BTCS Inc

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 -Business Organization and Nature of Operations

BTCS Inc. (“BTCS” or the “Company”), a Nevada corporation listed on Nasdaq, is a U.S.-based blockchain technology company focused on blockchain infrastructure. The Company’s primary operations center on the Ethereum network, reflecting its strategic emphasis on Ethereum block-building (“Builder+”) and validator node operations (“NodeOps”) across various proof-of-stake (“PoS”) and delegated proof-of-stake (“dPoS”) networks.

BTCS operates non-custodial validator nodes (or “nodes”) that participate in blockchain network consensus by performing transaction validation (“attestation”) and block proposal services. The Company earns native token rewards by staking its PoS crypto assets (also referred to “cryptocurrencies”, “crypto”, “crypto assets”, “digital assets”, or “tokens”) to validator nodes operated by both BTCS and third-parties. Additionally, on certain dPoS networks, BTCS enables third-party crypto asset holders to delegate their assets to its validator nodes, earning validator node fees as a percentage of staking rewards generated from delegated crypto assets.

In 2024, BTCS launched its Builder+ operations, a core component of its blockchain infrastructure strategy. Builder+ leverages advanced algorithms to optimize the construction of Ethereum blocks for on-chain validation, focusing on maximizing gas fee revenue. Builder+ has become a central revenue driver for BTCS, positioning the Company as an integral participant in Ethereum’s transaction cycle.

In addition to its blockchain infrastructure operations, BTCS has developed ChainQ, an AI-powered blockchain data and analytics platform designed to enhance transparency and accessibility within the blockchain ecosystem. Currently in beta, ChainQ provides intuitive tools for exploring and analyzing on-chain data, leveraging insights from BTCS’s blockchain infrastructure activities.

The Company’s operations are subject to regulatory uncertainties, technological risks and market volatility inherent to blockchain technology and crypto assets. BTCS’s future success depends on the continued adoption of blockchain technology as well as the Company’s ability to scale its Ethereum block-building operations and expand its broader blockchain infrastructure operations.

Note 2 -Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated 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 consolidated 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 for the three months ended March 31, 2025 are not necessarily indicative of results for the full year ending December 31, 2025. The unaudited condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2024.

Reclassifications

Certain prior period amounts have been reclassified in order to conform with the current period presentation in the unaudited condensed consolidated financial statements and accompanying notes. The reclassifications did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures. The impact on any prior period disclosures was immaterial.

Note 3 -Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2024 Annual Report on the Company’s Form 10-K filed with the Securities and Exchange Commission.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash and cash equivalents. The Company maintains cash and cash equivalent balances at financial institutions that are insured by the FDIC. As of March 31, 2025 and December 31, 2024, the Company had approximately $270,000 and $1,978,000 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 March 31, 2025 and December 31, 2024, the Company had approximately $0 and $1,474,000 in excess of the FDIC insured limit, respectively.

Stablecoins

The Company holds stablecoins, such as USDT (Tether) and USDC (USD Coin), which are crypto assets that are pegged to the value of one U.S. dollar. Our stablecoins are typically held in secure digital wallets or on crypto asset exchanges. The Company acquires and holds stablecoins primarily to facilitate crypto asset transactions, including, but not limited to, payments to third-party vendors. While not accounted for as cash or cash equivalents, these stablecoins are considered a liquidity resource.

Crypto Assets

Fair Value Measurement

The Company accounts for the fair value measurement for its crypto assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820,Fair Value Measurement. ASC 820 defines fair value as the price that would be received for an asset in a current sale, assuming an orderly transaction between market participants on the measurement date. Market participants are considered to be independent, knowledgeable, and willing and able to transact. It requires the Company to assume that its crypto assets are sold in their principal market or, in the absence of a principal market, the most advantageous market.

Kraken serves as the principal market for the Company’s crypto assets, being the Company’s primary cryptocurrency exchange for both purchases and sales. Coinbase is designated as the secondary principal market. This determination results from a comprehensive evaluation considering various factors, including compliance, trading activity, and price stability.

The fair value of crypto assets is primarily determined based on pricing data obtained from Kraken, the Company’s principal market. In the absence of Kraken data, pricing from Coinbase serves as a secondary source.

While Kraken is designated as the primary exchange, the Company retains flexibility to conduct cryptocurrency transactions on other exchanges where it maintains accounts. This flexibility allows the Company to adapt to changing market conditions and explore alternative platforms when necessary to ensure cost-effective execution and fair value measurement using the most advantageous market.

The selection of Kraken as the principal market reflects the Company’s commitment to informed decision-making and achieving the most accurate representation of fair value for its crypto assets. Regular reviews ensure alignment with the Company’s objectives and cryptocurrency market dynamics.

Accounting for Crypto Assets

Fair Market Value

Crypto assets are measured at their respective fair market values using the last close price of the day in the UTC time zone at each reporting period end on the balance sheets and classified as either ‘Staked Crypto Assets’ or ‘Crypto Assets’ to distinguish their nature within the respective balances. Staked crypto assets are presented as current assets if their lock-up periods are less than 12 months, and as long-term other assets if the lock-up extends beyond one year. The majority of our crypto assets are staked, typically with lock-up periods of less than 28 days, and are considered current assets in accordance with ASC 210-10-20,Balance Sheet, due to the Company’s ability to sell them in a liquid marketplace, as we have a reasonable expectation that they will be realized in cash or sold or consumed during the normal operating cycle of our business to support operations when needed

Cost Basis

Effective January 1, 2025, the Company enhanced its accounting systems and processes related to the receipt and valuation of crypto assets. As a result of these enhancements, the Company updated its accounting policy for determining the cost basis of crypto assets received. The cost basis is now measured at fair value based on the spot price at the time of receipt, consistent with the applicable guidance under ASC 350-60.

Prior to January 1, 2025, the cost basis of crypto assets was measured using the last close price of the day in the UTC (Coordinated Universal Time) time zone on the date of receipt.

The change has been applied prospectively and did not have a material impact on the Company’s financial statements.

Cost Relief in Determining Realized Gains and Losses

In conjunction with ongoing system and process enhancements, the Company updated its method for determining the cost basis of crypto assets used in computing realized gains and losses. Effective January 1, 2025, the Company adopted the Last-In, First-Out (“LIFO”) method for determining the cost basis of crypto assets disposed of. This method assumes that the most recently acquired assets are sold or used first and replaces the Company’s previous use of the specific identification method, which tracked the actual cost of each individual asset sold.

The Company determined that the change in accounting principle is preferable as it better aligns with the Company’s operational systems and financial reporting objectives. The change has been applied prospectively beginning January 1, 2025, as retrospective application was deemed impracticable due to the nature of prior lot-level selection processes under the specific identification method.

Realized gains (losses) on sale of crypto assets are included in other income (expenses) in the consolidated statements of operations. The Company recorded realized gains (losses) on crypto assets of approximately ($1,382,000) and $11,000 for the three months ended March 31, 2025 and 2024, respectively.

The Company does not believe the change materially impacts comparability of results. While the realized loss for the three months ended March 31, 2025, reflects application of the new LIFO method, it is not practicable to quantify the exact impact of the change as compared to the prior method, given the subjective lot selection involved in specific identification. Based on this assessment, the Company does not believe the change has a material effect on the consolidated financial statements.

Presentation of Crypto Assets in Financial Statements

The classification of purchases and sales in the consolidated statements of cash flows is determined based on the nature of the crypto assets, which can be categorized as ‘productive’ (i.e. acquired for purposes of staking) or ‘non-productive’ (e.g., bitcoin). Acquisitions of non-productive crypto assets are treated as operating activities, while acquisitions of productive crypto assets are classified as investing activities in accordance with ASC 230-10-20,Investing activities. Productive crypto assets staked with lock-up periods of less than 12 months are listed as current assets in the ‘Staked Crypto Assets’ line item on the balance sheet. Staked crypto assets with lock-up periods exceeding 12 months are categorized as long-term other assets. Non-productive crypto assets are included in the ‘Crypto Assets’ line item on the balance sheet.

Operating Segments

The Company’s blockchain infrastructure operations include two primary revenue-generating activities: Ethereum block building (“Builder+”) and validator node operations (“NodeOps”).

The Company’s Chief Operating Decision Maker (“CODM”) is comprised of several members of its executive management team, including the Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”), who are responsible for evaluating the Company’s financial performance, managing operations, and allocating capital and resources.

The CODM regularly reviews discrete financial information related to Builder+ and NodeOps, assessing financial performance based on gross profit (loss), direct operating expenses, and key financial metrics. These financial reviews direct operational decisions and shape capital deployment strategies for each activity.

While the CODM evaluates Builder+ and NodeOps separately, these activities share common economic characteristics, infrastructure, and operational oversight and are therefore aggregated into a single operating segment under ASC 280, Segment Reporting.

Consistent with ASU 2023-07, the Company discloses significant segment expenses that are regularly provided to the CODM for decision-making purposes. See Note 10 –Segment Information for more information.

Revenue Recognition

The Company recognizes revenue under ASC 606*, Revenue from Contracts with Customers*. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through 1) staking rewards generated from its blockchain infrastructure operations (NodeOps), and 2) gas fees earned from successful Ethereum block-building through Builder+. These revenues are collectively termed ‘Blockchain infrastructure revenues’ in the consolidated statements of operations.

The transaction consideration the Company receives - the crypto asset awards and gas fees - are a non-cash consideration, which the Company measures at fair value on the date received.

Blockchain Infrastructure (NodeOps)

The Company engages in network-based smart contracts by running its own crypto asset validator nodes as well as by staking (or “delegating”) crypto assets directly to both its own validator nodes and nodes run by third-party operators. Through these contracts, the Company provides crypto assets to stake to a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically lasts from a few days to several weeks after it is cancelled (or “un-staked”) by the delegator and requires that the crypto assets staked remain locked up during the duration of the smart contract.

In exchange for staking the crypto assets and validating transactions on blockchain networks, the Company is entitled to all of the fixed crypto asset award earned from the network when delegating to the Company’s own node and is entitled to a fractional share of the fixed crypto asset award a third-party node operator receives (less crypto asset transaction fees payable to the node operator, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain. The Company’s fractional share of awards received from delegating to a third-party validator node is proportionate to the crypto assets staked by the Company compared to the total crypto assets staked by all Delegators to that node at that time.

On certain blockchain networks on which the Company operates a validator node, the Company earns a validator node fee (“Validator Fee”), determined as a node operator’s published percentage of the crypto asset rewards earned on crypto assets delegated to its node.

Token rewards earned from staking, as well as tokens earned as Validator Fees, are calculated and distributed directly to BTCS digital wallets by the blockchain networks as part of their consensus mechanisms.

The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized.

Ethereum Block Building (Builder+)

The Company participates in the Ethereum blockchain network by engaging in the construction of blocks (“block building”) containing strategically bundled transactions from the Ethereum mempool and from searchers who connect to the Company’s endpoint with the intent of the Company’s builder proposing their transactions. Revenue recognition for these activities, conducted through Builder+, entails the recognition of gas fees (or “transaction fees”) earned in exchange for successfully constructing blocks of bundled transactions and having these blocks selected and proposed by a validator to the Ethereum network for validation and successfully finalized on the network.

These gas fees are earned as a direct result of the Company’s fulfillment of its performance obligations, which include the construction of blocks by bundling transactions to maximize the value of the included fees and the proposal of that block by a Validator. Each constructed block under a smart contract with the Ethereum network signifies a distinct performance obligation.

As part of the block construction and proposal process, the Company’s Builder purchases block space through a fixed non-negotiable fee paid to a Validator (a “Validator Payment”) embedded in each proposed block. The Validator Payment, predetermined by the Builder, is paid to Validators as compensation for selecting and proposing the Company’s block to the network for validation. The Validator Payment is intrinsically linked to the Company’s performance obligations and is disbursed in the block constructed by the Builder if our Builder’s block is both selected by a Validator and successfully proposed to, and finalized on, the Ethereum network; otherwise, our Validator Payment may be included in a subsequent block. The Validator Payment represents a direct and fixed pre-determined cost.

The satisfaction of the performance obligation occurs at a point in time when the constructed block is both proposed by a Validator and successfully finalized on the Ethereum network. At this juncture, the Company has fulfilled its obligations, and the gas fees associated with the transactions included in the block become available and are transferred to the Company’s digital wallet.

The Company recognizes revenue, reflecting the fair value of the total gas fees earned from the constructed block.

The following table summarizes the revenues earned from the Company’s operations for the three months ended March 31, 2025 and 2024.

The following tables detail the native token rewards and their respective fair market value recognized as revenue for the three months ended March 31, 2025 and 2024. Revenues earned from blockchain infrastructure staking activities through NodeOps include token rewards earned from the delegation of cryptocurrency assets to third-party validator nodes as well as token rewards derived from BTCS-operated validator nodes, which include staking of the Company’s crypto assets to BTCS nodes and Validator Fees earned from third-parties asset delegations to our nodes. Revenues earned from Ethereum block-building through Builder+ includes block rewards generated by BTCS Builders.

Crypto assets earned from blockchain infrastructure staking activities through NodeOps

Crypto assets earned from block-building through Builder+

Cost of Revenues

The Company’s cost of revenues related to its blockchain infrastructure operations primarily includes direct production costs associated with transaction validation on the network, cloud-based server hosting expenses related to our validator nodes and Builders, and allocated employee salaries dedicated to node maintenance and support. Additionally, the cost of revenues encompasses Validator Payments made from our Builder to Validators as well as fees paid to third parties for their assistance in software maintenance and node operations. These costs directly related to the production of revenues are collectively termed ‘Blockchain infrastructure expenses’ in the consolidated statements of operations.

The following table further details the costs of revenues for the three months ended March 31, 2025 and 2024.

Internally Developed Software

Internally developed software consists of the core technology of the Company’s StakeSeeker and ChainQ platforms. For internally developed software, the Company uses both its own employees as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

ASC 985-20,Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. Some companies use a “tested working model” approach to establishing technological feasibility (i.e., beta version). Under this approach, software under development will pass the technological feasibility milestone when the Company has completed a version that contains essentially all the functionality and features of the final version and has tested the version to ensure that it works as expected.

ASC 350,Intangibles-Goodwill and Other, requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary project stage is complete, (ii) management with the relevant authority authorizes and commits to the funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended.

Property and Equipment

Property and equipment consists of computers, equipment and office furniture and fixtures, all of which are recorded at cost. Depreciation and amortization are recorded using the straight-line method over the respective useful lives of the assets ranging from three tofive years. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include the recoverability and useful lives of indefinite life intangible assets, stock-based compensation, and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the indefinite life intangible assets, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Income Taxes

The Company recognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in its tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated 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.

Accounting for Warrants

The Company accounts for the issuance of Common Stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of ASC 815,Derivatives and Hedging. The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, Under ASC 815, registered Common Stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheets as a current liability.

The Company assessed the classification of Common Stock purchase warrants as of the date of each offering and determined that such instruments originally met the criteria for equity classification; however, as a result of the Company no longer being in control of whether the warrants may be cash settled, the instruments no longer qualify for equity classification. Accordingly, the Company classified the warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liabilities” in the consolidated statements of operations. The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 5 -Fair Value of Financial Assets and Liabilities).

Stock-based compensation

The Company accounts for stock-based compensation in accordance with ASC 718,Compensation - Stock Compensation. ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares. Under ASC 718, awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a charge to operations.

Share-based payment awards exchanged for services are accounted for at the fair value of the award on the estimated grant date.

Options

Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options often vest over a one-year period.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. For options granted prior to January 1, 2025, historical volatility was based on the most recent volatility of the stock price over a period equivalent to the expected term of the option. For options granted on or after January 1, 2025, historical volatility is determined using a two-year lookback period. Management selected this approach to better reflect the Company’s current market conditions and exclude periods of non-representative volatility associated with significant changes in the Company’s business, market conditions, and capital structure. The two-year lookback period balances capturing industry and market cycles with avoiding outdated and non-representative data.

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.

Expected Dividend– The Company has not historically declared or paid any cash dividends on its common shares and does not plan to pay any recurring cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

Restricted Stock Units (RSUs)

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.

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.

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

Advertising Expense

Advertisement costs are expensed as incurred and included in marketing expenses. Advertising and marketing expenses amounted to approximately $245,000 and $58,000 for the three months ended March 31, 2025 and 2024, respectively.

Net Income (Loss) per Share

Basic income (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 restricted stock units, options and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

For the three months ended March 31, 2025, diluted loss per share excludes all potential common shares, including restricted stock units, options, warrants, and other convertible instruments, as their inclusion would be anti-dilutive due to the net loss reported for the period.

For the three months ended March 31, 2024, the Company reported net income. As a result, diluted net income per share included potential common shares that were dilutive during the period.

The following financial instruments were excluded from the calculation of diluted loss per share for the three months ended March 31, 2024, as their effect was anti-dilutive:

Recent Accounting Pronouncements

The Company continually assesses new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of such change to its Consolidated Financial Statements and assures that there are proper controls in place to ascertain that the Company’s Consolidated Financial Statements properly reflect the change.

In December 2023, the FASB issued ASU 2023-08,Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60)(“ASU 2023-08”), which is intended to improve the accounting for and disclosure of crypto assets. The ASU requires entities to subsequently measure crypto assets that meet specific criteria at fair value, with changes recognized in net income each reporting period. The ASU also requires specific presentation of cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and are converted nearly immediately into cash. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU No. 2023-08 effective January 1, 2023.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures(“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosures by requiring disclosures of significant segment expenses regularly provided to the CODM, requiring disclosure of the title and position of the CODM and explanation of how the reported measures of segment profit and loss are used by the CODM in assessing segment performance and a location of resources. ASU 2023-07 is effective for the Company for annual periods beginning after December 31, 2023. The Company adopted ASU 2023-07 for the year ended December 31, 2024. As a result of the adoption, the Company expanded its disclosures in Note 10 –Segment Information, to present significant expenses that are included within cost of revenue, by reportable segment, which are presented to the CODM.

In December 2023, FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide improvements primarily related to the rate reconciliation and income taxes paid information included in income tax disclosures. The Company is required to disclose additional information regarding reconciling items equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory tax rate. Similarly, the Company is required to disclose income taxes paid (net of refunds received) equal to or greater than five percent of total income taxes paid (net of refunds received). The amendments in ASU 2023-09 are effective January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impacts of ASU 2023-09 on its financial statements.

In December 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”). ASU 2024-03 requires, in the notes to the financial statements, disclosures of specified information about certain costs and expenses specified in the updated guidance. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Note 4 –Crypto Assets

The following table presents the Company’s crypto assets held as of March 31, 2025:

Note 5 –Fair Value of Financial Assets and Liabilities

The Company measures certain assets and liabilities at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability (i.e., an ‘exit price’) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that are accessible at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, these valuations do not entail a significant degree of judgment.

Level 2 – Valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuations based on inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of March 31, 2025 and December 31, 2024:

The Company did not make any transfers between the levels of the fair value hierarchy during the three months ended March 31, 2025 and 2024.

Level 3 Valuation Techniques

Level 3 financial assets consist of private equity investments for which there is no current public market for these securities such that the determination of fair value requires significant judgment or estimation. As of March 31, 2025 and December 31, 2024, the Company’s Level 3 investments were carried at the original cost of the investments, with a value of $350,000 and $100,000, respectively. The Company has elected to apply the measurement alternative under ASC 321,Investments—Equity Securities, for these investments.

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.

Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

A significant decrease in volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “change in fair value of warrant liabilities” in the Company’s consolidated statements of operations.

On March 2, 2021, the Company entered into a securities purchase agreement with certain purchasers which closed on March 4, 2021 pursuant to which the Company sold an aggregate of (i)950,000 shares of Common Stock, and (ii) Common Stock warrants (the “Warrants”) to purchase up to 712,500 shares of Common Stock for gross proceeds of $9.5 million in a private placement offering.

The Warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the Warrants). At the time of issuance, the Company maintained control of certain fundamental transactions and as such the Warrants were initially classified in equity. As of March 31, 2025, the Company no longer maintained control of certain fundamental transactions because it did not hold a majority of shareholder voting power. As such, the Company may be required to cash settle the Warrants if a fundamental transaction occurs which is outside the Company’s control. Accordingly, the Warrants are classified as liabilities. The Warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk-free rates, as well as volatility.

The Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as a current liability.

A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and, as of March 31, 2025 and December 31, 2024, is as follows:

The risk-free interest rate was based on rates established by the Federal Reserve Bank. For the Warrants, the Company estimates expected volatility, giving primary consideration to the historical volatility of its Common Stock. The expected volatility is calculated using the standard deviation of the Company’s underlying stock price’s daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not historically paid dividends on its Common Stock and does not expect to pay recurring dividends on its Common Stock in the future.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets and liabilities for the three months ended March 31, 2025 and 2024, that are measured at fair value on a recurring basis:

Note 6 –Stockholders’ Equity

Common Stock

As of March 31, 2025, the Company had 975,000,000 shares of common stock, $0.001 par value, authorized, of which 20,206,880 shares were issued and outstanding.

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, shares of the Company’s Common Stock through H.C. Wainwright, as agent. Initially, the aggregate offering price of shares issuable under the ATM Agreement was $98,767,500 (the “Shares”).

On October 4, 2024, the Company’s new Form S-3 registration statement became effective, increasing the total amount of securities that may be offered and sold under the prospectus to $250,000,000.

The Company shall pay H.C. Wainwright a commission equal to 3.0% of the aggregate gross proceeds from each sale of Shares under the ATM Agreement.

During the three months ended March 31, 2025, the Company sold a total of 127,249 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $238,000 at an average selling price of $1.87 per share, resulting in net proceeds of approximately $229,000 after deducting commissions and other transaction costs.

Share Based Payments

Board Compensation

The Company issues $12,500 of common stock to each independent director at the end of each calendar quarter, subject to continued service. The number of shares is determined based on the closing price of the Company’s common stock on the last trading day of the applicable quarter. For the three months ended March 31, 2025, the Company issued 25,002 shares of common stock with a grant date fair value of approximately $38,000 to independent directors.

Performance Bonus Payments

For the three months ended March 31, 2025, the Company issued 329,110 shares of common stock to officers and employees as part of the payment of accrued bonus compensation for the year ended December 31, 2024. The total fair value of the shares issued was approximately $813,000 based on the Company’s closing stock price on the issuance date. Of the shares issued,33,731 were returned to net settle the issuance and pay related taxes, resulting in a net share issuance of 295,379 shares of common stock.

Preferred Stock

Series V Preferred Stock

The Company previously designated and issued 14,542,803 shares of Series V Preferred Stock (“Series V”) on June 2, 2023 to shareholders of record as of May 12, 2023. The Series V: (i) is non-convertible (subject to potential conversion rights, as described below), (ii) has a 20% liquidation preference over the shares of common stock, (iii) is non-voting, and (iv) has certain rights to dividends and distributions (at the discretion of the Board of Directors).

On September 6, 2024, at the Company’s 2024 Annual Meeting, stockholders approved an amendment to the Series V Certificate of Designation granting the Board the discretion to convert each share of Series V into one share of common stock. As of March 31, 2025, the Board has not filed the amendment or elected to convert any Series V shares.

For the three months ended March 31, 2025, the Company issued 1,020,834 restricted shares of Series V in connection with the vesting of employee restricted stock units (“RSUs”). These restricted shares remain subject to forfeiture if specified market capitalization thresholds are not achieved within the applicable performance measurement period. Of this amount,166,668 shares are also subject to time-based vesting conditions requiring continued service over the vesting period.

On February 3, 2025,49,327 restricted shares of Series V were forfeited following the resignation of the Company’s Chief Technology Officer. These shares were returned to the Company and are no longer outstanding.

As of March 31, 2025, a total of 971,507 restricted shares of Series V Preferred Stock were issued and outstanding. Of these,48,967 shares remain subject solely to time-based vesting conditions, which extend over a one- to three-year period, with full vesting expected by December 31, 2027.

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 received shareholder approval on July 11, 2023 to increase the authorized amount under the 2021 Plan from 7,000,000 shares to 12,000,000 shares.

Options

A summary of stock option activity under the Company’s 2021 Equity Incentive Plan for the three months ended March 31, 2025 and 2024 is presented below:

The following weighted-average assumptions were used to estimate the fair value of options granted during the three months ended March 31, 2025 and 2024, using the Black-Scholes option pricing model:

These assumptions are consistent with the methods described in Note 3 –Summary of Significant Accounting Policies.

Restricted Stock Units (RSUs)

Long-Term Incentive Plan (LTI) RSUs

On January 1, 2025, the Board approved the grant of 150,000 RSUs under the Company’s Long-Term Incentive Plan (“LTI”) to a non-officer employee. These RSUs are subject to both market capitalization and time-based vesting conditions.

The RSUs vest in three equal tranches of 50,000 RSUs each, based on the Company achieving and sustaining specific market capitalization thresholds for 30 consecutive days on or before December 31, 2026, as follows:

Any RSUs for which the market capitalization condition is not met by December 31, 2026, will be forfeited and automatically terminate without consideration.

For any tranche in which the market capitalization condition is achieved, the RSUs remain subject to a time-based vesting schedule, with 20% of eligible RSUs vesting annually over five years, beginning on each December 31, 2025 through 2029, provided the grantee remains in continuous service through each vesting date.

The fair value of these market-based RSUs was determined using a Monte Carlo simulation and totaled approximately $181,000 as of the grant date. The following assumptions were used to determine fair value as of the grant date, January 1, 2025:

The Company will recognize compensation expense for these RSUs over the requisite service period, subject to acceleration upon meeting the market capitalization criteria.

Accelerated Vesting of RSUs and Conversion to Restricted Common Stock

On January 13, 2025, the Company accelerated the vesting of all previously outstanding long-term incentive (“LTI”) restricted stock units (“RSUs”), totaling 1,170,834 RSUs granted to executive officers and employees. These RSUs were settled through the issuance of restricted shares of common stock. Because a portion of these RSUs were entitled to the previously declared Series V preferred stock dividend,1,020,834 restricted shares of Series V were also issued.

The restricted shares of common stock and Series V preferred stock issued upon acceleration remain subject to the original market capitalization-based performance conditions and applicable time-based vesting schedules, which range from one tofive years.

Forfeitures of LTI RSUs and Restricted Shares of Common Stock

On February 3, 2025, upon the voluntary resignation of the Company’s Chief Technology Officer,120,137 unvested LTI RSUs and 129,327 restricted shares of common stock were forfeited in accordance with the terms of the applicable award agreements. In accordance with ASC 718,Compensation—Stock Compensation, the Company reversed approximately $262,000 of previously recognized stock-based compensation expense during the three months ended March 31, 2025. No further expense will be recognized for these forfeited awards.

RSU Activity Summary

The following table summarizes RSU activity under the 2021 Plan for the three months ended March 31, 2025:

Restricted Shares of Common Stock Activity Summary

The following table summarizes restricted Common Stock activity under the 2021 Plan for the three months ended March 31, 2025:

Stock Based Compensation

Stock-based compensation expenses are allocated among general and administrative expenses, compensation expenses and cost of revenues. Stock-based compensation expense for the three months ended March 31, 2025 and 2024 was as follows:

Stock Purchase Warrants

The following is a summary of warrant activity for the three months ended March 31, 2025:

Note 7 –Accrued Expenses

Accrued expenses consist of the following:

Accrued compensation includes performance bonus accruals of approximately $309,000 and $3,907,000 as of March 31, 2025 and December 31, 2024, respectively. The significant decrease in bonus accruals reflects bonus payments made during the first quarter of 2025.

Note 8 –Employee Benefit Plans

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. For the three months ended March 31, 2025 and 2024, the Company made contributions to the 401(k) Plan of $122,000 and $109,000, respectively.

Note 9 –Liquidity

The Company follows “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the consolidated financial statements, the Company has historically incurred a net loss and has an accumulated deficit of approximately $157,217,000 at March 31, 2025, and net cash used in operating activities of approximately $1,902,000 for the reporting period then ended. The Company is implementing its business plan and generating revenue. Based on the Company’s cash position and liquid crypto assets as of May 13, 2025, management has determined that these resources are sufficient to support its daily operations over the next twelve months.

Note 10 –Segment Information

The Company operates as a single reportable segment focused on blockchain infrastructure, which consists of two primary revenue-generating activities: Validator Node Operations (“NodeOps”) and Ethereum Block Building (“Builder+”). NodeOps includes revenue generated from staking rewards earned by BTCS’s own proof-of-stake crypto assets, as well as validator fees collected from third-party delegations. Builder+ generates revenue from gas fees embedded in successfully finalized Ethereum blocks constructed by the Builder.

Gross profit (loss) is the primary segment performance measure reviewed by the CODM for operational and capital allocation decisions.

The following tables present segment revenue and gross profit (loss), including the significant expense items reviewed by the CODM, for the three months ended March 31, 2025 and 2024:

The following table reconciles total segment gross profit to consolidated net income (loss):

Note 11 –Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the consolidated 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 consolidated financial statements other than disclosed.

ATM Financing

During the period from April 1, 2025 to May 13, 2025, the Company sold a total of 888,510 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $1,440,000 at an average selling price of $1.62 per share, resulting in net proceeds of approximately $1,390,000 after deducting commissions and other transaction costs.

AAVE Loan Payable

Beginning on April 23, 2025, the Company borrowed $320,000 USDT from AAVE, a decentralized finance lending protocol. The loan: (i) is collateralized by 446 Ethereum (ETH) with an approximate value of $780,000 based on an ETH price of approximately $1,750 (subject to market volatility), and (ii) has no fixed maturity date but is subject to liquidations or partial liquidations if the health factor (“HF”) falls below one. The Company faces potential liquidation risk if the value of ETH decreases significantly relative to the loan amount. The HF is calculated by taking the total value of the ETH collateral, multiplying it by its liquidation threshold (approximately 80% for ETH), and then dividing that result by the total value of the borrowed USDT, the HF of the Company’s loan was approximately two upon initiation.

The interest rate on the loan is variable and determined by AAVE’s smart contract based on market conditions, with rates published at aave.com. The interest rate at the time of the loans origination was approximately 3.9% per annum, subject to variation in accordance with AAVE’s protocol. The proceeds from the loan were used to acquire additional ETH. The Company’s Board of Directors authorized management to borrow up to $500,000 in USDT utilizing AAVE with a loan to value of no more than 40% at the time of borrowing.

Convertible Notes Payable

On May 13, 2025, the Company entered into a Securities Purchase Agreement (the “SPA”) with three accredited investors (the “Investors”), pursuant to which the Company issued 5% Original Issue Discount Senior Secured Convertible Notes (the “Notes”) in the aggregate principal amount of $7,810,526 for a purchase price of $7,420,000. In connection with the issuance of the Notes, the Company also agreed to issue to the Investors 1,901,916 five-year warrants to purchase shares of the Company’s common stock at an exercise price of $2.75 per share.

The Notes: (i) are convertible into shares of the Company’s common stock at a conversion price of $5.85 per share, (ii) mature 24 months from the closing date, (iii) accrue an interest rate of 6% per annum, which may be paid on a quarterly basis in cash or freely tradable shares, (iv) contain a 4.99% beneficial ownership conversion blocker, and (v) are secured by all of the Company’s assets as collateral, except for Ethereum deposited as collateral for USDT borrowings on AAVE and certain other exclusions.

Mr. Charles Allen, the Company’s Chairman of the Board and Chief Executive Officer, invested $95,000 in the Offering. Additionally, a trust of which Mr. Allen is a beneficiary but is not the settlor or trustee invested $200,000 in the Offering. An independent committee of the Company’s Board of Directors approved Mr. Allen’s investment in the Offering.

H.C. Wainwright & Co., LLC acted as the Company’s exclusive placement agent in connection with the Offering.