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    BTCS   US05581M4042

BTCS INC.

(BTCS)
  Report
Delayed Nasdaq  -  04:00 2022-10-04 pm EDT
1.540 USD   -1.28%
10/03BTCS Inc. Proudly Announces the Appointment of an Accomplished Finance Leader to the Board
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10/03Btcs Inc. : Change in Directors or Principal Officers, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
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09/29Btcs Inc. : Change in Directors or Principal Officers, Financial Statements and Exhibits (form 8-K)
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BTCS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/11/2022 | 04:38pm EDT
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our historical financial
statements and the notes to those statements that appear elsewhere in this
report. Certain statements in the discussion contain forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
plans, objectives, expectations and intentions. Actual results and the timing of
events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those discussed in the
Risk Factors contained in our Annual Report on Form 10-K for the year ended
December 31, 2021. When we refer to the "2022 Quarter" and the "2021 Quarter" we
are referring to the three months ended June 30, 2022 and June 30, 2021
quarters, respectively. Further, when we refer to the "2022 Period" and the
"2021 Period" we are referring to the six months ended June 30, 2022 and June
30, 2021 periods, respectively. Additionally, the twelve months ending December
31, 2022 is referred to as "Fiscal 2022."



Overview



BTCS is an early entrant in the Digital Asset market and one of the first U.S.
publicly-traded companies to focus on Digital Assets and blockchain
technologies. Through our blockchain-infrastructure operations, we secure
disruptive next-generation blockchains and operate validator nodes on various
proof of stake-based blockchain networks, earning rewards of additional Digital
Assets by actively validating transactions on the networks. While this process
is similar to Bitcoin mining the consensus mechanism is different. Now we are
building on the foundation of our pre-established infrastructure with the
development of a Digital Asset Platform. The first feature of the dashboard,
which is an open beta, allows users to evaluate their Digital Asset portfolios
from multiple exchanges on a single platform. We also are developing and plan to
integrate into the platform a Staking-as-a-Service feature that, once launched,
will allow users to participate in asset leveraging through securing blockchain
protocols.



Blockchain Infrastructure



Blockchain infrastructure operations can broadly be defined as earning a reward
for securing a blockchain by validating transactions on that blockchain. There
are currently two main consensus mechanisms used to secure blockchains: i)
proof-of-work ("PoW"), in which nodes dedicate computational resources, and ii)
proof-of-stake ("PoS"), in which nodes dedicate financial resources. The
intention behind both PoW and PoS is to make it practically impossible for any
single malicious actor to have enough computational power or ownership stake to
successfully attack the blockchain.



In the case of PoW, a miner does "work" using energy-consuming computers and is
rewarded for this "work" with Digital Assets. The miner, typically through pools
running nodes, validates transactions on the blockchain, essentially converting
electricity and computing power into a digital currency reward comprised of
transaction fees and newly-minted Digital Assets. Bitcoin is an example of PoW
and is by far the largest and most secure PoW blockchain.



PoS miners, often referred to as validators in PoS systems, actively operate
nodes and validate transactions. Validators are required to stake holdings of a
digital currency to participate in the consensus algorithm and are rewarded in
tokens for aligning behavior with the rules of the algorithm. Bad behavior can
be penalized by "slashing" the validator's holdings and/or rewards. Validators
can also be removed from the network for breaking the rules. Ill-intentioned
behavior among validators is discouraged, allowing for the blockchain to be
properly maintained and secured. Compared to PoW, PoS blockchains require less
energy.



Depending on the PoS blockchain protocol, native token holders have the
opportunity to leverage their asset holdings by either running their own
validator ("Validating") or delegating their rights to a validator ("Delegating"
or "Staking"). With Delegating or Staking, token holders indirectly participate
in blockchain networks by maintaining control of their private keys and
delegating their tokens to an existing validator. Therefore, Delegating is more
akin to assigning voting rights of stock to another person or entity via a power
of attorney. With Validating, a node operator and token holder combine tokens in
order to improve the node's collective odds of earning token rewards for
successfully validating new transactions and blocks on the network. With both
Delegating and Validating, the validator operators earn a fee for providing the
technical capabilities of running a node 24/7 that requires regular, active
maintenance and industry expertise.



BTCS uses its blockchain infrastructure to operate validator nodes on various
proof of stake-based blockchain networks. In connection with the validation of
transactions occurring on those blockchain networks, BTCS will stake the Digital
Assets native to those blockchains on the validator nodes it operates in order
to earn staking rewards. BTCS may also use its blockchain infrastructure to
validate and sign transactions on behalf of customers that delegate their
validation and voting rights to BTCS-operated validator nodes (referred to as
"Staking-as-a-Service" or "SaaS").



A SaaS provider maintains an active role in validating transactions on a given
PoS network on behalf of its delegators by (1) arranging transactions using
software to stake the relevant Digital Assets; (2) monitoring the nodes it is
operating to ensure they remain online, ready to validate transactions; and (3)
verifying transactions on the network when required to earn rewards.



21







Apart from Ethereum, all of the Company's Digital Asset holdings are in tokens
secured by PoS or similar consensus mechanisms that allow for Delegating and
asset leveraging. The Company is currently actively operating validator nodes on
Ethereum's Beacon Chain, Cosmos, Kava, Tezos, Avalanche, Kusama, Polygon and
Cardano. The Company has also staked the following tokens Polkadot, Algorand,
Axie Infinity and Solana. Building on that base, the Company plans to expand its
PoS operations to secure other disruptive blockchain protocols that also allow
for delegating.



The Company believes its blockchain infrastructure efforts will form the core
growth for its Digital Asset Platform. The Company utilizes cloud infrastructure
to operate and run its validator nodes and does not maintain its own physical
assets, but may add this infrastructure in the future.



The Company currently holds the following Digital Assets which are core to its
blockchain infrastructure efforts. The table also includes Bitcoin which is not
core to our infrastructure operations.



Digital Assets Held at Period End



Asset                  2021Q2        2021Q3        2021Q4        2022Q1        2022Q2
Bitcoin (BTC)                90            90            90            90             -
Ethereum (ETH)            7,879         7,992         8,098         8,196         8,283
Cardano (ADA)           257,757       257,757       257,757       257,757       260,555
Kusama (KSM)                123           374           374         5,278         5,550
Tezos (XTZ)              14,966        24,172        24,504        70,453        71,369
Solana (SOL)                            4,788         4,779         7,043         7,136
Polkadot (DOT)                          8,032         8,032        38,816        39,986
Terra (LUNA)                            3,584         3,584         3,621             -
Cosmos (ATOM)                           3,072         3,072        80,474        86,613
Polygon (MATIC)                        67,114        67,114       454,486       466,022
Avalanche (AVAX)                        2,025         2,073        14,273        14,594
Algorand (ALGO)                        50,584        51,103        51,197        51,201
Axie Infinity (AXS)                                                22,322  
     31,763
Kava (KAVA)                                                       183,966       264,917




22






Fair Market Value of Digital Assets at Period End



Asset                             2021Q2           2021Q3           2021Q4           2022Q1           2022Q2
Bitcoin (BTC)                  $  3,153,675     $  3,941,180     $  4,167,579     $  4,098,481     $          -
Ethereum (ETH)*                $ 17,920,148     $ 23,990,541     $ 29,820,477     $ 26,894,723     $  8,840,595
Cardano (ADA)                  $    356,600     $    545,028     $    337,716     $    294,320     $    119,555
Kusama (KSM)                   $     26,501     $    123,957     $    103,866     $    992,851     $    267,583
Tezos (XTZ)                    $     45,495     $    146,914     $    106,679     $    262,023     $    101,102
Solana (SOL)                                    $    675,373     $    813,791     $    863,854     $    239,700
Polkadot (DOT)                                  $    229,558     $    214,616     $    826,875     $    281,496
Terra (LUNA)                                    $    138,351     $    306,353     $    373,005     $          -
Cosmos (ATOM)                                   $    111,252     $     99,761     $  2,325,374     $    651,909
Polygon (MATIC)                                 $     75,644     $    169,604     $    735,034     $    222,466
Avalanche (AVAX)                                $    135,191     $    226,499     $  1,383,403     $    247,059
Algorand (ALGO)                                 $     82,381     $     84,830     $     47,492     $     16,115
Axie Infinity (AXS)                                                               $  1,416,264     $    461,649
Kava (KAVA)                                                                       $    828,742     $    468,634
Total                          $ 21,502,420     $ 30,195,370     $ 36,451,772     $ 41,342,441     $ 11,917,863
QoQ Change                                7 %             40 %             21 %             13 %            -71 %
YoY Change                             2013 %           1780 %            825 %            105 %            -45 %



* Approximately 9 ETH is not staked.



23






Prices of Digital Assets at Period End



Asset                  2021Q2       2021Q3       2021Q4       2022Q1       2022Q2
Bitcoin (BTC)         $ 35,041     $ 43,791     $ 46,306     $ 45,539     $ 19,785
Ethereum (ETH)        $  2,275     $  3,002     $  3,683     $  3,282     $  1,067
Cardano (ADA)         $   1.38     $   2.11     $   1.31     $   1.14     $   0.46
Kusama (KSM)          $    215     $    331     $    278     $    188     $     48
Tezos (XTZ)           $   3.04     $   6.08     $   4.35     $   3.72     $   1.42
Solana (SOL)                       $    141     $    170     $    123     $     34
Polkadot (DOT)                     $  28.58     $  26.72     $  21.30     $   7.04
Terra (LUNA)                       $  38.60     $  85.47     $    103     $      -
Cosmos (ATOM)                      $  36.21     $  32.47     $  28.90     $   7.53
Polygon (MATIC)                    $   1.13     $   2.53     $   1.62     $   0.48
Avalanche (AVAX)                   $  66.77     $    109     $  96.92     $  16.93
Algorand (ALGO)                    $   1.63     $   1.66     $   0.93     $   0.31
Axie Infinity (AXS)                                          $  63.45     $  14.53
Kava (KAVA)                                                  $   4.50     $   1.77



* The prices have been rounded to the nearest whole dollar for prices above $100




Digital Asset Platform



The Company is also developing a proprietary Digital Asset Platform aimed at
allowing users to evaluate their crypto portfolio holdings across multiple
exchanges and chains on a single platform. The internally-developed dashboard
utilizes Digital Asset exchange APIs to read user data and does not allow for
the trading of assets. In addition to portfolio monitoring, we are also working
to integrate a full suite of other features including decentralized exchanges,
wallets, risk metrics and potentially a way for users to calculate end-of
year-reports for tax purposes. We believe that increasing the number of features
we offer may create a sticky user experience across multiple, interrelated
products.



The Company is also currently developing and plans to integrate into the Digital
Asset Platform a proprietary Staking-as-a-Service feature aimed at allowing
users to delegate supported cryptocurrencies to BTCS operated validator nodes
through a non-custodial platform. Staking allows users to generate an annual
percentage yield ("APY") on their staked assets whereas validator node operators
charge a fee on users' staked asset rewards earned in addition to earning an APY
on staked assets. In turn, the highly scalable nature of both staking Digital
Assets as well as allowing users to stake Digital Assets to earn token rewards
is the premise behind BTCS' Staking-as-a-Service platform.



24






Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021




The following tables reflect our operating results for the three and six months
ended June 30, 2022 and 2021:



                                        For the Three Months Ended
                                                 June 30,                   $ Change        % Change
                                           2022              2021             2022            2022

Revenues
Validator revenue                     $      514,349     $    380,499     $    133,850              35 %
Total revenues                               514,349          380,499          133,850              35

Cost of revenues
Validator expense                             93,900           59,249           34,651              58
Gross profit                                 420,449          321,250           99,199              31

Operating expenses:
General and administrative            $      512,051     $    312,967     $    199,084              64 %
Research and development                     185,004          245,336          (60,332 )           (25 )
Compensation and related expenses            638,025        1,703,771      
(1,065,746 )           (63 )
Marketing                                     23,691            1,365           22,326           1,636
Impairment loss on digital
assets/currencies                          8,894,797        2,267,374        6,627,423             292
Realized gains on digital
asset/currency transactions                 (398,446 )              -         (398,446 )           N/A
Total operating expenses                   9,855,122        4,530,813        5,324,309             118

Other income (expenses):
Interest expense                                   -          (59,835 )         59,835            (100 )
Amortization on debt discount                      -         (572,675 )        572,675            (100 )
Change in fair value of warrant
liabilities                                1,710,000                -        1,710,000             N/A
Distributions to warrant holders                   -                -      
         -             N/A
Total other income (expenses)              1,710,000         (632,510 )      2,342,510             370

Net loss                              $   (7,724,673 )   $ (4,842,073 )     (2,882,600 )            60




25







                                         For the Six Months Ended
                                                 June 30,                   $ Change        % Change
                                          2022              2021              2022            2022

Revenues
Validator revenue                     $   1,077,364     $     453,023     $    624,341             138 %
Total revenues                            1,077,364           453,023          624,341             138

Cost of revenues
Validator expense                           231,769            74,245          157,524             212
Gross profit                                845,595           378,778          466,817             123

Operating expenses:
General and administrative            $   1,162,340     $     866,948     $    295,392              34 %
Research and development                    321,722           328,269           (6,547 )            (2 )
Compensation and related expenses         2,061,921         9,041,450       (6,979,529 )           (77 )
Marketing                                    65,484             2,786           62,698           2,250
Impairment loss on digital
assets/currencies                        12,202,225         3,569,138        8,633,087             242
Realized gains on digital
asset/currency transactions                (469,556 )      (3,054,418 )      2,584,862              85
Total operating expenses                 15,344,136        10,754,173        4,589,963              43

Other income (expenses):
Interest expense                                  -          (114,082 )        114,082            (100 )
Amortization on debt discount                     -        (1,134,771 )      1,134,771            (100 )
Change in fair value of warrant
liabilities                               1,068,750                 -        1,068,750             N/A
Distributions to warrant holders            (35,625 )               -          (35,625 )           N/A
Total other income (expenses)             1,033,125        (1,248,853 )    
 2,281,978             183

Net loss                              $ (13,465,416 )   $ (11,624,248 )     (1,841,168 )            16




26







Validator Revenue


The increase in revenue during the 2022 Quarter and 2022 Period as compared to the 2021 Quarter and 2021 Period is from our blockchain infrastructure validating revenue. We believe revenues will decrease for the period ending September 30, 2022 and potentially for the remainder of 2022 as a result of decline in market prices of the Digital Assets we have earned and/or purchased.




Cost of Revenues



The increase in cost of revenues is due to our blockchain infrastructure
validating operating costs, including, web service hosting fees, and cash and
stock-based compensation related to services provided by vendors. We believe our
cost of revenues will increase as we continue to ramp up our business. However,
we believe gross margin will improve as we add scale to our blockchain
infrastructure operations and reduce costs as a result of increased operational
efficiencies, leading to improved gross profits.



Operating Expenses


The increase in operating expenses in the 2022 Quarter is primarily due to the
$8.9 million impairment loss on Digital Assets ("Digital Asset Impairment") in
the 2022 Quarter, compared to only $2.3 million Digital Asset Impairment in the
2021 Quarter. This is partially offset by the $1.6 million non-cash contingent
bonuses granted to employees and our non-employee directors during the 2021
Quarter for the achievement of performance milestones.



The increase in operating expenses in the 2022 Period is primarily due to the
$12.2 million Digital Asset Impairment in the 2022 Period, compared to only $3.6
million Digital Asset Impairment in the 2021 Period. This is partially offset by
the $8.7 million non-cash contingent bonuses granted to employees and our
non-employee directors during the 2021 Period for the achievement of performance
milestones.



We believe operating expenses will remain consistent as the Company continues to
utilize equity-based bonus incentives as a core part of its compensation
strategy. However, volatility in the Digital Asset markets will subject the
Company to the possibility of additional impairment charges on its Digital
Asset
holdings.


The Company is evaluating additional opportunities to reduce costs. As part of
our cost cutting measures, in June 2022, the Board of Directors reduced all
director fees for 2022 from $50,000 to $25,000 and reduced the Audit,
Compensation and Nominating and Corporate Governance committee chair fees for
2022 to $5,000. Additionally, Charles Allen and Michal Handerhan, the Company's
Chief Executive Officer and Chief Operating Officer, respectively, agreed to
forfeit $25,000 of their annual base salaries for 2022. Collectively, these
cost-cutting measures will result in cost savings of approximately $141,000,
which the Company will see primarily in the next two quarters.



Other Income (Expenses)


The increase in other income for the periods reported was primarily due to the decrease in the fair value of warrant liabilities. This non-cash expense is driven by the value of our stock price at the end of each quarter which we cannot predict.



Net loss


The increase in our net loss for the periods reported was primarily due to the
increase in operating expenses and increase in other income (expense) as
discussed above. We believe that our net loss will increase as the Company
incurs increased costs related to the development of its Digital Asset Platform
and incurs additional Digital Asset Impairment losses due to volatility in
the
Digital Asset markets.



27






Liquidity and Capital Resources



ATM Financing



On September 14, 2021, the Company entered into an At-The-Market Offering
Agreement (the "ATM Agreement") with H.C. Wainwright & Co., LLC, as agent ("H.C.
Wainwright"), pursuant to which the Company may offer and sell, from
time-to-time through H.C. Wainwright, shares of the Company's Common Stock
having an aggregate offering price of up to $98,767,500. From the period
September 14, 2021 through August 8, 2022, the Company sold a total of 2,559,122
shares of Common Stock under the ATM Agreement for aggregate total gross
proceeds of approximately $14,340,000 at an average selling price of $5.60 per
share, resulting in net proceeds of approximately $13,888,000 after deducting
commissions and other transaction costs.



Liquidity


The Company's financial statements have been prepared assuming that it will
continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of
business. Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations, and otherwise operate on
an ongoing basis. At June 30, 2022, the Company had approximately $2.5 million
of liquid Digital Assets (i.e. non-staked) and $3.2 million of cash.



We view our Digital Assets as long-term holdings and we do not plan to engage in
regular trading of Digital Assets. During times of instability in the market of
Digital Assets, we may not be able to sell our Digital Assets at reasonable
prices or at all. As a result, our Digital Assets may not be able to serve as a
source of liquidity for us to the same extent as cash and cash equivalents.



As of August 8, 2022, the Company had approximately $3.2 million of cash and the
fair market value of the Company's liquid Digital Assets was approximately $4.4
million, which excludes $14.8 million of staked Ethereum. The Company has no
outstanding debt. As of August 8, 2022, the Company also has approximately $17.7
million available under the At the Market Offering Agreement under the Form S-3
baby shelf rules, although, the amount that we may raise under the Form S-3 may
increase or decrease based upon our then stock price. The Company believes that
the existing cash and liquid Digital Assets held by us, in addition to the funds
available to the Company from the issuance of additional stock through the ATM
Agreement, provide sufficient liquidity to meet working capital requirements,
anticipated capital expenditures and contractual obligations for at least the
next twelve months.



Cash Flows


Cash used in operating activities was approximately $0.7 million during the six
months ended June 30, 2022 compared to $(3.3) million for the six months ended
June 30, 2021.



Cash used in investing activities was $8.8 million during the six months ended
June 30, 2022 compared to $8.5 million for the six months ended June 30, 2021.
Net cash outflow for investing activities was used primarily for the purchase of
Digital Assets for our blockchain infrastructure operations.



Cash provided by financing activities was $10.0 million during the six months
ended June 30, 2022 compared to $14.2 million for the six months ended June 30,
2021. The cash inflows from financing activities were primarily from proceeds
from the Common Stock sold pursuant to the ATM Agreement ($10.6 million). This
was partially offset by a one-time return of capital distribution of $635,000
made to record holders as of March 17, 2022. The Company has plans to continue
to raise proceeds from the sale of Common Stock to fund operations as needed.



28






Off Balance Sheet Transactions

As of June 30, 2022, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

RECENT ACCOUNTING PRONOUNCEMENTS

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

© Edgar Online, source Glimpses

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Analyst Recommendations on BTCS INC.
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Financials (USD)
Sales 2022 2,00 M - -
Net income 2022 -14,1 M - -
Net Debt 2022 - - -
P/E ratio 2022 -1,38x
Yield 2022 -
Capitalization 20,0 M 20,0 M -
Capi. / Sales 2022 9,98x
Capi. / Sales 2023 7,13x
Nbr of Employees -
Free-Float 60,6%
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Number of Analysts 1
Last Close Price 1,54 $
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Spread / Average Target 290%
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Managers and Directors
Charles W. Allen Executive Chairman & Chief Executive Officer
Michael Prevoznik Chief Financial Officer
Manish Paranjape Chief Technology Officer
Michal Handerhan Chief Operating Officer, Secretary & Director
Carol van Cleef Independent Director
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