Form S-1 BTCS Inc.

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As
filed with the Securities and Exchange Commission on June 22, 2020

Registration
No. 333-____

 

 

UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549

 

 

FORM
S-1

REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

BTCS
Inc.

(Exact
name of registrant as specified in its charter)

 

Nevada   7372   90-1096644

(State
or Other Jurisdiction of

Incorporation
or Organization)

 

(Primary
Standard Industrial

Classification
Code Number)

 

(I.R.S.
Employer

Identification
Number)

 

9466
Georgia Avenue #124

Silver
Spring, Maryland 20910

(202)
430-6576

(Address,
including zip code, and telephone number including
area code, of Registrant’s principal executive offices)

 

 

Charles
W. Allen

Chief
Executive Officer of BTCS Inc.

9466
Georgia Avenue #124

Silver
Spring, Maryland 20910

(202)
430-6576

 

(Name,
address, including zip code, and telephone number
including area code, of agent for service)

 

 

With
copies to:

 

Michael
D. Harris, Esq.

Brian
S. Bernstein, Esq.

Nason,
Yeager, Gerson, Harris & Fumero, P.A.

3001
PGA Blvd., Suite 305

Palm
Beach Gardens, FL 33410

(561)
686-3307

 

Approximate
date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared
effective.

 

If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [X]

 

If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering. [  ]

 

If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large
accelerated filer [  ]
Accelerated
filer [  ]
Non-accelerated
filer [X]
Smaller
reporting company [X]
  Emerging
growth company [  ]

 

If
an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
[  ]

 

The
registrant hereby amends this registration statement on such date or date(s) as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective
on such date as the Commission acting pursuant to said Section 8(a) may determine.

 

CALCULATION
OF REGISTRATION FEE

 

Title of Each Class of

Securities to be Registered

 

Amount to
be

Registered(1)

   

Proposed

Maximum
Offering

Price Per Share
(2)

   

Proposed

Maximum

Aggregate

Offering Price

   

Amount of

Registration Fee

 
Common stock, $0.001 par value per share     9,045,000     $ 0.2255   $ 2,039,648   $      264.75
Total     9,045,000           $ 2,039,648   $ 264.75

 

(1) Pursuant
to Rule 416 under the Securities Act, the shares being registered hereunder include such indeterminate number of shares as
may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends or similar
transactions.
   
(2) Estimated
solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(c). The offering price per share
and the aggregate offering price are based upon the average of the high and low prices of the registrant’s common stock
as reported on the OTCQB on June 15, 2020.

 

 

 

The
information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission of which this prospectus is a part becomes effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.

 

Subject
to Completion, Dated June 22, 2020

 

BTCS
INC.

PROSPECTUS

 

9,045,000
Shares of common stock

 

This
prospectus relates to the sale of up to 9,045,000 shares of our common stock which may be offered by the selling stockholder,
Cavalry Fund I, LP which we refer to as “Cavalry.” The shares of common stock being offered by the selling stockholder
are outstanding or issuable pursuant to the Cavalry Equity Line Purchase Agreement. See “The Cavalry Transaction”
for a description of the Purchase Agreement. Also, please refer to “Selling Stockholder” beginning on page 50. Such
registration does not mean that Cavalry will actually offer or sell any of these shares. We will not receive any proceeds from
the sales of the above shares of our common stock by the selling stockholder; however we will receive proceeds under the Purchase
Agreement if we sell shares to the selling stockholder.

 

Our
common stock trades on the OTC Markets, Inc., or OTCQB, under the symbol “BTCS”. On June 15, 2020, the last reported
sale price for our common stock on the OTCQB was $0.23 per share.

 

The
common stock offered in this prospectus involves a high degree of risk. See “Risk Factors” beginning on page 5 of
this prospectus to read about factors you should consider before buying shares of our common stock.

 

As
of the date of this prospectus, the Company had 27,422,008 shares of common stock outstanding of which 835 shares were held by
affiliates. Therefore, the Company’s public float is 27,421,173 shares and the number of shares being registered hereunder
is approximately 32.99% of the public float.

 

The
Company sold all the shares registered on the Form S-1 (File No. 333-233638) (“Prior S-1”) to the selling stockholder
on or prior to March 26, 2020 and the selling stockholder indicated to the Company that they had sold substantially all of the
shares under the Prior S-1 on or prior to April 13, 2020.

 

The
selling stockholder is an “underwriter” within the meaning of the Securities Act of 1933. The selling stockholder
is offering these shares of common stock. The selling stockholder may sell all or a portion of these shares from time to time
in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and
at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through
a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling stockholder
will receive all proceeds from the sale of the common stock. For additional information on the methods of sale, you should refer
to the section entitled “Plan of Distribution.”

 

Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The
date of this prospectus is ________________, 2020

 

 

TABLE
OF CONTENTS

 

 

You
should rely only on information contained in this prospectus. We have not authorized anyone to provide you with information that
is different from that contained in this prospectus. The selling stockholder is not offering to sell or seeking offers to buy
shares of common stock in jurisdictions where offers and sales are not permitted. We are responsible for updating this prospectus
to ensure that all material information is included and will update this prospectus to the extent required by law.

 

 

PROSPECTUS
SUMMARY

 

This
summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully including
the section entitled “Risk Factors” before making an investment decision. BTCS, Inc., is referred to throughout this
prospectus as “BTCS,” “we,” “our” or “us.”

 

Introduction

 

We
are an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital
Assets and block chain technologies. To our knowledge, we are one of a few public companies intending to acquire both Digital
Assets and a controlling interest in one or more businesses in the Digital Asset and blockchain industries.

 

Our
Business

 

Digital
Asset Initiatives

 

Subject
to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of
Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open
market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets
that appear to benefit our investors, subject to the limitations contained within this prospectus regarding Digital Securities.
As of June 15, 2020, the Company had the following Digital Assets:

 

Digital Asset   Units Held     Fair Market
Value
 
Bitcoin (BTC)     37.44     $ 353,190  
Ethereum (ETH)     1644.23     $ 382,367  
Total           $ 735,557  

 

The
Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital
Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited
investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be)
limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered
initial coin offerings. 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. See “Risk Factors” beginning on page 5
and “Business” beginning on page 35.

 

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.

 

Digital
Asset Data Analytics Platform

 

We
are also focused on Digital Assets and blockchain technologies. We are currently internally developing a digital asset data analytics
platform aimed at aggregating users’ information, such as tracking of multiple exchanges and wallets to aggregate portfolio
holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications. The platform utilizes
digital asset exchange APIs to read user data and does not allow for the trading of assets.

 

Acquisition
Initiatives

 

The
Company is also seeking to acquire controlling interests in businesses in the blockchain industry as further described in this
prospectus. We plan to continue to evaluate other strategic opportunities including acquiring controlling interests in business
in this rapidly evolving sector in an effort to enhance shareholder value.

 

Even
though the prices of Digital Assets have been subject to substantial volatility and there remains some regulatory uncertainty,
we believe that businesses using blockchain technology and those involved with Digital Assets such as bitcoin and ether, offer
upside opportunity and are the types of opportunities that we may pursue.

 

 

Our
current framework or criteria is to seek and evaluate acquisition targets in the blockchain and Digital Asset sector which (i)
align with our business model of acquiring Digital Assets or acquiring a controlling interest in one or more blockchain technology
related business ventures, and (ii) have sufficient capital to provide working capital. As disclosed in this prospectus we have
limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may
help us sustain our operations without having us rely on toxic funding structures. Our acquisition activities are spearheaded
by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, one of our independent directors
who is also seeking acquisition targets on behalf of the Company.

 

We
also monitor blockchain networks and may consider re-entering the digital asset mining business if and when we believe a positive
return on investment is achievable. However, given the current network difficulties and price levels to mine both bitcoin and
ethereum we do not believe mining offers a positive return on investment at present and have no immediate plans to resume mining.

 

Going
Concern

 

Because
of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, our independent auditors have indicated
in their report on our December 31, 2019 financial statements that there is substantial doubt about our ability to continue as
a going concern.

 

The
continuation of our business is dependent upon us raising additional funds. The issuance of additional equity or convertible debt
securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

We
continue to incur ongoing administrative and other expenses, including public company expenses, in excess of capital raises. While
we continue to implement our business strategy, we intend to finance our activities through:

 

  managing
current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs, and
     
  seeking
additional financing through sales of additional securities whether through Cavalry or other investors.

 

Corporate
Information

 

We
are a Nevada corporation. Our principal executive offices are located at 9466 Georgia Avenue #124 Silver Spring, MD 20910. Our
phone number is (202) 430-6576 and our website can be found at www.btcs.com. The information on our website is not incorporated
into this prospectus.

 

 

THE
OFFERING

 

Common
stock outstanding prior to the offering:
  27,422,008
shares
     
Common
stock offered by the selling stockholder:
  9,045,000
shares
     
Common
stock outstanding immediately following the offering:
  36,467,008
shares
     
Use
of proceeds:
  We
will not receive any proceeds from the sale of the shares of common stock.
     
Risk
Factors:
  See
“Risk Factors” beginning on page 5 of this prospectus for a discussion of factors you should carefully consider
before deciding to invest in shares of our common stock.
     
Stock
Symbol:
  “BTCS”

 

The
number of shares of common stock to be outstanding prior to and after this offering excludes:

 

 
a
total of 502,915 shares of common stock issuable upon the exercise of warrants with a weighted average exercise price of $3.54
per share; and
     
 
a
total of 196,094 shares of common stock issuable upon the conversion of Series C-1 Convertible Preferred Stock.

 

The
Offering

 

On
May 13, 2019, we entered into an equity line purchase agreement with Cavalry (the “Purchase Agreement”) pursuant to
which Cavalry has agreed to purchase from us up to $10,000,000 of our common stock (subject to certain limitations) from time
to time over a 36-month period. Also on May 13, 2019, we entered into a Registration Rights Agreement (“Registration Rights
Agreement”), with Cavalry, pursuant to which we have filed with the Securities and Exchange Commission (the “SEC”),
the registration statement that includes this prospectus to register for resale under the Securities Act of 1933 (the “Securities
Act”), the shares that have been or may be issued to Cavalry under the Purchase Agreement.

 

We
do not have the right to commence any sales to Cavalry under the Purchase Agreement until the SEC has declared effective the registration
statement of which this prospectus forms a part. Thereafter, we may, from time to time and at our sole discretion, direct Cavalry
to purchase shares of our common stock during trading hours (“Intraday Puts”) and after trading hours until 7 p.m.
New York time (“Aftermarket Puts”) (either an Intraday Put or an Aftermarket Put may be referred to as a “Put”).
“Put Date” mean the date when the Put occurs. On May 24, 2019, a registration statement was declared effective and
we sold 3,973,809 shares to Cavalry in exchange for $1,158,639 and issued 67,598 shares as additional pro rata commitment shares
under that registration statement. On December 20, 2019, a second registration statement was declared effective and we sold 6,428,847
shares to Cavalry in exchange for $430,997 and issued 25,153 shares as additional pro rata commitment shares under that registration
statement.

 

The
number of shares that may be sold under an Intraday Put shall be equal to the total daily trading dollar volume (“Daily
Trading Dollar Volume”) as reported on the Principal Market for the trading day prior to the applicable Put Date, divided
by the Intraday Purchase Price (such shares being the “Intraday Put Share Limit”). The “Intraday Purchase Price”
means the lower of: (i) 94% of the lowest sale price on the trading day prior to the applicable Put Date and (ii) 94% of the arithmetic
average of the three lowest closing prices for the Company’s common stock during the 12 consecutive trading days ending
on the Trading Day immediately preceding such Put Date.

 

The
number of shares that may be sold under an Aftermarket Put shall be equal to the Daily Trading Dollar Volume as reported on the
Principal Market, divided by the Aftermarket Put Price (such shares being the “Aftermarket Put Share Limit”). The
“Aftermarket Put Price” means: the lower of: (i) the lowest Sale Price on the applicable Put Date and (ii) the arithmetic
average of the three lowest closing prices for the Company’s common stock during the 12 consecutive trading days ending
on the trading day immediately preceding such Put Date.

 

Upon
mutual agreement of Cavalry and the Company and subject to written confirmation by Cavalry that such agreement will not result
in violation of the 4.99% beneficial ownership limitation, the Company may increase the Intraday Put Share Limit or the Aftermarket
Put Share Limit, as applicable, for any Put to include an amount equal to $2,000,000 in Put shares at the applicable Purchase
Price, in each case in addition to the applicable Intraday Put Share Limit or Aftermarket Put Share Limit. In all instances, we
may not sell shares of our common stock to Cavalry under the Purchase Agreement if it would result in Cavalry beneficially owning
more than 4.99% of our common stock or if the closing price the trading day immediately preceding the Put date is below $0.005.

 

 

See
“The Cavalry Transaction” beginning on page 50. The purchase price per share will be equitably adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the Trading Days
used to compute such price. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or
cost upon one business day notice. Cavalry may not assign or transfer its rights and obligations under the Purchase Agreement.
When we refer to “Trading Days” in this prospectus we mean a day on which the Company’s principal market is
open for business.

 

As
of June 15, 2020, there were 27,422,008 shares of our common stock outstanding, of which approximately 27,421,173 shares were
held by non-affiliates. Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Cavalry,
only 9,045,000 shares of our common stock are being offered under this prospectus, which represents (i) 289,986 shares which we
are required to issue pro rata in the future as a commitment fee if and when we sell shares to Cavalry under the Purchase Agreement,
and (ii) 8,755,014 shares which Cavalry may sell from time to time in accordance with the Purchase Agreement. Cavalry may not
assign or transfer its rights and obligations under the Purchase Agreement. If all of the 9,045,000 shares offered by Cavalry
under this prospectus were issued and outstanding as of the date hereof, such shares would represent approximately 24.80% of the
total number of shares of our common stock outstanding (inclusive of the shares being registered hereunder) and approximately
24.80% of the total number of outstanding shares held by non-affiliates (inclusive of the shares being registered hereunder) and,
in each case as of the date hereof. If we elect to issue and sell more than the shares offered under this prospectus to Cavalry,
which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional
shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale
by Cavalry is dependent upon the number of shares we sell to Cavalry under the Purchase Agreement.

 

Issuances
of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic
and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number
of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders
will represent a smaller percentage of our total outstanding shares after any such issuance to Cavalry.

 

 

RISK
FACTORS

 

There
are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually
occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading
price of our common stock could decline and investors could lose all or part of their investment.

 

Risks
Related to Our Company

 

We
need to secure additional financing.

 

We
require additional funds since we have very limited operating capital and negative working capital. As of June 15, 2020, we had
approximately $280,781 in cash and the fair market value of our Digital Assets was approximately $735,557. Our cash as of the
date of this prospectus is expected, to only be sufficient to cover our public company costs through November 2020 depending on
expenses which excludes: i) the repayment of the $500,000 convertible promissory note (the “2020 Promissory Note”)
which is held by the selling stockholder, and ii) the payment of approximately $479,000 owed to our executives.

 

We
anticipate that we will incur operating losses for the foreseeable future.

 

Our
cash burn rate is approximately $80,000 per month, and may increase as we continue to spend additional cash on legal and
accounting expenses in connection with our public reporting requirements. If we are not successful in securing additional financing
including toxic funding, we will likely be required to cease operations.

 

If
we do not raise additional debt or equity capital, we may not be able to pay all of our indebtedness.

 

In
May 2019, we signed a Purchase Agreement with Cavalry. We may direct Cavalry to purchase shares of our common stock up to $10,000,000
(of which $1,589,636 has already been sold) under the Purchase Agreement over a 36-month period assuming there is an effective
registration statement covering the shares.

 

The
extent we rely on Cavalry as a source of funding will depend on a number of factors including, the prevailing market price of
our common stock and volume of trading and the extent to which we are able to secure working capital from other sources. If obtaining
sufficient funding from Cavalry does not occur for any reason including Cavalry suffering liquidity issues or failure of the Company
to keep the registration statement current, we will need to secure another source of funding in order to satisfy our working capital
needs. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we
require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.

 

If
we do not raise the necessary working capital, we will not be able to remain operational.

 

Our
auditors have issued a “going concern” audit opinion.

 

Our
independent auditors have indicated in their report on our December 31, 2019 and 2018 financial statements that there is substantial
doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements
have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if
we do not continue as a going concern. Therefore, you should not rely on our balance sheet as an indication of the amount of proceeds
that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the
event of liquidation.

 

We
have a limited operating history and a history of operating losses, and expect to incur significant additional operating losses.

 

We
have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation
of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently
encountered by companies in their early stages of operations. We have generated net losses of $1.7 million and $0.8 million for
the years ended December 31, 2019 and 2018, respectively. We expect to incur additional net losses over the next several years
as we seek to expand operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain. If
we are unsuccessful at executing on our business plan, our business, prospects, and results of operations may be materially adversely
affected.

 

We
have an evolving business model.

 

As
Digital Assets and blockchain technologies become more widely available, we expect the services and products associated with them
to evolve. In 2017, the SEC issued a DAO Report that promoters that use initial coin offerings or token sales to raise capital
may be engaged in the offer and sale of securities in violation of the Securities Act and the Securities Exchange Act of 1934
(the “Exchange Act”). This may cause us to potentially change our future business in order to comply fully with the
federal securities laws as well as applicable state securities laws. As a result, to stay current with the industry, our business
model may need to evolve as well. From time to time we may modify aspects of our business model relating to our product mix and
service offerings. We cannot offer any assurance that these or any other modifications will be successful or will not result in
harm to the business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and
negatively affect our operating results.

 

The
loss of our executive officers Charles Allen, our Chairman, Chief Executive Officer and Chief Financial Officer, and Michal Handerhan,
our Chief Operating Officer, could have a material adverse effect on us.

 

Our
success depends solely on the continued services of our executive officers, particularly Charles Allen, our Chairman, Chief Executive
Officer and Chief Financial Officer, and Michal Handerhan, our Chief Operating Officer, who have extensive market knowledge and
long-standing industry relationships. In particular, our reputation among and our relationships with key Digital Asset industry
leaders are the direct result of a significant investment of time and effort by these individuals to build our credibility in
a highly specialized industry. The loss of services of either Charles Allen or Michal Handerhan, could diminish our business and
growth opportunities and our relationships with key leaders in the Digital Asset industry and could have a material adverse effect
on us.

 

 

In
the past as we suffered liquidity concerns, we were unable to pay these officers. Neither exercised their right to terminate their
employment agreement.

 

As
a result of the Company’s past inability to compensate its officers at generally accepted market levels and its historic
failure to either make payroll or make payroll on a timely basis, its officers choose to devote a substantial amount of their
time to involvement with other companies or on other projects. Although our officers are now receiving compensation for their
services, we can provide no assurances that we will not suffer liquidity issues in the near future as we implement our business
plan. If the Company is unable to pay our officers their compensation, they may again devote time to other projects which may
have a material adverse effect on us.

 

The
loss of Charles Allen, our Chairman, Chief Executive Officer and Chief Financial Officer, and Michal Handerhan, our Chief Operating
Officer, would have a material adverse effect on us.

 

The
simultaneous loss of services of both Charles Allen and Michal Handerhan, would result in the Company having no officers or employees
and would subsequently cease all operations which would have a material adverse effect on us. See the second risk factor below
on the loss of our executive officers and employees.

 

Michal
Handerhan our Chief Operating Officer has notified the Company that in the event of the departure of Charles Allen, our Chairman,
Chief Executive Officer and Chief Financial Officer from the Company he may terminate his employment and may resign as an officer
and director of the Company, which would have a material adverse effect on us.

 

We
have no other officers and only one other director. The simultaneous loss of Charles Allen, our Chairman, Chief Executive Officer
and Chief Financial Officer, and Michal Handerhan, our Chief Operating Officer, would have a material adverse effect on us. Their
Employment Agreements permit them to resign for Good Reason which includes non-payment of salaries. In the event both of officers
terminate their Employment Agreements for Good Reason, this would result in the Company owing them $585,200 and would leave the
Company without officers or employees which may have a material adverse effect upon us, your investment, and the ability of the
Company to continue operations.

 

Any
inability to attract and retain additional personnel could affect our ability to successfully grow our business.

 

Our
future success depends on our ability to identify, attract, hire, train, retain and motivate other highly-skilled technical, managerial,
editorial, merchandising, marketing and customer service personnel. Competition for such personnel is intense. Our failure to
retain and attract the necessary technical, managerial, editorial, merchandising, marketing, and customer service personnel could
harm our business.

 

We
may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization
and to satisfy new reporting requirements
.

 

We
are required to comply with a variety of reporting, accounting and other rules and regulations. Compliance with existing requirements
is expensive. We may need to implement additional finance and accounting systems, procedures and controls to satisfy our reporting
requirements and such further requirements may increase our costs and require additional management time and resources. Our internal
control over financial reporting is determined to be ineffective. Such failure could cause investors to lose confidence in our
reported financial information, negatively affect the market price of our common stock, subject us to regulatory investigations
and penalties, and adversely impact our business and financial condition.

 

Changes
in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters
could significantly affect our financial results
.

 

Generally
accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard
to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, estimating valuation
allowances and accrued liabilities (including allowances for returns, credit card chargebacks, doubtful accounts and obsolete
and damaged inventory), internal use software and website development (acquired and developed internally), accounting for income
taxes, valuation of long-lived and intangible assets and goodwill, stock-based compensation and loss contingencies, are highly
complex and involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation
or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected
financial performance.

 

 

Natural
disasters and geo-political events could adversely affect our business.

 

Natural
disasters, including hurricanes, cyclones, typhoons, tropical storms, floods, earthquakes and tsunamis, weather conditions, including
winter storms, droughts and tornados, whether as a result of climate change or otherwise, and geo-political events, including
civil unrest or terrorist attacks, that affect us or other service providers could adversely affect our business.

 

Since
there has been limited precedence set for financial accounting of Digital Assets other than Digital Securities, it is unclear
how we will be required to account for Digital Asset transactions in the future.

 

Since
there has been limited precedence set for the financial accounting of Digital Assets other than Digital Securities, it is unclear
how we will be required to account for Digital Asset transactions or assets. Furthermore, a change in regulatory or financial
accounting standards could result in the necessity to restate our financial statements. Such a restatement could negatively impact
our business, prospects, financial condition and results of operation.

 

We
are subject to the information and reporting requirements of the Exchange Act), and other federal securities laws, including compliance
with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

 

The
costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to
shareholders will cause our expenses to be higher than they would have been if we were privately held. It may be time consuming,
difficult and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order
to develop and implement appropriate internal controls and reporting procedures.

 

If
we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results
accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation
and adversely impact the trading price of our common stock. During our assessment of the effectiveness of internal control over
financial reporting as of December 31, 2019, management identified a significant deficiency in our disclosure controls and procedures
which may lead to a failure to prevent or detect misstatements.

 

Effective
internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control
environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current
internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. During
our assessment of the effectiveness of internal control over financial reporting as of December 31, 2019, management identified
a significant deficiency related to presence of weakness in our disclosure control and procedure resulting from limited internal
audit functions. Because of our inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.

 

 

Because
we lack effective internal controls and disclosure controls we erroneously accounted for Digital Assets using a fair value methodology
which was not consistent with United States generally accepted accounting principles (“US GAAP”) and required us to
restate our financial statements for the year ended December 31, 2017 and the three and six months ended March 31, 2018 and June
30, 2018, our failure to establish and maintain effective internal control over financial reporting could result in material misstatements
in our financial statements and a failure to meet our reporting and financial obligations which could have a material adverse
effect on our financial condition.

 

Maintaining
effective internal control over financial reporting is necessary for us to produce reliable financial statements. As discussed
herein, our internal controls and disclosure controls were not effective as of December 31, 2018. Because of our ineffective controls
and material weaknesses, we did not account for our Digital Assets correctly in our financial statements and restated our audited
financial statements for the year ended December 31, 2017 and the unaudited financial statements for the quarters ended March
31, 2018 and June 30, 2018.

 

Further,
in April 2020, the Company received an oral comment from the Staff of the SEC regarding the classification of Digital Asset transactions
as an Investing Activity in its Cash Flow Statement within the Company’s Form 10-K for the year ended December 31, 2019
(“Form 10-K”). As mentioned above, we previously misclassified Digital Assets in 2017 financial statements and failed
to correct this in the Form 10-K. The Company has amended the Form 10-K to reclassify Digital Asset transactions from an Investing
Activity to an Operating Activity on the Cash Flow Statement.

 

A
material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.

 

While
the Company is now following US GAAP in accounting for its Digital Assets, it has not remediated its material weaknesses. There
can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise
in the future. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal
control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet
our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the
trading price of our Common Stock.

 

Public
company compliance may make it more difficult to attract and retain officers and directors.

 

The
Sarbanes-Oxley Act and rules implemented by the Securities and Exchange Commission have required changes in corporate governance
practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in
2019 and beyond and to make certain activities more time consuming and costly. The impact of the SEC’s July 25, 2017 report
on Digital Securities (the “DAO Report”) as well as recent enforcement actions and speeches made by the SEC’s
Chairman will increase our compliance and legal costs. More recently, the SEC’s Chairman commented that most initial coin
offerings (a type of Digital Asset) involve the offer of a Digital Security. As a public company, we also expect that these rules
and regulations will make it more difficult and expensive for us to obtain director and officer liability insurance in the future
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers, and to maintain insurance at reasonable rates, or at all.

 

Our
stock price may be volatile.

 

The
market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the following:

 

changes
in our industry including changes which adversely affect bitcoin and other Digital Assets;
   
sales
by the selling stockholder;
   
competitive
pricing pressures;
   
continued
volatility in the stock prices of Digital Assets issuers;
   
continued
volatility in the price of bitcoin and other Digital Assets;
   
our
ability to obtain working capital financing;
   
additions
or departures of key personnel including our executive officers;

 

 

sales
of our common stock;
   
conversion
of our Series C-1 Convertible Preferred Stock and the subsequent sale of the underlying common stock;
   

exercise
of our warrants and the subsequent sale of the underlying common stock;

   
conversion
of our convertible notes and the subsequent sale of the underlying common stock;
 

 

our
ability to execute our business plan;
   
operating
results that fall below expectations;
   
loss
of any strategic relationship;
   
regulatory
developments; and
   
economic
and other external factors.

 

In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock. As a result, you may be unable to resell your shares at a desired price.

 

We
have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited
to the value of our common stock.

 

We
have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends
on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such
time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because
a return on your investment will only occur if our stock price appreciates.

 

There
is currently a limited trading market for our common stock and we cannot ensure that one will be sustained.

 

Our
shares of common stock are not traded on a national securities exchange, and the price, may not reflect our actual or perceived
value. There can be no assurance that there will be an active market for our shares of common stock in the future. The market
liquidity will be dependent on the perception of our operating business, among other things. We may, in the future, take certain
steps, including utilizing investor awareness campaigns, press releases, road shows and conferences to increase awareness of our
business and any steps that we might take to bring us to the awareness of investors may require we compensate consultants with
cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result
in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment at a price that reflects
the value of the business and trading may be at an inflated price relative to the performance of our company due to, among other
things, availability of sellers of our shares. The price of our common stock has been highly volatile. Because there may be a
low price for our shares of common stock and because of our involvement in the Digital Asset business, many brokerage firms or
clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even
if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage
commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions
will not permit the use of low priced shares of common stock as collateral for any loans.

 

 

Because
our common stock does not trade on a national securities exchange, the prices of our common stock may be more volatile and lower
than if we were listed.

 

Our
common stock trades on the OTCQB operated by OTC Markets Group Inc. This market is not a national securities exchange. While our
common stock trading has been relatively active, generally the OTCQB does not have the same level of activity as a national securities
exchange like Nasdaq. Most institutions will not purchase a security unless it is on a national securities exchange. In addition,
they do not purchase stocks that trade below $5 per share. We may, in the future, take certain steps, including utilizing investor
awareness campaigns, press releases, road shows and conferences to increase awareness of our business and any steps that we might
take to bring us to the awareness of investors may require we compensate consultants with cash and/or stock. There can be no assurance
that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently,
investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and
trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers
of our shares.

 

Our
common stock is deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.

 

Our
common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock
rules generally apply to companies whose common stock is not listed on the Nasdaq Stock Market or other national securities exchange
or trades at less than $5.00 per share. These rules require, among other things, that brokers who trade penny stock to persons
other than “established customers” complete certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security, including a risk disclosure document and quote information
under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock
rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain
subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.
Because our common stock is subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

 

Our
articles of incorporation allow for our board to create new series of preferred stock without further approval by our shareholders,
which could adversely affect the rights of the holders of our common stock.

 

Our
board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of
directors also has the authority to issue preferred stock without further shareholder approval. As a result, our board of directors
could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right
to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board
of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or
that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution
to our existing shareholders.

 

Substantial
future sales of our common stock by us or by our existing shareholders (including the selling stockholder) could cause our stock
price to fall.

 

Additional
equity financings (in addition to the shares issued under the Purchase Agreement) or other share issuances by us, including shares
issued in connection with strategic alliances and corporate partnering transactions, and shares issued on the conversion of outstanding
notes, could adversely affect the market price of our common stock. Sales by existing shareholders (including the selling stockholder)
of a large number of shares of our common stock in the public market or the perception that additional sales could occur could
cause the market price of our common stock to drop.

 

 

We
may be accused of infringing intellectual property rights of third parties.

 

We
may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. The ready availability
of damages, royalties and the potential for injunctive relief has increased the defense litigation costs of patent infringement
claims, especially those asserted by third parties whose sole or primary business is to assert such claims. Such claims, even
if not meritorious, may result in significant expenditure of financial and managerial resources, and the payment of damages or
settlement amounts. Additionally, we may become subject to injunctions prohibiting us from using software or business processes
we currently use or may need to use in the future, or requiring us to obtain licenses from third parties when such licenses may
not be available on financially feasible terms or terms acceptable to us or at all. In addition, we may not be able to obtain
on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce
services to other businesses and individuals under commercial agreements.

 

Any
current or future outbreak of a health epidemic or other adverse public health developments, such as the pneumonia caused by the
COVID-19 coronavirus, could disrupt our operations and adversely affect our business.

 

Our
business could be adversely affected by the effects of health epidemics. For example, we rely on our limited staff for our continued
operations and have no contingency plans and limited resources if anyone was to be affected by the coronavirus.

 

Risks
Related to the Bitcoin Network and Bitcoins

 

The
following risks relate to our proposed business and the effects upon us assume we obtain financing in a sufficient amount to re-enter
this business.

 

The
further development and acceptance of the Bitcoin Network and other Digital Asset systems, which represent a new and rapidly changing
industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance
of the Bitcoin Network may adversely affect an investment in our Company.

 

Digital
Assets such as bitcoins that may be used, among other things, to buy and sell goods and services are a new and rapidly evolving
industry of which the Bitcoin Network is a prominent, but not unique, part. The growth of the Digital Assets industry in general,
and the Bitcoin Network in particular, is subject to a high degree of uncertainty. The factors affecting the further development
of the Digital Assets industry, as well as the Bitcoin Network, include:

 

continued
worldwide growth in the adoption and use of bitcoins and other Digital Assets;
   
government
and quasi-government regulation of bitcoins and other Digital Assets and their use, or restrictions on or regulation of access
to and operation of the Bitcoin Network or similar Digital Assets systems;
   
the
maintenance and development of the open-source software protocol of the Bitcoin Network;
   
changes
in consumer demographics and public tastes and preferences;
   
the
availability and popularity of other forms or methods of buying and selling goods and services, including new means of using
fiat currencies;
   
general
economic conditions and the regulatory environment relating to Digital Assets; and
   
the
impact of regulators focusing on Digital Assets and Digital Securities and the costs associated with such regulatory oversight.

 

A
decline in the popularity or acceptance of the Bitcoin Network could adversely affect an investment in us.

 

 

Because
Digital Assets may be determined to be Digital Securities, we may inadvertently violate the 1940 Act and incur large losses as
a result and potentially be required to register as an investment company or terminate operations.

 

Digital
Assets we may own in the future may be determined to be Digital Securities by the SEC or a court. If a Digital Asset we were to
hold was later determined to be a Digital Security, we could inadvertently become an investment company, as defined by the 1940
Act, if the value of the Digital Securities we owned exceeded 40% of our assets excluding cash. We are subject to the following
risks:

 

Contrary
to legal advice, the SEC or a court may conclude that bitcoin, ether, or other Digital Assets we later acquire to be securities;
   
based
on legal advice, we may acquire other Digital Assets which we have been advised are not securities but later are held to be
securities;
   
we
may knowingly acquire Digital Assets that are securities and acquire minority investments in businesses which investments
are securities; and
   
regardless
of the internal procedures we take to avoid surpassing the 40% threshold, future volatility during the course of a day may
cause use to exceed the 40% threshold.

 

If
we exceed the test, we will have one-year to reduce our holdings of securities below the 40% threshold. However, that can only
occur once during a three-year period. Accordingly, if changes in the classification of Digital Assets causes us to exceed the
40% threshold, we may experience large losses when we liquidate securities as a result of continued volatility. Further, if we
elect to sell a private investment, not only may it be difficult to find a buyer but we could incur a significant loss on the
sale of a private investment due to not only the lack of liquidity but also the entity’s poor performance. If we are able
to come below the 40% threshold and again face the same problem, it is likely we will be forced to terminate operations, sell
all assets and distribute cash to our shareholders who will likely suffer very large losses. Further, the cost of distributing
cash to our shareholders may exceed the amount of cash on hand in which case we would use our remaining funds to wind down the
Company.

 

If
we acquire Digital Securities, even unintentionally, we may violate the Investment Company Act and incur potential third-party
liabilities.

 

We
expect that if we obtain sufficient financing, we will acquire a portfolio of Digital Assets including bitcoins, ether and Digital
Securities. There is an increased regulatory examination of Digital Assets and Digital Securities. This has led to regulatory
and enforcement activities. In order to limit our acquisition of Digital Securities to stay within the 40% threshold, we will
examine the manner in which Digital Assets were initially marketed to determine if they may be deemed Digital Securities and subject
to federal and state securities laws. Even if we conclude that a particular Digital Asset is not a security under the Securities
Act, certain states including California take a stricter view of the term “investment contract” which means the Digital
Asset may have violated applicable state securities laws. This will result in increased compliance costs and legal fees. If our
examination of a Digital Asset is incorrect, we may incur regulatory penalties and private investor liabilities since Section
5 of the Securities Act is a strict liability statute much like selling spoiled milk and state securities laws generally impose
liability for negligence for misrepresentations.

 

Currently,
there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators,
thus contributing to price volatility that could adversely affect an investment in us.

 

As
relatively new products and technologies, bitcoins and the Bitcoin Network have only recently become widely accepted as a means
of payment for goods and services by many major retail and commercial outlets, and use of bitcoins by consumers to pay such retail
and commercial outlets remains limited. Conversely, a significant portion of bitcoin demand is generated by speculators and investors
seeking to profit from the short- or long-term holding of bitcoins. A lack of expansion by bitcoins into retail and commercial
markets, or a contraction of such use, may result in increased volatility or a reduction in the price of bitcoin, either of which
could adversely impact an investment in us.

 

Because
Facebook is seeking to develop a cryptocurrency, it may adversely affect the value of bitcoins and Digital Assets.

 

In
May 2019, Facebook announced its plans for a cryptocurrency called Libra. The massive social network and 27 other partners are
touting the Libra digital coin and Facebook’s corresponding digital wallet, Calibra, as a way to make sending payments around
the world as easy as it is to send a photo. In July 2019, Facebook announced that Libra will not launch until all regulatory concerns
have been met. In October 2019, many partners left the Libra Association including Paypal, eBay, Mastercard, Stripe, and Visa.
Because Facebook is a leader in social media, when and if it launches its coins, it could adversely affect the value of bitcoins
and Digital Assets.

 

 

Significant
Bitcoin Network contributors could propose amendments to the Bitcoin Network’s protocols and software that, if accepted
and authorized by the Bitcoin Network, could adversely affect an investment in us.

 

A
small group of individuals contribute to the Bitcoin Core project on Github. This group of contributors is currently headed by
Wladimir J. van der Laan, the current lead maintainer. These individuals can propose refinements or improvements to the Bitcoin
Network’s source code through one or more software upgrades that alter the protocols and software that govern the Bitcoin
Network and the properties of bitcoin, including the irreversibility of transactions and limitations on the mining of new bitcoin.
Proposals for upgrades and discussions relating thereto take place on online forums. For example, there is an ongoing debate regarding
altering the Blockchain by increasing the size of blocks to accommodate a larger volume of transactions. Although some proponents
support an increase, other market participants oppose an increase to the block size as it may deter miners from confirming transactions
and concentrate power into a smaller group of miners. To the extent that a significant majority of the users and miners on the
Bitcoin Network install such software upgrade(s), the Bitcoin Network would be subject to new protocols and software that may
adversely affect an investment in the Shares. In the event a developer or group of developers proposes a modification to the Bitcoin
Network that is not accepted by a majority of miners and users, but that is nonetheless accepted by a substantial plurality of
miners and users, two or more competing and incompatible Blockchain implementations could result. This is known as a “hard
fork.” In such a case, the “hard fork” in the Blockchain could materially and adversely affect the perceived
value of bitcoin as reflected on one or both incompatible Blockchains, which may adversely affect an investment in us.

 

Bitcoin
has forked three times and additional forks may occur in the future which may affect the value of bitcoin held by the Company.

 

Since
August 1, 2017, bitcoin’s blockchain was forked three times creating Bitcoin Cash, Bitcoin Gold and Bitcoin SV. The forks
resulted in a new blockchain being created with a shared history, and a new path forward. The value of the newly created Bitcoin
Cash, Bitcoin Gold and Bitcoin SV may or may not have value in the long run and may affect the price of bitcoin if interest is
shifted away from bitcoin to the newly created Digital Assets. The value of bitcoin after the creation of a fork is subject to
many factors including the value of the fork product, market reaction to the creation of the fork product, and the occurrence
of forks in the future. As such, the value of bitcoin could be materially reduced if existing and future forks have a negative
effect on bitcoin’s value.

 

The
open-source structure of the Bitcoin Network protocol means that the contributors to the protocol are generally not directly compensated
for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could
damage the Bitcoin Network and an investment in us.

 

The
Bitcoin Network operates based on an open-source protocol maintained by contributors, largely on the Bitcoin Core project on GitHub.
As an open source project, Bitcoin is not represented by an official organization or authority. As the Bitcoin Network protocol
is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining
and updating the Bitcoin Network protocol. Although the MIT Media Lab’s Digital Currency Initiative funds the current maintainer
Wladimir J. van der Laan, among others, this type of financial incentive is not typical. The lack of guaranteed financial incentive
for contributors to maintain or develop the Bitcoin Network and the lack of guaranteed resources to adequately address emerging
issues with the Bitcoin Network may reduce incentives to address the issues adequately or in a timely manner. This may adversely
affect an investment in us.

 

 

If
a malicious actor or botnet obtains control in excess of 50% of the processing power active on the Bitcoin Network, it is possible
that such actor or botnet could manipulate the Blockchain in a manner that adversely affects an investment in us.

 

If
a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions
of the computers) obtains a majority of the processing power dedicated to mining on the Bitcoin Network, it may be able to alter
the Blockchain on which the Bitcoin Network and all bitcoin transactions rely by constructing alternate blocks if it is able to
solve for such blocks faster than the remainder of the miners on the Bitcoin Network can add valid blocks. In such alternate blocks,
the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new
bitcoins or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its
own bitcoins (i.e., spend the same bitcoins in more than one transaction) and prevent the confirmation of other users’ transactions
for so long as it maintains control. To the extent that such malicious actor or botnet does not yield its majority control of
the processing power on the Bitcoin Network or the bitcoin community does not reject the fraudulent blocks as malicious, reversing
any changes made to the Blockchain may not be possible. Such changes could adversely affect an investment in us.

 

In
late May and early June 2014, a mining pool known as GHash.io approached and, during a 24- to 48-hour period in early June may
have exceeded, the threshold of 50% of the processing power on the Bitcoin Network. To the extent that GHash.io did exceed 50%
of the processing power on the network, reports indicate that such threshold was surpassed for only a short period, and there
are no reports of any malicious activity or control of the Blockchain performed by GHash.io. Furthermore, the processing power
in the mining pool appears to have been redirected to other pools on a voluntary basis by participants in the GHash.io pool, as
had been done in prior instances when a mining pool exceeded 40% of the processing power on the Bitcoin Network. The approach
to and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the
validation of bitcoin transactions. To the extent that the bitcoin ecosystem, including the Core Developers and the administrators
of mining pools, do not act to ensure greater decentralization of bitcoin mining processing power, the feasibility of a malicious
actor obtaining in excess of 50% of the processing power on the Bitcoin Network (e.g., through control of a large mining pool
or through hacking such a mining pool) will increase, which may adversely impact an investment in us.

 

If
the award of bitcoin for solving blocks and transaction fees for recording transactions are not sufficiently high to incentivize
miners, miners may cease expending hashrate to solve blocks and confirmations of transactions on the Blockchain could be slowed
temporarily. A reduction in the hashrate expended by miners on the Bitcoin Network could increase the likelihood of a malicious
actor obtaining control in excess of 50%) of the aggregate hashrate active on the Bitcoin Network or the Blockchain, potentially
permitting such actor to manipulate the Blockchain in a manner that adversely affects an investment in us.

 

As
the award of new bitcoin for solving blocks declines, and if transaction fees are not sufficiently high, miners may not have an
adequate incentive to continue mining and may cease their mining operations. The current fixed reward for solving a new block
is 6.25 bitcoin per block; the reward decreased from 12.5 bitcoin in May 2020. It is estimated that it will halve again in about
four years. This reduction may result in a reduction in the aggregate hashrate of the Bitcoin Network as the incentive for miners
will decrease. Moreover, miners ceasing operations would reduce the aggregate hashrate on the Bitcoin Network, which would adversely
affect the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to the Blockchain
until the next scheduled adjustment in difficulty for block solutions) and make the Bitcoin Network more vulnerable to a malicious
actor obtaining control in excess of 50% of the aggregate hashrate on the Bitcoin Network. Periodically, the Bitcoin Network has
adjusted the difficulty for block solutions so that solution speeds remain in the vicinity of the expected ten minute confirmation
time targeted by the Bitcoin Network protocol. The Company believes that from time to time there will be further considerations
and adjustments to the Bitcoin Network regarding the difficulty for block solutions. More significant reductions in aggregate
hashrate on the Bitcoin Network could result in material, though temporary, delays in block solution confirmation time. Any reduction
in confidence in the confirmation process or aggregate hashrate of the Bitcoin Network may negatively impact the value of bitcoin,
which will adversely impact an investment in us.

 

 

To
the extent that the profit margins of Bitcoin mining operations are not high, operators of Bitcoin mining operations are more
likely to immediately sell bitcoins earned by mining in the Bitcoin Exchange Market, resulting in a reduction in the price of
bitcoins that could adversely impact an investment in us.

 

Over
the past five years, Bitcoin Network mining operations have evolved from individual users mining with computer processors, graphics
processing units and first-generation ASIC servers. Currently, new processing power brought onto the Bitcoin Network is predominantly
added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations
may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. They require the investment of significant
capital for the acquisition of this hardware, the leasing of operating space (often in data centers or warehousing facilities),
incurring of electricity costs and the employment of technicians to operate the mining farms. As a result, professionalized mining
operations are of a greater scale than prior Bitcoin Network miners and have more defined, regular expenses and liabilities. These
regular expenses and liabilities require professionalized mining operations to more immediately sell bitcoins earned from mining
operations on the Bitcoin Exchange Market, whereas it is believed that individual miners in past years were more likely to hold
newly mined bitcoins for more extended periods. The immediate selling of newly mined bitcoins greatly increases the supply of
bitcoins on the Bitcoin Exchange Market, creating downward pressure on the price of bitcoins.

 

The
extent to which the value of bitcoin mined by a professionalized mining operation exceeds the allocable capital and operating
costs determines the profit margin of such operation. A professionalized mining operation may be more likely to sell a higher
percentage of its newly mined bitcoin rapidly if it is operating at a low profit margin-and it may partially or completely cease
operations if its profit margin is negative. In a low profit margin environment, a higher percentage could be sold into the Bitcoin
Exchange Market more rapidly, thereby potentially reducing bitcoin prices. Lower bitcoin prices could result in further tightening
of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating
a network effect that may further reduce the price of bitcoin until mining operations with higher operating costs become unprofitable
and remove mining power from the Bitcoin Network. The network effect of reduced profit margins resulting in greater sales of newly
mined bitcoin could result in a reduction in the price of bitcoin that could adversely impact an investment in us.

 

To
the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction
fee will not be recorded on the Blockchain until a block is solved by a miner who does not require the payment of transaction
fees. Any widespread delays in the recording of transactions could result in a loss of confidence in the Bitcoin Network, which
could adversely impact an investment in us.

 

To
the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the Blockchain.
Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however,
to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing bitcoin
users to pay transaction fees as a substitute for or in addition to the award of new bitcoins upon the solving of a block), actions
of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the Blockchain.
Any systemic delays in the recording and confirmation of transactions on the Blockchain could result in greater exposure to double-spending
transactions and a loss of confidence in the Bitcoin Network, which could adversely impact an investment in us.

 

The
acceptance of Bitcoin Network software patches or upgrades by a significant, but not overwhelming, percentage of the users and
miners in the Bitcoin Network could result in a “fork” in the Blockchain, resulting in the operation of two separate
networks until such time as the forked Blockchains are merged. The temporary or permanent existence of forked Blockchains could
adversely impact an investment in us.

 

Bitcoin
is an open source project and, although there is an influential group of leaders in the Bitcoin Network community including the
Core Developers, there is no official developer or group of developers that formally controls the Bitcoin Network. Any individual
can download the Bitcoin Network software and make any desired modifications, which are proposed to users and miners on the Bitcoin
Network through software downloads and upgrades, typically posted to the bitcoin development forum on GitHub.com. A substantial
majority of miners and bitcoin users must consent to those software modifications by downloading the altered software or upgrade
that implements the changes; otherwise, the changes do not become a part of the Bitcoin Network. Since the Bitcoin Network’s
inception, changes to the Bitcoin Network have been accepted by the vast majority of users and miners, ensuring that the Bitcoin
Network remains a coherent economic system; however, a developer or group of developers could potentially propose a modification
to the Bitcoin Network that is not accepted by a vast majority of miners and users, but that is nonetheless accepted by a substantial
population of participants in the Bitcoin Network. In such a case, and if the modification is material and/or not backwards compatible
with the prior version of Bitcoin Network software, a fork in the Blockchain could develop and two separate Bitcoin Networks could
result, one running the pre-modification software program and the other running the modified version (i.e., a second “Bitcoin”
network). Such a fork in the Blockchain typically would be addressed by community-led efforts to merge the forked Blockchains,
and several prior forks have been so merged. This kind of split in the Bitcoin Network could materially and adversely impact an
investment in us and, in the worst case scenario, harm the sustainability of the Bitcoin Network’s economy.

 

 

Intellectual
property rights claims may adversely affect the operation of the Bitcoin Network.

 

Third
parties may assert intellectual property claims relating to the holding and transfer of Digital Assets and their source code.
Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in the
Bitcoin Network’s long-term viability or the ability of end-users to hold and transfer bitcoins may adversely affect an
investment in us. Additionally, a meritorious intellectual property claim could prevent us and other end-users from accessing
the Bitcoin Network or holding or transferring their bitcoins. As a result, an intellectual property claim against us or other
large Bitcoin Network participants could adversely affect an investment in us.

 

The
Bitcoin Exchanges on which bitcoins trade are relatively new and, in most cases, largely unregulated and may therefore be more
exposed to fraud and failure than established, regulated exchanges for other products. To the extent that the Bitcoin Exchanges
representing a substantial portion of the volume in bitcoin trading are involved in fraud or experience security failures or other
operational issues, such Bitcoin Exchanges’ failures may result in a reduction in the price of bitcoin and can adversely
affect an investment in us.

 

The
Bitcoin Exchanges on which the bitcoins trade are new and, in most cases, largely unregulated. Furthermore, many Bitcoin Exchanges
(including several of the most prominent US Dollar denominated Bitcoin Exchanges) do not provide the public with significant information
regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace
may lose confidence in, or may experience problems relating to, Bitcoin Exchanges, including prominent exchanges handling a significant
portion of the volume of bitcoin trading.

 

Over
the past four years, a number of Bitcoin Exchanges have been closed due to fraud, failure or security breaches. In many of these
instances, the customers of such Bitcoin Exchanges were not compensated or made whole for the partial or complete losses of their
account balances in such Bitcoin Exchanges. While smaller Bitcoin Exchanges are less likely to have the infrastructure and capitalization
that make larger Bitcoin Exchanges more stable, larger Bitcoin Exchanges are more likely to be appealing targets for hackers and
“malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information
or gain access to private computer systems). Further, the collapse of the largest Bitcoin Exchange in 2014 suggests that the failure
of one component of the overall Bitcoin ecosystem can have consequences for both users of a Bitcoin Exchange and the Bitcoin industry
as a whole.

 

In
2018, China shut down Bitcoin Exchanges and other virtual currency trading platforms. A Wall Street Journal article reported that
China accounted for the bulk of global bitcoin trading as of early 2018. Further, in late January 2018, the Wall Street Journal
reported that $530 million of cryptocurrency was missing from a Japanese exchange. On May 7, 2019, Coindesk reported that approximately
$41 million in Bitcoin was stolen from crypto exchange Binance.

 

It
has been reported that Bithumb, a South Korea exchange was hacked, resulting in a $180 million loss. This followed its reported
loss of $350 million in 2018. In 2019, the Chief Executive Officer of Quadriga, the largest exchange in Canada, died without providing
for an alternative way to access its systems causing a reported $200 million loss.

 

A
lack of stability in the Bitcoin Exchange Market and the closure or temporary shutdown of Bitcoin Exchanges due to fraud, business
failure, hackers or malware, or government-mandated regulation may reduce confidence in the Bitcoin Network and result in greater
volatility in bitcoin value. These potential consequences of a Bitcoin Exchange’s failure could adversely affect an investment
in us.

 

 

Political
or economic crises may motivate large-scale sales of Bitcoins, which could result in a reduction in Bitcoin value and adversely
affect an investment in us.

 

As
an alternative to fiat currencies that are backed by central governments, Digital Assets such as bitcoins, which are relatively
new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and
selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless,
political or economic crises may motivate large-scale acquisitions or sales of bitcoins either globally or locally. Large-scale
sales of bitcoins would result in a reduction in bitcoin value and could adversely affect an investment in us.

 

Demand
for bitcoin is driven, in part, by its status as the most prominent and secure Digital Asset. It is possible that a Digital Asset
other than bitcoins could have features that make it more desirable to a material portion of the Digital Asset user base, resulting
in a reduction in demand for bitcoins, which could have a negative impact on the price of bitcoins and adversely affect an investment
in us.

 

The
Bitcoin Network and bitcoins, as an asset, hold a “first-to-market” advantage over other Digital Assets. This first-to-market
advantage is driven in large part by having the largest user base and, more importantly, the largest combined mining power in
use to secure the Blockchain and transaction verification system. Having a large mining network results in greater user confidence
regarding the security and long-term stability of a Digital Asset’s network and its block chain; as a result, the advantage
of more users and miners makes a Digital Asset more secure, which makes it more attractive to new users and miners, resulting
in a network effect that strengthens the first-to-market advantage.

 

As
of June 15, 2020, there were over 2,600 alternate Digital Assets (or altcoins) tracked by CoinMarketCap, having a total market
capitalization (including the market capitalization of bitcoin) of approximately $267 billion, using market prices and total outstanding
supply of each Digital Asset. This included altcoins using a “proof of work” mining structure similar to Bitcoin,
and those using a “proof of stake” transaction verification system that is different than Bitcoin’s mining system
(e.g., Peercoin, Bitshares and NXT). As of June 15, 2020, bitcoin’s $174 billion market capitalization was approximately
seven times the size of the $26 billion market cap of ETH, the second largest Digital Asset. Despite the marked first-mover advantage
of the Bitcoin Network over other Digital Assets, it is possible that another Digital Asset could become materially popular due
to either a perceived or exposed shortcoming of the Bitcoin Network protocol that is not immediately addressed by the Bitcoin
contributor community or a perceived advantage of an altcoin that includes features not incorporated into Bitcoin. If a Digital
Asset obtains significant market share (either in market capitalization, mining power or use as a payment technology), this could
reduce bitcoin’s market share as well as other Digital Assets we may become involved in and have a negative impact on the
demand for, and price of, such Digital Assets and could adversely affect an investment in us.

 

Our
ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of our Digital
Assets.

 

The
history of the Bitcoin Exchange Market has shown that Bitcoin Exchanges and large holders of bitcoins must adapt to technological
change in order to secure and safeguard their bitcoins and other Digital Assets. We rely on Bitgo Inc.’s multi-signature
enterprise storage solution to safeguard our bitcoins from theft, loss, destruction or other issues relating to hackers and technological
attack. We believe that it may become a more appealing target of security threats as the size of our bitcoin holdings grow. To
the extent that either Bitgo Inc. or we are unable to identify and mitigate or stop new security threats, our bitcoins may be
subject to theft, loss, destruction or other attack, which could adversely affect an investment in us.

 

Security
threats to us could result in, a loss of Company’s Digital Assets, or damage to the reputation and our brand, each of which
could adversely affect an investment in us.

 

Security
breaches, computer malware and computer hacking attacks have been a prevalent concern in the Bitcoin Exchange Market since the
launch of the Bitcoin Network. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information
or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment,
and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our bitcoins and
other Digital Assets. Any breach of our infrastructure could result in damage to our reputation which could adversely affect an
investment in us. Furthermore, we believe that, as our assets grow, it may become a more appealing target for security threats
such as hackers and malware.

 

 

We
will primarily rely on the exchanges we hold our digital assets at and Bitgo Inc.’s multi-signature enterprise storage solution
to safeguard our bitcoins and other digital assets from theft, loss, destruction or other issues relating to hackers and technological
attack. Nevertheless, the exchanges we utilize or Bitgo Inc.’s security system may not be impenetrable and may not be free
from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us.
In January 2018, the Japanese cryptocurrency exchange Coincheck reported that hackers breached Coincheck’s security and
stole approximately $530 million worth of cryptocurrency. Our bitcoins and other Digital Assets are also stored with exchanges
such as Itbit, Kraken and Coinbase and others prior to selling them.

 

On
February 1, 2019, a 20 year old hacker pled guilty to stealing more than $5,000,000 worth of crypto currency from 40 victims through
SIM swapping. The hacker is the first individual convicted of a crime for SIM swapping, which is growing increasingly popular
with criminals as a way to steal crypto currency. In SIM swapping, hackers call a telecoms company posing as their target and
claim that their SIM card has been lost, and that they would like their number to be ported to a new card. The criminals can convince
phone companies that they are who they claim to be by providing social security numbers or addresses. Once the telecoms company
transfers the number to a new SIM, hackers can bypass two-step authentication measures for accounts by using the phone as a recovery
method. By using this method and acquiring someone’s phone number, a hacker can get into every account the person owns within
minutes and that person cannot do anything about it.

 

The
security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of
an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data or bitcoins.
Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order
to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage
systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until
launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an
actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could
be harmed, which could adversely affect an investment in us.

 

In
the event of a security breach, we may be forced to cease operations, or suffer a reduction in assets, the occurrence of each
of which could adversely affect an investment in us.

 

A
loss of confidence in our security system, or a breach of our security system, may adversely affect us and the value of an investment
in us.

 

We
will take measures to protect us and our bitcoins and other Digital Assets from unauthorized access, damage or theft; however,
it is possible that the security system may not prevent the improper access to, or damage or theft of our bitcoins. A security
breach could harm our reputation or result in the loss of some or all of our bitcoins. A resulting perception that our measures
do not adequately protect our Digital Assets could result in a loss of current or potential shareholders, reducing demand for
our common stock and causing our shares to decrease in value.

 

Bitcoin
transactions are irrevocable and stolen or incorrectly transferred bitcoins may be irretrievable. As a result, any incorrectly
executed Bitcoin transactions could adversely affect an investment in us.

 

Bitcoin
(and other Digital Asset) transactions are not, from an administrative perspective, reversible without the consent and active
participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the
Bitcoin Network. Once a transaction has been verified and recorded in a block that is added to the Blockchain, an incorrect transfer
of Digital Assets or a theft of Digital Assets generally will not be reversible and we may not be capable of seeking compensation
for any such transfer or theft. Although our transfers of bitcoins will regularly be made to or from vendors, consultants, services
providers, etc. it is possible that, through computer or human error, or through theft or criminal action, our bitcoins could
be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective
transaction with such third party or is incapable of identifying the third party which has received our bitcoins through error
or theft, we will be unable to revert or otherwise recover incorrectly transferred Company Digital Assets. To the extent that
we are unable to seek redress for such error or theft, such loss could adversely affect an investment in us.

 

 

Our
Digital Assets may be subject to loss, damage, theft or restriction on access.

 

There
is a risk that part or all of our digital assets could be lost, stolen or destroyed. We believe that our Digital Assets will be
an appealing target to hackers or malware distributors seeking to destroy, damage or steal our Digital Assets. Although we utilize
the exchanges we hold our Digital Assets at and Bitgo Inc.’s enterprise multi-signature storage solution for our bitcoins,
to minimize the risk of loss, damage and theft, we cannot guarantee that it will prevent such loss, damage or theft, whether caused
intentionally, accidentally or by act of God. Access to our Digital Assets could also be restricted by natural events (such as
an earthquake or flood) or human actions (such as a terrorist attack). Any of these events may adversely affect our operations
and, consequently, an investment in us.

 

The
limited rights of legal recourse against us, and our lack of insurance protection expose us and our shareholders to the risk of
loss of our bitcoins and other Digital Assets for which no person is liable.

 

The
bitcoins and other Digital Assets held by us are not insured. Therefore, a loss may be suffered with respect to our bitcoins which
is not covered by insurance and for which no person is liable in damages which could adversely affect our operations and, consequently,
an investment in us.

 

Bitcoins
and other Digital Assets held by us are not subject to FDIC or SIPC protections.

 

We
will not hold our bitcoins and other Digital Assets with a banking institution or a member of the Federal Deposit Insurance Corporation
(“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our Digital Assets
are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.

 

We
may not have adequate sources of recovery if our bitcoins and other Digital Assets are lost, stolen or destroyed.

 

If
our bitcoins or other Digital Assets are lost, stolen or destroyed under circumstances rendering a party liable to us, the responsible
party may not have the financial resources sufficient to satisfy our claim. For example, as to a particular event of loss, the
only source of recovery for us might be limited, to the extent identifiable, other responsible third parties (e.g., a thief or
terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim
of ours.

 

The
sale of our bitcoins or other Digital Assets to pay expenses at a time of low prices could adversely affect an investment in us.

 

We
may sell bitcoins or other Digital Assets to pay expenses on an as-needed basis, irrespective of then-current prices. The extreme
volatility of bitcoin and other Digital Assets could mean that prices are low when we need to sell. Consequently, our Digital
Assets may be sold at a time when the prices are low, which could adversely affect an investment in us.

 

Intellectual
property rights claims may adversely affect an investment in us.

 

We
are not aware of any intellectual property claims that may prevent us from operating and holding bitcoins or other Digital Assets;
however, third parties may assert intellectual property claims relating to the operation of us and the mechanics instituted for
the investment in, holding of and transfer of bitcoins or other Digital Assets. Regardless of the merit of an intellectual property
or other legal action, any legal expenses to defend or payments to settle such claims would be extraordinary expenses and be borne
by us through the sale of our bitcoins and other Digital Assets. Additionally, a meritorious intellectual property claim could
prevent us from operating and force us to liquidate our bitcoins and other Digital Assets. As a result, an intellectual property
claim against us could adversely affect an investment in us.

 

Regulatory
changes or actions may restrict the use of Digital Assets or the operation of trading markets in a manner that adversely affects
an investment in us.

 

Until
a few years ago, little or no regulatory attention has been directed toward bitcoin, other Digital Assets and the markets where
they trade by U.S. federal and state governments, foreign governments and self-regulatory agencies. As bitcoin has grown in popularity
and in market size and initial coin offerings which tend to be Digital Securities, the SEC, Federal Reserve Board, U.S. Congress
and certain other U.S. agencies (e.g., the CFTC, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations
of the initial coin offerings, Bitcoin Network, bitcoin users and the Bitcoin Exchange Market.

 

 

On
July 25, 2017, the SEC issued its DAO Report which concluded that Digital Assets or tokens issued for the purpose of raising funds
may be securities within the meaning of the federal securities laws. The DAO Report focused on the activities of a virtual organization
which offered tokens in exchange for ether which is the second largest reported digital currency. The DAO Report emphasized that
whether Digital Asset is a security is based on the facts and circumstances. Although the Company’s activities are not focused
on raising capital or assisting others that do so, the federal securities laws are very broad, and there can be no assurances
that the SEC will not take enforcement action against the Company in the future including for the sale of unregistered securities
in violation of the Securities Act or acting as an unregistered investment company in violation of the Investment Company Act.
The SEC has taken various actions against persons or entities misusing bitcoin in connection with fraudulent schemes (i.e., Ponzi
scheme), inaccurate and inadequate publicly disseminated information, and the offering of unregistered securities. More recently,
the SEC suspended trading in three Digital Asset public companies. Since issuing the DAO Report the SEC Chairman has stated that
the SEC is carefully examining initial coin offerings and similar areas involving Digital Assets for their compliance with the
Securities Act. On November 16, 2018, the SEC announced its first civil penalties solely targeting ICO securities registration
violators in reference to settled charges against ICO issuers CarrierEQ, Inc., (“Airfox”) and Paragon Coin, Inc. (“Paragon”).
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, stated that “we have made it clear that companies
who issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities.”
Unlike Slock.It, which faced no penalty, Airfox and Paragon were each ordered to: 1) pay $250,000 in penalties, 2) register their
tokens pursuant to the Exchange Act, and 2) to file periodic reports with the SEC for at least a year.

 

Very
recently, it has been publicly reported that the SEC staff has been issuing subpoenas seeking information about initial coin offerings.
Although we have never invested in initial coin offering, lawsuits filed by the SEC claiming that initial coin offering issuers
and cryptocurrency public companies violate the Securities Act and the Exchange Act and the resulting publicity may have a material
adverse effect on the prices of Digital Assets we own and otherwise adversely affect opportunities in the Blockchain industry,
which in turn will have an adverse impact on our business and prospects.

 

The
CFTC has determined that bitcoin and other virtual currencies are commodities and the sale of derivatives based on digital currencies
must be done in accordance with the provisions of the CEA and CFTC regulations. Also of significance, is that the CFTC appears
to have taken the position that bitcoin is not encompassed by the definition of currency under the CEA and CFTC regulations. The
CFTC defined bitcoin and other “virtual currencies” as “a digital representation of value that functions as
a medium of exchange, a unit of account, and/or a store of value, but does not have legal tender status in any jurisdiction. Bitcoin
and other virtual currencies are distinct from ‘real’ currencies, which are the coin and paper money of the United
States or another country that are designated as legal tender, circulate, and are customarily used and accepted as a medium of
exchange in the country of issuance.” To the extent that bitcoin itself is determined to be a security, commodity future
or other regulated asset, or to the extent that a US or foreign government or quasi-governmental agency exerts regulatory authority
over the Bitcoin Network or bitcoin trading and ownership, trading or ownership in bitcoin or an investment in us may be adversely
affected.

 

The
CFTC affirmed its approach to the regulation of bitcoin and bitcoin-related enterprises on June 2, 2016, when the CFTC settled
charges against Bitfinex, a Bitcoin Exchange based in Hong Kong. In its Order, the CFTC found that Bitfinex engaged in “illegal,
off-exchange commodity transactions and failed to register as a futures commission merchant” when it facilitated borrowing
transactions among its users to permit the trading of bitcoin on a “leveraged, margined or financed basis” without
first registering with the CFTC. In 2017 the CFTC stated that it would consider bitcoin and other virtual currencies as commodities
or derivatives depending on the facts of the offering. In December 2017, bitcoin futures trading commenced on two CFTC regulated
futures markets. In 2018 two federal district courts determined that Digital Assets were commodities and can be regulated by the
CFTC as such.

 

Local
state regulators such as the NYSDFS have also initiated examinations of bitcoin, the Bitcoin Network and the regulation thereof.
The NYSDFS began requiring New York based companies to have a “BitLicense” in June 2015. The “BitLicense”
regulates the conduct of businesses that are involved in “virtual currencies” in New York or with New York customers,
and prohibits any person or entity involved in such activity to conduct activities without a license. Out of concern of over regulating
cryptocurrency, New York has formed a task force to further study the scope of its regulation.

 

 

Additionally,
a U.S. federal magistrate judge in the U.S. District Court for the Eastern District of Texas has ruled that “Bitcoin is
a currency or form of money,” a Florida circuit court judge determined that bitcoin did not qualify as money or “tangible
wealth,” and an opinion from the U.S. District Court for the Northern District of Illinois identified bitcoin as “virtual
currency.” Additionally, two CFTC commissioners publicly expressed a belief that derivatives based on bitcoin are subject
to the same regulation as those based on commodities, and the IRS released guidance treating bitcoin as property that is not currency
for U.S. federal income tax purposes. Taxing authorities of a number of U.S. states have also issued their own guidance regarding
the tax treatment of bitcoin for state income or sales tax purposes. On June 28, 2014, the Governor of the State of California
signed into law a bill that removed state-level prohibitions on the use of alternative forms of currency or value (including bitcoin).
The bill indirectly authorizes bitcoin’s use as an alternative form of money in the state. In February 2015, a bill was
introduced in the California State Assembly to establish a licensing regime for businesses engaging in “virtual currencies.”
In September 2015, the bill was ordered to become an inactive file and as of the date of this prospectus there hasn’t been
further consideration by the California State Assembly. As of August 2016, the bill was withdrawn from consideration for vote
for the remainder of the year. In March of 2019, California Assembly Majority Leader Ian Calderon introduced Assembly Bill 1489,
which would govern virtual currency business activity that takes place with or on behalf of California residents. The bill proposes
to require companies to go through a regulatory approval process to conduct crypto-related activities in the state by requiring
licensure with stipulations on net worth, security, and reserves. Entities would be subject to examination, consolidations and
data sharing to maintain compliance. As presently drafted, Bill 1489 does not consider virtual currencies (also known as cryptocurrencies
and digital assets) to be legal tender, whether or not it is denominated in legal tender. It states that virtual currency is a
representation of value for exchange, storage of value, or unit of account.

 

Bitcoin
currently faces an uncertain regulatory landscape in not only the United States but also in many foreign jurisdictions such as
the European Union, China and Russia. While certain governments such as Germany, where the Ministry of Finance has declared bitcoin
to be “Rechnungseinheiten” (a form of private money that is recognized as a unit of account, but not recognized
in the same manner as fiat currency), have issued guidance as to how to treat bitcoin, most regulatory bodies have not yet issued
official statements regarding intention to regulate or determinations on regulation of bitcoin, the Bitcoin Network and bitcoin
users.

 

 

Among
those for which preliminary guidance has been issued in some form, Canada and Taiwan have labeled bitcoin as a digital or virtual
currency, distinct from fiat currency, while Sweden and Norway are among those to categorize bitcoin as a form of virtual asset
or commodity. In Australia, a GST (similar to the European value added tax (“VAT”)) is currently applied to bitcoin,
forcing a ten (10) percent markup on top of market price, essentially preventing the operation of any Bitcoin Exchange. This may
be undergoing a change, however, since the Senate Economics References Committee and the Productivity Commission recommended that
digital currency be treated as money for GST purposes to remove the double taxation. The United Kingdom determined that the VAT
will not apply to bitcoin sales. Since December 2013, China, Iceland, Vietnam and Russia have taken a more restrictive stance
toward bitcoin and, thereby, have reduced the rate of expansion of bitcoin use in each country. In May 2014, the Central Bank
of Bolivia banned the use of bitcoin as a means of payment. In the summer and fall of 2014, Ecuador announced plans for its own
state-backed electronic money, while passing legislation that prohibits the use of decentralized Digital Assets such as bitcoin.
In July 2016, economists at the Bank of England advocated that central banks issue their own digital currency, and the House of
Lords and Bank of England started discussing the feasibility of creating a national virtual currency, the BritCoin. As of July
2016, Iceland was studying how to create a system in which all money is created by a central bank, and Canada was beginning to
experiment with a digital version of its currency called CAD-COIN, intended to be used exclusively for interbank payments. On
August 24, 2017, Canada issued guidance stating the sale of cryptocurrency may constitute an investment contract in accordance
with Canadian law for determining if an investment constitutes a security. In July 2016, the Russian Ministry of Finance indicated
it supports a proposed law that bans bitcoin domestically but allows for its use as a foreign currency. Russia recently issued
several releases indicating they may begin regulating bitcoin and licensing miners and entities engaging in initial coin offerings.
Conversely, regulatory bodies in some countries such as India and Switzerland have declined to exercise regulatory authority when
afforded the opportunity. In April 2015, the Japanese Cabinet approved proposed legal changes that would reportedly treat bitcoin
and other Digital Assets as included in the definition of currency. These regulations would, among other things, require market
participants, including exchanges, to meet certain compliance requirements and be subject to oversight by the Financial Services
Agency, a Japanese regulator. In September 2017 Japan began regulating Bitcoin Exchanges and registered several such exchanges
to operate within Japan. In July 2016, the European Commission released a draft directive that proposed applying counter-terrorism
and anti-money laundering regulations to virtual currencies, and, in September 2016, the European Banking authority advised the
European Commission to institute new regulation specific to virtual currencies, with amendments to existing regulation as a stopgap
measure. Various foreign jurisdictions may, in the near future, adopt laws, regulations or directives that affect the Bitcoin
Network and its users, particularly Bitcoin Exchanges and service providers that fall within such jurisdictions’ regulatory
scope. Such laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance
of bitcoin by users, merchants and service providers outside of the United States and may therefore impede the growth of the bitcoin
economy. On September 4, 2017, reports were published that China may begin prohibiting the practice of using cryptocurrency for
capital fundraising. Additional reports have surfaced that China is considering regulating Bitcoin Exchanges by enacting a licensing
regime wherein Bitcoin Exchanges may legally operate. In April 2019, China’s National Development Reform Commission listed
crypto-mining among a variety of industries it intends to eliminate. In October 2018, The Shenzhen Court of International Arbitration
of China published a case analysis on contract disputes between parties to a share transfer agreement involving cryptocurrencies
and held that cryptocurrency was protected as property in China. In September 2017, the Financial Services Commission of South
Korea released a statement that initial coin offerings would be prohibited as a fundraising tool. In December of 2018, the South
Korea’s Financial Services Commission, the country’s top financial regulator, stated that six bills related to the
regulation of cryptocurrencies had been submitted to the National Assembly. One of the bills would require all persons in charge
of a cryptocurrency transfer business – including trading, brokerage and management – to register with the Financial Services
Commission. In June 2017, India’s government ruled in favor of regulating bitcoin. In December 2017, India’s finance
minister told the media that the government does not consider bitcoin a legal tender. In April 2018, the Reserve Bank of India
issued a statement to all entities regulated by the Reserve Bank, stating that they must cease all activities related to cryptocurrency.
The Internet and Mobile Association of India challenged the ban via petition to the Supreme Court of India, which ordered the
Reserve Bank of India to devise a clear regulation regarding cryptocurrency. The Supreme Court of India will resume hearing the
case in July 2019. In 2018, Australia passed legislation which requires digital currency exchange providers to register with AUSTRAC
(the Australian Transaction Reports and Analysis Centre). In its budget summary for 2017-2018, the Australian government stated
that, as part of its plan to make it easier for digital currency businesses to operate in the country, purchases of digital currency
will no longer be subject to the general sales tax.

 

The
effect of any future regulatory change on us, bitcoins, or other Digital Assets is impossible to predict, but such change could
be substantial and adverse to us and could adversely affect an investment in us.

 

It
may be illegal now, or in the future, to acquire, own, hold, sell or use bitcoins or other Digital Assets in one or more countries,
and ownership of, holding or trading in our Company’s securities may also be considered illegal and subject to sanction.

 

Although
currently bitcoins and other Digital Assets are not regulated or are lightly regulated in most countries, including the United
States, one or more countries such as China and Russia may take regulatory actions in the future that severely restricts the right
to acquire, own, hold, sell or use bitcoins or other Digital Assets or to exchange Digital Assets for currency. Such an action
may also result in the restriction of ownership, holding or trading in our securities. Such restrictions may adversely affect
an investment in us.

 

If
we become an inadvertent investment company in violation of the 1940 Act, our failure to register under the 1940 Act will adversely
affect us and you will likely lose your entire investment.

 

Under
the 1940 Act, a company may be deemed an investment company under if the value of its investment securities is more than 40% of
its total assets (exclusive of government securities and cash items) on a consolidated basis.

 

In
the event that the Digital Assets held by us exceed 40% of our total assets, exclusive of cash, we may inadvertently become an
investment company. While we are putting in place policies that we expect will work to keep the investment securities held by
us at less than 40% of our total assets, which may include actively monitoring the value of our investment securities, acquiring
assets bitcoin with our cash, or liquidating our investment securities.

 

 

 

The
Rules under the 1940 Act permit a company to breach the 40% threshold once every three years assuming it reduces its investment
securities below 40% within one year. Otherwise registration under the 1940 Act would be required.

 

The
40% requirement may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive
impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and
trading securities. The failure to register when required would likely make our common stock worthless.

 

If
we become an investment company and fail to register, we would have to stop doing almost all business. Registration is time consuming
and restrictive and would require a restructuring of our operations, and we would be very constrained in the kind of business
we could do as a registered investment company. Further, we would become subject to substantial regulation concerning management,
operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the 1940 Act
regime. The cost of such compliance would result in the Company incurring substantial additional expenses, and the failure to
register if required would have a materially adverse impact to conduct our operations.

 

If
regulatory changes or interpretations of our activities require our registration as a MSB under the regulations promulgated by
FinCEN under the authority of the U.S. Bank Secrecy Act, we may be required to register and comply with such regulations. If regulatory
changes or interpretations of our activities require the licensing or other registration of us as a money transmitter (or equivalent
designation) under state law in any state in which we operate, we may be required to seek licensure or otherwise register and
comply with such state law. In the event of any such requirement, to the extent the Company decides to continue, the required
registrations, licensure and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also
decide to cease the Company’s operations. Any termination of certain Company operations in response to the changed regulatory
circumstances may be at a time that is disadvantageous to investors.

 

To
the extent that the activities of the Company cause it to be deemed a MSB under the regulations promulgated by FinCEN under the
authority of the U.S. Bank Secrecy Act, the Company may be required to comply with FinCEN regulations, including those that would
mandate the Company to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.

 

To
the extent that the activities of the Company cause it to be deemed a “money transmitter” (or equivalent designation)
under state law in any state in which the Company operates, the Company may be required to seek a license or otherwise register
with a state regulator and comply with state regulations that may including the implementation of anti-money laundering programs,
maintenance of certain records and other operational requirements. Currently, the NYSDFS has finalized its “BitLicense”
framework for businesses that conduct “virtual currency business activity,” the Conference of State Bank Supervisors
has proposed a model form of state level “virtual currency” regulation and additional state regulators including those
from California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington have made public statements indicating that virtual
currency businesses may be required to seek licenses as money transmitters. In July 2016, North Carolina updated the law to define
“virtual currency” and the activities that trigger licensure in a business friendly approach that encourages companies
to use virtual currency and blockchain technology. Specifically, the North Carolina law does not require miners or software providers
to obtain a license for multi-signature software, smart contract platforms, smart property, colored coins and non-hosted, non-custodial
wallets. Starting January 1, 2016, New Hampshire requires anyone exchanges a digital currency for another currency must become
a licensed and bonded money transmitter. In numerous other states, including Connecticut and New Jersey, legislation is being
proposed or has been introduced regarding the treatment of bitcoin and other Digital Assets. The Company will continue to monitor
for developments in such legislation, guidance or regulations.

 

Such
additional federal or state regulatory obligations may cause the Company to incur extraordinary expenses, possibly affecting an
investment in the Resale Shares in a material and adverse manner. Furthermore, the Company and its service providers may not be
capable of complying with certain federal or state regulatory obligations applicable to MSBs and MTs. If the Company is deemed
to be subject to and determines not to comply with such additional regulatory and registration requirements, we may act to dissolve
and liquidate the Company. Any such action may adversely affect an investment in us.

 

 

Current
interpretations require the regulation of bitcoins and other Digital Assets under the CEA by the CFTC, we may be required to register
and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory
compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any
disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.

 

Current
and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority,
may impact the manner in which bitcoins and other Digital Assets are treated for classification and clearing purposes. In particular,
derivatives on these assets are not excluded from the definition of “commodity future” by the CFTC. We cannot be certain
as to how future regulatory developments will impact the treatment of bitcoins and other Digital Assets under the law.

 

Bitcoins
have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation
under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to
register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association.
Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting
an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek
to cease certain of our operations. Any such action may adversely affect an investment in us. No CFTC orders or rulings are applicable
to our business.

 

If
regulatory changes or interpretations require the regulation of bitcoins and other Digital Assets (in contrast to Digital Securities)
under the Securities Act and Investment Company Act by the SEC, we may be required to register and comply with such regulations.
To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in
extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. This would likely have a material
adverse effect on us and investors may lose their investment.

 

Current
and future legislation and SEC rulemaking and other regulatory developments, including interpretations released by a regulatory
authority, may impact the manner in which bitcoins are treated for classification and clearing purposes. The SEC’s July
25, 2017 DAO Report expressed its view that Digital Assets may be securities depending on the facts and circumstances. As of the
date of this prospectus, we are not aware of any rules that have been proposed to regulate the Digital Assets we hold as securities.
We cannot be certain as to how future regulatory developments will impact the treatment of bitcoins and other Digital Assets under
the law. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting
an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek
to cease certain of our operations. Any such action may adversely affect an investment in us.

 

To
the extent that Digital Assets including bitcoins are deemed by the SEC to fall within the definition of a security, we may be
required to register and comply with additional regulation under the Investment Company Act, including additional periodic reporting
and disclosure standards and requirements and the registration of our Company as an investment company. Additionally, one or more
states may conclude bitcoins are a security under state securities laws which would require registration under state laws including
merit review laws which would adversely impact us since we would likely not comply. As stated earlier in this prospectus, some
states including California define the term “investment contract” more strictly than the SEC. Such additional registrations
may result in extraordinary, non-recurring expenses of our Company, thereby materially and adversely impacting an investment in
our Company. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease
all or certain parts of our operations. Any such action would likely adversely affect an investment in us and investors may suffer
a complete loss of their investment.

 

 

The
Company does not currently have any mining operations but monitors blockchain networks and may consider re-entering the digital
asset mining business if and when it believes a positive return on investment is achievable. However, given the current network
difficulties and price levels to mine both bitcoin and ethereum the Company does not believe mining offers a positive return on
investment at present and has no immediate plans to resume mining. To the extent that the Company resumes mining operations and
acquires Digital Assets as a result of mining, the Company does not intend to trade the Digital Assets until it determines, with
the assistance of legal counsel, that the Digital Assets are not securities, the Digital Assets would only be used for its own
account.

 

We
do not believe that bitcoin and ether are securities. As such, we do not intend to acquire securities in amounts that are equal
to or greater than 40% of our assets. Should the total value of securities which we hold rise to more than 40% of our assets (exclusive
of cash) we note that SEC Rule 3a-2 under the 1940 Act allows an issuer to prevent itself from being deemed an investment company
if it reduces its holdings of securities to less than 40% of its assets (exclusive of cash) and does not go above the 40% threshold
more than once every three years. In order to comply with the 1940 Act, we anticipate having increased management time and legal
expenses in order to analyze which Digital Assets are securities and periodically analyze our total holdings to ensure that we
do not maintain more than 40% of our total assets (exclusive of cash) as securities. If our view that ether is not a security
is challenged by the SEC and courts uphold the challenge, we may inadvertently violate the 1940 Act and incur substantial legal
fees in defending our position. In such case the legal fees may exceed our available assets which could adversely affect an investment
in us.

 

If
federal or state legislatures or agencies initiate or release tax determinations that change the classification of bitcoins or
other Digital Assets as property for tax purposes (in the context of when such Digital Assets are held as an investment), such
determination could have a negative tax consequence on our Company or our shareholders.

 

Current
IRS guidance indicates that Digital Assets such as bitcoins should be treated and taxed as property, and that transactions involving
the payment of bitcoins for goods and services should be treated as barter transactions. While this treatment creates a potential
tax reporting requirement for any circumstance where the ownership of a bitcoin passes from one person to another, usually by
means of bitcoin transactions (including off-Blockchain transactions), it preserves the right to apply capital gains treatment
to those transactions which may have adversely affect an investment in our Company.

 

On
December 5, 2014, the New York State Department of Taxation and Finance issued guidance regarding the application of state tax
law to Digital Assets such as bitcoins. The agency determined that New York State would follow IRS guidance with respect to the
treatment of Digital Assets such as bitcoins for state income tax purposes. Furthermore, they defined Digital Assets such as bitcoin
to be a form of “intangible property,” meaning the purchase and sale of bitcoins for fiat currency is not subject
to state income tax (although transactions of bitcoin for other goods and services maybe subject to sales tax under barter transaction
treatment). It is unclear if other states will follow the guidance of the IRS and the New York State Department of Taxation and
Finance with respect to the treatment of Digital Assets such as bitcoins for income tax and sales tax purposes. If a state adopts
a different treatment, such treatment may have negative consequences including the imposition of greater a greater tax burden
on investors in bitcoin or imposing a greater cost on the acquisition and disposition of bitcoins, generally; in either case potentially
having a negative effect on prices in the Bitcoin Exchange Market and may adversely affect an investment in our Company.

 

Foreign
jurisdictions may also elect to treat Digital Assets such as bitcoins differently for tax purposes than the IRS or the New York
State Department of Taxation and Finance. To the extent that a foreign jurisdiction with a significant share of the market of
bitcoin users imposes onerous tax burdens on bitcoin users, or imposes sales or value added tax on purchases and sales of bitcoins
for fiat currency, such actions could result in decreased demand for bitcoins in such jurisdiction, which could impact the price
of bitcoins and negatively impact an investment in our Company.

 

Risks
Related to Our Digital Assets Holdings

 

The
loss or destruction of a private key required to access a Digital Assets such as bitcoin may be irreversible. Our loss of access
to our private keys or our experience of a data loss relating to our Company’s Digital Assets could adversely affect an
investment in our Company.

 

Bitcoins
are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet
in which the bitcoins are held. We are required by the operation of the Bitcoin Network to publish the public key relating to
a digital wallet in use by us when it first verifies a spending transaction from that digital wallet and disseminates such information
into the Bitcoin Network. We safeguard and keep private the private keys relating to our bitcoins not held at exchanges by utilizing
Bitgo Inc.’s enterprise multi-signature storage solution; to the extent a private key is lost, destroyed or otherwise compromised
and no backup of the private key is accessible, we will be unable to access the bitcoins held by it and the private key will not
be capable of being restored by the Bitcoin Network. Any loss of private keys relating to digital wallets used to store our bitcoins
could adversely affect an investment in us.

 

 

To
the extent that any of our Digital Assets are held by Exchanges, we may face heightened risks from cybersecurity attacks and financial
stability of the Exchanges.

 

The
Company will use Digital Asset exchanges to hold certain of its Digital Assets; the Company’s bitcoin will either be held
directly by the Company in a bitcoin wallet utilizing Bitgo Inc.’s enterprise multi-signature storage solution or at Digital
Asset exchanges. All Digital Assets not held in the Company’s Bitgo wallets will be subject to the risks encountered by
a Digital Asset exchange including a DDoS Attack or other malicious hacking, a sale of the Digital Asset exchange, loss of the
Digital Assets by the Digital Asset exchange and other risks similar to those described on page 17 in a risk factor entitled
“Security threats to us could result in, a loss of Company’s Digital Assets, or damage to the reputation and our brand,
each of which could adversely affect an investment in us.” The Company may not maintain a custodian agreement with the Digital
Asset exchange that holds the Company’s Digital Assets. Exchange typically do not provide insurance and may lack the resources
to protect against hacking and theft. In the future we may acquire other Digital Assets that are held by Exchanges. If a material
amount of our Digital Assets are held by Exchanges, we may be materially and adversely affected if the Exchanges suffer cyberattacks
or incur financial problems.

 

Risks
Related to Our Digital Asset Data Analytics Platform Development

 

There
is substantial doubt that we will be able to develop or commercialize our Digital Asset Data Analytics Platform.

 

We
are currently developing a digital asset data analytics platform with the ultimate goal of consolidating users’ information
so that it can be more easily accessed and reviewed by users. We may not successfully develop this platform in a cost-efficient
manner or at all. If we fail to develop a digital asset data analytics platform as intended, it could have a material adverse
effect on our business, especially to the extent that we allocate significant capital, labor and other resources to this endeavor
rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight.

 

Even
if we do successfully develop our platform and bring it to the marketplace, there is no guarantee that we will attract enough
users to generate revenue or become profitable. Our competitors, most of whom have greater capital and human resources than we
do, may develop technologies that are superior to our platform or commercialize comparable technologies before us, in which case
our ability to attract users and generate revenue therefrom could be rendered unlikely or even impossible. If we fail to obtain
users for our platform or find an alternative means of commercializing our platform to recoup our investment therein, it will
have a material adverse effect on our financial condition.

 

Even
if we develop and commercialize our Digital Asset Data Analytics Platform, we may not be able to generate material revenues.

 

The
digital asset data analytics platform that we are currently developing will require significant time and capital. Even if we do
develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material
or sufficient to justify the costs we anticipate incurring to develop the platform. Our ability to capitalize on any platform
we do develop will depend on a variety of factors and uncertainties beyond our control, including the competition we face and
similar or superior services that may already exist by the time we begin marketing our platform, the volatile nature of the blockchain
industry generally and the unknown demand for the services we plan to offer through our platform as it is currently envisioned,
and the advancement of new technologies which could arise in the future and render our platform partially or completely obsolete.
If any of these or other risks come to fruition to prevent our platform from generating material revenue to justify its costs
of production, it would have a material adverse effect on our business.

 

 

The
development of our Digital Asset Data Analytics Platform will depend on the successful efforts of our employees.

 

Our
platform development effort is completely dependent on our infrastructure. We use internally developed systems for the platform.
Any future difficulties developing aspects of our platform may cause delays in bringing our platform to market. If the location
where all of our computer and communications hardware is located is compromised, our platform, prospects, could be harmed. We
do not currently have a disaster recovery plan which could result in a loss of the platform software. Despite our implementation
of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions,
the occurrence of any of which could lead to interruptions, delays, loss of critical data or the inability launch our platform.
The occurrence of any of the foregoing risks could harm our business.

 

We
are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond
to cyber incidents.

 

Our
digital asset data analytics platform will be entirely dependent on the secure operation of our website and systems as well as
the operation of the Internet generally. The platform involves reading user data, and storage of user data, and security breaches
could expose us to a risk of loss or misuse of this information, litigation, and potential liability. A number of large Internet
companies have suffered security breaches, some of which have involved intentional attacks. From time to time we and many other
Internet businesses also may be subject to a denial of service attacks wherein attackers attempt to block customers’ access
to our Website. If we are unable to avert a denial of service attack for any significant period, we could sustain delays in the
development of the platform and when launched risk losing future users and have user dissatisfaction. We may not have the resources
or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber attacks may target us, our
users, or exchanges we read data from in general or the communication infrastructure on which we depend. If an actual or perceived
attack or breach of our security occurs, user perception of the effectiveness of our security measures could be harmed and we
could lose our future user. Actual or anticipated attacks and risks may cause us to incur increasing costs, and delay development.
A person who is able to circumvent our security measures might be able to misappropriate our or our users’ proprietary information,
cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and platform.
Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial
exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.

 

Risks
Related to the Purchase Agreement with Cavalry

 

The
sale or issuance of our common stock to Cavalry may cause dilution and the sale of the shares of common stock acquired by Cavalry,
or the perception that such sales may occur, could cause the price of our common stock to fall.

 

On
May 13, 2019, we entered into the Purchase Agreement with Cavalry, pursuant to which Cavalry has committed to purchase up to $10,000,000
of our common stock. As of the date of this prospectus, we have directed Cavalry to purchase 10,402,656 shares (excluding
426,085 commitment and pro-rata commitment shares
) and have received approximately $1,589,636. The purchase shares that
may be sold pursuant to the Purchase Agreement may be sold by us to Cavalry at our discretion from time to time over a 36-month
period commencing after the SEC has declared effective the registration statement that includes this prospectus. The purchase
price for the shares that we may sell to Cavalry under the Purchase Agreement will fluctuate based on the price of our common
stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
Additionally, the amount that we may sell to Cavalry will be limited to the Daily Trading Dollar Volume on the day of, or day
before, the Put. If the trading volume and/or price of our common stock is low, our ability to raise capital under the Purchase
Agreement will be limited and/or take an extensive time to raise capital.

 

 

We
generally have the right to control the timing and amount of any sales of our shares to Cavalry, except that, pursuant to the
terms of our agreements with Cavalry, we would be unable to sell shares to Cavalry on any day when the closing sale price of our
common stock is below $0.005 per share, subject to adjustment as set forth in the Purchase Agreement. Cavalry may ultimately purchase
all, some or none of the shares of our common stock that may be sold pursuant to the Purchase Agreement in connection with our
rights to direct Cavalry’s purchases at our discretion and, after it has acquired shares, Cavalry may sell all, some or
none of those shares. Therefore, sales to Cavalry by us could result in substantial dilution to the interests of other holders
of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Cavalry, or the anticipation
of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at
a price that we might otherwise wish to effect sales.

 

We
may not be able to access sufficient funds under the Purchase Agreement with Cavalry when needed.

 

Our
ability to sell shares to Cavalry and obtain funds under the Purchase Agreement is limited by the terms and conditions in the
Purchase Agreement, including restrictions on when we may sell shares to Cavalry, restrictions on the amounts we may sell to Cavalry
at any one time, and a limitation on our ability to sell shares to Cavalry to the extent that it would cause Cavalry to beneficially
own more than 4.99% of our outstanding common stock. In addition, any amounts we sell under the Purchase Agreement may not satisfy
all of our funding needs, even if we are able and choose to sell all $10,000,000 under the Purchase Agreement. Assuming all 8,755,014
additional Purchase Shares of our common stock being offered under this prospectus that
may be purchased by Cavalry are sold at $0.005 per share (the floor price mentioned herein), we would receive approximately $43,775.
If we elect to issue and sell more than the shares offered under this prospectus to Cavalry, which we have the right, but not
the obligation, to do, we must first register for resale under the Securities Act any such additional shares.

 

We
elected to enter into the Purchase Agreement with Cavalry as we expect that amount of capital over the next 12 months will be
required for us to fully implement our business, operating and development plans. The extent we rely on Cavalry as a source of
funding will depend on a number of factors including, the prevailing market price and trading volume of our common stock and the
extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from Cavalry were to
prove unavailable or prohibitively dilutive, we will need to secure another source of funding to satisfy our working capital needs.
Even if we sell all 8,755,014 remaining Purchase Shares to Cavalry, we may still need additional
capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect
on our business, operating results, financial condition and prospects.

 

The
sale of our common stock to Cavalry will cause dilution and the sale of the shares by Cavalry could cause the price of our common
stock to decline.

 

The
number of shares ultimately offered for sale by Cavalry is dependent upon the number of shares sold to Cavalry under the Purchase
Agreement. The purchase price for the common stock to be sold to Cavalry pursuant to the Purchase Agreement will fluctuate based
on the price of our common stock. Depending upon market liquidity at the time, a sale of shares by Cavalry at any given time could
cause the trading price of our common stock to decline. After it has acquired such shares, Cavalry may sell all, some or none
of such shares. Therefore, sales to Cavalry by us under the Purchase Agreement will result in substantial dilution to the interests
of other holders of our common stock. The sale of a substantial number of shares of our common stock, or anticipation of such
sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales. However, we have the right to control the timing and amount of any sales of our
shares to Cavalry.

 

FORWARD-LOOKING
STATEMENTS

 

This
prospectus includes forward-looking statements including statements regarding our liquidity, anticipated capital expenditures,
and expected sales to Cavalry.

 

All
statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial
position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements.
The words “believe,” “may,” “estimate,” “continue,” “anticipate,”
“intend,” “should,” “plan,” “could,” “target,” “potential,”
“is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended
to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations,
business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions
described in “Risk Factors” elsewhere in this prospectus.

 

 

Other
sections of this prospectus may include additional factors which could adversely affect our business and financial performance.
New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause
actual results to differ materially from those contained in any forward-looking statements.

 

USE
OF PROCEEDS

 

This
prospectus relates to shares of our common stock that may be offered and sold from time to time by Cavalry. We will receive no
proceeds from the sale of shares of common stock by Cavalry in this offering. However, we may receive gross proceeds of up to
$10,000,000 under the Purchase Agreement. As of the date of this prospectus, we have received $1,589,636 from the sale of shares
of common stock to Cavalry under the Purchase Agreement. We estimate that the net proceeds to us from the sale of our common stock
to Cavalry pursuant to the Purchase Agreement will be up to $10 million over an approximately 36-month period (ending May 13,
2022), assuming that we sell the full amount of our common stock that we have the right, but not the obligation, to sell to Cavalry
under that agreement and other estimated fees and expenses. See “Plan of Distribution” elsewhere in this prospectus
for more information.

 

We
expect to use any proceeds that we receive under the Purchase Agreement for general corporate purposes, including compensating
our management.

 

CAPITALIZATION

 

Class of Security  

Shares of

Common

Stock as

Converted

 
Common Stock Issued and Outstanding     27,422,008  
Series C-1 Preferred Stock     196,094  
Warrants to Purchase Common Stock     502,915  
Total Shares Fully Diluted     28,121,017  

 

The
table above describes the shares of common stock which are outstanding and/or are issuable under outstanding securities. The table
above does not include the 2020 Promissory Note which was issued to the selling stockholder on April 17, 2020.

 

The
2020 Promissory Note is due on February 17, 2021 and is: (i) 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 $0.01 per share, (ii) shall bear interest at 12% per annum (payable
at maturity), and (iii) convertible at the Company’s option subject to certain limitations as set forth in the 2020 Promissory
Note. The 2020 Promissory Note is not related to this offering.

 

MARKET
FOR COMMON STOCK

 

Our
common stock is quoted on the OTCQB under the symbol “BTCS”. Our common stock last traded at $0.23 on June 15, 2020.
As of that date there were approximately 139 shareholders of record. We believe that additional beneficial owners of our common
stock hold shares in street name.

 

 

MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS
OF OPERATIONS

 

The
following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical
financial statements and the notes to those statements that appear elsewhere in this prospectus. Certain statements in the discussion
contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under “Risk Factors.”

 

Overview

 

We
are an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital
Assets and block chain technologies. To our knowledge, we are one of a few public companies intending to acquire both Digital
Assets and a controlling interest in one or more businesses in the Digital Asset and blockchain industries.

 

Digital
Asset Initiatives

 

Subject
to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of
Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open
market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets
that appear to benefit our investors, subject to the limitations contained within this report regarding Digital Securities. As
of June 15, 2020, the Company had the following Digital Assets:

 

Digital Asset   Units Held    

Fair Market

Value

 
Bitcoin (BTC)     37.44     $ 353,190  
Ethereum (ETH)     1644.23     $ 382,367  
Total           $ 735,557  

 

The
Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital
Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited
investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be)
limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered
initial coin offerings. 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.

 

Digital
Asset Data Analytics Platform

 

We
are also focused on Digital Assets and blockchain technologies. We are currently internally developing a digital asset data analytics
platform aimed at aggregating users’ information, such as tracking of multiple exchanges and wallets to aggregate portfolio
holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications. The platform utilizes
digital asset exchange APIs to read user data and does not allow for the trading of assets.

 

Acquisition
Initiatives

 

The
Company is also seeking to acquire controlling interests in businesses in the blockchain industry as further described in this
report. We plan to continue to evaluate other strategic opportunities including acquiring controlling interests in business in
this rapidly evolving sector in an effort to enhance shareholder value.

 

Even
though the prices of Digital Assets have been subject to substantial volatility and there remains some regulatory uncertainty,
we believe that businesses using blockchain technology and those involved with Digital Assets such as bitcoin and ether, offer
upside opportunity and are the types of opportunities that we may pursue.

 

 

Our
current framework or criteria is to seek and evaluate acquisition targets in the blockchain and Digital Asset sector which (i)
align with our business model of acquiring Digital Assets or acquiring a controlling interest in one or more blockchain technology
related business ventures, and (ii) have sufficient capital to provide working capital. As disclosed in this prospectus we have
limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may
help us sustain our operations without having us rely on toxic funding structures. Our acquisition activities are spearheaded
by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, one of our independent directors
who is also seeking acquisition targets on behalf of the Company.

 

We
also monitor blockchain networks and may consider re-entering the digital asset mining business if and when we believe a positive
return on investment is achievable. However, given the current network difficulties and price levels to mine both bitcoin and
ethereum we do not believe mining offers a positive return on investment at present and have no immediate plans to resume mining.

 

RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

The
following table reflects our operating results for the three months ended March 31, 2020 and 2019:

 

    Three Months Ended March 31,  
    2020     2019  
             
Operating expenses:                
General and administrative   $ 270,528     $ 251,964  
Marketing     2,690       535  
Total operating expenses     273,218       252,499  
                 
Other expense:                
Interest expense     (22,628 )     (6,000 )
Impairment loss on digital currencies     (74,425 )      
Total other expenses     (97,053 )     (6,000 )
                 
Net loss   $ (370,271 )   $ (258,499 )
Deemed dividend related to reduction of warrant strike price           (95,708 )
Net loss attributable to common stockholders   $ (370,271 )   $ (354,207 )

 

Operating
Expenses

 

Operating
expenses for the three months ended March 31, 2020 and 2019 were approximately $0.3 million.

 

Other
Expense

 

Other
expense for the three months ended March 31, 2020 and 2019 was $97,000 and $6,000, respectively. The increase in other expense
primarily relates to increase in interest expense and impairment loss on digital currencies.

 

Net
loss attributable to common stockholders

 

We
incurred $0 and $95,708 of deemed dividend related to reduction of warrant strike price during the three months ended March 31,
2020 and 2019, respectively.

 

 

RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

    For the years ended  
    December 31,  
    2019     2018  
             
Operating expenses:                
General and administrative   $ 1,422,394     $ 986,525  
Marketing     9,989       3,644  
Total operating expenses     1,432,383       990,169  
                 
Other (expense) income:                
Interest expense     (86,142 )      
Impairment loss on digital currencies     (121,117 )      
Realized (loss) gain on digital currencies transactions     (959 )     163,749  
Total other (expenses) income     (208,218 )     163,749  
                 
Net loss   $ (1,640,601 )   $ (826,420 )
Deemed dividend related to reduction of warrant strike price     (95,708 )     (5,600 )
Net loss attributable to common stockholders   $ (1,736,309 )   $ (832,020 )

 

Operating
expenses

 

Operating
expenses for the years ended December 31, 2019 and 2018 were approximately $1.4 million and $1.0 million. The slight increase
in operating expenses over the prior year mostly relates to increases in general and administrative expenses as a result of salary
increases to our executive management team.

 

Other
Expenses

 

Other
expenses for the year ended 2019 was approximately $208.2 thousand and other income for the year ended 2018 was approximately
$163.7 thousand. The decrease in other income over the prior year primarily relates to decrease in realized gain on sale of digital
currencies, an increase in interest expense related to debt discount amortization and an increase in impairment loss on digital
currencies.

 

Net
loss attributable to common stockholders

 

We
incurred $95,708 and $5,600 of deemed dividend related to reduction of warrant strike price during the year ended December 31,
2019 and 2018, respectively.

 

LIQUIDITY
AND CAPITAL RESOURCES

 

Liquidity

 

As
of December 31, 2019, the Company had approximately $143 thousand of cash and $253 thousand in Digital Assets.

 

As
of June 15, 2020, the Company had approximately $280,781 thousand of cash and $735,557 thousand in Digital Assets.

 

We
will require significant additional capital to sustain short-term operations and make the investments needed to execute our longer-term
business plan and repay our existing debt of $200,000 which becomes due on August 7, 2020. Our existing liquidity is not sufficient
to fund operations and anticipated capital expenditures for the foreseeable future, and we will not have sufficient cash resources
to support our current operations for the next 12 months.

 

 

We
do not have sufficient capital to meet our expenses over the 12 months from the date of this report. Our current cash is not sufficient
to sustain operations. We will require significant additional capital to sustain short-term operations and make the investments
needed to execute our longer-term business plan. If we attempt to obtain additional debt or equity financing, we cannot provide
assurance that such financing will be available to us on favorable terms, if at all.

 

During
2019 through the date of this prospectus, the Company received $1,589,636 in exchange for 10,402,656 shares of common stock (excluding
426,085 commitment and pro-rata commitment shares) in connection with the $10 million Purchase Agreement with Cavalry Fund I LP.

 

We
will require significant additional capital to sustain short-term operations and make the investments needed to execute our longer-term
business plan. Our existing liquidity is not sufficient to fund operations and anticipated capital expenditures for the foreseeable
future, and we do not have sufficient cash resources to support our current operations for the next 12 months, and will need additional
funding, whether through our $10 million Purchase Agreement or other sources. If we attempt to obtain additional debt or equity
financing or are unable to rely on the $10 million Purchase Agreement for any reason, we cannot provide assurance that such financing
will be available to us on favorable terms, if at all.

 

Because
of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about
our ability to continue as a going concern. The audited financial statements have been prepared assuming we will continue as a
going concern. We have not made adjustments to the accompanying audited financial statements to reflect the potential effects
on the recoverability and classification of assets or liabilities should we be unable to continue as a going concern.

 

We
continue to incur ongoing administrative and other expenses, including public company expenses, primarily accounting and legal
fees, in excess of corresponding (non-financing related) revenue. While we continue to implement its business strategy, it intends
to finance its activities through:

 

managing
current cash and cash equivalents on hand from the Company’s past equity offerings, and
seeking
additional funds raised through the sale of additional securities in the future.

 

 

GOING
CONCERN

 

The
audited financial statements for the year ended December 31, 2019, were prepared on a going concern basis, which implies that
we will continue to realize our assets and discharge our liabilities and commitments in the normal course of business. We have
not generated revenues during the years ended December 31, 2019 and 2018 and have never paid any dividends and are unlikely to
pay dividends or generate substantial earnings in the immediate or foreseeable future. Our continuation as a going concern is
dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary financing
to achieve our operating objectives, and the attainment of profitable operations. As of December 31, 2019, we had an accumulated
deficit of approximately $117 million since inception. As we do not have sufficient funds for our planned or new operations, we
will need to raise additional funds for operations. These factors, among others, raise substantial doubt about our ability to
continue as a going concern.

 

The
continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity or convertible
debt securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

Off
Balance Sheet Arrangements

 

As
of December 31, 2019, there were no off-balance sheet arrangements.

 

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

 

We
believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management
discussion and analysis:

 

Accounting
Treatment of Digital Assets

 

Digital
Assets are included in current assets in the balance sheets. Digital Assets are recorded at cost less impairment.

 

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 that is amortized over the remaining useful life of that asset, if any. Subsequent
reversal of impairment losses is not permitted.

 

Realized
gain (loss) on sale of Digital Assets are included in other income (expense) in the statements of operations.

 

The
Company assesses impairment of Digital Assets quarterly if the fair value of digital assets was less than its cost basis on any
day during the quarter. The Company recognizes impairment losses on Digital Assets caused by decreases in fair value using the
average U.S. dollar spot price of the related Digital Asset as of each impairment date. Such impairment in the value of Digital
Assets are recorded as a component of costs and expenses in our statements of operations. There were no impairment losses related
to Digital Assets during the year ended December 31, 2018. The Company recorded an impairment loss of approximately $121 thousand
related to Digital Assets during the year ended December 31, 2019.

 

 

Recent
Accounting Pronouncements

 

See
Note 4 to the financial statements for a discussion of recent accounting standards and pronouncements.

 

BUSINESS

 

Overview

 

We
are an early entrant in the Digital Asset market and one of the first U.S. publicly traded companies to be involved with Digital
Assets and block chain technologies. To our knowledge, we are one of a few public companies intending to acquire both Digital
Assets and a controlling interest in one or more businesses in the Digital Asset and blockchain industries.

 

Digital
Asset Initiatives

 

Subject
to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of
Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open
market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets
that appear to benefit our investors, subject to the limitations contained within this report regarding Digital Securities. As
of June 15, 2020, the Company had the following Digital Assets:

 

Digital Asset   Units Held    

Fair Market

Value

 
Bitcoin (BTC)     37.44     $ 353,190  
Ethereum (ETH)     1644.23     $ 382,367  
Total           $ 735,557  

 

The
Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital
Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited
investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be)
limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered
initial coin offerings. 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.

 

Digital
Asset Data Analytics Platform

 

We
are also focused on Digital Assets and blockchain technologies. We are currently internally developing a digital asset data analytics
platform aimed at aggregating users’ information, such as tracking of multiple exchanges and wallets to aggregate portfolio
holdings into a single platform to view and analyze performance, risk metrics, and potential tax implications. The platform utilizes
digital asset exchange APIs to read user data and does not allow for the trading of assets.

 

Acquisition
Initiatives

 

The
Company is also seeking to acquire controlling interests in businesses in the blockchain industry as further described in this
report. We plan to continue to evaluate other strategic opportunities including acquiring controlling interests in business in
this rapidly evolving sector in an effort to enhance shareholder value.

 

 

Even
though the prices of Digital Assets have been subject to substantial volatility and there remains some regulatory uncertainty,
we believe that businesses using blockchain technology and those involved with Digital Assets such as bitcoin and ether, offer
upside opportunity and are the types of opportunities that we may pursue.

 

Our
current framework or criteria is to seek and evaluate acquisition targets in the blockchain and Digital Asset sector which (i)
align with our business model of acquiring Digital Assets or acquiring a controlling interest in one or more blockchain technology
related business ventures, and (ii) have sufficient capital to provide working capital. As disclosed in this prospectus we have
limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may
help us sustain our operations without having us rely on toxic funding structures. Our acquisition activities are spearheaded
by Charles Allen, our Chief Executive Officer who regularly communicates with Mr. David Garrity, one of our independent directors
who is also seeking acquisition targets on behalf of the Company.

 

We
also monitor blockchain networks and may consider re-entering the digital asset mining business if and when we believe a positive
return on investment is achievable. However, given the current network difficulties and price levels to mine both bitcoin and
ethereum we do not believe mining offers a positive return on investment at present and have no immediate plans to resume mining.

 

Going
Concern

 

Because
of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, our independent auditors have indicated
in their report on our December 31, 2019 financial statements that there is substantial doubt about our ability to continue as
a going concern.

 

The
continuation of our business is dependent upon us raising additional funds. The issuance of additional equity or convertible debt
securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

We
continue to incur ongoing administrative and other expenses, including public company expenses, in excess of capital raises. While
we continue to implement our business strategy, we intend to finance our activities through:

 

managing
current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs, and
seeking
additional financing through sales of additional securities whether through Cavalry or other investors.

 

INDUSTRY
AND MARKET OVERVIEW (BITCOIN AND BLOCKCHAIN TECHNOLOGIES)

 

Introduction
to Bitcoins and the Bitcoin Network

 

A
bitcoin is one type of a Digital Asset that is issued by, and transmitted through, an open source, math-based protocol platform
using cryptographic security that is known as the “Bitcoin Network.” The Bitcoin Network is an online, peer-to-peer
user network that hosts the public transaction ledger, known as the “Blockchain,” and the source code that comprises
the basis for the cryptography and math-based protocols governing the Bitcoin Network. No single entity owns or operates the Bitcoin
Network, the infrastructure of which is collectively maintained by a decentralized user base. Bitcoins can be used to pay for
goods and services or can be converted to fiat currencies, such as the US Dollar, at rates determined on Bitcoin Exchanges or
in individual end-user-to-end-user transactions under a barter system.

 

Bitcoins
are “stored” or reflected on the digital transaction ledger known as the “Blockchain,” which is a digital
file stored in a decentralized manner on the computers of each Bitcoin Network user. The Blockchain records the transaction history
of all bitcoins in existence and, through the transparent reporting of transactions, allows the Bitcoin Network to verify the
association of each bitcoin with the digital wallet that owns them. The Bitcoin Network and Bitcoin software programs can interpret
the Blockchain to determine the exact bitcoin balance, if any, of any digital wallet listed in the Blockchain as having taken
part in a transaction on the Bitcoin Network.

 

 

The
Blockchain is comprised of a digital file, downloaded and stored, in whole or in part, on all bitcoin users’ software programs.
The file includes all blocks that have been solved by miners and is updated to include new blocks as they are solved. As each
newly solved block refers back to and “connects” with the immediately prior solved block, the addition of a new block
adds to the Blockchain in a manner similar to a new link being added to a chain. Each new block records outstanding bitcoin transactions,
and outstanding transactions are settled and validated through such recording, the Blockchain represents a complete, transparent
and unbroken history of all transactions on the Bitcoin Network.

 

The
Bitcoin Network is decentralized and does not rely on either governmental authorities or financial institutions to create, transmit
or determine the value of bitcoins. Rather, bitcoins are created and allocated by the Bitcoin Network protocol through a “mining”
process subject to a strict, well-known issuance schedule. The value of bitcoins is determined by the supply of and demand for
bitcoins in the Bitcoin Exchange Market (and in private end-user-to-end-user transactions), as well as the number of merchants
that accept them. As bitcoin transactions can be broadcast to the Bitcoin Network by any user’s bitcoin software and bitcoins
can be transferred without the involvement of intermediaries or third parties, there are little or no transaction costs in direct
peer-to-peer transactions on the Bitcoin Network. Third party service providers such as Bitcoin Exchanges and bitcoin third party
payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion
of, bitcoins to or from fiat currency.

 

Overview
of the Bitcoin Network’s Operations

 

In
order to own, transfer or use bitcoins, a person generally must have Internet access to connect to the Bitcoin Network. Bitcoin
transactions between parties occur very rapidly (within several seconds) and may be made directly between end-users without the
need for a third-party intermediary, although there are entities that provide third-party intermediary services. To prevent the
possibility of double-spending a single bitcoin, a user must notify the Bitcoin Network of the transaction by broadcasting the
transaction data to its network peers. The Bitcoin Network provides confirmation against double-spending by memorializing every
transaction in the Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending
is accomplished through the bitcoin mining process, which adds “blocks” of data, including recent transaction information,
to the Blockchain.

 

Brief
Description of Bitcoin Transfers

 

Prior
to engaging in bitcoin transactions, a user generally must first install on its computer or mobile device a bitcoin software program
that will allow the user to generate a digital “wallet” (analogous to a bitcoin account). Alternatively, a user may
retain a third party to create a digital wallet to be used for the same purpose. Each such wallet includes one or more unique
digital addresses and verification system consisting of a “public key” and a “private key,” which are
mathematically related.

 

In
a bitcoin transaction, the bitcoin recipient must provide its digital address, which serves as a routing number to the recipient’s
digital wallet on the Blockchain, to the party initiating the transfer. The recipient, however, does not make public or provide
to the sender its related private key. The payor, or “spending” party, does reveal its public key in signing and verifying
its spending transaction to the Blockchain.

 

Neither
the recipient nor the sender reveal their digital wallet’s private key in a transaction, because the private key authorizes
access to, and transfer of, the funds in that digital wallet to other users. In the data packets propagated from a user’s
bitcoin software program onto the Bitcoin Network to allow transaction confirmation, the sending party must “sign”
its transaction with a data code derived from entering the private key into a “hashing algorithm.” The hashing algorithm
converts the private key into a digital signature, which signature serves as validation that the transaction has been authorized
by the holder of the digital wallet’s private key.

 

 

Mathematically
Controlled Supply

 

The
method for creating new bitcoins is mathematically controlled in a manner so that the supply of bitcoins grows at a limited rate
pursuant to a pre-set schedule. The number of bitcoins awarded for solving a new block is automatically halved every 210,000 blocks.
Thus, the current fixed reward for solving a new block is 6.25 bitcoins per block and the reward will decrease by half to become
3.125 bitcoins around February 2024 (based on estimates of the rate of block solution calculated by BitcoinClock.com). This deliberately
controlled rate of bitcoin creation means that the number of bitcoins in existence will never exceed 21 million and that bitcoins
cannot be devalued through excessive production unless the Bitcoin Network’s source code (and the underlying protocol for
bitcoin issuance) is altered. The Company monitors the Blockchain network and, as of June 15, 2020, based on the information we
collected from our network access, approximately 18.4 million bitcoins have been mined.

 

Modifications
to the Bitcoin Protocol

 

Bitcoin
is an open source project (i.e., a product whose source code is freely available to the public and that utilizes crowdsourcing
to identify possible issues, problems and defects) and there is no official developer or group of developers that controls the
Bitcoin Network. The Bitcoin Network’s development is overseen by a core group of developers, which varies from time to
time (“Core Developers”). The Core Developers are able to access and can propose alterations to the Bitcoin Network
source code hosted on GitHub, an online service and forum used to share and develop open source code. Other programmers have access
to and can propose changes to the bitcoin source code on GitHub, but the Core Developers have an elevated level of influence over
the process. As a result, the Core Developers are responsible for quasi-official releases of updates and other changes to the
Bitcoin Network’s source code. Users and miners must accept any changes made to the Bitcoin Network (including those proposed
by the Core Developers) by downloading the proposed modification of the source code.

 

A
modification of the source code is only effective with respect to the bitcoin users and miners that download it. Consequently,
as a practical matter, a modification to the source code (e.g., a proposal to increase the 21 million total limit on bitcoins
or to reduce the average confirmation time target from 10 minutes per block) only becomes part of the Bitcoin Network if accepted
by participants collectively having a substantial majority of the processing power on the Bitcoin Network. If a modification is
accepted only by a percentage of users and miners, a division in the Bitcoin Network will occur such that one network will run
the pre-modification source code and the other network will run the modified source code; such a division is known as a “fork”
in the Bitcoin Network. It should be noted that, although their power to amend the source code is effectively subject to the approval
of users and miners, the Core Developers have substantial influence over the development of the Bitcoin Network and the direction
of the bitcoin community.

 

Other
Blockchain Technologies

 

Core
Development of the bitcoin source code has increasingly focused on modifications of the bitcoin protocol to allow non-financial
and next generation uses (sometimes referred to as Bitcoin 2.0 projects). These uses include smart contracts and distributed registers
built into, built atop or pegged alongside the Blockchain. For example, the white paper for Blockstream, a program of which Core
Developers Jeff Garzik and Gregory Maxwell are a part, calls for the use of “pegged sidechains” to develop programming
environments that are built within block chain ledgers that can interact with and rely on the security of the Bitcoin Network
and Blockchain, while remaining independent thereof. We are actively evaluating other Blockchain technologies that relate to Bitcoin
2.0 projects. At this time, Bitcoin 2.0 projects remain in early stages and have not been materially integrated into the Blockchain
or Bitcoin Network.

 

Bitcoin
Value

 

Bitcoins
are an example of a Digital Asset that is not a fiat currency (i.e., a currency that is backed by a central bank or a national,
supra-national or quasi-national organization) and are not backed by hard assets or other credit. As a result, the value of bitcoins
is determined by the value that various market participants place on bitcoins through their transactions.

 

Exchange
Valuation

 

Due
to the peer-to-peer framework of the Bitcoin Network and the protocols thereunder, transferors and recipients of bitcoins are
able to determine the value of the bitcoins transferred by mutual agreement or barter with respect to their transactions. As a
result, the most common means of determining the value of a bitcoin is by surveying one or more Bitcoin Exchanges where bitcoins
are publicly bought, sold and traded (i.e., the Bitcoin Exchange Market).

 

 

On
each Bitcoin Exchange, bitcoins are traded with publicly disclosed valuations for each transaction, measured by one or more fiat
currencies such as the U.S. Dollar, the Euro or the Chinese Yuan. Bitcoin Exchanges typically report publicly on their site the
valuation of each transaction and bid and ask prices for the purchase or sale of bitcoins. Although each Bitcoin Exchange has
its own market price, it is expected that most Bitcoin Exchanges’ market prices should be relatively consistent with the
Bitcoin Exchange Market average since market participants can choose the Bitcoin Exchange on which to buy or sell bitcoins (i.e.,
exchange shopping). Arbitrage between the prices on various Bitcoin Exchanges is possible, but the imposition of fees and fiat
currency deposit/withdrawal policies appears to have, at times, prevented an active arbitrage mechanism among users on some Bitcoin
Exchanges. For example, delayed fiat currency withdrawals imposed by Mt. Gox resulted in Mt. Gox trading at a premium of up to
10 to 20 percent for several months through January 2014. In February 2014, Mt. Gox suspended trading, closed its website and
exchange service, and filed for a form of bankruptcy protection from creditors called minjisaisei, or civil rehabilitation, to
allow courts to seek a buyer. In April 2014, Mt. Gox began liquidation proceedings.

 

Even
in the absence of large trading fees and fiat currency deposit/withdrawal policies, price differentials across Bitcoin Exchanges
remain. For disclosure on the accounting of Digital Assets, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” beginning on page 30.

 

Forms
of Attack Against the Bitcoin Network

 

Exploitation
of Flaws in the Bitcoin Network’s Source Code

 

As
with any other computer code, the Bitcoin Network source code may contain certain flaws. Several errors and defects have been
found and corrected, including those that disabled some functionality for users, exposed users’ information, or allowed
users to create multiple views of the Bitcoin Network. Such flaws have been discovered and quickly corrected by the Core Developers
or the bitcoin community, thus demonstrating one of the advantages of open source codes that are available to the public: open
source codes rely on transparency to promote community-sourced identification and solution of problems within the code.

 

Reports
of flaws in or exploitations of the source code that allow malicious actors to take or create money in contravention of known
Bitcoin Network rules have been exceedingly rare. For example, in 2010, a hacker or group of hackers exploited a flaw in the Bitcoin
Network source code that allowed them to generate 184 billion bitcoins in a transaction and send them to two digital wallet addresses.
However, the bitcoin community and developers identified and reversed the manipulated transactions within approximately five hours,
and the flaw was corrected with an updated version of the bitcoin protocol. Another addressed issue with the Bitcoin Network source
code, “transaction malleability” was addressed by the Core Developers in a March 2013 software update. The Core Developers,
in conjunction with other developers and miners, work continuously to ensure that flaws are quickly fixed or removed.

 

Greater
than Fifty Percent of Network Computational Power

 

Malicious
actors can structure an attack whereby such actor gains control of more than half of the Bitcoin Network’s processing power
or “hashrate.” Computer scientists and cryptographers believe that the immense collective processing power of the
Bitcoin Network makes it impracticable for an actor to gain control of computers representing a majority of the processing power
on the Bitcoin Network. During May and June 2014, mining pool GHash.io’s hashing power approached 50 percent of the processing
power on the Bitcoin Network. During a brief period in early June 2014, the mining pool may have controlled in excess of one-half
of the Bitcoin Network’s processing power. Although no malicious activity or abnormal transaction recording was observed,
the incident establishes that it is possible that a substantial mining pool may accumulate close to or more than a majority of
the processing power on the Bitcoin Network.

 

If
a malicious actor acquired sufficient computational power necessary to control the Bitcoin Network (which amount would be well
in excess of fifty percent), it would be able to engage in double-spending, or prevent some or all transactions from being confirmed,
and prevent some or all other miners from mining any valid new blocks. The malicious actor or group of actors, however, would
not be able to reverse other people’s transactions, change the fixed number of bitcoins generated per new block, or transfer
previously existing bitcoins that belong to other users.

 

 

Cancer
Nodes

 

This
form of attack involves a malicious actor propagating “cancer nodes” to isolate certain users from the legitimate
Bitcoin Network. A target user functionally surrounded by cancer nodes would be put on a separate “network,” allowing
the malicious actor to relay only blocks created by the separate network and thus opening the target user to double-spending attacks.
By using cancer nodes, a malicious actor also can disconnect the target user from the bitcoin economy entirely by refusing to
relay any blocks or transactions. Bitcoin software programs make these attacks more difficult by limiting the number of outbound
connections through which users are connected to the Bitcoin Network.

 

Manipulating
Blockchain Formation

 

A
malicious actor may attempt to double-spend bitcoins by manipulating the formation of the Blockchain rather than through control
of the Bitcoin Network. In this type of attack, a miner creates a valid new block containing a double-spend transaction and schedules
the release of such attack block so that it is added to the Blockchain before a target user’s legitimate transaction can
be included in a block. Variations of this form of attack include the “Finney attack,” “race attack,”
and “vector76 attack.” All double-spend attacks require that the miner sequence and execute the steps of its attack
with sufficient speed and accuracy. Users and merchants can dramatically reduce the risk of a double-spend attack by waiting for
multiple confirmations from the Bitcoin Network before settling a transaction. The Bitcoin Network still may be used to execute
instantaneous, low-value transactions without confirmation to the extent the recipient of bitcoins determines that a malicious
miner would be unwilling to carry out a double-spend attack for low-value transactions because the reward from mining would be
higher than the small profit gained from double-spending. Users and merchants can take additional precautions by adjusting their
Bitcoin Network software programs to connect only to other well-connected nodes and to disable incoming connections. These precautions
reduce the risk of double-spend attacks involving manipulation of a target’s connectivity to the Bitcoin Network (as is
the case with vector76 and race attacks).

 

Historical
Chart of the Price of Bitcoins, 2019-2020

 

The
price of bitcoins is volatile and fluctuations are expected. Movements may be influenced by various factors, including, but not
limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties
around the world. Since our Transaction Verification Services business records revenue based on the price of earned bitcoins and
we may retain such bitcoins as an asset or as payment for future expenses, the relative value of such revenues may fluctuate,
as will the value of any bitcoins we retain. The following chart illustrates the fluctuating value of the US Dollar exchange rate
for bitcoins for the one-year period ending June 15, 2020, as reported by blockchain.com:

 

 

 

Uses
of Bitcoins

 

Global
Bitcoin Market

 

Global
trade in bitcoins consists of individual end-user-to-end-user transactions, together with facilitated exchange-based bitcoin trading.
A limited market currently exists for bitcoin-based derivatives. There is currently no reliable data on the total number or demographic
composition of users or miners on the Bitcoin Network.

 

Goods
and Services

 

Bitcoins
also can be used to purchase goods and services, either online or at physical locations, although reliable data is not readily
available about the retail and commercial market penetration of the Bitcoin Network. There are thousands of online merchants that
accept bitcoins, and the variety of goods and services for which bitcoins can be exchanged is increasing. Currently, local, regional
and national businesses, accept bitcoin. Bitcoin service providers such as BitPay, Coinbase and GoCoin and online gift card retailers
Gyft and eGifter provide other means to spend bitcoin for goods and services at additional retailers. This includes gift cards
for notable retailers like Dunkin Donuts, Best Buy, Target and Home Depot. There are also websites that keep a running archive
of businesses that accept Bitcoin and allows users to search on a virtual map to discover these locations. www.Coinmap.org
hosts and updates a virtual map that enables people to add their businesses and edit information. Users can see for themselves
which businesses accept bitcoin, as well as the location of those businesses. To date, the rate of consumer adoption and use of
bitcoin in paying merchants has trailed the broad expansion of retail and commercial acceptance of bitcoin. Nevertheless, there
will likely be a strong correlation between continued expansion of the Bitcoin Network and its retail and commercial market penetration.

 

Anonymity
and Illicit Use

 

The
Bitcoin Network was not designed to ensure the anonymity of users, despite a common misperception to the contrary. All bitcoin
transactions are logged on the Blockchain and any individual or government can trace the flow of bitcoins from one address to
another. Off-Blockchain transactions occurring off the Bitcoin Network are not recorded and do not represent actual bitcoin transactions
or the transfer of bitcoins from one digital wallet address to another, though information regarding participants in an Off-Blockchain
transaction may be recorded by the parties facilitating such Off-Blockchain transactions. Digital wallet addresses are randomized
sequences of 27-34 alphanumeric characters that, standing alone, do not provide sufficient information to identify users; however,
various methods may be used to connect an address to a particular user’s identity, including, among other things, simple
Internet searching, electronic surveillance and statistical network analysis and data mining. Anonymity is also reduced to the
extent that certain Bitcoin Exchanges and other service providers collect users’ personal information, because such Bitcoin
Exchanges and service providers may be required to produce users’ information in order to comply with legal requirements.
In many cases, a user’s own activity on the Bitcoin Network or on Internet forums may reveal information about the user’s
identity.

 

Users
may take certain precautions to enhance the likelihood that they and their transactions will remain anonymous. For instance, a
user may send its bitcoins to different addresses multiple times to make tracking the bitcoins through the Blockchain more difficult
or, more simply, engage a so-called “mixing” or “tumbling” service to switch its bitcoins with those of
other users. However, these precautions do not guarantee anonymity and are illegal to the extent that they constitute money laundering
or otherwise violate the law.

 

As
with any other asset or medium of exchange, bitcoins can be used to purchase illegal goods or fund illicit activities. For example,
Silk Road, an anonymous online marketplace that sold illegal substances prior to its seizure and the arrest of its founder and
operator in October 2013, accepted only bitcoins. The use of bitcoins for illicit purposes, however, is not promoted by the Bitcoin
Network or the user community as a whole. Furthermore, we do not believe our ecommerce platform, which we no longer support or
are developing, has exposure to such uses because the products sold in our marketplace were curated by our management and the
sellers of those products are big box retailers with credible products and retail operations.

 

 

Alternative
Digital Assets

 

Bitcoins
are not the only type of Digital Assets founded on math-based algorithms and cryptographic security, although it is considered
the most prominent. Over, 2,600 other Digital Assets (commonly referred to as “altcoins”, “tokens”, “protocol
tokens”, or “Digital Assets”), have been developed since the Bitcoin Network’s inception, including Ethereum,
Ripple, Litecoin, Dash, and Monero. The Bitcoin Network, however, possesses the “first-to-market” advantage and thus
far has captured the majority of the industry’s market share and is secured by a mining network with significantly more
processing power than that of any other Digital Asset. The Company is examining and will continue to examine these other Digital
Assets including Digital Securities and acquire them, subject to financing, existing market conditions and regulatory compliance.

 

Government
Oversight

 

The
Bitcoin Network is a recent technological innovation and the regulatory schemes to which bitcoin and the Bitcoin Network may be
subject have not been fully explored or developed. Recent actions taken by the SEC in its DAO Report that certain Digital Assets
may be securities and actions taken by the CFTC including its July 24, 2017 order approving the first derivative clearing organization
for digital currency swaps reflects that we may face increased government regulation and oversight. As stated earlier in this
prospectus, the SEC’s July 25, 2017 DAO Report, its Chairman’s recent remarks and concerns about the “Wild West”
nature of the Digital Assets market and reports that its staff is issuing subpoenas will adversely affect the Company’s
future acquisition of Digital Assets by limiting the amount of Digital Securities it may acquire and creating increased compliance
and legal costs. In the future before we acquire Digital Assets, we may be required to examine how they were originally offered
to determine if they were offered as an investment contract or security. Because of legal uncertainties, careful examination of
the results of our compliance review will be required by experienced securities counsel. Because we must stay under the Investment
Company’s 40% provisions, we will limit the amount of Digital Securities we acquire and establish procedures designed to
protect us from rapid fluctuations in value of our Digital Assets portfolio. If our compliance procedures and legal reviews prove
to be incorrect, we may incur the likelihood of prohibitive SEC penalties and/or private lawsuit defense costs and adverse rulings.

 

Following
the issuance of the DAO Report, promoters sought to evade it by callings coins “utility tokens” even where the developer
retained material future services that affected the profitability and future value of the coins. The SEC quickly stopped one such
initial coin offering, which clearly was intended to send a message.

 

Subject
to additional funding the Company intends to acquire additional digital assets. The Company currently own and plans to expand
its digital asset holdings. In order to avoid being an inadvertent investment company within the meaning of the 1940 Act, we actively
focus on insuring that our ownership of assets that are not securities will always exceed 60% of our total assets excluding cash.
See “Risk Factors” beginning on page 5 and “Business” beginning on page 35. The ownership of Digital
Assets including digital securities may change based on the definition of a security under the Securities Act and applicable court
decisions. The key definition is the term “investment contract” and what is an investment contract. In 1946 the U.S.
Supreme Court held that an investment in an orange grove operated and controlled by a third party was an investment contract and
therefore a security subject to various provisions of the federal securities laws.

 

In
the future if we acquire Digital Assets that may be deemed a security, we will analyze whether our ownership of the Digital Assets
are securities under the investment contract analysis from the leading case and the lower court cases which have followed it.
The test for determining if an asset is an investment contract based upon whether there was: (i) an investment of money, (ii)
in a common enterprise, (iii) with the expectation of profits, (iv) primarily through the efforts of others.

 

As
both the regulatory landscape develops and journalistic familiarity with bitcoin increases, mainstream media’s understanding
of Digital Assets and the regulation thereof may improve. Regulation of Digital Assets varies from country to country as well
as within countries. An increase in the regulation of Digital Assets may affect our proposed business by increasing compliance
costs or prohibiting certain or all of our proposed activities.

 

 

COMPETITION

 

Digital
Assets Initiative

 

The
Company’s Digital Asset initiative will compete with other industry participants that focus on investing in and securing
the Blockchains of bitcoin and other Digital Assets. Market and financial conditions, and other conditions beyond the Company’s
control, may make it more attractive to invest in other entities, or to invest in bitcoin or Digital Assets directly. Companies
have raised substantial capital this year seeking to enter Digital Asset businesses. Our lack of capital is a competitive disadvantage.

 

Digital
Asset Data Analytics Platform

 

The
Company’s current and future competition for our digital asset data analytics platform is centered on the following areas:

 

  Exchanges
which currently offer more robust digital asset data analytics or will choose to enhance their platforms in the future such
as eToro;
  other
mobile applications, websites, niche aggregation sites, which offer similar services, such as BNCpro;
  providers
of mobile applications and websites, that offer secure storage solutions for digital assets;
  existing
financial service firms and data analytics firms serving traditional asset markets that choose to offer data analytic solutions
for digital assets; and
  digital
asset focused companies that offer exchange, payment processing, and financial services that enable consumers to exchange
or digital assets.

 

Many
of our current and potential competitors have greater resources, longer histories, more users, and greater brand recognition.
They may devote more resources to technology, infrastructure, marketing and may be able to more rapidly develop their solutions.
Other companies also may enter into business combinations or alliances that strengthen their competitive positions. Our small
team and lack of capital is a competitive disadvantage.

 

ASSETS

 

The
Company’s sole asset (other than its cash balance and Digital Assets) is its human capital specifically Mr. Allen and Mr.
Handerhan, who have extensive market knowledge and long-standing business relationships within the industry. Our success depends
solely on their continued service. See “Risk Factors”.

 

INTELLECTUAL
PROPERTY AND TRADE SECRETS

 

We
have no intellectual property assets or licenses and rely upon the experience of our two executive officers in the Digital Assets
business as it has evolved. However, we believe this may change as we continue to develop our digital asset data analytics platform.

 

GROWTH
STRATEGY

 

Digital
Assets Initiative

 

As
we continue to raise capital we plan to expand and diversify our Digital Asset holdings with a focus on disruptive protocol layer
verticals such as smart contracts, data storage and Internet of things (IoT); provided, however that we do not intent to acquire
digital assets which may constitute digital securities. We also plan to increase our holdings of bitcoin and ethereum.

 

Digital
Asset Data Analytics Platform Development

 

The
Company is currently internally developing a digital asset data analytics platform to aggregate user’s digital asset holdings
data derived from read-only API calls to connected exchanges. The platform solution is also being designed with a community focus
that may allow users to share their trade history with other platform users. Our strategy has three key phases: first develop
a robust platform and open it to public beta testing, second once the platform is open acquire users, and third monetize the platform.
Our current focus is on developing the platform. Given our limited resources we can provide no definitive timeline as to when
the platform will be open to beta testing though we anticipated this occurring in 2020.

 

 

EMPLOYEES

 

We
currently have two employees and no part time employees.

 

MANAGEMENT

 

The
following table presents information with respect to our officers and directors as of the date of this prospectus:

 

Name
and Address
  Age  

Date
First Elected or

Appointed

  Position(s)
Charles
W. Allen
  44   February
5, 2014
  Chief
Executive Officer, Chief Financial Officer and Chairman
Michal
Handerhan
  43   February
5, 2014
  Chief
Operating Officer, Secretary and Director
David
Garrity
  59   October
16, 2017
  Independent
Director 

 

Each
director serves until our next annual meeting of the stockholders or unless they resign earlier. The Board of Directors elects
officers and their terms of office are at the discretion of the Board of Directors.

 

Background
of Officers and Directors

 

The
following is a brief account of the education and business experience during at least the past five years of our officers and
directors, indicating the person’s principal occupation during that period, and the name and principal business of the organization
in which such occupation and employment were carried out.

 

Charles
W. Allen,
age 44, has served as our Chief Executive Officer and Chief Financial Officer since February 5, 2014 and as
our Chairman of the Board since September 11, 2014. Mr. Allen is responsible for our overall corporate strategy and direction
as well as managing our corporate finances. Since January 12, 2018 Mr. Allen has been the CEO of Global Bit Ventures Inc. (“GBV”),
which has discontinued its operations. From October 10, 2017, Mr. Allen has been a director of GBV. Mr. Allen is also on the advisory
board of GoCoin LLC, a leading Digital Asset payment processor. Mr. Allen has extensive experience in business strategy and structuring
and executing a variety of investment banking and capital markets transactions, including financings, IPO’s and mergers
and acquisitions. From February, 2012 through January, 2014 Mr. Allen was a Managing Director at RK Equity Capital Markets LLC
(“RK”) and focused on natural resources investment banking and added to RK’s capital markets efforts. In August,
2012 Mr. Allen co-founded RK Equity Investment Corp. (“RKEIC”) and served as a member of its board from inception
through September 7, 2014. Mr. Allen has extensive experience in business strategy, investment banking and capital markets transactions.
Prior to his work in the blockchain industry he worked domestically and internationally on projects in technology, media, natural
resources, logistics, medical services and financial services. He has served as a Managing Director at numerous boutique investment
banks focused on advising and raising capital for small and mid-size companies. Mr. Allen received a B.S. in Mechanical Engineering
from Lehigh University and a M.B.A. from the Mason School of Business at the College of William & Mary. The Board concludes
that Mr. Allen’s background and leadership experiences in the industry qualify him to serve on the Board.

 

Michal
Handerhan,
age 43, has served as our Chief Operating Officer since February 5, 2014 and was appointed as our Secretary
on March 11, 2014. Mr. Handerhan served as our Chairman of the Board from February 5, 2014 to September 11, 2014 and was a co-founder
of BitcoinShop.us LLC. Mr. Handerhan supports both our business and development strategy across the management team. Since January
12, 2018 Mr. Handerhan has been the Secretary and a director of GBV. From February, 2011 through February, 2014 Mr. Handerhan
served as an independent IT and web services consultant to the National Aeronautics and Space Administration (“NASA”).
From October, 2005 until February, 2014 Mr. Handerhan was the President and Chief Executive Officer of Meesha Media Group, LLC
which provided high-definition video production services, Web 2.0 development, database management, and social media solutions.
From March, 2002 through October, 2006 Mr. Handerhan served as a team leader for NASA in their Peer Review Services group. Prior
to working at NASA’s Peer Review Services group Mr. Handerhan served as the web developer for Folio Investments. Mr. Handerhan
received a B.S. in Computer Science from Czech Technical University. The Board concludes that Mr. Handerhan’s extensive
experiences in IT qualify him to serve on the Board.

 

 

David
Garrity
, age 59, has served as our independent Director since October 16, 2017. Mr. Garrity has over 25 years’ experience
in the financial services industry, he has held senior roles including CFO and board of director positions for both publicly-held
and private companies, and has extensive experience in several disciplines including operating, advisory and research, and is
CEO of New York City based consulting firm, GVA Research. Mr. Garrity is a Partner at BTblock, a blockchain and cybersecurity
consultancy firm, and a senior advisor at Quantum1Net which also has a focus on blockchain technology. During 2008 and 2009, Mr.
Garrity served as CFO and a director at Interclick, Inc., a behavioral targeting internet advertising network. From June 9, 2011
to May 14, 2013, Mr. Garrity was Chief Financial Officer of Aspen Group, Inc., an online for-profit university. From May 14, 2013
through October 31, 2013, he was Executive Vice President Corporate Development for Aspen Group, Inc. From February 1, 2017, through
January 2018, Mr. Garrity was acting CFO of Mutualink, Inc., a private company developing secure distributed networking technologies
to support communications interoperability for public & private-sector clients. Mr. Garrity appears regularly on CNBC, BNN,
Bloomberg, The Financial Times, Asia Times, Yahoo Finance, and other media outlets.

 

CONFLICTS
OF INTEREST

 

Mr.
Garrity, a director, is a Partner at BTblock, a blockchain consultancy firm, and a senior advisor at Quantum1Net which also has
a focus on blockchain technology. It is possible that these activities will create conflicts in the future. Given our small size
and lack of financial resources, we may be hampered in recruiting independent directors.

 

BOARD
LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT

 

Our
Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and
reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding the Company’s
assessment of risks. The Board of Directors focuses on the most significant risks facing us and our general risk management strategy,
and also ensures that risks undertaken by us are consistent with the Board of Directors’ appetite for risk. While the Board
of Directors oversees the Company, our management is responsible for day-to-day risk management processes. We believe this division
of responsibilities is the most effective approach for addressing the risks facing the Company and that our board leadership structure
supports this approach.

 

CODE
OF ETHICS

 

We
have not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, since we have been focusing our efforts on growing
our business and obtaining financing for our Company. We expect to adopt a code as we further develop our business.

 

FAMILY
RELATIONSHIPS

 

There
are no family relationships between any of our directors, executive officers or directors.

 

COMMITTEES
OF THE BOARD OF DIRECTORS

 

Due
to our size, we have not formally designated a nominating committee, an audit committee, a compensation committee, or committees
performing similar functions.

 

The
Board currently acts as our audit committee. Since we are still a developing company, the Board of Directors is still in the process
of finding an “audit committee financial expert” as defined in Regulation S-K.

 

 

EXECUTIVE
COMPENSATION

 

The
following summary compensation table sets forth information concerning compensation for services rendered in all capacities during
the fiscal years ended December 31, 2019 and 2018 awarded to, earned by or paid to our directors and executive officers. The numbers
in the summary compensation table represent the actual amount of compensation accrued under Generally Accepted Accounting Principles.
The footnotes represent cash actually paid.

 

SUMMARY
COMPENSATION TABLE

 

Name and Principal Position   Year     Salary ($)     Bonus ($)     Total ($)  
Charles W. Allen, CEO     2019       345,000       256,025       601,025  
      2018       256,025 (1)           256,025  
Michal Handerhan, COO     2019       215,000       150,000       365,000  
      2018       198,550 (2)           198,550  

 

(1) Mr.
Allen received cash compensation of $189,519 for the year ended December 31, 2018. The $256,025 includes accrued and unpaid
salary of $66,506 as of December 31, 2018.
   
(2) Mr.
Handerhan received cash compensation of $146,412 for the year ended December 31, 2018. The $198,550 includes accrued and unpaid
salary of $52,138 as of December 31, 2018.

 

Employment
Agreements with Executive Officers

 

To
achieve our compensation objective of retaining and motivating qualified executives, we believe that we need to provide our executive
officers with severance and change of control protections that are competitive with the protections offered by other companies.
Offering our executive officers these payments and benefits facilitates the operation of our business, allows them to better focus
their time, attention and capabilities on our business, provides for a clear and consistent approach to managing involuntary departures
with mutually understood separation benefits, and aligns with market practice.

 

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 years, subject to renewal,
in consideration for an annual salary of $245,000, which shall be increased annually by 4.5% (the “Annual Increase”).
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 Mr. Allen $500 per month to cover telephone and internet expenses. If the Company does not provide office
space to Mr. Allen the Company will pay him 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, all other terms of the Allen Employment Agreement remained unchanged including the Annual Increase.

 

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 years, subject to renewal,
in consideration for an annual salary of $190,000, which shall be increased by the Annual Increase. 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 Mr.
Handerhan $500 per month to cover telephone and internet expenses. If the Company does not provide office space to Mr. Handerhan
the Company will pay him 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, all other terms of the Handerhan Employment Agreement remained unchanged including the Annual Increase.

 

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.

 

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. As of the date of this report the conditions to earn the 2017
Contingent Bonuses have not yet been achieved.

 

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 1,931,788
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 are currently owing but unpaid.

 

 

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
amendments to the Employment Agreements, the 2018 Contingent Bonuses and 2019 Contingent Bonuses were approved unanimously by
the Board.

 

On
March 31, 2020, Charles Allen, the Company’s Chief Executive Officer and Chief Financial 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.

 

DIRECTOR
COMPENSATION

 

The
following summary compensation table sets forth information concerning compensation for services rendered in all capacities during
the fiscal years ended December 31, 2019 and 2018 awarded to, earned by or paid to our directors excluding executive officers.
The numbers in the summary compensation table represent the actual amount of compensation accrued under Generally Accepted Accounting
Principles.

 

Name
and Principal Position
  Year     Fees
Earned or Paid in Cash ($)
    Total
($)
 
David
Garrity, Director
    2019       75,000       75,000  

 

On
January 1, 2018 the Company entered into a one-year consulting agreement with GVA Research LLC (“GVA”) whereby it
will pay GVA a quarterly consulting fee of $13,750. David Garrity is the owner and principal of GVA and this is irrespective of
and not included in the Director compensation. The Company did not renew the GVA consulting agreement for 2019.

 

On
February 6, 2019 the Company reevaluated the level of compensation for its sole director and agreed to an annual director fee
of $18,750 per quarter or $75,000 per year effective January 1, 2019.

 

On
March 31, 2020, the Company lowered the independent director cash fee from $75,000 to $18,750 for 2020 and to $15,000 per year
thereafter.

 

OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END TABLE

 

There
are no outstanding equity awards issued to our Named Executive Officers as of December 31, 2019.

 

PRINCIPAL
SHAREHOLDERS

 

The
following table sets forth certain information regarding beneficial ownership of our common stock and C-1 Convertible Preferred
Stock as of the date of this prospectus: (i) by each of our directors, (ii) by each of the Named Executive Officers, (iii) by
all of our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially own more
than 5% of any class of our outstanding voting shares. Unless otherwise noted, the address is c/o BTCS Inc., 9466 Georgia Avenue
#124, Silver Spring, MD 20910.

 

 

Title
of class
  Name
and address of beneficial owner
  Amount
and nature of beneficial ownership (1)
    Percent
of class (1)
 
Common
Stock
  Charles
W. Allen
    0       0 %
Common
Stock
  Michal
Handerhan
    0       0 %
Common
Stock
  David
Garrity
    835        *
 
    All
officers and directors as a group (three persons)
    835        *
 
Series
C-1 Convertible Preferred Stock
                   
                     
Preferred
Stock
  Cavalry
Fund I LP (2)
    14,707       50 %
Preferred
Stock
  DiamondRock
LLC (3)
    14,707       50 %

 

*
Less than 1%

 

(1) Percentage
ownership of common stock records only is determined based on shares owned together with securities exercisable or convertible
into shares of common stock within 60 days of June 15, 2020, for each shareholder. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock
subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable
within 60 days of the date of June 15, 2020, are deemed to be beneficially owned by the person holding such securities for
the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. As of June 15, 2020, there were 27,422,008 shares of our common stock
issued and outstanding. The holders of the outstanding preferred stock have blockers which limit their voting and conversion
privileges to 4.99% of outstanding common stock within the foregoing 60 day periods. The percentages reflect their ownership
of each series of preferred stock, which is not subject to any blocker.
   
 (2) Cavalry
Fund I Management LLC, the investment manager of Cavalry Fund I LP, has voting and investment power over these securities.
Thomas Walsh is the managing member of Cavalry Fund I Management LLC, which is the general partner of Cavalry Fund I LP. Thomas
Walsh disclaims beneficial ownership over these securities. Cavalry is the selling stockholder. Address is: 61 Kinderkamack
Road Woodcliff Lake, NJ 07677.
   
(3) Neil
Rock has voting and dispositive power over shares held by DiamondRock, LLC. Address is 425 East 63rd Street, New
York, NY 10065.

 

RELATED
PERSON TRANSACTIONS

 

Review
of Related Person Transactions

 

We
do not have a formal written policy for the review and approval of transactions with related parties. Our Board of Directors is
responsible for reviewing and approving or ratifying related-persons transactions.

 

Related
Person Transactions

 

None

 

DIRECTOR
INDEPENDENCE

 

Our
common stock is quoted on the OTCQB quotation system, which does not have director independence requirements. Using the definition
of independence set forth in the rules of the NASDAQ Stock Market, neither Mr. Allen nor Mr. Handerhan would be considered an
independent director; however, Mr. Garrity would be deemed an independent director.

 

 

SELLING
STOCKHOLDER

 

This
prospectus relates to the possible resale by the selling stockholder, Cavalry, of shares of common stock that have been or may
be issued to Cavalry pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms
a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Cavalry on May 13, 2019 concurrently
with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales
by Cavalry of the shares of our common stock that have been or may be issued to Cavalry under the Purchase Agreement.

 

Cavalry,
as the selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we
have sold or may sell to Cavalry under the Purchase Agreement. The selling stockholder may sell some, all or none of its shares.
We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements,
arrangements or understandings with the selling stockholder regarding the sale of any of the shares.

 

The
following table presents information regarding the selling stockholder and the shares that it may offer and sell from time to
time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder, and reflects
its holdings as of June 15, 2020. Neither Cavalry nor any of its affiliates has held a position or office, or had any other material
relationship, with us or any of our predecessors or affiliates. As used in this prospectus, the term “selling stockholder”
includes Cavalry and any donees, pledgees, transferees or other successors in interest selling shares received after the date
of this prospectus from Cavalry as a gift, pledge or other non-sale related transfer. Beneficial ownership is determined in accordance
with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering
is based on 27,422,008 shares of our common stock actually outstanding as of June 15, 2020.

 

Selling Stockholder   Shares Beneficially Owned Before this Offering     Percentage of Outstanding Shares Beneficially Owned Before this Offering     Number of Shares being Registered to be Sold in the Offering     Percentage of Outstanding Shares Beneficially Owned After this Offering  
Cavalry Fund I, LP(1)     98,047 (2)         *       9,045,000           *  

 

*Less
than 1%.

 

(1) Cavalry
Fund I Management LLC, the investment manager of Cavalry Fund I LP, has voting and investment power over these securities.
Thomas Walsh is the managing member of Cavalry Fund I Management LLC, which is the general partner of Cavalry Fund I LP.
(2) Represents
98,047 shares issuable upon the conversion of Series C-1 which are not registered hereby. See the description under the heading
“The Cavalry Transaction” for more information about the Purchase Agreement.

 

THE
CAVALRY TRANSACTION

 

General

 

On
May 13, 2019, we entered into the Purchase Agreement and the Registration Rights Agreement with Cavalry. Pursuant to the terms
of the Purchase Agreement, Cavalry has agreed to purchase from us up to $10,000,000 of our common stock (subject to certain limitations)
from time to time over a 36-month period. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC
the registration statement that includes this prospectus to register for resale under the Securities Act the shares that have
been or may be issued to Cavalry under the Purchase Agreement.

 

Concurrently
with the execution of the Purchase Agreement on May 13, 2019, we issued to Cavalry 333,334 shares of our common stock as a fee
for its commitment to purchase additional shares of our common stock under the Purchase Agreement. Other than the shares of our
common stock that we have already issued to Cavalry as described above, we do not have the right to commence any sales to Cavalry
under the Purchase Agreement until the SEC has declared effective the registration statement of which this prospectus forms a
part. Thereafter and upon satisfaction of the other conditions set forth in the Purchase Agreement, we may, from time to time
and at our sole discretion, elect to direct Intraday Puts and Aftermarket Puts. On May 24, 2019, a registration statement was
declared effective and since then we sold 3,973,809 Put shares to Cavalry under the Purchase Agreement for $1,158,639 and issued
67,598 shares as additional pro rata commitment shares.

 

 

The
number of shares that may be sold under an Intraday Put shall be equal to the Daily Trading Dollar Volume as reported on the Principal
Market for the trading day prior to the applicable Put Date, divided by the Intraday Purchase Price. The “Intraday Purchase
Price” means the lower of: (i) 94% of the lowest sale price on the trading day prior to the applicable Put Date and (ii)
94% of the arithmetic average of the three lowest closing prices for the Company’s common stock during the 12 consecutive
trading days ending on the Trading Day immediately preceding such Put Date.

 

The
number of shares that may be sold under an Aftermarket Put shall be equal to the Daily Trading Dollar Volume as reported on the
Principal Market, divided by the Aftermarket Put Price. The “Aftermarket Put Price” means: the lower of: (i) the lowest
Sale Price on the applicable Put Date and (ii) the arithmetic average of the three lowest closing prices for the Company’s
common stock during the 12 consecutive trading days ending on the trading day immediately preceding such Put Date.

 

Upon
mutual agreement of Cavalry and the Company and subject to written confirmation by Cavalry that such agreement will not result
in violation of the 4.99% beneficial ownership limitation, the Company may increase the Intraday Put Share Limit or the Aftermarket
Put Share Limit, as applicable, for any Put to include an amount equal to $2,000,000 in Put shares at the applicable Purchase
Price, in each case in addition to the applicable Intraday Put Share Limit or Aftermarket Put Share Limit. In all instances, we
may not sell shares of our common stock to Cavalry under the Purchase Agreement if it would result in Cavalry beneficially owning
more than 4.99% of our common stock.

 

The
purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split,
or other similar transaction occurring during the Trading Days used to compute such price. We may at any time in our sole discretion
terminate the Purchase Agreement without fee, penalty or cost upon one business day notice. Cavalry may not assign or transfer
its rights and obligations under the Purchase Agreement.

 

We
issued 333,334 shares of our stock to Cavalry as a commitment fee for entering into the Purchase Agreement and we are obligated
to issue up to an additional 583,334 shares pro rata (of which 67,598 have been issued) as Cavalry purchases up to $10,000,000
of our common stock as directed by us. Cavalry may not assign or transfer its rights and obligations under the Purchase Agreement.

 

Minimum
Purchase Price

 

Under
the Purchase Agreement, we have set a floor price of $0.005 per share. Cavalry shall not purchase any shares of our common stock
on any day that the most recent closing sale price of our common stock is below the floor price.

 

Events
of Default

 

Events
of default under the Purchase Agreement include the following:

 

  the
effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without
limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable
for the resale by Cavalry of our common stock offered hereby, and such lapse or unavailability continues for a period of 10
consecutive Trading Days or for more than an aggregate of 30 business days in any 365-day period;
     
  suspension
by our principal market of our common stock from trading for a period of three consecutive Trading Days;
     
  the
de-listing of our common stock from our principal market, provided our common stock is not immediately thereafter trading
on the New York Stock Exchange, The NASDAQ Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market, the
NYSE MKT, the NYSE Arca, the OTC Pink or the OTCQX operated by the OTC Markets Group, Inc. (or nationally recognized successor
to any of the foregoing);
     
  the
transfer agent’s failure for three Trading Days to issue to Cavalry shares of our common stock which Cavalry is entitled
to receive under the Purchase Agreement;
     
  any
breach of the representations or warranties or covenants contained in the Purchase Agreement or any related agreement which
has or which could have a material adverse effect on us subject to a cure period of five Trading Days;
     
  any
participation in insolvency or bankruptcy proceedings by or against us; or
     
  ceasing
to be DTC eligible.

 

 

Cavalry
does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event
of default, all of which are outside of Cavalry’s control, shares of our common stock cannot be sold by us or purchased
by Cavalry under the Purchase Agreement.

 

Our
Termination Rights

 

We
have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Cavalry
to terminate the Purchase Agreement. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically
terminate without action of any party.

 

No
Short-Selling or Hedging by Cavalry

 

Cavalry
has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common
stock during any time prior to the termination of the Purchase Agreement.

 

Effect
of Performance of the Purchase Agreement on Our Stockholders

 

All
of the shares registered in this offering which may be sold by us to Cavalry under the Purchase Agreement are expected to be freely
tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 36 months commencing on
the date that the registration statement including this prospectus becomes effective. The sale by Cavalry of a significant amount
of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be
highly volatile. Cavalry may ultimately purchase all, some or none of the shares of common stock registered in this offering.
If we sell these shares to Cavalry, Cavalry may sell all, some or none of such shares. Therefore, sales to Cavalry by us under
the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition,
if we sell a substantial number of shares to Cavalry under the Purchase Agreement, or if investors expect that we will do so,
the actual sales of shares or the mere existence of our arrangement with Cavalry may make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However,
we have the right to control the timing and amount of any sales of our shares to Cavalry and the Purchase Agreement may be terminated
by us at any time at our discretion without any cost to us.

 

Pursuant
to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Cavalry to purchase up to $10,000,000
of our common stock. We may be authorized to issue and sell to Cavalry under the Purchase Agreement more shares of our common
stock than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act
any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately
offered for resale by Cavalry under this prospectus is dependent upon the number of shares we direct Cavalry to purchase under
the Purchase Agreement.

 

 

The
following table sets forth the amount of gross proceeds we would receive from Cavalry from our sale of shares to Cavalry under
the Purchase Agreement at varying purchase prices:

 

Assumed
Average Purchase Price Per Share ($)
    Number
of Registered Shares to be Issued if Full Purchase (1)
    Number
of Registered Shares We Will Receive Proceeds From
    Percentage
of Outstanding Shares After Giving Effect to the Issuance to Cavalry (2)
    Proceeds
from the Sale of Shares to Cavalry Under the $10M Purchase Agreement ($)
 
 0.005
(3)     9,045,000       8,755,014       24.80 %     43,775  
 0.23
(4)     9,045,000       8,755,014       24.80 %     2,013,653  

 

(1)
Although
the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Cavalry, we are only registering
9,045,000 purchase shares under this prospectus, inclusive of 225,890 pro rata commitment shares. As a result, we have included
in this column only those shares that we are registering in this offering including the pro rata commitment shares issuable
to Cavalry which no proceeds will be attributable to.
   
(2)
The
denominator is based on 27,422,008 shares outstanding, and includes the number of shares set forth in the adjacent column
which includes the commitment fee issued pro rata up to the additional $10,000,000 million of our stock if purchased by Cavalry
and 4,374,741 shares previously issued to Cavalry under the Purchase Agreement. The numerator is based on the number of shares
issuable under the Purchase Agreement. The number of shares in such column does not include shares that may be issued to Cavalry
under the Purchase Agreement which are not registered in this offering.
   
(3)
Under
the Purchase Agreement, Cavalry shall not purchase any shares of our common stock on any day that the most recent closing
sale price of our common stock is or was below $0.005.
   
(4)
The
closing sale price of our shares of common stock on June 15, 2020.

 

DESCRIPTION
OF SECURITIES

 

We
are authorized to issue 975,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of preferred stock,
par value $0.001 per share.

 

Common
Stock

 

The
holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election
of directors. There is no cumulative voting in the election of directors. The holders of common stock are entitled to any dividends
that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights
of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the
event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive
rights and have no right to convert their common stock into any other securities.

 

Preferred
Stock

 

We
are authorized to issue 20,000,000 shares of $0.001 par value preferred stock in one or more series with such designations, voting
powers, if any, preferences and relative, participating, optional or other special rights, and such qualifications, limitations
and restrictions, as are determined by resolution of our board of directors. 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.

 

 

Series
C-1 Preferred Stock

 

We
have 29,414 shares of outstanding Series C-1 Convertible Preferred Stock (the “Series C-1”). Each share of Series
C-1 converts into approximately 6.667 shares of common stock. The Certificate of Designation contains what is commonly referred
to as a blocker which limits the number of shares of common stock which the holder may “beneficially own” to 4.99%
of the common stock issued and outstanding. Under Rule 13d-3 of the Exchange Act, in determining beneficial ownership the holder
must consider shares of common stock that may be issued upon conversion or exercise of other securities within 60-days of the
date of calculation and which are not subject to any limitation on conversion or exercise. The Series C-1 also contains a provision
requiring the Company to treat all holders equally.

 

Anti-takeover
Effects of Nevada Law and of Our Charter and Bylaws

 

In
addition to the features of our charter related to the issuance of preferred stock, which are described above, the NRS contain
several provisions which may make a hostile take-over or change of control of our Company more difficult to accomplish. They include
the following:

 

Nevada
law, any one or all of the directors of a corporation may be removed by the holders of not less than two-thirds of the voting
power of a corporation’s issued and outstanding stock. All vacancies on the board of directors of a Nevada corporation may
be filled by a majority of the remaining directors, though less than a quorum, unless the articles of incorporation provide otherwise.
In addition, unless otherwise provided in the articles of incorporation, the board may fill the vacancies for the entire remainder
of the term of office of the resigning director or directors. Our Articles of Incorporation do not provide otherwise.

 

In
addition, Nevada law provides that unless otherwise provided in a corporation’s articles of incorporation or bylaws, shareholders
do not have the right to call special meetings. Our Articles of Incorporation and our Bylaws do not give shareholders this right.
In accordance with Nevada law, we also require advance notice of any shareholder proposals.

 

Nevada
law provides that, unless otherwise prohibited by any bylaws adopted by the shareholders, the board of directors may amend any
bylaw, including any bylaw adopted by the shareholders. Pursuant to Nevada law, our Articles of Incorporation grant the authority
to adopt, amend or repeal bylaws exclusively to our directors.

 

Nevada’s
“combinations with interested stockholders” statutes prohibit certain business “combinations” between
certain Nevada corporations and any person deemed to be an “interested stockholder” for two years after the such person
first becomes an “interested stockholder” unless (i) the corporation’s board of directors approves the combination
(or the transaction by which such person becomes an “interested stockholder”) in advance, or (ii) the combination
is approved by the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the
interested stockholder, its affiliates and associates. Furthermore, in the absence of prior approval, certain restrictions may
apply even after such two-year period. For purposes of these statutes, an “interested stockholder” is any person who
is (x) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares
of the corporation, or (y) an affiliate or associate of the corporation and at any time within the two previous years was the
beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation.
Subject to certain timing requirements set forth in the statutes, a corporation may elect not to be governed by these statutes.
However, we have not included any such provision in our Articles of Incorporation or Bylaws, which means these provisions apply
to us.

 

Nevada’s
“acquisition of controlling interest” statutes contain provisions governing the acquisition of a controlling interest
in certain Nevada corporations. These “control share” laws provide generally that any person who acquires a “controlling
interest” in certain Nevada corporations may be denied certain voting rights, unless a majority of the disinterested stockholders
of the corporation elects to restore such voting rights. These statutes provide that a person acquires a “controlling interest”
whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would
enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority
or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses
one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately
preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares”
to which the voting restrictions described above apply. Our Articles of Incorporation and Bylaws currently contain no provisions
relating to these statutes, and unless our Articles of Incorporation or Bylaws in effect on the tenth day after the acquisition
of a controlling interest were to provide otherwise, these laws would apply to us if we were to (i) have 200 or more stockholders
of record (at least 100 of which have addresses in the State of Nevada appearing on our stock ledger) and (ii) do business in
the State of Nevada directly or through an affiliated corporation. As of the date of this prospectus, we have less than 100 record
stockholders with Nevada addresses. However, if these laws were to apply to us, they might discourage companies or persons interested
in acquiring a significant interest in or control of the company, regardless of whether such acquisition may be in the interest
of our shareholders.

 

 

Dividends

 

We
have not paid dividends on our common stock since inception and do not plan to pay dividends on our common stock in the foreseeable
future.

 

Transfer
Agent

 

We
have appointed Equity Stock Transfer as our stock transfer agent. Its address is 237 W 37th Street, Suite 602, New York, NY 10018
and its telephone number is (212) 575-5757 and email address is: info@equitystock.com

 

PLAN
OF DISTRIBUTION

 

The
selling stockholder named above and any of their transferees, pledgees and successors-in-interest may, from time to time, sell
any or all of their shares of common stock on OTC Markets or any other stock exchange, market or trading facility on which the
shares of our common stock are traded or in private transactions. These sales may be at fixed prices and prevailing market prices
at the time of sale, at varying prices or at negotiated prices. The selling stockholder may use any one or more of the following
methods when selling shares:

 

  Ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  Block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
     
  Purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
     
  Privately
negotiated transactions;
     
  Broker-dealers
may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share; or
     
  A
combination of any such methods of sale.

 

Broker-dealers
engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with FINRA IM-2440.

 

The
selling stockholder is an underwriter within the meaning of the Securities Act and any broker-dealers or agents that are involved
in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholder
has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person
to distribute the common stock of our company. Pursuant to a requirement by FINRA, the maximum commission or discount to be received
by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale
of any securities being registered pursuant to Rule 415 promulgated under the Securities Act.

 

 

Discounts,
concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling
stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

We
are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus.
We have agreed to indemnify the selling stockholder against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling
stockholder. We may, however, receive proceeds from the sale of our common stock under the Purchase Agreement with the selling
stockholder.

 

The
shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws.
In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases
and sales of shares of the common stock by the selling stockholder or any other person. We will make copies of this prospectus
available to the selling stockholder.

 

Although
the selling stockholder has agreed not to enter into any “short sales” of our common stock, sales after delivery of
a put notice of a number of shares reasonably expected to be purchased under a put notice shall not be deemed a “short sale.”
Accordingly, the selling stockholder may enter into arrangements it deems appropriate with respect to sales of shares of our common
stock after it receives a put notice under the Purchase Agreement so long as such sales or arrangements do not involve more than
the number of put shares reasonably expected to be purchased by the selling stockholder under such put notice.

 

Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
BTCS pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.

 

LEGAL
MATTERS

 

The
validity of the securities offered hereby will be passed upon for us by Nason, Yeager, Gerson, Harris & Fumero, P.A., Palm
Beach Gardens, Florida.

 

EXPERTS

 

The
financial statements appearing in this prospectus and registration statement for the 12 months ended December 31, 2019 and 2018
have been audited by RBSM LLP, an independent registered public accounting firm as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

ADDITIONAL
INFORMATION

 

We
have filed with the SEC a registration statement on Form S-1, including the exhibits, schedules, and amendments to this registration
statement, under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus, which
is part of the registration statement, does not contain all the information set forth in the registration statement. For further
information with respect to us and the shares of our common stock to be sold in this offering, we make reference to the registration
statement.

 

We
are an Exchange Act reporting company and are required to file periodic reports on Form 10-K and 10-Q and current reports on Form
8-K. You may read and copy all or any portion of the registration statement or any other information, at the SEC’s Internet
website, which is located at www.sec.gov and which also contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.

 

 

INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
No.
Report of Independent Registered Public Accounting Firms F-1
Balance Sheet as of December 31, 2019 and December 31, 2018 F-2
Statement of Operations for the Years Ended December 31, 2019 and 2018 F-3
Statement of Stockholders’ Equity for the Years Ended December 31, 2019 and 2018 F-4
Statement of Cash Flows for the Years Ended December 31, 2019 and 2018 F-5
Notes to Financial Statements F-6
   
Condensed Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 F-16
Condensed Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited) F-17
Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2020 and 2019 (unaudited) F-18
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited) F-19
Notes to the Unaudited Condensed Financial Statements F-20

 

 

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To
the Board of Directors and Stockholders of

BTCS
Inc.

 

Opinion
on the Financial Statements

 

We
have audited the accompanying balance sheets of BTCS Inc. (The “Company”) as of December 31, 2019 and 2018 and the
related statements of operations, stockholders’ (deficit), and cash flows for each of the years in the two-year period ended
December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and
the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity
with accounting principles generally accepted in the United States of America.

 

The
Company’s Ability to Continue as a Going Concern

 

The
accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note
3 to the accompanying financial statements, the Company has suffered recurring losses from operations, generated negative cash
flows from operating activities, and has an accumulated deficit that raises substantial doubt about the Company’s ability
to continue as a going concern. Management’s evaluation of the events and conditions and management’s plan in regard
to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

 

Basis
for Opinion

 

These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

 

We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.

 

Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.

 

/s/
RBSM LLP
 
   
We
have served as the Company’s auditor since 2016.
 
   
Henderson,
Nevada
 
March
23, 2020
 
   

Except
for Note 2, as to which the date is June 22, 2020

 

 

 

BTCS
Inc.

Balance
Sheets

 

    December
31,
    December
31,
 
    2019     2018  
             
Assets:                
Current
assets:
               
Cash   $ 143,098     $ 52,117  
Digital
currencies
    252,903        
Prepaid
expense
    24,008       8,333  
Total
current assets
    420,009       60,450  
                 
Other
assets:
               
Property
and equipment, net
    1,344       2,703  
Total
other assets
    1,344       2,703  
                 
Total
Assets
  $ 421,353     $ 63,153  
                 
Liabilities
and Stockholders’ Deficit:
               
Accounts
payable and accrued expense
  $ 28,324     $ 14,244  
Accrued
compensation
    416,935       104,902  
Convertible
notes payable, net
    159,854        
Short
term loan
          200,000  
Total
current liabilities
    605,113       319,146  
                 
Stockholders’
deficit:
               
Preferred
stock; 20,000,000 shares authorized at $0.001 par value:
               
Series
B Convertible Preferred stock: 0 shares issued and outstanding at December 31, 2019 and 2018; Liquidation preference $0.001
per share
           
Series
C-1 Convertible Preferred stock: 29,414 shares issued and outstanding at December 31, 2019 and 2018; Liquidation preference
$0.001 per share
    29       29  
Common
stock, 975,000,000 shares authorized at $0.001 par value, 19,831,521 and 12,515,201 shares issued and outstanding at December
31, 2019 and 2018, respectively
    19,830       12,515  
Additional
paid in capital
    116,780,174       115,074,655  
Accumulated
deficit
    (116,983,793 )     (115,343,192 )
Total
stockholders’ deficit
    (183,760 )     (255,993 )
                 
Total
Liabilities and stockholders’ deficit
  $ 421,353     $ 63,153  

 

The
accompanying notes are an integral part of these financial statements.

 

 

BTCS
Inc.

Statements
of Operations

 

    For
the years ended
 
    December
31,
 
    2019     2018  
             
Operating
expenses:
               
General
and administrative
  $ 1,422,394     $ 986,525  
Marketing     9,989       3,644  
Total
operating expenses
    1,432,383       990,169  
                 
Other
(expense) income:
               
Interest
expense
    (86,142 )      
Impairment
loss on digital currencies
    (121,117 )      
Realized
(loss) gain on digital currencies transactions
    (959 )     163,749  
Total
other (expenses) income
    (208,218 )     163,749  
                 
Net
loss
  $ (1,640,601 )   $ (826,420 )
Deemed
dividend related to reduction of warrant strike price
    (95,708 )     (5,600 )
Net
loss attributable to common stockholders
  $ (1,736,309 )   $ (832,020 )
                 
Net
loss per share attributable to common stockholders, basic and diluted
  $ (0.11 )   $ (0.07 )
                 
Weighted
average number of common shares outstanding, basic and diluted
    15,885,129       12,385,402  

 

The
accompanying notes are an integral part of these financial statements.

 

 

BTCS
Inc.

Consolidated
Statement of Stockholders’ Deficit

For
the years ended December 31, 2019 and 2018

 

    Series
B Convertible
    Series
C-1 Convertible
                Additional           Total  
    Preferred
Stock
    Preferred
Stock
    Common
Stock
    Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity
(Deficit)
 
Balance
January 1, 2018 (Restated)
    25,877     $ 25       50,004     $ 50       12,101,462     $ 12,101     $ 115,018,023     $ (114,516,772 )   $ 513,427  
Conversion
of Series B Convertible Preferred stock to common stock
    (25,877 )     (25 )                 172,513       173       (148 )            
Conversion
of Series C-1 Convertible Preferred stock to common stock
                (20,590 )     (21 )     137,266       137       (116 )            
Cashless
warrant exercise
                            8,961       9       (9 )            
Warrant
exercise
                            94,999       95       56,905             57,000  
Net
loss
                                              (826,420 )     (826,420 )
Balance
December 31, 2018
        $       29,414     $ 29       12,515,201     $ 12,515     $ 115,074,655     $ (115,343,192 )   $ (255,993 )
Common
stock issued including equity commitment fee, net
                            4,642,108       4,642       1,157,358             1,162,000  
Conversion
of convertible notes
                            1,931,788       1,931       216,040             217,971  
Beneficial
conversion features associated with convertible notes payable
                                        104,493             104,493  
Fractional
shares adjusted for reverse split
                                16,860       17       (17 )            
Warrant
exercise
                            725,564       725       227,645             228,370  
Net
loss
                                              (1,640,601 )     (1,640,601 )
Balance
December 31, 2019
        $       29,414     $ 29       19,831,521     $ 19,830     $ 116,780,174     $ (116,983,793 )   $ (183,760 )

 

The
accompanying notes are an integral part of these consolidated financial statements.

 

 

BTCS
Inc.

Consolidated
Statements of Cash Flows

 

    For
the years ended
 
    December
31,
 
    2019     2018  
     (RESTATED)        
Net
Cash flows used from operating activities:
               
Net
loss
  $ (1,640,601 )   $ (826,420 )
Adjustments
to reconcile net loss to net cash used in operating activities:
               
Depreciation
expenses
    1,359       1,130  
Amortization
on debt discount
    64,345          
Realized
loss (gain) on digital currencies transactions
    959       (163,749 )
Proceeds
from sale of digital currencies
          380,868  

Purchase
of digital currencies

   

(374,979

)      
Interest
expense
    20,630          
Impairment
loss on digital currencies
    121,117        
Changes
in operating assets and liabilities:
               
Prepaid
expenses and other current assets
    (15,675 )     59,403  
Accounts
payable and accrued expenses
    11,423       43,149  
Accrued
compensation
    312,033        
Net
cash used in operating activities
    (1,499,389 )     (505,619 )
                 
Net
cash used in investing activities:
               
Purchase
of property and equipment
          (2,598 )
Net
cash used in investing activities
        (2,598 )
                 
Net
cash provided by financing activities:
               
Proceeds
from short term loan
    200,000       200,000  
Proceeds
from exercise of warrants
    228,370       57,000  
Net
proceeds from issuance of common stock
    1,162,000        
Net
cash provided by financing activities
    1,590,370       257,000  
                 
Net
increase (decrease) in cash
    90,981       (251,217 )
Cash,
beginning of period
    52,117       303,334  
Cash,
end of period
  $ 143,098     $ 52,117  
                 
Cash
paid for interest and taxes
  $ 905     $  
                 
Supplemental
disclosure of non-cash financing and investing activities:
               
Conversion
of Series B Convertible Preferred Stock to common stock
  $     $ 5,175  
Conversion
of Series C-1 Convertible Preferred Stock to common stock
  $     $ 4,118  
Conversion
of convertible note to common stock
  $ 217,971     $  
Exchange
of promissory note and accrued interest into convertible note
  $ 217,973     $  
Cashless
warrant exercise
  $     $ 269  
Fractional
shares adjusted for reverse split
  $ 17     $  
Deemed
dividend
  $ 95,708     $ 5,600  
Beneficial
conversion features associated with convertible notes payable
  $ 104,493     $  

 

The
accompanying notes are an integral part of these consolidated financial statements.

 

 

BTCS
Inc.

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 ecommerce marketplace where consumers can purchase merchandise using Digital
Assets, including bitcoin and is currently focused on blockchain and digital currency ecosystems. In January 2015, the Company
began a rebranding campaign using its BTCS.COM domain (shorthand for Blockchain Technology Consumer Solutions) to better reflect
its broadened strategy. The Company released its new website which included broader information on its strategy. 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 transaction verification services operation at our North Carolina facility due to capital constraints.

 

Subject
to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of
Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open
market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets
that appear to benefit our investors, subject to the certain limitations regarding Digital Securities. The Company is also seeking
to acquire controlling interests in businesses in the blockchain industry.

 

The
Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital
Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited
investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be)
limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered
initial coin offerings. 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.

 

Digital
asset blockchains are typically maintained by a network of participants which run servers which secure their blockchain.

 

The
Company is also internally developing a digital asset data analytics platform to provide information to users, such as tracking
of multiple exchanges and wallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk
metrics, and potential tax implications.

 

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
April 5, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with
the Nevada Secretary of State to effect a one-for 30 reverse split of the Company’s class of common stock. The Amendment
took effect on April 9, 2019. No fractional shares were or will be issued or distributed as a result of the Amendment. Fractional
shares resulting from the reverse split were rounded up to the nearest whole share. Numbers of shares of the Company’s preferred
stock were not affected by the Reverse Stock Split; however, the conversion ratios have been adjusted to reflect the Reverse Stock
Split. The financial statements have been retroactively restated to reflect the reverse stock split.

 

Note
2 – Basis of Presentation and Restatement of the Consolidated Financial Statements

 

Basis
of Presentation

 

The
accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries, DM. DM was dissolved
on May 2, 2018. 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. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Restatement
of the Consolidated Financial Statements

 

The
purpose of this amendment is to correct an error in the Company’s previously issued financial statements for the period
ended December 31, 2019 in connection with the classification of the $374,979 purchase of digital currencies in the statement
of cash flows. The $374,979 purchase of digital currencies has now been re-classified from an investing activity to an operating
activity in the statement of cash flows.

 

There
was no effect of the restatement to the Company’s consolidated balance sheet, consolidated statement of operations and consolidated
statement of changes in stockholders’ deficit for the year ended December 31, 2019.

 

In
accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality (“SAB 99”) and
Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”), the Company has determined that the impact of adjustments relating to the correction
of this accounting error are not material to previously issued annual audited financial statements.

 

The
effect of the restatement on the Company’s consolidated statement of cash flows for the year ended December 31, 2019 are
as follows:

 

    For
the years ended December 31, 2019
 
    As
Previously Reported
    Restatement
Adjustment
    As
Restated
 
Net
cash used in operating activities
  $ (1,124,410 )   $ (374,979 )   $ (1,499,389 )
Net
cash used in investing activities
    (374,979 )     374,979        
Net
cash provided by financing activities
    1,590,370             1,590,370  
Net
increase in cash
    90,981             90,981  

 

There
was no impact to net cash provided by financing activities within our consolidated statement of cash flows nor was there an impact
on the net increase in cash resulting from restatement.

 

The
impacts of the restatement has been reflected throughout these financial statements, including the applicable footnotes, as appropriate.

 

Note
3 – Liquidity, Financial Condition and Management’s Plans

 

The
Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations
since inception using proceeds received from capital contributions made by its officers and proceeds in financing transactions.

 

Notwithstanding,
the Company has limited revenues, limited capital resources and is subject to all of the risks and uncertainties that are typical
of an early stage enterprise. Significant uncertainties include, among others, whether the Company will be able to raise the capital
it needs to finance its longer-term operations and whether such operations, if launched, will enable the Company to sustain operations
as a profitable enterprise.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

Our
working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. The Company
used approximately $1.1 million of cash in its operating activities for the year ended December 31, 2019. The Company incurred
$1.6 million net loss for the year ended December 31, 2019. The Company had cash of approximately $0.1 million and a negative
working capital of approximately $0.2 million at December 31, 2019. The Company expects to incur losses into the foreseeable future
as it undertakes its efforts to execute its business plans.

 

The
Company will require significant additional capital to sustain its short-term operations and make the investments it needs to
execute its longer-term business plan. The Company’s existing liquidity is not sufficient to fund its operations and anticipated
capital expenditures for the foreseeable future. The Company is currently seeking to obtain additional equity financing, primarily
through the Equity Line Purchase Agreement with Cavalry and seeking to obtain additional equity linked debt financing, however
there are currently no other commitments of debt or equity in place for further financing nor is there any assurance that such
financing will be available to the Company on favorable terms, if at all.

 

Because
of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about
the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The financial
statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the
accompanying financial statements to reflect the potential effects on the recoverability and classification of assets or liabilities
should the Company be unable to continue as a going concern.

 

The
Company continues to incur ongoing administrative and other operating expenses, including public company expenses, in excess of
revenues. While the Company continues to implement its business strategy, it intends to finance its activities by:

 

managing
current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs,
   
seeking
additional financing through sales of additional securities whether through Cavalry or other investors.

 

Note
4- Summary of Significant Accounting Policies

 

A
summary of the significant accounting policies applied in the preparation of the accompanying financial statements is as follows:

 

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, 2019 and 2018, the Company had approximately $143,000 and $52,000 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, 2019 and 2018, the Company had $0 in excess of the FDIC insured limit.

 

Digital
Assets Translations and Remeasurements

 

Digital
Assets are included in current assets in the balance sheets. Digital Assets are recorded at cost less impairment.

 

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.

 

Realized
gain (loss) on sale of Digital Assets are included in other income (expense) in the statements of operations.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

The
Company assesses impairment of Digital Assets quarterly if the fair value of digital assets is less than its cost basis. The Company
recognizes impairment losses on Digital Assets caused by decreases in fair value using the average U.S. dollar spot price of the
related Digital Asset as of each impairment date. Such impairment in the value of Digital Assets are recorded as a component of
costs and expenses in our statements of operations.

 

Property
and Equipment

 

Property
and equipment consists of leasehold improvements, 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.

 

Fair
Value of Financial Instruments

 

Financial
instruments, including cash and cash equivalents, 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)

 

Use
of Estimates

 

The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“US 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, the valuation of derivative
liabilities, 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.

 

Employee
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.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

Advertising
Expense

 

Advertisement
costs are expensed as incurred and included in marketing expenses. Advertising expenses amounted to approximately $10,000 and
$4,000 for the years ended December 31, 2019 and 2018, 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 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, 2019 and 2018 because
their effect was anti-dilutive:

 

    As
of December 31,
 
    2019     2018  
Warrants
to purchase common stock
    937,904       1,955,264  
Series
C-1 Convertible Preferred stock
    196,093       196,093  
Convertible
notes
    3,676,471        
Total     4,810,468       2,151,357  

 

Preferred
Stock

 

The
Company applies the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification
and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments
and are measured at fair value. The Company classifies conditionally redeemable preferred shares (if any), which includes 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, as temporary equity. At all other times, the Company classifies
its preferred shares in stockholders’ equity. The Company’s preferred shares do not feature any redemption rights
within the holders’ control or conditional redemption features not within the Company’s control as of December 31,
2019 and 2018. Accordingly, all issuances of preferred stock are presented as a component of stockholders’ equity.

 

Convertible
Instruments

 

The
Company has evaluated the Series A Convertible Preferred Stock (“Preferred Stock”) component of the Private Placement
and determined it should be considered an “equity host” and not a “debt host” as defined by ASC 815, Derivatives
and Hedging. This evaluation is necessary in order to determine if any embedded features require bifurcation and, therefore, separate
accounting as a derivative liability. The Company’s analysis followed the “whole instrument approach,” which
compares an individual feature against the entire preferred stock instrument which includes that feature. The Company’s
analysis was based on a consideration of the Preferred Stock’s economic characteristics and risks and more specifically
evaluated all the stated and implied substantive terms and features including (i) whether the Preferred Stock included redemption
features, (ii) whether the preferred stockholders were entitled to dividends, (iii) the voting rights of the Preferred Stock and
(iv) the existence and nature of any conversion rights. As a result of the Company’s determination that the Preferred Stock
is an “equity host,” the embedded conversion feature is not considered a derivative liability.

 

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.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

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
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09) as modified
by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08,
“Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net),” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing,” and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients.” The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict
the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt
the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or
a cumulative effect upon adoption approach. The Company adopted ASU 2014-09 on January 1, 2018, using the modified retrospective
approach. Because the Company doesn’t have any customer contracts as of January 1, 2018, the adoption of ASU 2014-09 did
not have a material impact on the Company’s financial position, results of operations, equity or cash flows.

 

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 is currently evaluating the impact of this standard on its financial statements and
related disclosures.

 

Note
5 – Note Payable

 

2018
Note

 

On
December 18, 2018, the Company issued a $200,000 promissory note to one institutional investor (the “Promissory Note”).
The Promissory Note was due on September 18, 2019 and bears interest at a rate of 12%. In the event of default, the Promissory
Note bears interest at a rate of 20%. By the maturity date of the Promissory Note, the Company made no payment in connection with
this Promissory Note and accrued interest expense of $17,973. On September 18, 2019, the Company and holder of the Promissory
Note agreed to exchange the Promissory Note, including $17,973 accrued and unpaid interest for a new $217,973 Convertible Note
dated September 18, 2019 (the “Convertible Note”). The Convertible Note is due December 18, 2019 and is convertible
at a 20% discount to the closing price of the Company’s common stock on the principal trading market on the date before
exercise, provided however that the conversion price shall never be less than $0.10 per share. The Convertible Note shall bear
interest at 12% per annum (payable at maturity) and may be prepaid by the Company. From September 18, 2019 to September 30, 2019,
the Company issued a total of 1,252,058 shares of the Company’s Common Stock for the conversion of $150,000 of principal
on the Convertible Note and made no payment in connection with this Convertible Note and accrued interest expense. On October
16, 2019, the Company issued a total of 679,730 shares of the Company’s Common Stock for the conversion of the remaining
$67,973 of principal on the Convertible Note and subsequently paid all the accrued interest expense of $905 on the Convertible
Note. The exchange of the Promissory Note into the Convertible Note met the definition of an extinguishment. However, the carrying
amount of the Promissory Note and the fair value of the Convertible Note were comparable. Therefore, no gain or loss was recorded
on the extinguishment. 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 1,746,579 shares of common stock at $0.12 per share,
but the Company’s fair value of underlying common stock was $0.16 per share. As such, the Company recognized a beneficial
conversion feature, resulting in a discount to the Notes of approximately $54,000 with a corresponding credit to additional paid-in
capital. During the year ended December 31, 2019, the Company recorded approximately $54,000 in interest expense related to amortization
on debt discount related to the Convertible Note.

 

2019
Note

 

On
November 7, 2019, the Company issued 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 $0.02 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. During the year ended December 31,
2019, the Company recorded approximately $10,000 in interest expense related to amortization on debt discount related to the 2019
Promissory Note. As of December 31, 2019, the Convertible Note had principal balance of $0.2 million, accrued interest on the
note payable of approximately $4,000 and approximately $40,000 remaining unamortized debt discount. 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 2,173,913 shares of common stock at $0.09 per share, but the Company’s fair value of underlying
common stock was $0.12 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.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

Note
6 – Stockholders’ Equity

 

Amendment
to Articles of Incorporation

 

On
April 5, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with
the Nevada Secretary of State to effect a one-for 30 reverse split of the Company’s class of common stock. The Amendment
took effect on April 9, 2019. No fractional shares were or will be issued or distributed as a result of the Amendment. Fractional
shares resulting from the reverse split were rounded up to the nearest whole share. Numbers of shares of the Company’s preferred
stock were not affected by the Reverse Stock Split; however, the conversion ratios have been adjusted to reflect the Reverse Stock
Split. The financial statements have been retroactively restated to reflect the reverse stock split.

 

2019
Activities

 

On
April 18, 2019, the Company issued 16,860 shares of Common Stock in connection with the one-for 30 reverse split resulting from
the rounding up of fractional shares of Common Stock to the whole shares of Common Stock.

 

During
2019, the Company issued 4,374,741 shares of Common Stock (including 333,334 commitment shares and 68,532 pro-rata commitment
shares) under the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $1.16 million.

 

During
2019, the Company issued 725,564 shares of Common Stock for the cash exercise of Series A Warrants, Additional Warrants, and Bonus
Warrants resulting in aggregate proceeds of $228 thousand to the Company.

 

During
2019, the Company issued a total of 1,931,788 shares of the Company’s Common Stock for the conversion of approximately $218,000
of principal on the Convertible Note.

 

Equity
Line Purchase Agreement

 

On
May 13, 2019, the Company entered into an equity line purchase agreement with Cavalry Fund I LP (“Cavalry”) (the “Purchase
Agreement”) pursuant to which Cavalry agreed to purchase from the Company, at Company’s sole discretion, up to $10,000,000
of common stock (subject to certain limitations) from time to time over a 36-month period. In consideration for entering into
the $10 million Purchase Agreement, the Company issued to Cavalry 333,334 shares of common stock as a commitment fee and will
issue up to 583,334 shares of common stock pro rata as Cavalry purchases additional shares.

 

Concurrently
with the execution of the Purchase Agreement on May 13, 2019, the Company and Cavalry also entered into a registration rights
agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed, among other things, to file
a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”),
no later than May 23, 2019 to register for resale by Cavalry under the Securities Act of 1933 (the “Act”), the shares
of common stock that the Company may elect to issue and sell to Cavalry from time to time under the Purchase Agreement. The Registration
Rights Agreement provides that in the event the Company is unable to register sufficient shares under the Registration Statement,
the Company will be required to file additional registration statements such that sufficient registered shares are available for
issuance and sale to Cavalry under the Purchase Agreement.

 

The
Company filed a Registration Statement on Form S-1 seeking to register 4,374,741 shares. The Registration Statement was declared
effective by the SEC on May 28, 2019. Provided the Registration Statement remains current and effective and the conditions set
forth in the Purchase Agreement are satisfied, the Company may, from time to time and at its sole discretion, direct Cavalry to
purchase shares of the Company’s common stock during trading hours (“Intraday Puts”) and after trading hours
until 7 p.m. New York time (“Aftermarket Puts”) (either an Intraday Put or an Aftermarket Put may be referred to as
a “Put”). The Company may make multiple Puts each day subject to delivery of the shares associated with prior Puts.

 

The
number of shares that may be sold under an Intraday Put shall be equal to the total daily trading dollar volume (“Daily
Trading Dollar Volume”) for the trading day prior to the applicable Put date, divided by the Intraday Purchase Price (such
shares being the “Intraday Put Share Limit”). The “Intraday Purchase Price” means the lower of: (i) 94%
of the lowest sale price on the trading day prior to the applicable Put date, and (ii) 94% of the arithmetic average of the three
lowest closing prices for the Company’s common stock during the 12 consecutive trading days ending on the Trading Day immediately
preceding such Put date.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

The
number of shares that may be sold under an Aftermarket Put shall be equal to the Daily Trading Dollar Volume, divided by the Aftermarket
Put Price (such shares being the “Aftermarket Put Share Limit”). The “Aftermarket Put Price” means: the
lower of: (i) the lowest Sale Price on the applicable Put date, and (ii) the arithmetic average of the three lowest closing prices
for the Company’s common stock during the 12 consecutive trading days ending on the trading day immediately preceding such
Put date.

 

Upon
mutual agreement of Cavalry and the Company and subject to written confirmation by Cavalry that such agreement will not result
in violation of the 4.99% beneficial ownership limitation, the Company may increase the Intraday Put Share Limit or the Aftermarket
Put Share Limit, as applicable, for any Put to include an amount equal to $2,000,000 in Put shares at the applicable Purchase
Price, in each case in addition to the applicable Intraday Put Share Limit or Aftermarket Put Share Limit. In all instances, the
Company may not sell shares of its common stock to Cavalry under the Purchase Agreement if it would result in Cavalry beneficially
owning more than 4.99% of the Company’s common stock or if the closing price the trading day immediately preceding the Put
date is below $0.005.

 

As
of December 31, 2019, the Company sold all 4,374,741 shares available for sale under the Registration Statement for total proceeds
of $1,162,000, net of cost of $12,625.

 

On
September 5, 2019, the Company filed a second Registration Statement on Form S-1 seeking to register 6,454,000 shares. The second
Registration Statement was declared effective by the SEC on December 20, 2019. As of December 31, 2019, the Company sold 267,367
shares available for sale under the second Registration Statement for total proceeds of $15,986.

 

2018
Activities

 

On
January 1, 2018, the Company issued 172,513 shares of Common Stock upon the conversion of 25,877 shares of Series B Convertible
Preferred stock.

 

On
April 20, 2018, the Company issued 13,073 shares of Common Stock upon the conversion of 1,961 shares of Series C-1 Convertible
Preferred stock.

 

On
April 23, 2018, the Company issued 39,220 shares of Common Stock upon the conversion of 5,883 shares of Series C-1 Convertible
Preferred stock.

 

On
April 24, 2018, the Company issued 84,973 shares of Common Stock upon the conversion of 12,746 shares of Series C-1 Convertible
Preferred stock.

 

On
July 23, 2018, the Company issued 8,961 shares of Common Stock for the cashless exercise of 18,518 warrants.

 

On
October 11, 2018 the Company issued four investors each 458,333 Series C Warrants or 1,833,333 warrants in aggregate. These Series
C Warrants were not lawfully issued in accordance with the Nevada Revised Statutes (“NRS”).

 

On
October 25, 2018 the Company and each of the four investors who hold the Series C Warrants agreed to cancel the Series C Warrants
for no consideration. Accordingly, the Series C Warrants are not outstanding.

 

On
November 13, 2018, pursuant to the Amendment to Securities Agreement dated December 7, 2017, the Company temporarily reduced the
exercise price of 133,333 Series A Warrants from $0.085 to $0.02 (the “Offer”). The offer was made to all four investors
who are record holders of the Series A Warrants on identical terms. Each investor had the option to exercise up to 33,333 Series
A Warrants at the lower exercise price.

 

Over
the course of November 13 through November 16, 2018, the Company issued 95,000 shares of Common Stock for the cash exercise of
Series A Warrants through the Offer resulting in aggregate proceeds of $57,000 to the Company.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

Stock
Purchase Warrants

 

The
following is a summary of warrant activity for the year ended December 31, 2019 and 2018:

 

    Number
of Warrants
 
Outstanding
as of December 31, 2017
    2,068,831  
Issuance
of Series C Warrants
    1,833,333  
Cancellation
of Series C Warrants for no consideration
    (1,833,333 )
Cashless
warrant exercise
    (18,519 )
Warrants
exercise for cash
    (94,999 )
Expiration
of warrant
    (39 )
Outstanding
as of December 31, 2018
    1,955,274  
Warrants
exercise for cash
    (725,564 )
Expiration
of warrant
    (291,806 )
Outstanding
as of December 31, 2019
    937,904  

 

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. The Company accrued approximately $256,000
in bonuses during the year ended December 31, 2019 and did not pay or accrue any amount for bonuses during the year ended December
31, 2018. 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.

 

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. The Company accrued approximately $150,000
in bonuses during the year ended December 31, 2019 and did not pay or accrue any amount for bonuses during the year ended December
31, 2018. 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.

 

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.

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

A
“change of control” for purposes of the Employment Agreements means any of the following: (i) the sale or partial
sale of the Corporation 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 Corporation 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 Corporation; (ii) the
sale of the Corporation 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 Corporation’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 agreed to execute and deliver in favor of the Executives an indemnification
agreement and to maintain directors’ and officers’ insurance with terms and in the amounts commensurate with our senior
executive.

 

Note
8 – Income Taxes
 

 

The
Company had no income tax expense due to operating loss incurred for the years ended December 31, 2019 and 2018.

 

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, 2019 and 2018 are comprised of the following:

 

    As
of December 31,
 
    2019     2018  
Deferred
tax assets:
               
Net-operating
loss carryforward
  $

1,436,050

    $

1,117,532

 
Other            
                 
Total
Deferred Tax Assets
   

1,436,050

     

1,117,532

 
Valuation
allowance
   

(1,436,050

)     (1,117,532 )
Deferred
Tax Asset, Net of Allowance
  $     $  

 

At
December 31, 2019, the Company had net operating loss carry forwards for federal and state tax purposes of approximately $6.84
million which begins to expire in 2034. For tax years beginning after December 31, 2017, NOLs generated can offset only 80% of
taxable income in any given tax year. The 20-year carryforward period has been replaced with an indefinite carryforward period
for these NOLs generated in 2018 and future years. Prior to the 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, 2019. The valuation allowance increased by approximately $0.32 million as of December
31, 2019.

 

The
expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:

 

 

BTCS
Inc.

NOTES
TO FINANCIAL STATEMENTS

 

    For
the years ended December 31,
 
    2019     2018  
Statutory
Federal Income Tax Rate
    (21.0 )%     (21.0 )%
State
Taxes, Net of Federal Tax Benefit
    (6.3 )%     (6.3 )%
Federal
tax rate change
    0.0 %     0.0  
Other     27.3 %     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, 2019.

 

Note
9 – Subsequent Events

 

From
January 1, 2020 through March 9, 2020 the Company sold 4,363,744 shares and issued 17,786
pro-rata commitment shares
available for sale under the second Registration Statement for total proceeds of $304,785.

 

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.

 

 

BTCS
Inc.

Condensed
Balance Sheets

 

    March
31,
    December
31,
 
    2020     2019  
    (Unaudited)        
Assets:                
Current
assets:
               
Cash   $ 278,566     $ 143,098  
Digital
currencies
    178,478       252,903  
Prepaid
expense
    8,268       24,008  
Total
current assets
    465,312       420,009  
                 
Other
assets:
               
Property
and equipment, net
    1,005       1,344  
Total
other assets
    1,005       1,344  
                 
Total
Assets
  $ 466,317     $ 421,353  
                 
Liabilities
and Stockholders’ Deficit:
               
Accounts
payable and accrued expense
  $ 23,351     $ 28,324  
Accrued
compensation
    407,526       416,935  
Convertible
notes payable, net
    176,460       159,854  
Total
current liabilities
    607,337       605,113  
                 
Stockholders’
deficit:
               
Preferred
stock; 20,000,000 shares authorized at $0.001 par value:
               
Series
B Convertible Preferred stock: 0 shares issued and outstanding at March 31, 2020 and December 31, 2019; Liquidation preference
$0.001 per share
           
Series
C-1 Convertible Preferred stock: 29,414 shares issued and outstanding at March 31, 2020 and December 31, 2019; Liquidation
preference $0.001 per share
    29       29  
Common
stock, 975,000,000 shares authorized at $0.001 par value, 26,018,154 and 19,831,521 shares issued and outstanding at March
31, 2020 and December 31, 2019, respectively
    26,017       19,830  
Additional
paid in capital
    117,186,998       116,780,174  
Accumulated
deficit
    (117,354,064 )     (116,983,793 )
Total
stockholders’ deficit
    (141,020 )     (183,760 )
                 
Total
Liabilities and stockholders’ deficit
  $ 466,317     $ 421,353  

 

The
accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

BTCS
Inc.

Condensed
Statements of Operations

(Unaudited)

 

    Three
Months Ended March 31,
 
    2020     2019  
             
Operating
expenses:
               
General
and administrative
  $ 270,528     $ 251,964  
Marketing     2,690       535  
Total
operating expenses
    273,218       252,499  
                 
Other
expense:
               
Interest
expense
    (22,628 )     (6,000 )
Impairment
loss on digital currencies
    (74,425 )      
Total
other expenses
    (97,053 )     (6,000 )
                 
Net
loss
  $ (370,271 )   $ (258,499 )
Deemed
dividend related to reduction of warrant strike price
          (95,708 )
Net
loss attributable to common stockholders
  $ (370,271 )   $ (354,207 )
                 
Net
loss per share attributable to common stockholders, basic and diluted
  $ (0.02 )   $ (0.03 )
                 
Weighted
average number of common shares outstanding, basic and diluted
    23,004,360       13,033,038  

 

The
accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

BTCS
Inc.

Statements
of Changes in Stockholders’ Deficit

(Unaudited)

 

For
the Three Months Ended March 31, 2020

 

    Series
C-1
Convertible
                Additional           Total  
    Preferred
Stock
    Common
Stock
    Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance
December 31, 2019
    29,414     $ 29       19,831,521     $ 19,830     $ 116,780,174     $ (116,983,793 )   $ (183,760 )
Common
stock issued including equity commitment fee, net
                6,186,633       6,187       406,824               413,011  
Net
loss
                                  (370,271 )     (370,271 )
Balance
March 31, 2020
    29,414     $     29       26,018,154     $  26,017     $  117,186,998     $  (117,354,064 )   $ (141,020 )

 

For
the Three Months Ended March 31, 2019

 

   

Series
C-1

Convertible

Preferred
Stock

    Common
Stock
   

Additional

Paid-in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance
December 31, 2018
    29,414     $ 29       12,515,201     $ 12,515     $ 115,074,655     $ (115,343,192 )   $ (255,993 )
Warrant
exercise
                725,564       725       227,645             228,370  
Net
loss
                                  (258,499 )     (258,499 )
Balance
March 31, 2019
    29,414     $      29       13,240,765     $ 13,240     $  115,302,300     $  (115,601,691 )   $ (286,122 )

 

The
accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

BTCS
Inc.

Condensed
Statements of Cash Flows

(Unaudited)

 

Related articles

    For
the Three Months Ended
 
    March
31,
 
    2020     2019  
             
Net
Cash flows used from operating activities:
               
Net
loss
  $ (370,271 )   $ (258,499 )
Adjustments
to reconcile net loss to net cash used in operating activities:
               
Depreciation
expenses
    339       335  
Amortization
on debt discount
    16,606        
Impairment
loss on digital currencies
    74,425        
Changes
in operating assets and liabilities:
               
Prepaid
expenses and other current assets
    15,740       5,000  
Accounts
payable and accrued expenses
    (4,973 )     49,763  
Accrued
compensation
    (9,409 )      
Net
cash used in operating activities
    (277,543 )     (203,401 )
                 
Net
cash provided by financing activities:
               
Proceeds
from exercise of warrants
          228,370  
Net
proceeds from issuance of common stock
    413,011        
Net
cash provided by financing activities
    413,011       228,370  
                 
Net
increase in cash
    135,468       24,969  
Cash,
beginning of period
    143,098       52,117  
Cash,
end of period
  $ 278,566     $ 77,086  

 

The
accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

BTCS
Inc.

Notes
to Unaudited Condensed Financial Statements

 

Note
1 – Business Organization and Nature of Operations

 

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 ecommerce marketplace where consumers can purchase merchandise using Digital
Assets, including bitcoin and is currently focused on blockchain and digital currency ecosystems. In January 2015, the Company
began a rebranding campaign using its BTCS.COM domain (shorthand for Blockchain Technology Consumer Solutions) to better reflect
its broadened strategy. The Company released its new website which included broader information on its strategy. 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 transaction verification services operation at our North Carolina facility due to capital constraints.

 

Subject
to additional financing, the Company plans to acquire additional Digital Assets to provide investors with indirect ownership of
Digital Assets that are not securities, such as bitcoin and ether. The Company intends to acquire Digital Assets through open
market purchases. We are not limiting our assets to a single type of Digital Asset and may purchase a variety of Digital Assets
that appear to benefit our investors, subject to the certain limitations regarding Digital Securities. The Company is also seeking
to acquire controlling interests in businesses in the blockchain industry.

 

The
Company has not participated in any initial coin offerings as it believes most of the offerings entail the offering of Digital
Securities and require registration under the Securities Act and under state securities laws or can only be sold to accredited
investors in the United States. Since about July 2017, initial coin offerings using Digital Securities have been (or should be)
limited to accredited investors. Because we cannot qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Further, the Company does not intend to participate in registered or unregistered
initial coin offerings. 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.

 

Digital
asset blockchains are typically maintained by a network of participants which run servers which secure their blockchain.

 

The
Company is also internally developing a digital asset data analytics platform to provide information to users, such as tracking
of multiple exchanges and wallets to aggregate portfolio holdings into a single platform to view and analyze performance, risk
metrics, and potential tax implications.

 

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.

 

Note
2 – Basis of Presentation

 

The
accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations
of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include
all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management,
reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative
of results for a full year. The unaudited condensed financial statements and notes should be read in conjunction with the financial
statements and notes for the year ended December 31, 2019.

 

Note
3 – Liquidity, Financial Condition and Management’s Plans

 

The
Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations
since inception using proceeds received from capital contributions made by its officers and proceeds in financing transactions.

 

Notwithstanding,
the Company has limited revenues, limited capital resources and is subject to all of the risks and uncertainties that are typical
of an early stage enterprise. Significant uncertainties include, among others, whether the Company will be able to raise the capital
it needs to finance its longer-term operations and whether such operations, if launched, will enable the Company to sustain operations
as a profitable enterprise.

 

 

BTCS
Inc.

Notes
to Unaudited Condensed Financial Statements

 

Our
working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. The Company
used approximately $0.3 million of cash in its operating activities for the three months ended March 31, 2020. The Company incurred
$0.4 million net loss for the three months ended March 31, 2020. The Company had cash of approximately $0.3 million and a negative
working capital of approximately $0.1 million at March 31, 2020. The Company expects to incur losses into the foreseeable future
as it undertakes its efforts to execute its business plans.

 

The
Company will require significant additional capital to sustain its short-term operations and make the investments it needs to
execute its longer-term business plan. The Company’s existing liquidity is not sufficient to fund its operations and anticipated
capital expenditures for the foreseeable future. The Company is currently seeking to obtain additional equity financing, primarily
through the Equity Line Purchase Agreement with Cavalry and seeking to obtain additional equity linked debt financing, however
there are currently no other commitments of debt or equity in place for further financing nor is there any assurance that such
financing will be available to the Company on favorable terms, if at all.

 

Because
of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about
the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The financial
statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the
accompanying financial statements to reflect the potential effects on the recoverability and classification of assets or liabilities
should the Company be unable to continue as a going concern.

 

The
Company continues to incur ongoing administrative and other operating expenses, including public company expenses, in excess of
revenues. While the Company continues to implement its business strategy, it intends to finance its activities by:

 

managing
current cash and cash equivalents on hand from the Company’s past debt and equity offerings by controlling costs,
   
seeking
additional financing through sales of additional securities whether through Cavalry or other investors.

 

Note
4 – Summary of Significant Accounting Policies

 

There
have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2019
Annual Report.

 

Digital
Assets Translations and Remeasurements

 

Digital
Assets are included in current assets in the balance sheets. Digital Assets are recorded at cost less impairment.

 

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.

 

Realized
gain (loss) on sale of Digital Assets are included in other income (expense) in the statements of operations.

 

The
Company assesses impairment of Digital Assets quarterly if the fair value of digital assets is less than its cost basis. The Company
recognizes impairment losses on Digital Assets caused by decreases in fair value using the average U.S. dollar spot price of the
related Digital Asset as of each impairment date. Such impairment in the value of Digital Assets are recorded as a component of
costs and expenses in our statements of operations.

 

Use
of Estimates

 

The
accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“US 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 long-lived assets, stock-based compensation, the valuation of derivative
liabilities, and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates,
including the carrying amount of the intangible assets, if any, 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.

 

 

BTCS
Inc.

Notes
to Unaudited Condensed Financial Statements

 

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 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 March 31, 2020 and 2019 because
their effect was anti-dilutive:

 

    As
of March 31,
 
    2020     2019  
Warrants
to purchase common stock
    920,424       1,229,700  
Series
C-1 Convertible Preferred stock
    196,093       196,093  
Convertible
notes
    4,032,258        
Total     5,148,775       1,425,793  

 

Recent
Accounting Pronouncements

 

In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting standards Update (“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 is currently evaluating the impact of this standard 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
5 – Note Payable

 

On
November 7, 2019, the Company issued 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 $0.02 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. During the year ended December 31,
2019, the Company recorded approximately $10,000 in interest expense related to amortization on debt discount related to the 2019
Promissory Note. As of December 31, 2019, the Convertible Note had principal balance of $0.2 million, accrued interest on the
note payable of approximately $4,000 and approximately $40,000 remaining unamortized debt discount. 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 2,173,913 shares of common stock at $0.09 per share, but the Company’s fair value of underlying
common stock was $0.12 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. During the three months ended March
31, 2020, the Company recorded approximately $17,000 in interest expense related to amortization on debt discount related to the
2019 Promissory Note.

 

During
the three months ended March 31, 2020, the Company recorded interest expense of approximately $6,000. As of March 31, 2020, the
principal balance of the 2019 Promissory Note was $0.2 million and accrued interest on the note payable amounted to approximately
$9,000.

 

 

BTCS
Inc.

Notes
to Unaudited Condensed Financial Statements

 

Note
6 – Stockholders’ Equity

 

On
September 5, 2019, the Company filed a second Registration Statement on Form S-1 seeking to register 6,454,000 shares. The second
Registration Statement was declared effective by the SEC on December 20, 2019.

 

During
the three months ended March 31, 2020, Company issued 6,186,633 shares of Common Stock (including 24,219 pro-rata commitment shares)
under the Purchase Agreement with Cavalry resulting in aggregate proceeds of approximately $0.4 million

 

Note
7 – Subsequent Events

 

On
April 6, 2020, the Company issued a total of 735,294 shares of the Company’s Common Stock for the conversion of $50,000
of principal on the 2019 Promissory Note. 

 

On
April 17, 2020, the Company issued Cavalry Fund I LP (the “Fund”) a $500,000 promissory note (the “2020 Promissory
Note”) in consideration for $500,000. The 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 $0.01 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 Promissory Note.

 

On
May 7, 2020, the Company issued a total of 632,736 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. 

 

 

PART
II

 

INFORMATION
NOT REQUIRED IN PROSPECTUS

 

Other
Expenses of Issuance and Distribution.

 

The
following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities
being registered hereunder. No expenses shall be borne by the selling stockholder. All of the amounts shown are estimates, except
for the SEC Registration Fees.

 

SEC registration fees   $ 265  
Accounting fees and expenses   $ 3,000  
Legal fees and expenses   $ 7,000  
Blue sky fees   $ 3,000  
Miscellaneous   $ 1,000  
Total   $ 14,000  

 

Indemnification
of Directors and Officers.

 

Neither
our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted
under the NRS. NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation
against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any the defense
to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to NRS Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter
therein.

 

NRS
Section 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or
proceeding if he: (a) is not liable pursuant to NRS Section 78.138; or (b) acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.

 

NRS
Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS Section 78.138;
or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to
the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.

 

 

NRS
Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually
liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The
court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of
such issue.