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2022-02-21
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2022-02-21
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2021-03-29
2022-02-15
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
xbrli:pure
NOTES
TO FINANCIAL STATEMENTS
Note
1 - Organization and Description of Business and Recent Developments
BTCS
Inc. (formerly Bitcoin Shop, Inc.), a Nevada corporation (the “Company”) was incorporated in 2008. In February 2014, the
Company entered the business of hosting an online e-commerce marketplace where consumers could purchase merchandise using Digital
Assets, including Bitcoin. The Company is currently focused on blockchain and digital currency ecosystems. In late 2014 we shifted
our focus towards our transaction verification service business, also known as Bitcoin mining, though in mid-2016 we ceased our mining
operation at our North Carolina facility due to capital constraints. In January 2015, the Company began a rebranding campaign using its
BTCS.com domain to better reflect its broadened strategy. The Company recently released its new website which included broader information
on its strategy.
In the first quarter of 2021,
the Company resumed its blockchain infrastructure operations (previously referred to as transaction verification services) with a focus
on securing proof-of-stake blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations
can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain. The Company is developing
a proprietary Staking-as-a-Service platform that would enable users to stake and delegate supported cryptocurrencies through
a non-custodial platform to BTCS operated validator nodes.
The
Company is also developing a proprietary Digital Asset Platform aimed at enabling users to aggregate their portfolio holdings from multiple
exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally
developed platform utilizes Digital Asset exchange APIs to read user data and does not allow for the trading of assets.
The Company employs a Digital
Asset treasury strategy with a primary focus on disruptive non-security protocol layer assets such as Bitcoin and Ethereum. The Company
receives Digital Assets from its blockchain infrastructure business and acquires Digital Assets through open market purchases.
The Company is not limiting its assets to a single type of Digital Asset and may hold a variety of Digital Assets. The Company
will carefully review its purchases of digital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under
the federal securities laws.
The
market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have
greater resources than us.
Amendment
to Articles of Incorporation
On
August 12, 2021, the Company filed a Certificate of Change with the Nevada Secretary of State to affect a 1-for-10
reverse split of the Company’s class of
Common Stock (the “Reverse Split”). The Certificate of Change became effective on August 13, 2021.
No
fractional shares were issued in connection with the Reverse Split and all such fractional interests were rounded up to the nearest whole
number of shares of Common Stock. The Company now has 97,500,000
shares of Common Stock authorized. Numbers
of shares of the Company’s preferred stock were not affected by the Reverse Split; however, the conversion ratios have been adjusted
to reflect the Reverse Split. The financial statements and notes to the financial statements
have been retroactively restated to reflect the Reverse
Split.
Note
2 - Basis of Presentation
The
Company maintains its books of account and prepares financial statements in accordance with Generally Accepted Accounting Principles
in the United States of America (“U.S. GAAP”). The Company’s fiscal year ends on December 31.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Note
3 - Summary of Significant Accounting Policies
Basis
of presentation
The
accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).
Reclassifications
Certain
prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no
impact on the Company’s previously reported net income (loss).
Concentration
of Cash
The
Company maintains cash balances at two financial institutions in checking accounts and money market accounts. The Company considers all
highly liquid investments with original maturities of six months or less when purchased to be cash and cash equivalents. As of December
31, 2021 and 2020, the Company had approximately $1.4 million and $0.5 million in cash. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on cash.
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2021 and
2020, the Company had approximately $0.9 million and $0.2 million in excess of the FDIC insured limit, respectively.
Revenue
Recognition
The
Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those
goods or services. The following five steps are applied to achieve that core principle:
|
● |
Step
1: Identify the contract with the customer |
|
● |
Step
2: Identify the performance obligations in the contract |
|
● |
Step
3: Determine the transaction price |
|
● |
Step
4: Allocate the transaction price to the performance obligations in the contract |
|
● |
Step
5: Recognize revenue when the Company satisfies a performance obligation |
Revenue
is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through staking rewards.
The
Company runs its own Digital Asset validator nodes and has entered into network-based smart contracts. Through these contracts,
the Company provides cryptocurrency to stake a node for the purpose of validating transactions and adding blocks to a respective blockchain
network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months
after it is cancelled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract.
In exchange for validating transactions and staking the cryptocurrency, the Company is entitled to all of the fixed cryptocurrency award
for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain.
The
provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation
or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives
– the fixed cryptocurrency awards – is a non-cash consideration, which the Company measures at fair value on the date received.
The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of
receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time
when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer.
At that point, revenue is recognized.
Cost
of Revenue
The
Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on
the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are
utilized and fees (including stock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.
Digital
Asset Transactions, Translations and Remeasurements
The
Company accounts for its Digital Assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles –Goodwill
and Other. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently,
when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.
Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform
a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not
more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise,
it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new
cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Digital
Assets held are included in the balance sheets as
either current assets or other assets if they are staked and locked up for over one year. The Company’s Digital Assets are
initially recorded at fair value upon receipt (or “carrying value”). The fair value of Digital Assets is determined
using the average U.S. dollar spot price of the related Digital Asset. On a quarterly basis, Digital Assets are measured
at carrying value, net of any impairment losses incurred since receipt. The Company will record impairment losses as the fair value falls
below the carrying value of the Digital Assets at any time during the period, as determined using the lowest U.S. dollar spot
price of the related Digital Asset subsequent to its acquisition. The Digital Assets can only be marked down when impaired
and not marked up when their value increases.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Such
impairment in the value of Digital Assets are recorded as a component of costs and expenses in our statements of operations. The Company
recorded impairment losses of approximately $3.8 million and $0.2 million related to Digital Assets during the years ended December 31,
2021 and December 31, 2020, respectively
Impairment
losses cannot be recovered for any subsequent increase in fair value until the sale or disposal of the asset. Realized gain (loss) on
sale of Digital Assets are included in other income (expense) in the statements of operations. The Company recorded realized gains (losses)
on Digital Assets of approximately $3.1
million and ($2,000)
during the years ended December 31, 2021 and
December 31, 2020, respectively.
The
presentation of purchases and sales of Digital Assets on the Statement of Cash Flows is determined by the nature of the Digital Assets,
which can be characterized as productive (i.e. purchased for purposes of staking) or non-productive. The purchase of non-productive Digital
Assets and currencies are included as an operating activity, whereas the purchase of productive Digital Assets and currencies are included
as investing activities in accordance with ASC 230-10-20 Investing activities. Productive Digital Assets that are staked
with a lock-up period of less than 12 months are presented on the Balance Sheet as current assets. Staked Digital Assets with
remaining lock-up periods of greater than 12 months are presented as long-term other assets on the Balance Sheet.
Internally
Developed Software
Internally
developed software consisting of the core technology of the Company’s Digital Asset Platform which is being designed to allow user
to aggregate and analyze data from Digital Asset exchanges. For internally developed software, the Company uses both its own employees
as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business
in accordance with ASC 985-20 and ASC 350.
ASC
985-20, Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires that software development costs
incurred in conjunction with product development be charged to research and development expense until technological feasibility is established.
Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized
cost or net realizable value of the related product. Some companies use a “tested working model” approach to establishing
technological feasibility (i.e., beta version). Under this approach, software under development will pass the technological feasibility
milestone when the Company has completed a version that contains essentially all the functionality and features of the final version
and has tested the version to ensure that it works as expected.
ASC
350, Intangibles-Goodwill and Other, requires computer software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. Costs incurred during the preliminary project stage and the post-implementation
stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property,
equipment and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization
begins when (i) the preliminary project stage is complete, (ii) management with the relevant authority authorizes and commits to the
funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used
to perform the function intended.
Property
and Equipment
Property
and equipment consists of computer, equipment and office furniture and fixtures, all of which are recorded at cost. Depreciation and
amortization is recorded using the straight-line method over the respective useful lives of the assets ranging from three to five years.
Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may
not be recoverable.
Use
of Estimates
The
accompanying financial statements have been prepared in conformity with U.S. GAAP. This requires management to make estimates and assumptions
that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and
assumptions include the recoverability and useful lives of indefinite life intangible assets, stock-based compensation, and the valuation
allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount
of the indefinite life intangible assets, could be affected by external conditions, including those unique to the Company and general
economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and
could cause actual results to differ from those estimates and assumptions.
Income
Taxes
The
Company recognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in its tax returns. A tax position
is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected
in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not
(i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities.
Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of
tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established to reduce deferred
tax assets if all, or some portion, of such assets will more than likely not be realized. Should they occur, the Company’s policy
is to classify interest and penalties related to tax positions as income tax expense. Since the Company’s inception, no such interest
or penalties have been incurred.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Accounting
for Warrants
The
Company accounts for the issuance of Common Stock purchase warrants issued in connection with the equity offerings in accordance
with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts that
(i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its
own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control
of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share
settlement). In addition, Under ASC 815, registered Common Stock warrants that require the issuance of registered shares upon
exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies
these derivative warrant liabilities on the balance sheet as a current liability.
The
Company assessed the classification of Common Stock purchase warrants as of the date of each offering and determined that such
instruments originally met the criteria for equity classification; however, as a result of the Company no longer being in control of
whether the warrants may be cash settled, the instruments no longer qualify for equity classification. Accordingly, the Company classified
the warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability is
subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized
as “change in the fair value of warrant liabilities” in the statements of operations. The fair value of the warrants has
been estimated using a Black-Scholes valuation model (see Note 4).
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation (“ASC 718”). ASC
718 addresses all forms of share-based payment (“SBP”) awards including shares issued under employee stock purchase plans
and stock incentive shares. Under ASC 718 awards result in a cost that is measured at fair value on the awards’ grant date, based
on the estimated number of awards that are expected to vest and will result in a charge to operations.
Share-based
payment awards exchanged for services are accounted for at the fair value of the award on the estimated grant date. Stock options issued
under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the
Company’s stock at the date of grant and expire up to ten years from the date of grant. These options often vest over a one-year
period.
The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment.
Expected
Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding
based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected
Volatility - The Company computes stock price volatility over expected terms based on its historical Common Stock trading
prices.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues
with an equivalent remaining term.
Expected
Dividend - The Company has not historically declared or paid any cash dividends on its common shares and does not plan to pay any
recurring cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
Effective
January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual
expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated
a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.
Advertising
Expense
Advertisement
costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $0.2
million and $6,000 for the years ended December 31, 2021 and 2020, respectively.
Net
Loss per Share
Basic
loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive,
potential common shares outstanding during the period. Potential common shares consist of the Company’s convertible preferred stock,
convertible notes, restricted stock units, options and warrants. Diluted loss per share excludes the shares issuable upon the conversion
of preferred stock, notes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.
The
following financial instruments were not included in the diluted loss per share calculation as of December 31, 2021 and 2020 because
their effect was anti-dilutive:
Schedule of Earnings Per Share Anti-diluted
| |
As of December 31, |
| |
2021 | | |
2020 | |
Warrants to purchase Common Stock | |
| 962,794 | | |
| 250,323 | |
Series C-1 Convertible Preferred stock | |
| - | | |
| 19,609 | |
Convertible notes | |
| - | | |
| 809,717 | |
Options | |
| 1,235,000 | | |
| - | |
Non-vested restricted stock awards units | |
| 29,363 | | |
| - | |
Total | |
| 2,227,157 | | |
| 1,079,649 | |
Convertible
Preferred Stock
The
Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement
of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair
value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)
are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated
the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.
The
Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging,
including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate
a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial
to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market
price of the underlying stock at the commitment date.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Beneficial
Conversion Feature of Convertible Notes Payable
The
Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification
(“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is
normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below
market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible
note when issued.
The
discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market
price of the Company’s Common Stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value
is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected
term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Recent
Accounting Pronouncements
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its financial
statements and related disclosures.
In
August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under
current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative
scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted
ASU No. 2020-06 effective January 1, 2022, and the adoption did not have a material impact on its financial statements and related disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future financial statements.
Note
4 - Fair Value of Financial Assets and Liabilities
Financial
instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried
at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the
fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs
when measuring fair value.
The
Company uses three levels of inputs that may be used to measure fair value:
Level
1 - quoted prices in active markets for identical assets or liabilities
Level
2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
The
following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2021 and 2020:
Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis
| |
Fair value measured at December 31, 2021 | |
| |
Total at December 31, | | |
Quoted prices in active markets | | |
Significant other observable inputs | | |
Significant unobservable inputs | |
| |
2021 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Warrant Liabilities | |
$ | 1,852,500 | | |
$ | - | | |
$ | - | | |
$ | 1,852,500 | |
| |
Fair value measured at December 31, 2020 | |
| |
Total at December 31, | | |
Quoted prices in active markets | | |
Significant other observable inputs | | |
Significant unobservable inputs | |
| |
2020 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Warrant Liabilities | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Level
3 Valuation Techniques
Level
3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination
of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair
value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
A
significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a
significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “change in fair value
of warrant liabilities” in the Company’s statements of operations.
On
March 2, 2021, the Company entered into a securities purchase agreement (the “Offering”) with certain purchasers pursuant
to which the Company agreed to sell an aggregate of (i) 950,000
shares of Common Stock, and (ii) Common
Stock warrants (the “Warrants”) to purchase up to 712,500
shares of Common Stock for gross proceeds
of $9.5
million in a private placement. The closing of
the Offering occurred on March 4, 2021.
The
Warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the Warrants)
at the Company. At the time of issuance, the Company maintained control of certain fundamental transactions and as such the Warrants
were initially classified in equity. As of December 31, 2021, the Company no longer maintained control of certain fundamental transactions
as they did not control a majority of shareholder votes. As such, the Company may be required to cash settle the Warrants if a fundamental
transaction occurs which is outside the Company’s control. Accordingly, the Warrants are classified as liabilities. The Warrants
have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at
each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual
terms, maturity, risk free rates, as well as volatility.
The
Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are
therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as
a current liability.
A
summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s
warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and, as of December 31, 2021,
is as follows:
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities
| |
September 14, 2021 | | |
December 31, 2021 | |
Risk-free rate of interest | |
| 0.79 | % | |
| 1.26 | % |
Expected volatility | |
| 192.2 | % | |
| 162.5 | % |
Expected life (in years) | |
| 4.47 | | |
| 4.18 | |
Expected dividend yield | |
| - | | |
| - | |
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. For the Warrants, the Company estimates expected
volatility giving primary consideration to the historical volatility of its Common Stock. The general expected volatility is based
on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns. The expected life of the warrants
was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not historically
paid dividends on its Common Stock and does not expect to pay recurring dividends on its Common Stock in the future.
The
following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the years
ended December 31, 2021 and 2020, that are measured at fair value on a recurring basis:
Schedule of Changes in Fair Value and Other Adjustments of Warrants
| |
Fair Value of Level 3 financial liabilities | |
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | - | | |
$ | - | |
Warrant liabilities classification | |
| 5,771,250 | | |
| - | |
Fair value adjustment of warrant liabilities | |
| (3,918,750 | ) | |
| - | |
Ending balance | |
$ | 1,852,500 | | |
$ | - | |
Note
5 - Note Payable
2019
Promissory Note (Retired)
On
November 7, 2019, the Company issued Cavalry Fund I LP (“Cavalry”) a $200,000
promissory note (the “2019 Promissory Note”).
The 2019 Promissory Note is due on August
7, 2020 and is: (i) convertible at a 20%
discount to the closing price of the Company’s Common Stock on the date before exercise with a floor price of $0.20
per share, (ii) shall bear interest at 12%
per annum (payable at maturity) and in the event of default bears interest at a rate of 20%,
(iii) convertible at the Company’s option subject to certain limitations as set forth in the 2019 Promissory Note, and (iv) may
be prepaid by the Company. In addition, the Convertible Note does not contain any embedded features that require bifurcation pursuant
to ASC 815-15. At the issuance date, the Convertible Note was convertible into 217,392
shares of Common Stock at $0.90
per share, but the Company’s fair value
of underlying Common Stock was $1.20
per share. As such, the Company recognized
a beneficial conversion feature, resulting in a discount to the Notes of approximately $50,000
with a corresponding credit to additional paid-in
capital.
On
April 6, 2020, the Company issued a total of 73,530
shares of the Company’s Common Stock
for the conversion of $50,000
of principal on the 2019 Promissory Note.
On
May 7, 2020, the Company issued a total of 63,274
shares of the Company’s Common Stock
for the conversion of the remaining $150,000
of principal and $2,000
of interest on the 2019 Promissory Note.
On
May 11, 2020, the Company issued a total of 3,583
shares of the Company’s Common Stock
for the conversion of the remaining accrued interest of $9,458
on the 2019 Promissory Note.
During
the year ended December 31, 2020, the Company recorded approximately $40,000 in interest expense related to amortization on debt discount
related to the 2019 Promissory Note.
During
the year ended December 31, 2020, the Company recorded interest expense of approximately $8,000. As of December 31, 2020, the principal
balance of the 2019 Promissory Note was $0.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
2020
April Promissory Note (Retired)
On
April 17, 2020, the Company issued Cavalry a $500,000
promissory note (the “2020 April Promissory
Note”) in consideration for $500,000.
The 2020 April Promissory Note is (i) due on February
17, 2021, (ii) convertible at a 35%
discount to the closing price of the Company’s Common Stock on the date before exercise with a floor price of $0.20
per share and (iii) shall bear interest at
12%
per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2020 April Promissory Note.
In addition, this note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date,
the Convertible Note was convertible into 777,001
shares of Common Stock at $0.64
per share, but the Company’s fair value
of underlying Common Stock was $0.99
per share. As such, the Company recognized a
beneficial conversion feature, resulting in a discount to this note of approximately $269,000
with a corresponding credit to additional paid-in
capital.
From
November 2 to December 3, 2020, the Company issued a total of 520,091
shares of the Company’s Common Stock
for the conversion of the $500,000
of principal of 2020 April Promissory Note.
On
December 16, 2020, the Company issued a total of 34,371
shares of the Company’s Common Stock
for the conversion of accrued interest of $35,298
on the 2020 April Promissory Note.
During
the year ended December 31, 2020, the Company recorded approximately $269,000 in interest expense related to amortization on debt discount
related to the 2020 April Promissory Note.
During
the year ended December 31, 2020, the Company recorded interest expense of approximately $35,000. As of December 31, 2020, the principal
balance of the 2020 Promissory Note was $0.
2020
December Promissory Note (Retired)
On
December 16, 2020, the Company issued Cavalry a $1,000,000
promissory note (the “2020 December Promissory
Note”) in consideration for $1,000,000.
The 2020 December Promissory Note is (i) due on October 16, 2021, (ii) convertible at a 35%
discount to the closing price of the Company’s Common Stock on the date before exercise with a floor price of $0.40
per share and (iii) shall bear interest at 12%
per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2020 December Promissory Note.
In connection with issuance of the 2020 December Promissory Note, the Company issued a Series C warrant to purchase 200,000
shares of the Company’s Common Stock
at an exercise price of $2.00,
the Series C warrants were exercised for cash on January 15, 2021, resulting in proceeds of $400,000
to the Company.
During
the year ended December 31, 2021, the Company recorded approximately $868,000 amortization of debt discount related to the 2020 December
Promissory Note.
During
the year ended December 31, 2021, the Company recorded interest expense of approximately $88,000 for the 2020 December Promissory Note.
On
September 24, 2021, the Company paid off in full the 2020 December Promissory Note. Repayment to Cavalry consisted of $1,000,000 in principal
and $92,712 in accrued interest, for a total of $1,092,712. Cavalry confirmed the 2020 December Promissory Note had been fully paid and
the Company has no further obligations with respect to the note.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
2021
January Promissory Note (Retired)
On
January 15, 2021, the Company issued Calvary a $1,000,000
promissory note (the “2021 Promissory Note”)
in consideration for $1,000,000.
The 2021 Promissory Note is (i) due on November 15, 2021, (ii) convertible at a 35%
discount to the closing price of the Company’s Common Stock on the date before exercise with a floor price of $7.50
per share and (iii) shall bear interest at 12%
per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2021 Promissory Note.
In
connection with issuance of the 2021 Promissory Note, the Company issued a Series D warrant to purchase 200,000
shares of the Company’s Common Stock
at an exercise price of $21.60
per share (the “Series D Warrant”).
Detachable warrants issued in a bundled transaction with debt and equity offerings are accounted for on a separate basis. The allocation
of the issuance proceeds to the base instrument and to the warrants depends on the accounting classification of the separate warrant
as equity or liability. If the warrants are classified as equity, then the allocation is made based upon the relative fair values of
the base instrument and the warrants following the guidance in ASC 470-20-25-2. In this case, the Series D Warrant is equity-classified,
with the fair value at issuance was approximately $3,580,000.
As such, the Company recognized a beneficial conversion feature, resulting in a discount to the 2021 Promissory Note of approximately
$782,000
with a corresponding credit to additional paid-in
capital.
In
addition, the 2021 Promissory Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance
date, the 2021 Promissory Note was convertible into 70,572
shares of Common Stock at $14.10
per share, but the Company’s fair value
of underlying Common Stock was $21.8
per share. As such, the Company recognized a
beneficial conversion feature, resulting in an additional discount to the 2021 Promissory Note of approximately $218,000
with a corresponding credit to additional paid-in
capital.
During
the year ended December 31, 2021, the Company recorded approximately $1,000,000 amortization of debt discount related to the 2021 December
Promissory Note.
During
the year ended December 31, 2021, the Company recorded interest expense of approximately $99,000 for the 2021 December Promissory Note.
On
November 12, 2021, the Company paid off in full the 2021 December Promissory Note. Repayment to Cavalry consisted of $1,000,000 in principal
and $98,958 in accrued interest, for a total of $1,098,958. Cavalry confirmed the 2021 December Promissory Note had been fully paid and
the Company has no further obligations with respect to the note.
Note
6 - Stockholders’ Equity (Deficit)
Preferred
Stock
Series
C-2 Preferred Stock
The
company is authorized to issue 20,000,000
shares of $0.001
par value preferred stock. This preferred stock
may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s
board of directors without further action by the Company’s shareholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company without further action by shareholders and could adversely affect
the rights and powers, including voting rights, of the holders of Common Stock. In certain circumstances, the issuance of preferred
stock could depress the market price of the Common Stock.
On
January 1, 2021, members of the Company’s management subscribed for 110,000 shares of the Company’s Series C-2 Convertible
Preferred Stock (the “Series C-2”), for a total of $1,100,000 at $10.00 per Share of Series C-2. The Company obtained an
independent valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the
fair value and the proceeds received.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
The
Series C-2 is not mandatorily redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate
of Designation required that the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking
shareholder ratification of the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month
anniversary of the Initial Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107%
of (i) the Stated Value per share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the
SEC prior to the Vote Deadline but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline would have been extended
until such time as the vote was conducted. The Series C-2 holders were not entitled to vote on the ratification. The call provision would
have been automatically triggered if the ratification of the issuance was not approved in a special meeting of stockholders prior to
the twelve-month anniversary of the Initial Issuance Date. The Company held the meeting within the required period and the Series C-2
is no longer redeemable.
Based
on the guidance in ASC 480-10-S99 (“ASR 268”), a redeemable equity instrument is not to be included in permanent equity.
Rather, it should be reported between long-term debt and stockholders’ equity, without a subtotal that might imply it is a part
of stockholders’ equity (i.e., “temporary equity” or “mezzanine capital”). ASR 268 specifies that redeemable
stock is any type of equity security, including common or preferred stock, when it has any condition for redemption which is not solely
within the control of the issuer without regard to probability.
The
Series C-2 Certificate of Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote
Deadline. Stockholder approval was not considered to be “solely within the Company’s control.” Stockholder approval
occurred on March 31, 2021, at which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially
classified in temporary equity under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021.
The
holders of Series C-2 shall be entitled to receive dividends or distributions on each share of Series C-2 on an “as-converted basis”
into Common Stock when and if dividends are declared on the Common Stock by the Board of Directors. Dividends shall be
paid in cash or property, as determined by the Board of Directors.
At
any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion
of the outstanding Series C-2 held by such Holder into validly issued, fully-paid and non-assessable shares of Common at the Conversion
Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically
be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneously with the Company’s
Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $1.70
which resulted in a beneficial conversion feature
at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412
as a reduction to the carrying amount of the
convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date. Upon the conversion
of Series C-2 into Common Stock on September 14, 2021, the total amortization of the beneficial conversion feature is $45,541
and the remaining discount is netted against
additional paid in capital.
The
Conversion Amount may be adjusted due to certain Anti-Dilution Events. If
at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock
or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii)
the aggregate amount of all capital raised by the Company after the Initial Issuance Date (the “Capital Raised”). Provided;
further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless
of how much capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange
and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining
the Anti-Dilution Amount. As of September 30, 2021, over $13 million of capital was raised and the adjustment to the Conversion Amount
was fully triggered. The Company recognized the effect of the down-round protection when capital raises occur as the difference between:
(1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial
instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down
round feature of $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation.
On September 14, 2021, the Series C-2 was converted
into 4,011,766
shares of Common Stock.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
Common
Stock
Reverse
Stock Split
On
August 25, 2021, the Company issued approximately 14,500
shares of Common Stock in connection with
the 1-for-10 Reverse Split
resulting from the rounding up of fractional shares of Common
Stock to the whole shares of Common Stock. The financial statements have been retroactively restated to reflect the reverse
stock split.
Issuance
of Shares Pursuant to Equity Line of Credit Purchase Agreement
During
the year ended December 31, 2020, the Company issued 618,658
shares of Common Stock (including 2,421
pro-rata commitment shares) under the second
Registration Statement pursuant to the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $415,000.
On
June 22, 2020, the Company filed a third Registration Statement on Form S-1 seeking to register 904,500
shares. The third Registration Statement
was declared effective by the SEC on June 26, 2020.
During
the year ended December 31, 2020, Company issued 904,500
shares of Common Stock (including
8,430
pro-rata commitment shares) under the third Registration
Statement pursuant to the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $1,445,000
.
On
January 28, 2021, the Company filed a fourth Registration Statement on Form S-1 seeking to register 400,000 shares. The fourth Registration
Statement was declared effective by the SEC on February 1, 2021.
During
the year ended December 31, 2021, the Company sold 321,738 shares (inclusive of approximately 17,590 pro-rata commitment shares) available
for sale under the fourth Registration Statement for total proceeds of approximately $3,015,000.
Issuance
of Shares Pursuant to Registered Direct Offering
On
March 4, 2021, the Company entered into a securities purchase agreement (the “RD Purchase Agreement”) with institutional
investors, pursuant to which the Company sold and issued, in a registered direct offering, 950,000
shares of the Company’s Common Stock,
at a purchase price per share of $10.00
and immediately exercisable five-year warrants
to purchase 712,500
shares of Common Stock at an exercise
price of $11.50
per share. Gross proceeds from the Offering were
$9.5
million. Net proceeds were $8.9
million after deducting placement agent fees
and other offering expenses paid for by the Company.
The
RD Purchase Agreement contains representations, warranties, indemnifications and other provisions customary for transactions of this
nature. Pursuant to the RD Purchase Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed
not to, and not to publicly disclose the intention to, sell or otherwise dispose of, any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, Common Stock, for a period ending 60 days after the date of the prospectus
supplement for this offering.
The
Company also entered into a placement agent agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which AGP
agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement
fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors) and reimbursed the placement
agent for its legal fees and other accountable expenses in the amount of $40,000.
At
The Market Offering Agreement
On
September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright
& Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through
H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500
million (the “Shares”). The Company
will pay H.C. Wainwright a commission rate equal to 3.0%
of the aggregate gross proceeds from each sale of Shares.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
During
the year ended December 31, 2021, the Company sold a total of 466,791
shares of Common Stock under the ATM Agreement
for aggregate total gross proceeds of approximately $2,979,000
at an average selling price of $6.38
per share, resulting in net proceeds of approximately
$2,832,000
after deducting commissions and other transaction
costs.
Issuance
of Shares Pursuant to Cash Exercise of Series C Warrants
On
January 15, 2021, the Company issued 200,000
shares of the Company’s Common Stock
to Cavalry upon the exercise of all their Series C warrants and payment of the exercise amount of $400,000.
Cavalry and the Company entered into an agreement whereby Cavalry would exercise early for cash provided that the Company register the
underlying shares of Common Stock within 30 days of exercise.
Issuance
of Shares Due to Conversion of Series C-1 Preferred Stock
On
March 30, 2021, the Company issued 19,609
shares of Common Stock upon the conversion
of 29,414
shares of Series C-1 Convertible Preferred stock.
After this conversion, there were no Series C-1 shares outstanding, so the Company filed a Certificate of Withdrawal with the Secretary
of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters
set forth in the Series C-1.
Issuance
of Shares Due to Conversion of Series C-2 Preferred Stock
On
September 14, 2021, the Series C-2 was converted into 4,011,766
shares of Common Stock. Please refer to
the discussion below.
Issuance
of Restricted Stock to Service Providers
During
the year ended December 31, 2021, the Company issued to four service providers a total of approximately 52,800
shares of restricted Common Stock, representing
a total fair value of $0.6
million.
Issuance
of Shares Due to Conversion of Notes
On
April 6, 2020, the Company issued a total of 73,529
shares of the Company’s Common Stock
for the conversion of $50,000
of principal on the 2019 Promissory Note.
On
May 7, 2020, the Company issued a total of 63,273
shares of the Company’s Common Stock
for the conversion of the remaining $150,000
of principal and $2,000
of interest on the 2019 Promissory Note.
On
May 11, 2020, the Company issued a total of 3,582
shares of the Company’s Common Stock
for the conversion of the remaining accrued interest of $9,458
on the 2019 Promissory Note.
From
November 2 to December 3, 2020, the Company issued a total of 520,088
shares of the Company’s Common Stock
for the conversion of the $500,000
of principal of 2020 April Promissory Note.
On
December 16, 2020, the Company issued a total of 34,370
shares of the Company’s Common Stock
for the conversion of accrued interest of $35,298
on the 2020 April Promissory Note.
2021
Equity Incentive Plan
The
Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders
on March 31, 2021. The Company has reserved 2,000,000
shares of Common Stock for issuance pursuant
to the 2021 Plan.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
Options
On
January 1, 2021, the Board of Directors of the Company approved the grant of 1.2 million stock options with an exercise price of $1.90
under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and
directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing
the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements
or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek
shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the
guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP
for those stock options. Of the stock options: (i) 480,000 options will vest on January 1, 2022 and (ii) the remaining options vested
(prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones.
On
April 1, 2021, the Company granted 35,000 stock options with an exercise price of $10.30 to Charles B. Lee and Carol Van Cleef, directors
of the Company. Of the stock options: (i) 14,000 options will vest on April 1, 2022 and (ii) the remaining 21,000 options vest based
upon the Company’s stock price meeting certain milestones.
The
Company records compensation expense for the 14,000 options granted on April 1, 2021 based on the estimated fair value of the options
on the deemed grant date using the Black-Scholes formula, utilizing assumptions laid out in the table below. The Company uses historical
data to determine exercise behavior, volatility and forfeiture rate of the options. For the 21,000 options granted on April 1, 2021 that
vest based upon the Company’s stock price meeting certain milestones, the Company records compensation expense based on the estimated
fair value of the options using a Monte-Carlo simulation.
The
following weighted-average assumptions were used to estimate the fair value of options granted during the year ended December 31, 2021
and 2020 for both the Black-Scholes formula and the Monte-Carlo simulation:
Summary of Weighted-average Assumptions Used to Estimate Fair Value
| |
For the year ended December 31, | |
| |
2021 | | |
2020 | |
Exercise price | |
$ | 2.14 | | |
| - | |
Term (years) | |
| 2.50-3.30 | | |
| - | |
Expected stock price volatility | |
| 185.9 | % | |
| - | |
Risk-free rate of interest | |
| 0.34 | % | |
| - | |
Expected
Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility
is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.
Risk-Free
Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for
the expected term of the option.
Expected
Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected
to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses
historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise
patterns.
For
awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line
basis over the vesting period. For awards vesting upon the achievement of the market conditions which were met at the date of grant,
compensation cost measured on the date of grant was immediately recognized. For awards vesting upon the achievement of the market conditions
which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over
the vesting period based on estimation using a Monte-Carlo simulation.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
A
summary of options activity under the Company’s stock option plan for the year ended December 31, 2021 is presented below:
Summary of Option Activity
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Total Intrinsic Value | | |
Weighted Average Remaining Contractual
Life (in
years) | |
Outstanding as of December 31, 2020 | |
| - | | |
$ | - | | |
$ | - | | |
| - | |
Employee options granted | |
| 1,235,000 | | |
| 2.14 | | |
| 1,488,000 | | |
| 4.3 | |
Outstanding as of December 31, 2021 | |
| 1,235,000 | | |
$ | 2.14 | | |
$ | 1,488,000 | | |
| 4.3 | |
Options vested and exercisable | |
| 725,250 | | |
$ | 1.96 | | |
$ | 892,800 | | |
| 4.3 | |
RSUs
On
January 1, 2021, the Board of Directors of the Company approved 275,000
restricted stock unit grants under the Company’s
2021 Equity Incentive Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors
of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the
stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements
or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek
shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the
guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP
for those restricted stock grants. The restricted stock units vest when the Company lists its Common Stock on a national securities
exchange. As of December 31, 2021, all 275,000
restricted stock units vested with a total fair
value of approximately $2.8
million. The cost of stock-based compensation
for restricted stock units is measured based on the closing fair market value of the Company’s Common Stock at the deemed
grant date and was recorded on the September 14, 2021 vesting date when the listing occurred.
On
April 1, 2021, the Company granted a total of 15,000
restricted stock units to two non-employee directors
of the Company. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As
of December 31, 2021, all 15,000
restricted stock units vested with a total fair
value of approximately $0.2
million. The cost of stock-based compensation
for restricted stock units is measured based on the closing fair market value of the Company’s Common Stock at the deemed
grant date and was recorded on the September
14, 2021 vesting date when the listing occurred.
On
June 28, 2021, the Company granted 50,781 restricted stock units to the Company’s then Chief Financial Officer. The restricted
stock units were to vest over a five-year period as follows: 20% of the 50,781 restricted stock units were to vest on the one-year anniversary
of the grant date, and the remaining 80% were to vest monthly over the following four years with vesting occurring on the last day of
each respective month. On November 30, 2021, this Chief Financial Officer resigned. The 50,781 restricted stock units granted to this
Chief Financial Officer were forfeited accordingly.
On
December 1, 2021, the Company granted 29,363 restricted stock units to the Company’s current Chief Financial Officer. The restricted
stock units are to vest over a five-year period as follows: 20% of the 29,363 restricted stock units are to vest on the one-year anniversary
of the grant date, and the remaining 80% are to vest monthly over the following four years with vesting occurring on the last day of
each respective month. The grant date fair value of restricted stock units was approximately $0.2 million.
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
A
summary of the Company’s restricted stock units granted under the 2021 Plan during the year ended December 31, 2021 are as follows:
Summary of Restricted Stock
| |
Number of Restricted Stock Units | | |
Weighted Average Grant Day Fair Value | |
Nonvested at December 31, 2020 | |
| - | | |
$ | - | |
Granted | |
| 370,144 | | |
| 9.42 | |
Vested | |
| (290,000 | ) | |
| 10.29 | |
Forfeited | |
| (50,781 | ) | |
| 6.42 | |
Nonvested at December 31, 2021 | |
| 29,363 | | |
$ | 5.96 | |
Stock-based
Compensation
Stock-based
compensation expense for the year ended December 31, 2021 was approximately $15.4
million, comprised of approximately $0.3
million restricted Common Stock issued
to service providers not pursuant to the 2021 Plan and approximately $11.9
million in connection with options issued pursuant
to the 2021 Plan. Unrecognized compensation expense for the Company was $0.3
million on December 31, 2021. Stock-based compensation
expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues.
Stock-based
compensation expense for the years ended December 31, 2021 and 2020 was as follows:
Schedule of Stock-based Compensation Expense
| |
2021 | | |
2020 | |
Employee stock option awards | |
$ | 11,932,409 | | |
$ | - | |
Employee restricted stock units awards | |
| 2,993,146 | | |
| - | |
Non-employee restricted stock awards | |
| 352,640 | | |
| - | |
Series C-2 allocation | |
| 179,277 | | |
| - | |
| |
$ | 15,457,473 | | |
$ | - | |
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Stock
Purchase Warrants
The
following is a summary of warrant activity for the years ended December 31, 2021 and 2020:
Summary of Warrant Activity
| |
Number of Warrants | |
Outstanding as of December 31, 2019 | |
| 93,821 | |
Issuance of Series C Warrants | |
| 200,000 | |
Expiration of warrant | |
| (43,498 | ) |
Outstanding as of December 31, 2020 | |
| 250,323 | |
Issuance of Series C Warrants | |
| 200,000 | |
Warrants exercise for cash | |
| (200,000 | ) |
Issuance of Warrants pursuant to Registered Direct Offering | |
| 712,500 | |
Fractional shares adjusted for reverse split | |
| (29 | ) |
Outstanding as of December 31, 2021 | |
| 962,794 | |
Note
7 - Employment Agreements
Charles
W. Allen
On
June 22, 2017, we entered into an employment agreement with Charles Allen (the “Allen Employment Agreement”), whereby Mr.
Allen agreed to serve as our Chief Executive Officer and Chief Financial Officer for a period of two (2) years, subject to renewal, in
consideration for an annual salary of $245,000. Additionally, under the terms of the Allen Employment Agreement, Mr. Allen shall be eligible
for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Allen shall be entitled to participate
in all benefits plans we provide to our senior executive. We shall reimburse Mr. Allen for all reasonable expenses incurred in the course
of his employment. The Company shall pay the Executive $500 per month to cover telephone and internet expenses. If the Company does not
provide office space to the Executive the Company will pay the Executive an additional $500 per month to cover expenses in connection
with their office space needs.
On
February 6, 2019 we amended the Allen Employment Agreement whereby the annual salary was increased to $345,000 per year effective January
1, 2019, subject to a 4.5% annual increase each subsequent year to adjust for inflation. All other terms of the Allen Employment Agreement
remained unchanged including the Annual Increase. For the year ended December 31, 2021, Mr. Allen’s annual salary was $376,749.
Michal
Handerhan
On
June 22, 2017, we entered into an employment agreement with Michal Handerhan (the “Handerhan Employment Agreement”), whereby
Mr. Handerhan agreed to serve as our Chief Operating Officer and Secretary for a period of two (2) years, subject to renewal, in consideration
for an annual salary of $190,000. Additionally, under the terms of the Handerhan Employment Agreement, Mr. Handerhan shall be eligible
for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Handerhan shall be entitled to participate
in all benefits plans we provide to our senior executive. We shall reimburse Mr. Handerhan for all reasonable expenses incurred in the
course of his employment. The Company shall pay the Executive $500 per month to cover telephone and internet expenses. If the Company
does not provide office space to the Executive the Company will pay the Executive an additional $500 per month to cover expenses in connection
with their office space needs.
On
February 6, 2019 we amended the Handerhan Employment Agreement whereby the annual salary was increased to $215,000 per year effective
on January 1, 2019, subject to a 4.5% annual increase each subsequent year to adjust for inflation. All other terms of the Handerhan
Employment Agreement remained unchanged including the Annual Increase. For the year ended December 31, 2021 Mr. Handerhan’s annual
salary was $234,785.
On
March 31, 2020, Charles Allen, the Company’s Chief Executive Officer, and Michal Handerhan, the Company’s Chief Operating
Officer, agreed to defer 35% of their cash compensation during the second quarter 2020 (the “Period”) and refrain from making
any payments during the Period on accrued and unpaid compensation owed prior to the Period. The Company subsequently paid the deferred
compensation for the Period.
Andrew
Lee
On
June 28, 2021 we entered into an employment agreement with Andrew Lee (the “Lee Employment Agreement”), whereby Mr. Lee agreed
to serve as our Chief Financial Officer in consideration for an annual salary of $250,000. Additionally, under the terms of the Lee Employment
Agreement, Mr. Lee shall be eligible for an annual bonus if we meet certain criteria, as established by the Board of Directors. Mr. Lee
shall be entitled to participate in all benefits plans we provide to our senior executive. We shall reimburse Mr. Lee for all reasonable
expenses incurred in the course of his employment. The Company shall pay the Executive $500 per month to cover telephone and internet
expenses. If the Company does not provide office space to the Executive the Company will pay the Executive an additional $500 per month
to cover expenses in connection with their office space needs.
On
November 4, 2021, Mr. Andrew Lee resigned as the Company’s Chief Financial Officer. In connection with the resignation, the Board
of Directors appointed Mr. Charles Allen, the Company’s current Chairman of the Board and Chief Executive Officer as the Company’s
interim Chief Financial Officer. Mr. Allen did not receive any additional compensation for his interim role as Chief Financial Officer.
Michael
Prevoznik
On
December 1, 2021 we entered into an employment agreement with Michael Prevoznik (the “Prevoznik Employment Agreement”), whereby
Mr. Prevoznik agreed to serve as our Chief Financial Officer in consideration for an annual salary of $175,000. Additionally, under the
terms of the Prevoznik Employment Agreement, Mr. Prevoznik shall be eligible for an annual bonus if we meet certain criteria, as established
by the Board of Directors. Mr. Prevoznik shall be entitled to participate in all benefits plans we provide to our senior executive. We
shall reimburse Mr. Prevoznik for all reasonable expenses incurred in the course of his employment. The Company shall pay the Executive
$500 per month to cover telephone and internet expenses. If the Company does not provide office space to the Executive the Company will
pay the Executive an additional $500 per month to cover expenses in connection with their office space needs.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
Termination/Severance
Provisions
The
terms of the Allen Employment Agreement and Handerhan Employment Agreement (collectively the “Employment Agreements”) provide
each of Messrs. Allen and Handerhan (the “Executives”) certain, severance and change of control benefits if the Executive
resigns from the Company for good reason or the Company terminates him other than for cause. In such circumstances, the Executive would
be entitled to a lump sum payment equal to (i) the Executive’s then-current base salary, and (ii) payment on a pro-rated basis
of any bonus or other payments earned in connection with any bonus plan to which the Executive was a participant. In addition, the severance
benefit for the Executives the employment agreements include the Company continuing to pay for medical and life insurance coverage for
up to one year following termination. If, within eighteen months following a change of control (as defined below), the Executive’s
employment is terminated by the Company without cause or he resigns from the Company for good reason, the Executive will receive certain
severance compensation. In such circumstances, the cash benefit to the Executive will be a lump sum payment equal to two times (i) his
then-current base salary and (ii) his prior year cash bonus and incentive compensation. Upon the occurrence of a change of control, irrespective
of whether his employment with the Company terminates, each Executive’s stock options and equity-based awards will immediately
vest.
A
“change of control” for purposes of the Employment Agreements means any of the following: (i) the sale or partial sale of
the Company to an un-affiliated person or entity or group of un-affiliated persons or entities pursuant to which such party or parties
acquire shares of capital stock of the Company representing at least twenty five (25%) of the fully diluted capital stock (including
warrants, convertible notes, and preferred stock on an as converted basis) of the Company; (ii) the sale of the Company to an un-affiliated
person or entity or group of such persons or entities pursuant to which such party or parties acquire all or substantially all of the
Company’s assets determined on a consolidated basis, or (iii) Incumbent Directors (Mr. Allen and Mr. Handerhan) cease for any reason,
including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a
majority of the board of directors of the Company.
Additionally,
pursuant to the terms of the Employment Agreements, we have entered into an indemnification agreement with each executive officer.
Bonuses
On
December 14, 2017, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, cash bonuses of $75,000 and $35,000,
respectively for 2017. The Company further agreed to pay Mr. Allen and Mr. Handerhan contingent cash bonuses of $175,000 and $75,000
respectively (the “2017 Contingent Bonuses”) which will be deemed earned on the earlier of i) the closing of a merger approved
by the Board, ii) the closing of one or many financings in 2018 totaling over $1.25 million in gross proceeds, or iii) the Company having
cash and the fair market value of Digital Assets valued at over $1.5 million. Provided further that the 2017 Contingent Bonuses if deemed
earned will only be payable if the Company has at least $1.25 million in cash and the fair market value of Digital Assets prior to paying
the bonuses. The 2017 Contingent Bonuses are not conditioned upon the continued service of either Mr. Allen or Mr. Handerhan and do not
expire. The conditions to earn the 2017 Contingent Bonuses have been achieved and the 2017 Contingent Bonuses have been paid in 2020.
On
February 6, 2019, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, contingent cash bonuses of $256,025
and $150,000,
respectively for 2018 (the “2018 Contingent Bonuses”) which will be deemed earned and payable upon the repayment and / or
settlement of the $200,000
Promissory Note issued on December 18, 2018.
On September 18, 2019, the Company exchanged the $200,000
Promissory Note and accrued interest of $17,973
for a $217,973
Convertible Promissory Note due on December 18,
2019 (the “New Note”). From September 18, 2019 through October 16, 2019 the Company issued 193,179
shares of the Company’s Common Stock
for the conversion of all $217,973
principal on the New Note. The Company subsequently
paid all the accrued interest expense of $905
on the New Note as such the conditions to earn
the 2018 Contingent Bonuses have been achieved and the 2018 Contingent Bonuses have been paid in 2020.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
On
January 19, 2020, the Company agreed to pay Charles Allen, its CEO, and Michal Handerhan, its COO, cash bonuses of $15,000 and $10,000,
respectively for 2019. The Company also agreed to pay Mr. Allen and Mr. Handerhan contingent cash bonuses of $462,000 and $235,750 (collectively
the “2019 Contingent Bonuses”). The Contingent Cash Bonuses will be earned and payable upon the achievement or satisfaction
of any one of the following performance goals or criteria: 1) The Company either: i) consummates a merger with another company which
would constitute a change of control, or ii) signs a letter of intent (an “LOI”), approved by the board, to merge with another
company which would constitute a change of control, 2) the combined value of the Company’s cash and fair market value of Digital
Assets (collectively the “Assets”) at any point in time are: i) greater than or equal to $1.25 million, then 25% of the Contingent
Cash Bonuses will be deemed earned and payable, ii) greater than or equal to $1.75 million (excluding any portion of Contingent Cash
Bonuses previously earned whether paid or accrued), then 25% of the Contingent Cash Bonuses will be deemed earned and payable, iii) greater
than or equal to $2 million (excluding any portion of Contingent Cash Bonuses previously earned whether paid or accrued), then the remaining
50% of the Contingent Cash Bonuses will be deemed earned and payable, and 3) provided further if the Company and Mr. Allen or Mr. Handerhan
agree to exchange their respective Contingent Cash Bonus or a portion thereof for equity securities (not debt) then the above performance
criteria do not need to be achieved with respect to the portion of Contingent Cash Bonuses exchanged for equity. The Contingent Cash
Bonuses are not conditioned upon the continued service of Mr. Allen or Mr. Handerhan and do not expire. The conditions to earn the 2019
Contingent Bonuses have been achieved and the 2019 Contingent Bonuses have been paid in 2020.
The
amendments to the Employment Agreements, the 2017 Contingent Bonuses, the 2018 Contingent Bonuses, and the 2019 Contingent Bonuses were
approved unanimously by the Board.
Accrued
compensation
As
of December 31, 2021 and 2020, the Company had approximately $7,000 and $350,000 of accrued compensation.
Note
8 – Employee Benefit Plans
The
Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified
employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of
up to 100% of employee contributions. For the year ended December 31, 2021 and 2020, the Company made contributions to the 401(k) Plan
of $39,000 and $0, respectively.
Note
9 – Going Concern - Liquidity
The
Company follows “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern”. The Company’s financial statements have been prepared assuming
that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities
in the normal course of business.
As
reflected in the financial statements, the Company has historically incurred a net loss and has an accumulated deficit at December 31,
2021, a net loss and net cash used in operating activities for the reporting period then ended. The Company is implementing its business
plan and generating revenue; however, the Company’s cash position and liquid Digital Assets are sufficient to support its daily
operations over the next twelve months.
The
Company has sustained recurring losses and negative cash flows from operations. Over the past year, the Company’s growth has been
funded through a combination of sale of equity (common and preferred stock), promissory notes, and lease financing. As of December 31,
2021, the Company had approximately $1.4 million of unrestricted cash and liquid Digital Assets with a carrying value of $3.7 million.
However, historically the Company has experienced and may continue to experience negative operating margins and negative cash flows from
operations, as well as an ongoing requirement for additional capital investment. The Company expects that it will need to raise additional
capital to accomplish its business plan over the next several years. The Company expects to seek to obtain additional funding through
debt or equity financing. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
Note
10 - Income Taxes
The
Company had no income tax expense due to operating loss incurred for the years ended December 31, 2021 and 2020.
The
tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets
and liabilities at December 31, 2021 and 2020 are comprised of the following:
Schedule of Deferred Tax Assets and Liabilities
| |
2021 | | |
2020 | |
| |
As of December 31, | |
| |
2021 | | |
2020 | |
Deferred tax assets: | |
| | | |
| | |
Net-operating loss carryforward (federal & state) | |
$ | 2,287,780 | | |
$ | 1,937,770 | |
Other (Non-Qualified Stock Options) | |
| 209,797 | | |
| - | |
| |
| | | |
| | |
Total Deferred Tax Assets | |
| 2,497,577 | | |
| 1,937,770 | |
Valuation allowance | |
| (2,497,577 | ) | |
| (1,937,770 | ) |
Deferred Tax Asset, Net of Allowance | |
$ | - | | |
$ | - | |
At
December 31, 2021, the Company had net operating loss carry forwards for federal and state tax purposes of approximately $10.89 million
which begins to expire in 2034. The 20-year carryforward period has been replaced with an indefinite carryforward period for these NOLs
generated in tax years beginning after December 31, 2017 and future years.
Accordingly, the amount of
NOLs that were generated in the tax year December 31, 2014 in the amount of $1,290,156 will expire after December 31, 2034. The amount
of NOLs that were generated in the tax year December 31, 2015 in the amount of $1,545,343 will expire after December 31, 2035. The amount
of NOLs that were generated in the tax year December 31, 2016 in the amount of $794,762 will expire after December 31, 2036. The amount
of NOLs that were generated in the tax year December 31, 2017 in the amount of $1,084,564 will expire after December 31, 2037. The NOLs
generated in the tax years December 31, 2018 in the amounts of $6,179,367 and onwards will have an indefinite life per current U.S. federal
income tax legislation.
Prior to the February 5, 2014 merger, the Company had generated
net operating losses, which the Company’s preliminary analysis indicates would be subject to significant limitations pursuant to
Internal Revenue Code Section 382. The Company has not completed its IRC Section 382 Valuation, as required and the NOL’s because
of potential Change of Ownerships might be completely worthless.
Therefore,
Management of the Company has recorded a Full Valuation Reserve, since it is more likely than not that no benefit will be realized for
the Deferred Tax Assets.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. In case the deferred tax
assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax
assets at December 31, 2021 and 2020. The valuation allowance increased by approximately $0.559 million as of December 31, 2021.
BTCS
Inc.
NOTES
TO FINANCIAL STATEMENTS
The
expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
Schedule of Income Tax Rate
| |
For the years ended December 31, | |
| |
2021 | | |
2020 | |
Statutory Federal Income Tax Rate | |
| (21.0 | )% | |
| (21.0 | )% |
State Taxes, Net of Federal Tax Benefit | |
| (6.5 | )% | |
| (6.3 | )% |
Federal tax rate change | |
| 0.0 | % | |
| 0.0 | |
Other | |
| 27.5 | % | |
| 27.3 | |
Change in Valuation Allowance | |
| (0.0 | )% | |
| (0.0 | )% |
| |
| | | |
| | |
Income Taxes Provision (Benefit) | |
| - | % | |
| - | % |
The
Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2021 and 2020.
Note
11 - Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the
evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure
in the financial statements other than disclosed.
During
the period from December 31, 2021 to March 9, 2022, the Company sold a total of 1,723,666 shares of Common Stock under
the ATM Agreement for aggregate total gross proceeds of approximately $10,578,000 at an average selling price of $6.14
per share, resulting in net proceeds of approximately $10,252,000 after deducting commissions and other transaction costs.
On
January 5, 2022, the Board of Directors of the Company declared a special one-time dividend of $0.05
for each outstanding share of Common Stock of
the Company. The dividend is payable to holders of record as of the close of business on March 17, 2022 (the “Record Date”).
Shareholders are being provided the option to receive proceeds of their dividend payable in either cash (a “Cash Dividend”)
or Bitcoin (“Bitcoin Dividend” or “Bividend”).
On
January 19, 2022, the Board of Directors of the Company approved a base salary increase for the Company’s Chief Operating Officer
Michal Handerhan as an amendment to the Handerhan Employment Agreement whereby the annual salary was increased to $275,000 per year effective
on January 1, 2021, subject to a 4.5% annual increase each subsequent year to adjust for inflation, pursuant to the 2021 compensation
plan.
On January 21, 2022, the
Board of Directors of the Company approved the formation of a Digital Asset Regulatory Committee comprised of two members: Carol Van
Cleef, Chair, and Charles Allen.
Effective
January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its
Compensation Committee:
Charles
Allen, the Company’s Chief Executive Officer, was awarded 173,611
fully-vested shares of Common Stock and
Michal Handerhan, the Company’s Chief Operating Officer, was awarded 111,111
fully-vested shares of Common Stock granted
under the 2021 Equity Incentive Plan (the “Plan”).
Charles
Allen, the Company’s Chief Executive Officer, was granted the following restricted stock units (“RSUs”) with vesting
terms set forth below:
|
● |
173,611
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $100,000,000; |
|
● |
173,611
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $150,000,000; |
|
● |
173,611
RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$200,000,000; and |
|
● |
173,611
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $400,000,000. |
Michal
Handerhan, the Company’s Chief Operating Officer, was granted the following RSUs with vesting terms set forth below:
|
● |
111,111
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $100,000,000; |
|
● |
111,111
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $150,000,000; |
|
● |
111,111
RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$200,000,000; and |
|
● |
111,111
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $400,000,000. |
BTCS Inc.
NOTES TO FINANCIAL STATEMENTS
Michael
Prevoznik, the Company’s Chief Financial Officer, was granted the following RSUs with vesting terms set forth below:
|
● |
55,556
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $100,000,000,
and the time-based criteria set forth below are met; |
|
● |
55,556
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $150,000,000,
and the time-based criteria set forth below are met; |
|
● |
55,556
RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$200,000,000, and the time-based criteria set forth below are met; and |
|
● |
55,556
RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above $400,000,000,
and the time-based criteria set forth below are met. |
To
the extent any market capitalization targets set forth above for Mr. Prevoznik are achieved the RSUs will also be subject to the following
five-year vesting schedule: 20% of the RSUs which have met a market capitalization criteria will vest on the one-year anniversary of
the grant date, and the remaining 80% of the RSUs which have met a market capitalization criteria will vest monthly over the four years
following the one year anniversary of the grant date.
In
addition to the vesting criteria set forth above, while the Company is listed on the Nasdaq, the restricted stock units issued to Mr.
Allen, Mr. Handerhan, and Mr. Prevoznik are subject to the receipt of shareholder approval approving an increase in the Plan or the creation
of a new plan as required under Nasdaq rules.
The
Board of Directors of the Company ratified grants of RSUs to each independent director. David Garrity, Carol Van Cleef and Charles Lee
were each granted 31,848 restricted stock units (the “Board Grants”). The Board Grants vest in four equal installments at
the end of each calendar quarter. The Board also approved the following annual committee chair fees: $15,000 for the Audit Committee
Chair, $8,000 for the Compensation Committee Chair, and $8,000 for the Governance and Nominating Committee (collectively, the “Committee
Chair Fees”). The Committee Chair Fees are payable quarterly in four equal installments.
On
February 22, 2022, the Company appointed Manish Paranjape as Chief Technology Officer of the Company. Since
January 2019, Mr. Paranjape has been the Vice President of Technology and Research at Corra, a global digital agency. Prior to that,
beginning in July 2013, Mr. Paranjape was the Director of Technology (U.S.) at Corra. Additionally, since March 2021, Mr. Paranjape has
been the principal of Kilwar LLC (“Kilwar”), a software development consulting company.
Mr.
Paranjape will receive a salary of $225,000 per year and will be eligible for a performance bonus in an amount and with milestones to
be determined by the Board of Directors and the Compensation Committee with the target bonus being one half to two times his then base
salary. Additionally, the Company has granted Mr. Paranjape 45,767 restricted stock units (“RSUs”). The RSUs shall vest as
follows: (i) one fifth on February 22, 2023, and (ii) the remaining in 48 equal (monthly) increments, with each vesting tranche being
subject to continued employment on such applicable vesting date.
Manish
Paranjape, the Company’s Chief Technology Officer, was also granted the following long-term incentive restricted stock units (the
“LTI RSUs”) with vesting terms set forth below:
|
● |
40,046
LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$100,000,000, and the time-based criteria set forth below are met; |
|
● |
40,046
LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$150,000,000, and the time-based criteria set forth below are met; |
|
● |
40,046
LTI RSUs priced when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days
above $200,000,000, and the time-based criteria set forth below are met; and |
|
● |
40,045
LTI RSUs when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above
$400,000,000, and the time-based criteria set forth below are met. |
To
the extent any market capitalization targets set forth above for Mr. Paranjape are achieved the RSUs will also be subject to the following
five-year vesting schedule: 20% of the LTI RSUs which have met a market capitalization criteria will vest on the one-year anniversary
of the grant date, and the remaining 80% of the LTI RSUs which have met a market capitalization criteria will vest monthly over the four
years following the one year anniversary of the grant date.
In
addition to the vesting criteria set forth above, while the Company is listed on the Nasdaq, the vesting and delivery of the shares of
Common Stock underlying the LTI RSUs are subject to the receipt of shareholder approval approving an increase in the Plan or the
creation of a new plan as required under Nasdaq rules.
Mr.
Paranjape was not appointed pursuant to any arrangement or understanding with any person, and Mr. Paranjape does not have any family
relationships with any directors or executive officers of the Company. From April 1, 2021 to February 15, 2022, the Company paid approximately
$205,000 to Kilwar for its consulting services.