BTCS Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 8, 2019. The unaudited statements cover BTCS Inc. and its subsidiary. The company is focused on digital assets and blockchain-related opportunities, but its mining operation had been suspended since 2016. Its plans to acquire digital assets, resume mining, or acquire blockchain businesses depend on obtaining additional financing.
Financial results and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | No revenue amount reported | No revenue amount reported |
| Operating expenses | $252,499 | $257,148 |
| Net loss | $258,499 | $164,935 |
| Net loss attributable to common stockholders | $354,207 | $164,935 |
| Loss per share, basic and diluted | $0.02 | $0.01 |
| Cash used in operating activities | $203,401 | $136,297 |
| Cash at period end | $77,086 | $167,037 |
The filing reports no revenue, so a profit margin cannot be calculated from the presented results. Q1 2019 other expense included $6,000 interest expense; Q1 2018 included a $92,213 realized gain on digital currency sales. The 2019 common-stockholder loss includes a $95,708 deemed dividend related to a warrant strike-price reduction.
- Balance sheet at March 31: Total assets $82,787, including $77,086 cash; current liabilities $368,909; and stockholders’ deficit $286,122. Working capital was negative by approximately $289,000.
- Debt: A $200,000 short-term promissory note bears 12% interest, is due September 18, 2019, and carries a 20% rate upon default. Approximately $7,000 interest was accrued at March 31.
- Cash flows and financing: The company received $228,370 from warrant exercises and issued 725,564 common shares during the quarter. Cash increased by $24,969 overall. The filing reports approximately $35,133 cash and no digital assets as of May 6, 2019.
Changes, outlook, and risks
- Operating expenses declined slightly year over year, mainly from lower general and administrative costs attributed to cost-cutting. Net loss increased, principally because Q1 2018 included the digital-currency sale gain and Q1 2019 incurred interest expense.
- Management expects losses to continue and says current liquidity is insufficient to support operations and anticipated expenditures for the foreseeable future. It is seeking additional debt or equity financing, with no financing commitments or assurance of availability; new securities could dilute existing shareholders.
- The filing states that recurring losses, operating cash deficits, and accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance. The financial statements assume continuation as a going concern and include no adjustments for a possible failure to continue.
- Management does not consider mining attractive at then-current network difficulty and digital-asset prices; it may reconsider outsourced mining if funding is obtained and returns appear positive. The company also cited market competition, digital-asset price declines, and regulatory uncertainty.
- Disclosure controls were reported ineffective due to limited segregation of duties, reliance on outside consultants, and difficulty applying complex accounting rules. The filing also notes a prior digital-asset accounting failure that led to a restatement. Planned remediation, including hiring accounting staff, depends on sufficient capital.
- A 1-for-30 reverse stock split took effect in April 2019; the filing says the financial statements were retroactively restated for the split. As of May 8, 13,257,625 common shares were outstanding, reflecting the split.
Important facts for investors to verify
- Whether BTCS can obtain financing in time to meet near-term operating needs and the September 2019 note maturity, and on what terms.
- Current cash, accrued interest, accounts payable, and any subsequent financing or other material developments after May 6, 2019.
- The status and practical feasibility of planned digital-asset acquisitions, blockchain business acquisitions, or any return to mining.
- The effects of the reverse split and warrant exercises on fully diluted share count and potential shareholder dilution.
- Whether management has remediated the disclosed financial-reporting control weaknesses and addressed the accounting issues associated with the prior restatement.