanying notes are an integral part of these unaudited condensed financial statements.

BTCS Inc.

Condensed Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

BTCS Inc.

Statements of Changes in Stockholders’ Deficit(Deficit) Equity

(Unaudited)

For the Three Months Ended March 31, 20202021

For the Three Months Ended March 31, 20192020

The accompanying notes are an integral part of these unaudited condensed financial statements.

BTCS Inc.

Condensed Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

BTCS Inc.

Notes to Unaudited Condensed Financial Statements

Note 1 - Business Organization and Nature of Operations

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada corporation (the “Company”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online ecommerce marketplace where consumers cancould purchase merchandise using Digital Assets,digital assets, including bitcoin andbitcoin. The Company is currently focused on blockchain and digital currency ecosystems. In January 2015, the Company began a rebranding campaign using its BTCS.COM domain (shorthand for Blockchain Technology Consumer Solutions) to better reflect its broadened strategy. The Company released its new website which included broader information on its strategy. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining, though in mid-2016 we ceased our transaction verification servicesmining operation at our North Carolina facility due to capital constraints. In January 2015, the Company began a rebranding campaign using its BTCS.com domain to better reflect its broadened strategy. The Company recently released its new website which included broader information on its strategy.

Subject to additional financing,In the first quarter of 2021, the Company plansresumed its blockchain infrastructure operations (previously referred to acquire additional Digital Assetsas transaction verification services) with a focus on securing proof-of-stake blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by processing and validating transactions on that blockchain. The Company is developing a proprietary staking-as-a-service platform that would enable clients to provide investorsstake and delegate supported cryptocurrencies through a non-custodial platform.

The Company is also developing a proprietary digital asset data analytics platform aimed at enabling users to aggregate their 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.

The Company employs a digital asset treasury strategy with indirect ownership of Digital Assets that are not securities,a primary focus on disruptive non-security protocol layer assets such as bitcoin and ether.ethereum. The Company intends to acquire Digital Assetsreceives digital assets from its blockchain infrastructure solutions business and acquires digital assets through open market purchases. We areThe Company is not limiting ourits assets to a single type of Digital Assetdigital asset and may purchasehold a variety of Digital Assets that appear to benefit our investors, subject to the certain limitations regarding Digital Securities. The Company is also seeking to acquire controlling interests in businesses in the blockchain industry.

The Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be) limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered initial coin offerings.digital assets. The Company will carefully review its purchases of Digital Securitiesdigital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

Digital asset blockchains are typically maintained by a network of participants which run servers which secure their blockchain.

The Company is also internally developing a digital asset data analytics platform to provide information to users, such as tracking of multiple exchanges and wallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications.

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.

Note 2 - Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management, reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2019.2020.

Note 3 - Liquidity, Financial Condition and Management’s Plans

The Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations since inception using proceeds received from capital contributions made by itsinvestments from third-party investors as well as from officers and proceeds in financing transactions.

Notwithstanding, the Company has limited revenues, limited capital resources and is subject to alldirectors of the risks and uncertainties that are typical of an early stage enterprise. Significant uncertainties include, among others, whether the Company will be able to raise the capital it needs to finance its longer-term operations and whether such operations, if launched, will enable the Company to sustain operations as a profitable enterprise.Company.

BTCS Inc.

Notes to Unaudited Condensed Financial Statements

Our working capital needs are influenced by our levelDuring the first quarter of operations, and generally decrease with higher levels of revenue. The2021, the Company used approximately $0.3 million of cash in its operating activities for the three months ended March 31, 2020. The Company incurred $0.4 millionreceived net loss for the three months ended March 31, 2020. The Company had cashproceeds of approximately $0.3$13.3 million from the issuance of a convertible note, issuances of common stock and a negative working capitalwarrants, and the issuance of approximately $0.1 million at March 31, 2020. TheSeries C-2 convertible preferred stock. Therefore, the Company expects to incur losses into the foreseeable future as it undertakes its efforts to execute its business plans.

The Company will require significant additional capital to sustain its short-term operations and make the investments it needs to execute its longer-term business plan. The Company’s existing liquidity is not sufficienthas adequate cash to fund its operations and anticipated capital expenditures for at least the foreseeable future. The Company is currently seeking to obtain additional equity financing, primarily through the Equity Line Purchase Agreement with Cavalry and seeking to obtain additional equity linked debt financing, however there are currently no other commitments of debt or equity in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all.next twelve months.

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the accompanying financial statements to reflect the potential effects on the recoverability and classification of assets or liabilities should the Company be unable to continue as a going concern.

The Company continues to incur ongoing administrative and other operating expenses, including public company expenses, in excess of revenues. While the Company continues to implement its business strategy, it intends to finance its activities by:

Note 4 - Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 20192020 Annual Report.

Staking Revenue

The Company runs its own digital asset validating nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of processing and validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is canceled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for validating transactions and staking the cryptocurrency, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain.

The provision of processing and validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives, the fixed cryptocurrency awards, is noncash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete and the awards are available for transfer. At that point, revenue is recognized.

Cost of revenue

The Company’s cost of revenue consists primarily of direct production costs related to the operations of processing and validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.

Digital Assets Translations and Remeasurements

Digital Assetsassets are included in the balance sheets as either current assets in the balance sheets.or other assets if they are staked and locked up for over one year. Digital Assetsassets are recorded at cost less impairment.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Realized gain (loss) on sale of Digital Assetsdigital assets are included in other income (expense) in the statements of operations. We assign costs to transactions on a first-in, first-out basis.

The Company assesses impairment of Digital Assetsdigital assets quarterly if the fair value of digital assets is less than its cost basis. The Company recognizes impairment losses on Digital Assetsdigital assets caused by decreases in fair value using the averagelowest U.S. dollar spot price of the related Digital Assetdigital asset as of each impairment date. Such impairment in the value of Digital Assetsdigital assets are recorded as a component of costs and expenses in our statements of operations.

Internally Developed Software

Internally developed software consisting of the core technology of the Company’s digital asset data analytics platform which is being designed to allow user to aggregate and analyze data from digital asset exchanges. For internally developed software, the Company uses both its own employees as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

ASC 985-20, Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. Some companies use a “tested working model” approach to establishing technological feasibility (i.e., beta version). Under this approach, software under development will pass the technological feasibility milestone when the Company has completed a version that contains essentially all the functionality and features of the final version and has tested the version to ensure that it works as expected.

ASC 350, Intangibles-Goodwill and Other, requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary project stage is complete, (ii) management with the relevant authority authorizes and commits to the funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended.

Use of Estimates

The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-livedintangible assets, stock-based compensation, the valuation of derivative liabilities, the valuation of convertible preferred stock and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, if any, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Stock-based compensation

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a one-year period.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

BTCS Inc.Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

Convertible Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.

The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date.

Beneficial Conversion Feature of Convertible Notes Payable

The Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to Unaudited Condensed Financial Statementsthe issuance of a convertible note when issued.

The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

Net Loss per Share

Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s convertible preferred stock, convertible notes and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, notes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

The following financial instruments were not included in the diluted loss per share calculation as of March 31, 20202021 and 20192020 because their effect was anti-dilutive:

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting standards Update (“ASU”)ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Note 5 - Note Payable

2020 December Promissory Note

On November 7, 2019,December 16, 2020, the Company issued Cavalry Fund I LP (“Cavalry”) a $200,000$1,000,000 promissory note (the “2019“2020 December Promissory Note”). in consideration for $1,000,000. The 20192020 December Promissory Note is (i) due on August 7, 2020 and is: (i)October 16, 2021, (ii) convertible at a 20%35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.02$0.04 per share (ii)and (iii) shall bear interest at 12% per annum (payable at maturity) and in the event of default bears interest at a rate of 20%, (iii) convertible at the Company’s option subject. Subject to certain limitations, as set forth in the 2019Company may force conversion of the 2020 December Promissory Note. In connection with issuance of the 2020 December Promissory Note, and (iv) may be prepaid bythe Company issued a Series C warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.20, the Series C warrants were exercised for cash on January 15, 2021, resulting in proceeds of $400,000 to the Company.

During the yearthree months ended DecemberMarch 31, 2019,2021, the Company recorded approximately $10,000 in interest expense related to amortization on debt discount related toof approximately $29,589 for the 20192020 December Promissory Note. As of DecemberMarch 31, 2019,2021, the Convertible Note had principal balance of $0.2the 2020 December Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $35,000.

During the three months ended March 31, 2021, the Company recorded approximately $315,000 amortization of debt discount related to the 2020 December Promissory Note.

2021 Promissory Note

On January 15, 2021, the Company issued Calvary the 2021 Promissory Note in consideration for $1,000,000. The 2021 Promissory Note is (i) due on November 15, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.75 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2021 Promissory Note.

In connection with issuance of the Note, the Company issued a Series D warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $2.16 per share (the “Warrant”). Detachable warrants issued in a bundled transaction with debt and equity offerings are accounted for on a separate basis. The allocation of the issuance proceeds to the base instrument and to the warrants depends on the accounting classification of the separate warrant as equity or liability. If the warrants are classified as equity, then the allocation is made based upon the relative fair values of the base instrument and the warrants following the guidance in ASC 470-20-25-2. In this case, the Warrant is equity-classified, with the fair value at issuance was approximately $3,580,000. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the 2021 Promissory Note of approximately $4,000 and approximately $40,000 remaining unamortized debt discount. $782,000 with a corresponding credit to additional paid-in capital.

In addition, the Convertible2021 Promissory Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the Convertible2021 Promissory Note was convertible into 2,173,913705,716 shares of common stock at $0.09$1.41 per share, but the Company’s fair value of underlying common stock was $0.12$2.18 per share. As such, the Company recognized a beneficial conversion feature, resulting in aan additional discount to the Notes2021 Promissory Note of approximately $50,000$218,000 with a corresponding credit to additional paid-in capital. During the three months ended March 31, 2020, the Company recorded approximately $17,000 in interest expense related to amortization on debt discount related to the 2019 Promissory Note.

During the three months ended March 31, 2020,2021, the Company recorded interest expense of approximately $6,000.$24,658 for the 2021 Promissory Note. As of March 31, 2020,2021, the principal balance of the 20192021 Promissory Note was $0.2$1 million and accrued interest on the note payable amounted to approximately $9,000.

$25,000.

BTCS Inc.

NotesDuring the three months ended March 31, 2021, the Company recorded approximately $247,000 amortization of debt discount related to Unaudited Condensed Financial Statementsthe 2021 Promissory Note.

Note 6 - Stockholders’ Equity

Preferred Stock

The Company is authorized to issue up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders.

On September 5, 2019,January 1, 2021, members of the Company’s management subscribed for 1,100,000 shares of the Company’s to be designated Series C-2 Convertible Preferred Stock (the “Series C-2”), for a total of $1,100,000 at $1.00 per Share of Series C-2. The Company obtained an independent valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the fair value and the proceeds received.

The Series C-2 is not mandatorily redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate of Designation required that the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking shareholder ratification of the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month anniversary of the Initial Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107% of (i) the Stated Value per share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the SEC prior to the Vote Deadline but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline shall be extended until such time as the vote is conducted. The Series C-2 holders were not entitled to vote on the ratification. The call provision would have been automatically triggered if the ratification of the issuance was not approved in a special meeting of stockholders prior to the twelve-month anniversary of the Initial Issuance Date. The Company held the meeting within the required period and the Series C-2 is no longer redeemable.

Based on the guidance in ASC 480-10-S99 (“ASR 268”), a redeemable equity instrument is not to be included in permanent equity. Rather, it should be reported between long-term debt and stockholders’ equity, without a subtotal that might imply it is a part of stockholders’ equity (i.e., “temporary equity” or “mezzanine capital”). ASR 268 specifies that redeemable stock is any type of equity security, including common or preferred stock, when it has any condition for redemption which is not solely within the control of the issuer without regard to probability.

The Series C-2 Certificate of Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote Deadline. Stockholder approval was not considered to be “solely within the Company’s control.” Stockholder approval occurred on March 31, 2021, at which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially classified in temporary equity under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021.

The holders of Series C-2 shall be entitled to receive dividends or distributions on each share of Series C-2 on an “as converted” into Common Stock when and if dividends are declared on the Common Stock by the Board of Directors. Dividends shall be paid in cash or property, as determined by the Board of Directors.

At any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series C-2 held by such Holder into validly issued, fully paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneous with the Corporation’s Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $.17 which resulted in a beneficial conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date.

The Conversion Amount may be adjusted due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Corporation after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Corporation raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of March 31, 2021, $12,915,008 of Capital Raised triggered an adjustment to the Conversion Amount. The Company recognized the effect of the down-round protection when the capital raises occurred as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $4,822,220 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. As of March 31, 2021, the Series C-2 was convertible into 39,897,669 shares of common stock.

Common Stock

Issuance of Shares Pursuant to Equity Line of Credit Purchase Agreement

On January 28, 2021, the Company filed a second Registration Statementregistration statement on Form S-1 seeking to register 6,454,000 shares.4,000,000 shares (the “Registration Statement”). The second Registration Statement was declared effective by the SEC on December 20, 2019.February 1, 2021.

During the three months ended March 31, 2020,2021, the Company issued 6,186,6331,718,144 shares of Common Stockcommon stock (including 24,219117,545 pro-rata commitment shares) under the Purchase AgreementRegistration Statement pursuant to the equity line of credit purchase agreement with Cavalry (the “Equity Line”) resulting in aggregate net proceeds of $2,014,259 (net of $750 of transfer agent fees) and $2,015,008 in gross proceeds at a per share price of $1.173 (inclusive of the pro-rata commitment shares).

Issuance of Shares Pursuant to Registered Direct Offering

On March 4, 2021, the Company closed on a securities purchase agreement (the “Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 9,500,000 shares of the Company’s common stock, at a purchase price per share of $1.00 and immediately exercisable five-year warrants to purchase 7,125,000 shares of common stock at an exercise price of $1.15 per share (the “Warrants” and together with the common stock, the “Securities”). The gross proceeds from the offering was $9.5 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company, and the net proceeds were $8.9 million.

The Purchase Agreement contains representations, warranties, indemnification and other provisions customary for transactions of this nature. Pursuant to the Purchase Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed not to, and not to publicly disclose the intention to, sell or otherwise dispose of, any shares of common stock or any securities convertible into, or exchangeable or exercisable for, common stock, for a period ending 60 days after the date of the prospectus supplement for this offering.

The Company also entered into a placement agent agreement (the “PA Agreement”) with A.G.P./Alliance Global Partners (“AGP”), pursuant to which AGP agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors), and reimbursed the placement agent for its legal fees and other accountable expenses in the amount of $40,000.

Issuance of Shares Pursuant to Cash Exercise of Series C Warrants

On January 15, 2021, the Company issued 2,000,000 shares of the Company’s common stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise price of $400,000. Cavalry and the Company entered into an agreement whereby the Cavalry would exercise early for cash provided that the Company register the underlying shares of common stock within 30 days of exercise.

Issuance of Shares Due to Conversion of Series C-1 Preferred Stock

On March 30, 2021, the Company issued 196,094 shares of common stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion, there were no Series C-1 shares outstanding and the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series C-1.

Issuance of Restricted Stock to Service Providers

During the three months ended March 31, 2021, the Company issued to RedChip Companies Inc. and Launchnodes LTD, two service providers of the Company, 400,000 and 65,790 shares of restricted common stock respectively, with a total fair value of $0.5 million.

2021 Equity Incentive Plan

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021. The Company has reserved 20,000,000 shares of common stock for issuance pursuant to the 2021 Plan.

Options

On January 1, 2021, the Board of Directors of the Company approved the grant of 12 million stock options with an exercise price of $0.19 under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options: (i) 4.8 million options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones. The Company records compensation expense for stock options based on the estimated fair value of the options on the deemed grant date using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

The following weighted-average assumptions were used to estimate the fair value of options granted during:

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized.

A summary of option activity under the Company’s stock option plan for three months ended March 31, 2021 is presented below:

RSUs

On January 1, 2021, the Board of Directors of the Company approved 2.75 million restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of March 31, 2021, the restricted stock units remained unvested. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date.  Because the listing on a national securities exchange is not deemed probable of occurring until the event occurs, compensation cost measured on the deemed grant date will not be recognized until the listing actually occurs.

A summary of the Company’s restricted stock units granted under the 2021 Plan during the three months ended March 31, 2021 are as follows:

Stock Based Compensation

 Stock-based compensation expense for the three months ended March 31, 2021 was approximately $0.4$7.0 million, comprised of $59,000 for the issuance of restricted common stock to service providers not pursuant to the 2021 Plan and approximately $7.0 million in connection with options issued pursuant to the 2021 Plan. Unrecognized compensation expense for the Company’s was $5.2 million at March 31, 2021. $4.7 million of the unrecognized compensation expense is expected to be recognized on January 1, 2022, $0.3 million expected to be amortized through September 2022 and $0.1 million through February 2024. Share-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues.

Note 7 - Employee Benefit Plans

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. During the three months ended March 31, 2021, the Company made contributions to the 401(k) Plan of $39,000.

Note 78 - Subsequent Events

On April 6, 2020,1, 2021, the Company issued a total of 735,294its legal counsel 48,544 fully-vested shares of the Company’s Common Stock for the conversion of $50,000 of principal on the 2019 Promissory Note. 

On April 17, 2020, the Company issued Cavalry Fund I LP (the “Fund”) a $500,000 promissory note (the “2020 Promissory Note”) in consideration for $500,000. The Promissory Note is (i) due on February 17, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise withfor a floor price$50,000 pre-payment of $0.01 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations,legal fees.

On April 1, 2021, the Company may force conversionissued Kilwar LLC 13,637 fully-vested shares of the 2020 Promissory Note.Company’s common stock in connection with an Information Technology Services Agreement related to the development of its data analytics platform.

On May 7, 2020,6, 2021, the Company issued a total of 632,7361,169,632 shares of common stock (including 46,667 pro-rata commitment shares) pursuant to the Company’s Common Stock for the conversionEquity Line with Cavalry resulting in aggregate proceeds of the remaining $150,000 of principal and $2,000 of interest on the 2019 Promissory Note. $800,000.

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Prospectus filed with the SEC on March 23, 2020.February 16, 2021.

Overview

We are an early entrant in the Digital Assetdigital 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 blockchains by actively processing and validating blockchain transactions and are rewarded with digital assets. We are also developing a digital asset data analytics platform which allows users to consolidate crypto trades from multiple exchanges on a single platform. Digital assets are core to our corporate treasury strategy with a primary focus on disruptive non-security protocol layer assets.

Blockchain Infrastructure

Blockchain infrastructure solutions can broadly be involveddefined as earning a reward for securing a blockchain by processing and 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 infeasible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain.

With PoW, a miner does “work” using energy consuming computers and is rewarded for this “work” with Digital Assetsdigital assets. The miner, through nodes, is validating transactions on the blockchain, essentially converting electricity and block chain technologies. To our knowledge, wecomputing power into a digital currency reward comprised of transaction fees and newly minted digital assets. Bitcoin is an example of this and is by far the largest and most secure PoW blockchain.

With PoS, miners actively operate nodes and validate transactions and are onerequired to stake their holdings of a few public companies intendingdigital currency to acquire both Digital Assets and a controlling interest in one or more businessesparticipate in the Digital Assetconsensus algorithm such that bad behavior can be penalized by “slashing” the miners holdings and/or rewards. PoS requires less energy/electricity to be consumed and can give cryptocurrency holders who actively operate nodes and validate transactions a reward in the base cryptocurrency, provided that they “stake” their holdings. Miners who break the rules or fail to do the required “work” are penalized by “slashing,” their rewards or staked digital assets thus bad behavior among miners is discouraged and the blockchain industries.is maintained and secured. Cardano, Polkadot, and ethereum 2.0 are examples of PoS blockchains.

The Company actively operates 240 nodes on the ethereum beacon chain and plans to expand its PoS operations to secure other disruptive blockchain protocols. The Company is not currently securing PoW blockchains, such as bitcoin’s blockchain, but may in the future.

The Company is developing a proprietary staking-as-a-service platform to allow users to stake and delegate supported cryptocurrencies through a non-custodial platform.

Digital Asset InitiativesData Analytics Platform

SubjectWe are also developing a proprietary digital asset data analytics platform aimed at enabling users to additional financing,aggregate their 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. As a result of the pandemic, we have experienced delays in the development of the platform, however, on April 1, 2021 we engaged an information technology service provider to assist with the further development and acceleration of the platform.

Digital Asset Treasury Strategy

The Company plans to acquire additional Digital Assets to provide investorsemploys a digital asset treasury strategy with indirect ownership of Digital Assets that are not securities,a primary focus on disruptive non-security protocol layer assets such as bitcoin and ether.ethereum. The Company intends to acquire Digital Assetsreceives digital assets from its blockchain infrastructure solutions business and acquires digital assets through open market purchases. We areThe Company is not limiting ourits assets to a single type of Digital Assetdigital asset and may purchasehold a variety of Digital Assets that appear to benefit our investors, subject to the limitations contained within this report regarding Digital Securities. As of May 8, 2020, the Company had the following Digital Assets:

The Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be) limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered initial coin offerings.digital assets. The Company will carefully review its purchases of Digital Securitiesdigital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

The following tables reflect our digital assets held and their fair market values at period end:

* 7,724.5 ETH is staked on ethereum’s 2.0 beacon chain and the remaining approximately 9 ETH is not staked.

As of May 11, 2021 the fair market value of our digital assets was $37.7 million.

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.

Digital Asset Data Analytics PlatformNon-GAAP financial measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance and the economic realities of our business specifically, but not limited to, the accounting for digital assets. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense (including stock-based compensation issued to service providers), which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

We are also focused on Digital Assetscalculate Adjusted EBITDA as net income (loss), adjusted to exclude, depreciation and blockchain technologies. We are currently internally developing aamortization, interest expense, stock-based compensation expense (including stock-based compensation issued to service providers), and impairment of intangible digital asset data analytics platform aimed at aggregating users’ information, such as tracking of multiple exchanges and wallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications. The platform utilizes digital asset exchange APIs to read user data and does not allow for the trading of assets.

Acquisition InitiativesThe following table provides a reconciliation of net income (loss) to Adjusted EBITDA:

The Company is also seeking to acquire controlling interests in businesses in the blockchain industry as further described in this report. We plan to continue to evaluate other strategic opportunities including acquiring controlling interests in business in this rapidly evolving sector in an effort to enhance shareholder value.

Even though the prices of Digital Assets have been subject to substantial volatility and there remains some regulatory uncertainty, we believe that businesses using blockchain technology and those involved with Digital Assets such as bitcoin and ether, offer upside opportunity and are the types of opportunities that we may pursue.

Our current framework or criteria is to seek and evaluate acquisition targets in the blockchain and Digital Asset sector which (i) align with our business model of acquiring Digital Assets or acquiring a controlling interest in one or more blockchain technology related business ventures, and (ii) have sufficient capital to provide working capital. As disclosed in this report we have limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may help us sustain our operations without having us rely on toxic funding structures. Our acquisition activities are spearheaded by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, one of our independent directors who is also seeking acquisition targets on behalf of the Company.

We also monitor blockchain networks and may consider re-entering the digital asset mining business if and when we believe a positive return on investment is achievable. However, given the current network difficulties and price levels to mine both bitcoin and ethereum we do not believe mining offers a positive return on investment at present and have no immediate plans to resume mining.

Going Concern

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, our independent auditors have indicated in their report on our December 31, 2019 financial statements that there is substantial doubt about our ability to continue as a going concern.

The continuation of our business is dependent upon us raising additional funds. The issuance of additional equity or convertible debt securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of capital raises. While we continue to implement our business strategy, we intend to finance our activities through:

Results of Operations for the Three Months Ended March 31, 20202021 and 20192020

The following table reflects our operating results for the three months ended March 31, 20202021 and 2019:2020:

Revenue

Revenue for the three months ended March 31, 2021 and 2020 were approximately $73,000 and $0, respectively. The increase is from our blockchain infrastructure solutions staking revenue.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2021 and 2020 were approximately $15,000 and $0, respectively. The increase is from our blockchain infrastructure staking operating costs, including, web service hosting fees, and cash and stock-based compensation related to services provided by vendor.

Operating Expenses

Operating expenses for the three months ended March 31, 20202021 and 20192020 were approximately $8.0 million and $0.3 million.million, respectively. The increase is primarily from stock compensation granted to employees and our non-employee director. The equity compensation was not valued based on the Company’s stock price of $0.19, the last closing date prior to the date of issuance of January 1, 2021 but instead, in accordance with GAAP, valued as of March 31, 2021 (the date the Company received stockholder ratification). On that date, the Company’s stock price was $1.03 which caused the significant corresponding stock compensation expense.

Other ExpenseIncome (Expenses)

Other expenseincome (expenses) for the three months ended March 31, 2021 and 2020 was approximately $1.1 million and 2019 was $97,000 and $6,000,$(0.1) million, respectively. The increasedecrease in other expenseexpenses is primarily relatesdue to increase in interest expense anda $3.1 million realized gain on digital asset/currency transactions, partially offset by $1.3 million impairment loss on digital currencies.assets/currencies and $0.6 million amortization of debt discount and interest expense on our convertible notes.

Net loss

Net loss for the three months ended March 31, 2021 and 2020 was approximately $6.8 million and $0.4 million, respectively. The increase is primarily due to increase of operating expenses as discussed above.

Net loss attributable to common stockholders

We incurred approximately $32,000 and $0 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, and $95,708$4.8 million and $0 of deemed dividenddividends related to reductionrecognition of warrant strike price duringanti-dilution adjustment to conversion amount for Series C-2 convertible preferred stock for the three months ended March 31, 20202021 and 2019,2020, respectively.

Liquidity and Capital Resources

Net Cash from Operating Activities

NetFor the three months ended March 31, 2021, net cash used in operating activities was $2.5 million, which was primarily driven by a $6.8 million net loss and $5.8 million purchase of non-productive digital currencies, $3.1 million realized gain on non-productive digital assets/currencies transaction, and partially offset by sale of non-productive digital assets/currencies of $4.3 million and impairment loss on digital currencies of $1.3 million and stock-based compensation of $7.5 million.

For the three months ended March 31, 2020, net cash used in operating activities was approximately $0.3 million, for the three months ended March 31, 2020. Net cash used in operating activities for the three months ended March 31, 2020which was primarily driven by a $0.4 million net loss and partially offset by impairment loss on digital currencies of $74,000.

Net cash used in operating activities was approximately $0.2 million forCash from Investing Activities

For the three months ended March 31, 2019. Net2021, net cash used in operatinginvesting activities was $8.0 million, which was from $8.0 million of purchase of productive digital assets/currencies for staking.

For the three months ended March 31, 2019 was primarily driven by a $0.3 million net loss and partially offset by changes in operating assets and liabilities of $55,000.2020, there were no investing activities.

Net Cash from Financing Activities

NetFor the three months ended March 31, 2021, net cash provided by financing activities was approximately $13.4 million, which was primarily driven by approximately $2.0 million aggregate proceeds from issuance of 1,718,144 shares of common stock under our Equity Line, $1.0 million proceeds from issuance of convertible notes, $8.9 million net proceeds from issuance of common stock and warrants for cash, $0.4 million from the cash exercise of Series C Warrants, and $1.1 million proceeds from issuance of Series C-2 convertible preferred stock.

For the three months ended March 31, 2020, net cash provided by financing activities was approximately $0.4 million, forwhich was related to the three months ended March 31, 2020. During the three months ended March 31, 2020, Company issuedissuance of 6,186,633 shares of Common Stock (including 24,219 pro-rata commitment shares)common stock under the Purchase AgreementEquity Line with Cavalry resulting in aggregate proceeds of approximately $0.4 million.Cavalry.

Liquidity

As of May 8, 2020,11, 2021, the Company had approximately $400,286$4.036 million of cash.

On March 31, 2020,2021, we had current assets of approximately $0.5$8.4 million, long term assets of $7.7 million, and current liabilities of approximately $0.6$0.8 million, rendering a negative working capital of approximately $0.1$7.6 million.

Our working capital needs are influenced by our levelDuring the first quarter of operations, and generally decrease with higher levels of revenue. The2021, the Company used approximately $0.3 million of cash in its operating activities for the three months ended March 31, 2020. The Company incurred a $0.4 million net loss for the three months ended March 31, 2020. The Company had cashreceived gross proceeds of approximately $0.3$13.0 million from the issuance of a convertible note, the issuance of common stock and negative working capitalwarrants, and the issuance of approximately $0.1 million at March 31, 2020. TheSeries C-2 convertible preferred stock. Therefore, the Company expects to incur losses into the foreseeable future as it undertakes its efforts to execute its business plans.

We will require significant additional capital to sustain short-term operations and make the investments needed to execute our longer-term business plan. Our existing liquidity is not sufficienthas adequate cash to fund operations and anticipated capital expenditures for the foreseeable future, and we do not have sufficient cash resources to support our currentits operations for at least the next 12 months, and will need additional funding, whether through our $10 million Purchase Agreement or other sources, to resume revenue generating activities. If we attempt to obtain additional debt or equity financing, we cannot provide assurance that such financing will be available to us on favorable terms, if at all. Additionally, if we are able to get a Registration Statement registering shares under the $10 million Purchase Agreement effective, we cannot provide assurance that i) we will be able to keep it current in order to sell shares under the agreement, or ii) that number of shares we are allowed to register pursuant to Rule 415 will generate sufficient proceeds to cover the cost of registering such shares.twelve months.

Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about our ability to continue as a going concern. The unaudited financial statements have been prepared assuming we will continue as a going concern. We have not made adjustments to the accompanying unaudited financial statements to reflect the potential effects on the recoverability and classification of assets or liabilities should we be unable to continue as a going concern.

We continue to incur ongoing administrative and other expenses, including public company expenses, primarily accounting and legal fees, in excess of corresponding (non-financing related) revenue. While we continue to implement its business strategy, it intends to finance its activities through:

Off Balance Sheet Transactions

We are not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

RECENT ACCOUNTING PRONOUNCEMENTS

For information on recent accounting pronouncements, see Note 4 to the Unaudited Condensed Financial Statements.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements including our liquidity and future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “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. Important factors that could cause actual results to differ materially from those in the forward-looking statements are contained in our filings with the SEC, including our 2019 Annual Report on Form 10-K filed with the SEC on March 23, 2020. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 20202021 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of March 31, 2020,2021, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weaknesses in our internal control over financial reporting:

On September 17, 2018, the Board of Directors of the Company concluded that due to ineffective controls we failed to follow GAAP in accounting for our digital assets. This failure arose from a material weakness which required us to restate our financial statements for the nine months ended September 30, 2018 as well as two other periods. Further, in April 2020, the Company received an oral comment from the Staff of the SEC regarding the classification of Digital Asset transactions as an Investing Activity in its Cash Flow Statement within the Company’s Form 10-K for the year ended December 31, 2019 (“Form 10-K). Prior to the filing of the Form 10-K, in response to a prior SEC comment, the Company agreed to include Digital Assets transactions in its future filings as an Operating Activity but failed to do so in the Form 10-K. The Company intends to amend the Form 10-K to reclassify Digital Asset transactions from an Investing Activity to an Operating Activity on the Cash Flow Statement. 

Remediation Plan

Remediation Plan

When we have sufficient capital resources, we intendWe are actively seeking to hire additional accounting staff, and operations and administrative executivesa full time Chief Financial Officer and remediate each of the weaknesses in our disclosure controls and internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 Legal Proceedings

None.

ITEM 1A Risk Factors

Not applicable to smaller reporting companies.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3 Defaults Upon Senior Securities

None.

ITEM 4 Mine Safety Disclosures

Not applicable.

ITEM 5 Other Information

None.

ITEM 6 Exhibits

The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BTCS Inc., 9466 Georgia Avenue #124, Silver Spring, MD 20910, Attention: Corporate Secretary.