BTCS Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited interim financial statements; dollar figures are U.S. dollars. BTCS operates proof-of-stake blockchain validators and is developing a digital-asset portfolio dashboard and staking-as-a-service offering.
Financial results and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $514,349 | $380,499 | $1,077,364 | $453,023 |
| Gross profit | $420,449 | $321,250 | $845,595 | $378,778 |
| Gross margin | 81.7% | 84.4% | 78.5% | 83.6% |
| Net loss | $(7,724,673) | $(4,842,073) | $(13,465,416) | $(11,624,248) |
| Net loss per share, basic and diluted | $(0.61) | $(0.89) | $(1.08) | $(3.19) |
- Q2 revenue rose 35%; first-half revenue rose 138%, reflecting validator operations. Validator expenses grew faster than revenue, and gross margin declined year over year in both comparisons.
- Digital-asset impairment expense was $8.9 million in Q2 and $12.2 million in the first half, versus $2.3 million and $3.6 million, respectively, in 2021. These charges were the principal driver of higher operating expenses and losses. Under the company’s accounting policy, impairment losses are not reversed for subsequent price increases before disposal.
- Q2 included a $1.71 million non-cash gain from a reduction in warrant-liability fair value; the first-half gain was $1.07 million. This partially offset losses and depends on stock-price and valuation assumptions.
- At June 30, cash was $3.19 million, total assets $11.46 million, current liabilities $1.07 million, and stockholders’ equity $10.39 million. The balance sheet reports no debt. Warrant liabilities were $784,000, valued using Level 3 inputs.
- Cash increased to $3.19 million from $1.40 million at year-end. The cash-flow statement reports $651,105 provided by operating activities, $8.83 million used in investing activities, and $9.97 million provided by financing activities for the first half. Investing cash use was primarily purchases of productive digital assets; financing was principally ATM share sales.
- The company sold 1.83 million shares through its ATM in the first half for $10.60 million net proceeds. Shares outstanding were 12.70 million at June 30, versus 10.53 million at December 31, 2021. A $635,000 one-time return-of-capital dividend was paid.
Changes, outlook and risks
- Digital assets’ reported fair market value fell to $11.9 million at June 30 from $41.3 million at March 31, a 71% quarterly decline, reflecting sharply lower token prices. BTC holdings were sold; the quarter-end holdings table reports no Bitcoin.
- Management expected validator revenue to decline in the quarter ending September 30 and potentially for the remainder of 2022 because of lower digital-asset prices. It expected validator costs to rise as operations scale, while anticipating improved gross margins over time from scale and efficiencies. No quantified revenue or earnings guidance was provided.
- Management said cash and liquid digital assets, along with potential ATM proceeds, should fund working capital, anticipated capital expenditures and obligations for at least 12 months. At August 8, it reported $3.2 million cash, $4.4 million fair value of liquid digital assets, and $17.7 million available under the ATM subject to Form S-3 limits; it also cited $14.8 million of staked ETH excluded from liquid assets. The filing acknowledges recurring losses and an accumulated deficit.
- Management expected potential further impairment losses and higher losses as it develops the platform. June cost reductions to director fees and two executives’ salaries were expected to save approximately $141,000, primarily in the next two quarters.
- Key risks include volatile crypto prices and impairment, locked or illiquid staked assets, validator penalties or slashing, regulatory uncertainty, and theft or loss of private withdrawal keys. The dashboard was in open beta; staking-as-a-service was still under development.
Investor verification priorities
- Reconcile the cash-flow discussion: the cash-flow statement shows $651,105 of operating cash provided, while MD&A describes approximately $0.7 million as cash used.
- Clarify liquidity classifications: MD&A cites approximately $2.5 million of liquid, non-staked digital assets at June 30, while the balance sheet lists only $19,803 as digital assets/currencies and $2.48 million as staked current assets.
- Review digital-asset carrying values, impairment calculations, staking lockups and the exposure represented by the reported $11.9 million period-end fair market value.
- Assess dilution and financing capacity, including subsequent ATM sales of 261,743 shares for approximately $402,000 net through August 8 and the ATM’s dependence on share price and registration limits.
- Evaluate the Level 3 warrant valuation and the potential dilution from warrants, options and 1.64 million nonvested RSUs; reported diluted loss per share excludes anti-dilutive instruments.