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EX-32 - BTCS Inc.ex-32.htm
EX-31 - BTCS Inc.ex-31.htm

 

 

 

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, 2020

 

[  ] 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)

 

Nevada   90-1096644
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

9466 Georgia Avenue #124

Silver Spring, MD

  20910
(Address of principal executive offices)   (Zip Code)

 

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

 

 

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

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

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.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
Emerging growth company [   ]  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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, there were 27,386,184 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).

 

 

 

 

 

 

BTCS INC.

TABLE OF CONTENTS

 

    Page
     
PART I - FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements 4
     
  Condensed Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 4
     
  Condensed Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited) 5
     
  Condensed Statements of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 (unaudited) 6
     
  Condensed Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited) 7
     
  Notes to the Unaudited Condensed Financial Statements 8-11
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
     
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 15
     
ITEM 4 Controls and Procedures 15
     
PART II - OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 16
     
ITEM 1A Risk Factors 16
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 16
     
ITEM 3 Defaults Upon Senior Securities 16
     
ITEM 4 Mine Safety Disclosures 16
     
ITEM 5 Other Information 16
     
ITEM 6 Exhibits 16
     
  Signature 17

 

2

 

 

PART I - FINANCIAL INFORMATION

 

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’s Discussion and Analysis of Financial Condition and Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements. Readers should review our risk factors in our filings with the Securities and Exchange Commission (“SEC”) including our 2019 Annual Report on Form 10-K filed with the SEC on March 23, 2020.

 

3

 

 

ITEM 1 Financial Statements

 

BTCS Inc.

Condensed Balance Sheets

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
Assets:          
Current assets:          
Cash  $278,566   $143,098 
Digital currencies   178,478    252,903 
Prepaid expense   8,268    24,008 
Total current assets   465,312    420,009 
           
Other assets:          
Property and equipment, net   1,005    1,344 
Total other assets   1,005    1,344 
           
Total Assets  $466,317   $421,353 
           
Liabilities and Stockholders’ Deficit:          
Accounts payable and accrued expense  $23,351   $28,324 
Accrued compensation   407,526    416,935 
Convertible notes payable, net   176,460    159,854 
Total current liabilities   607,337    605,113 
           
Stockholders’ deficit:          
Preferred stock; 20,000,000 shares authorized at $0.001 par value:          
Series B Convertible Preferred stock: 0 shares issued and outstanding at March 31, 2020 and December 31, 2019; Liquidation preference $0.001 per share   -    - 
Series C-1 Convertible Preferred stock: 29,414 shares issued and outstanding at March 31, 2020 and December 31, 2019; Liquidation preference $0.001 per share   29    29 
Common stock, 975,000,000 shares authorized at $0.001 par value, 26,018,154 and 19,831,521 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   26,017    19,830 
Additional paid in capital   117,186,998    116,780,174 
Accumulated deficit   (117,354,064)   (116,983,793)
Total stockholders’ deficit   (141,020)   (183,760)
           
Total Liabilities and stockholders’ deficit  $466,317   $421,353 

 

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

 

4

 

 

BTCS Inc.

Condensed Statements of Operations

(Unaudited)

 

   Three Months Ended March 31, 
   2020   2019 
         
Operating expenses:          
General and administrative  $270,528   $251,964 
Marketing   2,690    535 
Total operating expenses   273,218    252,499 
           
Other expense:          
Interest expense   (22,628)   (6,000)
Impairment loss on digital currencies   (74,425)   - 
Total other expenses   (97,053)   (6,000)
           
Net loss  $(370,271)  $(258,499)
Deemed dividend related to reduction of warrant strike price   -    (95,708)
Net loss attributable to common stockholders  $(370,271)  $(354,207)
           
Net loss per share attributable to common stockholders, basic and diluted  $(0.02)  $(0.03)
           
Weighted average number of common shares outstanding, basic and diluted   23,004,360    13,033,038 

 

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

 

5

 

 

BTCS Inc.

Statements of Changes in Stockholders’ Deficit

(Unaudited)

 

For the Three Months Ended March 31, 2020

 

   Series C-1
Convertible
           Additional       Total 
   Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance December 31, 2019   29,414   $29    19,831,521   $19,830   $116,780,174   $(116,983,793)  $(183,760)
Common stock issued including equity commitment fee, net   -    -    6,186,633    6,187    406,824         413,011 
Net loss   -    -    -    -    -    (370,271)   (370,271)
Balance March 31, 2020   29,414   $    29    26,018,154   $ 26,017   $ 117,186,998   $ (117,354,064)  $(141,020)

 

For the Three Months Ended March 31, 2019

 

  

Series C-1

Convertible

Preferred Stock

   Common Stock  

Additional

Paid-in

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance December 31, 2018   29,414   $29    12,515,201   $12,515   $115,074,655   $(115,343,192)  $(255,993)
Warrant exercise   -    -    725,564    725    227,645    -    228,370 
Net loss   -    -    -    -    -    (258,499)   (258,499)
Balance March 31, 2019   29,414   $     29    13,240,765   $13,240   $ 115,302,300   $ (115,601,691)  $(286,122)

 

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

 

6

 

 

BTCS Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

   For the Three Months Ended 
   March 31, 
   2020   2019 
         
Net Cash flows used from operating activities:          
Net loss  $(370,271)  $(258,499)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expenses   339    335 
Amortization on debt discount   16,606    - 
Impairment loss on digital currencies   74,425    - 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   15,740    5,000 
Accounts payable and accrued expenses   (4,973)   49,763 
Accrued compensation   (9,409)   - 
Net cash used in operating activities   (277,543)   (203,401)
           
Net cash provided by financing activities:          
Proceeds from exercise of warrants   -    228,370 
Net proceeds from issuance of common stock   413,011    - 
Net cash provided by financing activities   413,011    228,370 
           
Net increase in cash   135,468    24,969 
Cash, beginning of period   143,098    52,117 
Cash, end of period  $278,566   $77,086 

 

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

 

7

 

 

BTCS Inc.

Notes to Unaudited Condensed Financial Statements

 

Note 1 - Business Organization and Nature of Operations

 

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada corporation (the “Company”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online ecommerce marketplace where consumers can purchase merchandise using Digital Assets, including bitcoin and 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 services operation at our North Carolina facility due to capital constraints.

 

Subject to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase 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. The Company will carefully review its purchases of Digital 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.

 

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 its officers and proceeds in financing transactions.

 

Notwithstanding, the Company has limited revenues, limited capital resources and is subject to all 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.

 

8

 

 

BTCS Inc.

Notes to Unaudited Condensed Financial Statements

 

Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. 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 million net loss for the three months ended March 31, 2020. The Company had cash of approximately $0.3 million and a negative working capital of approximately $0.1 million at March 31, 2020. 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 sufficient to fund its operations and anticipated capital expenditures for 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.

 

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:

 

managing current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs,
   
seeking additional financing through sales of additional securities whether through Cavalry or other investors.

 

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 2019 Annual Report.

 

Digital Assets Translations and Remeasurements

 

Digital Assets are included in current assets in the balance sheets. Digital Assets 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 Assets are included in other income (expense) in the statements of operations.

 

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

 

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”). 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-lived assets, stock-based compensation, the valuation of derivative liabilities, 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.

 

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BTCS Inc.

Notes to Unaudited Condensed Financial Statements

 

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, 2020 and 2019 because their effect was anti-dilutive:

 

   As of March 31, 
   2020   2019 
Warrants to purchase common stock   920,424    1,229,700 
Series C-1 Convertible Preferred stock   196,093    196,093 
Convertible notes   4,032,258    - 
Total   5,148,775    1,425,793 

 

Recent Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting standards Update (“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.

 

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

 

On November 7, 2019, the Company issued a $200,000 promissory note (the “2019 Promissory Note”). The 2019 Promissory Note is due on August 7, 2020 and is: (i) convertible at a 20% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.02 per share, (ii) 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 to certain limitations as set forth in the 2019 Promissory Note, and (iv) may be prepaid by the Company. During the year ended December 31, 2019, the Company recorded approximately $10,000 in interest expense related to amortization on debt discount related to the 2019 Promissory Note. As of December 31, 2019, the Convertible Note had principal balance of $0.2 million, accrued interest on the note payable of approximately $4,000 and approximately $40,000 remaining unamortized debt discount. In addition, the Convertible Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the Convertible Note was convertible into 2,173,913 shares of common stock at $0.09 per share, but the Company’s fair value of underlying common stock was $0.12 per share. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the Notes of approximately $50,000 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, the Company recorded interest expense of approximately $6,000. As of March 31, 2020, the principal balance of the 2019 Promissory Note was $0.2 million and accrued interest on the note payable amounted to approximately $9,000.

 

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BTCS Inc.

Notes to Unaudited Condensed Financial Statements

 

Note 6 - Stockholders’ Equity

 

On September 5, 2019, the Company filed a second Registration Statement on Form S-1 seeking to register 6,454,000 shares. The second Registration Statement was declared effective by the SEC on December 20, 2019.

 

During the three months ended March 31, 2020, Company issued 6,186,633 shares of Common Stock (including 24,219 pro-rata commitment shares) under the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $0.4 million

 

Note 7 - Subsequent Events

 

On April 6, 2020, the Company issued a total of 735,294 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 with a floor price of $0.01 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 2020 Promissory Note.

 

On May 7, 2020, the Company issued a total of 632,736 shares of the Company’s Common Stock for the conversion of the remaining $150,000 of principal and $2,000 of interest on the 2019 Promissory Note. 

 

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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 filed with the SEC on March 23, 2020.

 

Overview

 

We are an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital Assets and block chain technologies. To our knowledge, we are one of a few public companies intending to acquire both Digital Assets and a controlling interest in one or more businesses in the Digital Asset and blockchain industries.

 

Digital Asset Initiatives

 

Subject to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase 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:

 

Digital Asset  Units Held   Fair Market
Value
 
Bitcoin (BTC)   37.44   $

373,589

 
Ethereum (ETH)   1,644.23   $

348,447

 
Total       $

722,036

 

 

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. The Company will carefully review its purchases of Digital Securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

 

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 Platform

 

We are also focused on Digital Assets and blockchain technologies. We are currently internally developing a 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 Initiatives

 

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.

 

12

 

 

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:

 

managing current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs, and
seeking additional financing through sales of additional securities whether through Cavalry or other investors.

 

Results of Operations for the Three Months Ended March 31, 2020 and 2019

 

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

 

   Three Months Ended March 31, 
   2020   2019 
         
Operating expenses:          
General and administrative  $270,528   $251,964 
Marketing   2,690    535 
Total operating expenses   273,218    252,499 
           
Other expense:          
Interest expense   (22,628)   (6,000)
Impairment loss on digital currencies   (74,425)   - 
Total other expenses   (97,053)   (6,000)
           
Net loss  $(370,271)  $(258,499)
Deemed dividend related to reduction of warrant strike price   -    (95,708)
Net loss attributable to common stockholders  $(370,271)  $(354,207)

 

Operating Expenses

 

Operating expenses for the three months ended March 31, 2020 and 2019 were approximately $0.3 million.

 

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Other Expense

 

Other expense for the three months ended March 31, 2020 and 2019 was $97,000 and $6,000, respectively. The increase in other expense primarily relates to increase in interest expense and impairment loss on digital currencies.

 

Net loss attributable to common stockholders

 

We incurred $0 and $95,708 of deemed dividend related to reduction of warrant strike price during the three months ended March 31, 2020 and 2019, respectively.

 

Liquidity and Capital Resources

 

Net Cash from Operating Activities

 

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, 2020 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 for the three months ended March 31, 2019. Net cash used in operating activities 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.

 

Net Cash from Financing Activities

 

Net cash provided by financing activities was approximately $0.4 million for the three months ended March 31, 2020. During the three months ended March 31, 2020, Company issued 6,186,633 shares of Common Stock (including 24,219 pro-rata commitment shares) under the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $0.4 million.

 

Net cash provided by financing activities was approximately $0.2 million for the three months ended March 31, 2019. It was provided from proceeds from exercise of warrants. During the three months ended March 31, 2019, the Company issued 725,564 shares of Common Stock for the cash exercise of Series A Warrants, Additional Warrants, and Bonus Warrants resulting in aggregate proceeds of $228,000 to us.

 

Liquidity

 

As of May 8, 2020, the Company had approximately $400,286 of cash.

 

On March 31, 2020, we had current assets of approximately $0.5 million and current liabilities of approximately $0.6 million, rendering a negative working capital of approximately $0.1 million.

 

Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. 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 cash of approximately $0.3 million and negative working capital of approximately $0.1 million at March 31, 2020. 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 sufficient to fund operations and anticipated capital expenditures for the foreseeable future, and we do not have sufficient cash resources to support our current operations for 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.

 

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.

 

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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:

 

managing current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs, and
seeking additional financing through sales of additional securities whether through Cavalry or other investors.

 

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, 2020 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 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, 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:

 

Due to our small number of employees and limited resources, we have limited segregation of duties, as a result of which there is insufficient independent review of duties performed.
As a result of the limited number of accounting personnel, we rely on outside consultants for the preparation of our financial reports, including financial statements and management’s discussion and analysis, which could lead to overlooking items requiring disclosure.
Difficulty applying complex accounting principles.

 

15

 

 

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

 

When we have sufficient capital resources, we intend to hire additional accounting staff, and operations and administrative executives 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.

 

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SIGNATURES

 

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

 

  BTCS Inc.
   
May 11, 2020    
     
  By: /s/ Charles Allen
    Charles Allen
    Chief Executive Officer, Chief Financial Officer and Director
    (Principal Executive Officer and Principal Financial and Accounting Officer)

 

17

 

 

EXHIBIT INDEX

 

        Incorporated by Reference   Filed or Furnished
Exhibit #   Exhibit Description   Form   Date   Number   Herewith
3.1   Amended and Restated Articles of Incorporation, as of May 2010   10-K   3/31/11   3.1    
3.1(a)   Certificate of Amendment to Articles of Incorporation - Increase Authorized Capital   8-K   3/25/13   3.1    
3.1(b)   Certificate of Amendment to Articles of Incorporation - Increase Authorized Capital   8-K   2/5/14   3.1    
3.1(c)   Certificate of Amendment to Articles of Incorporation - Reverse Stock Split   8-K   2/16/17   3.1    
3.1(d)   Certificate of Amendment to Articles of Incorporation - Reverse Stock Split   8-K   4/9/19   3.1    
3.1(e)   Certificate of Designation for Series C-1 Convertible Preferred Stock   8-K   10/10/17   3.1    
3.1(f)   Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series C-1 Convertible Preferred Stock   8-K   12/7/17   3.2    
3.1(g)   Certificate of Amendment to the Series C-1 Certificate of Designation   8-K  

12/3/19

  4.1    
3.2   Bylaws   S-1   5/29/08   3.2    
10.1   Equity Line Purchase Agreement, dated May 13, 2019, by and between BTCS Inc., and Cavalry Fund I LP   8-K   5/16/19   10.1    
10.1(a)   Amendment No 1. To the Equity Line Purchase Agreement - Cavalry   S-1/A   5/28/19   10.27(a)    
10.2   Registration Rights Agreement, dated May 13, 2019, by and between BTCS Inc., and Cavalry Fund I LP   8-K   5/16/19   10.2    
10.3   Form of Promissory Note dated December 18, 2018   8-K   12/19/18   10.1    
10.4   Convertible Note dated as of September 18, 2019   8-K   9/19/2019   4.1    
10.5   Convertible Note dated as of November 7, 2019   8-K   11/7/2019   4.1    
10.6   Convertible Note dated as of April 17, 2020   8-K   4/17/2020   4.1    
10.7   Note Exchange Agreement dated as of September 18, 2019   8-K   9/19/19   10.1    
10.8   Side Letter with Cavalry Fund I LP dated April 17, 2020  

8-K

  4/17/20   10.1    
10.9   Amendment to Employment Agreement – Charles Allen   10-K  

3/23/20

  10.15(a)    
10.10   Amendment to Employment Agreement – Michal Handerhan  

10-K

  3/23/20   10.16(a)    
31.1   Certification of Principal Executive and Financial Officer (302)               Filed
32.1   Certification of Principal Executive and Principal Financial Officer (906)               Furnished**
101.INS   XBRL Instance Document               Filed
101.SCH   XBRL Taxonomy Extension Schema Document               Filed
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document               Filed
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document               Filed
101.LAB   XBRL Taxonomy Extension Label Linkbase Document               Filed
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document               Filed

 

* Represents compensatory plan of management.
   
** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
   
+ Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

 

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.