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 September 30, 2015



[  ]
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.)



Bitcoin
Shop Inc.

1901
North Fort Myer Drive, Suite #1105

Arlington,
VA 22209



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 November 11, 2015, there were 157,400,545 shares of common stock, par value $0.001, issued and outstanding.
















BTCS
INC.

(Formerly
Bitcoin Shop, Inc.)



TABLE
OF CONTENTS



|                                   |                                                                                                                                 | Page
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ----
|PART
    I - FINANCIAL INFORMATION |                                                                                                                                
|                                   |                                                                                                                                 |     
|ITEM 1                             | Financial
    Statements                                                                                                        |     
|                                   |                                                                                                                                 |     
|                                   | Condensed
    Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014                            | 4   
|                                   |                                                                                                                                 |     
|                                   | Condensed
    Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited) | 5   
|                                   |                                                                                                                                 |     
|                                   | Condensed
    Consolidated Statement of Stockholders’ (Deficit)/Equity for the Nine Months Ended September 30, 2015 (unaudited) | 6   
|                                   |                                                                                                                                 |     
|                                   | Condensed
    Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)           | 7   
|                                   |                                                                                                                                 |     
|                                   | Notes
    to the Unaudited Condensed Consolidated Financial Statements                                                          | 8   
|                                   |                                                                                                                                 |     
|ITEM 2                             | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations                                       | 17  
|                                   |                                                                                                                                 |     
|ITEM 3                             | Quantitative
    and Qualitative Disclosures About Market Risk                                                                  | 23  
|                                   |                                                                                                                                 |     
|ITEM 4                             | Controls
    and Procedures                                                                                                     | 23  
|                                   |                                                                                                                                 |     
|PART
    II - OTHER INFORMATION    |                                                                                                                                
|                                   |                                                                                                                                 |     
|ITEM 1                             | Legal
    Proceedings                                                                                                           | 23  
|                                   |                                                                                                                                 |     
|ITEM 1A                            | Risk
    Factors                                                                                                                | 23  
|                                   |                                                                                                                                 |     
|ITEM 2                             | Unregistered
    Sales of Equity Securities and Use of Proceeds                                                                 | 24  
|                                   |                                                                                                                                 |     
|ITEM 3                             | Defaults
    Upon Senior Securities                                                                                             | 25  
|                                   |                                                                                                                                 |     
|ITEM 4                             | Mine
    Safety Disclosures                                                                                                     | 25  
|                                   |                                                                                                                                 |     
|ITEM 5                             | Other
    Information                                                                                                           | 25  
|                                   |                                                                                                                                 |     
|ITEM 6                             | Exhibits                                                                                                                        | 25  



2







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.



3







ITEM
1 Financial Statements



BTCS
Inc. and Subsidiaries

(Formerly
Bitcoin Shop, Inc.)

Condensed
Consolidated Balance Sheets



|                                                                                                                                             |  | September
    30, 2015 |             |   | December
    31,2014 |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----------- | - | -------------------- | -
|                                                                                                                                             |  | (Unaudited)            |             |   |                      |  
|Assets:                                                                                                                                      |  |                        |             |   |                      |  
|Current assets:                                                                                                                              |  |                        |             |   |                      |  
|Cash                                                                                                                                         |  | $                      | 91,623      |   |                      | $
|Digital currencies                                                                                                                           |  |                        | 61,306      |   |                      |  
|Prepaid expense
    and other current assets                                                                                                 |  |                        | 22,627      |   |                      |  
|Total current
    assets                                                                                                                     |  |                        | 175,556     |   |                      |  
|                                                                                                                                             |  |                        |             |   |                      |  
|Other assets:                                                                                                                                |  |                        |             |   |                      |  
|Property and equipment, net                                                                                                                  |  |                        | 564,205     |   |                      |  
|Investment                                                                                                                                   |  |                        | 1,500,000   |   |                      |  
|Websites                                                                                                                                     |  |                        | 7,364       |   |                      |  
|Deposits                                                                                                                                     |  |                        | 56,700      |   |                      |  
|Total other assets                                                                                                                           |  |                        | 2,128,269   |   |                      |  
|                                                                                                                                             |  |                        |             |   |                      |  
|Total Assets                                                                                                                                 |  | $                      | 2,303,825   |   |                      | $
|                                                                                                                                             |  |                        |             |   |                      |  
|Liabilities and Stockholders’
    (Deficit)/Equity:                                                                                          |  |                        |             |   |                      |  
|Accounts payable and accrued expense                                                                                                         |  | $                      | 304,112     |   |                      | $
|Short term loan from related party                                                                                                           |  |                        | -           |   |                      |  
|Short term loan                                                                                                                              |  |                        | 45,000      |   |                      |  
|Derivative liability                                                                                                                         |  |                        | 3,186,372   |   |                      |  
|Total current
    liabilities                                                                                                                |  |                        | 3,535,484   |   |                      |  
|                                                                                                                                             |  |                        |             |   |                      |  
|Stockholders’ (deficit)/equity:                                                                                                              |  |                        |             |   |                      |  
|Preferred stock; 20,000,000 shares authorized at $0.001 par value:                                                                           |  |                        |             |   |                      |  
|Series C Convertible Preferred: 0 and
    2,200,000 shares issued and outstanding, respectively Liquidation preference $0.001 per share      |  |                        | -           |   |                      |  
|Common stock, 975,000,000 shares authorized
    at $0.001 par value, 170,198,077 and 153,186,804 shares issued and outstanding, respectively |  |                        | 170,198     |   |                      |  
|Treasury stock, at cost, 13,000,000
    and 12,750,000 shares at September 30, 2015 and December 31, 2014, respectively                      |  |                        | (4,991      | ) |                      |  
|Additional paid in capital                                                                                                                   |  |                        | 21,761,856  |   |                      |  
|Accumulated deficit                                                                                                                          |  |                        | (23,158,722 | ) |                      |  
|Total stockholders’
    (deficit)/equity                                                                                                     |  |                        | (1,231,659  | ) |                      |  
|                                                                                                                                             |  |                        |             |   |                      |  
|Total Liabilities
    and stockholders’ (deficit)/equity                                                                                     |  | $                      | 2,303,825   |   |                      | $



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



4







BTCS
Inc. and Subsidiaries

(Formerly
Bitcoin Shop, Inc.)

Condensed
Consolidated Statement of Operations

(Unaudited)



|                                                   |  | For the three months
    ended |             |   | For the nine months ended |  
|-------------------------------------------------- |  | ------------------------------ | ----------- | - | ------------------------- | -
|                                                   |  | September
    30,              |             |   | September
    30,         |  
|                                                   |  | 2015                           |             |   | 2014                      |  
|Revenues                                           |  |                                |             |   |                           |  
|E-commerce                                         |  | $                              | -           |   |                           | $
|Transaction
    verification services              |  |                                | 169,069     |   |                           |  
|Total revenues                                     |  |                                | 169,069     |   |                           |  
|Power and mining
    expenses                      |  |                                | (101,824    | ) |                           |  
|Gross
    profit                                   |  |                                | 67,245      |   |                           |  
|                                                   |  |                                |             |   |                           |  
|Operating expenses:                                |  |                                |             |   |                           |  
|Marketing                                          |  |                                | 8,347       |   |                           |  
|General and administrative                         |  |                                | 4,160,461   |   |                           |  
|Impairment
    loss                                |  |                                | -           |   |                           |  
|Total
    operating expenses                       |  |                                | 4,168,808   |   |                           |  
|                                                   |  |                                |             |   |                           |  
|Net loss from
    operations                       |  |                                | (4,101,563  | ) |                           |  
|                                                   |  |                                |             |   |                           |  
|Other income (expenses):                           |  |                                |             |   |                           |  
|Fair value adjustments
    for warrant liabilities |  |                                | 286,087     |   |                           |  
|Inducement expense                                 |  |                                | -           |   |                           |  
|Interest (expenses)
    income                     |  |                                | (2,291      | ) |                           |  
|Loss on issuance
    of Units                      |  |                                | -           |   |                           |  
|Other
    expenses                                 |  |                                | (1,672      | ) |                           |  
|Total
    other (expenses) income                  |  |                                | 282,124     |   |                           |  
|                                                   |  |                                |             |   |                           |  
|Net loss                                           |  | $                              | (3,819,439  | ) |                           | $
|                                                   |  |                                |             |   |                           |  
|Net loss per
    share, basic and diluted          |  | $                              | (0.02       | ) |                           | $
|                                                   |  |                                |             |   |                           |  
|Weighted average number of shares outstanding      |  |                                |             |   |                           |  
|Basic
    and diluted                              |  |                                | 170,162,708 |   |                           |  



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



5







BTCS
Inc. and Subsidiaries

(Formerly
Bitcoin Shop, Inc.)

Condensed
Consolidated Statement of Stockholders’ (Deficit)/Equity

(Unaudited)



|                                                                                       |  | Series C Convertible |            |   |                  |   |        |                    |  |  | Additional  |  |  |             |         |  | Total         |  
|-------------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---------------- | - | ------ | ------------------ |  |  | ----------- |  |  | ----------- | ------- |  | ------------- | -
|                                                                                       |  | Preferred
    Stock  |            |   | Common
    Stock |   |        | Treasury
    Stock |  |  | Paid-in     |  |  | Accumulated |         |  | Stockholders’ |  
|                                                                                       |  | Shares               |            |   | Amount           |   |        | Shares             |  |  | Amount      |  |  | Shares      |         |  | Amount        |  
|Balance January 1, 2015                                                                |  |                      | 2,200,000  |   |                  | $ | 2,200  |                    |  |  | 153,186,804 |  |  | $           | 153,187 |  |               |  
|Issuance of private
    placement units for cash                                       |  |                      | -          |   |                  |   | -      |                    |  |  | 12,038,342  |  |  |             | 12,038  |  |               |  
|Common stock repurchase                                                                |  |                      | -          |   |                  |   | -      |                    |  |  | -           |  |  |             | -       |  |               |  
|Conversion of Serise
    C Convertible Preferred to common stock                       |  |                      | (2,200,000 | ) |                  |   | (2,200 | )                  |  |  | 2,200,000   |  |  |             | 2,200   |  |               |  
|Issuance of common
    stock for asset purchase                                        |  |                      | -          |   |                  |   | -      |                    |  |  | 351,193     |  |  |             | 351     |  |               |  
|Conversion of accounts
    payable to common stock                                     |  |                      | -          |   |                  |   | -      |                    |  |  | 824,056     |  |  |             | 824     |  |               |  
|Inducement expenses
    associated with conversion of accounts payable to common stock |  |                      | -          |   |                  |   | -      |                    |  |  | -           |  |  |             | -       |  |               |  
|Issuance of common
    stock for investment                                            |  |                      | -          |   |                  |   | -      |                    |  |  | 701,966     |  |  |             | 702     |  |               |  
|Issuance of common
    stock for services                                              |  |                      | -          |   |                  |   | -      |                    |  |  | 895,716     |  |  |             | 896     |  |               |  
|Issuance of warrants
    for services                                                  |  |                      | -          |   |                  |   |        |                    |  |  | -           |  |  |             | -       |  |               |  
|Stock based compensation                                                               |  |                      | -          |   |                  |   | -      |                    |  |  | -           |  |  |             | -       |  |               |  
|Net
    loss                                                                           |  |                      | -          |   |                  |   | -      |                    |  |  | -           |  |  |             | -       |  |               |  
|Balance September 30, 2015                                                             |  |                      | -          |   |                  | $ | -      |                    |  |  | 170,198,077 |  |  | $           | 170,198 |  |               | $



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



6







BTCS
Inc. and Subsidiaries

(Formerly
Bitcoin Shop, Inc.)

Condensed
Consolidated Statement of Cash Flows

(Unaudited)



|                                                                                   |  | For the nine months ended |           
|---------------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                                   |  | September
    30,         |           
|                                                                                   |  | 2015                      |           
|Net Cash flows used from operating
    activities:                                 |  |                           |           
|Net loss                                                                           |  | $                         | (8,418,831
|Adjustments to reconcile net loss to
    net cash used in operating activities:    |  |                           |           
|Depreciation and
    amortization expenses                                         |  |                           | 205,240   
|Stock based compensation                                                           |  |                           | 6,383,772 
|Change in fair value
    of digital currencies                                     |  |                           | (7,476    
|Interest income
    on investment                                                  |  |                           | -         
|Issuance of common
    stock for services                                          |  |                           | 189,855   
|Issuance of warrants
    for services                                              |  |                           | 100,000   
|Loss on issuance
    of Units                                                      |  |                           | 1,050,911 
|Fair value adjustments
    for warrant liabilities                                 |  |                           | (610,039  
|Inducement expenses                                                                |  |                           | 58,380    
|Impairment loss                                                                    |  |                           | 254,433   
|Changes in operating assets and liabilities:                                       |  |                           |           
|Digital currencies                                                                 |  |                           | (37,790   
|Prepaid expenses
    and other current assets                                      |  |                           | 24,027    
|Accounts payable                                                                   |  |                           | 292,906   
|Customer
    deposits                                                              |  |                           | -         
|Net cash used
    in operating activities                                          |  |                           | (514,612  
|                                                                                   |  |                           |           
|Net cash used in investing activities:                                             |  |                           |           
|Purchase of intangible
    assets                                                  |  |                           | -         
|Purchase of property
    and equipment                                             |  |                           | (531,434  
|Sale of property
    and equipment, net                                            |  |                           | 4,141     
|Deposits                                                                           |  |                           | (51,885   
|Investments
    at cost                                                            |  |                           | (1,600,000
|Net cash used
    in investing activities                                          |  |                           | (2,179,178
|                                                                                   |  |                           |           
|Net cash provided by financing activities:                                         |  |                           |           
|Proceeds from the
    former members of BCSLLC                                     |  |                           | -         
|Common stock repurchase                                                            |  |                           | (2,500    
|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    
|Payment
    on short term loan from related party                                  |  |                           | (7,990    
|Net cash provided
    by financing activities                                      |  |                           | 2,780,010 
|                                                                                   |  |                           |           
|Net increase in cash                                                               |  |                           | 86,220    
|Cash, beginning of period                                                          |  |                           | 5,403     
|Cash, end of period                                                                |  | $                         | 91,623    
|                                                                                   |  |                           |           
|Supplemental disclosure of non-cash
    financing and investing activities:        |  |                           |           
|Conversion of Series
    B Convertible Preferred to common stock                   |  | $                         | -         
|Conversion of Serise
    C Convertible Preferred to common stock                   |  | $                         | 2,200     
|Exchange warrants
    for common stock                                             |  | $                         | -         
|Issuance of common
    stock for asset purchase                                    |  | $                         | 48,626    
|Reclassification
    of derivative liability warrant to additional paid in capital |  | $                         | -         
|Conversion of accounts
    payable to common stock                                 |  | $                         | 246,924   
|Issuance of common
    stock for investment                                        |  | $                         | 154,433   



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



7







BTCS
Inc. and Subsidiaries

(Formerly
Bitcoin Shop, Inc.)

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, access to its
ecommerce site, and launching an invite only beta version of its multi-sig secure storage solution (digital wallet). Although
we continue to support and develop our ecommerce marketplace, we recently shifted a portion of our focus towards our transaction
verification service business, also known as bitcoin mining.



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 (“Share Exchange”). 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 “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 blockchain and digital currency markets and one of the first U.S. publicly traded companies
to be involved with digital currencies. The Company aims to enable users to engage in the digital currency ecosystem through one
point of access - a universal digital currency platform. The Company plans to design and build this platform under the brand “Blockchain
Technology Consumer Solutions,” or “BTCS.” The Company currently operates a beta ecommerce marketplace which
already accepts a variety of digital currencies, has designed a beta secure digital currency storage solution BTCS Wallet, and
has been expanding its transaction verification services business, recently adding servers capable of generating bitcoins (i.e.
bitcoin mining). In the short term, the Company believes its transaction verification services business will be a growing source
of revenue for it.



On
July 28, 2015, the Company released a press release announcing the name change from Bitcoin Shop, Inc. to BTCS Inc.



On
September 21, 2015, the Company, Spondoolies-Tech Ltd., an Israeli company (“Spondoolies”), and Shareholders of Spondoolies
(the “Selling Shareholders”) entered into a Share Purchase Agreement, dated as of September 21, 2015, (the “Agreement”)
pursuant to which the Company shall purchase all the shares in Spondoolies (the “Spondoolies Shares”) from the Selling
Shareholders so that Spondoolies will be a wholly-owned subsidiary of the Company after the closing of the transactions contemplated
by the Agreement (the “Transaction”).



In
exchange for the Spondoolies Shares, the Selling Shareholders will receive either shares of the Company’s common stock or
shares of the Company’s Series A preferred stock, convertible into the Company’s common stock as described below (collectively,
the “Company’s Securities”). After the completion of the Transaction, the Company’s shareholders will
own a 54.4% to 55.4% stake in the combined company and Spondoolies’ shareholders will own a 44.6% to 45.6% of the combined
company, based on the number of the Company’s securities outstanding immediately following the Transaction. The ownership
range is a function of the Company’s liquidation preference associated with its existing $1.5 million investment in Spondoolies.
The final ownership percentages will be determined prior to closing.



In
addition to standard closing conditions, the closing of the Transactions will not occur until the Selling Shareholders receive
rulings from the Israeli Tax Authority confirming, among other things, that the Selling Shareholders may defer the payment of
applicable Israeli taxes with respect to the Company’s securities received by each Selling Shareholder until the Company’s
securities are sold by the Selling Shareholder, and the approval of the transaction by the Israeli Office of Chief Scientist.
The Company cannot predict the exact timing of the consummation of the merger and can provide no assurances that the merger will
be consummated.



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, 2014.



8







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



The
Company has commenced its planned operations but had limited operating activities to date. The Company has financed its operations
from inception using proceeds received from capital contributions made by its members and proceeds in financing transactions.
On January 19, 2015, the Company raised $433,000 of capital in a private placement transaction, $20,000 of capital through the
issuance of a promissory note to Michal Handerhan, the Company’s Chief Operating Officer, and $45,000 of capital through
the issuance of a promissory note to a third party. On April 20, 2015, the Company raised $2,312,500 of capital in a private placement
transaction. Notwithstanding, the Company has limited revenues, limited capital resources and is subject to all of the risks and
uncertainties that are typical of an early stage enterprise. Significant uncertainties include, among others, whether the Company
will be able to raise the capital it needs to finance its longer term operations and whether such operations, if launched, will
enable the Company to sustain operations as a profitable enterprise.



The
Company used approximately $0.5 million of cash in its operating activities for the nine months ended September 30, 2015. The
Company incurred an $8.4 million net loss for the nine months ended September 30, 2015. The Company had cash of $0.09 million
and a working capital deficiency of approximately $3.4 million at September 30, 2015. 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. If the Company attempts to obtain additional debt or equity financing, it cannot
provide 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 condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has not made adjustments to the accompanying condensed 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 expenses, including public company expenses, in excess of corresponding
(non-financing related) revenue. While the Company continues to implement its business strategy, it intends to finance its activities
through:



|● | managing current
    cash and cash equivalents on hand from the Company’s past equity offerings,
|- | ------------------------------------------------------------------------------------------------
|  |                                                                                                 
|● | seeking additional
    funds raised through the sale of additional securities in the future, and
|  |                                                                                                 
|● | increasing revenue
    from its transaction verification services business.                     



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.



9







Earnings
per Share



Basic
earnings per share (“EPS”) 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 EPS 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. As of September 30, 2015, the
Company had 22,991,679 warrants outstanding, which were not included in the diluted loss per share calculation for the three months
and nine months ended September 30, 2015 because their effect was anti-dilutive.



Recent
Accounting Pronouncements



In
September 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-16, “Business
Combinations: Simplifying the Accounting for Measurement-Period Adjustments” (ASU 2015-16). ASU 2015-16 eliminates
the requirement for an acquirer to retrospectively adjust its financial statements for changes to provisional amounts that are
identified during the measurement-period following the consummation of a business combination. Instead, ASU 2015-16 requires
these types of adjustments to be made during the reporting period in which they are identified and would require additional disclosure
or separate presentation of the portion of the adjustment that would have been recorded in the previously reported periods as
if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective
prospectively for fiscal years beginning after December 15, 2015, including interim periods within those years. The Company does
not expect the adoption of ASU 2015-16 will have a material impact on its results of operations.



In
April 2015, the FASB issued ASU No. 2015-03,“Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03),
which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated
debt liability, consistent with the presentation of a debt discount. ASU 2015-03 is effective for the interim and annual periods
ending after December 15, 2015, but early adoption is permitted. The Company has already adopted ASU 2015-03 and such adoption
did not have any impact on the Company’s financial statements.



In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” (ASU 2014-09), to supersede
nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues,
when promised goods or services are transferred to customers, in an amount that reflects the consideration that is expected to
be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing
so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing
U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective
the first quarter of 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option
to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially
applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per
ASU 2014-09. The Company is currently evaluating the impact of ASU 2014-09 on its consolidated financial statements.



Subsequent
events



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



Note
5 - Property and Equipment



Property
and equipment consist of the following at September 30, 2015 and December 31, 2014:



|                                     |  | September
    30, 2015 |          |   | December
    31, 2014 |  
|------------------------------------ |  | ---------------------- | -------- | - | --------------------- | -
|Equipment                            |  | $                      | 111,885  |   |                       | $
|Computer                             |  |                        | 3,086    |   |                       |  
|Leasehold improvement                |  |                        | 223,587  |   |                       |  
|Transaction verification
    servers |  |                        | 449,911  |   |                       |  
|Property and equipment               |  |                        | 788,469  |   |                       |  
|Accumulated depreciation             |  |                        | (224,264 | ) |                       |  
|Property and
    equipment, net      |  | $                      | 564,205  |   |                       | $



During
the quarter ended September 30, 2015, the Company incurred $151,712 leasehold improvement cost for the facilities in North Carolina.
The lease commenced on January 28, 2015. The cost of leasehold improvement and office equipment are recorded at cost and depreciated
using the straight-line method over the lease period of 2 years.



10







Depreciation
expense was $88,161 and $2,011 for the three months ended September 30, 2015 and 2014, respectively, and $201,905 and $2,967 for
the nine months ended September 30, 2015 and 2014, respectively.



Note
6 - Shareholders’ Equity



Common
Stock



First
Quarter 2015



On
January 19, 2015 (the “Closing Date”), the Company sold an aggregate of 4,330,000 units (each a “January Unit”)
in a private placement (the “January Private Placement”) of its securities to certain investors at a purchase price
of $0.10 per January Unit pursuant to subscription agreements for an aggregate purchase price of $433,000. Each January Unit in
the January Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 2.5 shares of Common Stock
at an exercise price of $0.10 per share (“January Warrant”). The January Units are subject to a “Most Favored
Nations” provision and the January Warrants are subject to price protection in the event of lower priced issuances for a
period of twenty four months from the Closing Date in the event the Company issues Common Stock or securities convertible into
or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which shall be less than
$0.10 per share, subject to certain customary exceptions. Additionally, the shares of Common Stock issued as part of the January
Unit and issuable upon exercise of the January Warrants are subject to demand and piggy back registration rights. The January
Warrant may be exercised on a cashless basis in the event there is no effective registration statement covering the resale of
the Common Stock issuable upon exercise of the January Warrants. The January Warrants may be called for cancelation by the Company
if: (i) the price per share exceeds $0.20 for 15 consecutive trading days, and (ii) the average daily dollar trading volume for
such 15 consecutive trading days exceeds $50,000 per trading day. Because of the “Most Favored Nations” and call provision
discussed above, the net value to shareholders’ equity is 0. The fair value of all components of the January Units was $952,600
($649,500 attributed to the unit warrants, and $303,100 attributed to the derivative liability component with “Most Favored
Nations” Provision), and as such the Company recorded a loss on issuance of January Unit of $519,600 for the three month
ended March 31, 2015. (see Note 9 for assumptions)



On
January 23, 2015, the Company purchased 100 Spondoolies S35 digital currency mining servers from Spondoolies Tech Ltd. (“Spondoolies”)
for $223,500 (the “Purchase Price”) pursuant to a purchase order agreement (the “Purchase Agreement”).
$25,000 of the total Purchase Price was paid in the form of 250,000 shares of the Company’s common Stock.



On
January 26, 2015, the Company entered into a Share Redemption Agreement and Release (the “Redemption Agreement”) with
Charles Kiser, its Executive Vice President pursuant to which Mr. Kiser agreed to return an aggregate of 250,000 shares of the
Company’s Common Stock, held by him to the Company for cancellation in consideration for an aggregate payment of $2,500.



On
February 20, 2015, the Company issued 55,693 shares of Common Stock at a price of $0.26 to purchase hardware from a seller for
$14,480.



On
March 26, 2015 the Company acquired 166,756 shares (an additional 2% equity ownership) of Coin Outlet from Eric Grill, Coin Outlet’s
CEO, for 701,966 shares of the Company’s Common Stock. The Company now owns approximately 4.2% of Coin Outlet’s equity
and has the ability to own up to 11% upon exercise of the Company’s previously issued option and warrant. Mr. Grill entered
into a lock-up agreement with the Company with respect to his shares, pursuant to the lockup agreement Mr. Grill is prohibited
from the sale of any his shares until after February 5, 2017. The Company assessed impairment for the Coin Outlet investment and
determined that this investment is not recoverable and as such fully impaired it due to the steady price decline in Bitcoins throughout
2015. The Bitcoin Price Index was $319.70 and $243.39 as of December 31, 2014 and March 31, 2015, respectively. Total impairment
was $154,433 for Coin Outlet.



During
the quarter ended March 31, 2015, a preferred stockholder converted 2,200,000 shares of Series C Preferred Stock to 2,200,000
shares of Common Stock. This conversion was in accordance with the original terms of the Series C Preferred Stock agreement.



During
the quarter ended March 31, 2015, the Company converted accounts payable due to certain vendors of $143,694 into 552,669 shares
of Common Stock. In addition to common shares issued, the Company also granted “Conversion Price Protection” to each
vendor. For one year after the date of conversion if the Company issues any equity or an equity-linked security at a price less
than $0.26 per common share it will result in the issuance of additional Common Stock in an amount equal to an amount such that
total number of shares issued to the vendors will be equal to the number of shares that would have been issued had the accounts
payable been converted at the subsequent lower offering price. The fair value of the Common Stock on each of the issuance date
with “Conversion Price Protection” was $202,074. The Company recorded $58,380 of inducement expense associated with
the issuance of the common shares (based upon a monte-carlo simulation). A summary of quantitative information with respect to
valuation methodology for the three months ended March 31, 2015 is as follows:



|Date of valuation          |  | February
    18, 2015 |        |   | February
    18, 2015 |   |        | March
    5, 2015 | 
|-------------------------- |  | --------------------- | ------ | - | --------------------- | - | ------ | ----------------- | 
|Fair value of Common Stock |  | $                     | 0.32   |   |                       | $ | 0.32   |                   | 
|Dividend yield (per share) |  |                       | 0      |   |                       |   | 0      |                   | 
|Strike price               |  | $                     | 0.26   |   |                       | $ | 0.26   |                   | 
|Volatility (annual)        |  |                       | 123.36 | % |                       |   | 123.36 | %                 | 
|Risk-free rate             |  |                       | 0.23   | % |                       |   | 0.23   | %                 | 
|Expected life (years)      |  |                       | 5      |   |                       |   | 5      |                   | 



11







Second
Quarter 2015



On
April 20, 2015 (the “Closing Date”), the Company sold an aggregate of 7,708,342 units (each a “April Unit”)
in a private placement (the “April Private Placement”) of its securities to certain investors at a purchase price
of $0.30 per January Unit pursuant to subscription agreements for an aggregate purchase price of $2,312,500. Each April Unit in
the April Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 1.4 shares of Common Stock
at an exercise price of $0.375 per share (“April Warrant”). Charles Allen, the Company’s Chief Executive Officer
and Michal Handerhan, the Company’s Chief Operating Officer each purchased 66,667 April Units for $20,000 per executive
in the April Private Placement. The April Units are subject to a “Most Favored Nations” provision and the April Warrants
are subject to price protection in the event of lower priced issuances for a period of twenty four months from the Closing Date
in the event the Company issues Common Stock or securities convertible into or exercisable for shares of Common Stock at a price
per share or conversion or exercise price per share which shall be less than $0.30 per share, subject to certain customary exceptions.
Additionally, the shares of Common Stock issued as part of the April Unit and issuable upon exercise of the April Warrants are
subject to demand and piggy back registration rights. The April Warrant may be exercised on a cashless basis in the event there
is no effective registration statement covering the resale of the Common Stock issuable upon exercise of the April Warrants. The
April Warrants may be called for cancelation by the Company if: (i) the price per share exceeds $0.938 for 15 consecutive trading
days, and (ii) the average daily dollar trading volume for such 15 consecutive trading days exceeds $200,000 per trading day.
Because of the “Most Favored Nations” and call provision discussed above, the net value to shareholders’ equity
is 0. The fair value of all components of the April Units was $2,843,811 ($1,878,957 attributed to the unit warrants, and $964,854
attributed to the derivative liability component with “Most Favored Nations” Provision), and as such the Company recorded
a loss on issuance of April Unit of $531,311 on the issuance date. (see Note 9 for assumptions)



On
April 20, 2015, the Company issued an aggregate of 418,716 shares of Common Stock to its advisory board members. Each of the nine
members of the advisory board received 46,524 shares of common stock. The fair value of the Common stock on the issuance date
was $102,585.



On
May 12, 2015, the Company agreed to convert accrued and unpaid salaries owed to Charles Allen, the Company’s Chief Executive
Officer, and Michal Handerhan, the Company’s Chief Operating Officer (collectively the “Employees”) into shares
of Common Stock pursuant to conversion agreements (collectively, the “Salary Conversion Agreements”). The Company
recorded $25,000 accrued salaries as of March 31, 2015. Charles Allen converted $25,000 of accrued and unpaid salary for the months
of March 2015 and April 2015 into 50,000 shares of Common Stock at a per share price of $0.50. Michal Handerhan converted $25,000
of accrued and unpaid salary for the months of March 2015 and April 2015 into 50,000 shares of Common Stock at a per share price
of $0.50.



During
the quarter ended June 30, 2015, the Company issued a total 171,387 shares of Common Stock at a per share price of $0.31 to certain
vendors. The shares were issued pursuant to a conversion agreement for an aggregate conversion amount of $53,230. The conversion
amount was in consideration for advisory services.



On
June 16, 2015, the Company issued 45,500 shares of Common Stock to a vendor for construction works provided in our North Carolina
facility. The fair value of the Common Stock on the issuance date was $9,146, and was capitalized as leasehold improvement.



Third
Quarter 2015



During
the quarter ended September 30, 2015, the Company issued 477,000 shares of Common Stock to various independent contractors for
services provided at its facility in North Carolina and investor relations services. The weighted average fair value of the common
stock on the issuance date was $0.18 per share. The Company recorded expenses of $87,270 for the three months ended September
30, 2015.



12







Stock
Purchase Warrants



The
following is a summary of warrant activity for the nine months ended September 30, 2015:



|                                                      |  | Number of |            |  | Weighted Average   |  
|----------------------------------------------------- |  | --------- | ---------- |  | ------------------ | -
|                                                      |  | Warrants  |            |  | Exercise
    Price |  
|Outstanding as of December 31, 2014                   |  |           | 875,000    |  |                    | $
|Issuance of warrants with Units - January 19, 2015*   |  |           | 10,825,000 |  |                    |  
|Issuance of warrants with Units - April
    20, 2015* |  |           | 10,791,679 |  |                    |  
|Issuance of warrants
    for services                 |  |           | 500,000    |  |                    |  
|Outstanding as of September 30, 2015                  |  |           | 22,991,679 |  |                    | $



*
The warrants contain most favor nation and call provision and the Company classifies these warrant instruments as liabilities
measured at fair value and re-measures these instruments at fair value each reporting period. (See FN 9)



Demand
Registration Rights.



The
shares of Common Stock issued upon conversion of Series C Shares or the warrant underlying the January Units are subject to “piggy-back”
and “demand” registration rights until such shares of Common Stock may be sold under Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”). The Company shall pay to holders a fee of 0.25% per month of the investors’
investment, payable in cash, for every thirty (30) day period up to a maximum of 3%, (i) following the filing date that the registration
statement has not been filed and (ii) following the effectiveness date that the registration statement has not been declared effective;
provided, however, that the Company shall not be obligated to pay any such liquidated damages if the Company is unable to fulfill
its registration obligations as a result of rules, regulations, positions or releases issued or actions taken by the Commission
pursuant to its authority with respect to “Rule 415”, and the Company registers at such time the maximum number of
shares of Common Stock permissible upon consultation with the staff of the Commission. If during the effectiveness period, the
number of registerable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a registration
statement, the Company shall file as soon as reasonably practicable an additional registration statement covering the resale of
not less than the number of such registerable securities.



The
Company accounts for obligations under the Registration Rights Agreement in accordance with ASC 450 “Contingencies,”
which requires us to record a liability if the contingent loss is probable and the amount can be estimated. At September 30, 2015,
the Company has not recorded a liability pertaining to the Company’s obligations under the Registration Rights Agreement
because the amount is not deemed probable.



Note
7 - Related Party Transactions



On
December 18, 2014, Charles Allen, the Company’s Chief Executive Officer contributed $7,990 of brand new digital currency
mining hardware at cost in exchange for a promissory note (the “Allen Note”). The Allen Note bears interest at a rate
of 2% per year and is due on December 31, 2015. The Allen Note may be prepaid, at our option, without premium or penalty, in whole
or in part at any time or from time to time prior to the Allen Note maturity. On February 10, 2015, the Company paid back $3,000
on the Allen Note. On May 8, 2015, the Company paid in full the remaining balance of the promissory note issued to Charles Allen,
including $4,990 in principal and $48 in accrued interest.



On
January 19, 2015, Michal Handerhan, the Company’s Chief Operating Officer loaned the Company $20,000 pursuant to Promissory
Notes (the “Handerhan Note”). The Handerhan Note bears interest at the rate of 2% per annum and matures on December
31, 2015. The Handerhan Note may be prepaid, at the option of the Company, without premium or penalty, in whole or in part at
any time or from time to time prior to the Handerhan Note maturity. On February 17, 2015, the Company paid back $3,000. On May
4, 2015, the Company repaid $10,000 in principal of the promissory note issued to Michal Handerhan. On May 13, 2015, the Company
paid in full the remaining balance of the promissory note issued to Michal Handerhan, including $7,000 in principal and $108 in
accrued interest.



On
January 19, 2015 (the “Closing Date”), the Company sold an aggregate of 4,330,000 units (each a “January Unit”)
in a private placement (the “January Private Placement”) of its securities to certain investors at a purchase price
of $0.10 per January Unit pursuant to subscription agreements for an aggregate purchase price of $433,000. Charles Allen, the
Company’s Chief Executive Officer, and Michal Handerhan, the Company’s Chief Operating Officer, each purchased 50,000
January Units in the January Private Placement for $5,000 per executive.



On
April 20, 2015 (the “Closing Date”), the Company sold an aggregate of 7,708,342 units (each a “April Unit”)
in a private placement (the “April Private Placement”) of its securities to certain investors at a purchase price
of $0.30 per April Unit pursuant to subscription agreements for an aggregate purchase price of $2,312,500. Charles Allen, the
Company’s Chief Executive Officer and Michal Handerhan, the Company’s Chief Operating Officer each purchased 66,667
April Units for $20,000 per executive in the April Private Placement.



13







Note
8 - Investment at Cost



Coin
Outlet



On
January 19, 2015, the Company entered into a Convertible Note Purchase Agreement (the “Purchase Agreement”) with Coin
Outlet, Inc. (“Coin Outlet”) pursuant to which the Company purchased a convertible promissory note in the principal
amount of $100,000 (the “Coin Outlet Note”). The Coin Outlet Note accrues interest at 4% per annum and matures on
January 31, 2016. The Coin Outlet Note will convert, on or before the maturity date, upon the occurrence of Coin Outlet’s
next equity financing (or series of financings) in which Coin Outlet receives gross proceeds of at least $1 million (the “Trigger
Financing”). Upon the occurrence of a Trigger Financing, all outstanding principal on the Coin Outlet Note (and, at the
Coin Outlet’s option, accrued but unpaid interest thereon), will convert into such Coin Outlet securities sold in the Trigger
Financing at a price per share equal to 80% of the per share price of the securities sold in the Trigger Financing (the “Note
Conversion Price”). In the event the Note Conversion Price exceeds the quotient of (x) $6 million divided by (y) Coin Outlet’s
fully diluted capitalization (as calculated in the Coin Outlet Note) (such quotient, the “Fully Diluted Value”), then
the Note Conversion Price shall equal the per share price of the securities sold in the Trigger Financing and Coin Outlet shall
issue such additional number of shares of Coin Outlet to the Company such that the average purchase price per share of Coin Outlet
common stock (including shares of Coin Outlet common stock issuable upon conversion of the Coin Outlet Note into the Trigger Financing)
is equal to the Fully Diluted Value.



On
March 26, 2015 the Company acquired 166,756 shares (an additional 2% equity ownership) of Coin Outlet Inc. (“Coin Outlet”)
from Eric Grill, Coin Outlet’s CEO, for 701,966 shares of the Company’s Common Stock (“Coin Outlet Investment”).
The Company now owns approximately 4.2% of Coin Outlet’s equity and has the ability to own up to 11% upon exercise of its
previously issued option and warrant. Mr. Grill entered into a lock-up agreement with the Company with respect to his shares,
pursuant to the lockup agreement Mr. Grill is prohibited from the sale of any his shares until after February 5, 2017. (see Note
6)



As
of March 31, 2015, the Company assessed the carrying amount of this investment for potential impairment and determined that this
investment is not recoverable due to uncertainties regarding the stability of digital currency markets and steady price decline
in the US dollar equivalent of Bitcoins throughout 2015. The Bitcoin Price Index was $319.70 and $243.39 as of December 31, 2014
and March 31, 2015, respectively. Total impairment was $254,433 for the Coin Outlet Note and Coin Outlet Investment. The fair
value of investment was measured under Level 3 on a non-recurring basis.



Spondoolies



On
May 12, 2015, the Company entered into a Series B Preferred Share Purchase Agreement (the “Share Purchase Agreement”)
and the Management Rights Letter (the “Rights Letter”) with Spondoolies Tech Ltd. (“Spondoolies”) a Bitcoin
equipment manufacturer, by way of a joinder agreement (the “Joinder Agreement”) pursuant to which the Company purchased
29,092 Series B Preferred Shares of Spondoolies (the “Series B Shares”) for an aggregate purchase price of $1,500,000
(the “Investment”). After giving effect to the Investment, the Company owns approximately 6.6% of Spondoolies’
equity on a fully diluted basis. The Series B Preferred Shares are convertible into Spondoolies’ ordinary shares by dividing
the original issuance price of the Series B Preferred Shares ($51.56) by the initial conversion price ($51.56) (the “Conversion
Price”). Until Spondoolies consummates a “Qualified IPO” (as defined substantially as an initial firm commitment
underwritten public offering of Spondoolies’ ordinary shares with net proceeds to Spondoolies of not less than $40 million),
the Series B Preferred shares are subject to anti-dilution protection in the event Spondoolies issues ordinary shares or securities
convertible into or exercisable for ordinary shares at a price per share or conversion or exercise price per share which shall
be less than Conversion Price then in effect, subject to certain customary exceptions. The Conversion Price is subject to adjustment
in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Series B Shares
are also entitled to certain preemptive rights, and a liquidation preference in the event of dissolution of Spondoolies. The Series
B Preferred Shares are automatically convertible into ordinary shares of Spondoolies upon the occurrence of a Qualified IPO. In
connection with the Company’s purchase of the Series B Preferred Shares, the Company and Spondoolies executed the Rights
Letter which provided the Company with certain rights, including inspection rights, and information rights with respect to Spondoolies
financial statements, appurtenant to the Investment.



On
May 12, 2015, the Company and Spondoolies entered into a letter agreement (the “Letter Agreement”) to clarify and
expand upon certain terms related to a proposed merger (“Proposed Merger”) contained in the LOI. Under the terms of
the Letter Agreement, Spondoolies agreed to provide to the Company: (i) certain exclusivity rights for a period of nine months
(the “Term”) with respect to any proposals or offers from, or enter into any agreements with, any third party relating
to (a) any investment in, or acquisition of, equity interests of Spondoolies or (b) any possible sale or other disposition of
all or any material portion of assets of Spondoolies; (ii) a breakup fee of $50,000 payable by Spondoolies, if the Proposed Merger
is not consummated during the Term as a result of certain circumstances; (iii) a breakup fee of $1,000,000 if the Proposed Merger
is not consummated because the approval of Spondoolies’ board of directors or shareholders for the Proposed Merger is not
obtained and a competing deal is consummated, during the Term; and (iv) Spondoolies agreed to continue to sell its products to
the Company for a period of 3 years, if the Proposed Merger is not consummated and Spondoolies continues to design and manufacture
ASIC digital currency mining hardware.



14







On
September 21, 2015, the Company, Spondoolies-Tech Ltd., an Israeli company (“Spondoolies”), and Shareholders of Spondoolies
(the “Selling Shareholders”) entered into a Share Purchase Agreement, dated as of September 21, 2015, (the “Agreement”)
pursuant to which the Company shall purchase all the shares in Spondoolies (the “Spondoolies Shares”) from the Selling
Shareholders so that Spondoolies will be a wholly-owned subsidiary of the Company after the closing of the transactions contemplated
by the Agreement (the “Transaction”).



In
exchange for the Spondoolies Shares, the Selling Shareholders will receive either shares of the Company’s common stock or
shares of the Company’s Series A preferred stock, convertible into the Company’s common stock as described below (collectively,
the “Company’s Securities”). After the completion of the Transaction, the Company’s shareholders will
own a 54.4% to 55.4% stake in the combined company and Spondoolies’ shareholders will own a 44.6% to 45.6% of the combined
company, based on the number of the Company’s securities outstanding immediately following the Transaction. The ownership
range is a function of the Company’s liquidation preference associated with its existing $1.5 million investment in Spondoolies.
The final ownership percentages will be determined prior to closing.



In
addition to standard closing conditions, the closing of the Transactions will not occur until the Selling Shareholders receive
rulings from the Israeli Tax Authority confirming, among other things, that the Selling Shareholders may defer the payment of
applicable Israeli taxes with respect to the Company’s securities received by each Selling Shareholder until the Company’s
securities are sold by the Selling Shareholder, and the approval of the transaction by the Israeli Office of Chief Scientist.
The Company cannot predict the exact timing of the consummation of the merger and can provide no assurances that the merger will
be consummated.



Note
9 - 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 September 30, 2015 and December
31, 2014:



|                       |  | Fair
    value measured at September 30, 2015 |          
|---------------------- |  | --------------------------------------------- | ---------
|                       |  | Total
    carryingvalue atSeptember 30, 2015  |          
|Assets:                |  |                                               |          
|Digital Currencies     |  | $                                             | 61,306   
|                       |  |                                               |          
|Liabilities:           |  |                                               |          
|Derivative Liabilities |  | $                                             | 3,186,372



|                   |  | Fair
    value measured at December 31, 2014 |       
|------------------ |  | -------------------------------------------- | ------
|                   |  | Total
    carryingvalue atDecember 31, 2014  |       
|Digital Currencies |  | $                                            | 16,040



Derivative
liabilities as of September 30, 2015 consists of Unit warrants with most favored nation clauses that were issued on January 19,
2015 and April 20, 2015 in connection with the Company’s financing.



There
were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2015.



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 nine months ended September 30, 2015:



|Balance - January 1, 2015                                                     |  | $ | -         |  
|----------------------------------------------------------------------------- |  | - | --------- | -
|Fair value of derivative
    liability on date of issuance (January 19, 2015) |  |   | 952,600   |  
|Fair value of derivative liability on
    date of issuance (April 20, 2015)   |  |   | 2,843,811 |  
|Change in fair
    value of derivative liability                              |  |   | (610,039  | )
|Balance - September 30, 2015                                                  |  | $ | 3,186,372 |  



15







A
summary of quantitative information with respect to valuation methodology, estimated using a probability-weighted Black-Scholes
option pricing model, which is comparable to a Binomial option pricing model, and significant unobservable inputs used for the
Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy for the nine months ended
September 30, 2015 is as follows:



|Date of valuation          |  | January
    19, 2015 |      |   | April
    16, 2015 |   |      | September
    30, 2015 | 
|-------------------------- |  | -------------------- | ---- | - | ------------------ | - | ---- | ---------------------- | 
|Fair value of Common Stock |  | $                    | 0.08 |   |                    | $ | 0.24 |                        | 
|Strike price               |  | $                    | 0.10 |   |                    | $ | 0.38 |                        | 
|Volatility (annual)        |  |                      | 108  | % |                    |   | 160  | %                      | 
|Risk-free rate             |  |                      | 1.3  | % |                    |   | 1.3  | %                      | 
|Expected life (years)      |  |                      | 5.0  |   |                    |   | 5.0  |                        | 
|Dividend yield (per share) |  |                      | 0    |   |                    |   | 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
10 - 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 $3,629,804 and $2,247,800 for the three months ended September 30, 2015 and 2014, respectively. Stock-based
compensation expense was $6,383,772 and $5,814,963 for the nine months ended September 30, 2015 and 2014, respectively.



Stock
Option Activity



On
July 2, 2015, the Company entered into Option Cancellation and Release Agreements with each of Charles Allen, its Chief Executive
Officer, Chief Financial Officer and Chairman, and Michal Handerhan, its Chief Operating Officer and corporate secretary (collectively,
the “Company Option Holders”) pursuant to which the Company Option Holders agreed to return options to purchase up
to 12,450,000 shares in the aggregate of the Company’s Common Stock, par value $0.001 per share, with an exercise price
of $0.10. The Company Option Holders canceled their options without replacement, and the amortization of the unrecognized stock
compensation expenses were accelerated on July 2, 2015 for a total $3,629,804.



There
are no stock options outstanding as of September 30, 2015.



Note
11 - Commitments and Contingencies



On
January 28, 2015, BTCS Digital Manufacturing a wholly owned subsidiary of the Company entered into a commercial lease agreement
(the “Lease”). The term of the Lease commenced on January 28, 2015 and ends on January 25, 2017. The annual rental
fee for the first and second year will be $58,271 and $66,750, respectively. The Company also has the option to purchase the property
during the second year of the Lease term for a purchase price of $775,000 less the $10,000 security deposit and all lease payments.



On
May 28, 2015 the Company entered an operating sub-lease agreement ending on May 31, 2016 for its headquarters in Arlington, Virginia.
Prepaid expenses include $12,000 of fixed minimum lease payment that is prepaid through May 31, 2016.



Note
12 - Subsequent Events



On
October 14, 2015, the Company issued 162,037 shares of common stock to an individual investor for his cashless warrants exercise.



On
October 29, 2015, the Company issued 40,000 shares of common stock to a consultant for investor relations services.



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 aim to enable users to engage in the digital currency ecosystem through one point of access - a universal
digital currency platform. We plan to design and build this platform under the brand “Blockchain Technology Consumer Solutions,”
or “BTCS.” We currently operate a beta ecommerce marketplace which already accepts a variety of digital currencies,
have designed a beta secure digital currency storage solution BTCS Wallet, and, since the second half of 2014, have been expanding
our transaction verification services business, recently leasing and building out a 83,000 square foot facility and putting into
service a suite of servers capable of generating bitcoins (i.e. bitcoin mining). In the short term, we believe our transaction
verification services business will be a growing source of revenue for us. 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. While we believe that we have a
cost competitive facility and equipment with competitive processing power, 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 we can establish and expand a low cost transaction verification services business (bitcoin mining) and believe this
will provide revenue growth and synergies with our platform development efforts. 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). We are currently using approximately 0.65 megawatts of the facility’s capacity and plan to
increase our use of its capacity to 3 megawatts.



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.



Given
the size and low cost of our facility and electricity, we are also evaluating offering hosted mining services as well as traditional
data center services.



E-commerce
Marketplace



We
believe our e-commerce marketplace was the first such site to accept bitcoin. Our beta ecommerce marketplace now offers over 250,000
curated products and utilizes our “Intelligent Shopping Engine” to find competitive prices on products from over 250
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. While this poses competition
for our marketplace efforts, we believe it strengthens the acceptance of bitcoin and should, in the long run, be beneficial to
our planned universal platform.



17







Although
we have turned our focus on developing our transaction verification services business, our online ecommerce marketplace remains
hosted, maintained, and developed by us. We have developed 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 and strive for a smooth shopping experience.
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.



Strategic
Partnerships



We
have partnered with and invested in five digital currency companies, our Partner Companies, to further our efforts to build a
universal digital currency platform. We have integrated with GoCoin. GoCoin is an international payment platform enabling online
and retail merchants a way to accept bitcoin, litecoin and dogecoin as payment methods. We have also integrated with Gem. Gem
offers a secure software development toolkit for companies to develop multi-signature storage solutions to store bitcoin. We have
invested in and currently utilize Spondoolies ASIC servers for our transaction verification services business. We have also invested
in Coin Outlet which manufactures and operates AML/KYC compliant bitcoin ATM’s and Expresscoin who’s service enables
consumers a method to access and buy bitcoin and various other altcoins.



Blockchain
Technologies and Other Growth Initiatives



We
are also keenly focused on other blockchain technologies. Since the most prominent use case for blockchain technologies is digital
currencies (or more specifically, bitcoin), it remains our core focus. Nonetheless, we anticipate continuing to evaluate other
blockchain technology opportunities, as well as technologies that are complementary to our business strategy in an effort to minimize
risks and enhance shareholder value. This will include evaluating opportunities that diversify our revenue streams, provide other
consumer services and provide on-ramps for new users.



18







Results
of Operations for the Three Months Ended September 30, 2015 and 2014



The
following table reflects our operating results for the three months ended September 30, 2015 and 2014:



|                                                   |  | For the three months
    ended |           
|-------------------------------------------------- |  | ------------------------------ | ----------
|                                                   |  | September
    30,              |           
|                                                   |  | 2015                           |           
|Revenues                                           |  |                                |           
|E-commerce                                         |  | $                              | -         
|Transaction verification
    services              |  |                                | 169,069   
|Total revenues                                     |  |                                | 169,069   
|Power and mining
    expenses                      |  |                                | (101,824  
|Gross profit                                       |  |                                | 67,245    
|                                                   |  |                                |           
|Operating expenses:                                |  |                                |           
|Marketing                                          |  |                                | 8,347     
|General and administrative                         |  |                                | 4,160,461 
|Total operating
    expenses                       |  |                                | 4,168,808 
|                                                   |  |                                |           
|Net loss from
    operations                       |  |                                | (4,101,563
|                                                   |  |                                |           
|Other income (expenses):                           |  |                                |           
|Fair value adjustments
    for warrant liabilities |  |                                | 286,087   
|Interest (expenses)
    income                     |  |                                | (2,291    
|Other
    expenses                                 |  |                                | (1,672    
|Total other (expenses)
    income                  |  |                                | 282,124   
|                                                   |  |                                |           
|Net loss                                           |  | $                              | (3,819,439



Revenues



Revenues
for the three months ended September 30, 2015 and 2014 were $169,069 and $1,520, respectively. Revenues represent net revenue
earned from the processing of customer transactions through our ecommerce website and through fees earned from our transaction
verification service (bitcoin mining) business. The increase of $167,549 or 11,023% is primarily a result of fees earned from
our transaction verification service business for the three months ended September 30, 2015.



Power
and Mining Expenses



Power
and mining expenses for the three months ended September 30, 2015 and 2014 were $101,824 and $0, respectively. The increase in
the power and mining expenses is the result of electric costs for our transaction verification services business. Our electricity
cost is a variable expense subject to certain demand charges which change based upon on and off peak usage and seasonal billing
rates.  Our power consumption and resulting electricity cost is determined by the power settings of our transaction verification
servers and other ancillary equipment used in the building.



Operating
Expenses



Operating
expenses for the three months ended September 30, 2015 and 2014 were $4,168,808 and $2,592,727, of which $3,866,146 and $2,251,056
were related to non-cash charges, such as depreciation and amortization expenses, common stock and warrants issued for services,
and stock based compensation, respectively. The increase in operating expenses over the prior year mostly relates to an increase
of $1,382,004 in non-cash stock based compensation cost and an increase of $27,287 in professional services offset by a decrease
of $57,365 in marketing and general administrative costs.



19







Fair
Value Adjustments for Derivative Liabilities



For
the three months ended September 30, 2015, we recognized a gain on derivative liabilities of $286,087, due to the change in fair
value of warrants sold in the January Private Placement and April Private Placement as a result of a decrease in the market price
of our Common Stock, that are subject to a “Most Favored Nations” provision for a period of 12 months from the closing
of the January Private Placement and April Private Placement in the event the Company issues Common Stock. This liability is subject
to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our condensed consolidated
statements of operations. The fair value of the warrants has been estimated using a Monte Carlo simulation.



Results
of Operations for the Nine Months Ended September 30, 2015 and 2014



The
following table reflects our operating results for the nine months ended September 30, 2015 and 2014:



|                                                   |  | For the nine months ended |           
|-------------------------------------------------- |  | ------------------------- | ----------
|                                                   |  | September
    30,         |           
|                                                   |  | 2015                      |           
|Revenues                                           |  |                           |           
|E-commerce                                         |  | $                         | 6,290     
|Transaction verification
    services              |  |                           | 344,822   
|Total revenues                                     |  |                           | 351,112   
|Power and mining expenses                          |  |                           | (179,109  
|Gross profit                                       |  |                           | 172,003   
|                                                   |  |                           |           
|Operating expenses:                                |  |                           |           
|Marketing                                          |  |                           | 12,386    
|General and administrative                         |  |                           | 7,814,548 
|Impairment loss                                    |  |                           | 254,433   
|Total operating
    expenses                       |  |                           | 8,081,367 
|                                                   |  |                           |           
|Net loss from operations                           |  |                           | (7,909,364
|                                                   |  |                           |           
|Other income (expenses):                           |  |                           |           
|Fair value adjustments
    for warrant liabilities |  |                           | 610,039   
|Inducement expense                                 |  |                           | (58,380   
|Interest (expenses)
    income                     |  |                           | (8,073    
|Loss on issuance
    of Units                      |  |                           | (1,050,911
|Other expenses                                     |  |                           | (2,142    
|Total other (expenses)
    income                  |  |                           | (509,467  
|                                                   |  |                           |           
|Net loss                                           |  | $                         | (8,418,831



Revenues



Revenues
for the nine months ended September 30, 2015 and 2014 were $351,112 and $17,806 respectively. Revenues represent net revenue earned
from the processing of customer transactions through our ecommerce website and through fees earned from our transaction verification
service business. The increase of $333,306 or 1,872% is a result of fees earned from our transaction verification service business
which accounted for 98.2% of our revenue for the nine months ended September 30, 2015.



Power
and Mining Expenses



Power
and mining expenses for the nine months ended September 30, 2015 was $179,109. Our electricity cost is a variable expense subject
to certain demand charges which change based upon on and off peak usage and seasonal billing rates.  Our power consumption
and resulting electricity cost is determined by the power settings of our transaction verification servers and other ancillary
equipment used in the building.



Operating
Expenses



Operating
expenses for the nine months ended September 30, 2015 and 2014 were $8,081,367 and $6,833,334 of which $6,878,867 and $5,820,876
were related to non-cash charges, such as depreciation and amortization expenses, common stock and warrants issued for services,
and stock based compensation, respectively. The increase in operating expenses over the prior year mostly relates to increase
in non-cash stock based compensation of $592,300, depreciation expenses of $200,000, professional services of $132,680, general
administrative expenses of $51,908, and an increase in impairment loss of $254,433.



Inducement
Expense



During
the nine months ended September 30, 2015, we recognized a non-cash inducement expense of $58,380. The inducement expense was related
to conversion of accounts payable to Common Stock, to multiple vendors in connection with the extinguishment of accounts payable.



20







Loss
on issuance of January Units



On
January 19, 2015 (the “Closing Date”), we sold an aggregate of 4,330,000 Units (each a “January Unit”)
in a private placement (the “January Private Placement”) of its securities to certain investors (the “Investors”)
at a purchase price of $0.10 per January Unit pursuant to subscription agreements for an aggregate purchase price of $433,000.
Each January Unit in the January Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 2.5
shares of Common Stock at an exercise price of $0.10 per share (“January Warrant”). The January Units are subject
to a “Most Favored Nations” provision and the January Warrants are subject to price protection in the event of lower
priced issuances for a period of twenty four months from the Closing Date in the event the Company issues Common Stock or securities
convertible into or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which
shall be less than $0.10 per share, subject to certain customary exceptions. Additionally, the shares of Common Stock issued as
part of the January Unit and issuable upon exercise of the January Warrants are subject to demand and piggy back registration
rights. The January Warrant may be exercised on a cashless basis in the event there is no effective registration statement covering
the resale of the Common Stock issuable upon exercise of the January Warrants. The January Warrants may be called for cancelation
by the Company if: (i) the price per share exceeds $0.20 for 15 consecutive trading days, and (ii) the average daily dollar trading
volume for such 15 consecutive trading days exceeds $50,000 per trading day. The fair value of the January Units was $952,600
on the issuance date, and we recorded a loss of $519,600.



Loss
on issuance of April Units



On
April 20, 2015 (the “Closing Date”), we sold an aggregate of 7,708,342 units (each a “April Unit”) in
a private placement (the “April Private Placement”) of its securities to certain investors at a purchase price of
$0.30 per April Unit pursuant to subscription agreements for an aggregate purchase price of $2,312,500. Each April Unit in the
April Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 1.4 shares of Common Stock at
an exercise price of $0.375 per share (“April Warrant”). The April Units are subject to a “Most Favored Nations”
provision and the April Warrants are subject to price protection in the event of lower priced issuances for a period of twenty
four months from the Closing Date in the event we issue Common Stock or securities convertible into or exercisable for shares
of Common Stock at a price per share or conversion or exercise price per share which shall be less than $0.30 per share, subject
to certain customary exceptions. Additionally, the shares of Common Stock issued as part of the April Unit and issuable upon exercise
of the April Warrants are subject to demand and piggy back registration rights. The April Warrant may be exercised on a cashless
basis in the event there is no effective registration statement covering the resale of the Common Stock issuable upon exercise
of the April Warrants. The April Warrants may be called for cancelation by the Company if: (i) the price per share exceeds $0.938
for 15 consecutive trading days, and (ii) the average daily dollar trading volume for such 15 consecutive trading days exceeds
$200,000 per trading day. Because of the “Most Favored Nations” and call provision discussed above, the net value
to shareholders’ equity is 0. The fair value of all components of the April Units was $1,878,957 attributed to the unit
warrants and $964,854 attributed to the derivative liability component with “Most Favored Nations” Provision, and
as such the Company recorded a loss on issuance of April Unit of $531,311 for the nine months ended September 30, 2015.



Fair
Value Adjustments for Derivative Liabilities



During
the nine months ended September 30, 2015, we recognized a gain on derivative liabilities of $610,039, due to the change in fair
value of warrants sold in the January Private Placement and April Private Placement that are subject to a “Most Favored
Nations” provision for a period of 24 months from the closing of the January Private Placement and April Private Placement
in the event the Company issues Common Stock. This liability is subject to re-measurement at each balance sheet date until exercised,
and any change in fair value is recognized in our consolidated statements of operations. The fair value of the warrants has been
estimated using a Monte Carlo simulation.



Liquidity
and Capital Resources



At
September 30, 2015, we had current assets of $175,556 and current liabilities of $3,535,484, rendering a deficit of working capital
of $3,359,928.



Our
cash balance at September 30, 2015 was $91,623. Our working capital needs are influenced by our level of operations, and generally
decrease with higher levels of revenue. Our sources of cash during the nine months ended September 30, 2015 have primarily come
from the $433,000 and $2,312,500 Private Placement financing received on January 19, 2015 and April 20, 2015, respectively. Our
future operating results may be affected by a number of factors including the success of our transaction verification services
business, our ecommerce platform, and our continued ability to manage our controllable operating costs effectively. Our capital
requirements depend on numerous factors, including the market for our services, additional software development costs, and the
resources we devote to developing, marketing, selling and supporting our business, and the timing and extent of establishing additional
markets and other factors.



Operating
activities used $514,612 in cash for the nine months ended September 30, 2015. The sources of cash from operating activities comprised
primarily of $7,625,076 of net non-cash charges, a $58,132 decrease in prepaid expenses, and a $292,906 increase in accounts payable.
The uses of cash from operating activities primarily comprised of a net loss of $8,418,831, $37,790 increase in digital currencies,
and $34,105 increase in other current assets which is related to undeposited fund from sale of digital currencies.



21







Our
investing activities used $2,179,178 in cash for the nine months ended September 30, 2015.



Our
financing activities provided cash of $2,780,010 for the nine months ended September 30, 2015.



On
January 19, 2015, we sold an aggregate of 4,330,000 January Units in the January Private Placement of its securities to certain
investors at a purchase price of $0.10 per January Unit pursuant to subscription agreements for an aggregate purchase price of
$433,000. Each January Unit in the January Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase
2.5 shares of Common Stock at an exercise price of $0.10 per share. The January Units are subject to a “Most Favored Nations”
provision and the January Warrants are subject to price protection in the event of lower priced issuances for a period of twenty
four months from the Closing Date in the event the Company issues Common Stock or securities convertible into or exercisable for
shares of Common Stock at a price per share or conversion or exercise price per share which shall be less than $0.10 per share,
subject to certain customary exceptions. Additionally, the shares of Common Stock issued as part of the January Unit and issuable
upon exercise of the January Warrants are subject to demand and piggy back registration rights. The January Warrant may be exercised
on a cashless basis in the event there is no effective registration statement covering the resale of the Common Stock issuable
upon exercise of the January Warrants. The January Warrants may be called for cancelation by the Company if: (i) the price per
share exceeds $0.20 for 15 consecutive trading days, and (ii) the average daily dollar trading volume for such 15 consecutive
trading days exceeds $50,000 per trading day.



On
April 20, 2015, we sold an aggregate of 7,708,342 Units (each a “April Unit”) of its securities in a private placement
(the “April Private Placement”) to certain investors (the “Investors”) at a purchase price of $0.30 per
April Unit pursuant to subscription agreements for an aggregate purchase price of $2,312,500. Each April Unit in the April Private
Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 1.4 shares of Common Stock at an exercise price
of $0.375 per share (“April Warrant”). The April Units are subject to a “Most Favored Nations” provision
issuances for a period of twenty four months from the Closing Date in the event the Company issues Common Stock or securities
convertible into or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which
shall be less than $0.30 per share (such, issuance, a “Lower Price Issuance”), subject to certain customary exceptions.
Furthermore, the exercise price of the April Warrants is subject to certain price protection provisions for a period of twenty
four months in the event the Company issues a Lower Price Issuance such that the Company shall lower the April Warrant exercise
price to the price that is the product of: (i) one hundred and twenty five percent (125%), and (ii) the issuance price of the
Lower Price Issuance.



The
April Warrant may be exercised on a cashless basis in the event there is no effective registration statement covering the resale
of the Common Stock issuable upon exercise of the April Warrants. The April Warrants may be called for cancelation by the Company
if: (i) the volume weighted average price per share exceeds $0.938 for 15 consecutive trading days, and (ii) the average daily
dollar trading volume for such 15 consecutive trading days exceeds $200,000 per trading day.



We
have undertaken, pursuant to the registration rights agreement (the “Registration Rights Agreement”) between the Company
and each of the Investors to file a registration statement to register the shares of Common Stock issued as part of the April
Units and issuable upon exercise of the April Warrants issued in the April Private Placement, within forty five days following
the Closing Date, to have such registration statement declared effective by the Securities and Exchange Commission within one
hundred and twenty days from such filing date and to maintain the effectiveness of the registration statement until all of the
Common Stock and Conversion Shares, have been sold or are otherwise able to be sold pursuant to Rule 144. In the event the Company
fails to file within the forty five day period or have such registration statement declared effective within the one hundred and
twenty day period, the Company is obligated to pay liquidated damages to the Investors for every thirty days during which such
filing is not made and/or effectiveness obtained, such fee being subject to certain exceptions.



We
are dependent on our ability to retain short term financing and ultimately to generate sufficient cash flow to meet our obligations
on a timely basis in order to attain profitability, as well as successfully obtain financing on favorable terms to fund our long-term
plans. Our business will require significant amounts of capital to sustain operations and make the investments it needs to execute
its longer term business plan. Our existing liquidity is not sufficient to fund our operations, anticipated capital expenditures,
working capital and other financing requirements for the foreseeable future. Absent generation of sufficient revenue from the
execution of our business plan, we will need to seek to obtain additional debt or equity financing, especially if we experience
downturns or cyclical fluctuations in our business that are more severe or longer than anticipated, or if we experience significant
increases in expense levels resulting from being a publicly-traded company or from operations. If we attempt to obtain additional
debt or equity financing, we cannot provide assurance that such financing will be available to us on favorable terms, or 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 condensed financial statements have been prepared assuming we will continue as
a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.



22







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 September 30, 2015 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 September 30, 2015, 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:



|● | 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.



23







ITEM
2 Unregistered Sales of Equity Securities and Use of Proceeds



On
the Closing Date, the Company sold an aggregate of 4,330,000 January Units in the January Private Placement of its securities
to certain investors at a purchase price of $0.10 per January Unit pursuant to subscription agreements for an aggregate purchase
price of $433,000. Each January Unit in the January Private Placement consists of (i) one share of Common Stock and (ii) a warrant
to purchase 2.5 shares of Common Stock at an exercise price of $0.10 per share. The January Units are subject to a “Most
Favored Nations” provision and the January Warrants are subject to price protection in the event of lower priced issuances
for a period of twenty four months from the Closing Date in the event the Company issues Common Stock or securities convertible
into or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which shall be less
than $0.10 per share, subject to certain customary exceptions. Additionally, the shares of Common Stock issued as part of the
January Unit and issuable upon exercise of the January Warrants are subject to demand and piggy back registration rights. The
January Warrant may be exercised on a cashless basis in the event there is no effective registration statement covering the resale
of the Common Stock issuable upon exercise of the January Warrants. The January Warrants may be called for cancelation by the
Company if: (i) the price per share exceeds $0.20 for 15 consecutive trading days, and (ii) the average daily dollar trading volume
for such 15 consecutive trading days exceeds $50,000 per trading day. Because of the “Most Favored Nations” and call
provision discussed above, the net value to shareholders’ equity is 0.



Charles
Allen, the Company’s Chief Executive Officer, and Michal Handerhan, the Company’s Chief Operating Officer each purchased
50,000 January Units in the January Private Placement for $5,000 per executive.



On
January 23, 2015, the Company purchased 100 Spondoolies S35 digital currency mining servers from Spondoolies Tech Ltd. (“Spondoolies”)
for $223,500 (“Purchase Price”) pursuant to a purchase order agreement. $25,000 of the total Purchase Price was paid
in the form of 250,000 shares of the Company’s Common Stock.



On
January 26, 2015, the Company entered into a Share Redemption Agreement and Release with Charles Kiser, its Executive Vice President
pursuant to which Mr. Kiser agreed to return an aggregate of 250,000 shares of the Company’s Common Stock, held by him to
the Company for cancellation in consideration for an aggregate payment of $2,500.



On
February 20, 2015, the Company issued 55,693 shares of Common Stock at a price of $0.26 to purchase hardware from a seller for
$14,480.



On
March 26, 2015 the Company acquired 166,756 shares (an additional 2% equity ownership) of Coin Outlet from Eric Grill, Coin Outlet’s
CEO, for 701,966 shares of the Company’s Common Stock. The Company now owns approximately 4.2% of Coin Outlet’s equity
and has the ability to own up to 11% upon exercise of its previously issued option and warrant. Mr. Grill entered into a lock-up
agreement with the Company with respect to his shares, pursuant to the lockup agreement Mr. Grill is prohibited from the sale
of any his shares until after February 5, 2017.



On
April 20, 2015, the Company sold an aggregate of 7,708,342 Units (each a “April Unit”) of its securities in a private
placement (the “April Private Placement”) to certain investors (the “Investors”) at a purchase price of
$0.30 per April Unit pursuant to subscription agreements for an aggregate purchase price of $2,312,500. Each April Unit in the
April Private Placement consists of (i) one share of Common Stock and (ii) a warrant to purchase 1.4 shares of Common Stock at
an exercise price of $0.375 per share (“April Warrant”). The April Units are subject to a “Most Favored Nations”
provision issuances for a period of twenty four months from the Closing Date in the event the Company issues Common Stock or securities
convertible into or exercisable for shares of Common Stock at a price per share or conversion or exercise price per share which
shall be less than $0.30 per share (such, issuance, a “Lower Price Issuance”), subject to certain customary exceptions.
Furthermore, the exercise price of the April Warrants is subject to certain price protection provisions for a period of twenty
four months in the event the Company issues a Lower Price Issuance such that the Company shall lower the April Warrant exercise
price to the price that is the product of: (i) one hundred and twenty five percent (125%), and (ii) the issuance price of the
Lower Price Issuance.



Charles
Allen, the Company’s Chief Executive Officer and Michal Handerhan, the Company’s Chief Operating Officer each purchased
66,667 April Units for $20,000 per executive in the April Private Placement.



On
April 20, 2015, the Company issued an aggregate of 418,716 shares of Common Stock to its advisory board members. Each of the nine
members of the advisory board members received 46,524 shares of common stock. The shares were issued pursuant to independent contractor
agreements between the advisory board members and the Company dated October 1, 2014.



On
April 22, 2015, the Company issued 83,000 shares of Common Stock at a per share price of $0.31 to Chord Advisors, LLC (“Chord”).
The shares were issued pursuant to a conversion agreement (the “Conversion Agreement”) for an aggregate conversion
amount of $25,730. The conversion amount was in consideration for financial advisory services.



On
April 24, 2015, the Company issued of 32,258 shares of Common Stock at a per share price of $0.31 to Chord. The shares were issued
pursuant to a conversion agreement (the “Conversion Agreement”) for an aggregate conversion amount of $10,000. The
conversion amount was in consideration for financial advisory services in connection with derivative liability accounting.



24







On
May 4, 2015, the Company issued of 16,129 shares of Common Stock at a per share price of $0.31 to Chord. The shares were issued
pursuant to a conversion agreement (the “Conversion Agreement”) for an aggregate conversion amount of $5,000. The
conversion amount was in consideration for financial advisory services in connection with derivative liability accounting.



On
May 12, 2015, the Company agreed to convert accrued and unpaid salaries owed to Charles Allen, the Company’s Chief Executive
Officer, and Michal Handerhan, the Company’s Chief Operating Officer (collectively the “Employees”) into shares
of Common Stock pursuant to conversion agreements (collectively, the “Salary Conversion Agreements”). The Company
recorded $27,000 accrued salaries as of March 31, 2015. Charles Allen converted $25,000 of accrued and unpaid salary for the months
of March 2015 and April 2015 into 50,000 share of Common Stock at a per share price of $0.50. Michal Handerhan converted $25,000
of accrued and unpaid salary for the months of March 2015 and April 2015 into 50,000 share of Common Stock at a per share price
of $0.50.



On
July 1, 2015, the Company issued 50,000 shares of Common Stock to a consultant for investor relations services.



On
July 23, 2015, the Company issued 17,000 shares of Common Stock to a consultant for investor relations services.



On
July 23, 2015, the Company issued 370,000 shares of Common Stock to various independent contractors for services provided at our
facility in North Carolina.



On
September 11, 2015, the Company issued 40,000 shares of Common Stock to a consultant for investor relations services.



During
the nine months ended September 30, 2015, the Company converted 2,200,000 shares of Series C Preferred Stock to 2,200,000 shares
of Common Stock. This conversion was in accordance with the original terms of the Series C Preferred Stock agreement.



During
the nine months ended September 30, 2015, the Company converted accounts payable due to certain vendors of $143,694 into 552,669
shares of Common Stock. In addition to Common Stock issued, the Company also granted “Conversion Price Protection”
to each vendor. For one year after the date of conversion if the Company issues any equity or an equity-linked security at a price
less than $0.26 per share it will result in the issuance of additional Common Stock in an amount equal to an amount such that
total number of shares issued to the vendors will be equal to the number of shares that would have been issued had the accounts
payable been converted at the subsequent lower offering price. The fair value of the Common Stock on the grant date with “Conversion
Price Protection” was $202,207.



The
transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of
these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2)
and/or Rule 506 thereunder, as a transaction by an issuer not involving a public offering.



ITEM
3 Defaults Upon Senior Securities



None.



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.



25







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.
|--------------------- | -------------
|November
    12, 2015 |              
|                      | By:          
|                      |              
|                      |              
|                      |              
|                      |              



26