BTCS(BTCS) - 2020 Q1 - Quarterly Report

PART I Financial Statements For the three months ended March 31, 2020, BTCS Inc. reported an increased net loss of $370,271, a working capital deficit of approximately $0.1 million, and a reliance on external financing to fund operations Condensed Balance Sheets As of March 31, 2020, total assets increased to $466,317, primarily due to higher cash, while total liabilities remained stable at $607,337, resulting in a stockholders' deficit of $141,020 Condensed Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $278,566 | $143,098 | | Digital currencies | $161,999 | $252,903 | | Total Current Assets | $465,312 | $420,009 | | Total Assets | $466,317 | $421,353 | | Liabilities & Stockholders' Deficit | | | | Total Current Liabilities | $607,337 | $605,113 | | Total Stockholders' Deficit | ($141,020) | ($183,760) | | Total Liabilities and Stockholders' Deficit | $466,317 | $421,353 | Condensed Statements of Operations The first quarter of 2020 saw a net loss of $370,271, or ($0.02) per share, primarily due to increased operating expenses and a $74,425 impairment loss on digital currencies Statement of Operations Summary (Unaudited) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Operating Expenses | $273,218 | $252,499 | | Impairment loss on digital currencies | ($74,425) | $0 | | Interest Expense | ($22,628) | ($6,000) | | Net Loss | ($370,271) | ($258,499) | | Net Loss Per Share (Basic & Diluted) | ($0.02) | ($0.03) | | Weighted Average Shares Outstanding | 23,004,360 | 13,033,038 | Condensed Statements of Changes in Stockholders' Deficit The stockholders' deficit improved to ($141,020) by March 31, 2020, primarily due to the issuance of 6,186,633 common shares, which added $413,011 to equity, partially offset by the quarterly net loss - In Q1 2020, the company issued 6,186,633 shares of common stock, raising $413,011, which partially offset the net loss for the period[21] Condensed Statements of Cash Flows Net cash used in operating activities totaled $277,543 for the three months ended March 31, 2020, offset by $413,011 from financing activities, resulting in a net cash increase of $135,468 Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($277,543) | ($203,401) | | Net cash provided by financing activities | $413,011 | $228,370 | | Net increase in cash | $135,468 | $24,969 | | Cash, end of period | $278,566 | $77,086 | Notes to the Unaudited Condensed Financial Statements Key notes highlight the company's digital asset strategy, substantial doubt about its going concern ability due to recurring losses and negative working capital, and its reliance on additional capital, including subsequent debt and equity transactions - The company's strategy is to acquire Digital Assets (like bitcoin and ether) and develop a digital asset data analytics platform. It avoids initial coin offerings (ICOs) due to regulatory concerns[30][31][32] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring operating losses, net operating cash flow deficits, and an accumulated deficit. The company requires significant additional capital to sustain operations[40][41] - Digital Assets are treated as indefinite-lived intangible assets, recorded at cost less impairment. Impairment is tested quarterly and subsequent reversals of impairment losses are not permitted[44][45][47] - Subsequent to the quarter end, the company issued a new $500,000 promissory note due in February 2021 and converted all remaining principal and interest on its 2019 promissory note into common stock[60][61] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's digital asset market strategy, acknowledging significant financial challenges including recurring losses, a negative working capital of approximately $0.1 million, and insufficient liquidity, necessitating further funding - The company's primary initiatives are: - Acquiring Digital Assets like bitcoin and ether through open market purchases - Internally developing a digital asset data analytics platform - Seeking to acquire controlling interests in other businesses in the blockchain industry[65][67][68] Digital Asset Holdings as of May 8, 2020 | Digital Asset | Units Held | Fair Market Value | | :--- | :--- | :--- | | Bitcoin (BTC) | 37.44 | $373,589 | | Ethereum (ETH) | 1,644.23 | $348,447 | | Total | | $722,036 | - Auditors have expressed substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and cash flow deficits[75][91] - Net loss for Q1 2020 was $370,271, compared to $258,499 in Q1 2019. The increase is primarily due to a $74,425 impairment loss on digital currencies and higher interest expense[81][82] - The company had a negative working capital of approximately $0.1 million at March 31, 2020 and does not have sufficient cash to support operations for the next 12 months, requiring additional funding[88][89][90] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - The company has indicated that this disclosure is not applicable[98] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, citing material weaknesses in internal control over financial reporting, including limited segregation of duties and accounting complexities, with remediation contingent on capital - The CEO concluded that disclosure controls and procedures were not effective as of March 31, 2020[99] - Material weaknesses identified include: - Limited segregation of duties due to small staff size - Reliance on outside consultants for financial reporting - Difficulty applying complex accounting principles[99] - The company acknowledged a past failure to follow GAAP in accounting for digital assets and a recent failure to correctly classify Digital Asset transactions as an Operating Activity on the Cash Flow Statement in its 2019 Form 10-K[101] - The company's remediation plan involves hiring additional accounting and administrative staff, but this is dependent on having sufficient capital resources[102] PART II - OTHER INFORMATION Legal Proceedings The company reports that there are no legal proceedings - None[104] Risk Factors This section is not applicable as the company is a smaller reporting company - Not applicable to smaller reporting companies[105] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - None[106] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[107] Mine Safety Disclosures This section is not applicable to the company - Not applicable[108] Other Information The company reports no other information - None[109] Exhibits This section lists the exhibits that are filed or incorporated by reference as part of the Form 10-Q, including certifications and XBRL data files - The exhibits listed in the Exhibit Index are filed or incorporated by reference with this Form 10-Q[110]