What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-02 compared with 2022-03-16 · 1405 added, 1129 removed, 577 unchanged (81% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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, 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

Marcum LLP, Los Angeles, CA

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

1 unchanged sentence

To the Stockholders and Board of Directors of

Riot Blockchain, Inc.

Riot Platforms, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Riot Blockchain, Inc.

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

We have audited the accompanying consolidated balance sheets of Riot Platforms, Inc.

and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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.

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, 2022, 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 2, 2023 , expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of a material weakness.

Restatement of Previously Issued Financial Statements

As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of December 31, 2021 and for the years ended December 31, 2021 and 2020 to correct misstatements.

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.

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.

6 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

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

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 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:

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;

Evaluated management’s rationale for the application of Accounting Standards Codification (“ASC”) 350 to account for its cryptocurrencies held, including management’s processes for evaluating its cryptocurrencies for impairment;

Evaluated management’s rationale for the inclusion of cryptocurrencies as a current asset on the balance sheet with the assistance of our internal valuation specialists;

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

Examined supporting sale and cash receipt evidence for cryptocurrency sales, including management’s processes for calculating any gains on sales of cryptocurrencies.

The communication of the critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Evaluation of the Accounting for and Disclosure of Cryptocurrency Mining Revenue Recognized

As disclosed in Note 3, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers.

The Company provides computing power services to a digital asset mining pool (the “Pool”) and has executed a contract with the Pool operator to provide computing power to the Pool.

The contract, as amended, is 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 Pool.

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 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, 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, 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.

We identified the accounting for and disclosure of revenue recognized from Bitcoin Mining as a critical audit matter due to the complexities involved in auditing the completeness and occurrence of this revenue recognized by the Company.

During the year ended December 31, 2022, the Company recognized revenue from Bitcoin Mining of approximately $156.9 million.

The Company’s management has exercised significant judgment in their determination of how existing accounting principles generally accepted in the United States should be applied to the accounting for and disclosure of revenue recognized from Bitcoin Mining.

In addition, the accounting for and disclosure of Bitcoin mining revenue recognized involved certain applications subject to the general controls over the information technology environment of the Company.

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

Evaluated the design and effectiveness of IT general controls over the Company’s IT environment and key financially relevant systems.

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

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;

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;

● Evaluated the design and effectiveness of IT general controls over the Company’s IT environment and key financially relevant systems;

● Evaluated and tested the design and effectiveness of certain financial controls pertaining to the Company’s processes for recognizing revenue from Bitcoin Mining;

● Performed site visitations 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, tested the hashing power contributed by the Company’s mining hardware;

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

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

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

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

● Independently confirmed certain financial data directly with the Company’s third party wallet custodian;

● Compared the Company’s digital wallet and custody 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

We have served as the Company’s auditor since 2019.

Los Angeles, CA

March 2, 2023

Riot Blockchain, Inc.

and Subsidiaries

Riot Platforms, Inc.

Consolidated Balance Sheets

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

(as restated)

Current assets

1 unchanged sentence

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

Prepaid expenses and other current assets

Future power credits, current portion

Investments in marketable equity securities, at fair value

Total current assets

Property and equipment, net

Long-term investments

Right of use assets

Finite-lived intangible assets, net

Derivative asset

Intangible assets, net

Operating lease right-of-use assets

Future power credits, less current portion

LIABILITIES AND STOCKHOLDERS’

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

Accrued expenses

Billings in excess of costs and estimated earnings

Accrued expenses

Deferred revenue, current portion

Operating lease liability, current portion

Contingent consideration liability - future power credits, current portion

Operating lease liability, current portion

Total current liabilities

5 unchanged sentences

Commitments and contingencies - Note 19

Stockholders’

Stockholders’ equity

Preferred stock, no par value, 15,000,000 shares authorized:

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

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

no shares issued and outstanding as of December 31, 2022 and 2021

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

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

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

no shares and 2,199 shares issued and outstanding as of December 31, 2022 and 2021, respectively, liquidation preference equal to carrying value

Common stock, no par value;

340,000,000 shares authorized;

116,748,472 and 78,523,517 shares issued and outstanding as of December 31, 2021 and 2020, respectively

167,751,112 and 116,748,472 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial statements.

Riot Blockchain, Inc.

and Subsidiaries

Riot Platforms, Inc.

Consolidated Statements of Operations

1 unchanged sentence

Years Ended December 31,

Revenue, net - mining

Revenue, net - hosting

Revenue, net - engineering

(as restated)

Bitcoin Mining

Data Center Hosting

Other revenue

1 unchanged sentence

Costs and expenses:

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

Cost of revenue:

Bitcoin Mining

Data Center Hosting

Acquisition-related costs

2 unchanged sentences

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of cryptocurrencies

Impairment of intangible rights acquired

Realized gain on sale/exchange of Bitcoin

Gain on exchange of equipment

Casualty-related charges (recoveries), net

Impairment of Bitcoin

Impairment of goodwill

Impairment of miners

Impairment of long-term investment

Impairment of cryptocurrencies

Total costs and expenses

Operating loss

Operating income (loss)

Other income (expense):

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 on sale of equipment

Interest income

Interest expense

Other income (expense)

Interest income (expense)

Realized loss on sale of marketable equity securities

Realized gain on sale/exchange of long-term investment

Unrealized loss on marketable equity securities

Other income (expense)

Total other income (expense)

Net loss before taxes

Current income tax expense

Deferred income tax benefit

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Net (income) loss attributable to non-controlling interest

Net loss attributable to Riot Blockchain

Basic and diluted net loss per share

Net income (loss) attributable to Riot Platforms, Inc.

Basic and diluted net income (loss) per share

Basic and diluted weighted average number of shares outstanding

See accompanying notes to consolidated financial statements.

Riot Blockchain, Inc.

and Subsidiaries

Consolidated Statement of Stockholders’

Riot Platforms, Inc.

Consolidated Statements of Stockholders’ Equity

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

Preferred Stock

Total Riot Blockchain stockholders’

Non-controlling

Total stockholders’

stockholders’

Balance as of January 1, 2020

Delivery of common stock underlying restricted stock units

Common stock issued with convertible notes

Common stock issued in connection with conversion of notes payable

Reclassification of warrant liability to equity

Preferred stock converted to common stock

Stock-based compensation

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

Net loss attributable to non-controlling interest

Deconsolidation of Tess

Balance as of December 31, 2019 

Issuance of common stock to settle executive compensation

Delivery of common stock underlying restricted stock units to settle executive compensation

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

Delivery of common stock underlying restricted stock units, net of tax withholding

Delivery of common stock underlying restricted stock units for consulting and advisory services

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

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

Issuance of common stock related to exercise of warrants

2 unchanged sentences

Net income attributable to non-controlling interest

Balance as of December 31, 2020

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

Net income (loss) (as restated)

Balance as of December 31, 2020 (as restated)

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

Issuance of common stock related to exercise of warrants

7 unchanged sentences

Stock-based compensation

Balance as of December 31, 2021 

Net income (loss) (as restated)

Balance as of December 31, 2021 (as restated)

Issuance of restricted stock, net of forfeitures and delivery of common stock underlying stock awards, net of tax withholding

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

Conversion of preferred stock to common stock

Stock-based compensation

Net income (loss)

Balance as of December 31, 2022

See accompanying notes to consolidated financial statements.

Riot Blockchain, Inc.

and Subsidiaries

Riot Platforms, Inc.

Consolidated Statements of Cash Flows

1 unchanged sentence

Years Ended December 31,

(as restated)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation

5 unchanged sentences

Impairment of long-term investment

Impairment of cryptocurrencies

Loss on issuance of convertible notes, common stock and warrants

Change in fair value of convertible notes

Change in fair value of warrant liability

Gain on deconsolidation of Tess

Impairment of intangible rights acquired

Impairment of Bitcoin

Impairment of goodwill

Impairment of miners

Reversal of registration rights penalty

1 unchanged sentence

Change in fair value of contingent consideration

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

Realized loss on sale of marketable equity securities

Realized gain on sale/exchange of long-term investment

Realized gain on sale/exchange of cryptocurrencies

Realized gain on sale/exchange of Bitcoin

Unrealized loss on marketable equity securities

Gain on sale of equipment

Accrued interest on Verady investment

Gain on exchange of equipment

Casualty-related charges

Bitcoin Mining revenue

Changes in assets and liabilities:

Proceeds from sale of Bitcoin

Accounts receivable

Prepaid expenses and other current assets

Costs and estimated earnings in excess of billings

Cryptocurrencies - mining

Security deposits

Prepaid expenses and other current assets

Future power credits

Accounts payable

Accrued expenses

Billings in excess of costs and estimated earnings

Accrued expenses

Customer deposits

1 unchanged sentence

Lease liability

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities

Proceeds from the sale of marketable equity securities

Acquisition of Whinstone, net of cash acquired

1 unchanged sentence

Proceeds from the sale of long-term investments

Proceeds from sale of cryptocurrencies

Proceeds from the sale of equipment

Deposits on equipment

Other deposits

Purchases of property and equipment, including construction in progress

2 unchanged sentences

Cash flows from financing activities

Proceeds from issuance of convertible notes

Repayment of notes payable and other obligations

Proceeds from the issuance of common stock / At-the-market offering

1 unchanged sentence

Proceeds from exercise of common stock warrants

Payments on contingent consideration liability - future power credits

Repurchase of common shares to pay employee withholding taxes

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

See accompanying notes to consolidated financial statements.

Riot Platforms, Inc.

Consolidated Statements of Cash Flows - continued

(in thousands)

Years Ended December 31,

Supplemental disclosure of cash flow information:

2 unchanged sentences

Supplemental disclosure of noncash investing and financing activities:

Issuance of common stock for business combinations

Issuance of common stock for business combination

Issuance of common stock to settle previously accrued executive compensation

1 unchanged sentence

Construction in progress included in accrued expenses

Cryptocurrencies received from sale of equipment

Bitcoin received from sale of equipment

Bitcoin exchanged for employee compensation

Conversion of preferred stock to common stock

Conversion of notes payable to common stock

Reclassification of warrant liability to equity

Common stock issued in connection with conversion of notes payable

Cryptocurrencies used to purchase miners

Right of use assets exchanged for new operating lease liabilities

Property and equipment obtained in exchange transaction

See accompanying notes to consolidated financial statements.

Riot Blockchain, Inc.

and Subsidiaries

Riot Platforms, Inc.

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.

Riot Platforms, Inc.

is a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin blockchain.

The Company also provides comprehensive and critical mining infrastructure for institutional-scale hosted clients to mine Bitcoin at its Rockdale Facility.

The Rockdale Facility currently provides 700 megawatts in total developed capacity for Bitcoin mining and data center hosting services for institutional-scale hosted clients.

The Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and the Company is currently growing its capacity.

The Company is also developing the Corsicana Facility, a second large-scale Bitcoin mining data center facility, which, upon completion, is expected to have approximately one gigawatt of capacity available for Bitcoin mining and data center hosting services for institutional-scale hosted clients.

The Company operates in an environment that is constantly evolving based on the proliferation of Bitcoin and cryptocurrencies in general.

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

On November 21, 2022, the Company filed an amendment with the Secretary of State of Nevada increasing its number of authorized shares of common stock, no par value, from 170 million shares to 340 million shares.

As described in Note 22.

Segment Information , we operate in three business segments:

Bitcoin Mining, Data Center Hosting, and Engineering.

Restatement of Previously Issued Financial Statements

The Company accounts for its Bitcoin held as an intangible asset and tested it for impairment on a daily basis based on quoted prices of Bitcoin, historically utilizing the daily closing price of Bitcoin.

During the preparation of this Annual Report, the Company determined it has not been appropriately calculating its impairment of Bitcoin.

The Company determined that its method of calculating impairment of its Bitcoin assets, on a daily basis using a spot price at a standard cutoff time, was not in compliance with the ASC 350-30-35-19 requirement to recognize impairment whenever carrying value exceeds fair value.

Effectively, the Company determined that ASC 350-30-35-19 calls for the intraday low price of Bitcoin to be utilized in calculating impairment of the Company’s Bitcoin held as that metric is the most accurate indicator of whether it is more likely than not that the asset is impaired.

Updating of the Company’s historical calculations of Bitcoin impairment amounts resulted in correction of Impairment of Bitcoin and, in some cases, Realized gains on the sale of Bitcoin, with an offsetting correction of the book value of Bitcoin.

In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality , and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , the Company evaluated the materiality of the error from qualitative and quantitative perspectives, and concluded that the error was material to the Consolidated Balance Sheet as of December 31, 2021 and Consolidated Statements of Operations, Equity, and Cash Flows for the years ended December 31, 2021 and 2020.

Management restated the impacted financial statements as of December 31, 2021, and for the years ended December 31, 2021 and 2020, and related notes included herein to correct this error.

The following tables present the effects of correcting this error on the Company’s financial statements as of December 31, 2021, and for the years ended December 31, 2021 and 2020:

As of December 31, 2021

As previously

Consolidated Balance Sheet

Total current assets

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the year ended December 31, 2021

As previously

Consolidated Statements of Operations

Impairment of Bitcoin

Total costs and expenses

Operating loss

Net loss before taxes

Net loss attributable to Riot Platforms, Inc.

Basis and diluted net loss per share

For the year ended December 31, 2020

As previously

Consolidated Statements of Operations

Impairment of Bitcoin

Realized gain on sale/exchange of Bitcoin

Total costs and expenses

Operating loss

Net loss before taxes

Net loss attributable to Riot Platforms, Inc.

Basis and diluted net loss per share

For the year ended December 31, 2021

Platforms, Inc.

stockholders'

Consolidated Statements of Stockholders' Equity

Net loss (as previously reported)

Net loss (adjustment)

Net loss (as restated)

Balance as of December 31, 2021 (as previously reported)

Balance as of December 31, 2021 (adjustment)

Balance as of December 31, 2021 (as restated)

For the year ended December 31, 2020

Platforms, Inc.

stockholders'

Consolidated Statements of Stockholders' Equity

Net loss (as previously reported)

Net loss (adjustment)

Net loss (as restated)

Balance as of December 31, 2020 (as previously reported)

Balance as of December 31, 2020 (adjustment)

Balance as of December 31, 2020 (as restated)

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the year ended December 31, 2021

As previously

Consolidated Statements of Cash Flows

Impairment of Bitcoin

For the year ended December 31, 2020

As previously

Consolidated Statements of Cash Flows

Impairment of Bitcoin

Realized gain on sale/exchange of Bitcoin

The remainder of these notes to the consolidated financial statements have been updated, as applicable, to reflect the impacts of the revisions described above.

Liquidity and Financial Condition

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 $ 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 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.

As of December 31, 2022, the Company had approximate balances of cash and cash equivalents of $ 230.3 million, working capital of $ 321.8 million, total stockholders’ equity of $ 1.2 billion and an accumulated deficit of $ 756.3 million.

To date, the Company has relied, in large part, on equity financings and sales of Bitcoin earned from Bitcoin Mining to fund its operations.

During the year ended December 31, 2022, the Company sold 3,425 Bitcoin for proceeds of approximately $ 79.5 million.

The Company monitors its balance sheet on an ongoing basis and continuously evaluates the level of Bitcoin retained from monthly production in consideration of the cash requirements and its ongoing operations and expansion.

Bitcoin is classified on the balance sheet as a current asset due to the ability to sell it in a highly liquid marketplace and its intent to liquidate its Bitcoin to support operations when needed.

During the year ended December 31, 2022, the Company paid approximately $ 194.9 million as deposits primarily for miners and reclassified $ 422.9 million to property and equipment in connection with the receipt of miners at the Rockdale Facility.

As of December 31, 2022, all 88,556 of the Company’s miners were located at the Rockdale Facility.

During the year ended December 31, 2022, the Company issued 37,052,612 shares of common stock for net proceeds of approximately $ 298.2 million, at a weighted average price of $ 8.23 per share.

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.

Although the Company has experienced some changes to its miner shipments due to disruptions in the global supply chain, the Company 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.

and Subsidiaries

In addition to the impacts of COVID-19 and ongoing global supply chain disruptions, we have experienced, and are experiencing, the impact of domestic and global inflationary pressures largely outside of our control.

This inflationary pressure impacts our cost structure, has contributed to adjustments in operations, and has increased the cost of, and adversely affected our ability to obtain, materials and retain talent, despite a continued focus on controlling our costs where possible.

Management is unable to accurately predict when, or if, these national and global inflationary pressures will subside, as well as their long-term impacts on our business and results of operations.

See the discussion under the heading “Risk Factors” under Part I, Item 1A of this Annual Report for additional discussion regarding potential impacts sustained elevated inflation may have on our operations and plans for expansion.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

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Intercompany investments, balances and transactions have been eliminated in consolidation.

Non–controlling interests represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’

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

Non–controlling interests represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.

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.

Amounts disclosed are in thousands except for share, per share, Bitcoin, and miner amounts, or as noted.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods.

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 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.

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, fixed assets, and finite-lived intangibles, stock-based compensation, and the valuation allowance associated with the Company’s deferred tax assets.

Reclassifications

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.

Cash and cash equivalents consist of cash on hand and highly liquid investments.

We consider any highly liquid investments with an original maturity of three months or less at 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.

For all periods presented, the Company had no cash equivalents.

Accounts receivable

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

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.

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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.

Allowances 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.

For the years ended December 31, 2022, 2021 and 2020, the Company did no t record any credit losses or recoveries.

Based on the Company’s current and historical collection experience, management recorded an allowance for doubtful accounts of $ 1.9 million as of December 31, 2022.

No allowance was recorded as of December 31, 2021.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

Bitcoin is sold on a FIFO basis and measured for impairment whenever indicators of impairment are identified based on the intraday low quoted price of Bitcoin.

To the extent an impairment loss is recognized, the loss establishes the new cost basis of the Bitcoin.

Subsequent reversal of impairment losses is not permitted.

Bitcoin is classified on our balance sheet as a current asset due to the Company’s ability to sell it in a highly liquid marketplace and its intent to liquidate its Bitcoin to support operations when needed.

Purchases and sales of Bitcoin by the Company and Bitcoin awarded to the Company are included within Cash flows from operating activities on the Consolidated Statements of Cash Flows.

Any realized gains or losses from sales of Bitcoin are included in Operating income (expense) on the Consolidated Statements of Operations.

Long-term investments

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities.

In adopting this new guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.

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.

For equity investments, the Company initially records equity investments at cost then adjusts 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.

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 Company recognizes revenue in a manner that depicts the transfer of promised goods or services to customers for amounts that reflect 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).

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, the Company assesses the promised goods or services in the contract and identifies each promised good or service that is distinct.

A performance obligation is 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 Company’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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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 transaction price is the amount of consideration to which the Company 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

● 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 transaction

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

Bitcoin Mining

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

The Company’s enforceable right to compensation begins only when, and lasts as long as, the Company provides computing power to the mining pool operator and is created as power is provided over time.

The only consideration due to the Company relates to the provision of computing power.

The contracts are terminable at any time by and at no cost to the Company, and by the pool operator under certain conditions specified in the contract.

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

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 in the form of Bitcoin.

Changes in the fair value of the noncash consideration due to form of the consideration (changes in the market price of Bitcoin) are not included in the transaction price and therefore, are not included in revenue.

Certain mining pool operators charge fees to cover the costs of maintaining the pool and are deducted from amounts we may otherwise earn and are treated as a reduction to the consideration received.

Fees fluctuate and historically have been no more than approximately 2% per reward earned, on average.

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

In exchange for providing computing power, the Company is entitled to either:

● a Full-Pay-Per-Share payout of Bitcoin based on a contractual formula, which primarily calculates the hash rate provided by the Company to the mining pool as a percentage of total network hash rate, and other inputs.

The Company is entitled to consideration even if a block is not successfully placed by the mining pool operator.

The contract is in effect until terminated by either party.

● 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.

Because it is probable that a significant reversal of cumulative revenue will not occur and the Company is able to calculate the payout based on the contractual formula, noncash revenue is estimated and recognized based on the spot price of Bitcoin determined using the Company’s primary trading platform for Bitcoin at the inception of each contract, which is determined to be daily.

Noncash consideration is measured at fair value at contract inception.

Fair value of the crypto asset consideration is determined using the quoted price on the Company’s primary trading platform for Bitcoin at the beginning of the contract period at the single bitcoin level (one bitcoin).

This amount is estimated and recognized in revenue upon inception, which is when hash rate is provided.

● The Company transitioned completely to this mining pool in December 2022.

● a fractional share of the fixed Bitcoin 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 based on a proportion of the Company’s “scoring hash rate” to the pool’s “scoring hash rate” where the scoring hash rate as defined by the pool is the exponential moving average of the hash power contributed by the Company or by all pool members combined.

The Company’s fractional share of the Bitcoin reward 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.

● Because the consideration to which the Company expects to be entitled for providing computing power is entirely variable, as well as being noncash consideration, the Company assesses the estimated amount of the variable noncash consideration to which it expects to be entitled for providing computing power at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved (the “constraint”).

Only when significant revenue reversal is concluded probable of not occurring can estimated variable consideration be included in revenue.

Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the estimated variable noncash consideration is constrained from inclusion in revenue until the end of the contract term, when the underlying uncertainties have been resolved and number of Bitcoin to which the Company is entitled becomes known.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

● 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 based on the spot rate of Bitcoin determined using the Company’s primary trading platform for Bitcoin at the time of receipt.

● The Company utilized this mining pool during the years ended December 31, 2020, 2021 and throughout 2022 until mid-December 2022.

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.

Data Center Hosting

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 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.

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.

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

For the construction of assets owned by us but paid for and used by the customer during the term of their data center 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 customer equipment.

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.

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

In the rare case that we may incur penalties under these clauses, we recognize the payment 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.

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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

Riot Platforms, Inc.

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.

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.

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.

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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”.

Other revenue is 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 agreement.

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:

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 is determined based on assumptions that market participants would use in pricing an asset or a liability.

Fair value measurements are classified and disclosed in one of the following three categories:

Quoted prices in active markets for identical assets or liabilities.

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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.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Property and equipment

1 unchanged sentence

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

The estimated useful lives for all the Company’s property and equipment are as follows:

Buildings and building improvements

Miners and mining equipment

1 unchanged sentence

Office and computer equipment

Goodwill and Other Intangible Assets

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

Goodwill and Other .

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Impairment of long-lived assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

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.

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

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.

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 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.

1 unchanged sentence

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.

Finite-lived intangible assets

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.

6 unchanged sentences

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 above.

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

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured.

In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.

If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.

If the Company concludes otherwise, it is required to perform a quantitative impairment test.

To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset.

Subsequent reversal of impairment losses is not permitted.

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.

Impairment of long-lived assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

During the year ended December 31, 2020, the Company determined there were indicators that would cause a 100% impairment of its Coinsquare investment and observed price changes.

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

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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.

The Company uses 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.

5 unchanged sentences

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.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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.

5 unchanged sentences

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 measures its investments in marketable equity securities at fair value at each balance sheet date, with unrealized holding gains and losses recorded in other income (expense), as the shares have a readily determinable fair value since they are publicly traded and have significant average daily volume traded.

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 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 leases with a term exceeding 12 months, an operating 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 operating lease right-of-use 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.

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.

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

Variable lease costs are recognized as incurred.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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”.

Variable lease costs are recognized as incurred and primarily consist of common area maintenance and utility charges not included in the measurement of right of use assets and operating lease liabilities.

Operating segments

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

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.

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.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

A valuation allowance is required to the extent any deferred tax assets may not be realizable.

ASC Topic 740, Income Taxes, (“ASC 740”), also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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 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.

The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

Riot Blockchain, Inc.

and Subsidiaries

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

(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.

in the period that includes the enactment date.

A valuation allowance is required to the extent any deferred tax assets may not be realizable.

Contract balances

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.

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.

Remaining performance obligations

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

Amounts related to Bitcoin Mining are not included as the Company elected the practical expedient to not disclose amounts related to contracts with a duration of one year or less.

Additionally, the Company elected 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.

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.  

● Bitcoin Mining:

Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance, variable data center hosting fees, but excluding depreciation and amortization which are separately stated.

● Data Center Hosting:

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

● Engineering:

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

Stock-based compensation

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award.

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

These options generally vest on the grant date or over a one- year period.

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

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

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

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.

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.

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.

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 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 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

Options to purchase common stock

Unvested restricted stock awards

Convertible Series B preferred shares

Recently Issued and Adopted Accounting Pronouncements

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award, which is based on the fair market value of the Company’s common stock at the time of the grant.

For performance-based share-based payment awards, the Company begins to recognize compensation cost over the performance period when achievement of the milestones and targets is probable.

The Company has elected to account for forfeitures of awards as they occur.

Recently issued 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 .

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which was codified with its subsequent amendments as Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments – Credit Losses (“ASC 326”).

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

and Subsidiaries

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”

), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12” ), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in ASC Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

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

6 unchanged sentences

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.

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

Acquisition of Corsicana Facility Land Site

During the year ended December 31, 2022, the Company initiated a large-scale development to expand its Bitcoin mining and data center hosting capabilities with the acquisition of a 265 -acre site in Navarro County, Texas, strategically located next to the Navarro switch, for $ 10.1 million, where its anticipated one -gigawatt Bitcoin mining and data center facility complex, the Corsicana Facility, is under development.

The initial phase of the development of the Corsicana Facility involves the construction of 400 megawatts of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as a high-voltage power substation and transmission facilities to supply power and water to the facility.

Construction of the substation and the data centers is expected to be carried out concurrently, with Bitcoin Mining and Data Center Hosting operations expected to commence by the fourth quarter of 2023, following the commissioning of the substation, which is expected to be completed in the fourth quarter 2023.

This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission construction, along with construction buildings utilizing the Company’s immersion-cooling infrastructure and technology, and ancillary buildings.

Through December 31, 2022, the Company has incurred costs of approximately $ 53.4 million related to the development of the Corsicana Facility, including $ 10.1 million for land, $ 38.6 million of initial developments costs and equipment, and a $ 4.7 million deposit for future power usage.

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

On December 1, 2021, the Company acquired 100 % of the equity interests of Ferrie Franzmann Industries, LLC (d/b/a ESS Metron).

ESS Metron is a power distribution and management systems manufacturing, design and engineering firm based in Denver, Colorado, operating from facilities totaling approximately 121,000 square feet of manufacturing, office, and warehouse space in the metropolitan Denver area.

These facilities are subject to long-term lease agreements.

The acquisition of ESS Metron established the Company’s Engineering business and enhanced the Company’s ability to scale its Bitcoin Mining and Data Center Hosting operations.

Total consideration transferred of $ 56.9 million was comprised of a cash payment of approximately $ 30.1 million, net of $ 3.7 million of seller transaction costs, and 715,413 shares of the Company’s common stock with an acquisition date 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.

Upon the conclusion of this post-closing indemnification period, the withheld shares will be issued to the ESS Metron sellers, subject to satisfaction of any indemnification obligations as may arise during the indemnification period.

Riot Platforms, Inc.

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):

Other than an insignificant post-closing settlement of preliminary net working capital, there were no adjustments to the provisional purchase price and fair value estimates.

The Company finalized the valuation of the acquired assets and liabilities, and consideration transferred, in December 2022.

The following table presents the allocation of the purchase consideration:

Cash and cash equivalents

13 unchanged sentences

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.

2 unchanged sentences

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.

See Note 22, Segment Information .

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.

7 unchanged sentences

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.

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.

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

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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.

Although ESS Metron has been in business for over 60 years, the trademark was 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.

2 unchanged sentences

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.

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.

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

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

The Company recognized $ 2.1 million of acquisition-related costs related to this acquisition 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 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

On May 26, 2021, the Company acquired 100 % of the equity interests of Whinstone US, Inc., the owner and operator of the Rockdale Facility.

The assets and operations of Whinstone increased 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.

Total consideration transferred of $ 460.4 million was comprised of a $ 53.0 million cash payment (including $ 38.1 million of debt payoff and certain Seller transaction costs), 11.8 million shares of the Company’s common stock with an acquisition date fair value of approximately $ 326.2 million, an $ 83.0 million contingent purchase price payable to the Seller (see Note 19.

Commitments and Contingencies ), and other net items of $( 1.7 million).

There were no adjustments to the provisional purchase price and fair value estimates.

The Company finalized the valuation of these assets and liabilities, and consideration transferred, in May 2022.

Riot Platforms, Inc.

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):

The following table presents the allocation of the purchase consideration:

Cash and cash equivalents

12 unchanged sentences

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.

2 unchanged sentences

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)

See Note 22, Segment Information .

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.

1 unchanged sentence

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 measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

The significant assumptions used to estimate the fair value are described in Note 18, Fair Value Measurements .

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.

2 unchanged sentences

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.

4 unchanged sentences

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

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

The Company recognized $ 19.1 million of acquisition-related costs that were expensed as incurred.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

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

Pro Forma Information (Unaudited)

3 unchanged sentences

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).

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

Years Ended December 31,

Total revenue

Asset Purchase Agreement with Prive Technologies LLC

On February 21, 2018, the Company and Kairos, completed an asset purchase under an agreement (the “Prive Purchase Agreement”) with Prive.

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 (in thousands):

Cash consideration

Fair value of common stock

Other expenses

As part of the Prive Purchase Agreement, 200,000 shares of the Company’s common stock were held in escrow (the “Escrow Shares”).

No value was assigned to the Escrow Shares at the time of the acquisition as they were contingent consideration.

The Escrow Shares would have been released to the Sellers upon the Company generating net cash flow of at least $ 10.0 million from the equipment.

If the Escrow Shares were not released to the Sellers on or before the two-year anniversary (February 2020) of the Prive Purchase Agreement, the Escrow Shares would be returned to the Company for cancellation.

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.

Acquisition of Logical Brokerage Corp.

On March 26, 2018, the Company entered into an asset acquisition with Logical Brokerage Corp.

The Company purchased 9.25 shares of Logical Brokerage, representing 92.5 % of the outstanding capital stock of Logical Brokerage, for a cash purchase price of $ 0.6 million.

Logical Brokerage, a futures introducing broker headquartered in Miami, Florida is registered with the CFTC and is a member of the NFA.

The asset was recorded at the purchase price of $ 0.6 million, net of cash received with the asset acquisition of $ 0.1 million, plus any transaction costs.

The CFTC license was recorded as intangible rights acquired.

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

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 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

Revenue disaggregated by reportable segment is presented in See Note 22.

Segments Information .

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):

As of December 31, 2022 and 2021, contract assets were $ 19.7 million and $ 9.9 million, respectively, and were entirely attributable to the ESS Metron acquisition.

The following table presents changes in the total deferred revenue liability and billings in excess of costs and estimated earnings:

Years Ended December 31,

Beginning balance

Revenue recognized

Billings in excess of costs and estimated earnings

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)

The following table presents estimated revenue expected to be recognized in the future related to the unsatisfied portion of the performance obligation as of December 31, 2022:

Data Center Hosting (a)

Total contract liabilities

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 information about our cryptocurrencies (Bitcoin):

(a) Data Center Hosting deferred revenue primarily consists of upfront payments, which the Company generally recognizes as services are provided.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Concentrations

During the year ended December 31, 2022, the Company earned revenue of approximately $ 29.7 million from one customer, representing 11.4 % of total consolidated revenue, in its Engineering segment.

No other individual customer accounted for more than 10% of total revenue for the year ended December 31, 2022.

During the years ended December 31, 2021 and 2020, no single customer or related group of customers contributed 10% or more of the Company’s total consolidated revenue.

As of December 31, 2022, five customers accounted for more than 80 % of consolidated accounts receivable.

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

The following table presents information about the Company’s Bitcoin:

(as restated)

Beginning balance

Revenue recognized from cryptocurrencies mined

Proceeds from sale of cryptocurrencies

Realized gain on sale/exchange of cryptocurrencies

Impairment of cryptocurrencies

Cryptocurrencies received from sale of equipment

Revenue recognized from Bitcoin mined

Proceeds from sale of Bitcoin

Exchange of Bitcoin for employee compensation

Realized gain on sale/exchange of Bitcoin

Impairment of Bitcoin

Ending balance

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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Investments in Marketable Equity Securities and Long-term Investments

During the years ended December 31, 2022, 2021, and 2020, the Company recorded impairment charges on its Bitcoin holdings of $ 147.4 million, $ 44.0 million, and $ 3.6 million, respectively.

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.

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

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.

of cryptocurrencies on its Coinsquare market to manipulate the market’s trading volume during 2018 and 2019.

On July 21, 2020, a hearing panel of the OSC entered an order (the “Order”) approving the settlement agreement between OSC, Coinsquare, and certain of its executives and directors (the “Settlement Agreement”), in which they admitted to breaches of Ontario securities laws and/or conduct contrary to the public interest including, market manipulation through reporting inflated trading volumes on its Coinsquare Market, misleading its clients and investors about these trading volumes, and taking reprisal against an internal whistleblower who brought this conduct to the attention of the named executives and directors.

The Company 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.

Per the measurement alternative, the investment is recorded at cost, less any impairment, plus or minus changes resulting from observable price changes.

During June 2020, the Company became aware of allegations brought by the Ontario Securities Commission (the “OSC”) that Coinsquare and certain of its executives and directors engaged in systematic “wash trading” of cryptocurrencies on its Coinsquare market to manipulate the market’s trading volume during 2018 and 2019.

The Order requires certain oversight and governance procedures and to prohibit the named executives and directors from engaging in certain activities with respect to Coinsquare;

additionally, the named executives and directors were required to resign from Coinsquare and Coinsquare and the named executives and directors were required to pay penalties and costs totaling approximately CAD 2.2 million.

Riot Blockchain, Inc.

and Subsidiaries

The Company thereupon determined there were indicators that would cause a 100 % impairment of the Coinsquare investment and observed price changes and recorded an impairment expense of $ 9.4 million for its investment in Coinsquare during the year ended December 31, 2020.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

The Company thereupon determined there were indicators that would cause a 100 % impairment of the Coinsquare investment and observed price changes, which was recorded as of June 30, 2020.

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, under agreements between Coinsquare, Coinsquare’s shareholders (including Riot) and Mogo Inc.

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

Concurrently, the Company 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 the 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.

Under the terms of the Purchase Agreement (the “Purchase Agreement”) the Company invested cash of approximately $ 0.3 million in Tess and issued 75,000 shares of restricted Common Stock to Tess in exchange for 2,708,333 shares of common stock of Tess.

The 75,000 shares of Common Stock were valued at the $ 8.49 market price as of October 20, 2017 for a total of approximately $ 0.6 million.

Accordingly, Tess became a majority-owned subsidiary of the Company.

As part of the transaction, the Company and Tess entered into a registration rights agreement pursuant to which the Company agreed to file a registration statement to register the resale of 25,000 shares (of 75,000 shares) of Common Stock issued to Tess.

The 2017 acquisition of Tess was accounted for as a business combination in accordance with the provisions of ASC 805.

The allocation of purchase consideration includes $ 0.7 million as in-process research and development (IPR&D) related to the TessPay project.

As of December 31, 2018, the Company had $ 0.6 million of intangibles related to Tess’s internal technology platform.

In January 2018, following the execution of a non-binding letter of intent as of December 11, 2017, the parties executed a definitive agreement providing that Tess agreed to merge with Cresval Capital Corp.

(“Cresval”) (TSX-V:

Assuming closing conditions are met, upon closing of the anticipated merger, Tess would be publicly traded on the TSX Venture Exchange (the “TSXV”).

During the year ended December 31, 2018, Tess received approximately $ 0.5 million from the sale of shares of Riot Blockchain common stock held by Tess, which has been recorded as a credit to the consolidated Common Stock of the Company.

Additionally, Tess issued approximately 189,000 of its common shares in exchange for cash proceeds of approximately $ 220,000 thereby reducing the investment percentage held by the Company from 52.01 % to 50.2 % as of December 31, 2018.

Due to the termination of the Cresval Agreement on February 15, 2019, the Company recorded an impairment loss of $ 2.1 million consisting of $ 0.7 million of in process research and development costs, $ 0.6 million related to capitalized costs of Tess’s internal technology platform and $ 0.8 million of goodwill during the year ended December 31, 2018.

On April 10, 2019, Tess closed on a funding agreement under which approximately 23.8 million shares of Tess were issued for CAD $ 1.2 million.

As a result of this and subsequent funding’s, the Company’s ownership in Tess was reduced to approximately 8.8 %.

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

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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”).

The notes are unsecured, subordinated to other approved liabilities, mature December 31, 2022 , bear interest at 6 %, unless previously repaid or converted and contain other conditions and restrictions, all as defined under the subscription documents.

The Verady convertible note was previously recorded at fair value (which approximates cost).

The conversion rate of the convertible note is defined based upon the possible occurrence of certain defined events which may or may not occur.

The Company has no other relationship or rights associated with Verady.

Founded in 2016, Verady is privately held and recently launched VeraNet, a decentralized network of financial reporting and accounting tools targeted to the needs of the cryptocurrency community.

During the year ended December 31, 2019, Verady completed a financing that under the terms of the Company’s original investment, resulted in the automatic conversion of the Company’s convertible note plus accrued interest totaling approximately $ 0.2 million, into equity of Verady.

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, 2021 and 2020, there were no price changes in orderly transactions for identical or similar investments in Verady or Tess.

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 the Nasdaq Stock Market on December 31, 2021 of $ 3.42 .

During the year ended December 31, 2022, the Company sold all 3.2 million shares of its shares of Mogo for proceeds of $ 1.8 million, resulting in realized losses of approximately $ 9.0 million.

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

Property and equipment consist of the following:

Buildings and building improvements

Land rights and land improvements

Miners and mining equipment

5 unchanged sentences

Property and equipment, net

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

Riot Blockchain, Inc.

and Subsidiaries

The Company recognized an impairment charge for its miners and mining equipment during the year ended December 31, 2022, as described below, but did not incur any other impairment charges for its property and equipment for the years ended December 31, 2022, 2021, and 2020.

Miners and mining equipment

As of December 31, 2022, the Company had deployed a total of 88,556 miners in its mining operation, all at the Rockdale Facility.

During the year ended December 31, 2022, the Company paid approximately $ 194.9 million as deposits, primarily for ASIC miners, which were shipped monthly through December 2022, except for 5,130 miners that were received in January 2023, and reclassified $ 422.9 million to property and equipment in connection with the receipt of 57,649 miners at the Rockdale Facility.

During the year ended December 31, 2021, the Company entered into six purchase agreements with Bitmain to acquire 52,500 Antminer model S19j miners and 30,000 of their latest Antminer model S19XP miners for a combined total purchase price of approximately $ 535.0 million.

As of December 31, 2022, no amounts remain payable to Bitmain.

Depreciation and amortization expense related to property and equipment totaled approximately $ 105.9 million, $ 26.1 million, and $ 4.3 million, for years ended December 31, 2022, 2021, and 2020, respectively.

During the year ended December 31, 2022, the Company elected to not renew its co-location mining services agreement with Coinmint, which was therefore terminated automatically per its terms, effective as of July 8, 2022.

In connection with the termination, the Company arranged for the transfer of the miners it was operating at Coinmint’s Massena, New York facility (the “Coinmint Facility”).

The Company then entered into an equipment exchange agreement with a third-party Bitcoin mining company (the “Counterparty”), whereby the Company transferred approximately 5,700 of the Antminer model S19 Pro miners it had previously deployed at the Coinmint Facility to the Counterparty in exchange for 5,000 factory-new Antminer model S19j Pro miners delivered to the Rockdale Facility.

After completing the transfer of the miners to the Counterparty, the Company relocated the balance of the

Riot Platforms, Inc.

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.

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.

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.

miners it had deployed at the Coinmint Facility to the Rockdale Facility.

As a result of the exchange with the Counterparty, during the year ended December 31, 2022, the Company recognized a gain on the exchange of equipment of approximately $ 16.3 million.

Impairment of miners

During the year ended December 31, 2022, adverse changes in business climate, including decreases in the price of Bitcoin and resulting decrease in the market price of miners, indicated that an impairment triggering event had occurred.

Testing performed indicated the estimated fair value of the Company’s miners to be less than their net carrying value as of December 31, 2022, and an impairment charge of $ 55.5 million was recognized, decreasing the net carrying value of the Company’s miners to their estimated fair value.

The estimated fair value of the Company’s miners is classified in Level 2 of the fair value hierarchy due to the quoted market prices for similar assets.

Casualty-related charges (recoveries), net

In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, impacting approximately 2.5 EH/s of our hash rate capacity.

Repairs have been ongoing, and, in January 2023, the Company successfully brought approximately 0.6 EH/s of impacted hash rate capacity back online.

The Company has estimated that total damages of $ 9.7 million were incurred during 2022.

No insurance recoveries have been received.

Recoveries will be recognized when they are probable of being received.

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):

Upon completion of the Whinstone Acquisition, we commenced expansion of our Rockdale Facility to 700 MW, from its initial 300 MW of developed capacity.

As of December 31, 2022, our 400 MW expansion at the Rockdale Facility had achieved multiple progress milestones while navigating the challenges with the current state of the global supply chain, including the completion of the substation expansion to 700 MW, successful installation of the substation busbar, and 400 MW of high-voltage transformers.

We also completed construction of three new buildings in 2022, and a fourth is currently being constructed.

Related party land transaction

During the year ended December 31, 2022, the Company began an initiative to provide certain on-site temporary housing for stakeholders, including partners, analysts, stockholders, etc.

The initiative arose as a result of limited accommodations for visitors in the Rockdale, Texas area, which is relatively remote.

During 2022 Riot purchased land for the development of temporary housing from Lyle Theriot (indirectly, through a limited liability company) for approximately $ 0.1 million.

Theriot is part of the management team at Whinstone and is considered a related party of Whinstone.

The Company evaluated certain related party implications of the purchase, under GAAP and other applicable regulatory reporting requirements including, but not limited to, the Sarbanes-Oxley Act of 2002, and determined the transaction occurred on an arm’s length basis.

As of December 31, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of 5,130 S19 series miners, which were received in January 2023.

A summary of the purchase agreement commitments, deposits paid, and delivery timing is summarized as follows:

Original Purchase

Open Purchase

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

First Quarter 2023

December 10, 2021

Third Quarter 2022 - Fourth Quarter 2022

First Quarter 2023

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.

First Quarter 2023

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Goodwill and Intangible Assets

The following table presents the changes in goodwill for the year ended December 31, 2022:

Balance as of January 1, 2022

ESS Metron purchase accounting adjustment

Balance as of December 31, 2022

During the second quarter of 2022, adverse changes in business climate, including decreases in the price of Bitcoin and increased volatility of equity markets, as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices, reduced market multiples and increased weighted-average costs of capital, primarily driven by an increase in interest rates.

Market concerns related to inflation, supply chain disruption issues and other macroeconomic factors were some of the primary causes for these declines.

Additionally, the price of Bitcoin had declined significantly, notably during the second quarter of 2022.

Due to these factors, the Company determined that a triggering event had occurred, and therefore, performed a goodwill impairment assessment as of June 30, 2022.

The valuation of the Company’s reporting units was determined with the assistance of an independent valuation specialist firm using a market approach.

The market approach was based on the Guideline Public Company Method, which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.

The selection of comparable businesses was based on the markets in which the reporting units operated, giving consideration to risk profiles, size, geography, and diversity of products and services.

Under the market approach, the Company evaluated the fair value based on trailing and forward-looking earnings and revenue multiples derived from comparable publicly traded companies with similar market position and size as the Company’s reporting units.

The unobservable inputs used to measure the fair value included projected revenue growth rates, the price of Bitcoin, the global Bitcoin network hash rate, the timing of miner shipments under currently executed contracts and their subsequent deployment, and the determination of appropriate market comparison companies.

The trailing-twelve-month and next-twelve-month enterprise value-to-revenue multiples assumed in the analysis ranged from approximately 0.7x to approximately 3.9x.

The resulting estimated fair values of the combined reporting units were reconciled to the Company’s market capitalization, including an estimated implied control premium of approximately 30 %.

The results of the quantitative test indicated the fair value of the reporting units did not exceed their carrying amounts, including goodwill, in excess of the carrying value of the goodwill.

As a result, the entire carrying amount of the goodwill was recognized as a non-cash impairment charge during the year ended December 31, 2022.

Finite-Lived Intangible Assets

The following table presents the Company’s finite-lived intangible assets as of December 31, 2022:

Customer contracts

Finite-lived intangible assets

During the year ended December 31, 2022, the Company paid $ 9.5 million to license a patent for technology being used in the development of the Corsicana Facility.

The amount paid is being amortized over the term of the license, which expires on December 31, 2024.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

The following table presents the Company’s finite-lived intangible assets as of December 31, 2021:

Customer contracts

Finite-lived intangible assets

The following table presents the estimated future amortization of the Company’s finite-lived intangible assets as of December 31, 2022:

The Company did not identify any impairment of its finite-lived intangible assets during the years ended December 31, 2022, 2021, and 2020

Power Supply Contract and Demand Response Services Programs

In May 2020, the Company entered into a Power Supply Agreement with TXU Energy Retail Company LLC to provide the delivery of 130 MW of electricity by TXU to the Rockdale Facility, via the facility owned by Oncor Electric Delivery Company, LLC, at fixed prices through April 30, 2030.

In March and November 2022, the Company and TXU agreed to increase the amount of electricity to be provided under the Power Supply Agreement by 65 MW and 150 MW, respectively, of electricity at fixed prices through April 30, 2030 and October 31, 2027, respectively, for a total of 345 MW under contract at fixed prices.

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

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

Data Center Hosting on the Consolidated Statements of Operations.

In collaboration with market participants such as the Company, ERCOT has a Demand Response Services Program for customers that have the ability to reduce or modify electricity use in response to instructions or signals.

The Demand Response Services Program 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.

Market participants with electrical loads like the Company 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.

Under the Demand Response Services Program, depending on the spot market price of electricity, we may, when there is a benefit to our Company, offer electricity back to ERCOT in exchange for cash payments or credits against future power costs, rather than using the power for the Company’s operations during these peak times to most efficiently manage our operating costs.

During the years ended December 31, 2022 and 2021, we sold approximately $ 27.3 million and $ 6.5 million, respectively, in electricity back to ERCOT in exchange for credits against future power costs.

These sales back to ERCOT are recorded in Power curtailment credits on the Consolidated Statements of Operations.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

The Company determined the Power Supply Agreement meets the definition of a derivative because the Demand Response Services Program allows for net settlement.

However, because we have the ability to offer 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 accounted for as a derivative and recorded at its estimated fair value each reporting period in Derivative asset on the Consolidated Balance Sheets with the change in the fair value recorded in Change in fair value of derivative asset on the Consolidated Statements of Operations.

The Power Supply Agreement is not designated as a hedging instrument.

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 22.3 % 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.

As of December 31, 2022, the margin-based collateral requirement of the Company was zero.

While we manage operating costs at the Rockdale 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.

The following table presents changes in the estimated fair value of the Derivative asset :

Balance as of January 1, 2021

Acquisition of Whinstone

Change in fair value of derivative asset

Balance as of December 31, 2021

Change in fair value of derivative asset

Balance as of December 31, 2022

Long-Term Assets

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

December 31, 2021

December 31, 2020

Deposits consist of the following:

Deposits on equipment:

3 unchanged sentences

Security deposits

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Total deposits

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, “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.

However, 1,000 of these S17-Pro miners were not received until February 2020.

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.

During the year ended December 31, 2022, the Company paid approximately $ 194.9 million as deposits, primarily for miners, and reclassified $ 422.9 million to property and equipment in connection with the receipt of 57,649 miners at the Rockdale Facility.

Property and Equipment .

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

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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”.

During the year ended December 31, 2022, the Company paid approximately $ 4.7 million as a security deposit for the development of the Corsicana Facility.

As of December 31, 2022, $ 1.8 million of the amount paid to Oncor in 2021, as described below, remains held as a deposit and the Company has other security deposits totaling approximately $ 2.7 million, including its ground lease of $ 1.8 million.

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

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

Accrued expenses consist of the following:

Construction in progress

Payroll and payroll taxes

Power related costs and remittances

Accrued compensation

Total accrued expenses

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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.

and Subsidiaries

Credit and Security Facility

During the year ended December 31, 2022, the Company entered into a $ 10.0 million Credit and Security Facility, which consists of a $ 6.0 million Revolving Line of Credit and a $ 4.0 Equipment Guidance Line.

The $ 6.0 million Revolving Line of Credit has a term of one year with interest due monthly and principal due at maturity.

All amounts borrowed under the Revolving Line of Credit carry a variable interest of not less than 4.0 % and are secured by the assets of ESS Metron.

As of December 31, 2022, the interest rate was 7.5 %.

The $ 4.0 million Equipment Guidance Line has a term of one year and permits the Company to finance up to 80.0 % of certain equipment purchases.

All amounts borrowed under the Equipment Guidance Line carry a variable interest of not less than 4.0 % and are secured by the assets of ESS Metron.

As of December 31, 2022, the interest rate was 7.5 %.

Total borrowings under the Credit and Security Facility as of, and during the year ended, December 31, 2022, were less than $ 0.1 million.

All borrowings and accrued interest under the equipment guidance line convert to fixed rate term loans every six months, which have either five-year terms for borrowings used to acquire vehicles and manufacturing equipment (“Manufacturing Term Loans”) or three-year terms for borrowings of equipment other than vehicles and manufacturing equipment (“Equipment Term Loans”).

The Manufacturing Term Loans carry interest at a fixed rate equal to the five-year treasury rate plus 2.5 % as of conversion and the Equipment Term Loans carry interest at a fixed rate equal to the three-year treasury rate plus 2.5 % as of conversion.

As of December 31, 2022, no amounts were due under Manufacturing Term Loans or Equipment Term Loans.

As of December 31, 2022, the Company was in compliance with all covenants of the Credit and Security Facility.

As of December 31, 2022, the Company had operating leases for its offices, manufacturing facilities of ESS Metron, and a ground lease for the Rockdale Facility, that expire on various dates through January 2032.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

During the year ended December 31, 2022, the Company executed an amendment to the ground lease for the Rockdale Facility to add a second 100-acre tract of land, adjacent to the land subject to the original ground lease, for an additional $ 0.9 million in annual payments.

The term of the amended lease is scheduled to expire on January 31, 2032, followed by three ten-year renewal periods at the Company’s option, unless terminated earlier.

Concurrent with the amendment to the ground lease, the Company extended the term of its Water Reservation Agreement for the Rockdale Facility (see Note 19.

Commitments and Contingencies ).

As of December 31, 2022 and 2021, operating lease right of use assets were $ 21.7 million and $ 13.2 million, respectively, and operating lease liabilities were $ 22.3 million and $ 13.4 million, respectively.

The following table presents the components of the Company’s lease expense, which the ground and facilities’ leases are included in Cost of revenue and the office leases are included in Selling, general, and administrative on the Consolidated Statements of Operations:

Years Ended December 31,

3 unchanged sentences

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

Total lease expense

The following table presents supplemental lease information:

Years Ended December 31,

Operating cash outflows for 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.

and Subsidiaries

Notes to Consolidated Financial Statements

(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):

Weighted-average remaining lease term – operating leases

Weighted-average discount rate – operating leases

The following table represents our future minimum operating lease payments as of December 31, 2022:

Office and other leases

2 unchanged sentences

Present value of lease liabilities

Stockholders’

Stockholders’ Equity

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”

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.

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

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, 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.

and Subsidiaries

The holders of 0 % Series B Convertible

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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.

During the year ended December 31, 2022, the remaining 2,199 shares outstanding of the Company’s 0 % Series B Convertible Preferred Stock were converted to 2,199 shares of its common stock.

The Company is authorized to issue up to 340,000,000 shares of Common Stock, without any par value per share.

Each holder of Common Stock is entitled to one vote for each share held of record on all matters to be voted on by such holders.

Holders of Common Stock are entitled to receive dividends, if declared.

Upon liquidation, dissolution or winding-up, holders of Common Stock are entitled to share ratably in the net assets legally available for distribution after payment of all debts and other liabilities, subject to any preferential rights of the holders of Preferred Stock, if any.

At-the-Market (“ATM”) Equity Offerings

2022 ATM Offering

As of October 15, 2020, the Company and H.C.

Wainwright entered into the first amendment to the Sales Agreement (the “First Amendment to the Sales Agreement”).

Pursuant to the First Amendment to the Sales Agreement, the Company sold, through H.C.

Wainwright as its sales agent, $ 100.0 million in shares of the Company’s common stock from time to time in an at-the-market offering (the “October 2020 ATM Offering”).

According to the First Amendment to the Sales Agreement, the Company paid H.C.

Wainwright a commission of up to 3.0 % of the aggregate gross proceeds the Company receives from all sales of its common stock in the October 2020 ATM Offering.

All Sales of shares of the Company’s common stock, no par value in the October 2020 ATM Offering were made pursuant to the prospectus and prospectus supplement filed with and forming a part of the Company’s shelf registration statement on Form S-3 (Registration No.

333-249356), filed with the SEC on October 7, 2020 and declared effective as of October 15, 2020 (the “October 2020 Registration Statement”).

Under the terms of the October 2020 ATM Offering, the Company only issued shares of its common stock.

The Company did not issue any other securities, including but not limited to, options to purchase shares of the Company’s common stock and common stock warrants, under the October 2020 ATM Offering.

Effective December 12, 2020, the Company and H.C.

Wainwright entered into the second amendment to the Sales Agreement (the “Second Amendment to the Sales Agreement”).

Pursuant to the Second Amendment to the Sales Agreement, the Company has sold, through H.C.

Wainwright as its sales agent, up to $ 200.0 million in shares of the Company’s common stock from time to time in an at-the-market offering (the “December 2020 ATM Offering”).

Pursuant to the Second Amendment to the Sales Agreement, the Company paid H.C.

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.

In March 2022, the Company entered into an ATM sales agreement under which it could offer and sell up to $ 500.0 million in shares of the Company’s common stock.

During the year ended December 31, 2022, the Company received gross proceeds of approximately $ 304.8 million ($ 298.2 million, net of $ 6.6 million in commissions and expenses), from the sale of 37,052,612 shares of common stock at a weighted average fair value of $ 8.23 per share.

2021 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.

In August 2021, the Company entered into an ATM sales agreement under which it could offer and sell up to $ 600.0 million in shares of the Company’s common stock.

During the year ended December 31, 2021, the Company received gross proceeds of approximately $ 600.0 million ($ 587.2 million, net of $ 12.8 million in commissions and expenses), from the sale of 19,910,589 shares of common stock at a weighted average fair value of $ 29.53 per share.

With the sale and issuance of these shares, all $ 600.0 million in shares of the Company’s common stock available for sale under 2021 ATM Offering had been issued.

2020 ATM Offering

In January 2021, the Company received gross proceeds of approximately $ 84.8 million ($ 82.7 million net, after $ 2.1 million in expenses) from the sale of 4,433,468 shares of common stock at an average fair value of $ 19.13 per share under an ATM agreement entered into in December 2020.

With the sale and issuance of these shares, and of the shares previously sold and issued during the year ended December 31, 2020, all $ 200 million in shares of Company common stock available for sale under the December 2020 ATM Offering had been issued.

In October 2020, the Company entered into an ATM sales agreement under which it received proceeds of approximately $ 100.0 million from the sale of common shares.

The Company incurred fees of up to 3.0 % of the gross proceeds received.

Under the terms of the 2022, 2021, and 2019 ATM Offerings, the Company only issued shares of its common stock.

Riot Blockchain, Inc.

and Subsidiaries

During the year ended December 31, 2021, the Company issued warrants to XMS Capital Partners, LLC as partial payment for its advisory services in connection with the Whinstone Acquisition.

The warrants entitle XMS to purchase up to 63,000 shares of the Company’s common stock at a purchase price of $ 48.37 per share.

The warrants may be exercised at any time through August 12, 2026.

The warrants are recognized as a liability with a fair value of zero upon issuance and a redemption value of zero as of December 31, 2022.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

2022 Transactions

During the year ended December 31, 2022, the Company increased its authorized shares of common stock from 170 million shares to 340 million shares.

During the year ended December 31, 2022, 1,819,332 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 under the Company’s 2019 Equity Incentive Plan, as amended.

The Company withheld 685,781 of these shares, at a fair value of approximately $ 10.1 million, to cover the withholding taxes related to the settlement of these vested restricted stock units, as permitted by the 2019 Equity Incentive Plan.

During the year ended December 31, 2022, 2,199 shares of the Company’s 0 % Series B Convertible Preferred Stock were converted into 2,199 shares of its common stock, leaving no shares outstanding.

In July 2022, the Company’s shareholders approved the third amendment to its 2019 Equity Incentive Plan, which increased the number of shares of the Company’s common stock reserved for issuance by 10.0 million shares.

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”.

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.

Acquisitions .

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.

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.

The Company currently has one equity compensation plan, The 2019 Equity Incentive Plan, as amended.

On October 19, 2021, the Company’s shareholders approved the second amendment to its 2019 Equity Incentive Plan, which increased the number of shares of the Company’s common stock reserved for issuance by 4,400,000 shares.

2020 Transactions

2 unchanged sentences

During the year ended December 31, 2020, the 200,000 shares of common stock held in escrow under the Escrow Deposit Agreement were voided and cancelled.

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 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.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

During the year ended December 31, 2020, 122,377 shares of common stock were issued to a Company executive under an employment agreement in settlement of $ 175,000 of previously accrued compensation under the 2019 Equity Incentive Plan, as amended , 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.

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.

The settlement of the fully vested restricted stock units included the accelerated vesting of 471,544 restricted stock units due to the resignation of a member of the Company’s Board, as permitted under the 2019 Equity Plan.

During the year ended December 31, 2020, the Company issued 40,634 shares of its common stock to a consultant and advisors in settlement of fully vested restricted stock units granted under the 2019 Equity Plan.

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.

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

The Company’s stock-based compensation expenses recognized during the years ended December 31, 2021, 2020 and 2019, were attributable to selling, general and administrative expenses, which are included in the accompanying consolidated statements of operations.

The Company recognized total stock-based compensation expense during the years ended December 31, 2021, 2020 and 2019, from the following categories:

In October 2019, the Company’s stockholders approved the 2019 Equity Incentive Plan.

The 2019 Equity Incentive Plan authorizes the granting of stock-based compensation awards to directors, employees, and consultants in the form of restricted stock awards or stock options that settled in shares of the Company’s common stock upon vesting.

3.6 million shares of common stock were initially reserved for issuance.

In November 2020, the Company’s stockholders approved the First Amendment to the 2019 Equity Incentive Plan, which increased the shares of common stock reserved for issuance by 3.5 million shares.

In October 2021, the Company’s stockholders approved the Second Amendment to the 2019 Equity Inventive Plan, which increased the shares of common stock reserved for issuance by 4.4 million shares.

In July 2022, the Company’s stockholders approved the Third Amendment to the 2019 Equity Incentive Plan, which increased the shares of common stock reserved for issuance by 10.0 million shares.

As of December 31, 2022, the Company had 2,895,050 shares of common stock reserved for issuance under the 2019 Equity Incentive Plan.

Stock-based Compensation

The following table presents stock-based compensation expense by category:

Years Ended December 31,

Time-based restricted stock awards

Performance-based restricted stock awards

Stock option awards

Performance-based stock awards

Service-based stock awards

Total stock-based compensation

Restricted Common Stock Awards

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

Stock-based compensation expense is recognized within Selling, general and administrative on the Consolidated Statements of Operations.

All restricted stock awards granted prior to January 1, 2022, and some granted during the year ended December 31, 2022, were granted in the form of Restricted Stock Units (“RSUs”).

During the year ended December 31, 2022, all outstanding RSUs were converted into an equivalent number of Restricted Stock Awards (“RSAs”), with substantially the same terms as the RSUs they replaced.

RSAs differ from RSUs in that outstanding RSAs have voting rights equivalent to the Company’s common stock and are recognized as outstanding common stock.

Riot Platforms, Inc.

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:

Restricted Common Stock Awards

Performance-based awards

Performance-based awards vest over a three-year performance period upon the successful completion of specified milestones related to added infrastructure capacity and Adjusted EBITDA through December 31, 2023.

The following table presents a summary of the Company’s performance-based awards activity:

Weighted Average

Number of Shares

Weighted Average Grant-Date

Unvested at January 1, 2021

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:

RSU Balance as of January 1, 2022

RSUs Forfeited

RSUs converted to RSAs

( 3,832,938 )

RSU Balance as of December 31, 2022

RSUs converted to RSAs

RSAs Forfeited

RSA Balance as of December 31, 2022

During the year ended December 31, 2021, the Company granted 4,033,159 performance-based awards with a grant date fair value of $ 148.0 million.

During the year ended December 31, 2020, no performance-based awards were awarded.

As of December 31, 2022, there was approximately $ 11.6 million of unrecognized compensation cost related to the performance-based awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately 6 months .

Service-based awards

Service-based awards generally vest over a one -to- two-year service period.

The following table presents a summary of the Company’s service-based awards activity:

Weighted Average

Number of Shares

Weighted Average Grant-Date

Unvested at December 31, 2020

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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Stock Incentive Plan Options

The Company estimates the fair value of the share-based option awards on the date of grant using the Black-Scholes option-pricing model (the “Black-Scholes model”).

Using the Black-Scholes model, the value of the award that is ultimately expected to vest is recognized over the requisite service period in the statement of operations.

The Company attributes compensation to expense using the straight-line single option method for all options granted.

The Company’s determination of the estimated fair value of share-based payment awards on the date of grant under the Plan is affected by the following variables and assumptions:

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.  

The Company currently provides stock-based compensation to employees, directors and consultants under the Plan.

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.

and Subsidiaries

RSU Balance as of January 1, 2022

RSUs Forfeited

RSUs converted to RSAs

RSU Balance as of December 31, 2022

RSUs converted to RSAs

RSAs Forfeited

( 2,002,400 )

RSA Balance as of December 31, 2022

During the year ended December 31, 2021, the Company awarded 212,189 service-based awards with a grant date fair value of $ 7.1 million.

During the year ended December 31, 2020, the Company awarded 1,544,359 service-based awards with a grant date fair value of $ 2.0 million.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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

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.

There were no warrants granted during the years ended December 31, 2020 and 2019.

As of December 31, 2022, there was approximately $ 50.7 million of unrecognized compensation cost related to the service-based awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately 10 months .

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

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:

Fair value measured as of December 31, 2022

Quoted prices in

Significant other

Total carrying

active markets

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

Derivative asset (a)

Contingent consideration liability (b)

Fair value measured as of December 31, 2021

Quoted prices in

Significant other

Total carrying

active markets

observable inputs

unobservable inputs

Derivative asset

Contingent consideration liability

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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.

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 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.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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.

Derivative asset (a)

Contingent consideration liability (b)

(a) See Note 11.

Derivatives .

(b) See Note 19.

Commitments and Contingencies .

There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the period presented.

1 unchanged sentence

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.

As of December 31, 2022 and 2021, the fair values of cash and cash equivalents, accounts receivable, costs and estimated earnings in excess of billings, prepaid expenses and other current assets, accounts payable, billings in excess of costs and estimated earnings, and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

Testing performed indicated the estimated fair value of the Company’s Miners and mining equipment to be less than their net carrying value as of December 31, 2022, and an impairment charge of $ 55.5 million was recognized, decreasing the net carrying value of the Company’s Miners and mining equipment to their estimated fair value.

Applying the market price of one Bitcoin on December 31, 2022 of approximately $ 16,548 to the Company’s 6,974 Bitcoin held, results in an estimated fair value of the Company’s Bitcoin of $ 115.4 million as of December 31, 2022.

Applying the market price of one Bitcoin on December 31, 2021 of approximately $ 46,306 to the Company’s 4,884 Bitcoin held, results in an estimated fair value of the Company’s Bitcoin of $ 226.2 million as of December 31, 2021.

The valuation of Bitcoin held is classified in Level 1 of the fair value hierarchy as it is based on quoted prices in active markets for identical assets.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Commitments and Contingencies

1 unchanged sentence

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 2032.

See Note 11, “Leases”.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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.

The Company has a water reservation agreement with the lessor of its ground lease to obtain a certain quantity of non-potable water from a nearby lake to be used by the Company for evaporative cooling purposes at our Rockdale Facility.

During the year ended December 31, 2022, concurrent with the amendment to its ground lease (see Note 15.

Leases ), the agreement was amended to increase the quantity of water to be obtained and extend the term of the agreement.

The term of the agreement, including the impact of the amendment, runs through January 2032, followed by three ten-year renewal periods, and requires annual payments of approximately $ 2.0 million.

The Company concluded that the water reservation 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

On April 8, 2020, the Company entered into an agreement with Coinmint, (the “Coinmint Agreement”), pursuant to which Coinmint agreed to provide up to approximately 9.5 MW of power and to perform all maintenance necessary to operate Riot’s miners at the Coinmint facility.

In exchange, Coinmint is reimbursed for direct production expenses and receives a performance fee based on the net cryptocurrencies generated by Riot’s miners deployed at the Coinmint facility.

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.

Business Combination Contingent Consideration

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

In April 2021, under the provisions of the Power Supply Agreement, and as a result of the weather event, the Company entered into a Qualified Scheduling Entity (“QSE”) Letter Agreement, which resulted in the Company 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.

The Company 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 was credited against power bills of the Company during 2022, with the remaining $ 26.3 million being contingent upon ERCOT’s future remittance.

These amounts are recognized gross before fair value adjustments and expenses incurred by the Company 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.

As part of the Whinstone Acquisition (see Note 5.

Acquisitions ), the Company is obligated to pay the seller up to $ 86.0 million, net of income taxes, (undiscounted) of additional consideration if certain power credits are received or realized by the Company arising from the February 2021 weather event.

Upon the acquisition of Whinstone, the estimated fair value of the contingent consideration was approximately $ 83.0 million.

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

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.

Specifically, due to the power credits being subordinated obligations for TXU’s parent, we

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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 21.0 %, 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.

The following table presents the changes in the estimated fair value of our contingent consideration liability:

Balance as of January 1, 2021

Acquisition of Whinstone

Change in fair value of contingent consideration

Balance as of December 31, 2021

Change in contingent consideration

Change in fair value of contingent consideration

Balance as of December 31, 2022

Contingencies

The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business.

The Company cannot predict the final outcome of such proceedings.

1 unchanged sentence

Some of these claims, lawsuits and proceedings seek damages, including consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant.

Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered by the Company’s insurance program.

Certain of the claims, lawsuits and proceedings arising in the ordinary course of business are covered by the Company’s insurance program.

The Company maintains property and various types of liability insurance in an effort to protect the Company from such claims.

3 unchanged sentences

Expenses related to the defense of such claims are recorded by the Company as incurred and included in the accompanying consolidated statements of operations.

Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting the Company’s defense of such matters.

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.

Northern Data Working Capital Dispute

Riot Blockchain, Inc.

Northern Data AG .

On September 7, 2022, the Company filed a complaint against Northern Data AG, a company organized under the laws of Germany (“Northern Data”) in the Court of Chancery of the State of Delaware for, among other things, breach of contract.

The complaint alleges Northern Data breached the terms of the Stock Purchase Agreement (the “SPA”), entered into, as of April 8, 2021, with Riot for the purchase of Whinstone by, among other things, refusing to engage in a contractually prescribed process to resolve disputes over the acquisition price of Whinstone.

Riot believes it is owed over $ 100 million for liabilities that Northern Data failed to disclose to Riot in its pre-closing calculations.

Riot has attempted to resolve the dispute, and, as a result of Northern Data’s refusal to engage in the dispute resolution process, seeks an order affirmatively declaring that Riot may terminate discussions and that unresolved matters, including the dispute regarding the over $ 100 million in liabilities Northern Data failed to disclose, must be submitted to an independent accounting firm for final resolution.

On September 26, 2022, Northern Data filed its Answer, Affirmative Defenses, and Verified Counterclaims and Third-Party Claims, which claim that Riot and Whinstone breached the SPA by allegedly failing to timely remit to Northern Data certain energy credit payments and that Riot is improperly seeking to introduce indemnification claims into the contractual process to resolve the parties’ dispute over purchase price.

Northern Data alleges that there are approximately $ 40 million in energy credits that remain unpaid.

Northern Data seeks damages in an unspecified amount, a declaration that Riot may not withhold payments for energy credits

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

pending the resolution of the purchase price dispute, and specific performance that Riot may not introduce indemnification claims in connection with the process to resolve the purchase price dispute.

Northern Data filed a motion for partial summary judgment on its claims for specific performance of the SPA’s provision for payment of certain energy credits by the Company.

The Company filed its answering brief in opposition to the motion on February 3, 2023.

Northern Data in turn must file any reply on or before March 10, 2023.

Whinstone Customer Dispute

On June 13, 2022, GMO Gamecenter USA, Inc., a California corporation, and GMO Internet, Inc., a corporation organized and existing under the laws of Tokyo, Japan (collectively “GMO”), filed a complaint against Whinstone US, Inc.

in the Supreme Court of the State of New York, County of New York:

Commercial Division, Index No.:

656762/2022, subsequently removed to the United States District Court, S.D.N.Y., Case No.

1:22-cv-05974-JPC (the “Complaint”).

After extensive discussions and upon Whinstone demanding that GMO reasonably negotiate a new hosting agreement in good faith pursuant to the terms of its existing agreement, GMO filed the Complaint.

GMO alleges Whinstone breached the terms of the Colocation Services Agreement between GMO and Whinstone by failing to indemnify GMO for certain contractual loss of profit and causing certain other damages to GMO in the nature of loss of revenue, lost profits and loss of savings.

GMO is seeking – without substantiation - compensatory damages in excess of $ 50 million, and pre-judgment and post-judgment interest.

Whinstone’s Answer and Counterclaims were filed on August 22, 2022, and on September 12, 2022, GMO filed its answer and affirmative defenses to counterclaims raised by Whinstone, which included additional claims against Whinstone, as permitted under the applicable local rules.

Subsequent to the period ended September 30, 2022, on November 1, 2022, Whinstone filed supplementary answers and counterclaims to GMO’s answer and affirmative defenses.

Whinstone denies the substantive allegations of the Complaint and has asserted counterclaims seeking a declaratory judgment of GMO’s failure to negotiate in good faith in accordance with the terms of the Colocation Services Agreement, as well as compensatory damages in excess of $ 25 million, including damages from loss of revenue, breach of contract, pre- and post-judgment interest, and attorneys’ fees and costs in connection with GMO’s breach of the Colocation Services Agreement.

The Company intends to vigorously defend Whinstone against GMO’s claims, and to vigorously enforce Whinstone’s claims against GMO.

Shareholder Class Action Suit

On February 17, 2018, Creighton Takata filed an action asserting putative class action claims on behalf of the Company’s stockholders in the United District Court for the District of New Jersey, Takata v.

Riot Blockchain Inc., et al.

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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.

Defendants filed motions to dismiss on March 18, 2019.

In lieu of opposing defendants’

motions to dismiss, Lead Plaintiff filed another amended complaint on May 9, 2019.

In lieu of opposing defendants’ motions to dismiss, Lead Plaintiff filed another amended complaint on May 9, 2019.

Defendants filed multiple motions to dismiss the amended complaint starting on September 3, 2019.

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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.

On May 27, 2022, Lead Plaintiff filed the third amended consolidated complaint.

Defendants submitted motions to dismiss on July 18, 2022.

Briefing on the motions to dismiss was completed in October 2022.

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.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Shareholder Derivative Cases

On April 5, 2018, Michael Jackson filed a shareholder derivative complaint on behalf of the Company in the Supreme Court of the State of New York, County of Nassau, against certain of the Company’s officers and directors, as well as against an investor ( Jackson v.

Riot Blockchain, Inc., et al.

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On May 22, 2018, two additional shareholder derivative complaints were filed on behalf of the Company in the Eighth Judicial District Court of the State of Nevada in and for the County of Clark ( Kish v.

O’Rourke, et al.

A-18-774890-B & Gaft v.

O’Rourke, et al.

A-18-774896-8).

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On October 9, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Eastern District of New York ( Rotkowitz v.

O’Rourke, et al.

2:18-cv-05632).

As with the other shareholder derivative actions, the shareholder plaintiff alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

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On October 22, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Southern District of New York ( Finitz v.

O’Rourke, et al.

1:18-cv-09640).

The shareholder plaintiffs allege breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The shareholder plaintiffs allege breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

Upon the parties’

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)

Upon the parties’ 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.

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.

O’Rourke, et al.

1:18-cv-01443).

The shareholder plaintiffs allege claims for violation of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, waste of corporate assets, and aiding and abetting against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

Upon the parties’

Defendants intend to vigorously contest plaintiffs’

allegations in the shareholder derivative actions and plaintiffs’

right to bring the action in the name of Riot Blockchain.

Defendants intend to vigorously contest plaintiffs’ allegations in the shareholder derivative actions and plaintiffs’ right to bring the action in the name of Riot Blockchain.

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.

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):

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

The following table presents the components of the loss from continuing operations before income taxes:

For the years ended December 31,

Loss from Continuing Operations before Income Taxes

Riot Blockchain, Inc.

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):

The following table presents the components of income tax benefit (expense):

As of December 31,

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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):

The following table presents 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:

As of December 31,

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Stock option expense

Impairment of mining related assets and other

Bitcoin assets

Intangible assets

Deferred revenue

Total deferred tax assets

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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.

The Company has approximately $ 645.9 million and $ 394.0 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 $ 181.4 million and $ 369.8 million, respectively, if not utilized, expire between 2026 and 2037.

Under the Tax Cuts and Jobs Act, $ 465.5 million federal and $ 24.2 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.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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.

As a result, our substantial NOLs may not have any value to the Company.

The statute of limitations for assessment by the IRS and state tax authorities is open for tax years ending December 31, 2018 through 2022, 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.

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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.

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 as of December 31, 2022 and 2021.

The valuation allowance increased by approximately $ 46.4 million during the year ended December 31, 2022.

Riot Blockchain, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

The expected tax expense (benefit) based on the U.S.

federal statutory rate is reconciled with actual tax expense (benefit) as follows (in thousands):

The following table reconciles the tax expense (benefit) based on the U.S.

federal statutory rate with actual tax expense (benefit):

For the years ended December 31,

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State taxes, net of federal tax expense (benefit)

Nondeductible/nontaxable items

Goodwill impairment

Contingent payment

Stock compensation

Other nondeductible expenses

Tax return to provision true-up

3 unchanged sentences

The Company has not identified any uncertain tax positions requiring a reserve as of December 31, 2022 and 2021.

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, 2022 and 2021.

The Company is subject to U.S.

federal income tax and primarily Florida, Colorado and Texas state income tax.

federal income tax and primarily Florida, Colorado, Louisiana, and Texas state income tax.

The Company has not been under tax examination in any jurisdiction for the years ended December 31, 2022 and 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, 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.

and Subsidiaries

Earnings Per Share

The holdback of 70,165 shares as security for the ESS Metron sellers’ indemnification obligations (see Note 5.

Acquisitions ) is excluded from the basic and diluted net income (loss) per share calculations.

The following table presents potentially dilutive securities that were not included in the computation of diluted net income (loss) per share as their inclusion would be anti-dilutive:

Warrants to purchase common stock

Options to purchase common stock

Unvested restricted stock awards

Convertible Series B preferred shares

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

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’

Bitcoin Mining, Data Center Hosting, and Engineering.

The reportable segments are identified based on the types of service performed.

The CODM analyzes the performance of the segments based on reportable segment revenue and reportable segment cost of revenue.

No operating segments have been aggregated to form the reportable segments.

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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 Bitcoin Mining segment generates revenue from the Bitcoin the Company earns through its mining activities.

The Data Center 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.

and Subsidiaries

The Data Center Hosting segment purchases custom engineered electrical products from the Engineering segment in the ordinary course of business.

All revenue and cost of revenues from intersegment transactions have been eliminated in the consolidated statements of operations.

All Other revenue is from external customers.

During the year ended December 31, 2022, the Company earned revenue of approximately $ 29.7 million from one customer, representing 11.4 % of the Company’s total consolidated revenue, in its Engineering segment.

No other individual customer accounted for more than 10% of total revenue for the year ended December 31, 2022.

During the years ended December 31, 2021 and 2020, no single customer or related group of customers contributed 10% or more of the Company’s total consolidated revenue.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

The following table presents revenue and cost of revenues for the Company’s reportable segments, reconciled to the Consolidated Statements of Operations:

Years Ended December 31,

(as restated)

Reportable segment revenue:

Revenue, net - mining

Revenue, net - hosting

Revenue, net - engineering

Bitcoin Mining

Data Center Hosting

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)

Reportable segment cost of revenues:

Bitcoin Mining

Data Center Hosting

Total segment and consolidated cost of revenues

Reconciling Items:

3 unchanged sentences

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of cryptocurrencies

Impairment of intangible rights acquired

Realized gain on sale/exchange of Bitcoin

Gain on exchange of equipment

Casualty-related charges (recoveries), net

Impairment of Bitcoin

Impairment of goodwill

Impairment of miners

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

Realized loss on sale of marketable equity securities

Realized gain on sale/exchange of long-term investment

Unrealized loss on marketable equity securities

Other income (expense)

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Net income (loss)

Restatement of Previously Issued Interim Condensed Consolidated Financial Statements

The following tables present the impacts of the restatement adjustments, as described in Note 2.

Restatement of Previously Issued Financial Statements, to the previously reported financial information as of and for the periods ended March 31, 2022 and 2021, June 30, 2022 and 2021, and September 30, 2022 and 2021.

Restated Statements of Stockholders’ Equity are not presented as all impacted items on those statements, Net income (loss), Accumulated deficit, and Total stockholders’ equity, are presented within the following tables.

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Restated Condensed Consolidated Balance Sheets (Unaudited)

As of March 31, 2022 (unaudited)

As of March 31, 2021 (unaudited)

As previously

Current assets

Cash and cash equivalents

Accounts receivable, net

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits, current portion

Investments in marketable equity securities, at fair value

Total current assets

Property and equipment, net

Finite-lived intangible assets, net

Derivative asset

Operating lease right-of-use assets

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Deferred revenue, current portion

Contingent consideration liability - future power credits, current portion

Operating lease liability, current portion

Total current liabilities

Deferred revenue, less current portion

Operating lease liability, less current portion

Other long-term liabilities

Total liabilities

Stockholders’ equity

Preferred stock, no par value:

2 % Series A Convertible Preferred stock

0 % Series B Convertible Preferred stock

Common stock, no par value

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2022 (unaudited)

As of June 30, 2021 (unaudited)

As previously

Current assets

Cash and cash equivalents

Accounts receivable, net

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits, current portion

Investments in marketable equity securities, at fair value

Total current assets

Property and equipment, net

Finite-lived intangible assets, net

Derivative asset

Operating lease right-of-use assets

Future power credits, less current portion

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Deferred revenue, current portion

Contingent consideration liability - future power credits, current portion

Operating lease liability, 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

Deferred tax liability

Other long-term liabilities

Total liabilities

Stockholders’ equity

Preferred stock, no par value:

2 % Series A Convertible Preferred stock

0 % Series B Convertible Preferred stock

Common stock, no par value

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2022 (unaudited)

As of September 30, 2021 (unaudited)

As previously

Current assets

Cash and cash equivalents

Accounts receivable, net

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits, current portion

Investments in marketable equity securities, at fair value

Total current assets

Property and equipment, net

Finite-lived intangible assets, net

Derivative asset

Operating lease right-of-use assets

Future power credits, less current portion

Other long-term assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Deferred revenue, current portion

Contingent consideration liability - future power credits, current portion

Operating lease liability, 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

Deferred tax liability

Other long-term liabilities

Total liabilities

Stockholders’ equity

Preferred stock, no par value:

2 % Series A Convertible Preferred stock

0 % Series B Convertible Preferred stock

Common stock, no par value

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Restated Condensed Consolidated Statements of Operations (Unaudited)

For the three months ended March 31, 2022 (unaudited)

As previously

Bitcoin Mining

Data Center Hosting

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Data Center Hosting

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 Bitcoin

Impairment of Bitcoin

Total costs and expenses

Operating income (loss)

Other income (expense):

Interest income (expense)

Unrealized loss on marketable equity securities

Total other income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Net (income) loss attributable to non-controlling interest

Net income (loss) attributable to Riot Platforms, Inc.

Basic and diluted net income (loss) per share

Basic and diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the three months ended June 30, 2022 (unaudited)

For the six months ended June 30, 2022 (unaudited)

As previously

Bitcoin Mining

Data Center Hosting

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Data Center Hosting

Acquisition-related costs

Selling, general, and administrative

Depreciation and amortization

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of Bitcoin

Gain on exchange of equipment

Impairment of Bitcoin

Impairment of goodwill

Total costs and expenses

Operating income (loss)

Other income (expense):

Interest income (expense)

Realized loss on sale of marketable equity securities

Unrealized loss on marketable equity securities

Other income (expense)

Total other income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Basic and diluted net income (loss) per share

Basic and diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the three months ended September 30, 2022 (unaudited)

For the nine months ended September 30, 2022 (unaudited)

As previously

Bitcoin Mining

Data Center Hosting

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Data Center Hosting

Acquisition-related costs

Selling, general, and administrative

Depreciation and amortization

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of Bitcoin

Gain on exchange of equipment

Impairment of Bitcoin

Impairment of goodwill

Total costs and expenses

Operating income (loss)

Other income (expense):

Interest income (expense)

Realized loss on sale of marketable equity securities

Unrealized loss on marketable equity securities

Other income (expense)

Total other income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Basic and diluted net income (loss) per share

Basic and diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the three months ended March 31, 2021 (unaudited)

As previously

Bitcoin Mining

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Selling, general, and administrative

Depreciation and amortization

Impairment of Bitcoin

Total costs and expenses

Operating income (loss)

Interest income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Basic weighted average number of shares outstanding

Diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the three months ended June 30, 2021 (unaudited)

For the six months ended June 30, 2021 (unaudited)

As previously

Bitcoin Mining

Data Center Hosting

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Data Center Hosting

Acquisition-related costs

Selling, general, and administrative

Depreciation and amortization

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of Bitcoin

Impairment of Bitcoin

Total costs and expenses

Operating income (loss)

Other income (expense):

Interest 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

Other income (expense)

Total other income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Basic weighted average number of shares outstanding

Diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

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

For the three months ended September 30, 2021 (unaudited)

For the nine months ended September 30, 2021 (unaudited)

As previously

Bitcoin Mining

Data Center Hosting

Other revenue

Total revenue

Costs and expenses:

Cost of revenue:

Bitcoin Mining

Data Center Hosting

Acquisition-related costs

Selling, general, and administrative

Depreciation and amortization

Change in fair value of derivative asset

Power curtailment credits

Change in fair value of contingent consideration

Realized gain on sale/exchange of Bitcoin

Impairment of Bitcoin

Total costs and expenses

Operating income (loss)

Other income (expense):

Interest income (expense)

Realized gain on sale/exchange of long-term investment

Unrealized loss on marketable equity securities

Other income (expense)

Total other income (expense)

Net income (loss) before taxes

Current income tax benefit (expense)

Deferred income tax benefit (expense)

Total income tax benefit (expense)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Basic weighted average number of shares outstanding

Diluted weighted average number of shares outstanding

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Restated Condensed Consolidated Statements of Cash Flow (Unaudited)

For the three months ended March 31, 2022 (unaudited)

For the three months ended March 31, 2021 (unaudited)

As previously

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation

Depreciation and amortization

Amortization of license fee revenue

Amortization of right of use assets

Income tax expense (benefit)

Impairment of Bitcoin

Change in fair value of derivative asset

Change in fair value of contingent consideration

Realized gain on sale/exchange of Bitcoin

Unrealized loss on marketable equity securities

Bitcoin Mining revenue

Changes in assets and liabilities:

Proceeds from sale of Bitcoin

Accounts receivable

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Customer deposits

Deferred revenue

Lease liability

Net cash provided by (used in) operating activities

Cash flows from investing activities

Deposits on equipment

Purchases of property and equipment, including construction in progress

Patent costs incurred

Net cash used in investing activities

Cash flows from financing activities

Proceeds from the issuance of common stock / At-the-market offering

Offering costs for the issuance of common stock / At-the-market offering

Proceeds from exercise of common stock warrants

Payments on contingent consideration liability - future power credits

Repurchase of common shares to pay employee withholding taxes

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the six months ended June 30, 2022 (unaudited)

For the six months ended June 30, 2021 (unaudited)

As previously

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation

Depreciation and amortization

Amortization of license fee revenue

Amortization of right of use assets

Income tax expense (benefit)

Impairment of Bitcoin

Impairment of goodwill

Change in fair value of derivative asset

Change in fair value of contingent consideration

Realized loss on sale of marketable equity securities

Realized gain on sale/exchange of long-term investment

Realized gain on sale/exchange of Bitcoin

Unrealized loss on marketable equity securities

Gain on exchange of equipment

Bitcoin Mining revenue

Changes in assets and liabilities:

Proceeds from sale of Bitcoin

Accounts receivable

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Customer deposits

Deferred revenue

Lease liability

Net cash provided by (used in) operating activities

Cash flows from investing activities

Proceeds from the sale of marketable equity securities

Acquisition of Whinstone, net of cash acquired

Proceeds from the sale of long-term investments

Deposits on equipment

Other deposits

Purchases of property and equipment, including construction in progress

Patent costs incurred

Net cash used in investing activities

Cash flows from financing activities

Proceeds from the issuance of common stock / At-the-market offering

Offering costs for the issuance of common stock / At-the-market offering

Proceeds from exercise of common stock warrants

Payments on contingent consideration liability - future power credits

Repurchase of common shares to pay employee withholding taxes

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

For the nine months ended September 30, 2022 (unaudited)

For the nine months ended September 30, 2021 (unaudited)

As previously

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation

Depreciation and amortization

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

Impairment of Bitcoin

Impairment of goodwill

Impairment of miners

Reversal of registration rights penalty

Change in fair value of derivative asset

Change in fair value of contingent consideration

Realized loss on sale of marketable equity securities

Realized gain on sale/exchange of long-term investment

Realized gain on sale/exchange of Bitcoin

Unrealized loss on marketable equity securities

Gain on exchange of equipment

Casualty-related charges

Bitcoin Mining revenue

Changes in assets and liabilities:

Proceeds from sale of Bitcoin

Accounts receivable

Costs and estimated earnings in excess of billings

Prepaid expenses and other current assets

Future power credits

Accounts payable

Billings in excess of costs and estimated earnings

Accrued expenses

Customer deposits

Deferred revenue

Lease liability

Net cash provided by (used in) operating activities

Cash flows from investing activities

Proceeds from the sale of marketable equity securities

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 the sale of equipment

Deposits on equipment

Other deposits

Purchases of property and equipment, including construction in progress

Patent costs incurred

Net cash used in investing activities

Cash flows from financing activities

Proceeds from the issuance of common stock / At-the-market offering

Offering costs for the issuance of common stock / At-the-market offering

Proceeds from exercise of common stock warrants

Payments on contingent consideration liability - future power credits

Repurchase of common shares to pay employee withholding taxes

Net cash provided by financing activities

Riot Platforms, Inc.

Notes to Consolidated Financial Statements

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

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

No significant recognized or non-recognized subsequent events were noted.

CHANGES IN 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