BTCS Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. BTCS operates proof-of-stake blockchain validator nodes and provides staking-as-a-service. Its StakeSeeker crypto portfolio dashboard was in beta.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $316,242 | $344,196 | $1,013,503 | $1,421,560 |
| Gross profit | $233,142 | $261,993 | $734,777 | $1,107,588 |
| Gross margin | 73.7% | 76.1% | 72.5% | 77.9% |
| Net loss | $640,071 | $1,030,248 | $3,071,893 | $14,495,664 |
| Net loss per common share | $0.04 | $0.08 | $0.22 | $1.15 |
- Cash flow, nine months: Operating activities used $2.693 million; investing activities provided $186,037; financing activities provided $1.114 million, from common-stock ATM sales. Cash declined $1.394 million to $753,233.
- September 30 balance sheet: Total assets were $8.916 million, including $7.913 million book value of crypto assets; current liabilities were $485,053; stockholders’ equity was $8.431 million. Working capital was approximately $8.4 million. The company reported no outstanding debt.
- Crypto asset valuation: Management reported $16.475 million fair value versus $7.913 million GAAP book value at September 30. The accounting policy records impairment when value falls but does not permit reversing impairment before sale or disposal.
Changes versus comparable periods
- Revenue fell 8% in Q3 and 29% for the nine-month period, primarily because staking rewards were recognized at lower crypto prices than at 2022 market highs.
- Nine-month net loss narrowed 79%, mainly because crypto impairment expense declined to $1.252 million from $12.347 million in 2022. Q3 impairment, however, rose to $372,441 from $145,247.
- Validator costs declined 11% for the nine months, while gross margin contracted. Management attributed lower costs to hosting and vendor efficiencies.
- Nine-month realized gains on crypto transactions were $806,137, including gains from selling approximately 968 ETH after Ethereum’s April 2023 Shanghai upgrade enabled withdrawals.
- Common shares outstanding increased to 14,373,186 from 13,107,149 at December 31, 2022. ATM sales generated approximately $1.114 million net proceeds during the nine months.
Outlook, risks and unusual items
- Management said cash and liquid crypto assets, together with potential ATM proceeds, should fund working capital, anticipated capital expenditures and contractual obligations for at least 12 months. At November 7, 2023, cash was approximately $0.6 million and liquid crypto assets had approximately $19.3 million fair value; approximately $5.8 million was available under the ATM over the next 12 months under the Form S-3 baby-shelf rules.
- Management anticipated StakeSeeker’s transition out of beta on or before the end of Q1 2024. It expects research and development spending to remain broadly consistent, and believes growth in staking operations may increase revenue and improve margins with scale. It cautioned that losses could rise with platform development costs or crypto impairments.
- Key risks include crypto price volatility and potentially unpredictable impairment charges; regulatory uncertainty; staking lockups that may limit timely liquidation; and possible loss or theft of private withdrawal keys. Management stated that crypto assets may not be available as liquidity on acceptable terms during market instability.
- BTCS distributed 14,542,803 Series V preferred shares in June 2023. The shares are non-convertible and non-voting, carry a 20% liquidation preference over common stock, and have discretionary dividend rights. Upstream suspended U.S. securities trading activity effective November 1, 2023; U.S. holders consequently could not transfer Series V shares there, and previously transferred shares were returned to the transfer agent. BTCS said it was discussing options with Upstream.
- The filing reports an accumulated deficit of approximately $154.6 million and nine-month operating cash use of $2.693 million, while stating available resources are sufficient for the next 12 months. Management also reported effective disclosure controls and no material changes in internal control. No legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether staking rewards, crypto prices and validator participation support revenue growth and improved margins, and whether StakeSeeker exits beta on the stated timeline.
- Liquidity assumptions: availability and realizable value of staked crypto, unstaking restrictions, future cash burn, and the amount actually accessible through the ATM.
- The difference between crypto assets’ GAAP carrying value and management’s reported fair value, including the impact of impairment accounting on reported earnings.
- Series V trading, transfer and liquidity arrangements following Upstream’s suspension of U.S. securities trading.
- Share authorization disclosure: the balance sheet lists 97.5 million authorized common shares, while the filing states shareholder approval and a July 2023 amendment increased authorization to 975 million. Verify the operative charter and current authorized-share count.