BTCS Reports Q3 2022 Results
Silver Spring, MD, Nov. 11, 2022 (GLOBE NEWSWIRE) — BTCS Inc. (Nasdaq: BTCS) (“BTCS” or the “Company”), a blockchain technology-focused company, announced results for the third quarter ending September 30, 2022.
Third Quarter 2022 Financial Highlights
Revenue for the first nine months of 2022 rose 83% to $1.4 million compared to $0.8 million for the same period in 2021. However, revenue decreased by 33% from the second quarter of 2022 to $0.3 million for the third quarter of 2022. The revenue decline is a result of Digital Asset prices remaining depressed throughout the quarter after crypto markets hit a 2022 low in mid-June.
Despite a 12% reduction in validator expenses quarter over quarter through the implementation of streamlined operations, gross margins for Q3 2022 decreased slightly to 76%, down from Q2 2022’s 82% gross margin. This was a result of a decline in Digital Asset prices. Gross margins were 78% for the first nine months of 2022 down from 81% during the same period in 2021.
U.S. GAAP (“GAAP”) net loss for the quarter decreased to $1.0 million ($0.08 per share) compared to $7.7 million in Q2 2022 and $3.9 million for Q3 2021. GAAP net loss for the nine months ended September 30, 2022, decreased to $14.5 million ($1.15 per share) compared to $20.5 million GAAP net loss for the respective period ended September 30, 2021. BTCS’s net loss is primarily driven by non-cash charges related to the impairment of Digital Assets, as GAAP requires us to impair our Digital Assets to their lowest price since acquisition. Under GAAP, there is no ability to mark Digital Assets up if prices rebound. Digital Asset impairment charges during Q3 2022 quarter amounted to $145,000 compared to $8.9 million in Q2 2022 and $3.3 million in Q1 2022, highlighting the impact of the crypto market’s decline throughout the year on our financial statements. Digital Asset impairment for the nine months ended September 2022 totaled $12.4 million compared to $3.7 million in the respective period ended September 30, 2021.
The fair value of BTCS’s Digital Assets rebounded 24% from June 30, 2022, to $14.8 million as of September 30, 2022. As of September 30, 2022, the Company had $2.9 million in cash.
Management Commentary
“BTCS’ management team saw early potential in next-generation blockchains resulting in a strategic shift from Bitcoin to these networks starting with Ethereum. Our focus is on next-gen blockchains that leverage proof-of-stake consensus mechanisms. We seek to capitalize on the multi-billion dollar staking market opportunity and upward trend, which our SaaS platform is being developed to capture. We are optimistic about the operational progress of our integrated analytics and staking-as-a-service platform”, said Michael Prevoznik, Chief Financial Officer of BTCS.
“BTCS has been resilient despite macroeconomic headwinds to both traditional and crypto markets during the third quarter. Our management team is centered on effectively executing our strategic initiatives with a low-cost philosophy while ensuring we maintain a strong balance sheet and drive long-term value for our shareholders”, stated Charles Allen, Chief Executive Officer of BTCS. “The economic environment may be contributing to our stock being traded at a discount to the fair market value of our crypto holdings and cash balances as of November 10th, 2022. With no debt or significant liabilities, we believe BTCS is a value play for investors looking for diversified exposure to cryptocurrency in the midst of a crypto winter”, added Allen.
“In light of recent news surrounding FTX, we would like to confirm that BTCS has no exposure to FTX and only 1% of our Digital Assets are held on exchanges, which limits our counterparty risk. Our priority continues to be focused on non-custodial staking where users control and maintain their own private keys while safeguarding their assets”, stated Michael Prevoznik, Chief Financial Officer of BTCS.
Industry and Business Highlights
During the third quarter, the Fed took aggressive measures to control inflation by raising interest rates again. Market volatility continues to impact the economy negatively. With an economic recession looming, we have focused on cost-cutting measures while continuing to allocate funds to R&D for our integrated analytics and Staking-as-a-Service business. With interest rates rising and equity markets underperforming digital assets have become an increasingly attractive way for investors seeking alternative solutions to hedge against inflation and further diversify their portfolios.
Following a challenging first half of 2022, the cryptocurrency markets saw a rebound during the third quarter, with Ethereum’s price increasing by 27% compared to only 3% for Bitcoin with both outperforming the S&P 500, which was down about 5%. However, crypto prices remain well below early 2022 levels, indicating we are still in the middle of a “crypto winter.” Despite current stock and crypto market conditions, there are several signs of optimism in the crypto segment. Blockchain and Web 3 application development and the number of users has seen exponential growth during 2022. Additionally, traditional institutions have demonstrated an increasingly rapid embrace of crypto, as headlined by Nasdaq’s announcement of its new digital assets custody business, as well as several other recent announcements.
In September 2022, the success of the Ethereum merge was a catalyst in the industry for other blockchain network upgrades. The transition from proof-of-work to proof-of-stake was smooth and, according to Bitwise Asset Management, resulted in a significant drop in Ethereum’s carbon footprint by more than 99%, cutting global energy consumption by 0.2% post-merge. The Merge also brought industry awareness, highlighted segment growth opportunities, and emphasized the benefits of proof-of-stake consensus mechanisms for blockchain protocols. The Ethereum Merge and continued growth in crypto adoption are positive indicators for the value of our Digital Assets, especially Ethereum, which continues to be our largest holding and source of staking recurring revenue.
BTCS has long believed in the innovative and disruptive power of next generation blockchains and continues to focus on expanding our blockchain infrastructure and staking operations to secure and support the various protocols we’ve invested in thus far.
About BTCS:
BTCS is an early mover in the blockchain, and digital currency ecosystem and the first “Pure Play” U.S. publicly traded company focused on blockchain infrastructure and technology. Through its blockchain infrastructure operations, the Company secures Proof-of-Stake blockchains by actively processing and validating blockchain transactions and is rewarded with native digital tokens. The Company is in late-stage development of a proprietary Staking-as-a-Service platform to allow users to stake, and delegate supported cryptocurrencies through a non-custodial platform, which it plans to integrate with its Digital Asset Dashboard, now in beta release. BTCS’ proprietary Digital Asset Platform currently supports six exchanges and over 800 digital assets. The Company plans to further broaden its suite of performance-tracking tools, add additional centralized and decentralized exchanges, wallets, and validator monitoring. For more information visit: www.btcs.com.
Forward-Looking Statements:
Certain statements in this press release, constitute “forward-looking statements” within the meaning of the federal securities laws including statements regarding opportunity to build value for our shareholders and the large opportunity from staking. Words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “predict,” “forecast,” “project,” “plan,” “intend” or similar expressions, or statements regarding intent, belief, or current expectations, are forward-looking statements. While the Company believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this release. These forward-looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including without limitation, the rewards and costs associated with validating transactions on proof-of-stake blockchains, a significant decrease in the value in the crypto that we currently own, loss or theft of the private withdrawal keys resulting in the complete loss of digital assets and reward, regulatory issues which cause us to revise our business model, unexpected issues with our Digital Asset Platform, reluctance of users to accept our product, as well as risks set forth in the Company’s filings with the Securities and Exchange Commission including its Form 10-K for the year ended December 31, 2021, and the Prospectus Supplement dated September 14, 2021. Thus, actual results could be materially different. The Company expressly disclaims any obligation to update or alter statements, whether as a result of new information, future events or otherwise, except as required by law.
Investor Relations:
Adele Carey
VP, Investor Relations
ir@btcs.com
Public Relations:
Mercy Chikowore
m.chikowore@btcs.com
GAAP Financials
The tables below are derived from the Company’s financial statements included in its Form 10-Q filed on August 11, 2022 with the Securities and Exchange Commission. Please refer to the Form 10-Q for complete financial statements and further information regarding the Company’s results of operations and financial condition relating to the fiscal quarter ended June 30, 2022 and 2021. Please also refer to the Company’s Form 10-K for a discussion of risk factors applicable to the Company and its business.
BTCS Inc.
Balance Sheets
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,888,998 | $ | 1,400,867 | ||||
| Digital assets/currencies | 36,561 | 3,117,360 | ||||||
| Staked digital assets/currencies | 2,586,575 | 623,754 | ||||||
| Prepaid expense | 207,078 | 324,551 | ||||||
| Total current assets | 5,719,212 | 5,466,532 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 12,330 | 9,783 | ||||||
| Staked digital assets/currencies – long term | 5,600,122 | 8,625,678 | ||||||
| Total other assets | 5,612,452 | 8,635,461 | ||||||
| Total Assets | $ | 11,331,664 | $ | 14,101,993 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Accounts payable and accrued expense | $ | 104,631 | $ | 138,716 | ||||
| Accrued compensation | 212,571 | 7,334 | ||||||
| Warrant liabilities | 712,500 | 1,852,500 | ||||||
| Total current liabilities | 1,029,702 | 1,998,550 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, 97,500,000 shares authorized at $0.001 par value, 13,053,712 and 10,528,212 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 13,055 | 10,529 | ||||||
| Additional paid in capital | 160,374,041 | 147,682,384 | ||||||
| Accumulated deficit | (150,085,134 | ) | (135,589,470 | ) | ||||
| Total stockholders’ equity | 10,301,962 | 12,103,443 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 11,331,664 | $ | 14,101,993 | ||||
BTCS Inc.
Statements of Operations
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Validator revenue (net of fees) | $ | 344,196 | $ | 323,376 | $ | 1,421,560 | $ | 776,399 | ||||||||
| Total revenues | 344,196 | 323,376 | 1,421,560 | 776,399 | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Validator expense | 82,203 | 71,690 | 313,972 | 145,935 | ||||||||||||
| Gross profit | 261,993 | 251,686 | 1,107,588 | 630,464 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | $ | 432,956 | $ | 282,558 | $ | 1,595,296 | $ | 1,149,506 | ||||||||
| Research and development | 126,857 | 273,909 | 448,579 | 602,178 | ||||||||||||
| Compensation and related expenses | 669,792 | 4,747,106 | 2,731,713 | 13,788,556 | ||||||||||||
| Marketing | 8,765 | 7,559 | 74,249 | 10,345 | ||||||||||||
| Impairment loss on digital assets/currencies | 145,247 | 208,647 | 12,347,472 | 3,777,785 | ||||||||||||
| Realized gains on digital asset/currency transactions | (20,126 | ) | – | (489,682 | ) | (3,054,418 | ) | |||||||||
| Total operating expenses | 1,363,491 | 5,519,779 | 16,707,627 | 16,273,952 | ||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | – | (58,521 | ) | – | (172,603 | ) | ||||||||||
| Amortization on debt discount | – | (581,973 | ) | – | (1,716,744 | ) | ||||||||||
| Change in fair value of warrant liabilities | 71,250 | 2,066,250 | 1,140,000 | 2,066,250 | ||||||||||||
| Distributions to warrant holders | – | – | (35,625 | ) | – | |||||||||||
| Total other income (expenses) | 71,250 | 1,425,756 | 1,104,375 | 176,903 | ||||||||||||
| Net loss | $ | (1,030,248 | ) | $ | (3,842,337 | ) | $ | (14,495,664 | ) | $ | (15,466,585 | ) | ||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | – | (13,188 | ) | – | (45,541 | ) | ||||||||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | – | – | – | (5,020,883 | ) | |||||||||||
| Net loss attributable to common stockholders | $ | (1,030,248 | ) | $ | (3,855,525 | ) | $ | (14,495,664 | ) | $ | (20,533,009 | ) | ||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.08 | ) | $ | (0.59 | ) | $ | (1.15 | ) | $ | (3.63 | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | 12,952,645 | 6,518,645 | 12,616,805 | 5,660,966 | ||||||||||||
BTCS Inc.
Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net Cash flows used from operating activities: | ||||||||
| Net loss | $ | (14,495,664 | ) | $ | (15,466,585 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 2,862 | 443 | ||||||
| Amortization on debt discount | – | 1,716,744 | ||||||
| Stock-based compensation | 2,233,608 | 13,892,884 | ||||||
| Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock | – | 179,277 | ||||||
| Validator revenue | (1,421,560 | ) | (776,399 | ) | ||||
| Blockchain network fees (non-cash) | 1,321 | – | ||||||
| Change in fair value of warrant liabilities | (1,140,000 | ) | (2,066,250 | ) | ||||
| Purchase of non-productive digital assets/currencies | – | (5,761,550 | ) | |||||
| Sale of non-productive digital assets/currencies | 2,547,322 | 4,274,491 | ||||||
| Realized gain on digital assets/currencies transactions | (489,682 | ) | (3,054,418 | ) | ||||
| Impairment loss on digital assets/currencies | 12,347,472 | 3,777,785 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 117,473 | (440,514 | ) | |||||
| Accounts payable and accrued expenses | (37,842 | ) | 168,546 | |||||
| Accrued compensation | 205,237 | (348,875 | ) | |||||
| Net cash used in operating activities | (129,453 | ) | (3,904,421 | ) | ||||
| Net cash used in investing activities: | ||||||||
| Purchase of productive digital assets/currencies for validating | (9,274,055 | ) | (9,462,279 | ) | ||||
| Sale of productive digital assets/currencies | 432,716 | – | ||||||
| Purchase of property and equipment | (5,408 | ) | (4,543 | ) | ||||
| Net cash used in investing activities | (8,846,747 | ) | (9,466,822 | ) | ||||
| Net cash provided by financing activities: | ||||||||
| Dividend distributions | (630,801 | ) | – | |||||
| Proceeds from exercise of warrants | – | 400,000 | ||||||
| Proceeds from issuance of Series C-2 convertible preferred stock | – | 1,100,000 | ||||||
| Net proceeds from issuance of convertible notes | – | 1,000,000 | ||||||
| Net proceeds from issuance of common stock and warrants for cash | – | 8,865,000 | ||||||
| Net proceeds from issuance of common stock | – | 3,014,005 | ||||||
| Net proceeds from issuance common stock/ At-the-market offering | 11,095,132 | 219,746 | ||||||
| Payment to convertible notes principle | – | (1,092,712 | ) | |||||
| Net cash provided by financing activities | 10,464,331 | 13,506,039 | ||||||
| Net increase in cash | 1,488,131 | 134,796 | ||||||
| Cash, beginning of period | 1,400,867 | 524,135 | ||||||
| Cash, end of period | $ | 2,888,998 | $ | 658,931 | ||||
| Supplemental disclosure of non-cash financing and investing activities: | ||||||||
| Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock | $ | – | $ | 45,541 | ||||
| Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock | $ | – | $ | 5,020,883 | ||||
| Conversion of Series C-1 Preferred Stock | $ | – | $ | 20 | ||||
| Conversion of Series C-2 Preferred Stock | $ | – | $ | 6,216,289 | ||||
| Beneficial conversion feature of Series C-2 convertible preferred stock | $ | – | $ | 129,412 | ||||
| Beneficial conversion features associated with convertible notes payable | $ | – | $ | 1,000,000 | ||||
