v3.21.2
Cover - shares
6 Months Ended
Jun. 30, 2021
Aug. 05, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2021  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2021  
Current Fiscal Year End Date --12-31  
Entity File Number 000-55141  
Entity Registrant Name BTCS Inc.  
Entity Central Index Key 0001436229  
Entity Tax Identification Number 90-1096644  
Entity Incorporation, State or Country Code NV  
Entity Address, Address Line One 9466 Georgia Avenue #124  
Entity Address, City or Town Silver Spring  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 20910  
City Area Code 202  
Local Phone Number 430-6576  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   57,123,458
v3.21.2
Condensed Balance Sheets - USD ($)
Jun. 30, 2021
Dec. 31, 2020
Current assets:    
Cash $ 2,915,842 $ 524,135
Digital assets/currencies 2,649,607 995,652
Prepaid expense 598,212 31,875
Total current assets 6,163,661 1,551,662
Other assets:    
Property and equipment, net 3,175 230
Staked digital assets/currencies 8,264,543
Total other assets 8,267,718 230
Total Assets 14,431,379 1,551,892
Liabilities and Stockholders’ Equity    
Accounts payable and accrued expense 156,829 26,288
Accrued compensation 3,687 350,376
Convertible notes payable, net 1,266,712 131,941
Total current liabilities 1,427,228 508,605
Stockholders’ equity:    
Preferred stock, value
Common stock, 975,000,000 shares authorized at $0.001 par value, 57,123,458 and 42,011,617 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively 57,122 42,010
Additional paid in capital 137,908,063 120,541,135
Accumulated deficit (131,164,135) (119,539,887)
Total stockholders’ equity 13,004,151 1,043,287
Total Liabilities and stockholders’ equity 14,431,379 1,551,892
Series B Convertible Preferred Stock [Member]    
Stockholders’ equity:    
Preferred stock, value
Series C-1 Convertible Preferred Stock [Member]    
Stockholders’ equity:    
Preferred stock, value 29
Total stockholders’ equity 29
Series C-2 Convertible Preferred Stock [Member]    
Stockholders’ equity:    
Preferred stock, value 6,203,101
Total stockholders’ equity $ 6,203,101
v3.21.2
Condensed Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2021
Dec. 31, 2020
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 975,000,000 975,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares issued 57,123,458 42,011,617
Common stock, shares outstanding 57,123,458 42,011,617
Series B Convertible Preferred Stock [Member]    
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Preferred stock, liquidation preference per share $ 0.001 $ 0.001
Series C-1 Convertible Preferred Stock [Member]    
Preferred stock, shares issued 0 29,414
Preferred stock, shares outstanding 0 29,414
Preferred stock, liquidation preference per share $ 0.001 $ 0.001
Series C-2 Convertible Preferred Stock [Member]    
Preferred stock, shares issued 1,100,000 0
Preferred stock, shares outstanding 1,100,000 0
Preferred stock, liquidation preference per share $ 0.001 $ 0.001
v3.21.2
Condensed Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Revenues        
Total revenues $ 380,499 $ 453,023
Cost of revenues        
Staking expenses 59,249 74,245
Gross profit 321,250 378,778
Operating expenses:        
General and administrative 312,967 160,841 866,948 285,069
Research and development 245,336 328,269
Compensation and related expenses 1,703,771 95,095 9,041,450 241,395
Marketing 1,365 1,365 2,786 4,055
Total operating expenses 2,263,439 257,301 10,239,453 530,519
Other (expenses) income:        
Interest expense (59,835) (102,792) (114,082) (108,814)
Amortization on debt discount (572,675) (1,134,771) (16,606)
Impairment loss on digital assets/currencies (2,267,374) (58,527) (3,569,138) (132,952)
Realized gains (loss) on digital asset/currency transactions (1,682) 3,054,418 (1,682)
Total other expenses (2,899,884) (163,001) (1,763,573) (260,054)
Net loss (4,842,073) (420,302) (11,624,248) (790,573)
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock (16,177) (32,353)
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock (198,663) (5,020,883)
Net loss attributable to common stockholders $ (5,056,913) $ (420,302) $ (16,677,484) $ (790,573)
Net loss per share attributable to common stockholders, basic and diluted $ (0.09) $ (0.02) $ (0.32) $ (0.03)
Weighted average number of common shares outstanding, basic and diluted 56,673,599 27,151,776 52,251,479 25,078,068
Staking Revenue [Member]        
Revenues        
Total revenues $ 380,499 $ 453,023
v3.21.2
Statements of Changes in Stockholders' (Deficit) Equity (Unaudited) - USD ($)
Series C-1 Convertible Preferred Stock [Member]
Series C-2 Convertible Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Beginning balance, value at Dec. 31, 2019 $ 29 $ 19,830 $ 116,780,174 $ (116,983,793) $ (183,760)
Beginning balance, Shares at Dec. 31, 2019 29,414 19,831,521      
Common stock issued including equity commitment fee, net $ 6,956 549,257 556,213
Common stock issued including equity commitment fee, net, shares 6,956,002      
Conversion of convertible notes $ 1,403 210,054 211,457
Conversion of convertible notes, shares 1,403,854      
Beneficial conversion features associated with convertible notes payable 269,231 269,231
Net loss (790,573) (790,573)
Ending balance, value at Jun. 30, 2020 $ 29 $ 28,189 117,808,716 (117,774,366) 62,568
Ending balance, Shares at Jun. 30, 2020 29,414 28,191,377      
Beginning balance, value at Mar. 31, 2020 $ 29 $ 26,017 117,186,998 (117,354,064) (141,020)
Beginning balance, Shares at Mar. 31, 2020 29,414 26,018,154      
Common stock issued including equity commitment fee, net   $ 769 142,433 143,202
Common stock issued including equity commitment fee, net, shares 769,369      
Conversion of convertible notes   $ 1,403 210,054 211,457
Conversion of convertible notes, shares   1,403,854      
Beneficial conversion features associated with convertible notes payable     269,231   269,231
Net loss   (420,302) (420,302)
Ending balance, value at Jun. 30, 2020 $ 29 $ 28,189 117,808,716 (117,774,366) 62,568
Ending balance, Shares at Jun. 30, 2020 29,414 28,191,377      
Beginning balance, value at Dec. 31, 2020 $ 29 $ 42,010 120,541,135 (119,539,887) 1,043,287
Beginning balance, Shares at Dec. 31, 2020 29,414 42,011,617      
Common stock issued including equity commitment fee, net $ 2,888 2,811,245 2,814,133
Common stock issued including equity commitment fee, net, shares 2,887,776      
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock $ 32,353 (32,353)
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, shares        
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock 5,020,883 (5,020,883)
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock, shares        
Stock-based compensation $ 528 9,226,174 9,226,702
Stock-based compensation, shares 527,971      
Beneficial conversion features associated with convertible notes payable 1,000,000 1,000,000
Issuance of common stock and warrants for cash, net $ 9,500 8,855,500 8,865,000
Issuance of common stock and warrants for cash, net, shares 9,500,000      
Issuance of Series C-2 convertible preferred stock $ 1,100,000 1,100,000
Issuance of Series C-2 convertible preferred stock, shares 1,100,000      
Conversion of Series C-1 Convertible Preferred stock $ (29) $ 196 (167)
Conversion of Series C-1 Convertible Preferred stock, shares (29,414) 196,094      
Beneficial conversion feature of Series C-2 convertible preferred stock $ (129,412) 129,412
Beneficial conversion feature of Series C-2 convertible preferred stock, shares      
Warrant exercise $ 2,000 398,000 400,000
Warrant exercise, shares 2,000,000      
Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock $ 179,277 179,277
Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock, shares      
Net loss (11,624,248) (11,624,248)
Ending balance, value at Jun. 30, 2021 $ 6,203,101 $ 57,122 137,908,063 (131,164,135) 13,004,151
Ending balance, Shares at Jun. 30, 2021 1,100,000 57,123,458      
Beginning balance, value at Mar. 31, 2021 $ 5,988,261 $ 55,890 135,637,119 (126,322,062) 15,359,208
Beginning balance, Shares at Mar. 31, 2021 1,100,000 55,891,645      
Common stock issued including equity commitment fee, net $ 1,170 798,830.00 800,000
Common stock issued including equity commitment fee, net, shares 1,169,632      
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock $ 16,177 (16,177)
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, shares      
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock $ 198,663 (198,663)
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock, shares      
Stock-based compensation   $ 62 1,686,954 1,687,016
Stock-based compensation, shares 62,181      
Net loss (4,842,073) (4,842,073)
Ending balance, value at Jun. 30, 2021 $ 6,203,101 $ 57,122 $ 137,908,063 $ (131,164,135) $ 13,004,151
Ending balance, Shares at Jun. 30, 2021 1,100,000 57,123,458      
v3.21.2
Condensed Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Net Cash flows used from operating activities:    
Net loss $ (11,624,248) $ (790,573)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 299 678
Amortization on debt discount 1,134,771 105,254
Stock-based compensation 9,226,702
Stock-based compensation in connection with issuance of Series C-2 convertible preferred stock 179,277  
Staking revenue (453,023)
Purchase of non-productive digital assets/currencies (5,761,549) (608,355)
Sale of non-productive digital assets/currencies 4,274,491
Realized gain on digital assets/currencies transactions (3,054,418)
Impairment loss on digital assets/currencies 3,569,138 132,952
Changes in operating assets and liabilities:    
Prepaid expenses and other current assets (566,337) (25,941)
Accounts payable and accrued expenses 130,541 3,666
Accrued compensation (346,689) 66,796
Net cash used in operating activities (3,291,045) (1,115,523)
Net cash used in investing activities:    
Purchase of productive digital assets/currencies for staking (8,493,136)
Purchase of property and equipment (3,245)
Net cash used in investing activities (8,496,381)
Net cash provided by financing activities:    
Proceeds from short term loan 500,000
Proceeds from exercise of warrants 400,000
Net proceeds from issuance of convertible notes 1,000,000
Net proceeds from issuance of common stock and warrants for cash 8,865,000
Net proceeds from issuance of common stock 2,814,133 556,213
Proceeds from issuance of Series C-2 convertible preferred stock 1,100,000
Net cash provided by financing activities 14,179,133 1,056,213
Net increase (decrease) in cash 2,391,707 (59,310)
Cash, beginning of period 524,135 143,098
Cash, end of period 2,915,842 83,788
Supplemental disclosure of non-cash financing and investing activities:    
Deemed dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock 32,353
Deemed dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock 5,020,883
Conversion of Series C-1 Preferred Stock 196
Beneficial conversion feature of Series C-2 convertible preferred stock 129,412
Beneficial conversion features associated with convertible notes payable 1,000,000 269,231
Conversion of convertible note to common stock $ 211,457
v3.21.2
Business Organization and Nature of Operations
6 Months Ended
Jun. 30, 2021
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”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online e-commerce marketplace where consumers could purchase merchandise using digital assets, including Bitcoin. The Company is currently focused on blockchain and digital currency ecosystems. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining, though in mid-2016 we ceased our mining operation at our North Carolina facility due to capital constraints. In January 2015, the Company began a rebranding campaign using its BTCS.com domain to better reflect its broadened strategy. The Company recently released its new website which included broader information on its strategy.

 

In the first quarter of 2021, the Company resumed its blockchain infrastructure operations (previously referred to as transaction verification services) with a focus on securing proof-of-stake blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by processing and validating transactions on that blockchain. The Company is developing a proprietary staking-as-a-service platform that would enable clients to stake and delegate supported cryptocurrencies through a non-custodial platform.

 

The Company is also developing a proprietary digital asset data analytics platform aimed at enabling users to aggregate their portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally developed platform utilizes digital asset exchange APIs to read user data and does not allow for the trading of assets.

 

The Company employs a digital asset treasury strategy with a primary focus on disruptive non-security protocol layer assets such as Bitcoin and Ethereum. The Company receives digital assets from its blockchain infrastructure solutions business and acquires digital assets through open market purchases. The Company is not limiting its assets to a single type of digital asset and may hold a variety of digital assets. The Company will carefully review its purchases of digital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

 

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.

v3.21.2
Basis of Presentation
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Basis of Presentation

Note 2 - Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management, reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2020.

v3.21.2
Liquidity, Financial Condition and Management’s Plan
6 Months Ended
Jun. 30, 2021
Liquidity Financial Condition And Managements Plan  
Liquidity, Financial Condition and Management’s Plan

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

 

The Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations since inception using proceeds received from investments from third-party investors as well as from officers and directors of the Company.

 

During the six months ended June 30, 2021, the Company received net proceeds of approximately $14.2 million from the issuance of a convertible note, common stock, warrants, and Series C-2 convertible preferred stock. As such, the Company has adequate cash to fund operations for at least the next twelve months.

v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 4 - Summary of Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2020 Annual Report.

 

Staking Revenue

 

The Company runs its own digital asset validating nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of processing and validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is cancelled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for validating transactions and staking the cryptocurrency, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain.

 

The provision of processing and validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives, the fixed cryptocurrency awards, is non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized.

 

Cost of revenue

 

The Company’s cost of revenue consists primarily of direct production costs related to the operations of processing and validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.

 

Digital Assets Translations and Impairments

 

Digital assets are included in the balance sheets as either current assets or other assets if they are staked and locked up for over one year. Digital assets are recorded at cost less impairment.

 

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

 

Realized gain (loss) on sale of digital assets are included in other income (expense) in the statements of operations. We assign costs to transactions on a first-in, first-out basis.

 

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

 

 

Internally Developed Software

 

Internally developed software consisting of the core technology of the Company’s digital asset data analytics platform which is being designed to allow user to aggregate and analyze data from digital asset exchanges. For internally developed software, the Company uses both its own employees as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

 

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

 

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

 

Use of Estimates

 

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

 

Stock-based Compensation

 

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a one-year period.

 

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

 

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

 

 

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

 

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

 

Convertible Preferred Stock

 

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.

 

The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.

 

The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

 

Net Loss per Share

 

Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s convertible preferred stock, convertible notes and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, notes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

 

 

The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2021 and 2020 because their effect was anti-dilutive:

 

   As of June 30, 
   2021   2020 
Warrants to purchase common stock   9,627,915    502,915 
Series C-1 Convertible Preferred stock   -    196,093 
Series C-2 Convertible Preferred stock   40,117,648    - 
Convertible notes   2,392,631    4,048,583 
Total   52,138,194    4,747,591 

 

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

 

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

 

v3.21.2
Note Payable
6 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Note Payable

Note 5 - Note Payable

 

2020 December Promissory Note

 

On December 16, 2020, the Company issued Cavalry Fund I LP (“Cavalry”) a $1,000,000 promissory note (the “2020 December Promissory Note”) in consideration for $1,000,000. The 2020 December Promissory Note is (i) due on October 16, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.04 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2020 December Promissory Note. In connection with issuance of the 2020 December Promissory Note, the Company issued a Series C warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.20, the Series C warrants were exercised for cash on January 15, 2021, resulting in proceeds of $400,000 to the Company.

 

During the six months ended June 30, 2021, the Company recorded interest expense of approximately $60,000 for the 2020 December Promissory Note. As of June 30, 2021, the principal balance of the 2020 December Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $64,000.

 

During the six months ended June 30, 2021, the Company recorded approximately $589,000 amortization of debt discount related to the 2020 December Promissory Note.

 

 

2021 Promissory Note

 

On January 15, 2021, the Company issued Calvary the 2021 Promissory Note in consideration for $1,000,000. The 2021 Promissory Note is (i) due on November 15, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.75 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2021 Promissory Note.

 

In connection with issuance of the Note, the Company issued a Series D warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $2.16 per share (the “Warrant”). Detachable warrants issued in a bundled transaction with debt and equity offerings are accounted for on a separate basis. The allocation of the issuance proceeds to the base instrument and to the warrants depends on the accounting classification of the separate warrant as equity or liability. If the warrants are classified as equity, then the allocation is made based upon the relative fair values of the base instrument and the warrants following the guidance in ASC 470-20-25-2. In this case, the Warrant is equity-classified, with the fair value at issuance was approximately $3,580,000. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the 2021 Promissory Note of approximately $782,000 with a corresponding credit to additional paid-in capital.

 

In addition, the 2021 Promissory Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the 2021 Promissory Note was convertible into 705,716 shares of common stock at $1.41 per share, but the Company’s fair value of underlying common stock was $2.18 per share. As such, the Company recognized a beneficial conversion feature, resulting in an additional discount to the 2021 Promissory Note of approximately $218,000 with a corresponding credit to additional paid-in capital.

 

During the six months ended June 30, 2021, the Company recorded interest expense of approximately $55,000 for the 2021 Promissory Note. As of June 30, 2021, the principal balance of the 2021 Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $55,000.

 

During the six months ended June 30, 2021, the Company recorded approximately $546,000 amortization of debt discount related to the 2021 Promissory Note.

v3.21.2
Stockholders’ Equity
6 Months Ended
Jun. 30, 2021
Equity [Abstract]  
Stockholders’ Equity

Note 6 - Stockholders’ Equity

 

Preferred Stock

 

The Company is authorized to issue up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders.

 

On January 1, 2021, members of the Company’s management subscribed for 1,100,000 shares of the Company’s to be designated Series C-2 Convertible Preferred Stock (the “Series C-2”), for a total of $1,100,000 at $1.00 per Share of Series C-2. The Company obtained an independent valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the fair value and the proceeds received.

 

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

 

 

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

 

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

 

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

 

At any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series C-2 held by such Holder into validly issued, fully-paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneously with the Company’s Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $0.17 which resulted in a beneficial conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date.

 

The Conversion Amount may be adjusted due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Company after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of June 30, 2021, $13,715,008 of Capital Raised triggered an adjustment to the Conversion Amount. The Company recognized the effect of the down-round protection when the capital raises occurred as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. As of June 30, 2021, the Series C-2 was convertible into 40,117,648 shares of common stock.

 

Common Stock

 

Issuance of Shares Pursuant to Equity Line of Credit Purchase Agreement

 

On January 28, 2021, the Company filed a registration statement on Form S-1 seeking to register 4,000,000 shares (the “Registration Statement”). The Registration Statement was declared effective by the SEC on February 1, 2021.

 

During the six months ended June 30, 2021, the Company issued 2,887,776 shares of common stock (inclusive of 164,212 pro-rata commitment shares) under the Registration Statement pursuant to the equity line of credit purchase agreement with Cavalry (the “Equity Line”) resulting in aggregate net proceeds of $2,814,133 (net of $875 in transfer agent fees) and $2,815,008 in gross proceeds at a per share price of approximately $0.975 (inclusive of the pro-rata commitment shares).

 

 

Issuance of Shares Pursuant to Registered Direct Offering

 

On March 4, 2021, the Company closed on a securities purchase agreement (the “Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 9,500,000 shares of the Company’s common stock, at a purchase price per share of $1.00 and immediately exercisable five-year warrants to purchase 7,125,000 shares of common stock at an exercise price of $1.15 per share (the “Warrants” and together with the common stock, the “Securities”). Gross proceeds from the offering was $9.5 million. Net proceeds were $8.9 million after deducting placement agent fees and other offering expenses paid for by the Company.

 

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

 

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

 

Issuance of Shares Pursuant to Cash Exercise of Series C Warrants

 

On January 15, 2021, the Company issued 2,000,000 shares of the Company’s common stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise price of $400,000. Cavalry and the Company entered into an agreement whereby Cavalry would exercise early for cash provided that the Company register the underlying shares of common stock within 30 days of exercise.

 

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

 

On March 30, 2021, the Company issued 196,094 shares of common stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion, there were no Series C-1 shares outstanding so the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series C-1.

 

Issuance of Restricted Stock to Service Providers

 

During the six months ended June 30, 2021, the Company issued to four service providers of the Company a total of 527,971 shares of restricted common stock, representing a total fair value of $0.6 million.

 

2021 Equity Incentive Plan

 

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021. The Company has reserved 20,000,000 shares of common stock for issuance pursuant to the 2021 Plan.

 

Options

 

On January 1, 2021, the Board of Directors of the Company approved the grant of 12 million stock options with an exercise price of $0.19 under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options: (i) 4.8 million options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones.

 

 

On April 1, 2021, the Company granted 350,000 stock options with an exercise price of $1.03 to Charles B. Lee and Carol Van Cleef, directors of the Company. Of the stock options: (i) 140,000 options will vest on April 1, 2022 and (ii) the remaining 210,000 options vest based upon the Company’s stock price meeting certain milestones.

 

The Company records compensation expense for the 140,000 options granted on April 1, 2021 based on the estimated fair value of the options on the deemed grant date using the Black-Scholes formula, utilizing assumptions laid out in the table below. The Company uses historical data to determine exercise behavior, volatility and forfeiture rate of the options. For the 210,000 options granted on April 1, 2021 that vest based upon the Company’s stock price meeting certain milestones, the Company records compensation expense based on the estimated fair value of the options using a Monte-Carlo simulation.

 

The following weighted-average assumptions were used to estimate the fair value of options granted during the six months ended 2021 and 2020 for both the Black-Scholes formula and the Monte-Carlo simulation:

 

 

  

For the six months ended

June 30,

 
   2021   2020 
Exercise price  $0.21    - 
Term (years)   2.50-3.30     - 
Expected stock price volatility   185.9%   - 
Risk-free rate of interest   0.34%   - 

 

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

 

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

 

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

 

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

 

 

A summary of options activity under the Company’s stock option plan for six months ended June 30, 2021 is presented below:

 

   Number of Shares   Weighted Average Exercise Price   Total Intrinsic Value   Weighted Average Remaining Contractual
Life (in years)
 
Outstanding as of December 31, 2020   -   $-   $-    - 
Employee options granted   12,350,000    0.21    5,436,000    4.8 
Outstanding as of June 30, 2021   12,350,000   $0.21   $5,436,000    4.8 
Options vested and exercisable   7,200,000   $0.19   $3,261,600    4.8 

 

RSUs

 

On January 1, 2021, the Board of Directors of the Company approved 2.75 million restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of June 30, 2021, the restricted stock units remained unvested. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date. Because the listing on a national securities exchange is not deemed probable of occurring until the event occurs, compensation cost measured on the deemed grant date will not be recognized until the listing actually occurs.

 

On April 1, 2021, the Company granted a total of 150,000 restricted stock units to Charles B. Lee and Carol Van Cleef, directors of the Company. The restricted stock units vest when the Company lists its Common Stock on a national securities exchange. As of June 30, 2021, the restricted stock units remained unvested. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date. Because the listing on a national securities exchange is not deemed probable of occurring until the event occurs, compensation cost measured on the deemed grant date will not be recognized until the listing actually occurs.

 

On June 28, 2021, the Company granted 507,813 restricted stock units to Andrew Lee, the Company’s Chief Financial Officer. The restricted stock units will vest over a five-year period as follows: 20% of the 507,813 restricted stock units will vest on the one-year anniversary of the grant date, and the remaining 80% will vest monthly over the following four years with vesting occurring on the last day of each respective month. The grant date fair value of restricted stock units was approximately $0.3 million.

 

A summary of the Company’s restricted stock units granted under the 2021 Plan during the six months ended June 30, 2021 are as follows:

 

   Number of Restricted
Stock Units
   Weighted Average
Grant Day Fair Value
 
Non-vested at December 31, 2020  -   $- 
Granted   3,407,813    0.97 
Non-vested at June 30, 2021   3,407,813   $0.97 

 

Stock-based Compensation

 

Stock-based compensation expense for the three months ended June 30, 2021 was approximately $8.8 million, comprised of $136,000 for the issuance of restricted common stock to service providers not pursuant to the 2021 Plan and approximately $8.6 million in connection with options issued pursuant to the 2021 Plan. Unrecognized compensation expense for the Company was $3.7 million on June 30, 2021. Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues.

v3.21.2
Employee Benefit Plans
6 Months Ended
Jun. 30, 2021
Retirement Benefits [Abstract]  
Employee Benefit Plans

Note 7 - Employee Benefit Plans

 

The Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. During the six months ended June 30, 2021, the Company made contributions to the 401(k) Plan of $39,000.

v3.21.2
Subsequent Events
6 Months Ended
Jun. 30, 2021
Subsequent Events [Abstract]  
Subsequent Events

Note 8 - Subsequent Events

 

None

v3.21.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Staking Revenue

Staking Revenue

 

The Company runs its own digital asset validating nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of processing and validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is cancelled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for validating transactions and staking the cryptocurrency, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain.

 

The provision of processing and validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives, the fixed cryptocurrency awards, is non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized.

Cost of revenue

Cost of revenue

 

The Company’s cost of revenue consists primarily of direct production costs related to the operations of processing and validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.

Digital Assets Translations and Impairments

Digital Assets Translations and Impairments

 

Digital assets are included in the balance sheets as either current assets or other assets if they are staked and locked up for over one year. Digital assets are recorded at cost less impairment.

 

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

 

Realized gain (loss) on sale of digital assets are included in other income (expense) in the statements of operations. We assign costs to transactions on a first-in, first-out basis.

 

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

Internally Developed Software

Internally Developed Software

 

Internally developed software consisting of the core technology of the Company’s digital asset data analytics platform which is being designed to allow user to aggregate and analyze data from digital asset exchanges. For internally developed software, the Company uses both its own employees as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

 

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

 

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

Use of Estimates

Use of Estimates

 

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

Stock-based Compensation

Stock-based Compensation

 

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a one-year period.

 

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

 

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

 

 

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

 

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

Convertible Preferred Stock

Convertible Preferred Stock

 

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.

 

The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date.

Beneficial Conversion Feature of Convertible Notes Payable

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.

 

The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

Net Loss per Share

Net Loss per Share

 

Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s convertible preferred stock, convertible notes and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, notes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

 

 

The following financial instruments were not included in the diluted loss per share calculation as of June 30, 2021 and 2020 because their effect was anti-dilutive:

 

   As of June 30, 
   2021   2020 
Warrants to purchase common stock   9,627,915    502,915 
Series C-1 Convertible Preferred stock   -    196,093 
Series C-2 Convertible Preferred stock   40,117,648    - 
Convertible notes   2,392,631    4,048,583 
Total   52,138,194    4,747,591 

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

 

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

v3.21.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2021
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, 2021 and 2020 because their effect was anti-dilutive:

 

   As of June 30, 
   2021   2020 
Warrants to purchase common stock   9,627,915    502,915 
Series C-1 Convertible Preferred stock   -    196,093 
Series C-2 Convertible Preferred stock   40,117,648    - 
Convertible notes   2,392,631    4,048,583 
Total   52,138,194    4,747,591 
v3.21.2
Stockholders’ Equity (Tables)
6 Months Ended
Jun. 30, 2021
Equity [Abstract]  
Summary of Weighted-average Assumptions Used to Estimate Fair Value

The following weighted-average assumptions were used to estimate the fair value of options granted during the six months ended 2021 and 2020 for both the Black-Scholes formula and the Monte-Carlo simulation:

 

 

  

For the six months ended

June 30,

 
   2021   2020 
Exercise price  $0.21    - 
Term (years)   2.50-3.30     - 
Expected stock price volatility   185.9%   - 
Risk-free rate of interest   0.34%   - 
Summary of Option Activity

A summary of options activity under the Company’s stock option plan for six months ended June 30, 2021 is presented below:

 

   Number of Shares   Weighted Average Exercise Price   Total Intrinsic Value   Weighted Average Remaining Contractual
Life (in years)
 
Outstanding as of December 31, 2020   -   $-   $-    - 
Employee options granted   12,350,000    0.21    5,436,000    4.8 
Outstanding as of June 30, 2021   12,350,000   $0.21   $5,436,000    4.8 
Options vested and exercisable   7,200,000   $0.19   $3,261,600    4.8 
Summary of Restricted Stock

A summary of the Company’s restricted stock units granted under the 2021 Plan during the six months ended June 30, 2021 are as follows:

 

   Number of Restricted
Stock Units
   Weighted Average
Grant Day Fair Value
 
Non-vested at December 31, 2020  -   $- 
Granted   3,407,813    0.97 
Non-vested at June 30, 2021   3,407,813   $0.97 
v3.21.2
Liquidity, Financial Condition and Management’s Plan (Details Narrative)
$ in Millions
6 Months Ended
Jun. 30, 2021
USD ($)
Liquidity Financial Condition And Managements Plan  
Proceeds from issuance of shares, debt and warrant $ 14.2
v3.21.2
Schedule of Earnings Per Share Anti-diluted (Details) - shares
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 52,138,194 4,747,591
Warrant [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 9,627,915 502,915
Series C-1 Convertible Preferred Stock [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 196,093
Series C-2 Convertible Preferred Stock [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 40,117,648
Convertible Debt Securities [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Total 2,392,631 4,048,583
v3.21.2
Summary of Significant Accounting Policies (Details Narrative)
Jan. 01, 2017
Accounting Policies [Abstract]  
Estimated forfeiture rate 0
v3.21.2
Note Payable (Details Narrative) - USD ($)
6 Months Ended
Jan. 15, 2021
Dec. 16, 2020
Jun. 30, 2021
2020 December Promissory Note [Member]      
Short-term Debt [Line Items]      
Interest expense     $ 60,000
Accrued interest     64,000
Amortization on debt discount     589,000
2021 Promissory Note [Member]      
Short-term Debt [Line Items]      
Promissory notes     1,000,000
Interest expense     55,000
Accrued interest     55,000
Amortization on debt discount     $ 546,000
Cavalry Fund I LP [Member] | 2020 December Promissory Note [Member]      
Short-term Debt [Line Items]      
Promissory notes   $ 1,000,000  
Proceeds from issuance of promissory note   $ 1,000,000  
Debt maturity date   Oct. 16, 2021  
Debt instrument discount rate   35.00%  
Debt conversion price per share   $ 0.04  
Debt interest rate   12.00%  
Warrants to purchase of common stock shares   2,000,000  
Warrants exercise price   $ 0.20  
Proceeds from issuance of debt   $ 400,000  
Cavalry Fund I LP [Member] | 2021 Promissory Note [Member]      
Short-term Debt [Line Items]      
Proceeds from issuance of promissory note $ 1,000,000    
Debt maturity date Nov. 15, 2021    
Debt instrument discount rate 35.00%    
Debt conversion price per share $ 0.75    
Debt interest rate 12.00%    
Debt conversion of beneficial conversion feature $ 218,000    
Debt conversion common stock issued 705,716    
Shares issued, price per share $ 1.41    
Fair value of underlying common stock $ 2.18    
Cavalry Fund I LP [Member] | 2021 Promissory Note [Member] | Series D Warrants [Member]      
Short-term Debt [Line Items]      
Warrants to purchase of common stock shares 2,000,000    
Warrants exercise price $ 2.16    
Fair value of warrant $ 3,580,000    
Debt conversion of beneficial conversion feature $ 782,000    
v3.21.2
Summary of Weighted-average Assumptions Used to Estimate Fair Value (Details) - $ / shares
6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]    
Exerise price $ 0.21
Term (years)  
Expected stock price volatility 185.90%
Risk-free rate of interest 0.34%
Minimum [Member]    
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]    
Term (years) 2 years 6 months  
Maximum [Member]    
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]    
Term (years) 3 years 3 months 18 days  
v3.21.2
Summary of Option Activity (Details)
6 Months Ended
Jun. 30, 2021
USD ($)
$ / shares
shares
Equity [Abstract]  
Number of Shares Outstanding, Beginning balance | shares
Weighted Average Exercise Price, Beginning balance | $ / shares
Total Intrinsic Value, Beginning balance | $
Weighted Average Remaining Contractual Life (in years), Beginning balance
Number of Shares Outstanding, Employee options granted | shares 12,350,000
Weighted Average Exercise Price, Employee options granted | $ / shares $ 0.21
Total Intrinsic Value, Employee options granted | $ $ 5,436,000
Weighted Average Remaining Contractual Life (in years), Employee options granted 4 years 9 months 18 days
Number of Shares Outstanding, Ending balance | shares 12,350,000
Weighted Average Exercise Price, Ending balance | $ / shares $ 0.21
Total Intrinsic Value, Ending balance | $ $ 5,436,000
Weighted Average Remaining Contractual Life (in years), Ending balance 4 years 9 months 18 days
Number of Shares Outstanding, Options vested and exercisable | shares 7,200,000
Weighted Average Exercise Price, Options vested and exercisable | $ / shares $ 0.19
Total Intrinsic Value, Options vested and exercisable | $ $ 3,261,600
Weighted Average Remaining Contractual Life (in years), Options vested and exercisable 4 years 9 months 18 days
v3.21.2
Summary of Restricted Stock (Details)
6 Months Ended
Jun. 30, 2021
$ / shares
shares
Equity [Abstract]  
Number of Restricted Stock Units Nonvested, beginning balance | shares
Weighted Average Grant Day Fair Value Nonvested, beginning balance | $ / shares
Number of Restricted Stock Units, Granted | shares 3,407,813
Weighted Average Grant Day Fair Value, Granted | $ / shares $ 0.97
Number of Restricted Stock Units Nonvested, ending balance | shares 3,407,813
Weighted Average Grant Day Fair Value Nonvested, ending balance | $ / shares $ 0.97
v3.21.2
Stockholders’ Equity (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 28, 2021
Apr. 02, 2021
Mar. 30, 2021
Mar. 04, 2021
Jan. 28, 2021
Jan. 15, 2021
Jan. 02, 2021
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Mar. 31, 2021
Dec. 31, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Preferred stock, shares authorized               20,000,000   20,000,000     20,000,000
Number of shares issued               $ 800,000 $ 143,202 $ 2,814,133 $ 556,213    
Stock-based compensation expense                   9,226,702    
Stock Issued During Period, Shares, Conversion of Convertible Securities     196,094                    
Proceeds from Issuance of Common Stock                   $ 2,814,133 $ 556,213    
Number of stock options granted   210,000                      
Exercise price               $ 0.21   $ 0.21    
Number of vesting shares   140,000         4,800,000     210,000      
Vesting period   Apr. 01, 2022         Jan. 01, 2022            
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount               $ 3,700,000   $ 3,700,000      
2021 Equity Incentive Plan [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Stock-based compensation expense                   8,800,000      
Number of common stock reserved                       20,000,000  
Number of stock options granted             12,000,000            
Exercise price             $ 0.19            
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture                   8,600,000      
2021 Equity Incentive Plan [Member] | Restricted Stock [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Proceeds from Issuance of Common Stock                   $ 136,000      
RedChip Companies Inc. [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of restricted stock                   527,971      
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures                   $ 600,000      
Charles B Lee And Carol Van Cleef [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of stock options granted   350,000                      
Exercise price   $ 1.03                      
Charles B Lee And Carol Van Cleef [Member] | Restricted Stock Units (RSUs) [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of stock options granted   150,000                      
Board of Directors [Member] | 2021 Equity Incentive Plan [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of restricted stock             2,750,000            
Andrew Lee [Member] | Restricted Stock Units (RSUs) [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of stock options granted 507,813                        
Stock option vesting period 5 years                        
Stock option grant value $ 300,000                        
Andrew Lee [Member] | Restricted Stock Units (RSUs) [Member] | Share-based Payment Arrangement, Tranche One [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Stock option vesting percentage 20.00%                        
Equity Line of Credit Purchase Agreement [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of shares issued, shares         4,000,000         2,887,776      
Number of shares issued                   $ 2,814,133      
Transfer agent fees                   875      
Proceeds from Issuance of Common Stock                   $ 2,815,008      
Equity Line of Credit Purchase Agreement [Member] | Pro-rata Commitment Shares [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of shares issued, shares                   164,212      
Share price per share               $ 0.975   $ 0.975      
Securities Purchase Agreement [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of shares issued, shares       9,500,000                  
Share price per share       $ 1.00                  
Proceeds from Issuance Initial Public Offering       $ 9,500,000                  
Proceeds from placement       $ 8,900,000                  
Percentage of gross proceeds of offerings       7.00%                  
Legal fees and other accountable expenses       $ 40,000                  
Series C-2 Convertible Preferred Stock [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of shares issued, shares             1,100,000    
Number of shares issued             $ 1,100,000      
Share price per share             $ 1.00            
Stock-based compensation expense             $ 179,277            
Redeemed price value percentage             107.00%            
Conversion price               $ 0.17   $ 0.17      
Beneficial conversion feature                   $ 129,412      
Preferred Stock, Convertible, Terms                   If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Company after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of June 30, 2021, $13,715,008 of Capital Raised triggered an adjustment to the Conversion Amount. The Company recognized the effect of the down-round protection when the capital raises occurred as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation      
Stock Issued During Period, Shares, Conversion of Convertible Securities                        
Preferred Stock, Shares Outstanding               1,100,000   1,100,000     0
Series C -2 Convertible Common Stock [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Stock Issued During Period, Shares, Conversion of Convertible Securities                   40,117,648      
Series C Warrants [Member] | Cavalry Fund I LP [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Warrants to purchase of common stock shares           2,000,000              
Payment of exercise price           $ 400,000              
Series C-1 Convertible Preferred Stock [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Number of shares issued, shares                  
Number of shares issued                  
Stock Issued During Period, Shares, Conversion of Convertible Securities     29,414                
Preferred Stock, Shares Outstanding               0   0     29,414
Minimum [Member] | Securities Purchase Agreement [Member] | Investors [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Percentage of gross proceeds of offerings       3.50%                  
Preferred Stock [Member] | Maximum [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Preferred stock, shares authorized               20,000,000   20,000,000      
Warrant [Member] | Securities Purchase Agreement [Member]                          
Accumulated Other Comprehensive Income (Loss) [Line Items]                          
Warrants term       5 years                  
Warrants to purchase of common stock shares       7,125,000                  
Class of Warrant or Right, Exercise Price of Warrants or Rights       $ 1.15                  
v3.21.2
Employee Benefit Plans (Details Narrative)
6 Months Ended
Jun. 30, 2021
USD ($)
Retirement Benefits [Abstract]  
Employee contribution percentage 100.00%
Employee contribution amount $ 39,000