BTCS Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with FY2018. The filing was signed March 23, 2020. BTCS is an early-stage digital-asset and blockchain company. It reported no revenue in either year.
Key financial metrics
| Metric | FY2019 / Dec. 31, 2019 | FY2018 / Dec. 31, 2018 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1,432,383 | $990,169 |
| Net loss | $1,640,601 | $826,420 |
| Net loss attributable to common stockholders | $1,736,309 | $832,020 |
| Loss per share, basic and diluted | $(0.11) | $(0.07) |
| Cash used in operating activities | $1,124,410 | $505,619 |
| Cash | $143,098 | $52,117 |
| Digital assets, carrying value | $252,903 | None reported |
| Total assets | $421,353 | $63,153 |
| Current liabilities | $605,113 | $319,146 |
| Stockholders’ deficit | $(183,760) | $(255,993) |
Operating expenses rose about 45%, which management attributed mainly to executive salary increases. The net loss nearly doubled. FY2019 other expense was $208,218, including $86,142 interest expense and a $121,117 digital-asset impairment; FY2018 included $163,749 of realized gains on digital-asset transactions. The filing reports no meaningful operating margins because there was no revenue.
Cash from financing activities was $1,590,370 in 2019, including $1,162,000 net proceeds from common-stock issuance and $228,370 from warrant exercises. Cash declined by $251,217 in 2018. The company had approximately $185,000 of negative working capital at December 31, 2019.
Material changes and financing
- Digital assets increased from none reported at year-end 2018 to $252,903 carrying value at year-end 2019. The company records them at cost less impairment and does not reverse impairment losses.
- Common shares outstanding increased from 12,515,201 to 19,831,521 during 2019. By March 9, 2020, 24,213,051 common shares were outstanding.
- A $200,000 promissory note issued in November 2019 is due August 7, 2020, bears 12% annual interest (20% on default), and is convertible at a 20% discount to the prior closing price, subject to a $0.02 floor.
- Under its $10 million equity purchase agreement with Cavalry, BTCS reported receiving approximately $1.479 million through March 9, 2020. Access depends on registration, trading price and volume, and agreement limits; further sales may materially dilute shareholders.
- Accrued compensation was $416,935 at year-end. Executive contingent bonuses are also disclosed; the filing states that certain 2018 bonuses were earned and remained unpaid.
Outlook, risks and unusual items
- Going concern: The auditor identified substantial doubt about BTCS’s ability to continue as a going concern, citing recurring losses, negative operating cash flows, and the accumulated deficit of $116.98 million. Management said available liquidity would not support operations for the next 12 months and further financing is necessary.
- Management estimated cash burn at about $80,000 per month and said cash as of March 9, 2020 was expected to cover public-company costs only through August, excluding repayment of the note and accrued executive compensation.
- The company plans to acquire additional bitcoin, ether, and other digital assets, seek controlling interests in blockchain businesses, and develop a read-only digital-asset analytics platform. It anticipated public beta testing in 2020 but gave no firm timeline. It had no mining operations and no immediate plan to resume them.
- Management reported approximately $247,500 cash and digital assets with an estimated fair market value of $349,346 as of March 9, 2020. This is a later-date estimate, distinct from the year-end balance-sheet carrying value.
- Principal risks include inability to raise funding or continue operations, potential dilution and convertible-debt overhang, volatile digital-asset prices, regulatory uncertainty (including securities and investment-company rules), custody and cybersecurity risks, and dependence on two executives. The platform may not be completed or generate revenue.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2019 due to material weaknesses, including limited segregation of duties, insufficient transaction controls, and challenges applying complex accounting. Earlier control failures led to restatements of 2017 and 2018 interim financial statements for digital-asset accounting; the filing says material weaknesses were not remediated.
- No material pending legal proceeding or off-balance-sheet arrangement was reported. The filing identifies COVID-19 as a potential operational and market risk.
Important facts for investors to verify
- Current cash, monthly burn, near-term obligations, and whether financing is secured to fund operations and repay the $200,000 note.
- Actual availability and terms of further Cavalry funding, registration status, share issuance since March 9, 2020, and resulting dilution.
- Payment status and total amount of accrued compensation and executive bonuses.
- Digital-asset holdings, valuation and impairment assumptions, custody arrangements, and applicable regulatory classification.
- Progress in remediating material weaknesses and whether future filings require accounting adjustments or restatements.
- Whether the analytics platform reaches beta, attracts users, and produces revenue; the filing provides no revenue or profitability guidance.