BTCS Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021. BTCS is focused on proof-of-stake blockchain validation, a digital-asset treasury, and development of a digital-asset analytics and staking-as-a-service platform. The company resumed validator operations in Q1 2021. Its common stock began trading on Nasdaq in September, and it effected a 1-for-10 reverse split in August; share data was retrospectively adjusted.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 | Comparable 2020 |
|---|---|---|---|
| Revenue | $323,376 | $776,399 | $0 |
| Gross profit / gross margin | $251,686 / 77.8% | $630,464 / 81.2% | No revenue |
| Net loss | $3.84 million | $15.47 million | $1.01 million / $1.80 million |
| Net loss attributable to common stockholders | $3.86 million | $20.53 million | $1.01 million / $1.80 million |
| Loss per share, basic and diluted | $0.59 | $3.63 | $0.33 / $0.66 |
| Operating cash flow | Not reported for quarter | $(3.90) million | $(1.66) million |
| Investing cash flow | Not reported for quarter | $(9.47) million | $0 |
| Financing cash flow | Not reported for quarter | $13.51 million | $1.89 million |
Q3 operating expenses were $5.31 million, including $4.75 million of compensation and related expense. For the nine months, operating expenses were $15.55 million, including $13.79 million of compensation and related expense; stock-based compensation was approximately $13.7 million. Nine-month other items included $3.78 million of digital-asset impairment, $3.05 million of realized gains on digital-asset transactions, $1.72 million of debt-discount amortization, and a $2.07 million noncash gain from remeasuring warrant liabilities. Adjusted EBITDA, a company-defined non-GAAP measure, was positive $1.88 million for the nine months; it excludes stock compensation, impairment, and other items and should not be treated as a substitute for GAAP results.
At September 30, cash was $658,931; current assets were $4.29 million; current liabilities were $4.66 million; and working capital was negative $0.37 million. Total assets were $13.13 million and stockholders’ equity was $8.48 million. The balance sheet included $3.16 million of current digital assets and $8.84 million of staked digital assets. The filing separately reports an approximately $30.20 million fair market value for the broader digital-asset holdings and approximately $6.2 million for liquid digital assets; these amounts have different stated bases and should be reconciled against the reported carrying values.
Convertible notes payable, net, were $848,685. The January 2021 note had $1.0 million principal, approximately $85,000 accrued interest, a 12% annual rate, and a November 15, 2021 maturity; it was convertible at a 35% discount subject to a $7.50 floor. The prior December 2020 note was repaid in September for $1.09 million including interest. Current liabilities also included $3.71 million of Level 3 warrant liabilities.
Changes, outlook, and notable items
- Validator revenue began in 2021, while the comparable 2020 periods had no revenue. Q3 validator revenue was $323,376; nine-month revenue was $776,399. The company reported the fair value of rewards earned through September 30 as $343,725 for Q3 and $906,339 for the nine months.
- Year-to-date net loss increased materially from 2020, chiefly due to stock-based compensation and higher operating activity. The $5.02 million Series C-2 anti-dilution deemed dividend increased the nine-month loss attributable to common stockholders; it was not an operating cash outflow. Series C-2 converted into 4,011,766 common shares on September 14.
- BTCS raised approximately $14.6 million net during the nine months through equity, warrants, preferred stock, and convertible debt. Common shares outstanding were 10,102,711 at quarter-end and 10,275,258 on November 4. The September ATM agreement permits sales of up to $98.77 million; approximately $97 million remained available on November 4. Subsequent to quarter-end through November 4, ATM sales generated about $1.15 million net.
- Management said existing resources were adequate to fund operations for at least 12 months and also planned to raise equity or debt as needed. At September 30, the company had approximately $0.66 million cash and reported $6.2 million fair value of liquid digital assets; at November 4, it reported approximately $1.4 million cash and $8.8 million liquid digital assets. The broader portfolio’s reported fair value was approximately $45.7 million on November 4.
- Management plans to expand validator operations and develop an analytics dashboard, whose initial feature was in open beta, with staking-as-a-service and additional portfolio tools planned. No quantified revenue, earnings, or timing guidance was provided. Management cautioned that the digital-asset market is evolving and that competitors may have greater resources.
- Digital assets are carried at cost less impairment; impairment losses establish a new cost basis and are not reversed. Staked assets may be locked for weeks or months, and proof-of-stake validation entails potential slashing and operational risks. Digital-asset prices, token liquidity, securities-law classification, warrant valuation, and dilution are relevant risks.
- On November 4, CFO Andrew Lee resigned; CEO and Chairman Charles Allen became interim CFO, with the company anticipating a permanent appointment by December 31, 2021. Management reported disclosure controls effective and no material quarterly change in internal control. The filing reported no legal proceedings or off-balance-sheet transactions.
Important facts for investors to verify
- Reconcile the reported $13.13 million balance-sheet assets and $11.998 million digital-asset carrying value with the filing’s $30.20 million September portfolio fair value and $6.2 million liquid-asset figure; confirm which assets are staked, restricted, or otherwise not readily available.
- Assess liquidity against negative working capital, the November 2021 note maturity, ongoing operating cash use, and reliance on digital-asset values and future financing.
- Review the sustainability of validator revenue and margins, and the status, launch timing, costs, and adoption of the analytics and staking products.
- Evaluate dilution from the ATM facility, warrants, options, and remaining equity incentives, along with the potential cash-settlement exposure and Level 3 assumptions for warrant liabilities.
- Distinguish GAAP losses from management’s Adjusted EBITDA, particularly given the large recurring stock-compensation expense and material digital-asset impairments and valuation swings.