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:

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

Public Relations:
Mercy Chikowore

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.

Balance Sheets

    September 30,     December 31,  
    2022     2021  
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  

Statements of Operations

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2022     2021     2022     2021  
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  

Statements of Cash Flows


    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  

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