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Stockholders’ Equity (Deficit)
 12 Months Ended
Dec. 31, 2022
Equity [Abstract]  
Stockholders’ Equity (Deficit)

Note 5 - Stockholders’ Equity (Deficit)

 

Preferred Stock

 

Series C-2 Preferred Stock

 

The company is authorized to issue 20,000,000 shares of $0.001 par value preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s Board of Directors without further action by the Company’s shareholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by shareholders and could adversely affect the rights and powers, including voting rights, of the holders of Common Stock. In certain circumstances, the issuance of preferred stock could depress the market price of the Common Stock.

 

On January 1, 2021, members of the Company’s management subscribed for 110,000 shares of the Company’s Series C-2 Convertible Preferred Stock (the “Series C-2”), for a total of $1,100,000 at $10.00 per Share of Series C-2. The Company obtained an independent valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the fair value and the proceeds received.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

The Series C-2 is not mandatorily redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate of Designation required that the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking shareholder ratification of the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month anniversary of the Initial Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107% of (i) the Stated Value per share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the SEC prior to the Vote Deadline but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline would have been extended until such time as the vote was conducted. The Series C-2 holders were not entitled to vote on the ratification. The call provision would have been automatically triggered if the ratification of the issuance was not approved in a special meeting of stockholders prior to the twelve-month anniversary of the Initial Issuance Date. The Company held the meeting within the required period and the Series C-2 is no longer redeemable.

 

Based on the guidance in ASC 480-10-S99 (“ASR 268”), a redeemable equity instrument is not to be included in permanent equity. Rather, it should be reported between long-term debt and stockholders’ equity, without a subtotal that might imply it is a part of stockholders’ equity (i.e., “temporary equity” or “mezzanine capital”). ASR 268 specifies that redeemable stock is any type of equity security, including common or preferred stock, when it has any condition for redemption which is not solely within the control of the issuer without regard to probability.

 

The Series C-2 Certificate of Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote Deadline. Stockholder approval was not considered to be “solely within the Company’s control.” Stockholder approval occurred on March 31, 2021, at which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially classified in temporary equity under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021.

 

The holders of Series C-2 shall be entitled to receive dividends or distributions on each share of Series C-2 on an “as-converted basis” into Common Stock when and if dividends are declared on the Common Stock by the Board of Directors. Dividends shall be paid in cash or property, as determined by the Board of Directors.

 

At any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series C-2 held by such Holder into validly issued, fully-paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneously with the Company’s Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $1.70 which resulted in a beneficial conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date. Upon the conversion of Series C-2 into Common Stock on September 14, 2021, the total amortization of the beneficial conversion feature is $45,541 and the remaining discount is netted against additional paid in capital.

 

The Conversion Amount may be adjusted due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Company after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of September 30, 2021, over $13 million of capital was raised and the adjustment to the Conversion Amount was fully triggered. The Company recognized the effect of the down-round protection when capital raises occur as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. On September 14, 2021, the Series C-2 was converted into 4,011,766 shares of Common Stock.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

Common Stock

 

Reverse Stock Split

 

On August 25, 2021, the Company issued approximately 14,500 shares of Common Stock in connection with the 1-for-10 Reverse Split resulting from the rounding up of fractional shares of Common Stock to the whole shares of Common Stock. The financial statements have been retroactively restated to reflect the reverse stock split.

 

Issuance of Shares Pursuant to Equity Line of Credit Purchase Agreement

 

On January 28, 2021, the Company filed a fourth Registration Statement on Form S-1 seeking to register 400,000 shares. The fourth Registration Statement was declared effective by the SEC on February 1, 2021.

 

During the year ended December 31, 2021, the Company sold 321,738 shares (inclusive of approximately 17,590 pro-rata commitment shares) available for sale under the fourth Registration Statement for total proceeds of approximately $3,015,000.

 

Issuance of Shares Pursuant to Registered Direct Offering

 

On March 4, 2021, the Company entered into a securities purchase agreement (the “RD Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 950,000 shares of the Company’s Common Stock, at a purchase price per share of $10.00 and immediately exercisable five-year warrants to purchase 712,500 shares of Common Stock at an exercise price of $11.50 per share. Gross proceeds from the Offering were $9.5 million. Net proceeds were $8.9 million after deducting placement agent fees and other offering expenses paid for by the Company.

 

The RD Purchase Agreement contains representations, warranties, indemnifications and other provisions customary for transactions of this nature. Pursuant to the RD Purchase Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed not to, and not to publicly disclose the intention to, sell or otherwise dispose of, any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, Common Stock, for a period ending 60 days after the date of the prospectus supplement for this offering.

 

The Company also entered into a placement agent agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which AGP agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors) and reimbursed the placement agent for its legal fees and other accountable expenses in the amount of $40,000.

 

At The Market Offering Agreement

 

On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s Common Stock having an aggregate offering price of up to $98,767,500 (the “Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

During the year ended December 31, 2021, the Company sold a total of 466,791 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $2,979,000 at an average selling price of $6.38 per share, resulting in net proceeds of approximately $2,832,000 after deducting commissions and other transaction costs.

 

During the year ended December 31, 2022, the Company sold a total of 2,172,336 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $11,487,000 at an average selling price of $5.29 per share, resulting in net proceeds of approximately $11,126,000 after deducting commissions and other transaction costs.

 

Issuance of Shares Pursuant to Cash Exercise of Series C Warrants

 

On January 15, 2021, the Company issued 200,000 shares of the Company’s Common Stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise amount of $400,000. Cavalry and the Company entered into an agreement whereby Cavalry would exercise early for cash provided that the Company register the underlying shares of Common Stock within 30 days of exercise.

 

Issuance of Shares Due to Conversion of Series C-1 Preferred Stock

 

On March 30, 2021, the Company issued 19,609 shares of Common Stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion, there were no Series C-1 shares outstanding, so the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series C-1.

 

Issuance of Shares Due to Conversion of Series C-2 Preferred Stock

 

On September 14, 2021, the Series C-2 was converted into 4,011,766 shares of Common Stock. Please refer to the discussion below.

 

Issuance of Restricted Stock to Service Providers

 

During the year ended December 31, 2021, the Company issued to four service providers a total of approximately 52,800 shares of restricted Common Stock, representing a total fair value of $0.6 million.

 

During the year ended December 31, 2022, the Company issued to one service provider a total of approximately 12,500 shares of restricted Common Stock, representing a total fair value of $59,000.

 

2021 Equity Incentive Plan

 

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021 and amended on June 13, 2022. The Company has reserved 7,000,000 shares of Common Stock for issuance pursuant to the 2021 Plan.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

Options

 

On January 1, 2021, the Board of Directors of the Company approved the grant of 1.2 million stock options with an exercise price of $1.90 under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options: (i) 480,000 options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones.

 

On April 1, 2021, the Company granted 35,000 stock options with an exercise price of $10.30 to Charles B. Lee and Carol Van Cleef, directors of the Company. Of the stock options: (i) 14,000 options will vest on April 1, 2022 and (ii) the remaining 21,000 options vest based upon the Company’s stock price meeting certain milestones.

 

During the year ended December 31, 2022, the Company granted 50,000 stock options with a weighted average exercise price of $1.51 to non-executive employees.

 

The following weighted-average assumptions were used to estimate the fair value of options granted on the deemed grant date during the year ended December 31, 2022 and 2021 for both the Black-Scholes formula and the Monte-Carlo simulation, applicable to 2021 options granted:

 

   Year Ended
December 31,		 
   2022   2021 
Exercise price  $1.51   $2.14 
Term (years)   5.00     2.50-3.30  
Expected stock price volatility   165.8%   185.9%
Risk-free rate of interest   2.77%   0.34%

 

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

 

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.

 

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

 

For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized. For awards vesting upon the achievement of the market conditions which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period based on estimation using a Monte-Carlo simulation.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

A summary of options activity under the Company’s stock option plan for the year ended December 31, 2022 is presented below:

 

   Number of Shares   Weighted Average Exercise Price   Total Intrinsic Value   Weighted Average Remaining Contractual Life (in years) 
Outstanding as of December 31, 2021   1,235,000   $2.14   $1,488,000    4.0 
Employee options granted   50,000    1.51    -    1.4 
Employee options expired   (100,000)   1.90    -    - 
Employee options forfeited   (35,000)   1.50    -    - 
Outstanding as of December 31, 2022   1,150,000   $2.15   $-    3.3 
Options vested and exercisable as of December 31, 2022   1,135,000   $2.16   $-    3.3 

 

RSUs

 

On January 1, 2021, the Board of Directors of the Company approved 275,000 restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to Messrs. David Garrity, a former director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of December 31, 2021, all 275,000 restricted stock units vested with a total fair value of approximately $2.8 million. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s Common Stock at the deemed grant date and was recorded on the September 14, 2021 vesting date when the listing occurred.

 

On April 1, 2021, the Company granted a total of 15,000 restricted stock units to two non-employee directors of the Company. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of December 31, 2021, all 15,000 restricted stock units vested with a total fair value of approximately $0.2 million. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s Common Stock at the deemed grant date and was recorded on the September 14, 2021 vesting date when the listing occurred.

 

On June 28, 2021, the Company granted 50,781 restricted stock units to the Company’s then Chief Financial Officer. The restricted stock units were to vest over a five-year period as follows: 20% of the 50,781 restricted stock units were to vest on the one-year anniversary of the grant date, and the remaining 80% were to vest monthly over the following four years with vesting occurring on the last day of each respective month. On November 30, 2021, this Chief Financial Officer resigned. The 50,781 restricted stock units granted to this Chief Financial Officer were forfeited accordingly.

 

On December 1, 2021, the Company granted 29,363 restricted stock units to the Company’s current Chief Financial Officer. The restricted stock units are to vest over a five-year period as follows: 20% of the 29,363 restricted stock units are to vest on the one-year anniversary of the grant date, and the remaining 80% are to vest annually over the following four years with vesting occurring on December 31st of each respective year. The grant date fair value of restricted stock units was approximately $0.2 million. As of December 31, 2022, 5,873 of the restricted stock units vested with a total fair value of approximately $35,000.

 

On February 22, 2022, the Company granted 45,767 restricted stock units to the Company’s Chief Technology Officer. The restricted stock units are to vest over a five-year period as follows: 20% of the 45,767 restricted stock units are to vest on January 1, 2023, and the remaining 80% are to vest annually over the following four years with vesting occurring on December 31st of each respective year. The grant date fair value of restricted stock units was approximately $0.2 million.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

Effective January 2, 2022, the Board of Directors of the Company ratified the following arrangements approved by its Compensation Committee:

 

The Board of Directors of the Company ratified grants of RSUs to each independent director. David Garrity, Carol Van Cleef and Charles Lee were each granted 95,544 restricted stock units (the “Board Grants”). The Board Grants vest in four equal installments at the end of each calendar quarter in 2022. As of December 31, 2022, all 95,544 of the restricted stock units vested with a total fair value of approximately $0.3 million.

 

The Company’s executive officers were granted RSUs as part of a long-term incentive (“LTI”) plan, with vesting terms set for when the Company’s market capitalization reaches and sustains a market capitalization for 30 consecutive days above four defined market capitalization thresholds of $100 million, $150 million, $200 million and $400 million. On December 9, 2022, upon recommendation of the Compensation Committee of the Board of Directors approved an amendment to the LTI plan, whereby the market capitalization threshold targets were lowered to $50 million, $100 million, $150 million, and $300 million, effective January 1, 2023.

 

Effective February 22, 2022, upon appointment of Manish Paranjape as Chief Technology Officer of the Company, Mr. Paranjape was also granted RSUs as part of the LTI plan, with consistent vesting terms set for when the Company’s market capitalization above the same four defined market capitalization thresholds.

 

The RSUs granted to each executive employee are as follows:

 

         Total RSUs   Market Cap Vesting Thresholds 
Officer Name  Title  Grant Date  Granted   $ 50 million   $ 100 million   $ 150 million   $ 300 million 
Charles Allen  Chief Executive Officer  1/2/2022   694,444    173,611    173,611    173,611    173,611 
Michal Handerhan  Chief Operations Officer  1/2/2022   444,444    111,111    111,111    111,111    111,111 
Michael Prevoznik  Chief Financial Officer  1/2/2022   222,224    55,556    55,556    55,556    55,556 
Manish Paranjape  Chief Technology Officer  2/22/2022   160,184    40,046    40,046    40,046    40,046 
          1,521,296    380,324    380,324    380,324    380,324 

 

To the extent any market capitalization targets set forth above for Mr. Prevoznik and Mr. Paranjape are achieved, the RSUs will also be subject to the following five-year vesting schedule: 20% of the LTI RSUs which have met a market capitalization criteria will vest on the one-year anniversary of the grant date, and the remaining 80% of the LTI RSUs which have met a market capitalization criteria will vest annually on each subsequent calendar year-end date over the four years following the one year anniversary of the grant date.

 

For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest.

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period.

 

The following weighted-average assumptions were used to estimate the fair value of options granted during the year ended December 31, 2022 and 2021 for the Monte-Carlo simulation:

 

   Year Ended
December 31,		 
   2022   2021 
Vesting Hurdle Price  $19.39    - 
Term (years)   5.00    - 
Expected stock price volatility   103.7%   - 
Risk-free rate of interest   1.32%   - 

 

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the RSUs.

 

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the RSUs.

 

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s RSUs are expected to be outstanding. The expected term is based on the stipulated 5-year period from the grant date until the market-based criteria are achieved. If the market-based criteria are not achieved within the five-year period from the grant date, the RSUs will not vest and shall expire.

 

Vesting Hurdle Price: The vesting hurdle prices are determined by taking the vesting Market Cap criteria divided by the shares outstanding as of the valuation dates.

 

Effective September 30, 2022, Mr. David Garrity resigned as a director of BTCS, Inc. The Board of Directors of the Company agreed to fully vest Mr. Garrity’s remaining unvested restricted stock units (7,962 shares) and pay Mr. Garrity approximately $5,600, which represents the remaining 2022 director fees.

 

On October 1, 2022, the Company granted a total of 7,962 restricted stock units to Melanie Pump, a non-employee director of the Company, which vested on December 31, 2022 with a total fair value of approximately $12,000.

 

A summary of the Company’s restricted stock units granted under the 2021 Plan during the year ended December 31, 2022 are as follows:

 

   Number of
Restricted
Stock Units		   Weighted
Average Grant
Day Fair Value		 
Nonvested at December 31, 2021   29,363   $5.96 
Granted   1,670,569    3.28 
Vested   (109,379)   2.29 
Forfeited   -    - 
Nonvested at December 31, 2022   1,590,553   $3.39 

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS

 

Stock-based Compensation

 

Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues. Stock-based compensation expense for the years ended December 31, 2022 and 2021 was as follows:

 

   2022   2021 
   For the Year Ended December 31, 
   2022   2021 
Employee bonus stock awards  $894,027   $- 
Employee stock option awards   97,142    11,932,409 
Employee restricted stock unit awards   1,575,475    2,993,146 
Non-employee restricted stock awards   225,207    352,640 
Series C-2 Allocation   -    179,277 
Stock-based compensation  $2,791,851   $15,457,472 

 

Stock Purchase Warrants

 

The following is a summary of warrant activity for the years ended December 31, 2022 and 2021:

 

   Number of Warrants 
Outstanding as of December 31, 2020   250,323 
Issuance of Series C Warrants   200,000 
Warrants exercise for cash   (200,000)
Issuance of Warrants pursuant to Registered Direct Offering   712,500 
Fractional shares adjusted for reverse split   (29)
Outstanding as of December 31, 2021   962,794 
Expiration of warrants   (50,294)
Outstanding as of December 31, 2022   912,500 

 

 

BTCS Inc.

NOTES TO FINANCIAL STATEMENTS