0001493152-16-013520.txt : 20160922 0001493152-16-013520.hdr.sgml : 20160922 20160922121315 ACCESSION NUMBER: 0001493152-16-013520 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 55 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160922 DATE AS OF CHANGE: 20160922 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BTCS Inc. CENTRAL INDEX KEY: 0001436229 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 262477977 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55141 FILM NUMBER: 161897156 BUSINESS ADDRESS: STREET 1: 1901 N MOORE ST STREET 2: SUITE 700 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 646-397-4743 MAIL ADDRESS: STREET 1: 1901 N MOORE ST STREET 2: SUITE 700 CITY: ARLINGTON STATE: VA ZIP: 22209 FORMER COMPANY: FORMER CONFORMED NAME: Bitcoin Shop, Inc. DATE OF NAME CHANGE: 20150422 FORMER COMPANY: FORMER CONFORMED NAME: BITCOIN SHOP INC. DATE OF NAME CHANGE: 20140204 FORMER COMPANY: FORMER CONFORMED NAME: TouchIT Technologies, Inc. DATE OF NAME CHANGE: 20100524 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-55141

 

BTCS Inc.

 

 

(Exact name of registrant as specified in its charter)

 

Nevada   90-1096644
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     

1901 North Moore Street, Suite # 700

Arlington, VA

  22209
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (248) 764-1084

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of September 19, 2016, there were 965,756,004 shares of common stock, par value $0.001, issued and outstanding.

 

 

 

   
   

 

BTCS INC.

TABLE OF CONTENTS

 

    Page
PART I - FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements 4
     
  Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015 4
     
  Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited) 6
     
  Notes to the Unaudited Condensed Consolidated Financial Statements 7-16
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 21
     
ITEM 4 Controls and Procedures 21
     
PART II - OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 22
     
ITEM 1A Risk Factors 22
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 22
     
ITEM 3 Defaults Upon Senior Securities 22
     
ITEM 4 Mine Safety Disclosures 22
     
ITEM 5 Other Information 22
     
ITEM 6 Exhibits 22
     
  Signature 23

 

   
   

 

PART I - FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

 

   
   

 

ITEM 1 Financial Statements

 

BTCS Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   June 30, 2016   December 31, 2015 
   (Unaudited)     
Assets:          
Current assets:          
Cash  $66,599   $124,535 
Digital currencies   17,872    17,036 
Prepaid expense and other current assets   2,078    8,902 
Total current assets   86,549    150,473 
           
Other assets:          
Property and equipment, net   -    489,420 
Investment   -    2,250,000 
Websites   3,497    6,075 
Deposits   35,996    336,885 
Total other assets   39,493    3,082,380 
           
Total Assets  $126,042   $3,232,853 
           
Liabilities and Stockholders’ Deficit:          
Accounts payable and accrued expense  $736,525   $402,464 
Short term loan   45,000    45,000 
Convertible notes at fair value   3,840,110    1,781,156 
Derivative liabilities   13,015,937    3,794,153 
Derivative liabilities for shortfall of shares   14,479,363    - 
Total current liabilities   32,116,935    6,022,773 
           
Stockholders’ deficit:          
Common stock, 975,000,000 shares authorized at $0.001 par value, 236,946,578 and 170,480,545 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively   236,946    170,480 
Treasury stock, at cost, 13,000,000 shares at June 30, 2016 and December 31, 2015   (4,991)   (4,991)
Additional paid in capital   22,746,996    21,831,518 
Accumulated deficit   (54,969,844)   (24,786,927)
Total stockholders’ deficit   (31,990,893)   (2,789,920)
Total Liabilities and Stockholders’ Deficit  $126,042   $3,232,853 

 

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

 

4
 

 

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

   For the three months ended   For the six months ended 
   June 30,   June 30, 
   2016   2015   2016   2015 
Revenues                    
E-commerce  $2,242   $5,252   $2,242   $6,290 
Transaction verification services   119,220    139,123    310,623    175,753 
Hosting   20,205    -    27,945    - 
Total revenues   141,667    144,375    340,810    182,043 
Power and mining expenses   (114,837)   (60,342)   (228,819)   (77,285)
Gross profit   26,830    84,033    111,991    104,758 
                     
Operating expenses:                    
Marketing   1,872    3,461    9,447    4,039 
General and administrative   376,399    2,047,140    776,201    3,654,087 
Impairment loss on fixed assets   240,853    -    240,853    - 
Fair value adjustments for digital currencies   (4,868)   -    (9,153)   - 
Total operating expenses   614,256    2,050,601    1,017,348    3,658,126 
                     
Net loss from operations   (587,426)   (1,966,568)   (905,357)   (3,553,368)
                     
Other (expenses) income:                    
Impairment loss related to investment   -    -    (2,250,000)   (254,433)
Fair value adjustments for warrant liabilities   (9,719,017)   1,250,572    (9,221,784)   323,952 
Fair value adjustments for convertible notes   (371,670)   -    (336,660)   - 
Fair value adjustments for derivative liability shortfall of shares   (14,479,363)   -    (14,479,363)   - 
Inducement expense   -    -    -    (58,380)
Interest expenses   (2,639)   (2,283)   (6,180)   (5,782)
Loss on issuance of Units   (250,000)   (531,311)   (250,000)   (1,050,911)
Loss on extinguishment of debt   (2,512,473)   -    (2,512,473)   - 
Liquidated Damages   (188,500)   -    (188,500)   - 
Other expenses   (32,488)   (256)   (32,600)   (470)
Total other (expenses) income   (27,556,150)   716,722    (29,277,560)   (1,046,024)
                     
Net loss  $(28,143,576)  $(1,249,846)  $(30,182,917)  $(4,599,392)
                     
Net loss per share, basic and diluted  $(0.16)  $(0.01)  $(0.17)  $(0.03)
                     
Weighted average number of shares outstanding, basic and diluted   177,144,561    167,874,601    173,812,553    162,971,575 

  

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

 

5
 

 

BTCS Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   For the six months ended 
   June 30, 
   2016   2015 
Net Cash from operating activities:          
Net loss  $(30,182,917)  $(4,599,392)
Adjustments to reconcile net loss to net cash used in provided by operating activities:          
Depreciation and amortization expenses   179,845    115,791 
Stock based compensation   -    2,753,968 
Change in fair value of digital currencies   (9,153)   (7,476)
Issuance of common stock for services   -    102,585 
Issuance of derivative liability warrants for services   -    40,377 
Loss on issuance of Units   250,000    1,050,911 
Fair value adjustments for warrant liabilities   9,221,784    (323,952)
Fair value adjustments for convertible notes   336,660    - 
Fair value adjustments for derivative liability shortfall of shares   14,479,363    - 
Inducement expenses   -    58,380 
Impairment loss related to investment   2,250,000    254,433 
Impairment loss on fixed assests   240,853    - 
Loss on sale of fixed assets   35,102    - 
Loss on extinguishment of debt   2,512,473    - 
Bad debt expense   720    - 
Liquidated Damages   188,500    - 
Changes in operating assets and liabilities:          
Digital currencies   8,317    (22,584)
Accounts receivable   (720)   - 
Prepaid expenses and other current assets   6,824    (7,923)
Accounts payable   (104,439)   131,895 
Net cash used in operating activities   (586,788)   (452,987)
           
Net cash from investing activities:          
Purchase of property and equipment   (19,238)   (375,603)
Sale of property and equipment, net   55,436    3,117 
Refund of lease deposit   300,889    (56,700)
Investments at cost   -    (1,600,000)
Net cash provided by (used in) investing activities   337,087    (2,029,186)
           
Net cash from financing activities:          
Common stock repurchase   -    (2,500)
Net proceeds from exercise of warrant   91,765    - 
Net proceeds from issuance of Private Placement Units   -    2,695,500 
Net proceeds from issuance of Private Placement Units from related party   -    50,000 
Proceeds from short term loan   -    45,000 
Proceeds from issuance of convertible notes, net   100,000    - 
Payment on short term loan to related party   -    (7,990)
Net cash provided by financing activities   191,765    2,780,010 
           
Net decrease in cash   (57,936)   297,837 
Cash, beginning of period   124,535    5,403 
Cash, end of period  $66,599   $303,240 
           
Supplemental disclosure of non-cash financing and investing activities:          
Conversion of Series C Convertible Preferred to common stock  $-   $2,200 
Issuance of common stock for fixed assets purchases  $-   $48,626 
Conversion of accounts payable to common stock  $-   $246,924 
Issuance of common stock for investment  $-   $154,433 
Cashless warrant exercise  $12,500   $- 
Conversion of convertible notes to common stock  $890,179   $- 

 

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

 

6
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1 - Business Organization and Nature of Operations

 

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada Corporation (the “Company”) in February 2014 entered the business of hosting an online ecommerce marketplace where consumers can purchase merchandise using digital currencies, including bitcoin and is building a diversified company with operations in the 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, and access to its ecommerce site. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining. Although we continue to support our ecommerce marketplace we are no longer developing or actively marketing it and our support of the ecommerce marketplace is limited.

 

On July 20, 2016, BTCS Digital Manufacturing (“DM”), a wholly owned subsidiary the Company suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company is pursuing the following options: i) seeking additional capital to potentially bring DM back online; ii) a possible sale of DM; iii) and permanently winding down DM’s operations. If the Company ceases operations at DM, it may relocate its transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations.

 

On August 8, 2016, DM discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company has reported the theft to local authorities as well its insurance company regarding next steps.

 

The Company was incorporated in the State of Nevada in 2008 under the name “Hotel Management Systems, Inc.”. On February 5, 2014, the Company entered into an Exchange Agreement with BitcoinShop.us, LLC, a Maryland limited liability company (“BCSLLC”), and the holders of the membership interests in BCSLLC. Upon closing of the Share Exchange, BCSLLC Members transferred all the outstanding membership interests of BCSLLC to the Company in exchange for an aggregate of 100,773,923 shares of the Company’s common stock (the “Reverse Merger”). As a result, BCSLLC became a wholly-owned subsidiary of the Company. Immediately following the Share Exchange with BCSLLC, the Company discontinued its business as manufacturer of touch screen and touch board products, interactive whiteboard displays and large touch-screens.

 

The Company is an early entrant in the digital currency market and one of the first U.S. publicly traded companies to be involved with digital currencies. The Company currently operates a beta ecommerce marketplace which already accepts a variety of digital currencies, and has been operating its transaction verification services business, which generate bitcoins (i.e. bitcoin mining).

 

Note 2 - 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 condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but 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. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015.

 

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

 

For the six months ended June 30, 2016 and 2015, the Company recognized a net loss of approximately $30.2 million and a net loss of approximately $4.6 million, respectively. The Company had cash and cash equivalents of approximately $67,000 and a working capital deficiency of approximately $32.0 million at June 30, 2016, which includes $27.5 million for the fair value of derivative liabilities. 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 debt or equity financing, however there are currently no commitments 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.

 

7
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

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. The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the accompanying consolidated 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, and
   
seeking additional financing through sales of additional securities.

 

Note 4 - Summary of Significant Accounting Policies

 

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

 

Transaction Verification Services

 

Revenue earned from bitcoin processing activities (“Transaction Verification Services”), commonly termed ‘mining’ activities, is recognized at the fair value of the bitcoins received as consideration on the date of actual receipt.

 

The Company generates revenue by performing computer processing activities for bitcoin generation. In the digital-currency industry such activity is generally referred to as Transaction Verification Services or bitcoin mining. The Company receives consideration for performing such transaction verification activities in the form of bitcoins. Revenue is recorded upon the actual receipt of bitcoins.

 

Expenses consist of utilities paid to cover our electric costs, rent for our facility and personnel to run our facility. The expenses related to our Transaction Verification Services activities are affected by the level of activities and not the ultimate generation of bitcoins. The Company expenses these costs as they are incurred.

 

Net Loss per Share

 

Basic loss per share is computed by dividing net loss applicable to common stock by the weighted-average number of common shares outstanding during the period.

 

For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted loss per share reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2016 and 2015 because their effect was anti-dilutive:

 

   June 30, 2016   June 30, 2015 
Stock options   -    12,450,000 
Warrants   1,184,186,577    22,991,679 
Convertible notes   274,376,241    - 
Favored Nations   474,752,455    - 
Excluded potentially dilutive securities   1,933,315,273    35,441,679 

 

Recent Accounting Pronouncements

 

In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its condensed consolidated financial statements and related disclosures.

 

8
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its condensed consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU No. 2016-08 on its condensed consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed consolidated financial statements.

 

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customer. The new guidance is an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its condensed consolidated statements of cash flows.

 

Subsequent events

 

Subsequent events have been evaluated through the date of this filing.

 

9
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 5 - Property and Equipment

 

Property and equipment consist of the following at June 30, 2016 and December 31, 2015:

 

   June 30, 2016    December 31, 2015 
Equipment  $-   $109,493 
Computer   -    3,086 
Leasehold improvement   -    242,091 
Transaction verification servers   -    451,281 
    -    805,951 
Accumulated depreciation   -    (316,531)
Property and equipment, net  $-   $489,420 

 

Depreciation expense was approximately $84,000 and $68,000 for the three months ended June 30, 2016 and 2015, respectively, and $177,000 and $114,000 for the six months ended June 30, 2016 and 2015, respectively.

 

During the six months ended June 30, 2016, the Company purchased fixed assets of approximately $19,000, sold fixed assets amounting to approximately $55,000, resulting in loss on sale of fixed assets of $35,000.

 

Due to the financial nature of the Company as of June 30, 2016, the Company impaired all fixed assets and recorded an approximately $241,000 impairment charge during the three months ended June 30, 2016.

 

Note 6 - Investment at Cost

 

Spondoolies

 

The Company had total investment of approximately $2.3 million to Spondoolies Tech Ltd. (“Spondoolies”) as of December 31, 2015.

 

On May 5, 2016, the Company was informed that, on May 4, 2016, a hearing was held in the district court in Beersheva, Israel during which certain parties sought appointment of a temporary liquidator for Spondoolies. As a result of the liquidation the Company is no longer pursuing the acquisition of Spondoolies. The Company assessed impairment for the Spondoolies investment and determined that this investment is not recoverable and as such fully impaired.

 

During the six months ended June 30, 2016, the Company recorded impairment loss of approximately $2.3 million.

 

Note 7 - Fair Value Measurements

 

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.

 

The following table presents information about the Company’s liabilities 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 June 30, 2016 and December 31, 2015:

 

   Fair value measured at June 30, 2016 
   Total carrying value
at June 30,
   Quoted prices in active
markets
   Significant other
observable inputs
   Significant
unobservable inputs
 
   2016   (Level 1)   (Level 2)   (Level 3) 
Assets:                    
Digital Currencies  $17,872   $17,872   $-   $- 
                     
Liabilities:                    
Derivative Liabilities  $13,015,937   $-   $-   $13,015,937 
Derivative liabilities for shortfall of shares   14,479,363    -    -    14,479,363 
Convertible notes at fair value   3,840,110    -    -    3,840,110 

 

   Fair value measured at December 31, 2015 
  

Total carrying value

at December 31,

  

Quoted prices in active
markets

  

Significant other

observable inputs

  

Significant

unobservable inputs

 
   2015   (Level 1)   (Level 2)   (Level 3) 
Assets:                    
Digital Currencies  $17,036   $17,036   $-   $- 
                     
Liabilities:                    
Derivative Liabilities  $3,794,153   $-   $-   $3,794,153 
Convertible notes at fair value   1,781,156              1,781,156 

 

10
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2016.

 

The following table presents additional information about Level 3 assets and liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2016:

 

Derivative liabilities Balance - January 1, 2016  $3,794,153 
Change in fair value of derivative liability   9,221,784 
Derivative liabilities Balance - June 30, 2016  $13,015,937 

 

Derivative liabilities for shortfall of shares Balance - January 1, 2016  $- 
Change in fair value of derivative liability shortfall of shares   14,479,363 
Derivative liabilities for shortfall of shares Balance - June 30, 2016  $14,479,363 

 

Convertible notes at fair value Balance - January 1, 2016  $1,781,156 
Addition of convertible notes   100,000 
Conversion of notes into common stock   (890,179)
Loss on extinguishment of debt   2,512,473 
Change in fair value of convertible notes (including OID discount)   336,660 
Convertible notes at fair value Balance - June 30, 2016  $3,840,110 

 

The Company’s derivative liabilities are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the six months ended June 30, 2016 is as follows:

 

Warrant Liabilities

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     146% to 155 %
Risk-free rate     0.64% to 0.93 %
Contractual term (years)     0.60 to 4.5  
Dividend yield (per share)     0 %

   

Derivative Liabilities for shortfall of shares

 

Date of valuation  June 30, 2016 
Strike price  $0.01 
Volatility (annual)   155.0%
Risk-free rate   0.9%
Contractual term (years)   4.0 
Dividend yield (per share)   0%

 

11
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

Convertible Notes at Fair Value

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     90.6% to 193.2 %
Risk-free rate     0.02% to 0.4 %
Dividend yield (per share)     0 %

  

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Management.

 

Note 8 - Stock Based Compensation

 

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. The Company estimates pre-vesting option forfeitures at the time of grant and reflects the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

 

Stock-based compensation expense was $0 and $1.4 million for the three months ended June 30, 2016 and 2015, respectively. Stock-based compensation expense was $0 and $2.8 million for the six months ended June 30, 2016 and 2015, respectively.

 

Stock Options

 

There are no stock options outstanding as of June 30, 2016 and December 31, 2015.

 

Note 9 - Related Party Transactions

 

On February 19, 2016, the Company entered into a securities escrow agreement (the “Securities Escrow Agreement”) with Charles Allen its Chief Executive Officer, Chief Financial Officer and Chairman, and Michal Handerhan, its Chief Operating Officer and corporate secretary (collectively, the “Principal Stockholders”). Pursuant to the Securities Escrow Agreement and for the benefit of the Company’s public shareholders the Principal Stockholders voluntarily agreed to place stock certificates representing 24,000,000 shares of Common Stock (the “Escrow Shares”) into escrow.

 

The return of 12,000,000 escrowed shares (the “Listing Escrow Shares”) to the Principal Stockholders shall be based upon the successful listing of the Company’s Common Stock on a National Stock Exchange on or before December 31, 2016 (the “Listing Condition”). The Listing Escrow Shares will be returned to the Company for cancelation for no consideration if the Company fails to achieve the Listing Condition. The return of 12,000,000 escrowed shares (the “Merger Escrow Shares”) to the Principal Stockholders shall be based upon the successful consummation of the merger with Spondoolies-Tech Ltd. (“Spondoolies”) on or before December 31, 2016 (the “Merger Condition”). The Merger Escrow Shares will be returned to the Company for cancelation for no consideration if the Company fails to achieve the Merger Condition.

 

Pursuant to the June 3, 2016 Amendment Agreement (as defined in Note 11 below) the Principal Stockholders each received $86 in connection with their pro-rata portion of the Payment (as defined in Note 11 below). In April 2015, the Principal Stockholders each subscribed for $20,000 in the Subscription Agreement (as defined in Note 11 below) for an aggregate of $40,000.

 

12
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 10 - Notes Payable

 

On June 6, 2016, the Company, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Purchaser subscribed for up to $375,000 of a 20% Original Issue Discount Junior Secured Convertible Notes (the “Junior Notes”). The aggregate principal amount of the Junior Notes issued at the initial close is $125,000 and the Company received $100,000 after giving effect to the 20% original issue discount. The lead investor was granted the option to require the Company to sell the Purchasers up to two additional Junior Notes in the principal amount of $125,000 during each of the periods that begin with the Initial Closing Date and end (i) on or before 45 days from the Initial Closing Date, and (ii) on or before 90 days from the Initial Closing Date.

 

The Junior Notes bears no interest except in the event of default which interest rate is 24% per annum upon the occurrence of an Event of Default (as defined in the Junior Notes), have a maturity date of December 5, 2016 and are convertible (principal, and interest) at any time after the issuance date of the Junior Notes into shares of the Company’s Common Stock at a conversion price equal to $0.30 per share. If an Event of Default has occurred, the Junior Note shall be convertible at 60% of the lowest closing price during the prior twenty (20) trading days of the Company’s Common Stock.

 

The Junior Notes contains certain covenants, such as restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Junior Notes also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. In addition, subject to limited exceptions, the Purchaser will not have the right to convert any portion of the Junior Note if the Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion. The Purchaser may not convert into or otherwise beneficially own in excess of 9.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion.

 

In connection with the Company’s obligations under the Junior Notes, the Company and its subsidiaries (the “Subsidiaries”) entered into a Security Agreement, Pledge Agreement and Subsidiary Agreement with the lead investor, as agent, pursuant to which the Company and the Subsidiaries granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness, for the benefit of the Purchasers, to secure the Company’s obligations under the Junior Notes. Upon an Event of Default (as defined in the Junior Notes), the Purchaser may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

 

The use of proceeds from this financing are intended for general corporate purposes. The Company also reimbursed the Purchaser $5,000 for legal fees and expenses from the private placement.

 

The issuance of the Common Stock is exempt from the registration requirements from the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Common Stock and has not offered securities to the public in connection with such issuance and sale.

 

Over the course of June 16, 2016 through June 30, 2016, the Company issued a total of 66,466,033 shares of the Company’s Common Stock for: i) the conversion of $581,000 of principal and accrued interest on the Senior Secured Convertible Notes issued December 16, 2015 (the “Senior Notes”), and ii) the exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances. The dates of the issuances and the numbers of shares issued are as follows:

 

       Issued     
Date  Note Conversions   Warrant Exercises   Total 
June 8, 2016   0    1,000,000    1,000,000 
June 10, 2016   0    300,000    300,000 
June 16, 2016   5,900,000    0    5,900,000 
June 17, 2016   3,250,417    0    3,250,417 
June 20, 2016   9,238,446    0    9,238,446 
June 21, 2016   31,452,170    0    31,452,170 
June 22, 2016   0    1,000,000    1,000,000 
June 28, 2016   0    1,825,000    1,825,000 
June 30, 2016   0    12,500,000    12,500,000 
Total Issued Shares   49,841,033    16,625,000    66,466,033 

   

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 236,946,578 shares of our Common Stock issued and outstanding as of June 30, 2016.

 

13
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

On June 22, 2016 the Company entered into a Standstill and Leak-out Agreement with all of the Senior Note holders. The Senior Note holders have agreed not to convert any Senior Notes until July 1, 2016. Thereafter, and until September 19, 2016, each Senior Note holder’s daily conversions will be limited to the greater of: (1) $7,500, and (2) five percent of the aggregate dollar value of Common Stock traded during the trading day immediately prior to the conversion date.

 

As of the June 30, 2016 the Company did not have sufficient shares of Common Stock to fulfill its obligations with respect to its Notes and warrants and has booked a derivative liability of $14,479,363 to account for the shortfall.

 

Note 11 - Stockholders’ Equity

 

On June 3, 2016, the Company received the last signature from investors, which investors hold 75% of the units (“Units”) sold to subscribers (“Subscribers”) in the Company private placement offering (the “Offering”) pursuant to that certain subscription agreement by and between the Company and the Subscribers dated on or around April 20, 2015 (the “Subscription Agreement”), to an amendment agreement (the “Amendment Agreement”).

 

Pursuant to the Amendment Agreement, the Company agreed to pay, on a pro-rata basis to all subscribers that purchased Units in the Offering, and in proportion to the respective Units purchased by each subscriber, pursuant to the Subscription Agreement, an aggregate $250,000 (“Payment”) upon the occurrence of the following events and in the amounts and on payment dates set forth in connection with such events: (i) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or less, a payment towards the then-remaining Payment equal to ten-percent (10%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (ii) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or more but less than $1,000,000, a payment towards the then-remaining Payment equal to twenty-percent (20%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (iii) at any of the Company’s fiscal-year-ends payment will be made in the amount of available cash prior to any payments of bonuses payable to Mr. Allen, the Company’s CEO, CFO and Chairman, and Mr. Handerhan, the Company’s COO, Secretary and Director; and (iv) upon closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $1,000,000 or more, a payment of all then-remaining Payment within three (3) business days of the closing of any such equity or debt financing.

 

In consideration for the Payment, the Subscribers agreed to limit any remedies currently due, if any, or to which they may be entitled in the future, under the “Favored Nations Provision” of the Subscription Agreement, to the additional issuance of Common Stock of the Company and warrants (“Warrants”) to purchase Common Stock up to the Common Stock and Warrants that would not result in each respective Subscriber beneficially owning over 4.99% of the Company’s issued and outstanding Common Stock.

 

On June 8, 2016, the Company and an investor (the “Investor”) holding a warrant dated January 19, 2015 (the “Warrant”) to purchase 2,325,000 shares (the “Warrant Shares”) of the Company’s Common Stock entered into a warrant exercise agreement (the “Exercise Agreement”).

 

Pursuant to the Exercise Agreement, the Company agreed to accept as full payment for 500,000 of the Warrant Shares, an aggregate exercise price equal to $27,500 (the “Exercise Price”) and the Investor irrevocably agreed to exercise the Warrant and deliver the Exercise Price within 2 days of the Exercise Agreement.

 

14
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

Over the course of June 8, 2016 through June 28, 2016, the Company issued 4,125,000 shares of Common Stock for the cash exercise of warrants resulting in aggregate proceeds of $91,765 to the Company this includes the $27,500 received in connection with the Exercise Agreement mentioned above.

 

Note 12 - Subsequent Events

 

Over the course of July 1, 2016 through August 1, 2016, the Company issued a total of 728,809,426 shares of the Company’s Common Stock for: i) the conversion of $460,344 of principal and accrued interest on the Senior Notes, and ii) the exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances. The dates of the issuances and the numbers of shares issued are as follows:

 

        Issued     
Date   Note Conversions   Warrant Exercises   Total 
 July 1, 2016    1,409,427    4,000,000    5,409,427 
 July 5, 2016    7,137,095    12,000,000    19,137,095 
 July 6, 2016    13,107,365    7,500,000    20,607,365 
 July 7, 2016    32,997,387    40,935,845    73,933,232 
 July 8, 2016    28,313,307    35,380,676    63,693,983 
 July 11, 2016    43,015,180    36,502,280    79,517,460 
 July 12, 2016    8,214,526    16,000,000    24,214,526 
 July 13, 2016    41,857,162    11,153,844    53,011,006 
 July 14, 2016    73,745,678    36,257,966    110,003,644 
 July 15, 2016    51,569,878    0    51,569,878 
 July 18, 2016    53,571,427    0    53,571,427 
 July 19, 2016    44,240,476    0    44,240,476 
 July 20, 2016    23,591,267    0    23,591,267 
 July 25, 2016    7,500,000    0    7,500,000 
 July 27, 2016    60,590,572    0    60,590,572 
 July 29, 2016    11,448,412    0    11,448,412 
 August 1, 2016    26,769,656    0    26,769,656 
 Total Issued Shares    529,078,815    199,730,611    728,809,426 

 

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 952,756,004 shares of our Common Stock issued and outstanding.

 

As a result of the Senior Note conversions, the Company became obligated to issue, subject to certain limitations, the following additional securities: (i) 6,524,866,433 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution shares of Common Stock previously disclosed; and (ii) warrants to purchase 10,264,097,638 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution warrants previously disclosed. These figures do not reflect additional warrants to purchase Common Stock issuable to certain investors pursuant to the terms of the warrants issued on December 16, 2016 which includes those anti-dilution warrants previously disclosed. The Company also lowered the conversion price of the Company’s outstanding Junior Notes and Senior Notes to $0.00042. The Company does not currently have sufficient authorized and unreserved shares to fulfill its obligations with respect to the issuance of new shares of Common Stock. While no assurances can be made, the Company intends to seek shareholder approval to adjust the Company’s capitalization.

 

15
 

 

BTCS Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

On July 20, 2016, DM suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company is pursuing the following options: i) seeking additional capital to potentially bring DM back online; ii) a possible sale of DM; iii) and permanently winding down DM’s operations. If the Company ceases operations at DM, it may relocate its transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations.

 

On August 8, 2016, DM, a wholly owned subsidiary of the Company discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company has reported the theft to local authorities as well its insurance company regarding next steps.

 

On September 1, 2016, DM gave cancelation notice to the landlord with respect to the lease of its North Carolina facility.

 

16
 

 

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. References to “we”, “us”, “our” or the “Company” are to BTCS Inc., except where the context requires otherwise. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report.

 

Overview

 

We are an early entrant in the digital currency ecosystem and one of the first U.S. publicly traded companies to be involved with digital currencies. We currently operate a beta ecommerce marketplace which already accepts a variety of digital currencies and, since the second half of 2014, entered the transaction verification services business, leasing and building out an 83,000 square foot facility and putting into service a suite of servers capable of generating bitcoins (i.e. bitcoin mining). Revenues are earned in our transaction verification services business through running ASIC (application-specific integrated circuit) servers at our North Carolina facility. When our servers are successful in finding and adding a block to the Blockchain we are awarded bitcoins for our efforts, which awarded bitcoins are booked as revenue at the prevailing market price on the day of receipt. The Blockchain is maintained by a global network of participants which are running ASIC and other servers which secure the Blockchain. The market is rapidly evolving and there can be no assurances that we will remain competitive with industry participants that have or may acquire facilities and equipment that are less costly and more efficient.

 

Transaction Verification Service Business (bitcoin mining)

 

We believe that with additional funding we may be able to expand our low cost transaction verification services business (bitcoin mining) and believe this may provide revenue growth. In January 2015, we entered into a two-year lease for an 83,000 square foot facility. Additionally, we have the option to purchase the property for $775,000 less the $10,000 security deposit and all lease payments. In July 2015 we completed the internal build out of our facility which increased our operating capacity to 3 megawatts (mw). On July 20, 2016, we suspended our North Carolina transaction verification services facility operations. We are pursuing the following options: i) seeking additional capital to potentially bring the facility back online; and ii) permanently winding down its operations. If we do not resume operations in North Carolina, we may relocate our transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations, alternatively we may pursue other strategic alternatives to our transaction verification services business. Transaction verification entails running ASIC (application-specific integrated circuit) servers which solve a set of prescribed complex mathematical calculations in order to add a block to the Blockchain and thereby confirm bitcoin transactions. When we are successful in adding a block to the Blockchain, we are awarded a fixed number of bitcoins for our effort. Over time it is anticipated that the rewarded value in newly issued bitcoins of adding a block to the Blockchain will decrease, and we expect to charge transaction fees to verify transactions. Over time as the reward value decreases we believe the lowest cost participants (miners) will set the market rate for transaction fees such that they remain profitable.

 

E-commerce Marketplace

 

We believe our e-commerce marketplace was the first such site to accept bitcoin. Our beta ecommerce marketplace is currently operational and offers up to 250,000 curated products and utilizes our “Intelligent Shopping Engine” to find competitive prices on products from numerous retailers. Products are curated through the application of filters such as popularity, reviews, categories, sales rank and other features which are chosen by management. In early 2014, we began a complete redesign of our ecommerce marketplace to incorporate our Intelligent Shopping Engine as a value added function to our ecommerce marketplace. During 2014, many new businesses (such as Dell, Microsoft, Overstock, NewEgg and TigerDirect) opted to accept bitcoin as a form of payment. This poses competition for our marketplace efforts and has resulted in reduced consumer interest in our e-commerce marketplace.

 

17
 

 

Although we continue to support our ecommerce marketplace we are no longer developing or actively marketing it and our support of the ecommerce marketplace is limited. Our market place was launched through the development software that allows us to interface with vendors and search for competitive prices in real time and display up-to-date inventory, and present prices in bitcoin, litecoin or dogecoin according to the exchange rate from USD. The exchange rate is updated frequently and at each stage of the checkout process, when customers reach the checkout page the exchange rate is locked in by our payment processor for 15 minutes and our payment processor assumes the currency exchange risk (unless we choose to accept the digital currency). All marketplace customer orders are fulfilled by third party vendors and we are not involved in the logistics chain, however, we oversee the fulfillment process. Our payment processor allows us to select a ratio of cash versus each respective digital currency we accept. We charge our customers a processing fee of approximately three percent (which management may change from time to time) on transactions if we are not in the affiliate program with the end retailer selling a particular product. If we are a part of an affiliate program we are paid affiliate fees by the retailer which varies depending on both the retailer and by product which can range from one to fifteen percent.

 

Results of Operations for the Three Months Ended June 30, 2016 and 2015

 

The following table reflects our operating results for the three months ended June 30, 2016 and 2015:

 

   For the three months ended 
   June 30, 
    2016    2015 
Revenues          
E-commerce  $2,242   $5,252 
Transaction verification services   119,220    139,123 
Hosting   20,205    - 
Total revenues   141,667    144,375 
Power and mining expenses   (114,837)   (60,342)
Gross profit   26,830    84,033 
           
Operating expenses:          
Marketing   1,872    3,461 
General and administrative   376,399    2,047,140 
Impairment loss on fixed assets   240,853    - 
Fair value adjustments for digital currencies   (4,868)   - 
Total operating expenses   614,256    2,050,601 
           
Net loss from operations   (587,426)   (1,966,568)
            
Other (expenses) income:          
Impairment loss related to investment   -    - 
Fair value adjustments for warrant liabilities   (9,719,017)   1,250,572 
Fair value adjustments for convertible notes   (371,670)   - 
Fair value adjustments for derivative liability shortfall of shares   (14,479,363)   - 
Inducement expense   -    - 
Interest expenses   (2,639)   (2,283)
Loss on issuance of Units   (250,000)   (531,311)
Loss on extinguishment of debt   (2,512,473)   - 
Liquidated Damages   (188,500)   - 
Other expenses   (32,488)   (256)
Total other (expenses) income   (27,556,150)   716,722 
           
Net loss  $(28,143,576)  $(1,249,846)

 

18
 

 

Revenues

 

Revenues for the three months ended June 30, 2016 and 2015 were approximately $142,000 and $144,000, respectively. Revenues represent net revenue earned 1) from the processing of customer transactions through our ecommerce website, 2) through fees earned from our transaction verification service business and 3) from hosting. The net decrease of approximately $2,000 or 1% is a result of an approximately $3,000 decrease from the processing of customer transactions through our ecommerce website, an approximately $20,000 decrease in fees earned from our transaction verification service business and an approximately $20,000 increase in hosting fees. Fees earned from our transaction verification service business accounted for 84% of our revenue for the three months ended June 30, 2016. As a result of the Company suspending its operations at its North Carolina transaction verification services facility in July we anticipate a substantial decline in our revenue for the third quarter 2016 and going forward.

 

Power and Mining Expenses

 

Power and mining expenses for the three months ended June 30, 2016 and 2015 were approximately $115,000 and $60,000, respectively. The increase in the power and mining expenses is the result of electric costs for our transaction verification services business.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2016 and 2015 were approximately $614,000 and $2.1 million, respectively. The decrease in operating expenses over the prior year mostly relates to decreases in general and administrative expenses. General and administrative expense was lower primarily due to a decrease in stock based compensation of approximately $1.4 million.

 

Other (Expenses) Income

 

Other (expenses) income for the three months ended June 30, 2016 and 2015 was approximately ($27.6) million and $717,000, respectively. The increase in other expenses over the prior year mostly relates to increases in fair value adjustments for derivative liability shortfall of shares of $14.5 million, fair value adjustments for warrant liabilities of $9.7 million and loss on extinguishment of debt of $2.5 million.

 

19
 

 

Results of Operations for the Six Months Ended June 30, 2016 and 2015

 

The following table reflects our operating results for the six months ended June 30, 2016 and 2015:

 

   For the six months ended 
   June 30, 
   2016   2015 
Revenues          
           
E-commerce  $2,242   $6,290 
Transaction verification services   310,623    175,753 
Hosting   27,945    - 
Total revenues   340,810    182,043 
Power and mining expenses   (228,819)   (77,285)
Gross profit   111,991    104,758 
           
Operating expenses:          
Marketing   9,447    4,039 
General and administrative   776,201    3,654,087 
Impairment loss on fixed assets   240,853    - 
Fair value adjustments for digital currencies   (9,153)   - 
Total operating expenses   1,017,348    3,658,126 
           
Net loss from operations   (905,357)   (3,553,368)
           
Other (expenses) income:          
Impairment loss related to investment   (2,250,000)   (254,433)
Fair value adjustments for warrant liabilities   (9,221,784)   323,952 
Fair value adjustments for convertible notes   (336,660)   - 
Fair value adjustments for derivative liability shortfall of shares   (14,479,363)   - 
Inducement expense   -    (58,380)
Interest expenses   (6,180)   (5,782)
Loss on issuance of Units   (250,000)   (1,050,911)
Loss on extinguishment of debt   (2,512,473)   - 
Liquidated Damages   (188,500)   - 
Other expenses   (32,600)   (470)
Total other (expenses) income   (29,277,560)   (1,046,024)
           
Net loss  $(30,182,917)  $(4,599,392)

 

Revenues

 

Revenues for the six months ended June 30, 2016 and 2015 were approximately $341,000 and $182,000 respectively. Revenues represent net revenue earned 1) from the processing of customer transactions through our ecommerce website, 2) through fees earned from our transaction verification service business and 3) from hosting. The net increase of approximately $159,000 or 87% is a result of an approximately $4,000 decrease from the processing of customer transactions through our ecommerce website, an approximately $135,000 increase in fees earned from our transaction verification service business and an approximately $28,000 increase in hosting fees. Fees earned from our transaction verification service business accounted for 91% of our revenue for the six months ended June 30, 2016. As a result of the Company suspending its operations at its North Carolina transaction verification services facility in July we anticipate a substantial decline in our revenue for the third quarter 2016 and going forward.

 

Power and Mining Expenses

 

Power and mining expenses for the six months ended June 30, 2016 and 2015 was approximately $229,000 and $77,000, respectively.

 

20
 

 

Operating Expenses

 

Operating expenses for the six months ended June 30, 2016 and 2015 were approximately $1.0 million and $3.7 million, respectively. The decrease in operating expenses over the prior year mostly relates to decrease in stock based compensation of approximately $2.8 million.

 

Other Expenses

 

Other expenses for the six months ended June 30, 2016 and 2015 was approximately $29.3 million and $1.0 million, respectively. The increase in other expenses over the prior year primarily relates to increases in fair value adjustments for derivative liability shortfall of shares of $14.5 million, fair value adjustments for warrant liabilities of $9.2 million, loss on extinguishment of debt of $2.5 million and impairment loss related to investment of $2.3 million.

 

Liquidity and Capital Resources

 

At June 30, 2016, we had current assets of approximately $87,000 and current liabilities of approximately $32.1 million, rendering a deficit of working capital of approximately $32.0 million, which includes $27.5 million for the fair value of derivative liabilities.

 

Our working capital needs are influenced by our level of operations, and generally decrease with higher levels of revenue. We used approximately $587,000 of cash in its operating activities for the six months ended June 30, 2016. We incurred approximately a $30.2 million net loss for the six months ended June 30, 2016. We had cash of approximately $67,000 at June 30, 2016. We expect to incur losses into the foreseeable future as it undertakes its efforts to execute its business plans.

 

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. If we attempt to obtain additional debt or equity financing, it 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 consolidated financial statements have been prepared assuming we will continue as a going concern. We have not made adjustments to the accompanying consolidated 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.

 

Cash Flows for the Six Months Ended June 30, 2016 and 2015

 

Net Cash from Operating Activities

 

Net cash used in operating activities was approximately $587,000 for the six months ended June 30, 2016. Net cash used in continuing operations for the six months ended June 30, 2016 was primarily driven by a $30.2 million net loss, offset by $14.5 million of fair value adjustments for derivative liability shortfall of shares, $9.2 million of fair value adjustment for warrant liabilities, $2.5 million loss on extinguishment of debt and $2.3 million of impairment loss related to our investment. 

  

Net cash used in operations for the six months ended June 30, 2015 was approximately $453,000 and was primarily driven by the loss incurred during the six months ended June 30, 2015 of approximately $4.6 million, partially offset by stock-based compensation expense of approximately $2.8 million and a $1.1 million loss on issuance of Units.

 

Net Cash from Investing Activities

 

Net cash provided by investing activities from continuing operations for the six months ended June 30, 2016 was approximately $337,000 and primarily due to a refund of lease deposit of $301,000.

 

Net cash used in investing activities from continuing operations for the six months ended June 30, 2015 was approximately $2.0 million primarily due to a $1.6 million investment at cost and approximately $376,000 purchase of fixed assets.

  

Net Cash from Financing Activities

 

Net cash provided by financing activities was approximately $192,000 for the six months ended June 30, 2016. On June 6, 2016, we received a net $100,000 from issuance of Junior Notes after giving effect to the 20% original issue discount. During the six months ended June 30, 2016, we issued 4,125,000 shares of Common Stock for the cash exercise of warrants resulting in aggregate proceeds of approximately $92,000.

 

Net cash provided by financing activities was approximately $2.8 million for the six months ended June 30, 2015. On January 19, 2015, we received aggregate proceeds of approximately $433,000 in a private placement. On April 20, 2015, we received additional aggregate proceeds of approximately $2.3 million in a private placement.

 

Off Balance Sheet Transactions

 

We are not a party to any off balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

 

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

ITEM 4 Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2016 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer concluded that as of June 30, 2016, our disclosure controls and procedures were not effective at the reasonable assurance level due to the following material weaknesses in our internal control over financial reporting:

 

21
 

 

Due to our small number of employees and limited resources, we have limited segregation of duties, as a result of which there is insufficient independent review of duties performed.
   
As a result of the limited number of accounting personnel, we rely on outside consultants for the preparation of our financial reports, including financial statements and management discussion and analysis, which could lead to overlooking items requiring disclosure.
   
Difficulty applying complex accounting principles.

 

Remediation Plan

 

When we have sufficient capital resources we intend to hire additional accounting staff, and operations and administrative executives and remediate each of the weaknesses in our disclosure controls and internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

None.

 

ITEM 1A Risk Factors

 

There are no material changes to the risk factors in our most recent Annual Report on Form 10-K.

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

ITEM 3 Defaults Upon Senior Securities

 

On June 16, 2016 the Company defaulted on its Senior Notes which also triggered a default on its Junior Notes.

 

ITEM 4 Mine Safety Disclosures

 

Not applicable.

 

ITEM 5 Other Information

 

None.

 

ITEM 6 Exhibits

 

31 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial and Accounting Officer
   
32 Principal Executive Officer and Principal Financial and Accounting Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

22
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  BTCS Inc.
September 22, 2016    
  By: /s/ Charles Allen
    Charles Allen
    Chief Executive Officer, Chief Financial Officer and Director
    (Principal Executive Officer and Principal Financial and
    Accounting Officer)

 

23
 

 

EX-31 2 ex31.htm

 

EXHIBIT 31

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Charles Allen, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of BTCS Inc. for the fiscal quarter ended June 30, 2016.
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this interim report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this interim report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the registrant’s board of directors:

 

  a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     
  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Dated: September 22, 2016 By: /s/ Charles Allen
    Charles Allen
    Chief Executive Officer, Chief Financial Officer and Director
    (Principal Executive Officer and Principal Financial and
    Accounting Officer)

 

 
 

 

EX-32 3 ex32.htm

 

EXHIBIT 32

 

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of BTCS Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles Allen, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: September 22, 2016 By: /s/ Charles Allen
    Charles Allen
    Chief Executive Officer, Chief Financial Officer and Director
    (Principal Executive Officer and Principal Financial and
    Accounting Officer)

 

A signed original of this written statement required by Section 906 has been provided to BTCS Inc. and will be retained by BTCS Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 
 

 

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Sep. 19, 2016
Document And Entity Information    
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Entity Central Index Key 0001436229  
Document Type 10-Q  
Document Period End Date Jun. 30, 2016  
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Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   965,756,004
Trading Symbol BTCS  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2016  
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Dec. 31, 2015
Current assets:    
Cash $ 66,599 $ 124,535
Digital currencies 17,872 17,036
Prepaid expense and other current assets 2,078 8,902
Total current assets 86,549 150,473
Other assets:    
Property and equipment, net 489,420
Investment 2,250,000
Websites 3,497 6,075
Deposits 35,996 336,885
Total other assets 39,493 3,082,380
Total Assets 126,042 3,232,853
Liabilities and Stockholders' Deficit:    
Accounts payable and accrued expense 736,525 402,464
Short term loan 45,000 45,000
Convertible notes at fair value 3,840,110 1,781,156
Derivative liabilities 13,015,937 3,794,153
Derivative liabilities for shortfall of shares 14,479,363
Total current liabilities 32,116,935 6,022,773
Stockholders' deficit:    
Common stock, 975,000,000 shares authorized at $0.001 par value, 236,946,578 and 170,480,545 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively 236,946 170,480
Treasury stock, at cost, 13,000,000 shares at June 30, 2016 and December 31, 2015 (4,991) (4,991)
Additional paid in capital 22,746,996 21,831,518
Accumulated deficit (54,969,844) (24,786,927)
Total stockholders' deficit (31,990,893) (2,789,920)
Total Liabilities and Stockholders' Deficit $ 126,042 $ 3,232,853
XML 12 R3.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Common stock, shares authorized 975,000,000 975,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares issued 236,946,578 170,480,545
Common stock, shares outstanding 236,946,578 170,480,545
Treasury stock, shares 13,000,000 13,000,000
XML 13 R4.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Revenues        
E-commerce $ 2,242 $ 5,252 $ 2,242 $ 6,290
Transaction verification services 119,220 139,123 310,623 175,753
Hosting 20,205 27,945
Total revenues 141,667 144,375 340,810 182,043
Power and mining expenses (114,837) (60,342) (228,819) (77,285)
Gross profit 26,830 84,033 111,991 104,758
Operating expenses:        
Marketing 1,872 3,461 9,447 4,039
General and administrative 376,399 2,047,140 776,201 3,654,087
Impairment loss on fixed assets 240,853 240,853
Fair value adjustments for digital currencies (4,868) (9,153)
Total operating expenses 614,256 2,050,601 1,017,348 3,658,126
Net loss from operations (587,426) (1,966,568) (905,357) (3,553,368)
Other (expenses) income:        
Impairment loss related to investment (2,250,000) (254,433)
Fair value adjustments for warrant liabilities (9,719,017) 1,250,572 (9,221,784) 323,952
Fair value adjustments for convertible notes (371,670) (336,660)
Fair value adjustments for derivative liability shortfall of shares (14,479,363) (14,479,363)
Inducement expense (58,380)
Interest expenses (2,639) (2,283) (6,180) (5,782)
Loss on issuance of Units (250,000) (531,311) (250,000) (1,050,911)
Loss on extinguishment of debt (2,512,473) (2,512,473)
Liquidated Damages (188,500) (188,500)
Other expenses (32,488) (256) (32,600) (470)
Total other (expenses) income (27,556,150) 716,722 (29,277,560) (1,046,024)
Net loss $ (28,143,576) $ (1,249,846) $ (30,182,917) $ (4,599,392)
Net loss per share, basic and diluted $ (0.16) $ (0.01) $ (0.17) $ (0.03)
Weighted average number of shares outstanding, basic and diluted 177,144,561 167,874,601 173,812,553 162,971,575
XML 14 R5.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Net Cash from operating activities:    
Net loss $ (30,182,917) $ (4,599,392)
Adjustments to reconcile net loss to net cash used in provided by operating activities:    
Depreciation and amortization expenses 179,845 115,791
Stock based compensation 2,753,968
Change in fair value of digital currencies (9,153) (7,476)
Issuance of common stock for services 102,585
Issuance of derivative liability warrants for services 40,377
Loss on issuance of Units 250,000 1,050,911
Fair value adjustments for warrant liabilities 9,221,784 (323,952)
Fair value adjustments for convertible notes 336,660
Fair value adjustments for derivative liability shortfall of shares 14,479,363
Inducement expenses 58,380
Impairment loss related to investment 2,250,000 254,433
Impairment loss on fixed assets 240,853
Loss on sale of fixed assets 35,102
Loss on extinguishment of debt 2,512,473
Bad debt expense 720
Liquidated Damages 188,500
Changes in operating assets and liabilities:    
Digital currencies 8,317 (22,584)
Accounts receivable (720)
Prepaid expenses and other current assets 6,824 (7,923)
Accounts payable (104,439) 131,895
Net cash used in operating activities (586,788) (452,987)
Net cash from investing activities:    
Purchase of property and equipment (19,238) (375,603)
Sale of property and equipment, net 55,436 3,117
Refund of lease deposit 300,889 (56,700)
Investments at cost (1,600,000)
Net cash provided by (used in) investing activities 337,087 (2,029,186)
Net cash from financing activities:    
Common stock repurchase (2,500)
Net proceeds from exercise of warrant 91,765
Net proceeds from issuance of Private Placement Units 2,695,500
Net proceeds from issuance of Private Placement Units from related party 50,000
Proceeds from short term loan 45,000
Proceeds from issuance of convertible notes, net 100,000
Payment on short term loan to related party (7,990)
Net cash provided by financing activities 191,765 2,780,010
Net decrease in cash (57,936) 297,837
Cash, beginning of period 124,535 5,403
Cash, end of period 66,599 303,240
Supplemental disclosure of non-cash financing and investing activities:    
Conversion of Series C Convertible Preferred to common stock 2,200
Issuance of common stock for fixed assets purchases 48,626
Conversion of accounts payable to common stock 246,924
Issuance of common stock for investment 154,433
Cashless warrant exercise 12,500
Conversion of convertible notes to common stock $ 890,179
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.5.0.2
Business Organization and Nature of Operations
6 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Organization and Nature of Operations

Note 1 - Business Organization and Nature of Operations

 

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada Corporation (the “Company”) in February 2014 entered the business of hosting an online ecommerce marketplace where consumers can purchase merchandise using digital currencies, including bitcoin and is building a diversified company with operations in the 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, and access to its ecommerce site. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining. Although we continue to support our ecommerce marketplace we are no longer developing or actively marketing it and our support of the ecommerce marketplace is limited.

 

On July 20, 2016, BTCS Digital Manufacturing (“DM”), a wholly owned subsidiary the Company suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company is pursuing the following options: i) seeking additional capital to potentially bring DM back online; ii) a possible sale of DM; iii) and permanently winding down DM’s operations. If the Company ceases operations at DM, it may relocate its transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations.

 

On August 8, 2016, DM discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company has reported the theft to local authorities as well its insurance company regarding next steps.

 

The Company was incorporated in the State of Nevada in 2008 under the name “Hotel Management Systems, Inc.”. On February 5, 2014, the Company entered into an Exchange Agreement with BitcoinShop.us, LLC, a Maryland limited liability company (“BCSLLC”), and the holders of the membership interests in BCSLLC. Upon closing of the Share Exchange, BCSLLC Members transferred all the outstanding membership interests of BCSLLC to the Company in exchange for an aggregate of 100,773,923 shares of the Company’s common stock (the “Reverse Merger”). As a result, BCSLLC became a wholly-owned subsidiary of the Company. Immediately following the Share Exchange with BCSLLC, the Company discontinued its business as manufacturer of touch screen and touch board products, interactive whiteboard displays and large touch-screens.

 

The Company is an early entrant in the digital currency market and one of the first U.S. publicly traded companies to be involved with digital currencies. The Company currently operates a beta ecommerce marketplace which already accepts a variety of digital currencies, and has been operating its transaction verification services business, which generate bitcoins (i.e. bitcoin mining).

XML 16 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Basis of Presentation
6 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Note 2 - 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 condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but 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. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015.

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Liquidity, Financial Condition and Management's Plans
6 Months Ended
Jun. 30, 2016
Liquidity Financial Condition And Managements Plans  
Liquidity, Financial Condition and Management's Plans

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

 

For the six months ended June 30, 2016 and 2015, the Company recognized a net loss of approximately $30.2 million and a net loss of approximately $4.6 million, respectively. The Company had cash and cash equivalents of approximately $67,000 and a working capital deficiency of approximately $32.0 million at June 30, 2016, which includes $27.5 million for the fair value of derivative liabilities. 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 debt or equity financing, however there are currently no commitments 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. The consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has not made adjustments to the accompanying consolidated 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, and
   
seeking additional financing through sales of additional securities.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 4 - Summary of Significant Accounting Policies

 

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

 

Transaction Verification Services

 

Revenue earned from bitcoin processing activities (“Transaction Verification Services”), commonly termed ‘mining’ activities, is recognized at the fair value of the bitcoins received as consideration on the date of actual receipt.

 

The Company generates revenue by performing computer processing activities for bitcoin generation. In the digital-currency industry such activity is generally referred to as Transaction Verification Services or bitcoin mining. The Company receives consideration for performing such transaction verification activities in the form of bitcoins. Revenue is recorded upon the actual receipt of bitcoins.

 

Expenses consist of utilities paid to cover our electric costs, rent for our facility and personnel to run our facility. The expenses related to our Transaction Verification Services activities are affected by the level of activities and not the ultimate generation of bitcoins. The Company expenses these costs as they are incurred.

 

Net Loss per Share

 

Basic loss per share is computed by dividing net loss applicable to common stock by the weighted-average number of common shares outstanding during the period.

 

For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted loss per share reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2016 and 2015 because their effect was anti-dilutive:

 

    June 30, 2016     June 30, 2015  
Stock options     -       12,450,000  
Warrants     1,184,186,577       22,991,679  
Convertible notes     274,376,241       -  
Favored Nations     474,752,455       -  
Excluded potentially dilutive securities     1,933,315,273       35,441,679  

 

Recent Accounting Pronouncements

 

In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its condensed consolidated financial statements and related disclosures.

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its condensed consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU No. 2016-08 on its condensed consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed consolidated financial statements.

 

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customer. The new guidance is an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its condensed consolidated statements of cash flows.

 

Subsequent events

 

Subsequent events have been evaluated through the date of this filing.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property and Equipment
6 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Property and Equipment

Note 5 - Property and Equipment

 

Property and equipment consist of the following at June 30, 2016 and December 31, 2015:

 

    June 30, 2016      December 31, 2015  
Equipment   $ -     $ 109,493  
Computer     -       3,086  
Leasehold improvement     -       242,091  
Transaction verification servers     -       451,281  
      -       805,951  
Accumulated depreciation     -       (316,531 )
Property and equipment, net   $ -     $ 489,420  

 

Depreciation expense was approximately $84,000 and $68,000 for the three months ended June 30, 2016 and 2015, respectively, and $177,000 and $114,000 for the six months ended June 30, 2016 and 2015, respectively.

 

During the six months ended June 30, 2016, the Company purchased fixed assets of approximately $19,000, sold fixed assets amounting to approximately $55,000, resulting in loss on sale of fixed assets of $35,000.

 

Due to the financial nature of the Company as of June 30, 2016, the Company impaired all fixed assets and recorded an approximately $241,000 impairment charge during the three months ended June 30, 2016.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment at Cost
6 Months Ended
Jun. 30, 2016
Schedule of Investments [Abstract]  
Investment at Cost

Note 6 - Investment at Cost

 

Spondoolies

 

The Company had total investment of approximately $2.3 million to Spondoolies Tech Ltd. (“Spondoolies”) as of December 31, 2015.

 

On May 5, 2016, the Company was informed that, on May 4, 2016, a hearing was held in the district court in Beersheva, Israel during which certain parties sought appointment of a temporary liquidator for Spondoolies. As a result of the liquidation the Company is no longer pursuing the acquisition of Spondoolies. The Company assessed impairment for the Spondoolies investment and determined that this investment is not recoverable and as such fully impaired.

 

During the six months ended June 30, 2016, the Company recorded impairment loss of approximately $2.3 million.

XML 21 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 7 - Fair Value Measurements

 

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.

 

The following table presents information about the Company’s liabilities 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 June 30, 2016 and December 31, 2015:

 

    Fair value measured at June 30, 2016  
    Total carrying value
at June 30,
    Quoted prices in active
markets
    Significant other
observable inputs
    Significant
unobservable inputs
 
    2016     (Level 1)     (Level 2)     (Level 3)  
Assets:                                
Digital Currencies   $ 17,872     $ 17,872     $ -     $ -  
                                 
Liabilities:                                
Derivative Liabilities   $ 13,015,937     $ -     $ -     $ 13,015,937  
Derivative liabilities for shortfall of shares     14,479,363       -       -       14,479,363  
Convertible notes at fair value     3,840,110       -       -       3,840,110  

 

    Fair value measured at December 31, 2015  
   

Total carrying value

at December 31,

    Quoted prices in active
markets
   

Significant other

observable inputs

   

Significant

unobservable inputs

 
    2015     (Level 1)     (Level 2)     (Level 3)  
Assets:                                
Digital Currencies   $ 17,036     $ 17,036     $ -     $ -  
                                 
Liabilities:                                
Derivative Liabilities   $ 3,794,153     $ -     $ -     $ 3,794,153  
Convertible notes at fair value     1,781,156                       1,781,156  

 

There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2016.

 

The following table presents additional information about Level 3 assets and liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2016:

 

Derivative liabilities Balance - January 1, 2016   $ 3,794,153  
Change in fair value of derivative liability     9,221,784  
Derivative liabilities Balance - June 30, 2016   $ 13,015,937  

 

Derivative liabilities for shortfall of shares Balance - January 1, 2016   $ -  
Change in fair value of derivative liability shortfall of shares     14,479,363  
Derivative liabilities for shortfall of shares Balance - June 30, 2016   $ 14,479,363  

 

Convertible notes at fair value Balance - January 1, 2016   $ 1,781,156  
Addition of convertible notes     100,000  
Conversion of notes into common stock     (890,179 )
Loss on extinguishment of debt     2,512,473  
Change in fair value of convertible notes (including OID discount)     336,660  
Convertible notes at fair value Balance - June 30, 2016   $ 3,840,110  

 

The Company’s derivative liabilities are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the six months ended June 30, 2016 is as follows:

 

Warrant Liabilities

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     146% to 155 %
Risk-free rate     0.64% to 0.93 %
Contractual term (years)     0.60 to 4.5  
Dividend yield (per share)     0 %

   

Derivative Liabilities for shortfall of shares

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     155.0 %
Risk-free rate     0.9 %
Contractual term (years)     4.0  
Dividend yield (per share)     0 %

 

Convertible Notes at Fair Value

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     90.6% to 193.2 %
Risk-free rate     0.02% to 0.4 %
Dividend yield (per share)     0 %

  

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Management.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Based Compensation
6 Months Ended
Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation

Note 8 - Stock Based Compensation

 

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. The Company estimates pre-vesting option forfeitures at the time of grant and reflects the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

 

Stock-based compensation expense was $0 and $1.4 million for the three months ended June 30, 2016 and 2015, respectively. Stock-based compensation expense was $0 and $2.8 million for the six months ended June 30, 2016 and 2015, respectively.

 

Stock Options

 

There are no stock options outstanding as of June 30, 2016 and December 31, 2015.

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions
6 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Related Party Transactions

Note 8 - Stock Based Compensation

 

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. The Company estimates pre-vesting option forfeitures at the time of grant and reflects the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

 

Stock-based compensation expense was $0 and $1.4 million for the three months ended June 30, 2016 and 2015, respectively. Stock-based compensation expense was $0 and $2.8 million for the six months ended June 30, 2016 and 2015, respectively.

 

Stock Options

 

There are no stock options outstanding as of June 30, 2016 and December 31, 2015.

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Notes Payable

Note 10 - Notes Payable

 

On June 6, 2016, the Company, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Purchaser subscribed for up to $375,000 of a 20% Original Issue Discount Junior Secured Convertible Notes (the “Junior Notes”). The aggregate principal amount of the Junior Notes issued at the initial close is $125,000 and the Company received $100,000 after giving effect to the 20% original issue discount. The lead investor was granted the option to require the Company to sell the Purchasers up to two additional Junior Notes in the principal amount of $125,000 during each of the periods that begin with the Initial Closing Date and end (i) on or before 45 days from the Initial Closing Date, and (ii) on or before 90 days from the Initial Closing Date.

 

The Junior Notes bears no interest except in the event of default which interest rate is 24% per annum upon the occurrence of an Event of Default (as defined in the Junior Notes), have a maturity date of December 5, 2016 and are convertible (principal, and interest) at any time after the issuance date of the Junior Notes into shares of the Company’s Common Stock at a conversion price equal to $0.30 per share. If an Event of Default has occurred, the Junior Note shall be convertible at 60% of the lowest closing price during the prior twenty (20) trading days of the Company’s Common Stock.

 

The Junior Notes contains certain covenants, such as restrictions on the incurrence of indebtedness, creation of liens, payment of restricted payments, redemptions, payment of cash dividends and the transfer of assets. The Junior Notes also contains certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. In addition, subject to limited exceptions, the Purchaser will not have the right to convert any portion of the Junior Note if the Purchaser, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion. The Purchaser may not convert into or otherwise beneficially own in excess of 9.99% of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to its conversion.

 

In connection with the Company’s obligations under the Junior Notes, the Company and its subsidiaries (the “Subsidiaries”) entered into a Security Agreement, Pledge Agreement and Subsidiary Agreement with the lead investor, as agent, pursuant to which the Company and the Subsidiaries granted a lien on all assets of the Company (the “Collateral”) excluding permitted indebtedness, for the benefit of the Purchasers, to secure the Company’s obligations under the Junior Notes. Upon an Event of Default (as defined in the Junior Notes), the Purchaser may, among other things, collect or take possession of the Collateral, proceed with the foreclosure of the security interest in the Collateral or sell, lease or dispose of the Collateral.

 

The use of proceeds from this financing are intended for general corporate purposes. The Company also reimbursed the Purchaser $5,000 for legal fees and expenses from the private placement.

 

The issuance of the Common Stock is exempt from the registration requirements from the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Common Stock and has not offered securities to the public in connection with such issuance and sale.

 

Over the course of June 16, 2016 through June 30, 2016, the Company issued a total of 66,466,033 shares of the Company’s Common Stock for: i) the conversion of $581,000 of principal and accrued interest on the Senior Secured Convertible Notes issued December 16, 2015 (the “Senior Notes”), and ii) the exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances. The dates of the issuances and the numbers of shares issued are as follows:

 

          Issued        
Date   Note Conversions     Warrant Exercises     Total  
June 8, 2016     0       1,000,000       1,000,000  
June 10, 2016     0       300,000       300,000  
June 16, 2016     5,900,000       0       5,900,000  
June 17, 2016     3,250,417       0       3,250,417  
June 20, 2016     9,238,446       0       9,238,446  
June 21, 2016     31,452,170       0       31,452,170  
June 22, 2016     0       1,000,000       1,000,000  
June 28, 2016     0       1,825,000       1,825,000  
June 30, 2016     0       12,500,000       12,500,000  
Total Issued Shares     49,841,033       16,625,000       66,466,033  

   

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 236,946,578 shares of our Common Stock issued and outstanding as of June 30, 2016.

 

On June 22, 2016 the Company entered into a Standstill and Leak-out Agreement with all of the Senior Note holders. The Senior Note holders have agreed not to convert any Senior Notes until July 1, 2016. Thereafter, and until September 19, 2016, each Senior Note holder’s daily conversions will be limited to the greater of: (1) $7,500, and (2) five percent of the aggregate dollar value of Common Stock traded during the trading day immediately prior to the conversion date.

 

As of the June 30, 2016 the Company did not have sufficient shares of Common Stock to fulfill its obligations with respect to its Notes and warrants and has booked a derivative liability of $14,479,363 to account for the shortfall.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stockholders' Equity
6 Months Ended
Jun. 30, 2016
Equity [Abstract]  
Stockholders' Equity

Note 11 - Stockholders’ Equity

 

On June 3, 2016, the Company received the last signature from investors, which investors hold 75% of the units (“Units”) sold to subscribers (“Subscribers”) in the Company private placement offering (the “Offering”) pursuant to that certain subscription agreement by and between the Company and the Subscribers dated on or around April 20, 2015 (the “Subscription Agreement”), to an amendment agreement (the “Amendment Agreement”).

 

Pursuant to the Amendment Agreement, the Company agreed to pay, on a pro-rata basis to all subscribers that purchased Units in the Offering, and in proportion to the respective Units purchased by each subscriber, pursuant to the Subscription Agreement, an aggregate $250,000 (“Payment”) upon the occurrence of the following events and in the amounts and on payment dates set forth in connection with such events: (i) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or less, a payment towards the then-remaining Payment equal to ten-percent (10%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (ii) in the event of a closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $350,000 or more but less than $1,000,000, a payment towards the then-remaining Payment equal to twenty-percent (20%) of such gross proceeds shall be made within three (3) business days of the closing of any such equity or debt financing; (iii) at any of the Company’s fiscal-year-ends payment will be made in the amount of available cash prior to any payments of bonuses payable to Mr. Allen, the Company’s CEO, CFO and Chairman, and Mr. Handerhan, the Company’s COO, Secretary and Director; and (iv) upon closing of any one or more equity or debt financing resulting in aggregate gross proceeds from the date of this Amendment of $1,000,000 or more, a payment of all then-remaining Payment within three (3) business days of the closing of any such equity or debt financing.

 

In consideration for the Payment, the Subscribers agreed to limit any remedies currently due, if any, or to which they may be entitled in the future, under the “Favored Nations Provision” of the Subscription Agreement, to the additional issuance of Common Stock of the Company and warrants (“Warrants”) to purchase Common Stock up to the Common Stock and Warrants that would not result in each respective Subscriber beneficially owning over 4.99% of the Company’s issued and outstanding Common Stock.

 

On June 8, 2016, the Company and an investor (the “Investor”) holding a warrant dated January 19, 2015 (the “Warrant”) to purchase 2,325,000 shares (the “Warrant Shares”) of the Company’s Common Stock entered into a warrant exercise agreement (the “Exercise Agreement”).

 

Pursuant to the Exercise Agreement, the Company agreed to accept as full payment for 500,000 of the Warrant Shares, an aggregate exercise price equal to $27,500 (the “Exercise Price”) and the Investor irrevocably agreed to exercise the Warrant and deliver the Exercise Price within 2 days of the Exercise Agreement.

 

Over the course of June 8, 2016 through June 28, 2016, the Company issued 4,125,000 shares of Common Stock for the cash exercise of warrants resulting in aggregate proceeds of $91,765 to the Company this includes the $27,500 received in connection with the Exercise Agreement mentioned above.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events
6 Months Ended
Jun. 30, 2016
Subsequent Events [Abstract]  
Subsequent Events

Note 12 - Subsequent Events

 

Over the course of July 1, 2016 through August 1, 2016, the Company issued a total of 728,809,426 shares of the Company’s Common Stock for: i) the conversion of $460,344 of principal and accrued interest on the Senior Notes, and ii) the exercise of warrants. The issuances were exempt from registration pursuant to Rule 506 under Regulation D, the investors are sophisticated and familiar with our operations, and there was no solicitation in connection with the issuances. The dates of the issuances and the numbers of shares issued are as follows:

 

            Issued        
Date     Note Conversions     Warrant Exercises     Total  
  July 1, 2016       1,409,427       4,000,000       5,409,427  
  July 5, 2016       7,137,095       12,000,000       19,137,095  
  July 6, 2016       13,107,365       7,500,000       20,607,365  
  July 7, 2016       32,997,387       40,935,845       73,933,232  
  July 8, 2016       28,313,307       35,380,676       63,693,983  
  July 11, 2016       43,015,180       36,502,280       79,517,460  
  July 12, 2016       8,214,526       16,000,000       24,214,526  
  July 13, 2016       41,857,162       11,153,844       53,011,006  
  July 14, 2016       73,745,678       36,257,966       110,003,644  
  July 15, 2016       51,569,878       0       51,569,878  
  July 18, 2016       53,571,427       0       53,571,427  
  July 19, 2016       44,240,476       0       44,240,476  
  July 20, 2016       23,591,267       0       23,591,267  
  July 25, 2016       7,500,000       0       7,500,000  
  July 27, 2016       60,590,572       0       60,590,572  
  July 29, 2016       11,448,412       0       11,448,412  
  August 1, 2016       26,769,656       0       26,769,656  
  Total Issued Shares       529,078,815       199,730,611       728,809,426  

 

None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. No registration rights were granted to any of the purchasers. Following these issuances, there were 952,756,004 shares of our Common Stock issued and outstanding.

 

As a result of the Senior Note conversions, the Company became obligated to issue, subject to certain limitations, the following additional securities: (i) 6,524,866,433 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution shares of Common Stock previously disclosed; and (ii) warrants to purchase 10,264,097,638 shares of Common Stock pursuant to “favored nations” provisions in certain common stockholder subscription agreements which includes those anti-dilution warrants previously disclosed. These figures do not reflect additional warrants to purchase Common Stock issuable to certain investors pursuant to the terms of the warrants issued on December 16, 2016 which includes those anti-dilution warrants previously disclosed. The Company also lowered the conversion price of the Company’s outstanding Junior Notes and Senior Notes to $0.00042. The Company does not currently have sufficient authorized and unreserved shares to fulfill its obligations with respect to the issuance of new shares of Common Stock. While no assurances can be made, the Company intends to seek shareholder approval to adjust the Company’s capitalization.

 

On July 20, 2016, DM suspended its North Carolina transaction verification services facility operations. The recent reduction in the block reward from 25 bitcoins to 12.5 bitcoins, often referred to as the halving, coupled with the facilities cooling system failing, has resulted in DM being unable to meet certain of its financial commitments. The Company is pursuing the following options: i) seeking additional capital to potentially bring DM back online; ii) a possible sale of DM; iii) and permanently winding down DM’s operations. If the Company ceases operations at DM, it may relocate its transaction verification services business to others data centers which may be more appropriate for the Company’s current scale of operations.

 

On August 8, 2016, DM, a wholly owned subsidiary of the Company discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company were stolen. The value of the stolen equipment owned by the Company does not appear to be material. The Company has reported the theft to local authorities as well its insurance company regarding next steps.

 

On September 1, 2016, DM gave cancelation notice to the landlord with respect to the lease of its North Carolina facility.

XML 27 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Transaction Verification Services

Transaction Verification Services

 

Revenue earned from bitcoin processing activities (“Transaction Verification Services”), commonly termed ‘mining’ activities, is recognized at the fair value of the bitcoins received as consideration on the date of actual receipt.

 

The Company generates revenue by performing computer processing activities for bitcoin generation. In the digital-currency industry such activity is generally referred to as Transaction Verification Services or bitcoin mining. The Company receives consideration for performing such transaction verification activities in the form of bitcoins. Revenue is recorded upon the actual receipt of bitcoins.

 

Expenses consist of utilities paid to cover our electric costs, rent for our facility and personnel to run our facility. The expenses related to our Transaction Verification Services activities are affected by the level of activities and not the ultimate generation of bitcoins. The Company expenses these costs as they are incurred.

Net Loss Per Share

Net Loss per Share

 

Basic loss per share is computed by dividing net loss applicable to common stock by the weighted-average number of common shares outstanding during the period.

 

For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted loss per share reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2016 and 2015 because their effect was anti-dilutive:

 

    June 30, 2016     June 30, 2015  
Stock options     -       12,450,000  
Warrants     1,184,186,577       22,991,679  
Convertible notes     274,376,241       -  
Favored Nations     474,752,455       -  
Excluded potentially dilutive securities     1,933,315,273       35,441,679  

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In January 2016, FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its condensed consolidated financial statements and related disclosures.

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its condensed consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU No. 2016-08 on its condensed consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed consolidated financial statements.

 

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customer. The new guidance is an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that ASU No. 2016-10 will have on its condensed consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its condensed consolidated statements of cash flows.

Subsequent Events

Subsequent events

 

Subsequent events have been evaluated through the date of this filing.

XML 28 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2016
Accounting Policies [Abstract]  
Schedule of Earnings Per Share Anti-Diluted

The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2016 and 2015 because their effect was anti-dilutive:

 

    June 30, 2016     June 30, 2015  
Stock options     -       12,450,000  
Warrants     1,184,186,577       22,991,679  
Convertible notes     274,376,241       -  
Favored Nations     474,752,455       -  
Excluded potentially dilutive securities     1,933,315,273       35,441,679  

XML 29 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property And Equipment (Tables)
6 Months Ended
Jun. 30, 2016
Property, Plant and Equipment [Abstract]  
Schedule of Property And Equipment, Net

Property and equipment consist of the following at June 30, 2016 and December 31, 2015:

 

    June 30, 2016      December 31, 2015  
Equipment   $ -     $ 109,493  
Computer     -       3,086  
Leasehold improvement     -       242,091  
Transaction verification servers     -       451,281  
      -       805,951  
Accumulated depreciation     -       (316,531 )
Property and equipment, net   $ -     $ 489,420  

XML 30 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements (Tables)
6 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Summary of Fair Value Liabilities Measured at Fair Value On Recurring Basis

The following table presents information about the Company’s liabilities 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 June 30, 2016 and December 31, 2015:

 

    Fair value measured at June 30, 2016  
    Total carrying value
at June 30,
    Quoted prices in active
markets
    Significant other
observable inputs
    Significant
unobservable inputs
 
    2016     (Level 1)     (Level 2)     (Level 3)  
Assets:                                
Digital Currencies   $ 17,872     $ 17,872     $ -     $ -  
                                 
Liabilities:                                
Derivative Liabilities   $ 13,015,937     $ -     $ -     $ 13,015,937  
Derivative liabilities for shortfall of shares     14,479,363       -       -       14,479,363  
Convertible notes at fair value     3,840,110       -       -       3,840,110  

 

    Fair value measured at December 31, 2015  
   

Total carrying value

at December 31,

    Quoted prices in active
markets
   

Significant other

observable inputs

   

Significant

unobservable inputs

 
    2015     (Level 1)     (Level 2)     (Level 3)  
Assets:                                
Digital Currencies   $ 17,036     $ 17,036     $ -     $ -  
                                 
Liabilities:                                
Derivative Liabilities   $ 3,794,153     $ -     $ -     $ 3,794,153  
Convertible notes at fair value     1,781,156                       1,781,156  

Schedule of Changes in Level 3 Liabilities Measured at Fair Value

Derivative liabilities Balance - January 1, 2016   $ 3,794,153
Change in fair value of derivative liability     9,221,784
Derivative liabilities Balance - June 30, 2016   $ 13,015,937

Schedule of Derivative Liabilities for Shortfall of Shares

Derivative liabilities for shortfall of shares Balance - January 1, 2016   $ -
Change in fair value of derivative liability shortfall of shares     14,479,363
Derivative liabilities for shortfall of shares Balance - June 30, 2016   $ 14,479,363

Schedule of Changes in Fair Value of Convertible Notes

Convertible notes at fair value Balance - January 1, 2016   $ 1,781,156  
Addition of convertible notes     100,000  
Conversion of notes into common stock     (890,179 )
Loss on extinguishment of debt     2,512,473  
Change in fair value of convertible notes (including OID discount)     336,660  
Convertible notes at fair value Balance - June 30, 2016   $ 3,840,110  

Summary of Quantitative Information to Valuation Methodology

Warrant Liabilities

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     146% to 155 %
Risk-free rate     0.64% to 0.93 %
Contractual term (years)     0.60 to 4.5  
Dividend yield (per share)     0 %

   

Derivative Liabilities for shortfall of shares

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     155.0 %
Risk-free rate     0.9 %
Contractual term (years)     4.0  
Dividend yield (per share)     0 %

 

Convertible Notes at Fair Value

 

Date of valuation   June 30, 2016  
Strike price   $ 0.01  
Volatility (annual)     90.6% to 193.2 %
Risk-free rate     0.02% to 0.4 %
Dividend yield (per share)     0 %

  

XML 31 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable (Tables)
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Schedule of Debt Conversion and Issuance of Shares

          Issued        
Date   Note Conversions     Warrant Exercises     Total  
June 8, 2016     0       1,000,000       1,000,000  
June 10, 2016     0       300,000       300,000  
June 16, 2016     5,900,000       0       5,900,000  
June 17, 2016     3,250,417       0       3,250,417  
June 20, 2016     9,238,446       0       9,238,446  
June 21, 2016     31,452,170       0       31,452,170  
June 22, 2016     0       1,000,000       1,000,000  
June 28, 2016     0       1,825,000       1,825,000  
June 30, 2016     0       12,500,000       12,500,000  
Total Issued Shares     49,841,033       16,625,000       66,466,033  

 

XML 32 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events (Tables)
6 Months Ended
Jun. 30, 2016
Subsequent Events [Abstract]  
Schedule of Debt Conversions and Issuance of Shares

The dates of the issuances and the numbers of shares issued are as follows:

 

            Issued        
Date     Note Conversions     Warrant Exercises     Total  
  July 1, 2016       1,409,427       4,000,000       5,409,427  
  July 5, 2016       7,137,095       12,000,000       19,137,095  
  July 6, 2016       13,107,365       7,500,000       20,607,365  
  July 7, 2016       32,997,387       40,935,845       73,933,232  
  July 8, 2016       28,313,307       35,380,676       63,693,983  
  July 11, 2016       43,015,180       36,502,280       79,517,460  
  July 12, 2016       8,214,526       16,000,000       24,214,526  
  July 13, 2016       41,857,162       11,153,844       53,011,006  
  July 14, 2016       73,745,678       36,257,966       110,003,644  
  July 15, 2016       51,569,878       0       51,569,878  
  July 18, 2016       53,571,427       0       53,571,427  
  July 19, 2016       44,240,476       0       44,240,476  
  July 20, 2016       23,591,267       0       23,591,267  
  July 25, 2016       7,500,000       0       7,500,000  
  July 27, 2016       60,590,572       0       60,590,572  
  July 29, 2016       11,448,412       0       11,448,412  
  August 1, 2016       26,769,656       0       26,769,656  
  Total Issued Shares       529,078,815       199,730,611       728,809,426  

XML 33 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Business Organization and Nature of Operations (Details Narrative)
Feb. 05, 2014
shares
Bitcoin Shop Us LLC [Member]  
Shares issued for membership interests 100,773,923
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Liquidity, Financial Condition and Management's Plans (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Liquidity Financial Condition And Managements Plans            
Net loss $ 28,143,576 $ 1,249,846 $ 30,182,917 $ 4,599,392    
Cash 66,599 $ 303,240 66,599 $ 303,240 $ 124,535 $ 5,403
Working capital deficiency 32,000,000   32,000,000      
Fair value of derivative liabilities $ 27,500,000   $ 27,500,000      
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies - Schedule of Earnings Per Share Anti-Diluted (Details) - shares
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Excluded potentially dilutive securities 1,933,315,273 35,441,679
Warrants [Member]    
Excluded potentially dilutive securities 1,184,186,577 22,991,679
Convertible Notes [Member]    
Excluded potentially dilutive securities 274,376,241
Favored Nations [Member]    
Excluded potentially dilutive securities 474,752,455
Stock Option [Member]    
Excluded potentially dilutive securities 12,450,000
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property and Equipment (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Property, Plant and Equipment [Abstract]        
Depreciation expense $ 84,000 $ 68,000 $ 177,000 $ 114,000
Fixed assets purchased     19,238 375,603
Fixed assets sold     55,436 3,117
Impairment charge $ 240,853 240,853
Loss on sale of fixed assets     $ 35,000  
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Property And Equipment - Schedule of Property And Equipment, Net (Details) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Property, Plant and Equipment [Abstract]    
Equipment $ 109,493
Computer 3,086
Leasehold improvement 242,091
Transaction verification servers 451,281
Property and equipment 805,951
Accumulated depreciation (316,531)
Property and equipment, net $ 489,420
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Investment at Cost (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Schedule of Investments [Abstract]          
Investment     $ 2,250,000
Impairment charge $ 240,853 $ 240,853  
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements - Summary of Fair Value liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($)
Jun. 30, 2016
Dec. 31, 2015
Digital currencies $ 17,872 $ 17,036
Derivative Liabilities 13,015,937 3,794,153
Derivative liabilities for shortfall of shares 14,479,363
Convertible notes at fair value 3,840,110 1,781,156
Level 1 [Member]    
Digital currencies 17,872 17,036
Derivative Liabilities
Derivative liabilities for shortfall of shares  
Convertible notes at fair value
Fair Value, Inputs, Level 2 [Member]    
Digital currencies
Derivative Liabilities
Derivative liabilities for shortfall of shares  
Convertible notes at fair value
Fair Value, Inputs, Level 3 [Member]    
Digital currencies
Derivative Liabilities 13,015,937 3,794,153
Derivative liabilities for shortfall of shares 14,479,363  
Convertible notes at fair value $ 3,840,110 $ 1,781,156
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements - Schedule of Changes in Level 3 Liabilities Measured at Fair Value (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Fair Value Disclosures [Abstract]        
Beginning balance     $ 3,794,153  
Change in fair value of derivative liability $ 9,719,017 $ (1,250,572) 9,221,784 $ (323,952)
Ending balance $ 13,015,937   $ 13,015,937  
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements - Schedule of Derivative Liabilities for Shortfall of Shares (Details)
6 Months Ended
Jun. 30, 2016
USD ($)
Fair Value Disclosures [Abstract]  
Derivative liabilities for shortfall of shares Balance - January 1, 2016
Change in fair value of derivative liability shortfall of shares 14,479,363
Derivative liabilities for shortfall of shares Balance - June 30, 2016 $ 14,479,363
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurements - Schedule of Changes in Fair Value of Convertible Notes (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Fair Value Disclosures [Abstract]        
Convertible notes at fair value, beginning balance     $ 1,781,156  
Addition of convertible notes     100,000  
Conversion of notes into common stock     (890,179)
Loss on extinguishment of debt $ 2,512,473 2,512,473
Change in fair value of convertible notes (including OID discount)     336,660  
Convertible notes at fair value, ending balance $ 3,840,110   $ 3,840,110  
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
Fair Value Measurement - Summary of Quantitative Information to Valuation Methodology (Details)
6 Months Ended
Jun. 30, 2016
$ / shares
Derivative Liabilities for shortfall of shares [Member]  
Strike price $ 0.01
Volatility (annual) 155.00%
Risk-free rate 0.90%
Contractual term (years) 4 years
Dividend yield (per share) $ 0.00
Convertible Notes at Fair Value [Member]  
Strike price 0.01
Dividend yield (per share) $ 0.00
Convertible Notes at Fair Value [Member] | Minimum [Member]  
Volatility (annual) 90.60%
Risk-free rate 0.02%
Convertible Notes at Fair Value [Member] | Maximum [Member]  
Volatility (annual) 193.20%
Risk-free rate 0.40%
Warrant Liabilities [Member]  
Strike price $ 0.01
Dividend yield (per share) $ 0.00
Warrant Liabilities [Member] | Minimum [Member]  
Volatility (annual) 146.00%
Risk-free rate 0.64%
Contractual term (years) 7 months 6 days
Warrant Liabilities [Member] | Maximum [Member]  
Volatility (annual) 155.00%
Risk-free rate 0.93%
Contractual term (years) 4 years 6 months
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Based Compensation (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]          
Stock options outstanding    
Stock-based compensation expense $ 0 $ 1,400,000 $ 2,753,968  
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions (Details Narrative) - Principal Stockholders [Member] - USD ($)
6 Months Ended
Jun. 03, 2016
Feb. 19, 2016
Apr. 30, 2015
Jun. 30, 2016
Payments for Repurchase of Private Placement $ 86   $ 20,000  
Subscription Agreement [Member]        
Payments for Repurchase of Private Placement       $ 40,000
Securities Escrow Agreement [Member]        
Number of common stock shares into escrow   24,000,000    
Listing Escrow Shares [Member]        
Number of escrowed shares returned       12,000,000
Merger Escrow Shares [Member] | Spondoolies-Tech Ltd [Member]        
Number of escrowed shares returned       12,000,000
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Jun. 06, 2016
Jun. 30, 2016
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Number of common stock shares issued for conversion of debt     66,466,033    
Debt conversion into shares amount     $ 890,179  
Common stock, shares issued   236,946,578 236,946,578   170,480,545
Common stock, shares outstanding   236,946,578 236,946,578   170,480,545
Derivative liabilities for shortfall of shares   $ 14,479,363 $ 14,479,363  
Senior Secured Convertible Notes [Member]          
Number of common stock shares issued for conversion of debt   66,466,033      
Debt conversion into shares amount   $ 581,000      
Institutional Investors [Member]          
Percentage of beneficially own in excess of number of common stock shares outstanding 9.99%        
Institutional Investors [Member] | Junior Secured Convertible Notes [Member]          
Percentage of beneficially own in excess of number of common stock shares outstanding 4.99%        
Securities Purchase Agreement [Member] | Institutional Investors [Member] | Junior Secured Convertible Notes [Member]          
Debt original amount $ 375,000        
Percentage of original issuance of debt 20.00%        
Debt face amount $ 125,000        
Proceeds from issuance of debt $ 100,000        
Debt default interest rate 24.00%        
Debt maturity date Dec. 05, 2016        
Debt conversion price per share $ 0.30        
Debt convertible into common stock lowest closing price rate 60.00%        
Debt trading days 20 days        
Reimbursement amount $ 5,000        
Securities Purchase Agreement [Member] | Institutional Investors [Member] | Junior Secured Convertible Notes [Member] | On or Before 45 Days From The Initial Closing Date [Member]          
Debt periodic amount 125,000        
Securities Purchase Agreement [Member] | Institutional Investors [Member] | Junior Secured Convertible Notes [Member] | On or Before 90 Days From The Initial Closing Date [Member]          
Debt periodic amount $ 125,000        
Standstill and Leak-out Agreement [Member] | Senior Noteholders [Member] | September 19, 2016 [Member]          
Debt periodic amount     $ 7,500    
Debt convertible into common stock lowest closing price rate     5.00%    
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
Notes Payable - Schedule of Debt Conversion and Issuance of Shares (Details)
6 Months Ended
Jun. 30, 2016
shares
Note Conversions 49,841,033
Warrant Exercises 16,625,000
Total 66,466,033
Notes Payable 1 [Member]  
Date Jun. 08, 2016
Note Conversions 0
Warrant Exercises 1,000,000
Total 1,000,000
Notes Payable 2 [Member]  
Date Jun. 10, 2016
Note Conversions 0
Warrant Exercises 300,000
Total 300,000
Notes Payable 3 [Member]  
Date Jun. 16, 2016
Note Conversions 5,900,000
Warrant Exercises 0
Total 5,900,000
Notes Payable 4 [Member]  
Date Jun. 17, 2016
Note Conversions 3,250,417
Warrant Exercises 0
Total 3,250,417
Notes Payable 5 [Member]  
Date Jun. 20, 2016
Note Conversions 9,238,446
Warrant Exercises 0
Total 9,238,446
Notes Payable 6 [Member]  
Date Jun. 21, 2016
Note Conversions 31,452,170
Warrant Exercises 0
Total 31,452,170
Notes Payable 7 [Member]  
Date Jun. 22, 2016
Note Conversions 0
Warrant Exercises 1,000,000
Total 1,000,000
Notes Payable 8 [Member]  
Date Jun. 28, 2016
Note Conversions 0
Warrant Exercises 1,825,000
Total 1,825,000
Notes Payable 9 [Member]  
Date Jun. 30, 2016
Note Conversions 0
Warrant Exercises 12,500,000
Total 12,500,000
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stockholders' Equity (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Jun. 03, 2016
Jan. 19, 2016
Jun. 28, 2016
Jun. 30, 2016
Jun. 30, 2015
Jan. 19, 2015
Warrants exercise value     $ 91,765 $ 91,765  
Number of common stock shares for cash exercise of warrants     4,125,000      
Amendment Agreement [Member]            
Proceeds from equity or debt financing $ 350,000          
Percentage of remaining payment of gross proceeds from equity or debt financing 10.00%          
Amendment Agreement [Member] | Charles Allen [Member]            
Proceeds from equity or debt financing $ 1,000,000          
Percentage of remaining payment of gross proceeds from equity or debt financing 10.00%          
Amendment Agreement [Member] | Minimum [Member]            
Proceeds from equity or debt financing $ 1,000,000          
Percentage of remaining payment of gross proceeds from equity or debt financing 20.00%          
Exercise Agreement [Member]            
Warrants issued to purchase of shares of common stock           500,000
Warrants exercise value   $ 27,500        
Subscribers [Member]            
Percentage of units for sold during the period 75.00%          
Subscribers [Member] | Subscription Agreement [Member]            
Payment of offering $ 250,000          
Percentage of beneficially own in excess of number of common stock shares outstanding 4.99%          
Investors [Member] | Exercise Agreement [Member]            
Warrants issued to purchase of shares of common stock           2,325,000
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Aug. 01, 2016
Jun. 30, 2016
Jun. 30, 2016
Jun. 30, 2015
Dec. 31, 2015
Number of common stock shares issued for conversion of debt     66,466,033    
Debt conversion into shares amount     $ 890,179  
Common stock, shares issued   236,946,578 236,946,578   170,480,545
Common stock, shares outstanding   236,946,578 236,946,578   170,480,545
Senior Secured Convertible Notes [Member]          
Number of common stock shares issued for conversion of debt   66,466,033      
Debt conversion into shares amount   $ 581,000      
Subsequent Event [Member]          
Number of common stock shares issued for conversion of debt 728,809,426        
Debt conversion into shares amount $ 460,344        
Common stock, shares issued 952,756,004        
Common stock, shares outstanding 952,756,004        
Subsequent Event [Member] | Senior Secured Convertible Notes [Member] | Common Stockholder Subscription Agreements [Member]          
Number of common stock shares issued for conversion of debt 6,524,866,433        
Warrants issued to purchase of shares of common stock 10,264,097,638        
Debt conversion price per share $ 0.00042        
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events - Schedule of Debt Conversion and Issuance of Shares (Details) - shares
1 Months Ended 6 Months Ended
Aug. 01, 2016
Jun. 30, 2016
Note Conversions   49,841,033
Warrant Exercises   16,625,000
Total   66,466,033
Notes Payable 1 [Member]    
Date   Jun. 08, 2016
Note Conversions   0
Warrant Exercises   1,000,000
Total   1,000,000
Notes Payable 2 [Member]    
Date   Jun. 10, 2016
Note Conversions   0
Warrant Exercises   300,000
Total   300,000
Notes Payable 3 [Member]    
Date   Jun. 16, 2016
Note Conversions   5,900,000
Warrant Exercises   0
Total   5,900,000
Notes Payable 4 [Member]    
Date   Jun. 17, 2016
Note Conversions   3,250,417
Warrant Exercises   0
Total   3,250,417
Notes Payable 5 [Member]    
Date   Jun. 20, 2016
Note Conversions   9,238,446
Warrant Exercises   0
Total   9,238,446
Notes Payable 6 [Member]    
Date   Jun. 21, 2016
Note Conversions   31,452,170
Warrant Exercises   0
Total   31,452,170
Notes Payable 7 [Member]    
Date   Jun. 22, 2016
Note Conversions   0
Warrant Exercises   1,000,000
Total   1,000,000
Notes Payable 8 [Member]    
Date   Jun. 28, 2016
Note Conversions   0
Warrant Exercises   1,825,000
Total   1,825,000
Notes Payable 9 [Member]    
Date   Jun. 30, 2016
Note Conversions   0
Warrant Exercises   12,500,000
Total   12,500,000
Subsequent Event [Member]    
Note Conversions 529,078,815  
Warrant Exercises 199,730,611  
Total 728,809,426  
Subsequent Event [Member] | Notes Payable 1 [Member]    
Date Jul. 01, 2016  
Note Conversions 1,409,427  
Warrant Exercises 4,000,000  
Total 5,409,427  
Subsequent Event [Member] | Notes Payable 2 [Member]    
Date Jul. 05, 2016  
Note Conversions 7,137,095  
Warrant Exercises 12,000,000  
Total 19,137,095  
Subsequent Event [Member] | Notes Payable 3 [Member]    
Date Jul. 06, 2016  
Note Conversions 13,107,365  
Warrant Exercises 7,500,000  
Total 20,607,365  
Subsequent Event [Member] | Notes Payable 4 [Member]    
Date Jul. 07, 2016  
Note Conversions 32,997,387  
Warrant Exercises 40,935,845  
Total 73,933,232  
Subsequent Event [Member] | Notes Payable 5 [Member]    
Date Jul. 08, 2016  
Note Conversions 28,313,307  
Warrant Exercises 35,380,676  
Total 63,693,983  
Subsequent Event [Member] | Notes Payable 6 [Member]    
Date Jul. 11, 2016  
Note Conversions 43,015,180  
Warrant Exercises 36,502,280  
Total 79,517,460  
Subsequent Event [Member] | Notes Payable 7 [Member]    
Date Jul. 12, 2016  
Note Conversions 8,214,526  
Warrant Exercises 16,000,000  
Total 24,214,526  
Subsequent Event [Member] | Notes Payable 8 [Member]    
Date Jul. 13, 2016  
Note Conversions 41,857,162  
Warrant Exercises 11,153,844  
Total 53,011,006  
Subsequent Event [Member] | Notes Payable 9 [Member]    
Date Jul. 14, 2016  
Note Conversions 73,745,678  
Warrant Exercises 36,257,966  
Total 110,003,644  
Subsequent Event [Member] | Notes Payable 10 [Member]    
Date Jul. 15, 2016  
Note Conversions 51,569,878  
Warrant Exercises 0  
Total 51,569,878  
Subsequent Event [Member] | Notes Payable 11 [Member]    
Date Jul. 18, 2016  
Note Conversions 53,571,427  
Warrant Exercises 0  
Total 53,571,427  
Subsequent Event [Member] | Notes Payable 12 [Member]    
Date Jul. 19, 2016  
Note Conversions 44,240,476  
Warrant Exercises 0  
Total 44,240,476  
Subsequent Event [Member] | Notes Payable 13 [Member]    
Date Jul. 20, 2016  
Note Conversions 23,591,267  
Warrant Exercises 0  
Total 23,591,267  
Subsequent Event [Member] | Notes Payable 14 [Member]    
Date Jul. 25, 2016  
Note Conversions 7,500,000  
Warrant Exercises 0  
Total 7,500,000  
Subsequent Event [Member] | Notes Payable 15 [Member]    
Date Jul. 27, 2016  
Note Conversions 60,590,572  
Warrant Exercises 0  
Total 60,590,572  
Subsequent Event [Member] | Notes Payable 16 [Member]    
Date Jul. 29, 2016  
Note Conversions 11,448,412  
Warrant Exercises 0  
Total 11,448,412  
Subsequent Event [Member] | Notes Payable 17 [Member]    
Date Aug. 01, 2016  
Note Conversions 26,769,656  
Warrant Exercises 0  
Total 26,769,656  
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