BTCS Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; filed November 7, 2018. The company focuses on digital assets and blockchain, with e-commerce revenue discontinued or inactive and prior mining operations suspended.
Financial results and position
| Metric | Q3 2018 / September 30, 2018 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 for Q3; $0 for nine months | $941 for Q3 2017; $4,480 for nine months 2017 |
| Operating expenses | $271,904 for Q3; $764,666 for nine months | $215,081 for Q3 2017; $609,629 for nine months 2017 |
| Net loss | $224,849 for Q3; $606,472 for nine months | $10,959,746 for Q3 2017; $45,563,617 for nine months 2017 |
| Cash and digital currencies | Cash $2,074; digital currencies $15,512 | At December 31, 2017: cash $303,334; digital currencies $217,119 |
| Current assets / liabilities | $30,919 / $127,009; negative working capital of about $96,000 | At December 31, 2017: current assets $588,189 / current liabilities $75,997 |
| Total assets / stockholders’ equity (deficit) | $33,964 / $(93,045) | At December 31, 2017: $589,424 / $513,427 |
| Cash flow, nine months | Operating $(298,662); investing $(2,598); financing $0 | 2017: operating $(958,755); investing $(1,484); financing $871,114 |
Margins are not meaningful given zero revenue. No debt balance is reported on the September 30 balance sheet; reported liabilities consist of accounts payable and accrued expenses. In the first nine months, the company sold digital currencies for $359,801 in proceeds and recorded a $158,194 realized gain.
Changes versus prior periods
- Revenue fell to zero. General and administrative expense increased, contributing to higher operating expenses.
- Net losses were substantially lower than in 2017, principally because 2017 included large noncash fair-value charges and other financing-related items. The lower reported loss does not indicate operating profitability: the company had no revenue and a $764,666 operating loss for the first nine months of 2018.
- Cash declined from $303,334 at year-end 2017 to $2,074 at September 30, 2018; digital currency holdings also declined.
- Common shares outstanding rose from 363,043,769 at December 31, 2017 to 372,605,986 at September 30, 2018, mainly through preferred-stock conversions and a cashless warrant exercise. The filing lists 61,509,078 common-stock warrants outstanding at September 30.
Outlook, risks, and unusual items
- Liquidity and going concern: Management says available liquidity is insufficient to fund operations and anticipated capital expenditures for the foreseeable future, and the company lacks cash to support current operations for the next 12 months. It expects continuing losses and needs additional financing; no financing commitments or assurance of availability are disclosed. The filing states substantial doubt exists about the company’s ability to continue as a going concern.
- Business plans: Subject to financing, BTCS intends to acquire digital assets, may resume mining through outsourced data centers, and is seeking controlling interests in blockchain businesses. These are plans, not committed or funded initiatives.
- Controls and accounting: Disclosure controls were deemed ineffective due to limited segregation of duties, reliance on outside consultants, and difficulty applying complex accounting principles. The board concluded that improper digital-asset accounting required restatement of the six months ended June 30, 2018 and two other periods. Management says remediation, including additional accounting hires, depends on sufficient capital.
- Subsequent event: Four investors were issued 55 million Series C warrants in aggregate on October 11, 2018. The company disclosed they were not lawfully issued under Nevada law; the company and investors cancelled them for no consideration on October 25, and they are not outstanding.
- The company identifies digital-asset price declines, regulatory uncertainty, financing constraints, and competition as risks. It reports no legal proceedings and no off-balance-sheet transactions.
Important facts for investors to verify
- How much financing is needed, whether it can be obtained, and the company’s near-term cash runway.
- The impact and scope of the digital-asset accounting restatements and progress addressing the disclosed control weaknesses.
- Current outstanding shares, preferred-stock conversion terms, and warrant counts and terms, including any subsequent changes.
- Whether management’s proposed digital-asset purchases, mining activity, or blockchain acquisitions obtain funding and proceed.
- The carrying value and impairment assessment of remaining digital currencies, given the company’s cost-less-impairment accounting policy.