What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-16 compared with 2021-03-31 · 1148 added, 660 removed, 558 unchanged (76% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

FINANCIAL STATEMENTS AND SUPPLEMENTARY

Report of Independent Registered Public Accounting Firm (PCAOB 00688);

Los Angeles, CA

Consolidated Balance Sheets at December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’

Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

Consolidated Statements of Operations for the years ended December 31, 2021, 2020

Consolidated Statements of Stockholders’ Equity for the years ended December

31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 688 )

To the Stockholders and Board of Directors of

Riot Blockchain, Inc.

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and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’

equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 16, 2022, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the Accounting for and Disclosure of Cryptocurrencies Held

As disclosed in Note 3 to the consolidated financial statements, the Company’s cryptocurrencies held as of December 31, 2020, which mainly consist of Bitcoin, are accounted for as indefinite-lived intangible assets, and have been included in current assets on the consolidated balance sheet.

The Company’s cryptocurrencies as of December 31, 2020 were approximately $11,626,000.

We identified the accounting for and disclosure of cryptocurrencies held as a critical audit matter for the following reasons.

Currently, no authoritative guidance exists for the accounting for and disclosure of cryptocurrencies held in accordance with accounting principles generally accepted in the United States (“GAAP”).

The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for cryptocurrencies held, the associated financial statement presentation and accompanying footnote disclosures.

In addition, the accounting for cryptocurrencies involves the Company’s information technology (“IT”) environment as such assets are held in digital cold storage wallets.

As disclosed in Note 3 to the consolidated financial statements, the Company’s digital assets held as of December 31, 2021, which mainly consist of Bitcoin, are accounted for as indefinite-lived intangible assets, and have been included in current assets on the consolidated balance sheet.

The Company’s cryptocurrencies as of December 31, 2021 were approximately $158.2 million.

The Company’s management has exercised significant judgment in their determination of how existing accounting principles generally accepted in the United States of America (“GAAP”) should be applied to the accounting for cryptocurrencies held, the associated financial statement presentation and accompanying footnote disclosures.

We identified the accounting for and disclosure of cryptocurrencies held as a critical audit matter due to the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatement related to the existence and rights and obligations of cryptocurrencies held.

The nature and extent of audit effort required to address the matter included significant involvement of more experienced engagement team members and discussions and consultations with subject matter experts related to the matter.

In addition, the accounting for cryptocurrencies held involves the Company’s information technology (“IT”) environment as such assets are held in digital cold storage wallets.

The primary procedures we performed to address this critical audit matter included the following:

Tested the design and effectiveness of certain internal controls over the Company’s digital cold storage wallets with the assistance of our IT professionals;

Evaluated the design and effectiveness of certain internal controls over the Company’s digital cold storage wallets with the assistance of our IT professionals;

Performed an observation of the Company’s digital cold storage wallets;

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In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the Pool operator receives for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that block.

The Company’s fractional share is based on the proportion of computing

power the Company contributed to the Pool as compared to the total computing power contributed by the Pool participants in solving the current algorithm.

The Company’s fractional share is based on the proportion of computing power the Company contributed to the Pool as compared to the total computing power contributed by the Pool participants in solving the current algorithm.

The contract between the Company and the Pool also specifies that both parties waive any rights, claims or notices to revise or adjust any of the amounts of fractional share of the fixed cryptocurrency awarded to the Company after 35 days of the date of any cryptocurrency award.

During the year ended December 31, 2020, the Company recognized net cryptocurrency mining revenue of approximately $11,984,000.

We identified the accounting for and disclosure of cryptocurrency mining revenue recognized as a critical audit matter for the following reasons.

Currently, no authoritative guidance exists for the accounting for and disclosure of cryptocurrency mining revenue recognized in accordance with GAAP.

During the year ended December 31, 2021, the Company recognized net cryptocurrency mining revenue of approximately $184.4 million.

The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for and disclosure of cryptocurrency mining revenue recognized.

In addition, the Company’s cryptocurrency mining hardware that provides computing power to the Pool is currently hosted at a third party facility.

As such, the overall accounting for and disclosure of cryptocurrency mining revenue recognized involved the IT environment of both the Company and the third party hosting facility and material weaknesses were identified in the design and effectiveness of certain internal controls over the IT environment of the Company.

In addition, a significant portion of the Company’s cryptocurrency mining hardware that provides computing power to the Pool is currently hosted at a third party facility.

As such, the overall accounting for and disclosure of cryptocurrency mining revenue recognized involved the IT environment of both the Company and the third party hosting facility.

We identified the accounting for and disclosure of cryptocurrency mining revenue recognized as a critical audit matter due to the complexities involved in auditing completeness and occurrence of the revenue recognized by the Company, particularly in light of material weakness identified in the design and effectiveness of certain internal controls over the IT environment for certain financially relevant systems.

The primary procedures we performed to address this critical audit matter included the following:

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We also performed similar procedures over the IT environment of the third party hosting facility;

Performed a site visitation of the third party hosting facility where the Company’s mining hardware is located, which included an observation of the physical and environmental controls and mining equipment inventory observation procedures;

Performed a site visitation of the facilities where the Company’s mining hardware is located, which included an observation of the physical and environmental controls and mining equipment inventory observation procedures;

On a sample basis testing the hashing power contributed by the Company’s mining hardware;

Evaluated management’s rationale for the application of ASC 606 to account for its cryptocurrency awards earned, which included evaluating the provisions of the contract between the Company and the Pool;

Evaluated management’s disclosures of its cryptocurrency activity in the financial statement footnotes;

Evaluated and tested management’s rationale and supporting documentation associated with the valuation of cryptocurrency awards earned with the assistance of our internal valuation specialists;

Independently confirmed certain financial and performance data directly with the Pool;

Evaluated and tested management’s rationale and supporting documentation associated with the valuation of cryptocurrency awards earned;

Independently confirmed certain financial and performance data directly with the blockchain network and the Pool;

Compared the Company’s digital cold storage wallet records to publicly available blockchain records;

Performed certain substantive analytical procedures to determine completeness and occurrence of digital assets earned by the Company as consideration for services rendered.

Evaluation of the Initial Measurement of Certain Intangible and Derivative Assets Acquired

As disclosed in Note 4 to the consolidated financial statements, during the year ended December 31, 2021 the Company completed acquisitions of Whinstone US, Inc.

(“Whinstone”) and Ferrie Franzmann Industries, LLC (d/b/a ESS Metron) (“Metron”).

The acquisitions were each accounted for as business combinations in accordance with ASC 805.

Under this method of accounting, the Company allocated the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed in each acquisition based on their estimated fair values on the date of acquisition, which included Whinstone and Metron customer relationship intangible assets and a derivative asset pertaining to a Whinstone power supply contract.

The determination of the acquisition date fair value of these intangible assets required the Company to evaluate complex GAAP and develop assumptions, including key assumptions regarding forecasted revenues and related growth rates, forecasted operating cash flows, customer attrition rates, and the discount rates.

We identified the initial measurement of the customer relationships intangible assets and power supply derivative asset as a critical audit matter due to the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatement related to the valuation of the intangible and derivative assets.

The primary procedures we performed to address this critical audit matter included the following.

Evaluated the design and effectiveness of internal controls over the Company’s accounting for business combinations;

Compared the significant assumptions in the prospective financial information, including, but not limited to, the forecasted revenue growth rates, margins, expected annual customer attrition, and the estimated economic life, as appropriate for each calculation to current industry trends, as well as to the historical performance of the acquired businesses;

With the assistance of our valuation specialists, evaluated the reasonableness of the valuation methodology, and significant assumptions, including discount rates, utilized in valuing the intangible assets and derivative assets.

This included understanding and validating the source information underlying the determination of the discount rates and testing the mathematical accuracy of the calculations;

With the assistance of our valuation specialists, developed a range of independent estimates for the discount rates using publicly available market data for comparable entities and comparing those to the discount rates selected by management;

Evaluated the Company’s technical analysis and provisions of the power supply contract in accordance with ASC 815.

/s/ Marcum LLP

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(in thousands, except for share and per share amounts)

December 31, 2020

December 31, 2019

Current assets

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Costs and estimated earnings in excess of billings

Cryptocurrencies

Investments in marketable equity securities, at fair value

Future power credits, current portion

Total current assets

Property and equipment, net

Right of use assets

Deposits on equipment

Long-term investments

Security deposits

Right of use assets

Derivative asset

Intangible assets, net

Future power credits, less current portion

LIABILITIES AND STOCKHOLDERS’

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Accrued expenses

Operating lease liability, current portion

Billings in excess of costs and estimated earnings

Deferred revenue, current portion

Operating lease liability, current portion

Contingent consideration liability - future power credits, current portion

Total current liabilities

Deferred revenue, less current portion

Operating lease liability, less current portion

Contingent consideration liability - future power credits, less current portion

Other long-term liabilities

Total liabilities

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2% Series A Convertible stock, 2,000,000 shares authorized;

no shares issued and outstanding as of December 31, 2020 and 2019, respectively

no shares issued and outstanding as of December 31, 2021 and 2020

0% Series B Convertible stock, 1,750,001 shares authorized;

4,199 shares issued and outstanding as of December 31, 2020 and 2019, respectively, liquidation preference over common stock, equal to carrying value

2,199 and 4,199 shares issued and outstanding as of December 31, 2021 and 2020, respectively, liquidation preference over common stock, equal to carrying value

Common stock, no par value;

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Accumulated deficit

Total Riot Blockchain stockholders’

Non-controlling interest

Total stockholders’

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Years Ended December 31,

Revenue, net - cryptocurrency mining

Revenue, net - mining

Revenue, net - hosting

Revenue, net - engineering

Other revenue

Total revenue

Costs and expenses:

Cost of revenues (exclusive of depreciation and amortization shown below)

Cost of revenues - mining (exclusive of depreciation and amortization shown below)

Cost of revenues - hosting (exclusive of depreciation and amortization shown below)

Cost of revenues - engineering

Acquisition-related costs

Selling, general and administrative

Depreciation and amortization

Change in fair value of derivative asset

Change in fair value of contingent consideration

Realized gain on sale/exchange of cryptocurrencies

Impairment of intangible rights acquired

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Other income (expense)

Realized gain on sale/exchange of cryptocurrencies

Realized gain on sale/exchange of long-term investment

Unrealized loss on marketable equity securities

Total other income (expense)

Net loss before taxes

Current income tax expense

Deferred income tax benefit

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Consolidated Statement of Stockholders’

Years Ended December 31, 2020 and 2019

(in thousands, except for share and per share amounts)

Preferred Stock

stockholders’

Total Riot Blockchain stockholders’

Non-controlling

Total stockholders’

Balance as of January 1,

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Deconsolidation of Tess

Balance as of December 31, 2019

Issuance of common stock to settle executive compensation

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Balance as of December 31, 2020

Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement

Issuance of common stock related to exercise of warrants

Issuance of common stock for settlement of 1,257,235 warrants on a cashless basis

Issuance of common stock in connection with the acquisition of Whinstone

Issuance of common stock in connection with the acquisition of ESS Metron, net of 70,156 shares withheld

Issuance of common stock/At-the-market offering, net of offering costs

Issuance of common stock warrant for settlement of advisory fees

Conversion of preferred stock to common stock

Stock option exercise

Stock-based compensation

Balance as of December 31, 2021 

See Accompanying Notes to Consolidated Financial Statements

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Depreciation and amortization

Deferred income tax benefit

Amortization of license fee revenue

Amortization of right of use assets

Income tax expense (benefit)

Issuance of common stock warrant for settlement of advisory fees

Impairment of long-term investment

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Reversal of registration rights penalty

Change in fair value of derivative asset

Change in fair value of contingent consideration

Gain on extinguishment of accounts payable, other liabilities and accrued interest

Realized gain on sale/exchange of long-term investment

Realized gain on sale/exchange of cryptocurrencies

Unrealized loss on marketable equity securities

Gain on sale of equipment

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Changes in assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Cryptocurrencies - mining, net of mining pool operating fees

Accounts payable and accrued expenses

Costs and estimated earnings in excess of billings

Cryptocurrencies - mining

Security deposits

Future power credits

Accounts payable

Accrued expenses

Billings in excess of costs and estimated earnings

Customer deposits

Deferred revenue

Lease liability

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Cash flows from investing activities

Acquisition of Whinstone, net of cash acquired

Acquisition of ESS Metron, net of cash acquired

Proceeds from the sale of long-term investments

Proceeds from sale of cryptocurrencies

Proceeds from sale of equipment

Proceeds from the sale of equipment

Deposits on equipment

Purchases of property and equipment

Purchases of property and equipment, including construction in progress

Patent costs incurred

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Supplemental disclosure of noncash investing and financing activities:

Issuance of common stock for business combinations

Issuance of common stock to settle previously accrued executive compensation

Reclassification of deposits to property and equipment

Construction in progress included in accrued expenses

Cryptocurrencies received from sale of equipment

Reclassification of deposits for miners

Conversion of preferred stock to common stock

Conversion of notes payable to common stock

Reclassification of warrant liability to equity

Conversion of preferred stock to common stock

Common stock issued in connection with conversion of notes payable

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(in thousands, except for share and per share amounts)

Nature of operations and corporate information:

Riot Blockchain, Inc., operates a cryptocurrency mining operation, which utilizes specialized computers (also known as “miners”) using application-specific integrated circuit (ASIC) chips to solve complex cryptographic algorithms in order to support the Bitcoin blockchain (in a process known as “solving a block”), in exchange for cryptocurrency rewards.

As of December 30, 2020, the Company exclusively operated the Antminer series of miners manufactured by Bitmain Technologies Limited (“Bitmain”), which use ASIC chips designed around the 256-bit secure hashing algorithm (“SHA-256”) used by the Bitcoin blockchain and, therefore the primary cryptocurrency the Company seeks to mine is bitcoin.

The Company has also historically mined bitcoin cash and litecoin;

however, the Company focused its efforts on mining bitcoin.

The Company generates substantially all its revenue through its cryptocurrency mining operation by holding the cryptocurrency it mines and selling it on the market for its own account.

The Company was originally organized on July 24, 2000, as a Colorado corporation.

Effective October 19, 2017, the Company’s name was changed to Riot Blockchain, Inc., from Bioptix, Inc., and effective October 19, 2017, the Company changed its state of incorporation to Nevada from Colorado.

Mining equipment:

The Company’s current focus is on its cryptocurrency mining operation, and during the year ended December 31, 2020, it continued a full network upgrade of its miners with the objective of increasing the Company’s operational efficiency and performance, which it had begun in December 2019 with the acquisition of 4,000 model S17-Pro Antminer series of miners manufactured by Bitmain for a total purchase price of $ 6.3 million.

As of December 31, 2020, the Company operated a fleet of 7,043 of the Antminer series of miners manufactured by Bitmain, including 4,000 model S17-Pro miners, 1,040 model S19 miners, and 2,003 model S19-Pro miners, all of which were purchased directly from Bitmain and deployed in the Company’s mining operation pursuant to a co-location mining services agreement with Coinmint, LLC (“Coinmint”) at Coinmint’s facility in New York (the “Coinmint Facility”).

During the year ended December 31, 2020, the Company entered into purchase agreements with Bitmain for the acquisition of a total of 33,646 of their model S19, S19-Pro, and S19j-Pro Antminer series of miners, to be shipped and delivered during 2020 and 2021.

During the year ended December 31, 2020, the Company received 3,043 model S19 Antminers of these 33,646 new miners, all of which have been deployed at the Coinmint Facility.

The remaining 30,603 of these new miners are scheduled for monthly deliveries in 2021.

The purchase commitment for these new miners totals $ 76.1 million, including $ 6.6 million paid for the 3,043 miners delivered during the year ended December 31, 2020, $ 31.9 million paid as deposits in deposits during the same period, and the remaining $ 37.6 million due to be paid during the year ending December 31, 2021 according to the payment schedules set forth in the applicable purchase agreements.

During the year ended December 31, 2020, the Company retired all of the approximately 8,000 Bitmain Antminer S9 miners it had historically acquired through its acquisition of Kairos Global Technology, Inc., (“Kairos”) in November 2017, and from Prive Technologies, LLP (“Prive”) and Blockchain Mining Supply & Services Ltd.

(“BMSS”) in February 2018.

The Company discontinued its use of these older model miners in favor of the 4,000 S17 miners, the 1,040 S19 miners, and 2,000 S19-Pro miners it acquired from Bitmain, which offer greater electricity usage efficiency and hash rate power than the retired models.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Nature of Operations:

We are a vertically integrated Bitcoin mining and infrastructure development company principally engaged in enhancing our capabilities to mine Bitcoin.

We also provide the critical mining infrastructure for our institutional scale clients to mine Bitcoin at our Bitcoin mining facility (the “Whinstone Facility”).

Our Whinstone Facility is believed to be the largest Bitcoin mining facility, as measured by developed capacity, in North America.

We operate in an environment which is consistently evolving based on the proliferation of Bitcoin and cryptocurrencies in general.

A significant component of our strategy is to effectively and efficiently allocate capital between opportunities that generate the highest return on our capital.

As described in “Note 18, Segment Information”, we operate in three business segments:

(1) Mining, (2) Hosting, and (3) Engineering.

Liquidity and Financial Condition

The Company has experienced recurring losses and negative cash flows from operations.

The Company has experienced historical losses and negative cash flows from operations.

At December 31, 2021, the Company had approximate balances of cash and cash equivalents of $312.3 million, working capital of $ 463.7 million, total stockholders’

equity of $277.1 million and an accumulated deficit of $229.9 million.

equity of $ 1.4 billion and an accumulated deficit of $237.8 million.

To date, the Company has, in large part, relied on equity financings to fund its operations.

The Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.

During the year ended December 31, 2020, the Company received net proceeds of approximately $257,500 million (after deducting $ 7,300 million in commissions and expenses) from sales of 49,932,051 shares of its common stock, no par value, at a weighted average gross sales price of $5.30 per share pursuant to an At-The-Market Sales Agreement, dated effective as of May 24, 2019, as amended (the “2019 ATM Sales Agreement”), with its sales agent, H.C.

Wainwright & Co., LLC (“Wainwright”).

Subsequent to December 31, 2020, the Company received net proceeds of approximately $82.7 million from the sale of 4,433,468 shares of common stock, no par value, at an average gross sales price of $ 19.13 per share, via its Sales Agent, Wainwright pursuant to the 2019 ATM Sales Agreement.

The COVID-19 global pandemic has been unprecedented and unpredictable and is likely to continue to result in significant national and global economic disruption, which may adversely affect our business.

Based on the Company’s current assessment, however, the Company does not expect any material impact on its long-term strategic plans, its operations, or its liquidity due to the worldwide spread of the COVID-19 virus.

However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, and industry.

The Company believes its current cash on hand is sufficient to meet its operating and capital requirements for at least the next year from the date these financial statements are issued.

During the year ended December 31, 2021, the Company paid approximately $ 274.8 million as deposits primarily for miners and as of December 31, 2021, reclassified $ 46.7 million to property and equipment in connection with the receipt of 23,864 miners received at the Coinmint Facility or the Whinstone Facility.

As of December 31, 2021, approximately $ 301.3 million remains payable to Bitmain in installments in advance of shipment of additional miners, which is scheduled to occur on a monthly basis through December 2022.

2021 ATM Offering

As disclosed in Note 12, “Stockholders’

Equity”, the Company entered into a Sales Agreement with Cantor Fitzgerald & Co., B.

Riley FBR, Inc., BTIG, LLC, Compass Point Research & Trading, LLC and Roth Capital Partners, LLC (the “Sales Agents”) dated August 31, 2021 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $ 600 million in shares of the Company’s common stock through the Sales Agents, acting as the Company’s sales agent and/or principal, in a continuous at-the-market offering (the “2021 ATM Offering”).

The Company paid the Sales Agents a commission of up to 3.0 % of the aggregate gross proceeds the Company received from all sales of the Company’s common stock under the Sales Agreement.

The Company received net proceeds on sales of 19,910,589 shares of common stock under the Sales Agreement of approximately $ 587.2 million (after deducting $ 12.8 million in commissions and expenses) at a weighted average price of $ 29.53 from August 31, 2021 to December 31, 2021.

With the sale and issuance of these shares, all $ 600 million in shares of the Company’s common stock registered under the December 2021 Registration Statement had been issued and the Company completed the 2021 ATM Offering.

The COVID-19 global pandemic has been unprecedented and unpredictable and its impact is likely to continue to result in significant national and global economic disruption, which may adversely affect our business.

Although the Company has experienced some changes to its miner shipments due to disruptions in the global supply chain, the Company however does not expect any material impact on its long-term strategic plans, its operations, or its liquidity due to the impacts of COVID-19.

However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, and the industry.

Riot Blockchain, Inc.

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Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Principles of consolidation

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements of the Company include the accounts of the Company and its wholly or majority owned and controlled subsidiaries.

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share of the net operating results and other components of equity relating to the non–controlling interest.

The Company’s consolidated operating subsidiaries and (percentage owned at December 31, 2020) consisted of;

Riot Blockchain Canada, Inc., ( 100 %), RiotX Holdings, Inc ( 92.5 %) and Logical Brokerage Corp.

None of the consolidated subsidiaries had any significant assets or operations.

The accompanying audited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

They include the results of operations and financial condition of Whinstone beginning on May 26, 2021 and ESS Metron on December 1, 2021.

See Note 4, “Acquisitions”, for additional information on our acquisitions of Whinstone and ESS Metron.

All intercompany balances and transactions have been eliminated in consolidation.

Amounts are in thousands except for share, per share and miner amounts.

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Actual results could differ significantly from those estimates.

The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with revenue recognition, asset valuations, the useful lives and recoverability of long-lived assets, impairment analysis of indefinite lived intangibles, stock-based compensation, and the valuation allowance associated with the Company’s deferred tax assets.

The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with valuing contingent consideration for a business combination and periodic reassessment of its fair value, allocating the fair value of purchase consideration to assets acquired and liabilities assumed in business acquisitions, revenue recognition, valuing the derivative asset classified under Level 3 fair value hierarchy, determining the useful lives and recoverability of long-lived assets, impairment analysis of goodwill and finite-lived intangibles, stock-based compensation, and the valuation allowance associated with the Company’s deferred tax assets.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

These reclassifications have no impact on the previously reported financial position or results of operations.

Certain prior period amounts have been reclassified to conform to the current period presentation.

The reclassifications did not have a material impact on the Company’s consolidated financial statements and related disclosures.

The impact on any prior period disclosures was immaterial.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents.

From time to time, the Company’s cash account balances exceed the balances as covered by the Federal Deposit Insurance System.

The Company has never suffered a loss due to such excess balances.

As of December 31, 2021 and 2020, the Company had no cash equivalents.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Accounts Receivable, net

The Company’s accounts receivable balance consists of amounts due from its hosting and engineering customers.

The Company records accounts receivable at the invoiced amount less an allowance for any potentially uncollectable accounts under the current expected credit loss (“CECL”) impairment model under ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets , and presents the net amount of the financial instrument expected to be collected.

The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to information about past events and current conditions.

Based on this model, the Company considers many factors, including the age of the balance, collection history, and current economic trends.

Bad debts are written off after all collection efforts have ceased.

Allowance for credit losses are recorded as a direct reduction from an asset’s amortized cost basis.

Credit losses and recoveries are recorded in selling, general and administrative expenses in the consolidated statements of operations.

Recoveries of financial assets previously written off are recorded when received.

For the years ended December 31, 2021, 2020 and 2019, the Company did not record any credit losses or recoveries.

Based on the Company’s current and historical collection experience, management recorded an allowance for doubtful accounts of less than $ 0.1 million as of December 31, 2021.

There were no accounts receivable as of December 31, 2020.

No individual customer accounted for more than 7.5 % of revenue for the year ended December 31, 2021.

As of December 31, 2021, seven customers accounted for more than 83 % of accounts receivable.

Long-term investments

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For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.

Cash, cash equivalents and short-term investments

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents.

From time to time, the Company’s cash account balances exceed the balances as covered by the Federal Deposit Insurance System.

The Company has never suffered a loss due to such excess balances.

As of December 31, 2020 and 2019, the Company had no cash equivalents or short-term investments.

Fair value of financial instruments

The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements.

This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.

To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 —

quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 —

observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable;

Level 3 —

assets and liabilities whose significant value drivers are unobservable.

Revenue recognition

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers.

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer  

Identify the performance obligations in the contract  

Determine the transaction price  

Allocate the transaction price to the performance obligations in the contract  

Recognize revenue when the Company satisfies a performance obligation   

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct.

A performance obligation meets ASC 606’s definition of a “distinct”

good or service (or bundle of goods or services) if both of the following criteria are met:

The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions.

Unobservable inputs require significant management judgment or estimation.

In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.

In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.

Such determination requires significant management judgment.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

When determining the transaction price, an entity must consider the effects of all of the following:

Variable consideration  

Constraining estimates of variable consideration  

The existence of a significant financing component in the contract  

Noncash consideration  

Consideration payable to a customer  

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

The Company has entered into digital asset mining pools by executing contracts, as amended from time to time, currently with one mining pool operator, with the mining pool operators to provide computing power to the mining pool.

The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator.

In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are immaterial and are recorded as a deduction from revenue), for successfully adding a block to the blockchain.

The terms of the agreement provide that neither party can dispute settlement terms after thirty-five days following settlement.

The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities.

The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators.

The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools.

The consideration is all variable.

Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized.

There is no significant financing component in these transactions.

Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.

In general, we provide power for our data center customers on a variable (sub-metered) basis.

A customer pays us variable monthly fees for the specific amount of power utilized at rates specified in each contract, subject to certain minimums.

We recognize variable power revenue each month as the uncertainty related to the consideration is resolved, power is provided to our customers, and our customers utilize the power (the customer simultaneously receives and consumes the benefits of the Company’s performance).

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

We have determined that our contracts contain a series of performance obligations which qualify to be recognized under a practical expedient available known as the “right to invoice.”

This determination allows variable consideration in such contracts to be allocated to and recognized in the period to which the consideration relates, which is typically the period in which it is billed, rather than requiring estimation of variable consideration at the inception of the contract.

We have also determined that the contracts contain a significant financing component because the timing of revenue recognition differs from the timing of invoicing by a period, exceeding one year.

The Company also installs certain hosted customers’

mining equipment and bills the customer at a fixed fee per piece of equipment or at an hourly rate.

Revenue is recognized upon completion of the installation.

We generate engineering and construction services revenue from the fabrication and deployment of immersion cooling technology for Bitcoin mining customers.

We bill the customer at a fixed monthly fee or at an hourly rate.

For the construction of customer-owned equipment, revenue is recognized upon completion of each phase of the construction project, as defined in each contract.

For construction of assets owned by Whinstone but paid for and used by the customer during the term of their hosting contract, revenue is recognized on a straight-line basis over the remaining life of the contract.

Maintenance services include cleaning, cabling and other services to maintain the customers’

We bill the customer at a fixed monthly fee or at an hourly rate.

Revenue is recognized as these services are provided.

Deferred revenue is primarily from advance payments received and is recognized on a straight-line basis over the remaining life of the contract or upon completion of the installation of the customers’

Our primary hosting contracts contain Service Level Agreement clauses, which guarantee a certain percentage of time the power will be available to our customer.

In the rare case that we may incur penalties under these clauses, we account for payments made to customers in accordance with ASC 606-10-32-25, Consideration Payable to a Customer , which requires the payment be recognized as variable consideration and a reduction of the transaction price and, therefore, of revenue, when not in exchange for a good or service from the customer.

Substantially all revenue is derived from the sale of custom products built to customers’

specifications under fixed-price contracts with one identified performance obligation.

Revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the Company has an enforceable right to receive compensation as defined under the contract.

To determine the amount of revenue to recognize over time, the Company utilizes the cost-to-cost method as management believes cost incurred best represents the amount of work completed and remaining on projects.

As the cost-to-cost method is driven by incurred cost, the Company calculates the percentage of completion by dividing costs incurred to date by the total estimated cost.

The percentage of completion is then multiplied by estimated revenues to determine inception-to-date revenue.

Approved changes to design plans are generally recognized as a cumulative adjustment to the percentage of completion calculation.

Revenue recognized for the period is the current inception-to-date recognized revenue less the prior period inception-to-date recognized revenue.

If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined, and any additional losses incurred subsequently are recognized in the subsequent reporting periods as they are identified.

Additionally, contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition.

Any costs to obtain a contract are not material to the Company’s financial statements and would be expensed as incurred.

Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

The length of time for the Company to complete a custom product varies but is typically between four to 12 weeks.

Customers are typically required to make periodic progress payments to the Company based on contractually agreed-upon milestones.

Invoices are due net, 30 days, and retainage, if any, is generally due 30 days after delivery.

Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Shipping and handling costs are treated as fulfillment costs and are included in cost of sales.

Other Revenue

Other revenue is revenue recognized from an upfront license fee generated from our legacy animal health business.

The upfront fee was recorded as deferred revenue and is being amortized into revenue over the term of the License Agreement.

Derivative Accounting

Power Supply Contract and Demand Response Services

In May 2020, Whinstone entered into a Power Supply Agreement with TXU Energy Retail Company LLC (“TXU”) to provide the delivery of a fixed amount of electricity by TXU to Whinstone (via the facility owned by Oncor Electric Delivery Company, LLC (“Oncor”)) for a fixed price through April 30, 2030.

The Power Supply Agreement provides a consistent and sufficient supply of electricity at the Whinstone Facility.

If Whinstone uses more electricity than contracted, the cost of the excess is incurred at the current spot rate.

Concurrently, Whinstone entered into a contract with Oncor for the extension of delivery system transmission/substation facilities to facilitate delivery of the electricity to the Whinstone Facility (the “Facilities Agreement”).

Power costs incurred under this contract are determined on an hourly basis using settlement information provided by the Electric Reliability Council of Texas (“ERCOT”) and are recorded in cost of revenues - data center hosting in the consolidated statements of operations.

The demand response services program (“Demand Response Service”) provides the ERCOT market with valuable reliability and economic services by helping to preserve system reliability, enhancing competition, mitigating price spikes, and encouraging the demand side of the market to respond better to wholesale price signals.

In collaboration with market participants such as the Company, ERCOT has developed demand response products and services for customers that have the ability to reduce or modify electricity use in response to instructions or signals.

Market participants with electrical loads like Whinstone may participate in the Demand Response Service program directly by offering their electrical loads into the ERCOT markets, or indirectly by voluntarily reducing their energy usage in response to increasing wholesale prices.

Depending on the spot market price of electricity, under this program, we opportunistically sell electricity back to ERCOT in exchange for cash payments, rather than providing the power to our customers during these peak times in order to most efficiently manage our operating costs.

We sold approximately $ 6.5 million in electricity back to ERCOT during the period from May 26, 2021 (the “Acquisition Date”) through December 31, 2021.

These sales back to ERCOT are recorded as part of the change in fair value of derivative asset in the consolidated statements of operations.

While we manage operating costs at the Whinstone Facility in part by periodically selling unused or uneconomical power in the market back to ERCOT, we do not consider such actions trading activities.

That is, we do not engage in speculation in the power market as part of our ordinary activities.

Because the Demand Response Services programs allow for net settlement, we have determined the Power Supply Agreement meets the definition of a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”).

However, because we have the ability to sell the power back to the grid rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, we do not believe the normal purchases and normal sales scope exception applies to the Power Supply Agreement.

Accordingly, the Power Supply Agreement (the non-hedging derivative contract) is recorded at estimated fair value each reporting period with the change in the fair value recorded in change in fair value of derivative asset in the consolidated statements of operations.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

In February 2021, the State of Texas experienced an extreme and unprecedented winter weather event that resulted in prolonged freezing temperatures and caused an electricity generation shortage that was severely disruptive to the whole state.

While demand for electricity reached extraordinary levels due to the extreme cold, the supply of electricity significantly decreased in part because of the inability of certain power generation facilities to supply electric power to the grid.

Due to the extreme market price of electricity during this time, at the request of ERCOT, Whinstone stopped supplying power to its customers and instead sold power back to the grid.

In April 2021, under the provisions of the TXU Power Supply Agreement, and as a result of the weather event, Whinstone entered into a Qualified Scheduling Entity (“QSE”) Letter Agreement, which resulted in Whinstone being entitled to receive approximately $ 125.1 million for its power sales during the February winter storm, all under the terms and conditions of the QSE Letter Agreement.

Whinstone received cash of $ 29.0 million in April 2021 (after deducting $ 10.0 million in power management fees owed by Whinstone), approximately $ 59.7 million is scheduled to be credited against future power bills of Whinstone beginning in 2022 and the remaining $ 26.3 million is contingent upon ERCOT’s future remittance.

These amounts are gross before fair value adjustments and expenses incurred by Whinstone for power management fees noted above and customer settlements.

The fair value of the settlement agreement was estimated and recognized as an asset as part of acquisition accounting.

Additionally, pursuant to the Northern Data stock purchase agreement, the Company agreed to pay Seller additional consideration in cash in the amount of the future power credits, net of income taxes, when and if realized by Whinstone.

See Note 4, “Acquisitions”.

Fair Value Measurement

The Company follows the accounting guidance in ASC 820, Fair Value Measurement, (“ASC 820”) for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis.

Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Quoted prices in active markets for identical assets or liabilities.

Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s derivative asset related to its Power Supply Agreement is classified within Level 3 of the fair value hierarchy because the fair value is estimated by utilizing valuation models and significant unobservable inputs.

The Company’s only financial liability based on Level 3 inputs is a contingent consideration arrangement related to its acquisition of Whinstone.

The Company is contractually obligated to pay contingent consideration payments to the Seller if Whinstone realizes certain power credits.

(See Note 14, “Fair Value Measurement”)

The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire or contingency is resolved, as applicable.

As of December 31, 2020, there were no financial assets or liabilities measured at fair value.

The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, and accounts payable, approximate fair value due to the short-term nature of these instruments.

During the year ended December 31, 2019, the Company issued convertible notes and warrants in connection with the notes.

The notes and warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the consolidated statements of operations and disclosed in the consolidated financial statements.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets.

Estimated useful lives for leasehold improvements are typically the lesser of the estimated useful life of the asset or the life of the term of the lease.

The estimated useful lives for all other property and equipment are as follows:

Buildings and improvements

Miners and mining equipment

Machinery and facility equipment

Office and computer equipment

Goodwill and Other Intangible Assets

The Company accounts for intangible assets under ASC 350-30, Intangibles –

Goodwill and Other .

Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired.

The Company determined that it has three reporting units for goodwill impairment testing purposes, Mining, Hosting, and Engineering, which is consistent with internal management reporting and management’s oversight of operations.

Goodwill is not amortized and is reviewed for impairment annually as of December 31 or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

We use both qualitative and quantitative analyses in making this determination.

Our analyses require significant assumptions and judgments, including assumptions about future economic conditions, revenue growth, and operating margins, among other factors.

Example events or changes in circumstances considered in the qualitative analysis, many of which are subjective in nature, include:

a significant negative trend in our industry or overall economic trends, a significant change in how we use the acquired assets, a significant change in or our business strategy, a significant decrease in the market value of the asset, a significant change in regulations or in the industry that could affect the value of the asset, and a change in segments.

If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative test to identify and measure the amount of goodwill impairment loss.

The Company compares the fair value of the reporting unit with its carrying amount.

If the carrying amount exceeds the fair value, goodwill of the reporting unit is considered impaired and that excess is recognized as a goodwill impairment loss.

Intangible assets with finite lives are comprised of customer contracts, trademarks, UL Listings and patents that are amortized on a straight-line basis over their expected useful lives, which is their contractual term or estimated useful life.

Patents costs consisting of filing and legal fees incurred are initially recorded at cost.

Certain patents are in the legal application process and therefore are not currently being amortized.

The Company performs assessments to determine whether finite-lived classification is still appropriate at least annually.

The carrying value of finite-lived assets and their remaining useful lives are also reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period.

A finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it.

We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis.

Impairment is measured by the amount that the carrying value exceeds fair value.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

The use of different estimates or assumptions could result in significantly different fair values for our reporting units and intangible assets.

As of December 31, 2021, the carrying amounts and estimated lives of the Company’s intangible assets with finite lives were as follows:

($ in thousands)

Accumulated amortization

Weighted-average life (years)

Customer contracts

Finite-lived intangible assets

As of December 31, 2020, the carrying amounts of the Company’s intangible assets with finite lives were as follows:

Accumulated amortization

The following table represents the total estimated amortization of intangible assets for the five succeeding years:

For the years ending December 31,

Estimated amortization expense

We did not identify any impairment of our Goodwill and Other Intangible Assets during the years ended December 31, 2021, 2020 and 2019 other than our cryptocurrencies discussed below.

Cryptocurrencies

Cryptocurrencies, (including Bitcoin and Bitcoin cash) are included in current assets in the accompanying consolidated balance sheets.

Cryptocurrencies purchased are recorded at cost and cryptocurrencies awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below.

Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives.

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Subsequent reversal of impairment losses is not permitted.

Purchases of cryptocurrencies by the Company are included within investing activities in the accompanying consolidated statements of cash flows, while cryptocurrencies awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.

During 2021, 2020 and 2019, the Company recorded impairment charges on its cryptocurrency holdings of $36.5 million, $1.0 million and $0.8 million, respectively.

Purchases of cryptocurrencies by the Company are included within investing activities in the accompanying consolidated statements of cash flows, while cryptocurrencies awarded to the Company through its mining activities are included within operating activities in the accompanying consolidated statements of cash flows.

The sales of cryptocurrencies are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations.

The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.

Deferred revenue

The Company recognized upfront license fees from Ceva Santé

(“Licensee”) related to its exclusive license agreement (“License Agreement”), which have been recorded as deferred revenue and are being amortized over the term of the License Agreement.

Amortization of the license fees totaling approximately $ 1.6 million began in July 2012.

As of December 31, 2020, and 2019, each, deferred revenue of approximately $ 0.1 million has been classified as a current liability and $ 0.7 million and $0.8 million, respectively, has been classified as a long-term liability.

The current liability represents the next twelve months’

portion of the license fees revenue.

For each of the years ended December 31, 2020 and 2019, approximately $ 0.1 million, was recorded as the license fee revenue.

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally two years for cryptocurrency mining equipment and three years for computer related assets.

Estimated useful lives for leasehold improvements are typically the lesser of the estimated useful life of the asset or the life of the term of the lease.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Patents and other intangible assets

The Company accounts for intangible assets under ASC 350-30.

Patents costs consisting of filing and legal fees incurred are initially recorded at cost.

Patents are amortized over the legal life of the patent or their estimated useful lives, using the straight-line method.

Certain patents are in the legal application process and therefore are not currently being amortized.

Impairment of long-lived assets

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Therefore, the Company recorded an impairment expense of $ 9.4 million for its investment in Coinsquare during the year ended December 31, 2020.

The Company made the decision, effective as of December 31, 2019 not to pursue its RiotX / Logical Brokerage cryptocurrency exchange development plan, and as of December 31, 2019 recorded an impairment of intangible assets acquired of approximately $ 0.7 million.

Deferred tax liability

Due to certain acquisitions, temporary differences between the book fair value and the tax basis of the indefinite life intangible assets and depreciable property and equipment were recorded.

The Company recognized a $ 0.1 million deferred tax liability related to its Logical Brokerage acquisition during the year ended December 31, 2018.

Subsequently, due to the Company’s decision not to pursue its Logical Brokerage business and the impairment and depreciation of the Kairos property and equipment, the Company recorded a $ 0.1 million income tax benefit during the year ended December 31, 2019 from the reduction of its existing deferred tax liability related to its acquisitions.

The following is a rollforward of the Company’s deferred tax liability from January 1, 2019 to December 31, 2019:

Beginning Balance, January 1, 2019

Abandonment of Logical Brokerage

Ending Balance, December 31, 2019

There was no deferred tax liability as of December 31, 2020.

On January 28, 2019, the Company adopted a sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging (“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.

Pursuant to ASC 815, issuances of securities to the Company’s employees or directors are not subject to the sequencing policy.

Notes payable fair value option

As described further in Note 10 - Notes and Other Obligations, in January 2019, the Company issued Senior Secured Promissory Notes (the “Notes”) to Oasis Capital, LLC, Harbor Gates Capital, LLC and SG3 Capital, LLC (each an “Investor”

and collectively, the “Investors”) in the aggregate principal amount of approximately $ 3.4 million.

The Company has elected the fair value option to account for these Notes due to the complexity and number of embedded features.

The fair value of the Notes is classified within Level 3 of the fair value hierarchy because the fair values were estimated utilizing a Monte Carlo simulation model.

Accordingly, the Company recorded these Notes at fair value with changes in fair value recorded in the statement of operations.

As a result of applying the fair value option, direct costs and fees related to the Notes were recognized in earnings as incurred and were not deferred.

The change in fair value of the Notes has been presented as change in value of convertible notes payable on the consolidated statements of operations.

As of December 31, 2019, all of the Notes were converted into 1,813,500 shares of the Company’s common stock valued at their estimated fair value at the time of conversion totaling approximately $ 10.2 million.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Warrant liability

The Company issued Warrants to purchase 1,908,144 shares of its common stock in connection with the Notes issued to the Investors in January 2019, and recorded these outstanding Warrants as a liability at fair value utilizing a Monte Carlo simulation model.

This liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company’s consolidated statements of operations.

As of June 25, 2019, the Company’s Notes had been converted in their entirety and the warrant liability was revalued and reclassified to equity, because the Warrants are no longer subject to the Company’s sequencing policy as described above.

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases (“ASC 842”).

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term.

For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842.

The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

Revenue recognition

Cryptocurrency mining:

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers.

The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the Company satisfies a performance obligation

A performance obligation meets ASC 606’s definition of a “distinct”

good or service (or bundle of goods or services) if both of the following criteria are met:

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

When determining the transaction price, an entity must consider the effects of all of the following:

Variable consideration

Constraining estimates of variable consideration

The existence of a significant financing component in the contract

Noncash consideration

Consideration payable to a customer

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

Business Combinations

The Company applies the provisions of ASC Topic 805, Business Combinations , (“ASC 805”) in the accounting for acquisitions of businesses.

ASC 805 requires us to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts.

Contingent consideration is included within the purchase price and is recognized at its fair value on the acquisition date.

A liability resulting from contingent consideration is remeasured to fair value as of each reporting date until the contingency is resolved, and subsequent changes in fair value are recognized in earnings.

Contingent consideration is recorded in long-term liabilities in our consolidated balance sheets.

While we use our best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies, and contingent consideration, where applicable.

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain.

Critical estimates in valuing certain of the intangible assets we have acquired include;

future expected cash flows from customer contracts, discount rates, and estimated market changes in the value of the Power Supply Agreement, which is accounted for as a nonhedged derivative contract.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

Investment in marketable equity securities

Our investment in marketable equity securities consists entirely of common shares of Mogo, Inc.

MOGO), resulting from the April and May 2021 transactions.

(See Note 7, “Investments in Marketable Equity Securities”).

The Company accounted for this investment in accordance with ASC 321, Investments-Equity Securities, (“ASC 321”) due to the shares having a readily determinable fair value since they are traded on NASDAQ and have significant average daily volume traded.

As a result, the investment is required to be measured at fair value at each balance sheet date with unrealized holding gains and losses recorded in other income (expense).

Lease Accounting

The Company accounts for its leases under ASC 842, Leases (“ASC 842”).

Accordingly, the Company determines whether an arrangement contains a lease at the inception of the arrangement.

If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor.

The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising.

The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.

For leases with a term exceeding 12 months, a lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term.

A corresponding right-of-use (“ROU”) asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received.

For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable.

The Company’s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease.

For the Company’s operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term.

For leases with a term of 12 months or less, any fixed lease payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated balance sheet as an accounting policy election.

Leases qualifying for the short-term lease exception were insignificant.

Variable lease costs are recognized as incurred.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

The Company has entered into digital asset mining pools by executing contracts, as amended from time to time, with the mining pool operators to provide computing power to the mining pool.

The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator.

In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are recorded as a component of cost of revenues), for successfully adding a block to the blockchain.

The terms of the agreement provides that neither party can dispute settlement terms after thirty-five days following settlement.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities.

The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators.

The consideration is all variable.

There is no significant financing component in these transactions.

Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.

There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.

In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Cost of revenue

The Company’s cost of revenue consists primarily of direct costs of earning bitcoin related to mining operations, including mining pool fees, electric power costs, other utilities, labor, insurance whether incurred directly from self-mining operations or reimbursed, including any revenue sharing arrangements under co-location agreements, but excluding depreciation and amortization, which are separately stated in the Company’s consolidated statements of operations.

Segment and Reporting Unit Information

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance.

A committee consisting of the Company’s executives is determined to be the CODM.

The Company has three operating segments as of December 31, 2021.

See Note 18, “Segment Information”.

The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

4 unchanged sentences

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.

4 unchanged sentences

(in thousands, except for share and per share amounts)

Deferred Revenue

The Company recognized deferred revenue related to its acquisition of Whinstone, which consists primarily of advance payments received, and is recognized on a straight-line basis over the remaining life of the contract or upon completion of the installation of the customers’

The Company recognized upfront license fees from Ceva Santé

(“Licensee”) related to its exclusive license agreement (“License Agreement”), which have been recorded as deferred revenue and are being amortized over the term of the License Agreement.

Amortization of the license fees totaling approximately $ 1.6 million began in July 2012.

Contract assets consist of costs and estimated earnings in excess of billings on uncompleted contracts and unearned revenue consists of billings in excess of costs and estimated earnings on uncompleted contracts.

Cost of Revenues

Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance and, in 2020, rent for the Oklahoma City facility and, in 2021, the variable Coinmint hosting fee, but excluding depreciation and amortization which are separately stated.  

Cost of revenues consists primarily of direct power costs, rent and compensation costs.  

Cost of revenues consists primarily of direct materials and labor, as well as indirect manufacturing costs.  

Stock-based Compensation

7 unchanged sentences

Treasury zero-coupon issues with an equivalent remaining term.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

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

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by Accounting Standards Update (“ASU”) 2016-09.

The Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09, Compensation –

Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09").

Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested.

Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

Earnings (loss) per share

Basic net earnings (loss) per share (“EPS”) of common stock is computed by dividing the Company’s net earnings (loss) by the weighted average number of shares of common stock outstanding during the period.

Income (loss) Per Share

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The Company excludes its unvested restricted shares and escrow shares from the net loss per share calculation.

The escrow shares are excluded because of related contingencies and including them would result in anti-dilution.

The Company excludes its unvested restricted share units (“RSUs”) and the holdback of 70,165 shares as security for the ESS Metron sellers’

indemnification obligations under the membership interest purchase agreement from the net loss per share calculation.

Since the Company has only incurred losses, basic and diluted net loss per share is the same.

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at December 31, 2020 and 2019 because their inclusion would be anti-dilutive are as follows:

Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share at December 31, 2021, 2020 and 2019 because their inclusion would be anti-dilutive are as follows:

Warrants to purchase common stock

2 unchanged sentences

Convertible Series B preferred shares

Recently Issued and Adopted Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability.

When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which was codified with its subsequent amendments as ASC 326, Financial Instruments –

Credit Losses .

ASC 326 seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date.

The amendments require an entity to replace the incurred loss impairment methodology in other U.S.

GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The updated guidance is effective for the Company for annual reporting periods beginning after December 15, 2022, and early adoption is permitted.

In connection with the Company’s acquisitions during the year ended December 31, 2021, the Company adopted this standard on January 1, 2021 and the adoption did not have a material impact on the financial statements and related disclosures.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Segment reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group in deciding how to allocate resources and in assessing performance.

Our chief operating decision–making group is composed of the chief executive officer.

We currently operate in one segment surrounding our cryptocurrency mining operation.

Recently issued and adopted accounting pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability.

In December 2019, the FASB issued ASU No.

2019-12, “

In December 2019, the FASB issued ASU 2019-12, “

Income Taxes (Topic 740):

4 unchanged sentences

The Company adopted this standard on January 1, 2020 and the adoption did not have a material impact on the financial statements and related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) :

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.

This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

This update permits the use of either the modified retrospective or fully retrospective method of transition.

The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) , (“ASU 2021-04”).

This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic.

It specifically addresses:

(1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

(2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.

This ASU will be effective for all entities for fiscal years beginning after December 15, 2021.

An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments.

Early adoption is permitted, including adoption in an interim period.

The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s financial statements or disclosures.

Acquisition of ESS Metron

On December 1, 2021, the Company acquired 100 % of the equity interests of ESS Metron.

ESS Metron is based in Denver, Colorado, operating from facilities totaling approximately 121,000 square feet.

The facilities are subject to long-term lease agreements.

The acquisition-date fair value of the total consideration transferred was comprised of $ 25 million of cash, adjusted for net working capital and other items, and 715,413 shares of the Company’s common stock, no par value, with a fair value of approximately $ 26.7 million.

Of the 715,413 shares of common stock, 645,248 were issued upon closing, and the remaining 70,165 were withheld as security for the sellers’

indemnification obligations for 18 months following the transaction closing date.

The ESS Metron Acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires recognition of assets acquired and liabilities assumed at their respective fair values on the date of acquisition.

As of December 31, 2021, the Company has completed a preliminary allocation of the purchase consideration.

Therefore, the allocation of the purchase price to assets acquired and liabilities assumed is based on provisional estimates and is subject to continuing management analysis, with assistance from third party valuation advisors.

The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the acquisition date.

Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

During the period ended December 31, 2021, the Company continued reviewing its valuations of the assets acquired and liabilities assumed in the December 1, 2021 acquisition of ESS Metron based on new information obtained about facts and circumstances that existed as of the acquisition date.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Any necessary adjustments will be finalized within one year from the date of acquisition (in thousands):

Cash and cash equivalents

Accounts receivable

Prepaid and other current assets

Inventory and work-in-progress

Costs and estimated earnings in excess of billings

Property and equipment

Intangible assets

Right of use asset

Accounts payable

Accrued expenses

Billings in excess of costs and estimated earnings

Operating lease liabilities

Warranty liability

Total identifiable assets and liabilities acquired

Total purchase consideration

The $56.9 million total purchase price consideration consisted of $26.7 million fair value of Riot common shares issued, a $ 30.1 million cash payment (net of $ 3.7 million of Seller transaction costs).

Goodwill represents the excess of total purchase consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.

Goodwill is attributable to the assembled workforce of experienced personnel at ESS Metron and synergies expected to be achieved from the combined operations of Riot and ESS Metron.

The goodwill recognized is expected to be deductible for tax purposes.

We assigned the goodwill to our Engineering segment.

See Note 18, “Segment Information”.

In accordance with ASC 815, the Company determined that the 70,165 shares withheld meet the conditions necessary to be classified as equity because the consideration is indexed to the Company’s own equity, there are no exercise contingencies based on an observable market not based on its stock or operations, settlement is consistent with a fixed-for-fixed equity instrument, the agreement contains an explicit number of shares and there are no cash payment provisions.

Additionally, based on these assessments, the Company determined the shares be recorded at fair value on the acquisition date similar to escrowed shares or securities and accounted for them in total consideration transferred.

This consideration relates to representations and warranties of circumstances that existed as of the acquisition date and which the Company believes to be accurate, with future issuance of the share consideration deemed likely to occur.

The fair values of cash and cash equivalents, accounts receivable, prepaid and other current assets, inventory and work-in-progress, accounts payable, accrued expenses, and warranty liability were determined to be the carrying values due to the short-term nature of the assets and liabilities.

The fair value of the acquired trade receivables was determined to be the net realizable amount of the closing date book value of $ 9.9 million.

The fair values of these assets and liabilities were determined to be the carrying values due to the short-term nature of the underlying project contracts incurring costs and the associated customer billings.

The fair value of property and equipment was estimated by applying the cost approach.

The cost approach uses the replacement or reproduction cost as an indicator of fair value.

The assumptions of the cost approach include replacement cost new, projected capital expenditures, and physical deterioration factors including economic useful life, remaining useful life, age, and effective age.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Intangible assets reflect the identifiable intangible assets acquired, consisting of customer relationships, a trademark and UL Listings.

Customer relationships are assigned an estimated useful life of approximately 10 years based on the low attrition of the customer base, in part due to the customized nature of the Company’s products.

Fair value of the customer relationships was estimated by applying an income approach –

multi period excess earnings method.

The fair value was determined by calculating the present value of estimated future operating cash flows generated from the existing customers less costs to realize the revenue.

The Company applied a discount rate of 21 %, which reflected the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows.

Other significant assumptions used to estimate the fair value of the customer contracts include an assumed income tax rate of 25 %.

Although ESS Metron has been in business for over 60 years, the trademark was only assigned a 10-year life due to the Company obtaining more data center customers where the longevity of the projects may be shorter than have been historically.

Fair value of the trademark was estimated by applying the relief from royalty rate method.

The fair value was determined by applying an estimated royalty rate to revenues, measuring the value the Company would pay in royalties to a market participant if it did not own the trademark and had to license it from a third party.

UL Listings were assigned a 12-year life.

A UL Listing means that UL, LLC has tested representative samples of a product and determined that the product meets specific, defined requirements.

These requirements are often based on UL’s published and nationally recognized Standards for Safety.

Although the UL Listing certifications do not expire, due to technological improvements in similar products, particularly in the data center industry, a 12-year life was assumed.

Fair value of the UL Listings was estimated by applying an estimated developer’s profit margin of approximately 4.5% to estimated costs to be incurred over an estimated six months to re-acquire the UL Listings.

The Company applied a discount rate of 15 %, which reflected the short time necessary to re-acquire the asset.

The right of use asset and operating lease liabilities consist of two operating leases of the manufacturing facility in Denver, CO.

These leases have combined annual payments of approximately $ 0.9 million and have remaining lease terms of approximately 3.5 and 10 years.

The operating results of ESS Metron have been included in the Company’s consolidated statements of operations since the acquisition date.

During the year ended December 31, 2021, the Company recognized $ 2.1 million of acquisition-related costs that were expensed as incurred.

The financial results of the acquisition have been included in the Company’s consolidated financial statements from the closing of the acquisition.

From the December 1, 2021 acquisition date through December 31, 2021, ESS Metron’s total revenue and net income was approximately $ 4.2 million and $ 0.2 million, respectively.

Acquisition of Whinstone

On May 26, 2021, the Company acquired 100 % of the equity interests of Whinstone US, Inc., the owner and operator of a Bitcoin mining and hosting facility, for approximately $460 million.

The assets and operations of Whinstone increases the scale and scope of Riot’s operations, which is a foundational element in the Company’s strategy to become an industry-leading Bitcoin mining platform on a global scale.

The acquisition-date fair value of the total consideration transferred was comprised of $ 80 million of cash, adjusted for net working capital and other items, and 11.8 million shares of the Company’s common stock, no par value, with a fair value of approximately $326 million.

As part of cash at closing, net debt outstanding from Whinstone to its parent (Seller) totaling approximately $38 million was repaid as part of cash paid and certain seller transaction costs were paid.

The Company also agreed to pay Seller up to approximately $ 86 million (undiscounted) in additional consideration if certain future power credits are realized by Whinstone.

The purchase price was funded through a combination of existing cash and issuance of equity securities.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

The Whinstone Acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires recognition of assets acquired and liabilities assumed at their respective fair values on the date of acquisition.

As of December 31, 2021, the Company has completed a preliminary allocation of the purchase consideration.

The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the Acquisition Date.

During the period ended December 31, 2021, the Company continued reviewing its valuations of the assets acquired and liabilities assumed in the May 26, 2021 acquisition of Whinstone based on new information obtained about facts and circumstances that existed as of the acquisition date.

During the period May 26, 2021 through December 31, 2021, due to further analysis of the operating forecast used in the acquisition date valuation, the Company recorded preliminary measurement period adjustments of approximately $ 90.3 million to decrease the value of its customer relationship intangible assets, $ 37.8 million to decrease the value of its acquisition date deferred tax liabilities and $0.2 million to increase its acquisition date right of use asset, with the corresponding adjustments to goodwill.

Any necessary adjustments will be finalized within one year from the date of acquisition ($ in thousands):

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property and equipment

Derivative asset

Right of use asset

Security deposits

Future power credits (1)

Accounts payable

Accrued expenses

Deferred revenues and customer deposits

Operating lease liabilities

Total identifiable assets and liabilities acquired

Total purchase consideration

Future power credits of $83.0 million are associated with the contingent purchase price payable.

Goodwill represents the excess of total purchase consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.

Goodwill is attributable to the assembled workforce of experienced personnel at Whinstone and synergies expected to be achieved from the combined operations of Riot and Whinstone.

None of the goodwill recognized is expected to be deductible for tax purposes.

We assigned the goodwill to our Hosting segment.

See Note 18, “Segment Information”.

The $460.4 million total purchase price consideration consisted of $ 326.2 million fair value of Riot common shares issued, a $ 53.0 million cash payment (including $ 38.1 million of debt payoff and certain Seller transaction costs), an $ 83.0 million contingent purchase price payable to the Seller and other net items of $( 1.7 million).

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

As part of the share purchase agreement Riot entered into with the Seller in connection with the Whinstone Acquisition, Riot is obligated to Seller to pay up to a maximum amount of $86 million, net of income taxes as defined under the stock purchase agreement (undiscounted) of additional consideration if certain power credits are received or realized by Whinstone.

Those power credits arose from the February 2021 weather event.

The purchase price included the estimated fair value of the contingent consideration at the Whinstone Acquisition Date of approximately $83 million.

The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820.

The significant assumptions used to estimate the fair value are described in Note 14, “Fair Value Measurements”.

These assumptions for the power credits whose utilization by Whinstone is contingent on ERCOT’s future power billings, include the timing of receipt or realization of the power credits, estimates of future power consumption, the discount rate and credit risk of the Company and the owing party (ERCOT).

The fair value of the acquired trade receivables was determined to be the net realizable amount of the closing date book value of $ 1.1 million.

The fair value of the acquired long-term other asset of approximately $83 million relates to the estimated amount of power credits due Whinstone from the February 2021 weather event.

We estimated the fair value of the power credits to be the same as that of the contingent consideration arrangement because the Company is required to remit to the Seller in cash as additional consideration the amount of such power credits received or realized by Whinstone.

See discussion above on contingent consideration.

The derivative asset acquired pertains to Whinstone’s Power Supply Agreement.

Fair value of the contract of approximately $ 14 million was estimated by applying a discounted debt-free cash flow approach.

This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820.

The significant assumptions used to estimate fair value of the derivative contract include a discount rate of 21%, which reflected the nature of the contract as it relates to the risk and uncertainty of the estimated future mark-to-market adjustments, forward price curves of the power supply, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.

The fair value of property and equipment was estimated by applying the cost approach.

The cost approach uses the replacement or reproduction cost as an indicator of fair value.

The operating results of Whinstone have been included in the Company’s consolidated statements of operations since the Acquisition Date.

During the year ended December 31, 2021, the Company recognized $ 19.1 million of acquisition-related costs that were expensed as incurred.

The financial results of the acquisition have been included in the Company’s consolidated financial statements from the closing of the acquisition.

From the May 26, 2021 acquisition date through December 31, 2021, Whinstone’s total revenue and net income was approximately $ 24.5 million and $ 1.2 million, respectively.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Pro Forma Information (Unaudited)

The following unaudited pro forma financial information summarizes the combined results of operations for Riot, Whinstone and ESS Metron as if the companies were combined as of January 1, 2020.

The unaudited pro forma information does not reflect the effect of costs or synergies that may result from the acquisition.

The pro forma information excludes acquisition-related costs of $ 21.2 million during the year ended December 31, 2021.

The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on January 1, 2020, or of future results of the consolidated entities.

This unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of future operating results of the combined company (in thousands).

Years Ended December 31,

Total revenue

Asset Purchase Agreement with Prive Technologies LLC

1 unchanged sentence

Upon closing of the transaction, Kairos became the owner of Prive equipment used for the mining of cryptocurrency, including, but not limited to, 3,800 Bitmain Antminer S9s.

The equipment was recorded for a purchase price of approximately $ 19.5 million as follows:

The equipment was recorded for a purchase price of approximately $ 19.5 million as follows (in thousands):

Cash consideration

6 unchanged sentences

In February 2020, the conditions were not achieved and after receiving notification on March 4, 2020, the escrow agent returned and canceled the 200,000 shares.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Acquisition of Logical Brokerage Corp.

6 unchanged sentences

Under the guidance of ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity , the Company determined that the discontinuation of RiotX / Logical Brokerage did not represent a strategic shift that would have a major effect on the Company’s operations and financial results.

The Company accounted for the discontinuation as an impairment of an intangible asset acquired, and as of December 31, 2019, recorded an impairment expense of approximately $ 0.7 million and recorded an income tax benefit of approximately $ 0.1 million, which are reflected on the accompanying consolidated statements of operations.

The Company accounted for the discontinuation as an impairment of an intangible asset acquired, and as of December 31, 2019, recorded an impairment expense of approximately $ 0.7 million and recorded an income tax benefit of approximately $ 0.1 million, which are reflected in the accompanying consolidated statements of operations.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Revenue from Contracts with Customers

We recognize revenue when we transfer promised services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services.

Disaggregated revenue

The following table presents the Company’s revenues disaggregated into categories based on the nature of such revenues (in thousands):

Schedule of Disaggregated Revenue:

Years Ended December 31,

Total revenue

Contract balances

For the years ended December 31, 2021, 2020 and 2019, the Company did not recognize material bad-debt expense.

Contract assets consist of costs and estimated earnings in excess of billings on uncompleted engineering contracts.

The balance was entirely from the ESS Metron acquisition and was $ 9.9 million and $ 0 as of December 31, 2021 and 2020, respectively.

The Company’s contract liabilities primarily relate to upfront payments and consideration received from customers for data center hosting, billings in excess of costs and estimated earnings on uncompleted engineering contracts and the upfront license fee generated from our legacy animal health business.

The table below presents changes in the total deferred revenue liability, for the years ended December 31, 2021 and 2020 (in thousands):

Years Ended December 31,

Beginning balance

Acquired contract balances

Revenue recognized from acquired contract balances

Termination of an acquired customer contract

Revenue recognized that was included in the beginning balance

Ending balance

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Transaction price allocated to remaining performance obligations

Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed.

Amounts related to cryptocurrency mining are not included because the Company elected the practical expedient to not disclose amounts related to contracts with a duration of one year or less.

Hosting and Engineering revenue –

remaining performance obligation

The table below presents estimated revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligation at December 31, 2021 (in thousands):

(in thousands)

Total contract liabilities (2)

Data center hosting revenue primarily includes upfront payments which the Company generally recognizes as services are provided.

The Company elected the “right to invoice”

practical expedient and therefore does not include amounts related to (1) the satisfaction of performance obligations recognized in the amount invoiced, and (2) variable consideration related to future services.

Other revenue –

remaining performance obligation

As of December 31, 2021 and 2020, the aggregate amount remaining of the upfront license fee, for the right to access certain intellectual property relating to the Company’s Animal Health assets, was approximately $ 0.7 million and $ 0.8 million, respectively.

The fee is being recognized ratably over the license term, which ends in 2028.

Additionally, we have elected to use the practical expedient to not adjust the transaction price for the existence of a significant financing component if the timing difference between a customer’s payment and our performance is one year or less.

Cryptocurrencies

The following table presents additional information about cryptocurrencies:

December 31, 2020

December 31, 2019

The following table presents information about our cryptocurrencies (Bitcoin):

Beginning balance

Revenue recognized from cryptocurrencies mined

Mining pool operating fees

Proceeds from sale of cryptocurrencies

Purchase of miner equipment with cryptocurrencies

Realized gain on sale/exchange of cryptocurrencies

2 unchanged sentences

Ending balance

Fair Value Measurements

On January 28, 2019 the Company issued the notes and warrants which were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the consolidated statements of operations and disclosed in the consolidated financial statements.

As of June 27, 2019, in accordance with their original terms, all of the Notes were converted into a total of 1,813,500 shares of the Company’s common stock by their holders.

A summary of weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s Notes and Warrants at the issuance date of January 28, 2019 and during the conversion of the Notes as of June 27, 2019, are as follows:

Senior Secured Promissory Notes

As of June 27,

Dividend yield

Expected price volatility

122.2%-127.1%

Risk free interest rate

Expected term

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

As of June 27,

Dividend yield

Expected price volatility

119.9%-120.5%

Risk free interest rate

Expected term

4 years, 10 months

There were no assets or liabilities measured at fair value during the year ended December 31, 2020.

Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2019:

Convertible Notes

Warrant Liability

Issuance of senior secured convertible notes

Issuance of warrants in connection with convertible notes

Balance at January 28, 2019

Change in fair value

Conversion of convertible notes to common stock

Reclassification of warrant liability to equity

Balance at December 31, 2019

Property and Equipment

Property and equipment consisted of the following as of December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Leasehold improvements

Office and computer equipment

Total cost of property and equipment

Less accumulated depreciation

Property and equipment, net

There were no impairment charges related to miners for the years ended December 31, 2020 and 2019.

During the year ended December 31, 2019, the Company purchased 4,000 Bitmain S17-Pro Antminers for approximately $ 6.3 million from Bitmain.

In December 2019, 3,000 miners had been received at the Company’s Oklahoma City facility but not yet placed in service.

The remaining 1,000 miners were received at its Oklahoma City facility during February 2020 and the related $ 1.4 million prepayment is recorded as a deposit on the accompanying December 31, 2019 consolidated balance sheet.

During the year ended December 31, 2020, the 4,000 S17-Pro Antminers were relocated to the Coinmint facility.

During the year ended December 31, 2020, the Company purchased 33,646 Bitmain S19-Pro Antminers and as of December 31, 2020 the Company had received 3,043 of the S19-Pro Antminers.

During 2021, all cryptocurrency activity was from Bitcoin.

During 2020, all but less than $ 0.1 million was from Bitcoin.

During 2021, 2020 and 2019, the Company recorded impairment charges on its cryptocurrency holdings of $36.5 million, $1.0 million and $0.8 million, respectively.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

As of December 31, 2020, the Company had outstanding executed purchase agreements primarily for the purchase of miners from Bitmain for a total of 30,603 new S19-Pro miners, to be delivered in 2021 through October 2021.

A summary of the purchase agreement commitments, deposits paid and expected delivery timing (remaining balances are payable in advance of shipping) is summarized as follows:

Agreement Date *

Purchase Commitment

Deposits Paid

Expected Shipping

August 12, 2020

First Quarter 2021

August 25, 2020

First - Second Quarter 2021

September 30, 2020

First Quarter 2021

December 18, 2020 (1 of 2)

Third - Fourth Quarter 2021

December 18, 2020 (2 of 2)

Second - Third Quarter 2021

Other contracts and costs

* Pursuant to the Company’s agreements with Bitmain, the Company is responsible for all shipping charges incurred in connection with the delivery of the miners.

In December 2020, the Company entered into a pilot project with a dual focus of evaluating next-generation immersion technology to increase mining productivity, in addition to evaluating software to reduce energy costs.

The immersion modules provide significant potential benefits, and the software is designed to help miners reduce their cost of power by being opportunistic in the local energy market.

When combined, both technologies have the potential to reduce the Company’s bitcoin production costs, increase hashrates and significantly extend the life of the Company’s bitcoin mining ASICs.

As of December 31, 2020, the Company has made contract deposits totaling approximately $ 1.2 million related to the pilot project, which amounts are included in the above table.

Depreciation and amortization expense totaled approximately $ 4.5 million (including $ 0.2 million of patent amortization) and $ 0.1 million, for the years ended December 31, 2020 and 2019, respectively.

Depreciation is computed on the straight-line basis for the periods the assets are in service.

Long-term investments consisted of the following as of December 31, 2020 and 2019:

Balance at January 1, 2019

Investment in Tess

Accrued interest on convertible note

Balance at December 31, 2019

Impairment of long-term investment

Balance at December 31, 2020

Investments in Marketable Equity Securities and Long-term Investments

Investments in Marketable Equity Securities

Coinsquare and Mogo

In September 2017, and February 2018, the Company acquired a minority interest for $ 9.4 million in Coinsquare, which operates a digital crypto currency exchange platform in Canada.

The investment resulted in a current ownership in Coinsquare by the Company of approximately 11.7 % ownership in Coinsquare on a fully diluted basis.

The Company has evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Coinsquare.

The investment resulted in an ownership in Coinsquare by the Company of approximately 11.7 % ownership in Coinsquare on a fully diluted basis.

The Company evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Coinsquare.

The measurement alternative at cost, less any impairment, plus or minus changes resulting from observable price changes.

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The Company therefore recorded an impairment expense of $ 9.4 million for its investment in Coinsquare during the year ended December 31, 2020, as reflected in the accompanying consolidated statements of operations.

During the year ended December 31, 2021, under agreements generally between Coinsquare, Coinsquare’s shareholders (including Riot) and Mogo Inc.

MOGO) (“Mogo Agreement”), a digital payments and financial technology company (“Mogo”), Riot sold its 3.4 million common shares of Coinsquare (the “Coinsquare Shares”) in exchange for approximately 3.2 million common shares of Mogo (the “Mogo Shares”) and approximately US $ 1.8 million in cash.

During the year ended December 31, 2021, the Company recorded a gain on sale/exchange of long-term investments of $ 26.3 million for the sale of its shares of Coinsquare.

Concurrently, in accordance with ASC 321, we recorded the fair value of the MOGO shares, received in the exchange of $ 24.8 million in investments in marketable equity securities within current assets on our consolidated balance sheets.

The fair value was calculated as 3.2 million shares of Mogo common stock multiplied by the fair value of the Mogo shares received.

During the year ended December 31, 2021, we recorded an unrealized loss on the shares of approximately $ 13.7 million based on the closing price per share of Mogo common stock on NASDAQ on December 31, 2021 of $ 3.42 .

The daily share price is extremely volatile and may be more or less than the amount recorded as of December 31, 2021.

Long-term Investments

In 2017, the Company acquired approximately 52 % of Tess which is developing blockchain solutions for telecommunications companies.

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Subsequently Tess was no longer being consolidated in the Company’s consolidated financial statements.

As of December 31, 2019, the Company evaluated its remaining interest in Tess under the guidance of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and determined it should remeasure its retained interest at fair value upon deconsolidation to establish a new cost basis.

As of December 31, 2020 and 2019, the fair value of the Tess shares owned by the Company is approximately $ 0.1 million, calculated based upon the April 10, 2019 funding price as follows:

April 10, 2019

Tess shares held by Riot Blockchain, Inc.

Per share fair value

Fair value of Tess shares held by Riot Blockchain, Inc.

The Company accounts for deconsolidation of subsidiaries in which it loses controlling interest in the financial interest of the subsidiary in accordance with Accounting Standards Codification (“ASC”) 810-10-40 –

“Consolidation”.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

The deconsolidation of Tess resulted in a gain of approximately $1.1 million calculated as follows on the date of deconsolidation:

Current assets

Accounts payable

Accrued expenses

Convertible notes

Net liabilities

Non-controlling interest share

fair value of shares owned by Riot Blockchain

Gain on deconsolidation of Tess

As of December 31, 2019, the Company evaluated its remaining interest in Tess under the guidance of ASU 2016-01 and determined it should remeasure its retained interest at fair value upon deconsolidation to establish a new cost basis.

As of December 31, 2021 and 2020, the fair value of the Tess shares owned by the Company is approximately $ 0.1 million, calculated based upon the April 10, 2019 funding price as follows:

Tess shares held by Riot Blockchain, Inc.

Per share fair value

Fair value of Tess shares held by Riot Blockchain, Inc.

During November 2017, the Company made a $ 0.2 million investment in a convertible note as part of a series of notes issued by Verady, LLC (“Verady”).

6 unchanged sentences

The 2019 automatic conversion resulted in an ownership in Verady by the Company of approximately 3.2 % on a fully diluted basis.

The Company has evaluated the guidance in ASU 2016-01 and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Verady.

The investment is valued at cost, less any impairment, plus or minus changes resulting from observable price changes.

During the year ended December 31, 2020 and 2019, there were no price changes in orderly transactions for identical or similar investments in Verady.

During the year ended December 31, 2021 and 2020, there were no price changes in orderly transactions for identical or similar investments in Verady or Tess.

Property and Equipment

Property and equipment consisted of the following as of December 31, 2021 and 2020 (in thousands):

December 31, 2021

December 31, 2020

Buildings and improvements

Miners and mining equipment

Machinery and facility equipment

Office and computer equipment

Construction in progress

Total cost of property and equipment

Less accumulated depreciation

Property and equipment, net

There were no impairment charges for the years ended December 31, 2021, 2020 and 2019.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

During 2021, we received 34,608 additional Antminer model S19-Pro miners related to its purchase contracts with Bitmain and, as of December 31, 2021, had deployed a total of 30,907 miners in its mining operation.

Additionally, we entered into six additional purchase agreements with Bitmain to acquire 52,500 Antminer model S19j (90 Terahash per second) (“TH/s”) miners and 30,000 of their latest Antminer model S19XP (140 TH/s) miners for a combined total purchase price of approximately $ 535.0 million.

Pursuant to these agreements, approximately $ 301.3 million remains payable to Bitmain in installments in advance of shipment of the miners, which is scheduled to occur on a monthly basis through December 2022.

During the year ended December 31, 2020, the Company purchased 33,646 Bitmain S19-Pro Antminers and as of December 31, 2020 the Company had received 3,043 of the S19-Pro Antminers.

These technologies have the potential to reduce the Company’s Bitcoin production costs, increase hash rate capacity and significantly extend the life of the Company’s Bitcoin mining ASICs.

During June 2021, this pilot project had commenced full operation and the approximate $ 2.7 million in equipment costs for this project previously not yet operational and included in “Miners and mining equipment”

in the table above, commenced being depreciated.

Depreciation and amortization expense related to property and equipment totaled approximately $ 26.1 million, $ 4.3 million and $ 0.1 million, for the years ended December 31, 2021, 2020 and 2019, respectively.

Depreciation is computed on the straight-line basis for the periods the assets are in service.

Construction in progress:

Upon completion of the Whinstone Acquisition, the Company commenced expansion of the Whinstone Facility from its existing 300 MW developed capacity to 700 MW.

This expanded Bitcoin mining infrastructure is expected to comprise four new buildings totaling approximately 240,000 square feet, with the capacity to support an estimated 112,000 S19j Antminers based upon current configurations.

It is expected that the first portion of this expansion will be completed by Q1 2022 and the balance during Q2 2022.

Two of these four buildings are being developed utilizing air-cooling infrastructure, with the optionality to upgrade to immersion-cooling.

The other two of these buildings are being developed utilizing immersion-cooling technology, a technique that offers improved cooling performance as compared to air-cooling infrastructure.

The expansion of Bitcoin mining infrastructure at Whinstone provides critical capacity for Riot to deploy its future shipments of Bitcoin mining hardware, in addition to providing an opportunity to expand Whinstone’s hosting business for third-party Bitcoin miners.

In November 2021, Riot’s 400 MW expansion at the Whinstone Facility hit multiple progress milestones while navigating the challenges with the current state of the global supply chain.

Progress during the month included the completion of the substation expansion to 700 MW, successful installation of the substation busbar, and 400 MW of high-voltage transformers.

Whinstone also completed construction of Building F, Riot’s first self-mining building dedicated to immersion-cooled Bitcoin mining, while also advancing on its second immersion-cooled dedicated building, Building G.

In December 2021, Whinstone also received most of the structural components required for Buildings D, E, and G.

The construction completion timeline is currently on-time, despite global supply chain shortages and delays.

A hosting client with its miners in a portion of Building C has now filled the remainder of Building C with its miners.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

As of December 31, 2021, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of 30,495 new S19j-Pro model miners and 30,000 new S19XP model miners, scheduled to be delivered through December 2022 , and had paid a deposit of 43 % of the total purchase price.

A summary of the purchase agreement commitments, deposits paid and expected delivery timing (remaining balances are payable in advance of shipping) is summarized as follows (in thousands):

Agreement Date *

Original Purchase Commitment

Open Purchase Commitment

Deposit Balance

Expected Shipping

April 5, 2021

First Quarter 2022 - Fourth Quarter 2022

October 29, 2021

Second Quarter 2022 - Third Quarter 2022

November 22, 2021

Third Quarter 2022 - Fourth Quarter 2022

December 10, 2021

Third Quarter 2022 - Fourth Quarter 2022

December 24, 2021

Third Quarter 2022 - Fourth Quarter 2022

* Pursuant to the Company’s agreements with Bitmain, the Company is responsible for all shipping charges incurred in connection with the delivery of the miners.

The Company paid approximately $ 85.7 million as a deposit for the miners to be acquired under the purchase agreement, dated effective as of April 5, 2021, with Bitmain to acquire approximately 42,000 Antminer model S19j Miners, which are scheduled to be shipped in 12 batches of approximately 3,500 miners each, on a monthly basis, through October 2022 .

During the fourth quarter ended December 31 2021, the Company entered into purchase agreements with Bitmain to acquire 9,000 S19j Pro (100 TH/s) miners and 30,000 S19XP (140 TH/s) miners, for a total purchase price of approximately $ 389.3 million, with an anticipated delivery and deployment schedule set for April 2022 through December 2022.

Long-Term Assets

Intangible rights acquired

As of December 31, 2020 and 2019, intangible rights acquired totaled zero.

The Company made the decision, effective as of December 31, 2019 not to pursue its RiotX / Logical Brokerage business development plan.

Deposits consisted of the following as of December 31, 2021 and 2020 (in thousands):

December 31, 2021

December 31, 2020

Deposits on equipment

Beginning balance

Reclassification to property and equipment

Ending Balance

Security deposits

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Deposits on Equipment

During the year ended December 31, 2021, the Company paid approximately $ 274.8 million as deposits, primarily for miners, and, as of December 31, 2021, had reclassified $ 46.7 million to property and equipment in connection with the receipt of 23,864 miners at the Coinmint Facility and the Whinstone Facility.

See Note 5, “Revenue from Contracts with Customers”.

During the year ended December 31, 2020, the Company purchased 33,646 model S19, S19-Pro, and S19j-Pro Antminers from Bitmain for a total purchase price of approximately new miners totals $ 76.1 million, including $ 6.6 million paid for the 3,043 miners delivered during the year ended December 31, 2020, $ 31.9 million paid as deposits in deposits during the same period, and the remaining $ 37.6 million due to be paid during the year ending December 31, 2021.

As of December 31, 2020, the Company had received 3,043 of the new miners, including all 1,040 model S19 miners and 2,003 model S19-Pro miners, but had not yet received 30,603 of the new miners, including 18,603 model S19-Pro miners and all 12,000 model S19j-Pro miners.

The 30,603 were delivered in monthly shipments through January 2022.

Accordingly, the Company recorded the $ 31.9 million paid during the year ended December 31, 2020 for these outstanding miners as a deposit, which includes these miners on the accompanying consolidated balance sheet.

(See Note 7 for additional details.)

During December 2019, the Company purchased 4,000 next generation Bitmain model S17-Pro Antminers from Bitmain for approximately $ 6.3 million.

(See Note 7, “Investments in Marketable Equity Securities”

for additional details.)

During December 2019, the Company purchased 4,000 Bitmain model S17-Pro Antminers from Bitmain for approximately $ 6.3 million.

The Company had received 3,000 of these model S17-Pro miners by December 31, 2019, and, accordingly, they were recorded as assets on the Company’s consolidated balance sheet for the year ended December 31, 2019.

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Therefore, as of December 31, 2019, the Company recorded the $ 1.4 million paid in advance for these 1,000 model S17-Pro miners as a deposit on the accompanying consolidated balance sheet.

Security Deposits

During the year ended December 31, 2021, the Company paid approximately $ 3.1 million in connection with an amended and restated Transmission/Substation Facility Extension Agreement for the construction of the Oncor-owned Delivery System facilities to serve the expansion of the Whinstone Facility.

The deposit can be returned in two tranches:

1) upon verification by Oncor that the load demand meets or exceeds 394 MW, approximately $ 1.3 million can be returned, and 2) upon verification by Oncor that the load demand meets or exceeds 725 MW, the remaining $ 1.8 million can be returned.

As of December 31, 2021, the Company has security deposits totaling approximately $ 5.0 million, including its ground lease of $ 1.8 million.

Right of Use Assets

See Note 11, “Leases”.

Accrued Expenses

As of December 31, 2021 and 2020, the Company’s accrued expenses consisted of the following (in thousands):

December 31, 2021

December 31, 2020

Construction in progress

Payroll and payroll taxes

Total accrued expenses

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

The Company’s intangible assets with finite lives consist of its patents pertaining to its legacy animal health business, which have been out-licensed.

For all periods presented, all of the Company’s identifiable intangible assets were subject to amortization.

The carrying amounts related to acquired intangible assets as of December 31, 2020 and 2019 were as follows:

December 31, 2020

December 31, 2019

Accumulated amortization

During the year ended December 31, 2020, the Company wrote-off approximately $ 0.05 million of remaining net patent costs related to its now expired license agreement with Washington University in St.

The following table represents the total estimated amortization of intangible assets for the five succeeding years and thereafter:

For the year ended December 31,

Estimated amortization expense

The Company capitalizes legal costs and filing fees associated with obtaining patents on its new discoveries.

Once the patents have been issued, the Company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straight-line method.

Amortization expense totaled $ 167,000 and $ 86,000 for the years ended December 31, 2020 and 2019, respectively.

The Company tests intangible assets with finite lives upon significant changes in the Company’s business environment.

The testing resulted in no patent impairment charges during the years ended December 31, 2020 and 2019.

Notes, Warrants and Other Obligations

Senior Secured Convertible Promissory Notes and Warrants

On January 28, 2019, in connection with a private financing (the “2019 Private Financing”), the Company issued the Notes, to investors (collectively, the “Investors”

and each an “Investor”) for an aggregate principal amount of approximately $ 3.4 million, along with Warrants for the purchase of and equal value of shares of the Company’s common stock, in exchange for $ 3.0 million of private financing.

As additional consideration for the investment, the Company issued a total of 150,000 restricted common shares to the Investors.

The Notes were subject to prepayment penalties, default conditions and other terms and conditions, as set forth in the Financing Agreements (the “Financing Agreements”), as disclosed in the Company’s current report on Form 8-K filed with the SEC on February 1, 2019.

As additional consideration for the investment, the Company issued a total of 150,000 restricted common shares to the Investors.

The Notes were convertible into shares of the common stock of the Company at a price equal to the lower of $ 2.00 or 80 % of the lowest volume-weighted adjusted price of shares of the Company’s common stock in the twenty trading days prior to the conversion date, subject to adjustments in certain cases as defined in the Financing Agreements.

Provided, however, that according to the Notes, the cumulative shares of the Company’s common stock issuable upon conversion of the Notes cannot exceed 19.99 % of the total number of the Company’s outstanding common stock as of January 28, 2019.

Pursuant to the Financing Agreements between the Company and the Investors, the Company granted the Investors a security interest in its assets to secure repayment of the Notes.

Further to the Financing Agreements, the Company also reserved a number of shares of its common stock equal to 300 % of the total number of shares issuable upon full conversion of the Notes.

At December 31, 2021, the Company had operating lease liabilities and right of use assets for its offices, manufacturing facilities of ESS Metron, and a ground lease at the Whinstone Facility that expires in December 2030, inclusive of extension options the Company is reasonably certain will be exercised.

At December 31, 2020, the Company did not have any significant operating lease balances.

In November 2021, the Company entered into a lease termination agreement with the landlord of certain Whinstone abandoned leases for approximately $ 0.9 million.

After eliminating the associated operating lease liabilities, we recognized other income of approximately $ 0.7 million during the year ended December 31, 2021.

Rental expense for lease payments related to the Company’s operating leases is recognized on a straight-line basis over the remaining lease term.

The Company currently does not hold any finance leases.

The Company elected to use the practical expedient of not separating lease components for its real estate leases.

The Company has elected the short-term lease exception provided, and therefore only recognizes right of use assets and lease liabilities for leases with a term greater than one year.

Leases qualifying for the short-term lease exception were insignificant.

As of December 31, 2021 and 2020, the right of use assets were $13.2 million and zero, respectively, and the operating lease liabilities were $13.4 million and zero , respectively, in the accompanying consolidated balance sheets related to our ground lease and office leases.

Operating lease right of use assets are included within long-term assets on the consolidated balance sheets.

The calculation of the right of use assets and lease liabilities include minimum lease payments over the remaining lease term.

Variable lease payments are excluded from the amounts and are recognized in earnings in the period in which the obligation for those payments is incurred.

To determine the present value of future minimum lease payments, the Company utilized its incremental borrowing rate adjusted for the remaining lease term and the form of underlying collateral.

The discount rate implicit in the leases was not readily determinable.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Due to the complexity and number of embedded features within the Notes and as permitted under applicable accounting guidance, the Company elected to account for the Notes and all the embedded features under the fair value option, which records the Notes at fair value rather than at historical cost, with changes in fair value recorded in the consolidated statements of operations.

Direct costs and fees incurred to issue the Notes were recognized in earnings as incurred and were not deferred.

On the initial measurement date of January 28, 2019, the fair value of the Notes was estimated at approximately $ 6.3 million.

Upfront costs and fees related to items for which the fair value option was elected were approximately $ 0.4 million and were recorded as a component of other expenses for the year ended December 31, 2019.

In connection with the Notes, the Company entered into registration rights agreement with the Investors.

The Company filed a registration statement with the SEC covering the equity rights and any other shares issuable in connection with the Notes on March 14, 2019 and the registration statement was declared effective on April 29, 2019.

During the year ended December 31, 2019, holders of the Notes issued in connection with the 2019 Private Financing, converted 100% of the Notes into 1,813,500 shares of the Company’s common stock.

The aggregate fair value of the Notes converted during the year ended December 31, 2019 was $ 10.2 million, an increase in fair value of $ 3.9 million, which is reflected on the consolidated statements of operations for the year ended December 31, 2019, as change in fair value of convertible note.

Accordingly, having satisfied the Notes in full, the Company’s obligations under the Notes have been cancelled.

In connection with this Private Financing, the Company also issued Warrants to the Investors to acquire up to an aggregate of 1,908,144 shares of the Company’s common stock at an exercise price of $ 1.94 per share.

The Warrants are exercisable by the Investors beginning on July 29, 2019, through the fifth year anniversary of the effective date of the Private Financing;

provided, however, each Investor’s beneficial ownership of the Company’s common stock may not exceed 4.99 % of the total outstanding shares of the Company’s common stock without first providing sixty (60) days’

notice to the Company, and, in any event, the ownership, including beneficial ownership, of shares of the Company’s common stock by each of the Investors, shall not exceed 9.99 % of the total outstanding shares of our common stock.

BMSS and Other Liabilities Settlements

On February 21, 2018, the Company completed an asset purchase under an agreement (the “BMSS Purchase Agreement”) with BMSS, to purchase the 3,000 Antminer S9 bitcoin mining machines owned by BMSS Equipment (the “BMSS Equipment”).

Pursuant to the BMSS Purchase Agreement, the Company purchased the BMSS Equipment for aggregate consideration of $ 8.5 million.

As of June 27, 2019, in connection with the BMSS agreement, the Company owed approximately $ 1.3 million of principal and interest and the Company and BMSS agreed to a one-time settlement payment totaling $ 1.0 million.

The remaining $ 0.4 million was recorded as a gain on extinguishment of notes and interest, and included in other income in the accompanying consolidated statement of operations for the year ended December 31, 2019.

During the year ended December 31, 2019, the Company reached agreements with certain creditors to settle the amounts of outstanding liabilities at a discount.

The computed value of the modifications as compared to the liability balances were recorded as other income from the gains on extinguishment of debt.

The liabilities settled excluding BMSS, during the period totaled approximately $ 2.1 million in exchange for cash payments of $ 1.6 million, resulting in a gain of approximately $ 0.5 million recognized during the year ended December 31, 2019.

The following summarizes quantitative information about the Company’s operating leases (dollars in thousands):

Years Ended December 31,

Operating lease cost

Variable lease cost (1)

Operating lease expense

Short-term lease rent expense

Total rent expense

Amounts primarily include common area maintenance and utility charges not included in the measurement of right of use assets and operating lease liabilities.

Other information

Operating cash flows from operating leases

Right of use assets exchanged for new operating lease liabilities

Weighted-average remaining lease term –

operating leases

Weighted-average discount rate –

operating leases

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

The following table represents our future minimum operating lease payments as of, and subsequent to, December 31, 2021 under ASC 842 (in thousands):

Office and other leases

Total undiscounted lease payments

Less present value discount

Present value of lease liabilities

Stockholders’

Preferred Stock

Series B –

Preferred Stock

0% Series B Convertible Preferred Stock

On November 3, 2017, the Company designated 1,750,001 shares of preferred stock as “0% Series B Convertible Preferred Stock”

in connection with the filing of the Certificate of Designation with the Secretary of State of the State of Nevada.

The shares of Series B Preferred Stock are non-voting and convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series B Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series B Preferred Stock, as of such date of determination, divided by the conversion price.

The stated value of each share of Series B Preferred Stock is $ 6.80 and the initial conversion price is $ 6.80 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.

The holders of Series B Preferred Stock are entitled to receive dividends if and when declared by the Company’s board of directors.

The Series B Preferred Stock is also subject to beneficial ownership limitations and conversion limitations, as further described in the documents.

During the year ended December 31, 2019, 8,801 shares of the Company’s Series B preferred stock were converted into 8,801 shares of the Company’s common stock.

As of December 31, 2020 and 2019, 4,199 shares of Series B Preferred Stock were outstanding.

pursuant to the Certificate of Designation filed with the Secretary of State of the State of Nevada.

The shares of 0% Series B Convertible Preferred Stock are non-voting and convertible into shares of common stock based on a conversion calculation equal to the stated value of the 0% Series B Convertible Preferred Stock, plus all accrued and unpaid dividends, if any, on such 0% Series B Convertible Preferred Stock, as of such date of determination, divided by the conversion price.

The stated value of each share of 0% Series B Convertible Preferred Stock is $ 6.80 and the initial conversion price is $ 6.80 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.

The holders of 0% Series B Convertible Preferred Stock are entitled to receive dividends if and when declared by the Company’s board of directors.

The 0% Series B Convertible Preferred Stock is also subject to beneficial ownership limitations and conversion limitations, as further described in the documents.

During the year ended December 31, 2021, 2,000 shares of the Company’s 0% Series B Convertible Preferred Stock were converted into 2,000 shares of its common stock, leaving 2,199 shares outstanding.

As of December 31, 2021 and 2020, 2,199 and 4,199 shares of the Company’s 0% Series B Convertible Preferred Stock were outstanding, respectively.

Subsequent to December 31, 2021, the remaining 2,199 shares of the Company’s 0% Series B Convertible Preferred Stock were converted to 2,199 shares of its common stock and no shares of the Company’s 0% Series B Convertible Preferred Stock are currently outstanding.

Common Stock:

At-the-Market Equity Offerings

2021 ATM Offering

For the period August 31, 2021 to December 31, 2021, in connection with the At-the-Market Sales Agreement between the Company and its sales agent, Cantor Fitzgerald & Co., B.

Riley FBR, Inc., BTIG, LLC, Compass Point Research & Trading, LLC and Roth Capital Partners, LLC (the “Sales Agents”) the Company received gross proceeds of approximately $ 600 million ($ 587.2 million, net of $ 12.8 million in commissions and expenses) from the sale of 19,910,589 shares of common stock, with an average fair value of $ 29.53 per share, in the 2021 ATM Offering.

Riot Blockchain, Inc.

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(in thousands, except for share and per share amounts)

Common Stock:

At-the-Market Equity Offerings:

2020 ATM Offering

The Company entered into an At-The-Market Sales Agreement with H.C.

Wainwright & Co., LLC (“H.C.

Wainwright”), dated as of May 24, 2019 (the “Sales Agreement”), relating to the sale by the Company through H.C.

Wainwright as its sales agent, of up to $ 100.0 million in shares of the Company’s common stock from time to time in an at-the-market offering (“2019 ATM Offering”).

All sales of the Company’s common stock in the 2019 ATM Offering were made pursuant to the prospectus and prospectus supplement forming a part of the Company’s shelf registration statement on Form S-3, as amended (Registration No.

333-226111), which was declared effective as of May 8, 2019 (the “2019 Registration Statement”).

Effective as of October 15, 2020, as part of the First Amendment to the Sales Agreement discussed below, the Company and H.C.

Wainwright terminated the 2019 ATM Offering.

As of its termination, the Company had cumulatively sold 30.6 million shares of its common stock, for an aggregate gross sales price of approximately $ 74 million pursuant to the 2019 ATM Offering.

With the termination of the 2019 ATM Offering, no additional securities will be sold by the Company pursuant to the prospectus supplement relating to the 2019 Registration Statement.

2020 ATM Offerings

As of October 15, 2020, the Company and H.C.

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Wainwright a commission of up to 3.0 % of the aggregate gross proceeds the Company received from all sales of its common stock in the December 2020 ATM Offering.

During January 2021, in connection with the Second Amendment to the At-the-Market Sales Agreement between the Company and its sales agent, H.C.

Wainwright, the Company received gross proceeds of approximately $ 84.8 million ($ 82.7 million, net of $ 2.1 million in expenses) from the sale of 4,433,468 shares of common stock, with an average fair value of $ 19.13 per share, in the December 2020 ATM Offering.

With the sale and issuance of these shares, all $200 million in shares of the Company’s common stock registered under the December 2020 Registration Statement had been issued and the Company completed the December 2020 ATM Offering.

2019 ATM Offering

The Company entered into an At-The-Market Sales Agreement with H.C.

Wainwright & Co., LLC (“H.C.

Wainwright”), dated as of May 24, 2019 (the “Sales Agreement”), relating to the sale by the Company through H.C.

Wainwright as its sales agent, of up to $ 100.0 million in shares of the Company’s common stock from time to time in an at-the-market offering (“2019 ATM Offering”).

333-226111), which was declared effective as of May 8, 2019 (the “2019 Registration Statement”).

Effective as of October 15, 2020, as part of the First Amendment to the Sales Agreement discussed below, the Company and H.C.

Wainwright terminated the 2019 ATM Offering.

As of its termination, the Company had cumulatively sold 30.6 million shares of its common stock, for an aggregate gross sales price of approximately $ 74 million pursuant to the 2019 ATM Offering.

With the termination of the 2019 ATM Offering, no additional securities will be sold by the Company pursuant to the prospectus supplement relating to the 2019 Registration Statement.

Under the terms of the 2019, 2020 and 2021 ATM Offerings, the Company only issued shares of its common stock.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

2021 Transactions

During the year ended December 31, 2021, the Company issued 11,800,000 shares of its common stock in connection with its acquisition of Whinstone.

See Note 4, “Acquisitions”.

During the year ended December 31, 2021, the Company issued 645,248 shares of its common stock in connection with its acquisition of ESS Metron.

See Note 4, “Acquisitions”.

During the year ended December 31, 2021, 464,021 shares of common stock were issued to the Company’s board of directors, officers, employees and advisors of the Company in settlement of an equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s 2019 Equity Plan, as amended (the “2019 Equity Plan”).

The Company withheld 174,685 of these shares, at a fair value of approximately $ 5.1 million, to cover the withholding taxes related to the settlement of these vested restricted stock units, as permitted by the 2019 Equity Plan.

During the year ended December 31, 2021, the Company issued 415,657 shares of its common stock in connection with the exercise of 415,657 common stock warrants issued to investors in connection with the Company’s January 2019 private placement transaction, for net proceeds of approximately $ 0.8 million.

During the year ended December 31, 2021, the Company issued 543,686 shares of its common stock in connection with the cashless exercise of warrants to purchase 1,257,235 shares of common stock, which were issued to investors in connection with private placement transactions in December 2017.

During the year ended December 31, 2021, the Company issued 10,286 shares of its common stock upon the cashless exercise of 12,000 stock options.

The Company currently has one equity compensation plan, The Riot Blockchain, Inc.

2019 Equity Incentive Plan, as amended (the “2019 Plan”).

On October 19, 2021, the Company’s shareholders approved the second amendment to its 2019 Equity Plan, which increased the number of shares of the Company’s common stock reserved for issuance by 4,400,000 shares.

2020 Transactions

During the year ended December 31, 2020, the Company received net proceeds under the Sales Agreement, as amended with H.C.

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Equity Incentive Plan (the “Equity Plan”), and 5,000 shares of common stock were issued in settlement of fully vested restricted stock rights previously granted and previously expensed under the Company’s former 2017 Equity Incentive Plan.

During the year ended December 31, 2020, 2,048,096 shares of common stock were issued to members of the Company’s board of directors, officers and employees of the Company in settlement of an equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s 2019 Equity Plan.

During the year ended December 31, 2020, 2,048,096 shares of common stock were issued to the Company’s board of directors, officers and employees of the Company in settlement of an equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s 2019 Equity Plan.

The Company withheld 193,881 of these shares at a fair value of approximately $ 0.45 million, to cover the withholding taxes related to the settlement of these vested restricted stock units.

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During the year ended December 31, 2020, the Company issued 1,492,487 shares of its common stock related to the exercise of 1,492,487 common stock warrants granted to the Investors in the January 2019 Private Financing for cash of approximately $2.9 million or $ 1.94 per share.

2019 Transactions

During the year ended December 31, 2019, the Company received net proceeds under the 2019 ATM Sales Agreement, as amended, with H.C.

Wainwright of approximately $ 23.8 million (after deducting $ 1.0 million commissions and expenses), at a weighted average gross sales price of $ 2.97 per share, from sales of 8,351,762 shares of its common stock.

As additional consideration for the January 2019 Private Financing, the Company issued a total of 150,000 restricted common shares to three investors at an average fair value of $ 1.70 per share.

During the year ended December 31, 2019, 1,813,500 shares of common stock were issued in connection with the conversion of the Notes issued to the investors in the January 2019 Private Financing.

During the year ended December 31, 2019, 239,751 shares of common stock were issued, related to past fully vested restricted stock rights previously granted under the Company’s former 2017 Equity Incentive Plan.

During the year ended December 31, 2019, under the Company’s 2019 Equity Plan, 1,493,832 restricted stock units were awarded to members of the Board, advisory board members, employees of the Company, and consultants.

During this period, under the Company’s former 2017 Equity Incentive Plan, 48,500 restricted stock rights were awarded to a consultant and advisory board members.

The restricted stock rights have a grant date fair value of approximately $ 2.2 million or $ 1.41 per share, and vest over periods of three months to two years.

Stock Options, Warrants and Restricted Common Stock

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Restricted Common Stock, Stock Options, Restricted Stock Units (“RSUs”) and Warrants

The Company provides stock-based compensation to directors, employees and consultants under the 2019 Equity Plan, which was approved by shareholders on October 23, 2019 at the 2019 Annual Meeting of Shareholders.

On November 12, 2020 at the 2020 Annual Meeting of Shareholders, the shareholders approved the First Amendment to the 2019 Equity Plan, which raised the total number of shares of the Company’s common stock to 4,061,809 shares.

On October 19, 2021, the Company’s shareholders approved the second amendment to its 2019 Equity Plan, which increases the number of shares of the Company’s common stock reserved for issuance by 4,400,000 shares.

The Company also provides stock-based compensation to employees, directors and consultants, with non-qualified options and warrants issued outside of the Plan.

The Company has reserved 3,554,111 common shares for issuance under the 2019 Plan.

Stock-based Compensation

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Years Ended December 31,

Restricted stock awards under the Plan

Stock option awards under the Plan

Time-based restricted stock awards

Performance-based restricted stock awards

Stock option awards

Total stock-based compensation

Restricted Common Stock Awards

A summary of the Company’s restricted stock activity in the years ended December 31, 2020 and 2019 is as follows:

During the year ended December 31, 2021, the Company granted performance-based and time-based restricted stock units (RSUs) to its directors, employees and advisors.

Performance-based RSUs

On August 12, 2021, the Compensation Committee of the Board of Directors of the Company approved a new performance-based restricted stock unit performance plan (the “Performance RSU Plan”) for all executive officers and eligible employees of the Company and its consolidated subsidiaries.

In connection with the Performance RSU Plan, the Compensation Committee approved a form of performance-based restricted stock unit award agreement under the 2019 Equity Plan in relation to granting Performance RSUs.

The Performance RSUs vest upon the successful completion of specified milestones related to added infrastructure capacity and also adjusted Earnings Before Income Taxes, Depreciation and Amortization (“EBITDA”) targets over a three-year performance period beginning in 2021 and ending on December 31, 2023.

The value of the RSUs awarded is established as the fair market value of the Company’s common stock at the time of the grant.

The Company recognizes compensation cost when achievement of the milestones and targets are probable, and recognizes the cost over the performance period.

The Performance RSUs are settled in shares of the Company’s common stock upon vesting.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

A summary of the Company’s unvested performance-based restricted common stock activity in the year ended December 31, 2021 is presented here:

Number of Shares

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Unvested at December 31, 2021

During the year ended December 31, 2021, the Company awarded 4,033,159 performance-based restricted shares of common stock under the 2019 Equity Plan to employees, which are generally eligible to vest upon the successful completion of specified milestones related to added infrastructure capacity and also adjusted EBITDA targets over a three-year performance period beginning in 2021 and ending on December 31, 2023.

As of December 31, 2021, a total of 393,574 Performance RSU Awards for officers and employees were determined by the Compensation Committee to have vested for the successful completion of specified milestones.

The value of performance-based restricted common stock grants is measured based on their fair market value on the date of grant and amortized over their respective estimated implicit service periods.

During the year ended December 31, 2021, the fair value of awards granted totaled $ 148.0 million and as of December 31, 2021, there was approximately $ 47.5 million of total unrecognized compensation cost related to restricted common stock awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately 5 months.

There were no performance-based restricted stock awards granted during the years ended December 31, 2020 and 2019.

Time-based RSUs

A summary of the Company’s unvested time-based restricted common stock activity in the year ended December 31, 2021 is as follows:

Number of Shares

Weighted Average Grant-Date

Unvested at December 31, 2020

The value of restricted common stock grants are measured based on their fair market value on the date of grant and amortized over their respective vesting periods.

As of December 31, 2020, there was approximately $ 0.2 million of unrecognized compensation cost related to unvested restricted common stock rights, which is expected to be recognized over a remaining weighted-average vesting period of approximately nine months.

Unvested at December 31, 2021

During the year ended December 31, 2021, the Company awarded 212,189 restricted shares of time-based common stock under the 2019 Equity Plan to directors, employees and advisors, with a fair value of $ 7.1 million, which are generally eligible to vest over a one-year period.

During the year ended December 31, 2020, the Company awarded 1,544,359 restricted shares of time-based common stock with a fair value of $ 2.0 million, and during the year ended December 31, 2019, the Company awarded 1,542,332 restricted shares of time-based common stock with a fair value of $ 2.2 million.

The value of time-based restricted common stock grants is measured based on their fair market value on the date of grant and amortized over their respective vesting periods.

As of December 31, 2021, there was approximately $ 2.3 million of unrecognized compensation cost related to unvested restricted common stock rights, which is expected to be recognized over a remaining weighted-average vesting period of approximately 3 months.

Riot Blockchain, Inc.

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The grant date exercise price –

the closing market price of the Company’s common stock on the date of the grant;

Expected option term –

based on historical experience with existing option holders estimated at 3 - 5 years;

Estimated dividend rates –

based on historical and anticipated dividends over the life of the option;

Legal term of the option –

grants have legal lives of 10 years;

Risk-free interest rates –

with maturities that approximate the expected life of the options granted;

Calculated stock price volatility –

calculated over the expected life of the options granted, which is calculated based on the daily closing price of the Company’s common stock over the period commencing in mid-2017 when the Company changed its strategic focus;

and  

Option exercise behaviors –

based on actual and projected employee stock option exercises and forfeitures.

The Company accounts for forfeitures as they occur.

based on actual and projected employee stock option exercises and forfeitures.  

The Company accounts for forfeitures as they occur.  

The Company currently provides stock-based compensation to employees, directors and consultants under the Plan.

There were no stock options issued during the years ended December 31, 2020 and 2019.

A summary of stock option activity under the Plan for options to employees, officers, directors and consultants, for the years ended December 31, 2020 and 2019, is presented below:

Shares Underlying Options

Weighted Average

Exercise Price

Weighted Average

Aggregate Intrinsic Value

Outstanding at January 1, 2019

Outstanding at December 31, 2019

Exercisable at December 31, 2020

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on December 31, 2020 and 2019, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, there was no unrecognized stock-based compensation related to stock options.

During the year ended December 31, 2021, the Company issued 10,286 shares of its common stock for the exercise of 12,000 stock options.

There were no stock options granted during the years ended December 31, 2021, 2020 and 2019, and as of December 31, 2021, there are no stock options outstanding.

Other common stock purchase warrants

During the year ended December 31, 2021, 63,000 warrants were issued to XMS as partial payment for its advisory services in connection with the Whinstone Acquisition.

The warrant entitles XMS to purchase from the Company up to 63,000 shares of the Company’s common stock, no par value per share, at a purchase price of $48.37 per share at any time through August 12, 2026.

All warrants issued to prior investors in connection with previously disclosed private placement transactions in 2019 and 2017, had either been exercised or forfeited.

Riot Blockchain, Inc.

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(in thousands, except for share and per share amounts)

Other common stock purchase warrants

As of December 31, 2020, the Company had outstanding, 2,061,770 warrants issued in connection with offerings.

The following is a summary of the change in outstanding warrants during the years ended December 31, 2020 and 2019:

Shares Underlying

Options/Warrants

Weighted Average

Exercise Price

Weighted Average

Remaining Contractual

Aggregate Intrinsic

Outstanding at January 1, 2019

Outstanding at December 31, 2019

The following is a summary of outstanding warrants for the year ended December 31, 2021:

Shares Underlying Options/Warrants

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (Years)

Aggregate Intrinsic Value

Outstanding and exercisable at December 31, 2020

The Company issued Warrants to purchase 1,908,144 shares of its common stock with an exercise price of $ 1.94 , in connection with the Notes issued on January 28, 2019.

During the year ended December 31, 2020, the Company issued 1,492,487 shares of its common stock in connection with the exercise of 1,492,487 common stock warrants for net proceeds of approximately $ 2.9 million.

Outstanding and exercisable at December 31, 2021

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on December 31, 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on December 31, 2021.

Animal Health License Agreements

Ceva License Agreement

In July 2012, the Company entered into an exclusive license agreement (the “License Agreement”) with Ceva Santé

(“Licensee”), under which the Company granted the Licensee an exclusive royalty-bearing license, until December 31, 2028, to the Company’s intellectual property and other assets, including both (a) the Company’s patent rights and know-how, relating to recombinant single chain reproductive hormone technology for use in non-human mammals (the “Company’s Animal Health Assets”) and (b) the technology licensed to the Company by Washington University in St.

Louis (“WU”).

The WU license agreement expired under its terms in 2020, with no impact on the License Agreement.

The License Agreement contains termination provisions as defined in the License Agreement.

Under the License Agreement, the Licensee obtained a worldwide exclusive license to develop, seek regulatory approval for and offer to sell, market, distribute, import and export luteinizing hormone (“LH”) and/or follicle-stimulating hormone (“FSH”) products for bovine (cattle), equine and swine in the field of the assistance and facilitation of reproduction in bovine, equine and swine animals.

The Company also granted the Licensee an option and right of first refusal to develop additional animal health products outside of the licensed field of use or any diagnostic pregnancy detection tests for non-human mammals.

Under the License Agreement as of December 31, 2020, the Company would be entitled to receive future payments if Ceva achieves certain regulatory approvals as further outlined in the License Agreement.

There were no warrants granted during the years ended December 31, 2020 and 2019.

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of the Whinstone Acquisition Date of May 26, 2021, and December 31, 2021:

Fair value measured at May 26, 2021

Total carrying value at

Quoted prices in active

Significant other

observable inputs

unobservable inputs

Derivative asset

Contingent consideration liability

Fair value measured at December 31, 2021

Total carrying value at

December 31, 2021

Quoted prices in active

Significant other

observable inputs

unobservable inputs

Derivative asset

Contingent consideration liability

Riot Blockchain, Inc.

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(in thousands, except for share and per share amounts)

The upfront license fees received from the License Agreement have been recorded as deferred revenue and are amortized over the term of the License Agreement.

License fees revenue totaling a net of approximately $ 1.6 million commenced being amortized in July 2012.

As of December 31, 2020, deferred revenue of $0.1 million has been classified as a current liability and $0.7 million has been classified as a long-term liability.

The current liability represents the next twelve months’

portion of the license fees revenue.

For each of the years ended December 31, 2020 and 2019, approximately $ 0.1 million was recorded as the amortized license fee revenue.

The components of the loss from continuing operations before income taxes for the years ended December 31, 2020 and 2019 are as follows:

For the years ended December 31,

Loss from Continuing Operations before Income Taxes

The components of income tax benefit are as follows:

As of December 31,

Total current benefit

Total deferred benefit

Total benefit for income taxes

Level 3 Assets

Power Supply Agreement

During the year ended December 31, 2021, the Company recorded a derivative asset related to its Power Supply Agreement.

The Power Supply Agreement was classified as a derivative asset and measured at fair value on the date of the Company’s acquisition of Whinstone, with changes in fair value recognized in change in fair value of derivative asset in operating income or loss on the accompanying consolidated statements of operations.

The contract was not designated as a hedging instrument.

Prior to the Whinstone Acquisition, the Company did not have any derivative contracts.

The estimated fair value of the Company’s derivate asset is classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation.

Specifically, our discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which ends in December 2030.

The discount rate utilized of approximately 21 % includes observable market inputs, but also includes unobservable inputs based on qualitative judgment related to company-specific risk factors.

The terms of the Power Supply Agreement require margin-based collateral, calculated as exposure resulting from fluctuations in the market cost rate of electricity versus the fixed price stated in the contract.

The margin-based collateral requirement to the Company is zero as of December 31, 2021.

Level 3 Liabilities

Business Combination Contingent Consideration

The Company recorded a Level 3 financial liability during the year ended December 31, 2021, relating to the contingent consideration arrangement arising from the acquisition of Whinstone.

Contingent consideration represents an obligation of the Company to transfer cash to the Seller when Whinstone realizes or receives a benefit from utilization of certain defined power credits.

See Note 4, “Acquisitions”.

The Company estimated the fair value of the contingent consideration using a discounted cash flow analysis, which includes estimates of both the timing and amounts of potential future power credits.

These estimates were determined using the Company’s historical consumption quantities and patterns combined with management’s expectations of its future consumption requirements, which require significant judgment and depend on various factors outside the Company’s control, such as construction delays.

The discount rate of approximately 2.5 % includes observable market inputs, such as TXU’s parent company’s Standard & Poor’s credit rating of BB, but also includes unobservable inputs such as interest rate spreads, which were estimated based on qualitative judgment related to company-specific risk factors.

Specifically, due to the power credits being subordinated obligations for TXU’s parent, we used one credit rating lower than BB in our yield curve to estimate a reasonable interest rate spread to determine the cost of debt input.

The significant assumptions used to estimate fair value of the derivative contract include a discount rate of 21 %, which reflected the nature of the contract as it relates to the risk and uncertainty of the estimated future mark-to-market adjustments, forward price curves of the power supply, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.

Although these estimates are based on management’s best knowledge of current events, the estimates could change significantly from period to period.

Actual results that differ from the assumptions used and any changes to the significant assumptions and unobservable inputs used could have a material impact on future results of operations.

Changes in Level 3 assets and liabilities measured at fair value on a recurring basis

Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

Unrealized gains and losses associated with the asset within the Level 3 category includes changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Riot Blockchain, Inc.

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(in thousands, except for share and per share amounts)

The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2020 and 2019 are comprised of the following:

As of December 31,

Deferred income tax assets:

Net operating loss carryforwards

Research and development credit carryforwards

Stock option expense

Impairment of mining related assets and other

Total deferred tax assets

Valuation allowance

Net deferred tax assets

The Company has approximately $ 210.6 million of federal and state tax Net Operating Losses (“NOLs”) that may be available to offset future taxable income, if any.

The federal net operating loss carryforwards of $ 110.3 million, if not utilized, will expire in 2037 .

Under the new Tax Cuts and Jobs Act, all NOLs incurred after December 31, 2017 are carried forward indefinitely for federal tax purposes.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed in to law on March 27, 2020, provided that NOLs generated in a taxable year beginning in 2018, 2019, or 2020, may now be carried back five years and forward indefinitely.

In addition, the 80% taxable income limitation is temporarily removed, allowing NOLs to fully offset net taxable income.

Furthermore, as a result of changes in the ownership of our common stock and changes in our business operations, our ability to use our federal NOLs may be limited under Internal Revenue Code Section 382 and 383.

State NOLs are subject to similar limitations in many cases.

As a result, our substantial NOLs may not have any value to us.

The statute of limitations for assessment by the IRS and state tax authorities is open for tax years ending December 31, 2016 through 2020, although carryforward attributes that were generated prior to tax year 2016 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.

Currently, no federal or state income tax returns are under examination by the respective taxing authorities.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment.

In case the deferred tax assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2020 and 2019.

The valuation allowance increased by approximately $ 9.7 million during the year ended December 31, 2020.

The expected tax expense (benefit) based on the U.S.

federal statutory rate is reconciled with actual tax expense (benefit) as follows:

For the years ended December 31,

Statutory federal income tax expense (benefit)

State taxes, net of federal tax expense (benefit)

Stock compensation

Tax return to provision true-up

State tax rate change

Change in valuation allowance

Income taxes benefit

The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2020 and 2019.

The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

The Company did not accrue either interest or penalties for the years ended December 31, 2020 and 2019.

The following table presents the changes in the estimated fair value of the derivative asset measured using significant unobservable inputs (Level 3) for the year ended December 31, 2021 (in thousands):

Derivative Asset

Balance as of January 1, 2021

Acquisition of Whinstone

Change in fair value

Balance as of December 31, 2021

For the year ended December 31, 2021 there was a change of approximately $12.1 million in Level 3 assets measured at fair value.

Additionally, during the year ended December 31, 2021, power sales back to ERCOT through its demand response programs of $ 6.5 million were recorded in change in fair value of derivative asset in the consolidated statements of operations.

There were no Level 3 assets for the year ended December 31, 2020.

The following table presents the changes in the estimated fair value of our liability for contingent consideration measured using significant unobservable inputs (Level 3) for the year ended December 31, 2021 (in thousands):

Consideration Liability

Balance as of January 1, 2021

Acquisition of Whinstone

Change in fair value

Balance as of December 31, 2021

For the year ended December 31, 2021 the change in Level 3 liabilities measured at fair value was approximately $1.0 million.

There were no Level 3 liabilities for the year ended December 31, 2020.

Our estimated liability for contingent consideration represents potential payments of additional consideration for the Whinstone Acquisition, payable if Whinstone realizes or receives a benefit from utilization of certain defined power credits.

Changes in the fair value of contingent consideration are recorded in the consolidated statements of operations within change in fair value of contingent consideration.

There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the period presented.

Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis.

Our non-financial assets, including goodwill, intangible assets, operating lease right of use assets, and property, plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows.

These assets are recorded at fair value only when an impairment charge is recognized.

Commitments and Contingencies

Operating Leases

The Company leases its primary office locations and data center hosting facilities, as well as a ground lease, under noncancelable lease agreements that expire on varying dates through 2030.

See Note 11, “Leases”.

Riot Blockchain, Inc.

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(in thousands, except for share and per share amounts)

The Company is subject to U.S.

federal income tax and primarily Oklahoma and Colorado state income tax.

The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2020 and 2019.

Commitments and Contingencies

Water Reservation Agreement

Whinstone executed a water reservation agreement in April 2021 with the lessor of the ground lease to obtain a certain quantity of water from a nearby lake to be used by the Company for commercial purposes.

We use the water for evaporative cooling in our data center facility.

The initial term of the agreement runs through December 2027 and requires annual payments of approximately $ 1.0 million.

The Company concluded that the agreement was not a lease or a derivative instrument.

Because the Company obtained an additional right of use for the reserved water amount, and the charges were increased by a standalone price commensurate with the additional water use rights and at market rates, the water reservation agreement was determined to be a lease modification accounted for as a separate contract.

As such, the fees of the water reservation agreement were excluded from the lease payments of the ground lease and the water reservation agreement was accounted for as a separate executory contract.

Coinmint Co-location Mining Services Agreement

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The initial term of the Coinmint Agreement was six months with automatic renewals for subsequent three month terms until and unless terminated as provided in the agreement.

The Company determined the agreement with Coinmint does not meet the definition of a lease in accordance with Accounting Standards Codification (“ASC”) 842, Leases.

Oklahoma Lease Agreement

On February 27, 2018, Kairos entered into a lease agreement (the “OKC Lease”) with 7725 Reno #1, LLC (“7725 Reno”), pursuant to which Kairos leased approximately 107,600 square foot warehouse located in Oklahoma City, Oklahoma.

Pursuant to the terms of the OKC Lease and subsequent amendments, the OKC Lease provided the following:

extended the initial term of the lease through June 30, 2020;

monthly base rent of $ 230,000 for January 2019 and $ 190,000 per month thereafter for the duration of the OKC Lease, including any renewals thereof;

changes the monthly electricity usage charges.

On June 30, 2020 the OKC Lease expired under its terms.

During the three months ended June 30, 2020, the Company had relocated its miners to the Coinmint facility and vacated the OKC facility.

Subsequent to the expiration the Company received a full refund of its $ 0.7 million lease deposit, less applicable electricity charges on July 2, 2020.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Corporate Lease Agreement

On April 9, 2018, the Company entered into a commercial lease agreement (the “Florida Lease”) with W-Crocker Fin Place Owner VII, LLC, a Delaware limited liability company, pursuant to which the Company leased approximately 1,700 rentable square feet of office and common area space in Fort Lauderdale, Florida.

Pursuant to the terms of the Florida Lease, the initial term was for thirty-nine (39) months expiring on August 9, 2021 .

During May 2020, an agreement was reached to terminate the Florida Lease, and the Company expensed the termination payments for the Florida Lease.

Operating Leases

At December 31, 2020, he Company did not have any significant operating lease liabilities or right of use assets.

The following summarizes quantitative information about the Company’s operating leases:

Operating lease cost

Variable lease cost

Operating lease expense

Short-term lease rent expense

Total rent expense

Other information

Operating cash flows from operating leases

Right of use assets exchanged for new operating lease liabilities

Weighted-average remaining lease term –

operating leases

Weighted-average discount rate –

operating leases

Rent expense including electric power costs, recorded on a straight-line basis, was approximately $2.3 million (up to the OKC lease termination as of June 30, 2020) and $ 5.6 million for the years ended December 31, 2020 and 2019, respectively.

Contingencies

11 unchanged sentences

On the basis of current information, the Company does not believe there is a reasonable possibility that, other than with regard to the Class Action described below, any material loss, if any, will result from any claims, lawsuits and proceedings to which the Company is subject to either individually, or in the aggregate.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Shareholder Class Action Suit

12 unchanged sentences

Golovac as Lead Plaintiff and Motely Rice as Lead Counsel of the consolidated class action.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Lead Plaintiff filed a consolidated complaint on January 15, 2019.

5 unchanged sentences

On December 24, 2020, Lead Plaintiff filed another amended complaint.

Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021.

Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021, which have been fully briefed.

On February 28, 2022, the court issued an order instructing the parties to submit supplemental briefing by March 14, 2022 on particular issues raised in the motions to dismiss.

Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

4 unchanged sentences

The complaint seeks unspecified monetary damages and corporate governance changes.

At the last preliminary conference, the court adjourned the conference until August 10, 2021 in lieu of staying the action.

At the last preliminary conference, the court adjourned the conference until June 21, 2022 in lieu of staying the action.

Defendants do not anticipate any other activity on this case until the next preliminary conference.

7 unchanged sentences

The complaints seek unspecific monetary damages and corporate governance changes.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

On September 24, 2018, the court entered an order consolidating the Gaft and Kish actions, which is now styled as In re Riot BlockChain, Inc.

19 unchanged sentences

stipulation, the court issued an order temporarily staying this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

On December 13, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Northern District of New York ( Monts v.

10 unchanged sentences

But because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

Indemnification Demands

On April 3, 2020, a complaint was filed against Riot Blockchain by Barry C.

Honig and GRQ Consultants, Inc.

(“GRQ”) in the United States District Court for the Southern District of New York, Honig v.

The components of the loss from continuing operations before income taxes for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

For the years ended December 31,

Loss from Continuing Operations before Income Taxes

Riot Blockchain, Inc.

20-cv-02808-NRB.

Honig and GRQ allege that Riot has failed to indemnify them pursuant to terms of the Securities Purchase Agreement (“SPA”) and Registration Rights Agreement (“RRA”), both dated March 16, 2017.

Honig and GRQ allege declaratory judgment and breach of contract claims, seeking fees and expenses they incurred in connection with litigation and a SEC investigation involving Riot.

On July 9, 2020, Riot filed a motion to dismiss both of the claims.

On November 20, 2020, the Court granted Riot Blockchain’s motion to dismiss all claims and awarded Riot Blockchain attorneys’

fees as the prevailing party.

In addition to the suit filed by Mr.

Honig and GRQ, other purported parties and beneficiaries of the SPA and RRA have also recently demanded indemnification from Riot Blockchain related to the same litigation and SEC investigation.

For the reasons set forth in the Court’s order dismissing Mr.

Honig’s and GRQ’s indemnification claims, Riot Blockchain believes that it does not owe an indemnification obligation to the other purported parties and beneficiaries of the SPA and RRA that have made an indemnification demand.

Riot Blockchain intends to vigorously contest similar demands for indemnification.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

The components of income tax benefit (expense) are as follows (in thousands):

As of December 31,

Total current benefit (expense)

Total deferred benefit

Total benefit (expense) for income taxes

The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2021 and 2020 are comprised of the following (in thousands):

As of December 31,

Deferred income tax assets:

Net operating loss carryforwards

Research and development credit carryforwards

Long-term investments

Operating lease liabilities

Stock option expense

Impairment of mining related assets and other

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Deferred income tax liabilities:

Derivative asset

Property and equipment and other

Net deferred tax assets (liabilities)

The Company has approximately $ 264.9 million and $ 219.6 million of federal and state tax Net Operating Losses (“NOLs”), respectively, that may be available to offset future taxable income.

Federal and state net operating loss carryforwards of $ 125.2 million and $ 147.1 million, respectively, if not utilized, expire between 2026 and 2037 .

Under the Tax Cuts and Jobs Act, $ 139.7 million federal and $ 72.5 million state NOLs incurred after December 31, 2017 are carried forward indefinitely, but may be limited in utilization to 80% of taxable income.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed in to law on March 27, 2020, provided that NOLs generated in a taxable year beginning in 2018, 2019, or 2020, may be carried back five years and forward indefinitely.

In addition, the 80% taxable income limitation is temporarily removed, allowing NOLs to fully offset net taxable income.

State NOLs are subject to similar limitations in many cases.

As a result, our substantial NOLs may not have any value to us.

The statute of limitations for assessment by the IRS and state tax authorities is open for tax years ending December 31, 2017 through 2021, although carryforward attributes that were generated prior to tax year 2017 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.

Currently, no federal or state income tax returns are under examination by the respective taxing authorities.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment.

In case the deferred tax assets will not be realized in future periods, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2021 and 2020.

The valuation allowance increased by approximately $ 4.0 million during the year ended December 31, 2021.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Kashwise Demand

On February 18, 2020, the Company received a demand letter from Kashwise Global Funding, Inc.

(“Kashwise”) for the payment of fees pursuant to an alleged arrangement between the Company and Kashwise in connection with the January 2019 private exempt offering of the Company’s securities to a group of accredited investors (the “Kashwise Demand”).

The Company timely responded to the Kashwise Demand;

however, on April 13, 2020, Kashwise Global Funding Solutions, Inc.

filed suit against the Company in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the “Kashwise Suit”) alleging substantially similar claims as in the Kashwise Demand.

The Company has removed the Kashwise Suit to Federal District Court in and for the Southern District of Florida where it remains pending with a scheduled trial date (if not delayed by the COVID-19 pandemic) in June of 2021.

The Company continues to vigorously dispute the allegations made in the Kashwise Suit.

However, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

SEC Subpoena and Other Matters

On April 9, 2018, the Company received a subpoena from the SEC, requesting documents and information.

The Company fully cooperated with the SEC in that investigation.

On January 29, 2020, the SEC notified the Company that it had concluded its investigation as to Riot, and based on the information the SEC had as of the date of the letter, it did not intend to recommend an enforcement action against Riot.

Registration Rights Penalty

During December 2017, the Company closed on the sale of approximately $ 37 million of units comprised of 1,646,113 shares of its common stock and warrants to purchase up to 1,646,113 shares of its common stock (the “Units”) in a private exempt offering (the “December 2017 Private Placement”) to certain accredited investors (the “December 2017 Investors”), as previously disclosed by the Company on its Current Report on Form 8-K filed with the SEC on December 19, 2017.

In connection with the December 2017 Private Placement, the Company entered into registration rights agreements (the “December 2017 Registration Rights Agreements”) with the December 2017 Investors, pursuant to which the Company agreed to take certain steps to register the shares underlying the Units.

The Company accounted for the December 2017 Registration Rights Agreements in accordance with ASC 825-20, “Registration Payment Arrangements.”

ASC 825-20 addresses an issuer’s accounting for registration payment arrangements and, in accordance with ASC 450-20 “Loss Contingencies,”

the Company recorded approximately $ 1,358,000 for this contingent liability in 2018.

The expected tax expense (benefit) based on the U.S.

federal statutory rate is reconciled with actual tax expense (benefit) as follows (in thousands):

For the years ended December 31,

Statutory federal income tax expense (benefit)

State taxes, net of federal tax expense (benefit)

Nondeductible/nontaxable items

Tax return to provision true-up

State tax rate change

Change in valuation allowance

Income taxes expense (benefit)

The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2021 and 2020.

The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

The Company did not accrue either interest or penalties for the years ended December 31, 2021 and 2020.

The Company is subject to U.S.

federal income tax and primarily Florida, Colorado and Texas state income tax.

The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2021 and 2020.

Animal Health License Agreements

Ceva License Agreement

In July 2012, the Company entered into an exclusive license agreement (the “License Agreement”) with Ceva Santé

Louis (“WU”).

The WU license agreement expired under its terms in 2020, with no impact on the License Agreement.

The License Agreement contains termination provisions as defined in the License Agreement.

Under the License Agreement as of December 31, 2021, the Company would be entitled to receive future payments if Ceva achieves certain regulatory approvals as further outlined in the License Agreement.

The upfront license fees received from the License Agreement have been recorded as deferred revenue and are amortized over the term of the License Agreement.

License fees revenue totaling a net of approximately $ 1.6 million commenced being amortized in July 2012.

As of December 31, 2021, deferred revenue of $0.1 million has been classified as a current liability and $0.6 million has been classified as a long-term liability.

The current liability represents the next twelve months’

portion of the license fees revenue.

For each of the years ended December 31, 2021, 2020 and 2019, approximately $ 0.1 million was recorded as the amortized license fee revenue.

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

On January 5, 2018, pursuant to December 2017 Registration Rights Agreements, the Company filed a registration statement on Form S-3 to register the shares underlying the Units.

Subsequently, in April 2018, the Company received a subpoena from the SEC as part of an investigation, requesting documents and information.

In July 2018, the SEC issued an Order Directing Examination and Designating Officers Pursuant to Section 8(e) of the Securities Act with respect to certain of the Company’s registration statements, including the registration statement on Form S-3 it filed pursuant to the December 2017 Registration Rights Agreements.

On October 12, 2018, the Company filed for withdrawal of this registration statement on Form S-3, as well as other of its registration statements.

On October 22, 2018, the Company was notified by SEC staff that the SEC had terminated the Section 8(e) examination with respect to the above-referenced registration statements.

Following the conclusion of the SEC’s activities as described above, the Company has evaluated its performance of its obligations under the December 2017 Registration Rights Agreements and has determined that it substantially complied with its requirements, and that its ultimate inability to cause the registration of the shares underlying the Units as required by the December 2017 Registration Rights Agreements was due to actions taken by the SEC.

The Company has therefore determined to reverse the accrual pursuant to ASC 450-20 related to the December 2017 Registration Rights Agreements for its 2020 consolidated financial statements.

Subsequent Events:

During January 2021, in connection with the Company’s Sales Agreement, as amended with H.C.

Wainwright, the Company received gross proceeds of approximately $ 84.8 million from the sale of 4,433,468 shares of common stock, with an average fair value of $ 19.13 per share, in the December 2020 ATM Offering.

With the sale and issuance of these shares, all $ 200 million in shares of the Company’s common stock registered under the December 2020 Registration Statement had been issued and the Company completed the December 2020 ATM Offering.

Under the terms of the December 2020 ATM Offering, the Company only issued shares of its common stock.

Subsequent to December 31, 2020, 242,645 shares of common stock were issued to members of the Company’s board of directors, officers, employees and advisors of the Company in settlement of an equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s 2019 Equity Plan.

The Company withheld 40,250 of these shares at a fair value of approximately $ 0.3 million, to cover the withholding taxes related to the settlement of these vested restricted stock units.

Subsequent to December 31, 2020, for 2021 services the Company awarded 41,440 restricted shares of common stock to directors, employees and advisors generally vesting over a one -year period.

Subsequent to December 31, 2020, the Company issued 415,657 shares of its common stock in connection with the exercise of 415,657 common stock warrants for net proceeds of approximately $ 0.8 million.

Subsequent to December 31, 2020, warrants to purchase 1,257,235 shares of common stock were exercised on a cashless basis for 543,686 shares of common stock.

Subsequent to December 31, 2020, 2,000 shares of the Company’s Series B preferred stock were converted into 2,000 shares of its common stock, leaving 2,199 shares outstanding.

Segment Information

The Company applies ASC 280, Segment Reporting , in determining its reportable segments.

The Company has three reportable segments:

Mining, Hosting, and Engineering.

The guidance requires that segment disclosures present the measure(s) used by the Chief Operating Decision Maker (“CODM”) to decide how to allocate resources and for purposes of assessing such segments’

The Company’s CODM is comprised of several members of its executive management team who use revenue and cost of revenues of our three reporting segments to assess the performance of the business of our reportable operating segments.

No operating segments have been aggregated to form the reportable segments.

The Company does not allocate all assets to the reporting segments as these are managed on an entity-wide basis.

Therefore, the Company does not separately disclose the total assets of its reportable operating segments.

$ 29.4 million of goodwill from the ESS Metron acquisition is allocated to our Engineering segment and $ 260.9 million of goodwill from the Whinstone Acquisition is allocated to our Hosting segment.

The Mining segment generates revenue from the cryptocurrency the Company earns through its mining activities.

The Hosting segment generates revenue from long-term customer contracts for the provision/consumption of electricity, construction of infrastructure, operation of data centers and maintenance/management of computing capacity from the Company’s high performance data center facility in Rockdale, Texas.

The Engineering segment generates revenue through customer contracts for custom engineered electrical products.

The Hosting segment purchases custom engineered electrical products from the Engineering segment in the ordinary course of business.

The revenue and cost of revenues from intersegment transactions have been eliminated in the consolidated statements of operations in accordance with US GAAP.

For purposes of segment reporting, the revenues and cost of revenues for each segment are presented in the table below on a stand-alone basis, with the intersegment eliminations presented separately, such that total revenue and total cost of revenue total to the consolidated statements of operations.

All other revenues are from external customers.

No single customer or related group of customers contributed 10% or more of the Company’s total revenue during the years ended December 31, 2021, 2020 and 2019.

However, two customers accounted for approximately 97% of the Company’s Hosting revenue.

For the year ended December 31, 2021, approximately 75% of the Company’s Mining revenue was generated from the Coinmint Facility in New York, and the remaining 25% was generated from our Whinstone Facility in Rockdale, Texas.

The following table details revenue and cost of revenues for the Company’s reportable segments for the years ended December 31, 2021, 2020 and 2019, and reconciles to net income (loss) in the consolidated statements of operations (in thousands):

Riot Blockchain, Inc.

2 unchanged sentences

(in thousands, except for share and per share amounts)

Executive Employment Agreements

On February 8, 2021, Mr.

Jason Les, agreed to serve as the Company’s Chief Executive Officer (“CEO”), effective on the same date.

Les and the Company entered into an Executive Employment Agreement, (the “Les Employment Agreement”), pursuant to which Mr.

Les has agreed to serve as the Company’s CEO for a five (5) year term, which renews for successive one (1) year terms after the expiration of the initial term.

Les will receive a prorated annual salary of $ 240,000 and ten (10) bitcoin .

Pursuant to the Les Employment Agreement, Mr.

Les was also awarded an initial equity award of 25,000 restricted stock units (RSUs) under and pursuant to the 2019 Equity Incentive Plan (the “Plan”), which RSUs are eligible to vest in four (4) equal quarterly installments on the first day following the end of each fiscal quarter following his appointment as CEO.

On February 8, 2021, Mr.

Jeffrey McGonegal, who was appointed CEO in early 2019, agreed to focus on his long-standing position as the Company’s Chief Financial Officer (“CFO”), effective as of the same date the Company and Mr.

McGonegal entered into the First Amendment to the Amended and Restated Executive Employment Agreement (the “Amended McGonegal Employment Agreement”), pursuant to which Mr.

McGonegal agreed to continue to serve as the Company’s CFO through February 7, 2022.

The Amended McGonegal Employment Agreement amends the Amended and Restated Executive Employment Agreement, dated as of February 7, 2020, between Mr.

McGonegal and the Company.

Under the Amended McGonegal Employment Agreement, Mr.

McGonegal will receive a prorated annual salary of $ 360,000 .

Pursuant to the Amended McGonegal Employment Agreement, Mr.

McGonegal was also awarded an initial equity award of 20,000 RSUs pursuant to the 2019 Equity Plan, which RSUs are eligible to vest in four (4) equal quarterly installments.

Cryptocurrency Miner Purchases

Pursuant to a purchase agreement dated effective as of March 11, 2021, with Bitmain, the Company acquired an additional 1,500 model S19j (90 TH/S) Antminers, for a total purchase price of approximately $ 7.3 million, of which $ 3.6 million was paid to Bitmain as a partially-refundable deposit on the acquisition of these 1,500 new model S19j miners, which are scheduled to be delivered in October 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Years Ended December 31,

Reportable segment revenue:

Revenue, net - mining

Revenue, net - hosting

Revenue, net - engineering

Other revenue

Total segment and consolidated revenue

Reportable segment cost of revenue (exclusive of depreciation and amortization shown below):

Cost of revenues - mining

Cost of revenues - hosting

Cost of revenues - engineering

Total segment and consolidated cost of revenues (exclusive of depreciation and amortization shown below)

Reconciling Items:

Acquisition-related costs

Selling, general and administrative

Depreciation and amortization

Change in fair value of derivative asset

Change in fair value of contingent consideration

Realized gain on sale/exchange of cryptocurrencies

Impairment of intangible rights acquired

Impairment of long-term investment

Impairment of cryptocurrencies

Loss on issuance of convertible notes, common stock and warrants

Change in fair value of warrant liability

Change in fair value of convertible notes

Reversal of registration rights penalty

Gain on deconsolidation of Tess

Gain (loss) on sale of equipment

Interest income (expense)

Interest expense

Other income (expense)

Realized gain on sale/exchange of long-term investment

Unrealized loss on marketable equity securities

Current income tax expense

Deferred income tax benefit

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except for share and per share amounts)

Subsequent Events:

Restricted stock

Subsequent to December 31, 2021, the Company granted 43,149 time-based restricted stock units with a fair value of approximately $ 0.8 million and 365,500 performance-based restricted stock units with a fair value of approximately $ 7.3 million.

Subsequent to December 31, 2021, 937,530 shares of common stock were issued to the Company’s officers and employees in settlement of an equal number of fully vested restricted stock units awarded to such individuals by the Company pursuant to grants made under the Company’s 2019 Equity Plan.

The Company withheld 414,441 of these shares at a fair value of approximately $ 8.2 million, to cover withholding taxes related to the settlement of these vested restricted stock units, as permitted by the 2019 Equity Plan.

Preferred stock

Subsequent to December 31, 2021, the remaining 2,199 shares of the Company’s 0% Series B Convertible Preferred Stock were converted to 2,199 shares of its common stock.

Ground lease and water reservation agreement amendments

Subsequent to December 31, 2021, the Company executed a third lease amendment to the ground lease for the Whinstone facility, to add to the existing 100-acre tract of land, a second contiguous 100 -acre tract of real property for an additional $ 0.9 million in annual payments.

The initial term of the lease is scheduled to expire on January 31, 2032 .

Concurrent with this third amendment, the Company executed a first amendment to the water reservation agreement to obtain additional water from a nearby lake to be used by the Company for commercial purposes, such as evaporative cooling in our data center facility, for an additional $ 1.0 million in annual payments.

The term of the original water reservation agreement was reset for a period of twelve years from the original commencement date of April 2021 , now expiring on January 31, 2032.

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued.

No other significant recognized or non-recognized subsequent events were noted.

AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data