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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
For the transition period from: to:
Commission file number: 001-33675
RIOT PLATFORMS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of Incorporation or organization)
84-1553387
(I.R.S. Employer Identification No.)
3855 Ambrosia Street, Suite 301, Castle Rock, CO
(Address of principal executive offices)
80109
(Zip Code)
Securities registered under Section 12(b) of the Securities Exchange Act:
Common Stock, no par value per share
(Title of class)
Registrant’s telephone number, including area code (303) 794-2000
Securities registered under Section 12(b) of the Securities Exchange Act:
RIOT
(Trading Symbol)
The Nasdaq Capital Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes X No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act: Yes ☐ No X
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
definitions of "large accelerated filer,” "accelerated filer,” "smaller reporting company,” and "emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer X
Non-accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. X
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
The aggregate market value of the shares of common stock, no par value, held by non-affiliates of the registrant as of June 30, 2022, was approximately $0.6 billion, based on the closing sale
price per share of the registrant’s common stock as reported by the Nasdaq Capital Market on such date.
As of March 1, 2023, the registrant had 166,979,322 shares of its common stock, no par value per share, outstanding, which was the only class of its registered securities outstanding as of that
date.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference to the registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the
fiscal year ended December 31, 2022.
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RIOT PLATFORMS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
PART IV
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RIOT PLATFORMS, INC.
As used in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this "Annual Report”), the terms "we,” "us,” "our,” the
"Company,” the "Registrant,” "Riot Platforms,” and "Riot” mean Riot Platforms, Inc., a Nevada corporation, and its consolidated subsidiaries, unless
otherwise indicated.
Effective December 30, 2022, we changed our name from Riot Blockchain, Inc. to Riot Platforms, Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report and the documents incorporated by reference herein contain forward-looking statements which provide current expectations of future
events based on certain assumptions that involve risks and uncertainties, as well as assumptions that may not materialize or prove to be correct, which
could cause our results to differ materially from those expressed in or implied by such forward-looking statements. All statements other than statements of
historical fact are forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future
operations; new equipment, systems, technologies, services or developments, such as our development and implementation of industrial-scale immersion-
cooled Bitcoin mining hardware and our one-gigawatt data center development outside of Corsicana, Texas; future economic conditions, performance, or
outlooks; future political conditions; the outcome of contingencies; potential acquisitions or divestitures; the number and value of Bitcoin rewards and
transaction fees we earn from our Bitcoin mining operations; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or
developments that we intend, expect, project, believe, or anticipate will or may occur in the future; and assumptions underlying or based upon any of the
foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes,” "expects,” "may,” "should,”
"would,” "will,” "intends,” "plans,” "estimates,” "anticipates,” "projects” and similar words or expressions. You should not place undue reliance on these
forward-looking statements, which reflect our management’s opinions only as of the date the statements are made and are not guarantees of future
performance or actual results. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, events,
or otherwise, except as required by law or by the rules and regulations of the Securities and Exchange Commission (the "SEC”). Forward-looking
statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act”), Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act”), and the U.S. Private Securities Litigation Reform Act of 1995.The following are
some of the risks, factors, and uncertainties we believe could cause our actual results to differ materially from our historical results or our current
expectations or projections expressed in such forward-looking statements:
● our strategic decision to concentrate on Bitcoin mining ties the success of our business to the success of Bitcoin;
● our Bitcoin mining operations are subject to unique industry risks outside of our control that could have material adverse effects on our business,
including, among others: our need for significant amounts of low-cost and reliable electricity; changes to laws and regulations pertaining to mining,
transacting in, or holding Bitcoin; the historical volatility in the demand for, and the price of, Bitcoin; changes in the public perception of Bitcoin; our
need for consistent, high-speed, and highly secure Internet connectivity; intense competition for new miners and the necessary infrastructure,
personnel, material and components to support industrial-scale Bitcoin mining operations; cybersecurity risks; increased global Bitcoin network hash
rate and difficulty; and competition for a fixed supply of Bitcoin rewards;
● our Bitcoin mining operations are capital-intensive and our net mining costs may not always be lower than the value of the Bitcoin we mine, which
has historically been subject to significant price volatility; and, our ability to make accurate projections about our business and future contingencies
is significantly impaired as a result of this price volatility and other risks that lie largely outside of our control, such as our suppliers’ inability to
perform or timely deliver the new miners, parts, or services we purchase from them, as well as other risks we may not anticipate;
● we have made significant investments in our development of industrial-scale immersion-cooled Bitcoin mining infrastructure, which is subject to
unique risks and uncertainties that could impair our ability to effectively implement this innovative technology, including, but not limited to, severe
weather events impairing our ability to run our facilities; and, therefore, we may not realize the benefits we anticipate from our substantial investment
in immersion-cooled Bitcoin mining on the scale or schedule we anticipate, if at all;
● our Bitcoin mining operations are concentrated in discrete locations, and a natural disaster, unforeseen environmental issues, or other significant
disruptions affecting our facilities could severely impact our ability to operate, which could have a material adverse effect on our business, results of
operations, financial condition, and the market price of our securities;
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● we cannot predict the consequences to our business, our suppliers, and the markets in which we operate of future geo-political events, such as
ongoing international conflict and related sanctions, COVID-19, the ongoing global supply chain crisis, and new or future legislation affecting our
industry, which significantly impairs our ability to make accurate projections of future revenues, costs, and risks; therefore, we may be unable to
properly plan for, insure against, or adjust to, these risks should they come to pass;
● the growing public awareness of climate change and the negative media attention given to the energy consumption of proof-of-work blockchains may
lead to the implementation of new taxes, laws and regulations affecting our access to energy, a decline in the demand for new Bitcoin, or other factors
that could have a material adverse effect on our business, results of operations, and the market price of our securities, regardless of our efforts to
control the climate impact of our operations;
● certain accounting standards for Bitcoin mining are not settled, and we may be required to record significant charges or adjustments to earnings or
the carrying value of our Bitcoin holdings as a result of future accounting rules;
● we have made, and expect to continue to make, strategic acquisitions and investments, including our decision to develop a second large-scale Bitcoin
mining and data center facility outside of Corsicana, Texas, which entail significant risks and uncertainties that could adversely affect our business,
results of operations, and financial condition, such as unforeseen difficulties in integrating the operations of an acquired business into our own, and
we may fail to realize the anticipated benefits of these acquisitions on the schedule we expect, if at all;
● we expect the need to raise additional capital, in the form of equity or debt, to fund our business objectives, goals, and strategies; however, volatility
in the trading price of shares of our common stock, the number of authorized shares available for issuance and the price of Bitcoin may jeopardize our
ability to raise the necessary additional capital;
● we could be negatively impacted by a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, or other significant
disruption of our information technology networks and related systems, despite our efforts to protect against such events;
● we may be unable to hire qualified and talented personnel, or retain our current workforce, in sufficient numbers that we need for our operations and
to carry out our business strategy, without substantially increasing our compensation and other benefits, which could significantly increase our
operating costs;
● our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners, as well as the
actions of third parties engaged in our industry; and
● the outcome of litigation and other disputes in which we are involved from time to time is unpredictable, and an adverse decision in any such matter
could have a material adverse effect on our financial condition, results of operations, cash flows and equity.
Additional details and discussions concerning some of the various risks, factors, and uncertainties that could cause future results to differ materially from
those expressed or implied in our forward-looking statements in this Annual Report can be found under Part I, Item 1A. "Risk Factors” and under Part II,
Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report, which may be updated,
supplemented, and amended by our subsequent disclosures contained in the reports and other filings we make with the SEC.
The risks, factors and uncertainties disclosed herein and in our other filings are not exhaustive. Additional risks and uncertainties not known to us or that
we currently believe not to be material as of the date hereof may adversely impact our business, financial condition, results of operations and cash flows.
It is not possible for our management to accurately and completely predict all risks, factors, and uncertainties that may be applicable to our business, nor
can we know the extent of the impact of such risks, factors, and uncertainties on our business. Should any of the risks, factors, or uncertainties we
discuss in this Annual Report or the documents incorporated by reference herein, or any of those risks, factors, and uncertainties which we do not
foresee or which we do not believe to be material as of the date hereof occur, our actual results to differ materially from those expressed in any forward-
looking statements we may make, and they could have a material adverse effect on our business, results of operations, and financial condition.
The forward-looking statements made in this Annual Report speak only as of the date on which they are made. We undertake no obligation to update any
forward-looking statements made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new
information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the
plans, intentions or expectations expressed in our forward-looking
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statements, and you should not place undue reliance on our forward-looking statements. All forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
Industry and Market Data
Information regarding market and industry statistics contained in this Annual Report has been obtained from industry and other publications that we
believe to be reliable, but that are not produced for purposes of securities filings. We have not independently verified any market, industry or similar data
presented in this Annual Report and cannot assure you of its accuracy or completeness. Further, we have not reviewed or included data from all sources.
Forecasts and other forward-looking information obtained from third-party sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance of products and services. As a result, investors should not place
undue reliance on any such forecasts and other forward-looking information.
This Annual Report restates the following previously issued Consolidated Financial Statements, data, and related disclosures:
EXPLANATORY NOTE REGARDING RESTATEMENT
1. Our Consolidated Balance Sheet as of December 31, 2021, and the related Consolidated Statements of Operations, Stockholders' Equity, and
Cash Flows for the years ended December 31, 2021 and 2020, located in Part II, Item 8 of this Annual Report;
2. Our management's discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2021
and 2020, located in Part II, Item 7 of this Annual Report;
3. Our unaudited quarterly financial information for the quarterly periods ended March, 31 2022, June 30, 2022, and September 30, 2022, and for
the quarterly periods ended March 31, June 30, and September 30, 2021 and 2020, respectively, located in Note 23. Restatement of Previously
Issued Interim Condensed Consolidated Financial Statements, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this
Annual Report; and
4. Our management's discussion and analysis of financial condition and results of operations for the quarterly periods ended March 31, June
30, and September 30, 2022 and 2021, located in Part II, Item 7 of this Form 10-K.
We are restating the previously issued Consolidated Financial Statements, data, and related disclosures described above because, during the preparation
of this Annual Report, we determined we have not been appropriately calculating our impairment of Bitcoin. We determined that our 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, we determined that ASC 350-30-35-19 calls for the intraday low price of
Bitcoin to be utilized in calculating impairment of our Bitcoin held as that metric is the most accurate indicator of whether it is more likely than not that the
asset is impaired. After applying the revised impairment methodology to our prior financial statements, we determined, for the periods indicated in this
explanatory note, that the resulting changes to our financial statements, data, and related disclosures described above were material. Accordingly, we are
filing these restatements to correct these material errors.
The financial information for the periods indicated above that are included in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-
Q, Current Reports on Form 8-K, and earnings, press releases and similar communications issued prior to the filing of this Annual Report should not be
relied on and are superseded by this Annual Report.
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ITEM 1. BUSINESS
General
PART I
We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin. We also provide comprehensive
and critical mining infrastructure for institutional-scale hosted clients to mine Bitcoin at our Bitcoin mining facility in Rockdale, Texas (the "Rockdale
Facility”). Our Rockdale Facility currently provides 700 megawatts in total developed capacity for our Bitcoin mining and data center hosting services for
institutional-scale hosted clients. Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed
capacity, and we are currently growing its capacity. Additionally, we are developing a second large-scale Bitcoin mining and data center facility outside of
Corsicana, Texas (the "Corsicana Facility”), which, upon completion, is expected to have approximately one gigawatt of capacity available for our own
Bitcoin mining and data center hosting services for institutional-scale hosted clients.
We operate in an environment that is consistently evolving based on the market outlook, and demand of, Bitcoin and cryptocurrencies in general. A
significant component of our strategy is to effectively and efficiently allocate capital between opportunities that we believe will generate the highest
return on our investment.
We are organized and operate in three reportable business segments: Bitcoin Mining, Data Center Hosting, and Engineering, which are organized based
on purpose and services performed. Each of our business segments is further discussed herein.
Amounts disclosed in this Annual Report are in thousands except for share, per share, Bitcoin, and miner amounts, or as otherwise noted.
Business Segments
Bitcoin Mining
As of December 31, 2022, our Bitcoin Mining business segment operated 88,556 miners, with a hash rate capacity of 9.7 exahash per second ("EH/s”). In
2022, we mined 5,554 Bitcoin, which represented an increase of 45.7% over the 3,812 Bitcoin we mined in 2021. Based on our existing operations and
expected deliveries and deployment of miners we have purchased, we anticipate having approximately 111,216 miners in operation by the end of 2023.
Our Bitcoin Mining operations are focused on maximizing our ability to successfully mine Bitcoin by growing our hash rate (the amount of computer
power we devote to supporting the Bitcoin blockchain) to increase our chances of successfully finding cryptographic hashes that create new blocks on
the Bitcoin blockchain (a process known as "solving a block”). Generally, the greater share of the Bitcoin blockchain’s total network hash rate (the
aggregate hash rate deployed to solving a block on the Bitcoin blockchain) represented by a miner’s hash rate, the greater the miner’s chances of solving
a block and therefore earning the block reward, which is currently 6.25 Bitcoin plus transaction fees per block. As additional miner operators enter the
market in response to increased demand for Bitcoin, the Bitcoin blockchain’s network hash rate grows. As we expect this trend to continue, we will need
to continue to grow our hash rate to compete in our dynamic and highly competitive industry.
A key component of the Bitcoin Mining segment is to acquire highly specialized computer servers (known in the industry as "miners”) built to operate
application-specific integrated circuit ("ASIC”) chips designed specifically to mine Bitcoin and deploying them at-scale in our Rockdale Facility and
Corsicana Facility, including in immersion-cooled environments. The Rockdale Facility has a dedicated best-in-class team that supports our Bitcoin
Mining operations and, along with our Corsicana Facility, provide the necessary infrastructure and available power capacity for us to further scale our
Bitcoin Mining business in the future. We believe ASIC miners are the most effective and energy-efficient miners available today, and we believe
deploying them at-scale, including in immersion-cooled environments, with its more efficient heat dissipation and reduced wear-and-tear versus traditional
air-cooled hardware, will enable us to continue to grow our hash rate and optimize the output and longevity of our miners once they are deployed.
During the year ended December 31, 2021, we executed purchase orders totaling $480 million with Bitmain Technologies Limited ("Bitmain”) for 82,500
ASIC miners, including 30,000 of Bitmain’s latest generation Antminer model S19XP (140 TH/s) miners, and 52,500 S19j and S19j Pro miners, including
43,500 model S19j (90 TH/s) miners and 9,000 model S19j Pro (100 TH/s) miners. All miners subject to these purchase orders were delivered through
December 31, 2022, except for 5,130 miners, which were delivered in January 2023. For additional discussion of our purchase orders with Bitmain, see the
discussion under the heading
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"Mining Operations” in Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report,
as well as the purchase orders themselves, which are incorporated by reference as exhibits to this Annual Report.
The Company monitors the level of Bitcoin retained from our monthly production in consideration of operational and expansion cash requirements.
Bitcoin is classified on our balance sheet as a current asset due to our ability to sell it in a highly liquid marketplace and its intent to liquidate its Bitcoin to
support operations when needed. We constantly evaluate our Bitcoin retention policy to determine the most efficient use of that asset.
Data Center Hosting
Our Data Center Hosting business segment is operated at our Rockdale Facility and focuses on providing co-location services for institutional-scale
Bitcoin mining companies. The Rockdale Facility provides the critical infrastructure and workforce necessary for institutional-scale miners to deploy and
operate their miners. We provide our clients with licensed space in specifically designed buildings to operate large quantities of miners with access to
electricity to operate those miners under colocation agreements.
In pursuit of achieving the most efficient power strategy, we combine fixed low-cost power agreements, real-time spot power procurement, and income
from ancillary power services revenue. We benefit from this low-cost energy by maximizing production margins.
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 nearing completion in
the first quarter of 2023, which, when completed, will finalize our Rockdale Facility expansion. Two of the four buildings are self-mining buildings
dedicated to immersion-cooled Bitcoin mining. The construction completion timeline is currently on track, despite global supply chain shortages and
delays.
Engineering
Our Engineering business segment designs and manufacturers power distribution equipment and custom engineered electrical products that provide us
with the ability to vertically integrate many of the critical electrical components and engineering services necessary for our Rockdale and Corsicana
facilities’ expansions and to reduce our execution and counter-party risk in ongoing and future expansion projects. Our engineering talent also allow us
to continue to explore new methods to optimize and develop a best-in-class Bitcoin mining operation and have been instrumental in the development of
our industrial-scale immersion-cooled Bitcoin mining hardware.
Our Engineering business segment also provides electricity distribution product design, manufacture, and installation services primarily focused on large-
scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power
generation, utility, water, industrial, and alternative energy. Products are custom built to client and industry specifications under customers’ own
Underwriters Laboratories, or UL, files; the bulk of these products consist of medium and low voltage switchgear as well as power distribution centers.
Additionally, we utilize an in-house field service and repair department.
Mining Pools
A "mining pool” is a service operated by a mining pool operator that pools the resources of individual miners to share their processing power over a
network. Mining pools emerged in response to the growing difficulty and network hash rate competing for Bitcoin rewards on the Bitcoin blockchain as a
way of lowering costs and reducing the risk of an individual miner’s mining activities. The mining pool operator provides a service that coordinates the
computing power of the independent mining enterprises participating in the mining pool. Mining pools are subject to various risks such as disruption and
down time. In the event that a pool experiences down time or is not yielding returns, our results may be impacted.
During the year ended December 31, 2022, we utilized two types of mining pools:
● The first type of mining pool uses software that coordinates the pool members’ hash rate, identifies new block rewards, records how much work
all the participants are doing, and assigns Bitcoin rewards to its participants in proportion to the hash rate each participant contributed to the
successful mining transaction. Fees are paid to the mining pool operator to cover the costs of maintaining the pool and are deducted from
amounts we may otherwise earn. Fees and payouts fluctuate
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and historically have been no more than approximately 2% per reward earned, on average. The Company utilized this mining pool during the
years ended December 31, 2020, 2021 and throughout 2022 until mid-December 2022.
● The second type of mining pool pays Bitcoin rewards utilizing a Full-Pay-Per-Share payout of Bitcoin based on hash rate provided to the mining
pool. The Company transitioned completely to this mining pool in December 2022.
Competition
Our business is highly competitive and operates 24 hours a day, 7 days a week, on a global basis. The primary drivers of competition are demand for
Bitcoin, sufficient capital resources to acquire large quantities of high-quality miners, the ability to secure these miners from a limited number of suppliers
on rapid delivery schedules, and the ability to execute on those miner deployments with the best-in-class mining infrastructure to generate the highest
returns while incurring the lowest costs to mine.
Our competition in the Bitcoin mining space fluctuates due to a number of factors, including, but not limited to, the value of Bitcoin rewards for mining
and public perception. In 2022, we saw a decrease in the number of Bitcoin miners attempting to expand their mining operations at scale, however, we
anticipate that over the long-term there will be a significant increase in the number of Bitcoin miners attempting to enter into, and expand, their Bitcoin
mining activities as market demand recovers. Our main competitors generally include other large Bitcoin mining companies, both publicly listed and
private, as well as other Bitcoin miners who participate in mining pools. As more Bitcoin miners enter the space, we expect additional pressure on the
industry, with greater competition for access to miners and high-quality industrial scale mining infrastructure which is in limited supply.
Data center hosting, particularly in relation to Bitcoin mining, is also highly competitive. Institutional Bitcoin mining customers demand access to mining
infrastructure that can supply large amounts of reliable, low-cost electricity, with best-in-class teams that can execute on deploying miners on compressed
timelines. In order to ensure this supply of large amounts of low-cost electricity, we have entered into long-term power purchase agreements with our
energy supplier at the Rockdale Facility, which allows us to control our power costs and project them over a long-term, enabling us to focus on
developing best-in-class mining infrastructure and delivering best-in-class services.
Research and Development
During 2021, we announced the first industrial scale deployment of 200 MW of immersion-cooled Bitcoin mining at the Rockdale Facility, and during 2022,
we completed the deployment of miners.
During 2022, we announced plans for the development of an additional 400 MW of immersion-cooled Bitcoin mining at the Corsicana Facility. We
anticipate immersion-cooling technology will present many unique opportunities to increase efficiencies in Bitcoin mining and are constantly evaluating
new and emerging technologies in the Bitcoin ecosystem to make our mining operations more efficient.
Materials and Suppliers
We maintain several key supplier relationships that are important to our business to secure mining hardware and infrastructure components and other
materials. Given the complexity of developing mining hardware, there are few suppliers that can produce miners at scale. For example, our historic
purchase orders with Bitmain had future delivery schedules that extended out many months before those miners are delivered to our Rockdale Facility.
These fluctuations in delivery timelines require us to plan to purchase miners well in advance of when we anticipate deploying those miners.
Our expansion at the Rockdale and Corsicana facilities requires large quantities of electrical infrastructure components and construction materials. We
seek to procure these materials from our suppliers in sufficient quantities so that we can deploy miners at scale on accelerated timelines. Further, our
immersion-cooled Bitcoin mining activities require large volumes of specialized non-conductive fluid, for which there are limited manufacturers.
Regulatory
Cryptocurrency mining is largely an unregulated activity at both the state and federal level. We anticipate that cryptocurrency mining will be a focus for
increased regulation in the near- and long-term, and we cannot predict how future regulations may affect our business or operations.
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State regulation of cryptocurrency mining is important with respect to where we conduct our mining operations. Our Rockdale Facility and our Corsicana
Facility are both located in the State of Texas. To the extent that there is any state regulation, Texas is one of the most favorable regulatory environments
for cryptocurrency miners.
In January 2022, we received a letter from a group of Members of Congress requesting information about our current and planned energy usage. On
February 24, 2022, we replied to the letter and provided the Senators and members of Congress with the information they requested.
In March 2022, the United States announced plans to establish a unified federal regulatory regime for cryptocurrency, and a group of United States
Senators sent a letter to the United States Treasury Department asking Treasury Secretary Yellen to investigate Treasury’s ability to monitor and restrict
the use of cryptocurrencies to evade sanctions imposed by the United States. We are unable to predict the impact that any new regulations may have on
our business at the time of filing this Annual Report. We continue to monitor and proactively engage in dialogue on legislative matters related to our
industry.
On August 17, 2022, the Committee on Energy and Commerce of the U.S. House of Representatives sent letters to Riot and three other public companies
with Bitcoin mining operations requesting information related to the environmental impact and energy consumption of the recipients. The letter addressed
to Riot contained inquiries concerning our energy usage and sources, curtailment practices, and electronic waste. Riot submitted a written response to the
Committee replying to its inquiries on September 14, 2022.
In September 2022, the White House issued a report regarding the Climate and Energy Implications of Crypto-Assets in the United States. The report
states that the Department of Energy and Environmental Protection Agency should initiate a process to solicit data and develop environmental
performance and energy conservation standards for crypto-asset technologies, including mining equipment. Should such measures prove ineffective at
achieving the Administration’s environmental goals, the report calls for the Administration to explore executive actions and legislation to limit or eliminate
the use of high energy intensity consensus mechanisms for crypto-asset mining.
We are unable to predict the impact that any new standards, legislation, or regulations may have on our business at the time of filing this Annual Report.
We continue to monitor and proactively engage in dialogue on regulatory and legislative matters related to our industry.
Further, in December 2022 the SEC’s Division of Corporation Finance issued guidance advising companies to disclose exposure and risk to the
cryptocurrency market. While the focus is on digital asset managers and exchanges, and not Bitcoin miners, the failure of such large asset managers and
exchanges may create increased price volatility of Bitcoin. Riot does not store our Bitcoin on such exchanges; however, we may be impacted by such
failures.
In January 2023, the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued a joint statement
discouraging banks from doing business with clients in crypto-asset industries. In January 2023, the Federal Reserve also issued a policy statement
broadening its authority to cover state-chartered banks.
Also in January 2023, the House of Representatives announced its first ever Financial Services Subcommittee on Digital Assets and the intention to
develop a regulatory framework for the digital asset industry. Bipartisan leadership of the Senate Banking Committee announced that goal as well.
As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which
may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to
our business, see Part I, Item 1A. "Risk Factors” of this Annual Report.
Environmental
There are increasing concerns over the quantity of energy, particularly from non-renewable sources, used for Bitcoin mining and its effects on the
environment. Many media reports focus exclusively on the energy requirements of Bitcoin mining and cite it as an environmental concern. However, those
reports tend to omit discussion of the positive contributions associated with Bitcoin mining to other customers on the electrical grid. Bitcoin mining
operations present a stable demand for energy and can be quickly curtailed, uniquely positioning businesses that engage in Bitcoin mining to respond to
increased electricity demand in emergency situations. In February 2021 and throughout 2022, Riot voluntarily reduced our operations and curtailed our
energy consumption to allow our energy provider to redirect our power allotment back into the Electric Reliability Council of Texas ("ERCOT”) market
during extreme weather events. By taking such actions, we immediately helped to stabilize the grid by allowing our power allotment to be delivered to the
areas of greatest need, such as heating homes and powering hospitals. Overall, our operations incentivize new power
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generation development and our actions help to reduce the frequency and impact of power failures and electricity price surges. In exchange for powering
down our systems in response to high electricity demand, we receive benefits associated with the difference between our contractual cost of power and
the price at which such power is sold on the ERCOT market (less any applicable fees payable to our consultants who assist with our participation in the
ERCOT Demand Response Services Program). Additionally, we voluntarily participate in load response programs operated by ERCOT, whereby we
temporarily give ERCOT the right to curtail a set portion of our power load at their discretion in exchange for a fee. Ultimately, these benefits are shared
between us, other consumers participating in the ERCOT market, and the overall health of the Texas grid.
Human Capital Resources
As of December 31, 2022, we had a total workforce of approximately 489 employees across our entire organization, including professionals in engineering,
information and technology, operations, construction, manufacturing. finance, legal, communications, and Bitcoin mining operations. Of our total
workforce, approximately 410 employees were in engineering, construction, manufacturing, and Bitcoin mining operations and approximately 79 employees
were in a general or administrative support function, such as information and technology, finance, legal or communications. Approximately 42% of our
workforce was in Colorado and 56% was in Texas.
Our strategy with human capital resources is to align the interests of our employees with our key long-term success drivers. In execution of this strategy,
we adopted a long-term performance incentive plan, under which all eligible employees are granted performance-based restricted stock awards that vest
based on the Company’s achievement of specific performance milestones. Certain employees under the long-term performance plan are eligible to receive
cash in lieu of restricted shares of the Company’s common stock awards based on achievement of these same performance milestones. We believe our
performance plan is a key incentive for our employees that aligns their long-term interests with our long-term objectives as an organization.
At Riot, we seek to attract a pool of diverse, best-in-class candidates and foster their career growth by hiring the best talent available, rather than relying
solely on educational background. In support of such initiative, we look for candidates in local communities and large cities alike, and from a variety of
backgrounds. Our goal is a long-term, growth-oriented career for each employee. We also believe that our ability to retain our workforce is dependent on
our ability to foster an environment that is sustainably safe, respectful, fair, and inclusive of everyone, and promotes diversity, equity, and inclusion both
inside and outside of our business.
Diversity, Equity, and Inclusion
At Riot, we support diversity and inclusion in a workplace where employees can thrive. Diverse backgrounds, experiences and opinions are encouraged
and welcomed. In support of such diversity and inclusion, we act in accordance with our Code of Conduct and Ethics to create a safe environment free
from discrimination or harassment that respects the human rights of our employees. We strive to achieve a workplace where opportunities for success are
created and available for all employees. In support of this goal, in 2022 we deployed to all employees unconscious bias and harassment trainings.
Compensation and Benefits
Riot’s compensation programs are designed to provide incentives to attract, retain, and motivate employees to achieve the Company’s long-term goals.
Specifically, we compare salary and wages against quantitative benchmarks and adjust monetary compensation to ensure wages are competitive and
consistent with employee positions, skill levels, experience, and geographic location. We maintain a robust process for ensuring pay equity across the
Company and increases in incentives and compensation based on merit and performance.
We provide a comprehensive range of benefits options, including medical, dental and vision insurance for employees and family members, paid and
unpaid leaves, and life and disability/accident coverage. Benefits for employees outside of the United States are provided based on country-specific
practices and are intended to support the health and well-being of our employees and their families.
Immersion-cooling
During 2021, we announced the first industrial scale deployment of 200 MW of immersion-cooled Bitcoin mining at the Rockdale Facility, and during 2022,
we completed deployment. During 2022, we also announced plans to develop an additional 400 MW of immersion-cooled Bitcoin mining operations at the
Corsicana Facility. We anticipate immersion-cooling technology will present many unique opportunities to increase efficiencies in Bitcoin mining, and are
constantly evaluating new and emerging technologies in the Bitcoin ecosystem to make our mining operations more efficient.
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When miners are immersion-cooled, they operate in a more stable environment that is better able to dissipate the heat generated by the miners’ operation,
allowing the equipment to run at sustained higher productivity rates for longer periods of time. We are continuing to test our immersion-cooling mining
operations and, if our desired performance metrics are achieved, we plan to leverage our infrastructure development capabilities to expand the
implementation of our immersion-cooled Bitcoin mining hardware to increase our Bitcoin mining hash rate without relying solely on purchasing additional
new miners and mining equipment, which we believe will result in increased operating efficiencies, and, thus, improved capital efficiencies.
Bitcoin Mining Results
Bitcoin Mining Production and Bitcoin Sales
One way the Company measures the success of its operations is by the number and U.S. Dollar value of the Bitcoin rewards it earns from its Bitcoin
Mining activities. The following table presents information regarding our Mining operations, including Bitcoin production and sales of the Bitcoin the
Company mines.
Balance as of January 1, 2020
Revenue recognized from Bitcoin mined
Mining pool operating fees
Proceeds from sale of Bitcoin
Realized gain on sale/exchange of Bitcoin (as restated)
Impairment of Bitcoin (as restated)
Bitcoin received from sale of equipment
Balance as of December 31, 2020 (as restated)
Revenue recognized from Bitcoin mined
Exchange of Bitcoin for employee compensation
Realized gain on sale/exchange of Bitcoin (as restated)
Impairment of Bitcoin (as restated)
Balance as of December 31, 2021 (as restated)
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
Balance as of December 31, 2022
Quantity
Amounts
514
1,033
$
—
(500)
26
—
5
1,078
3,812
(6)
—
—
4,884
5,554
(3,425)
(39)
—
—
$
6,974
3,839
11,984
(146)
(8,298)
6,350
(3,595)
52
10,186
184,422
(295)
253
(43,973)
150,593
156,870
(79,529)
(1,495)
30,346
(147,365)
109,420
We increased the quantity of Bitcoin rewards earned from our Bitcoin Mining operations from 3,812 Bitcoin mined in 2021, to 5,554 Bitcoin mined in 2022,
representing an increase of approximately 45.7%. Revenue recognized from our Bitcoin Mining activities decreased from approximately $184.4 million
during fiscal year 2021 to $156.9 million during fiscal year 2022, representing a decrease of approximately 14.9%. The decrease was due to lower values for
Bitcoin mined in 2022, averaging $28,245 per coin, as compared to $45,744 per coin in 2021, and an increase in the global network hash rate, partially offset
by an increase in Bitcoin rewards earned as a result of an increase in the number of miners deployed from 30,907 as of December 31, 2021, to 88,556 as of
December 31, 2022.
Factors Affecting Profitability
Market Price of Bitcoin
Our business is heavily dependent on the spot price of Bitcoin. The prices of cryptocurrencies, including Bitcoin, have experienced substantial volatility,
meaning that high or low prices may be based on speculation and incomplete information, subject to rapidly changing investor sentiment, and influenced
by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting. Bitcoin (as well as other
cryptocurrencies) may have value based on various factors, including their acceptance as a means of exchange by consumers and producers, scarcity,
and market demand which are beyond our control.
Halving
Further affecting the industry, and particularly for the Bitcoin blockchain, the Bitcoin reward for solving a block is subject to periodic incremental halving.
Halving is a process designed to control the overall supply and reduce the risk of inflation in Bitcoin using a
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Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term "halving.” For Bitcoin the reward was
initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halvings three times since its inception as follows: (1) on
November 28, 2012, at block height 210,000; (2) on July 9, 2016, at block height 420,000; (3) on May 11, 2020, at block height 630,000, when the reward was
reduced to its current level of 6.25 Bitcoin per block. The next halving for the Bitcoin blockchain is currently anticipated to occur in April 2024 at block
height 840,000. Halvings will continue to occur until the total amount of Bitcoin currency rewards issued reaches approximately 21 million and the
theoretical supply of new Bitcoin is exhausted, which is expected to occur around the year 2140. Many factors influence the price of Bitcoin, and potential
increases or decreases in prices in advance of or following a future halving is unknown.
Network Hash Rate and Difficulty
Generally, a Bitcoin miner’s chance of solving a block on the Bitcoin blockchain and earning a Bitcoin reward is a function of the miner’s hash rate,
relative to the global network hash rate (i.e., the aggregate amount of computing power devoted to supporting the Bitcoin blockchain at a given time). As
demand for Bitcoin has increased, the global network hash rate has increased rapidly, and as greater adoption of Bitcoin occurs, we expect the demand for
new Bitcoin will likewise increase as more mining companies are drawn into the industry by this increased demand. Further, as a greater number of
increasingly powerful miners have been deployed, the network difficulty for Bitcoin has consequently also increased. Network difficulty is a measure of
how difficult it is to solve a block on the Bitcoin blockchain, which is adjusted every 2,016 blocks (approximately every 2 weeks) so that the average time
between each block validation remains approximately ten minutes. A high difficulty means that more computing power will be required in order to solve a
block and earn a new Bitcoin reward, which, in turn, makes the Bitcoin network more secure by limiting the possibility of one miner or mining pool gaining
control of the network. Therefore, as new and existing miners deploy additional hash rate, the global network hash rate will continue to increase, meaning
a miner’s share of the global network hash rate (and therefore its chance of earning Bitcoin rewards) will decline if it fails to deploy additional hash rate at
pace with the industry.
For further discussion of the factors affecting our profitability, see the discussion under Part II, Item 7 "Management’s Discussion and Analysis” under
the heading "Summary of Mining Results” of this Annual Report, as well as the discussion of various risks, factors, and uncertainties we believe may
affect our revenue and results of operations under Part I, Item 1A. "Risk Factors” of this Annual Report.
Performance Metrics
We seek to mine Bitcoin by using our miners to solve complex cryptographic algorithms to support the Bitcoin blockchain (in a process known as
"solving a block”). In return for solving a block, we receive the Bitcoin reward, which we can hold or sell on the market to generate cash.
Hash rate
Bitcoin miners generally measure their capability in terms of hash rate, which is measured in terms of the number of cryptographic hashing algorithms
solved (or "hashes”) per second. Generally, miners (or mining pools) with a greater hash rate relative to the global Bitcoin network hash rate at a given
time will, over time, have a greater chance of earning a Bitcoin reward, as compared to miners with relatively lower total hash rates.
However, as the relative market price for Bitcoin increases, more miners are encouraged to attempt to mine Bitcoin, which increases Bitcoin’s global
network hash rate. Therefore, to remain competitive, miners seek to continually increase their total hash rate, creating a feedback loop: as Bitcoin gains
popularity and its relative market price increases, more miners attempt to mine Bitcoin and its network hash rate is increased; in response, existing miners
and new miners devote more and more hash rate to the Bitcoin blockchain by adding more, and increasingly powerful, miners to attempt to ensure their
ability to earn additional Bitcoin rewards, and, in response, the network difficulty of the Bitcoin network is increased to maintain the pace of new block
additions, spurring miners to seek to deploy yet further hash rate to earn the same relative number of new Bitcoin rewards. In theory, this process should
continually replicate itself until the supply of available Bitcoin is exhausted.
In response, miners have attempted to achieve greater hash rate by deploying increasingly sophisticated miners in ever greater quantities. This has
become the Bitcoin mining industry’s great "arms race.” There are very few manufacturers of miners capable of producing a sufficient number of miners of
adequate quality to meet this need, and scarcity results, leading to higher prices. Compounding this phenomenon, it has been observed that some
manufacturers of Bitcoin miners may increase prices for new miners as the market price of Bitcoin increases. Further, these manufacturers have also been
impacted by the ongoing global supply chain crisis resulting from COVID-19, both in terms of increased prices for the components of these new miners
resulting from the constrained supply of the semiconductors used in the production of the highly specialized ASIC chips miners rely on, and in terms
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of labor costs to manufacture new miners as workforces are affected by increased absenteeism due to COVID-19 restrictions and employee burnout. Thus,
miner manufacturers are subject to increasing price pressures due to both increased demand for new miners and decreased supply of necessary
components and labor, ultimately leading to higher prices for new miners.
Intellectual Property
We actively use specific hardware and software for our Bitcoin mining operations. The Bitcoin blockchain is generally built on open-source code and, in
certain cases, the source code and other software assets we use in our mining operations may be subject to an open-source license. For these works, we
adhere to the terms of any license agreements that may be in place. We also rely upon the intellectual property rights of others in certain respects in
connection with our immersion-cooling technology.
We currently rely upon trade secrets, trademarks, service marks, trade names, copyrights, and other intellectual property rights, and to license the use of
such intellectual property rights owned and controlled by others. In addition, we have developed and may further develop certain proprietary software
and hardware applications in connection with Bitcoin mining operations, including our immersion-cooled Bitcoin mining developments.
Information About Our Executive Officers
The following sets forth the name, age, and position of each of the persons who were serving as executive officers as of the filing of this annual report on
Form 10-K. There are no immediate familial relationships among our executive officers and any directors. There are no arrangements or understandings
between any of our executive officers and any other person pursuant to which any of such executive officers were selected.
Name
Jason Les
Benjamin Yi
Colin Yee
William Jackman
Ryan Werner
Age
37
40
47
39
43
Position
Director and Chief Executive Officer (principal executive officer)
Director and Executive Chairman
Chief Financial Officer (principal financial officer)
Executive Vice President, General Counsel and Secretary
Senior Vice President, Chief Accounting Officer (principal accounting officer)
Jason Les (age 37) has served as our Chief Executive Officer ("CEO”) since February 2021 and as a member of the Board since October 2017. He has been
deeply involved with Bitcoin since 2013, with significant experience in cryptocurrency mining, as an engineer studying protocol development, and
contributing to open-source projects. Mr. Les was previously a founding partner of Binary Digital from May 2017 to November 2020, a software-
development company where he led the engineering team and coordinated project development for artificial intelligence, reverse engineering, and inter-
software compatibility projects. Additionally, his background includes over a decade of unique experience as a former professional heads-up poker player.
He holds a Bachelor of Science, Computer Science from the University of California, Irvine.
Benjamin Yi (age 40) has served as our Executive Chairman since May 2021, as a member of the Board since October 2018, and as Chairman of the Board of
Directors from November 2020 through May 2021. Prior to joining Riot, Mr. Yi led capital markets and corporate development at IOU Financial, a tech-
enabled lender to small businesses and investee company of Neuberger Berman from January 2017 through May 2021. Mr. Yi holds a Bachelor of
Commerce, specialist in Finance, major in Economics from University of Trinity College and a Master of Finance from University of Toronto – Rotman
School of Management.
Colin Yee (age 47) has served as our Chief Financial Officer ("CFO”) since September 2022. He was previously our Head of Corporate and Financial
Operations from April 2022 to September 2022. Prior to joining Riot, Mr. Yee founded Clear Capital Management Corporation which has been operating
since September 2007. He served as the Chief Operating Financial Officer of Avebury Partners, a leading asset management firm that operates within the
real estate and construction sectors, from March 2021 to March 2022. Mr. Yee is a Chartered Professional Accountant and holds a Bachelor of Science in
Cellular Biology and a Bachelor of Commerce in Accounting from the University of Calgary.
William Jackman (age 39) has served as our Executive Vice President since September 2022, and as General Counsel and Secretary since July 2021. Prior to
joining Riot, Mr. Jackman was a Leader of Public Companies and Securities at Roger Towers, P.A., one of Florida’s oldest and most established law firms,
from March 2018 to January 2022. Additionally, he was a Senior Corporate Attorney at Holland & Knight LLP, a multinational law firm, from May 2014
through August 2017. Mr. Jackman holds dual Juris Doctorate law degrees from the Universities of Windsor and Detroit, as well as an MBA from Nova
Southeastern, and is a member of the New York, Florida and Ontario Bar Associations.
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Ryan Werner (age 43) has served as our Senior Vice President and Chief Accounting Officer since September 2022. Previously, he was our Vice President
of Finance since joining Riot in March 2021. Prior to joining Riot, Mr. Werner was a Senior Director, Real Estate and Transactions Accounting at UDR, a
real estate investment trust, from March 2013 through March 2021. Mr. Werner holds a Bachelor’s degree in Accounting and Business Administration
with an emphasis in finance, and a Master’s in Accounting and Information Systems from the University of Kansas.
Corporate Information
Our principal executive office is located at 3855 Ambrosia Street, Suite 301, Castle Rock, CO 80109, and our telephone number is (303) 794-2000. Our
records are kept at our principal executive office.
We were incorporated in the State of Colorado on July 24, 2000, under the name AspenBio, Inc., and have been through a number of subsequent name
changes. Effective October 19, 2017, we adopted the corporate name Riot Blockchain, Inc., and changed our state of incorporation to Nevada. Effective
December 30, 2022, we adopted our current corporate name, Riot Platforms, Inc., and remain incorporated in Nevada.
Our website address is www.riotplatforms.com.
Restatement of Previously Issued Consolidated Financial Statements
On February 27, 2023, the Audit Committee (the "Audit Committee”) of the Board of Directors of the Company, after consulting with management and the
Company’s independent registered public accounting firm, Marcum LLP, determined that the Company’s consolidated financial statements included in its
2021 Annual Report on Form 10-K as of December 31, 2021 and for the years ended December 31, 2021 and 2020, as amended, as well as the Company’s
previously issued condensed interim consolidated financial statements as of and for the interim periods in 2022 and 2021 as filed in the Company’s
Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and 2021, June 30, 2022 and 2021, and September 30, 2022 and 2021 (together with
the financial statements contained in the 2021 Annual Report, the "Impacted Financials”) should no longer be relied upon due to material misstatements
that are described in greater detail in Note 2. Restatement of Previously Issued Financial Statements, and Note 23. Restatement of Previously Issued
Interim Condensed Consolidated Financial Statements, of the Notes to the Consolidated Financial Statements included within this Annual Report.
Similarly, any previously filed reports, press releases, earnings releases, or investor presentations or other communications describing Riot’s financial
statements and other related financial information covering the previously mentioned Impacted Financials should no longer be relied upon.
Additional Information
Our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, as
filed with the SEC, can be accessed, free of charge, on the SEC’s website www.sec.gov. These documents may also be accessed on our website:
www.riotplatforms.com through a link in the "Investors” section. The contemplated documents are placed on our website as soon as practicable after their
filing with the SEC. The information on our website is not incorporated by reference in this Annual Report.
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ITEM 1A. RISK FACTORS
Certain factors may have a materially adverse effect on our business, financial condition, and results of operations, including the risk, factors, and
uncertainties described under this Part I, Item 1A, and elsewhere in this Annual Report. This is not an exhaustive list, and there are other factors that
may be applicable to our business that are not currently known to us or that we currently do not believe are material. Any of these risks could have an
adverse effect on our business, financial condition, operating results, or prospects, which could cause the trading price of our common stock to
decline, and you could lose part or all of your investment. You should carefully consider the risks, factors, and uncertainties described below, together
with the other information contained in this Annual Report, as well as the risk, factors, uncertainties, and other information we disclose in other filings
we make with the SEC before making an investment decision regarding our securities.
Risks Related to Our Ability to Grow Our Business
If we fail to grow our hash rate, we may be unable to compete, and our results of operations could suffer.
Generally, a Bitcoin miner’s chance of solving a block on the Bitcoin blockchain and earning a Bitcoin reward is a function of the miner’s hash rate (i.e.,
the amount of computing power devoted to supporting the Bitcoin blockchain), relative to the global network hash rate. As demand for Bitcoin increases,
the global network hash rate increase, and as greater adoption of Bitcoin occurs, we expect the demand for Bitcoin will increase further, drawing more
mining companies into the industry and further increasing the global network hash rate. As new and more powerful miners are deployed, the global
network hash rate will continue to increase, meaning a miner’s chance of earning Bitcoin rewards will decline unless it deploys additional hash rate at pace
with the industry. Accordingly, to compete in this highly competitive industry, we believe we will need to continue to acquire new miners, both to replace
those lost to ordinary wear-and-tear and other damage, and to increase our hash rate to keep up with a growing global network hash rate.
We plan to grow our hash rate by acquiring newer, more effective and energy-efficient miners. These new miners are highly specialized servers that are
very difficult to produce at scale. As a result, there are limited producers capable of producing large numbers of sufficiently effective miners, and, as
demand for new miners has increased in response to increased Bitcoin prices, we have observed the price of these new miners has increased. If we are
unable to acquire enough new miners or access sufficient capital to fund our acquisitions, the results of operations and financial condition could
adversely affect investments in our securities.
We may be impacted by macroeconomic conditions due to global pandemics, epidemics or outbreaks of disease and the resulting global supply chain
crisis.
Global trade conditions and consumer trends that originated during the COVID-19 pandemic continue to persist and may also have long-lasting adverse
impact on us and our industry. There are continued risks arising from new pandemics, epidemics or outbreaks of disease, and ongoing COVID-19 related
issues which have exacerbated port congestion and intermittent supplier shutdowns and delays, resulting in additional expenses to expedite delivery of
new miners, as well as critical materials needed for our expansion plans. Further, miner manufacturers have been impacted by the constrained supply of
the semiconductors used in the production of the highly specialized ASIC chips miners rely on, and increased labor costs to manufacture new miners as
workforces and global supply chains continue to be affected by COVID-19 and may further be affected by global outbreaks of various epidemics or
disease, ultimately leading to continually higher prices for new miners. Thus, until the global supply chain crisis is resolved, and these extraordinary
pressures are alleviated, we expect to continue to incur higher than usual costs to obtain and deploy new miners and we may face difficulties obtaining
the new miners we need at prices or in quantities we find acceptable, if at all, and our business and results of operations may suffer as a result.
In addition, labor shortages resulting from the pandemic may lead to increased difficulty and labor costs in hiring and retaining the highly qualified and
motivated people we need to conduct our business and execute on our strategic growth initiatives. Sustaining our growth plans will require the ongoing
readiness and solvency of our suppliers and vendors, a stable and motivated production workforce, and government cooperation, each of which may be
affected by macroeconomic factors outside of our immediate control.
We cannot predict the duration or direction of current global trends or their sustained impact. Ultimately, we continue to monitor macroeconomic
conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure
requirements globally and deploy our workforce and capital resources accordingly. If we experience unfavorable global market conditions, or if we cannot
or do not maintain operations at a scope that is commensurate with such conditions or are later required to or choose to suspend such operations again,
our business, prospects, financial condition and operating results may be harmed.
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We expect the cost of acquiring new miners to continue to be affected by the global supply chain crisis.
Similarly, the global supply chain crisis, coupled with increased demand for computer chips, has created a shortfall of semiconductors, resulting in
challenges for the supply chain and production of the miners we employ in our Bitcoin mining operations. The miners are highly specialized servers built
around ASIC chips, which very few manufacturers are able to produce in sufficient scale and quality to suit our operations. As a result, the cost to
produce these miners has increased, and their manufacturers have passed on increased costs of production to purchasers like us. Therefore, until the
global supply chain crisis is resolved, and these extraordinary pressures are alleviated, we expect to continue to incur higher than usual costs to obtain
and deploy new miners, which could adversely affect our financial condition and results of operations.
We may not be able to timely complete our future strategic growth initiatives or within our anticipated cost estimates, if at all.
As part of our efforts to grow our hash rate and remain competitive in the market, we acquired thousands of new state-of-the-art miners from their
manufacturer in 2022, which we started to deploy at our Rockdale Facility. To accommodate these new miners, we expanded the Rockdale Facility’s
capacity to 700 MW of electrical power through the construction of four new 100 MW structures and the associated power and facilities infrastructure
needed to operate them for industrial-scale Bitcoin mining. Additionally, we are developing our Corsicana Facility, which we expect to complete in 2023.
We will require additional new state-of-the-art miners to deploy at the Corsicana Facility as well as associated and infrastructure development. Moreover,
we have carried out these expansions amid the ongoing global supply chain crisis and COVID-19, and our costs of supplies, labor, and material have
increased as a result. While our present expansion projects are proceeding on track with expectations, we cannot guarantee we will complete these
expansions (or any future strategic growth initiatives) on time or within our cost estimates, if at all, due in part to the ongoing effects of the global supply
chain crisis related to COVID-19, increased inflation and changing conditions within the United States labor market. If we are unable to complete our
planned expansions on schedule and within our anticipated cost estimates, our deployment of newly purchased miners may be delayed, which could
affect our competitiveness and our results of operation, which could have a material adverse effect on our financial condition and the market price for our
securities.
We may be unable to access sufficient additional capital for future strategic growth initiatives.
The expansion of our miner fleet and of our Rockdale Facility and Corsicana Facility are capital-intensive projects, and we anticipate that future strategic
growth initiatives will likewise continue to be capital-intensive. We expect to raise additional capital to fund these and other future strategic growth
initiatives; however, we may be unable to do in a timely manner, in sufficient quantities, or on terms acceptable to us, if at all. If we are unable to raise the
additional capital needed to execute our future strategic growth initiatives, we may be less competitive in our industry and the results of our operations
and financial condition may suffer, and the market price for our securities may be materially and adversely affected.
Expansion of our Rockdale Facility and Corsicana Facility potentially exposes us to additional risks.
We are expanding and expect to continue to expand our Rockdale Facility, and we are currently constructing our Corsicana Facility, which potentially
exposes us to significant risks we may otherwise not be exposed to, including risks related to, among other sources: construction delays; lack of
availability of parts and/or labor, increased prices as a result, in part to inflation, and delays for data center equipment; labor disputes and work
stoppages, including interruptions in work due to pandemics, epidemics, and other health risks; unanticipated environmental issues and geological
problems; delays related to permitting and approvals to open from public agencies and utility companies; and delays in site readiness leading to our
failure to meet commitments made in connection with such expansion.
All construction related projects depend on the skill, experience, and attentiveness of our personnel throughout the design and construction process.
Should a designer, general contractor, significant subcontractor or key supplier experience financial problems or other problems during the design or
construction process, we could experience significant delays, increased costs to complete the project and/or other negative impacts to our expected
returns.
If we are unable to overcome these risks and additional pressures to complete our expansion projects in a timely manner, if at all, we may not realize their
anticipated benefits, and our business and financial condition may suffer as a result.
Economic and geopolitical events may create increased uncertainty and price changes.
We are subject to price volatility and uncertainty due to geopolitical crises and economic downturns. Such geopolitical crises and global economic
downturns may be a result of invasion, or possible invasion by one nation of another, leading to increased inflation and supply chain volatility. Such
crises will likely continue to have an effect on our ability to do business in a cost-effective manner.
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Inflation has caused the price of materials to increase leading to increased expenses to our business. Global crises and economic downturns may also
have the effect of discouraging investment in Bitcoin as investors shift their investments to less volatile assets. Such shift could have a materially adverse
effect on our business, operations and the value of the Bitcoin we mine or the institutional data center clients we host.
Failure to successfully integrate acquired businesses could negatively impact our balance sheet and results of operations.
Strategic acquisitions such as the Whinstone Acquisition and the ESS Metron Acquisition (see Note 5. Acquisitions for further information) are an
important element of our growth strategy and the success of any acquisition we make depends in part on our ability to integrate the acquired business
and realize anticipated synergies. Integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our
management’s attention and may require us to shift our financial and other resources.
For example, we may encounter challenges in the integration process such as: difficulties associated with managing the resulting larger and more complex
company; conforming administrative and corporate structures and standards, controls, procedures and policies, business cultures, hiring and retention of
key employees, and compensation and benefits structures, coordinating geographically dispersed operations; and our ability to deliver on our strategy
going forward.
Further, our acquisitions may subject us to new liabilities and risks, some of which may be unknown. Although we and our advisors conduct due
diligence on the operations of businesses we acquire, there can be no guarantee that we are aware of all liabilities of an acquired company. These
liabilities, and any additional risks and uncertainties related to an acquired company not known to us or that we may deem immaterial or unlikely to occur
at the time of the acquisition, could negatively impact our future business, financial condition and results of operations.
We can give no assurance that we will ultimately be able to effectively integrate and manage the operations of any acquired business or realize anticipated
synergies. The failure to successfully integrate the cultures, operating systems, procedures and information technologies of an acquired business could
have a material adverse effect on our financial condition and results of operations.
We may experience increased compliance costs as a result of our strategic acquisitions.
The financial statements and internal controls of both Whinstone and ESS Metron have not, historically, been required to be in compliance with
Section 404 of the Sarbanes-Oxley Act of 2002. The accounting costs of bringing our subsidiaries’ financial records and internal controls in alignment with
the Sarbanes-Oxley Act following these strategic acquisitions have been within our expectations; however, we may encounter unanticipated costs.
Further, future strategic acquisitions could carry substantial compliance burdens, which may limit our ability to realize the anticipated benefits of such
acquisitions, and which may require our management and personnel to shift their focus to such compliance burdens and away from their other functions.
Such increased costs and compliance burdens could affect our ability to realize the anticipated benefits of such strategic acquisitions, and our business,
results of operations, and financial condition may suffer as a result.
We have financed our strategic growth primarily by issuing new shares of our common stock in public offerings, which dilutes the ownership interests
of our current stockholders, and which may adversely affect the market price of our securities.
We have raised capital to finance the strategic growth of our business through public offerings of our common stock, and we expect to need to raise
additional capital through similar public offerings to finance the completion of current and future expansion initiatives. We may not be able to obtain
additional debt or equity financing on favorable terms, if at all, which could impair our growth and adversely impact our existing operations. If we raise
additional equity financing, our stockholders may experience dilution of their ownership interests, and the per share value of our common stock could
decline. Furthermore, if we engage in debt financing, the holders of any debt we issue would likely have priority over the holders of shares of our common
stock in terms of order of payment preference. We may be required to accept terms that restrict our ability to incur additional indebtedness or take other
actions including terms that require us to maintain specified liquidity or other ratios that could otherwise not be in the interests of our stockholders.
We have a history of operating losses, and we may report additional operating losses in the future.
Our primary focus is on vertically integrating our Bitcoin mining, and we have recorded historical losses and negative cash flow from our operations when
the value of Bitcoin we mine does not exceed our associated costs. Further, as part of our strategic growth plans, we have made capital investments in
expanding and vertically integrating our Mining operations, including the expansion of our Rockdale Facility, increased our employee base, and incurred
additional costs associated with owning and operating a self-
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mining facility. However, future market prices of Bitcoin are difficult to predict, and we cannot guarantee that our future Mining revenue will exceed our
associated costs.
The lack of regulation of digital asset exchanges which Bitcoin, and other cryptocurrencies, are traded on, may expose us to the effects of negative
publicity resulting from fraudulent actors in the cryptocurrency space, and can adversely affect an investment in the Company.
The digital asset exchanges on which Bitcoin is traded are relatively new and largely unregulated. Many digital asset exchanges do not provide the public
with significant information regarding their ownership structure, management teams, corporate practices, or regulatory compliance. As a result, the
marketplace may lose confidence in, or may experience problems relating to, such digital asset exchanges, including prominent exchanges handling a
significant portion of the volume of digital asset trading. In 2022, a number of digital asset exchanges filed for bankruptcy proceedings and/or became the
subjects of investigation by various governmental agencies for, among other things, fraud, causing a loss of confidence and an increase in negative
publicity for the digital asset ecosystem. As a result, many digital asset markets, including the market for Bitcoin, have experienced increased price
volatility. The Bitcoin ecosystem may continue to be negatively impacted and experience long term volatility if public confidence decreases.
These events are continuing to develop and it is not possible to predict, at this time, every risk that they may pose to us, our service providers, or the
digital asset industry as a whole. A perceived lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset
exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in digital asset networks and
result in greater volatility in cryptocurrency values. These potential consequences of a digital asset exchange’s failure could adversely affect an
investment in us.
We depend on attracting and retaining officers, managers, and skilled professionals.
Our success depends, in large part, on our ability to hire, retain and motivate talented officers, leadership, and professionals. We cannot guarantee that
such employees may be retained which may inhibit our management functions, strategic development, and other critical functions. Our growth may be
constrained by human capital resource limitations as we compete with other companies for skilled employees. We will need to take strategic action to
develop our pool of management and skilled employees as well as grow such pool to meet the demands of our corporate functions. If we are not able to do
so, our business, and thus our ability to grow, may be materially adversely affected.
Risks Related to the Price of Bitcoin
Our ability to achieve profitability is largely dependent on the price of Bitcoin, which has historically been volatile.
Our primary focus on vertically integrating our Bitcoin mining operations and the associated expansion of our Rockdale Facility is largely based on our
assumptions regarding the future value of Bitcoin, which has been subject to significant historical volatility and may be subject to influence from
malicious actors, real or perceived scarcity, political, economic, and regulatory conditions, and speculation making its price more volatile or creating
"bubble” type risks for the trading price of Bitcoin. Further, unlike traditional stock exchanges, which have listing requirements and vet issuers, requiring
them to comply with rigorous listing standards and rules, and which monitor transactions for fraud and other improprieties, markets for Bitcoin and other
cryptocurrencies tend to be underregulated, if they are regulated at all. Less stringent cryptocurrency markets have a higher risk of fraud or manipulation
and any lack of oversight or perceived lack of transparency could reduce confidence in the price of Bitcoin and other cryptocurrencies, which could
adversely affect the price of Bitcoin. As disclosed in Part I, Item 1, "Business” of this Annual Report, under the subheading "Regulatory,” Bitcoin and
crypto asset markets generally may be subject to increased scrutiny and regulation by the SEC and other U.S. government agencies, and such evolving
regulatory and legal environment may impact our mining and other activities.
These factors make it difficult to accurately predict the future market price of Bitcoin and may also inhibit consumer trust in, and market acceptance of,
cryptocurrencies as a means of exchange, which could limit the future adoption of Bitcoin and, as a result, our assumptions could prove incorrect. If our
assumptions prove incorrect and the future price of Bitcoin is not sufficiently high, our income from our Bitcoin mining operations may not exceed our
costs, and our operations may never achieve profitability.
Bitcoin market exposure to financially troubled cryptocurrency-based companies.
The failure of several crypto platforms has impacted and may continue to impact the broader crypto economy; the full extent of these impacts may not yet
be known. Bitcoin is part of the cryptocurrency environment and is subject to price volatility resulting from financial instability, poor business practices,
and fraudulent activities of players in the cryptocurrency market. When investors in
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cryptocurrency and cryptocurrency-based companies experience financial difficulty as a result of price volatility, poor business practices, and/or fraud, it
has, and may cause loss of confidence in the cryptocurrency space, reputational harm to cryptocurrency assets, heightened scrutiny by regulatory
authorities and law makers, and a steep decline in the value of Bitcoin, among other material impacts. Such adverse effects have, and may in the future,
affect the profitability of our Bitcoin mining operations and our ability to obtain a profit from hosting institutional-scale data center clients.
Bitcoin is subject to halving, and our mining operations may generate less revenue as a result.
As disclosed in Part I, Item 1, "Business” of this Annual Report, under the subheading "Halving,” the number of new Bitcoin awarded for solving a block
is cut in half – hence, "halving” – at mathematically predetermined intervals. While Bitcoin prices have historically increased around these halving events,
there is no guarantee that the price change will be favorable or would compensate for the reduction in mining rewards. If a corresponding and
proportionate increase in the price of Bitcoin does not follow future halving events, the revenue we earn from our Mining operations would see a
decrease, which could have a material adverse effect on our results of operations and financial condition.
Transaction fees may decrease demand for Bitcoin and prevent expansion.
As the number of Bitcoin currency rewards awarded for solving a block in a blockchain has decreased, transaction fees have increasingly been used to
incentivize miners to continue to contribute to the Bitcoin network. However, high Bitcoin transaction fees may slow the adoption of Bitcoin as a means of
payment, which may decrease demand for Bitcoin and future prices of Bitcoin may suffer as a result. If Bitcoin prices are not sufficiently high, our Mining
revenue may not exceed our associated costs, and our results of operations and financial condition may suffer. Further, because the price of shares of our
common stock may be linked to the price of Bitcoin, if demand for Bitcoin decreases, causing future Bitcoin prices to decrease, the market price of our
securities may be materially and adversely affected, limiting our ability to raise additional capital to fund our strategic growth plans.
Cryptocurrencies face significant scaling obstacles that can lead to high fees or slow transaction settlement times.
Cryptocurrencies face significant scaling obstacles that can lead to high fees or slow transaction settlement times, and attempts to increase the volume of
transactions may not be effective. Scaling cryptocurrencies is essential to the widespread acceptance of cryptocurrencies as a means of payment,
including Bitcoin. Many cryptocurrency networks face significant scaling challenges. For example, cryptocurrencies are limited with respect to how many
transactions can occur per second. Participants in the cryptocurrency ecosystem debate potential approaches to increasing the average number of
transactions per second that the network can handle and have implemented mechanisms or are researching ways to increase scale, such as increasing the
allowable sizes of blocks, and therefore the number of transactions per block, and sharding (a horizontal partition of data in a database or search engine),
which would not require every single transaction to be included in every single miner’s or validator’s block. However, there is no guarantee that any of
the mechanisms in place or being explored for increasing the scale of settlement of cryptocurrency transactions will be effective.
If adoption of Bitcoin (and cryptocurrencies, generally) as a means of payment does not occur on the schedule or scale we anticipate, the demand for
Bitcoin may stagnate or decrease, which could adversely affect future Bitcoin prices, and our results of operations and financial condition, which could
have a material adverse effect on the market price for our securities.
Risks Related to our Operations
To remain competitive in our industry, we seek to grow our hash rate to match the growing network hash rate and increasing network difficulty of the
Bitcoin blockchain, and if we are unable to grow our hash rate at pace with the network hash rate, our chance of earning Bitcoin from our Mining
operations would decline.
As the adoption of Bitcoin has increased, the price of Bitcoin has generally appreciated, causing the demand for new Bitcoin rewards for successfully
solving blocks on the Bitcoin blockchain to likewise increase. This has encouraged more miners to attempt to mine Bitcoin, which increases the global
network hash rate deployed in support of the Bitcoin blockchain.
Because a miner’s relative chance of successfully solving a block and earning a new Bitcoin reward is generally a function of the ratio the miner’s
individual hash rate bears to the global network hash rate, as the global network hash rate increases, a miner must increase its individual hash rate to
maintain its chances of earning new Bitcoin rewards. Therefore, as new miners enter the industry and as miners deploy greater and greater numbers of
increasingly powerful machines, existing miners must seek to continually increase their hash rate to remain competitive. Thus, a feedback loop is created:
as Bitcoin gains popularity and its relative market price increases, more miners attempt to mine Bitcoin and the Bitcoin network hash rate is increased; in
response, existing miners
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and new miners devote more and more hash rate to the Bitcoin blockchain by deploying greater numbers of increasingly powerful machines in an attempt
to ensure their ability to earn additional Bitcoin rewards does not decrease. Compounding this feedback loop, the network difficulty of the Bitcoin network
(i.e., the amount of work (measured in hashes) necessary to solve a block) is periodically adjusted to maintain the pace of new block additions (with one
new block added to the blockchain approximately every ten minutes), and thereby control the supply of Bitcoin. As miners deploy more hash rate and the
Bitcoin network hash rate is increased, the Bitcoin network difficult is adjusted upwards by requiring more hash rate to be deployed to solve a block.
Thus, miners are further incentivized to grow their hash rate to maintain their chance of earning new Bitcoin rewards. In theory, these dual processes
should continually replicate themselves until the supply of available Bitcoin is exhausted. In response, miners have attempted to achieve greater hash rate
by deploying increasingly sophisticated miners and expensive miners in ever greater quantities. This has become the Bitcoin mining industry’s great
"arms race.” Moreover, because there are very few manufacturers of miners capable of producing a sufficient number of miners of adequate quality to
meet this need, scarcity results, leading to higher prices. Compounding this phenomenon, it has been observed that some manufacturers of Bitcoin miners
may increase the prices for new miners as the market price of Bitcoin increases.
Accordingly, to maintain our chances of earning new Bitcoin rewards and remaining competitive in our industry, we must seek to continually add new
miners to grow our hash rate at pace with the growth in the Bitcoin network hash rate. However, as demand has increased and scarcity in the supply of
new miners has resulted, the price of new miners has increased sharply, and we expect this process to continue in the future as demand for Bitcoin
increases. Therefore, if the price of Bitcoin is not sufficiently high to allow us to fund our hash rate growth through new miner acquisitions and if we are
otherwise unable to access additional capital to acquire these miners, our hash rate may stagnate and we may fall behind our competitors. If this happens,
our chances of earning new Bitcoin rewards would decline and, as such, our results of operations and financial condition may suffer.
Because our miners are designed specifically to mine Bitcoin and may not be readily adaptable to mining other cryptocurrencies, a sustained decline
in Bitcoin’s value could adversely affect our business and results of operations.
We have invested substantial capital in acquiring miners using ASIC chips designed specifically to mine Bitcoin and other cryptocurrencies using the
SHA-256 algorithm as efficiently and as rapidly as possible on our assumption that we will be able to use them to mine Bitcoin and generate revenue from
our operations. Therefore, our Mining operations focus exclusively on mining Bitcoin, and our Mining revenue is based on the value of Bitcoin we mine.
Accordingly, if the value of Bitcoin declines and fails to recover, for example, because of the development and acceptance of competing blockchain
platforms or technologies, including competing cryptocurrencies which our miners may not be able to mine, the revenue we generate from our mining
operations will likewise decline. Moreover, because our miners use these highly specialized ASIC chips, we may not be able to successfully repurpose
them in a timely manner, if at all, if we decide to switch to mining a different cryptocurrency (or to another purpose altogether) following a sustained
decline in Bitcoin’s value or if Bitcoin is replaced by another cryptocurrency not using the SHA-256 algorithm. This would result in a material adverse
effect on our business and could potentially impact our ability to continue as a going concern.
Our reliance primarily on a single model of miner may subject our operations to increased risk of design flaws.
The performance and reliability of our miners and our technology is critical to our reputation and our operations. Because we currently only use Bitmain
Antminer type miners, if there are issues with those machines, such as a design flaw in the ASIC chips they employ, our entire system could be affected.
Further, we have encountered, and may in the future encounter, software and firmware complications associated with adapting our miners to operate in
our immersion-cooled Bitcoin mining hardware, which may delay or otherwise limit the benefits we anticipate from our adoption of immersion-cooled
Mining. Any system error or failure may significantly delay response times or even cause our system to fail. Any disruption in our ability to continue
mining could result in lower yields and harm our reputation and business. Any exploitable weakness, flaw, or error common to Bitmain miners could affect
all our miners; therefore, if a defect or other flaw exists and is exploited, our entire miner fleet could be adversely impacted. Any interruption, delay or
system failure could result in financial losses, a decrease in the trading price of our common stock and damage to our reputation.
Our reliance primarily on immersion-cooling exposes us to additional risks.
We are increasingly relying on immersion-cooling for our Bitcoin mining infrastructure, to a large extent at the Rockdale Facility and, and entirely (at this
phase) at our Corsicana Facility. Immersion-cooling is an emerging technology in Bitcoin mining, which is not in wide-spread use, and has yet to be
deployed at this scale before. As such, there is a risk we may not succeed in deploying immersion-cooling, at such a large scale to achieve sufficient
cooling performance. All Bitcoin mining infrastructure, including air-cooling, is an evolving study. Cooling of Bitcoin miners in general is risk to achieving
full potential from our hash rate, especially in the state of Texas.
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We require meaningful volumes of water to support cooling of our Bitcoin miners for both immersion-cooling and air-cooling operations. The inability to
secure adequate water, or the loss of access to such required water, would impact our ability to sustain efficient mining operations.
Our use of third-party mining pools exposes us to additional risks.
We receive Bitcoin rewards from our mining activity through third-party mining pool operators. Mining pools allow miners to combine their processing
power, increasing their chances of solving a block and getting paid by the network. The rewards are distributed by the pool operator, proportionally to
our contribution to the pool’s overall mining power, after deducting the applicable pool fee, if any, used to solve a block on the Bitcoin blockchain.
Should the pool operator’s system suffer downtime due to a cyber-attack, software malfunction or other issue, it will negatively impact our ability to mine
and receive revenue. Furthermore, we are dependent on the accuracy of the mining pool operator’s record keeping to accurately record the total
processing power provided to the pool for a given Bitcoin mining application in order to assess the proportion of that total processing power we
provided. While we have internal methods of tracking both the hash rate we provide and the total used by the pool, the mining pool operator uses its own
record-keeping to determine our proportion of a given reward, which may not match our own. If we are unable to consistently obtain accurate
proportionate rewards from our mining pool operators, we may experience reduced reward for our efforts, which would have an adverse effect on our
business and operations.
We may not be able to realize the benefits of forks.
The Bitcoin blockchain is subject to modification based on a consensus of the users on its network. When a significant minority of users on the network
agree to a modification that is not compatible with the prior network protocol, a "fork” of the network results, with one prong running the pre-modified
protocol and the other running the modified protocol. The effect of such a fork would be the existence of two "versions” of the blockchain running in
parallel that are not interchangeable, which requires exchange-type transaction to convert between the two forks. Additionally, it may be unclear following
a fork which of the two protocols represents the original and which is the new protocol. Different metrics adopted by industry participants to determine
which is the original asset include: referring to the wishes of the core developers of a cryptocurrency; determining based on the blockchain with the
greatest amount of hash rate contributed by miners or validators; or by reference to the "length” of blockchain (i.e., the time between the first transaction
recorded in the blockchain’s distributed ledger, and the date of the most recent transaction). Accordingly, we may not be able to realize the economic
benefit of a fork, either immediately or ever, which could adversely affect an investment in our securities.
Cyber-attacks, data breaches or malware may disrupt our operations and trigger significant liability for us, which could harm our operating results
and financial condition, and damage our reputation or otherwise materially harm our business.
As a publicly traded company, we experience cyber-attacks, such as phishing, and other attempts to gain unauthorized access to our systems on a regular
basis, and we anticipate continuing to be subject to such attempts. There is an ongoing risk that some or all of our cryptocurrencies could be lost or
stolen as a result of one or more of these incursions. As we increase in size, we may become a more appealing target of hackers, malware, cyber-attacks or
other security threats, and, despite our implementation of strict security measures and frequent security audits, it is impossible to eliminate all such
vulnerability. For instance, we may not be able to ensure the adequacy of the security measures employed by third parties, such as our service providers
and Whinstone’s colocation customers. Additionally, though we provide cyber-security training for employees, we cannot guarantee that we will not be
affected by further phishing attempts. Efforts to limit the ability of malicious actors to disrupt the operations of the internet or undermine our own security
efforts may be costly to implement and may not be successful. Such breaches, whether attributable to a vulnerability in our systems or otherwise, could
result in claims of liability against us, damage our reputation and materially harm our business.
To date, we have not experienced a material cyber-event; however, we continue to encounter ongoing cyber-attacks and the occurrence of any such
event in the future could subject us to liability to our customers, suppliers, business partners and others, give rise to legal and/or regulatory action, which
could damage our reputation or otherwise materially harm our business, operating results, and financial condition.
Incorrect or fraudulent Bitcoin transactions may be irreversible and we could lose access to our Bitcoin.
Bitcoin transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the Bitcoin from
the transaction. Because of the decentralized nature of the Bitcoin blockchain, once a transaction has been verified and recorded in a block that is added
to the Bitcoin blockchain, an incorrect transfer of a Bitcoin or a theft thereof generally will not be reversible, and we may not have sufficient recourse to
recover our losses from any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our
cryptocurrency rewards could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Though recent high
profile enforcement actions
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against individuals laundering stolen Bitcoin have demonstrated some means of bringing malicious actors to justice for their theft, the stolen Bitcoin is
likely to remain unrecoverable. Furthermore, we utilize a third-party custodian for our Bitcoin, and thus do not maintain a private key. However, if they
lose, or if a malicious actor successfully denies the third-party access to our wallet, we may be permanently denied access to the Bitcoin held in the wallet
corresponding to the lost, stolen or blocked keys. Though we have taken and continue to take reasonable steps to secure our data and to store our
Bitcoin with institutional custodians, if we, or our third-party custodian were to experience data loss relating to our digital wallets, we could effectively
lose access to and the ability to use our Bitcoin assets. Moreover, we may be unable to secure insurance policies for our Bitcoin assets at rates or on
terms acceptable to us, if at all, and we may choose to self-insure. To the extent that we are unable to recover our losses from such action, error or theft,
such events could have a material adverse effect on our business, results of operations and financial condition.
The Rockdale Facility may not be adaptable to new technologies.
The market for data centers is characterized by rapidly changing technology, evolving industry and process standards, frequent new product
introductions, and changing customer demands. Changes in industry practice or in technology could also reduce demand for the physical hosting space
and infrastructure that we provide or make previous improvements in the Rockdale Facility obsolete. Our ability to deliver technologically sophisticated
infrastructure at the Rockdale Facility, including power and cooling, is a significant factor in our customers’ decisions to collocate with us at the Rockdale
Facility. The Rockdale Facility’s infrastructure may become obsolete due to the development of new systems that deliver power to, or eliminate heat from,
the miners or other customer equipment that we house, which may require us to expend significant capital resources to retrofit or otherwise upgrade our
current systems to compete with data centers deploying these new systems.
While we believe the Rockdale Facility is primed to be adaptable, new technology can be, by its nature, unpredictable. Moreover, even if we are able to
respond, we may not be able to efficiently upgrade or change these systems without incurring significant costs. Operations may be negatively impacted
by these upgrades as they are in process. This may impact our customers’ experience in the short term, which may have a negative impact on operating
cash flows, liquidity, and financial condition.
The Rockdale Facility is subject to a ten-year ground lease, as amended, and if we are unable to renew its term, we may be unable to fully realize the
anticipated benefits of our acquisition of Whinstone and the ongoing development of the site.
The Rockdale Facility is subject to a ground lease with an initial term of ten years, followed by three ten-year renewal periods at our option, unless
terminated earlier. The long-term success of our plans for the Rockdale Facility is largely based on our ability to maintain the lease in effect and to renew it
going forward. If we fail to maintain the lease or renew it once its initial term expires and the landlord requires Whinstone to vacate the premises, we will
likely incur significant costs in relocating Whinstone’s operations, if we could do so at all, and our Bitcoin Mining and Data Center Hosting operations
would be interrupted during such relocation. Further, if we fail to renew the lease on terms favorable to us, and our costs are increased, then we may not
realize the anticipated benefits of our investment in the Whinstone Acquisition or any future development of its remaining available capacity. Any
disruptions or changes to Whinstone’s present relationship with the landlord for the Rockdale Facility could disrupt our business and our results of
operations negatively.
Our business could be harmed by prolonged power and internet outages, shortages, or capacity constraints.
Our operations require a significant amount of electrical power and access to high-speed internet to be successful. If we are unable to secure sufficient
electrical power, or if we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. If this occurs,
our business and results of operations may be materially and adversely affected.
We are subject to risks associated with our need for significant electrical power.
Our operations have required significant amounts of electrical power, and, as we continue to expand our mining fleet and our Rockdale Facility and begin
to operate our Corsicana Facility, we anticipate our demand for electrical power will continue to grow. The fluctuating price of electricity we require for our
operations, and to power our expansion, may inhibit our profitability. If we are unable to continue to obtain sufficient electrical power on a cost-effective
basis, we may not realize the anticipated benefits of our significant capital investments.
Additionally, our operations could be materially adversely affected by prolonged power outages. Although certain critical functions of our Rockdale
Facility may be powered by backup generators on a temporary basis, it would not be feasible or cost-effective to run miners on back-up power generators
for extended periods of time. Therefore, we may have to reduce or cease our operations in the event of an extended power outage, or as a result of the
unavailability or increased cost of electrical power. If this were to occur, our business and results of operations could be materially and adversely affected.
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Our operations could be adversely affected by events outside of our control, such as natural disasters.
We may be impacted by natural disasters, wars, health epidemics, weather conditions, the long-term effects of climate change, power outages or other
events outside of our control. For example, we voluntarily halted operations at our Rockdale Facility during the severe winter storms in the first quarter of
2022 and 2021 that had a widespread impact on utilities and transportation. In the future, regulators or power providers may, under new or revised rules,
require us to power down the Rockdale Facility and/or the Corsicana Facility, once it begins operations, during such events. If major disasters such as
earthquakes, floods or other climate-related events occur, the Rockdale Facility or our other offices are severely damaged, or our information system or
communications could break down or operate improperly, which may interrupt our operations. We may incur expenses or delays relating to such events
outside of our control, which may not be covered by insurance, and such events could have a material adverse impact on our business, operating results
and financial condition.
Increased scrutiny and changing expectations from stakeholders with respect to our ESG practices and the impacts of Climate Change may result in
additional costs or risks.
Companies across many industries are facing increasing scrutiny related to their environmental, social, and governance ("ESG”) practices. Investor
advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in
recent years have placed increasing importance on the non-financial impacts of their investments. Furthermore, increased public awareness and concern
regarding environmental risks, including global climate change, may result in increased public scrutiny of our business and our industry, and our
management team may divert significant time and energy away from our operations and towards responding to such scrutiny and reassuring our
employees.
In addition, the physical risks of climate change may impact the availability and cost of materials and natural resources, sources and supply of energy,
demand for Bitcoin and other cryptocurrencies, and could increase our insurance and other operating costs, including, potentially, to repair damage
incurred as a result of extreme weather events or to renovate or retrofit facilities to better withstand extreme weather events. If environmental laws or
regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements on our
operations, or if our operations are disrupted due to physical impacts of climate change, our business, capital expenditures, results of operations, financial
condition and competitive position could be negatively impacted.
Risks Related to Governmental Regulation and Enforcement
Changing environmental regulation and public energy policy may expose our business to new risks.
Our Bitcoin mining operations require a substantial amount of power and can only be successful, and ultimately profitable, if the costs we incur, including
for electricity, are lower than the revenue we generate from our operations. As a result, any mine we establish can only be successful if we can obtain
sufficient electrical power for that mine on a cost-effective basis, and our establishment of new mines requires us to find locations where that is the case.
For instance, our plans and strategic initiatives for the Rockdale Facility and future Corsicana Facility are based, in part, on our understanding of current
environmental and energy regulations, policies, and initiatives enacted by federal and Texas regulators. If new regulations are imposed, or if existing
regulations are modified, the assumptions we made underlying our plans and strategic initiatives may be inaccurate, and we may incur additional costs to
adapt our planned business, if we are able to adapt at all, to such regulations.
In addition, there continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty for our business because the
cryptocurrency mining industry, with its high energy demand, may become a target for future environmental and energy regulation. New legislation and
increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy
requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Further, any future climate
change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.
For example, in September 2022, the White House issued a report regarding the Climate and Energy Implications of Crypto-Assets in the United States.
The report states that the Department of Energy and Environmental Protection Agency should initiate a process to solicit data and develop environmental
performance and energy conservation standards for crypto-asset technologies, including mining equipment. Should such measures prove ineffective at
achieving the Administration’s environmental goals, the report calls for the Administration to explore executive actions and legislation to limit or eliminate
the use of high energy intensity consensus mechanisms for crypto-asset mining in the United States.
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Moreover, in the state of Texas, we currently participate in energy demand response programs to curtail operations, return capacity to the electrical grid,
and receive funds to offset foregone operational revenue when necessary, such as in extreme weather events.
Given the political significance and uncertainty around the impact of climate change and how it should be addressed, and energy disclosure and use
regulations, we cannot predict how legislation and regulation will affect our financial condition and results of operations in the future in the United States
and the state of Texas. Further, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential
impacts on climate change or energy use by us or other companies in our industry could harm our reputation. Any of the foregoing could result in a
material adverse effect on our business and financial condition.
The compliance costs of responding to new and changing regulations could adversely affect our operations at our Rockdale Facility and our future
operations at our Corsicana Facility.
We (along with those from whom we purchase electricity) are subject to various federal, state, local, and international environmental laws and regulations,
including those relating to the generation, storage, handling, and disposal of hazardous substances and wastes. Certain of these laws and regulations
also impose joint and several liability, without regard to fault, for investigation and cleanup costs on current and former owners and operators of real
property and persons who have disposed of or released hazardous substances into the environment. Our operations may involve the use of hazardous
substances and materials, such as petroleum fuel for emergency generators, as well as batteries, cleaning solutions, and other materials.
Electricity costs could also be affected due to existing or new regulations on greenhouse gas emissions, whether such regulations apply to all consumers
of electricity or just to specified uses, such as Bitcoin mining. These regulations may be federal, or we may be exposed to such regulations due to the
acquisition of Texas-based Whinstone. There has been interest in the U.S. federal government and in the state government of Texas in addressing climate
change, including through regulation of Bitcoin mining. Past policy proposals to address climate change include measures ranging from taxes on carbon
use or generation to energy consumption disclosure regimes to federally imposed limits on greenhouse gas emissions or energy use restrictions specific
to Bitcoin mining. Further, although Texas has historically sought to maintain some degree of energy independence from the United States as a whole, it is
unclear how future legislation and regulation will affect the Rockdale Facility and the future Corsicana Facility. The course of future legislation and
regulation in the United States and in Texas remains difficult to predict, and potential increased costs associated with new legislation or regulation cannot
be estimated at this time.
Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects
our business, prospects, or operations.
As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies; certain
governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the United
States, subject the mining, ownership and exchange of cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory
requirements.
For example, in January 2023, the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued a joint
statement effectively discouraging banks from doing business with clients in crypto-asset industries, which could potentially create challenges regarding
access to financial services. In January 2023, the Federal Reserve also issued a policy statement broadening its authority to cover state-chartered
institutions. Moreover, in January 2023, the White House issued a statement cautioning deepening ties between crypto-assets and the broader financial
system. Meanwhile, the SEC has announced several actions aimed at curtailing activities it deems sales of unregistered securities.
However, also during January of 2023, the U.S. House of Representatives announced its first ever Financial Services Subcommittee on Digital Assets and
the intention to develop a regulatory framework for the use and trade of digital assets and related financial services products in the United States.
Bipartisan leadership of the Senate Banking Committee announced a similar objective.
Given the difficulty of predicting the outcomes of ongoing and future regulatory actions and legislative developments, it is possible that they could have
a material adverse effect on our business, prospects or operations.
Our interactions with a blockchain may expose us to SDN or blocked persons and new legislation or regulation could adversely impact our business
or the market for cryptocurrencies.
The Office of Financial Assets Control ("OFAC”) of the U.S. Department of Treasury requires us to comply with its sanction program and not conduct
business with persons named on its specially designated nationals ("SDN”) list. However, because of the
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pseudonymous nature of blockchain transactions we may inadvertently and without our knowledge engage in transactions with persons named on
OFAC’s SDN list. Our Company’s policy prohibits any transactions with such SDN individuals, and we take all commercially reasonable steps to avoid
such transactions, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to
selling cryptocurrency assets. Moreover, there is a risk that some bad actors will continue to attempt to use cryptocurrencies, including Bitcoin, as a
potential means of avoiding federally imposed sanctions, such as those imposed in connection with the Russian invasion of Ukraine.
We are unable to predict the nature or extent of new and proposed legislation and regulation affecting the cryptocurrency industry, or the potential impact
of the use of cryptocurrencies by SDN or other blocked or sanctioned persons, which could have material adverse effects on our business and our
industry more broadly. Further, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties
as a result of any regulatory enforcement actions, all of which could harm our reputation and affect the value of our common stock.
Bitcoin and Bitcoin mining, as well as cryptocurrencies generally, may be made illegal in certain jurisdictions, including the ones we operate in,
which could adversely affect our business prospects and operations.
It is possible that state or federal regulators may seek to impose harsh restrictions or total bans on cryptocurrency mining which may make it impossible
for us to do business without relocating our mining operations, which could be very costly and time consuming. Further, although Bitcoin and Bitcoin
mining, as well as cryptocurrencies generally, are largely unregulated in most countries (including the United States), regulators could undertake new or
intensify regulatory actions that could severely restrict the right to mine, acquire, own, hold, sell, or use cryptocurrency or to exchange it for traditional
fiat currency such as the United States Dollar. Such restrictions may adversely affect us as the large-scale use of cryptocurrencies as a means of exchange
is presently confined to certain regions globally. Such circumstances could have a material adverse effect on us, which could have a material adverse
effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for
our own account, and thus harm investors.
Risks Related to Ownership of Our Common Stock
The trading price of shares of our common stock has been subject to volatility.
The trading price of our common stock has been, and is likely to continue to be, volatile, and may be influenced by including the risks, uncertainties and
factors described in this Annual Report and our other filings with the SEC, as well as factors beyond our control or of which we may be unaware. If these
risks come to pass and our business and results of operation suffer as a result, the market price of our securities may decline, which could have a material
adverse effect on an investment in our securities.
Bitcoin is part of the cryptocurrency environment and is subject to price volatility resulting from financial instability, poor business practices, fraudulent
activities of players in the cryptocurrency market, and other factors outside of our control. Such factors may cause a decline in the price of Bitcoin, which
may affect the trading price of our shares of common stock.
We have a classified board of directors; therefore, only approximately one-third of the Board is up for election at each annual stockholders’ meeting,
which could limit stockholders’ ability to influence directors’ decision making.
Our Bylaws provide for a classified board of directors consisting of three classes of directors serving staggered three-year terms, and each year our
stockholders elect one class of our directors. We believe that a classified board structure facilitates continuity and stability of leadership and policy by
helping ensure that, at any given time, a majority of our directors have prior experience as directors of our Company and are familiar with our business and
operations. In our view, this permits more effective long-term planning and helps create long-term value for our stockholders. The classified board
structure, however, could prevent a party who acquires control of a majority of our outstanding voting stock from obtaining control of our board of
directors until the second annual stockholders’ meeting following the date that party obtains control of a majority of our voting stock. The classified
board structure may discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of us, as the
structure makes it more difficult for a stockholder to replace a majority of our directors.
Article XIV of our Bylaws, as amended, designates the courts of the State of New York as the sole and exclusive forum for certain types of actions and
proceedings that may be initiated by our shareholders, and therefore may limit our stockholders’ ability to choose a forum for disputes with us or our
directors, officers, employees, or agents.
Article XIV of our Bylaws, as amended, provides that, to the fullest extent permitted by law, and unless we consent to the selection of an alternative
forum, the state and federal courts in and for the State of New York shall be the sole and exclusive forum for the
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resolution of certain actions and proceedings that may be initiated by our stockholders, and that, by purchasing our securities, our stockholders are
deemed to have notice of and consented to this forum selection clause. Under Article XIV of our Bylaws, the following claims are subject to this forum
selection clause: (a) any derivative action or proceeding brought on behalf of the Company; (b) any action or proceeding asserting a claim of breach of a
fiduciary duty owed by any director or officer of the Company to the Company or the Company’s stockholders; (c) any action or proceeding asserting a
claim against the Company arising pursuant to any provision of the Nevada Revised Statutes or the Company’s Articles of Incorporation or Bylaws (as
either might be amended from time to time); or (d) any action or proceeding asserting a claim against the Company governed by the internal affairs
doctrine.
By its terms, the forum selection clause in our Bylaws applies to the foregoing claims to the fullest extent permitted by law, and, as such, should not be
interpreted as precluding our stockholders from bringing claims under the Exchange Act in the appropriate federal court with jurisdiction over such claims,
as provided by Section 27 of the Exchange Act. Likewise, the forum selection clause in our Bylaws should not be interpreted as precluding our
stockholders from bringing claims under the Securities Act in the appropriate state or federal court with jurisdiction over such claims, as provided by
Section 22 of the Securities Act.
We believe the choice-of-forum provision in our Bylaws will help provide for the orderly, efficient, and cost-effective resolution of legal issues affecting
us by designating courts located in the State of New York as the exclusive forum for cases involving such issues. However, this provision may limit a
stockholder’s ability to bring a claim in a judicial forum that it believes to be favorable for disputes with us or our directors, officers, employees, or agents,
which may discourage such actions against us and our directors, officers, employees, and agents.
Nevada revised statutes permit us to make this selection in our Bylaws, and, while there is no New York case law addressing the enforceability of this type
of provision, New York courts have on prior occasion found persuasive authority in Delaware case law in favor of the enforceability of forum selection
clauses in the absence of statutory or case law specifically addressing an issue of corporate law. However, if a court were to find the choice-of-forum
provision in our Bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of
operations.
Nevada law contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove
current management and reduce the market price of our stock.
Certain provisions of Nevada law described below may make us a less attractive candidate for acquisition, which may adversely impact the value of the
shares of our capital stock held by our stockholders. We have not opted out of these provisions in our Bylaws, as permitted under the Nevada Revised
Statutes.
Nevada Revised Statutes Sections 78.411 through 78.444 (the "Nevada Combinations Statute”) generally prohibit "combinations” including mergers,
consolidations, sales and leases of assets, issuances of securities and similar transactions by a Nevada corporation having a requisite number of
stockholders of record (of which we are one) with any person who beneficially owns (or any affiliate or associate of the corporation who within the
previous two years owned), directly or indirectly, 10% or more of the voting power of the outstanding voting shares of the corporation (an "interested
stockholder”), within two years after such person first became an interested stockholder unless (i) the board of directors of the corporation approved the
combination or transaction by which the person first became an interested stockholder before the person first became an interested stockholder or (ii) the
board of directors of the corporation has approved the combination in question and, at or after that time, such combination is approved at an annual or
special meeting of the stockholders of the target corporation, and not by written consent, by the affirmative vote of holders of stock representing at least
60% of the outstanding voting power of the target corporation not beneficially owned by the interested stockholder or the affiliates or associates of the
interested stockholder.
Two years after the date the person first became an interested stockholder, the Nevada Combinations Statute prohibits any combination with that
interested stockholder unless (i) the board of directors of the corporation approved the combination or transaction by which the person first became an
interested stockholder before the person first became an interested stockholder or (ii) such combination is approved by a majority of the outstanding
voting power of the corporation not beneficially owned by the interested stockholder or any affiliate or associate of the interested stockholder. The
Nevada Combinations Statute does not apply to combinations with an interested stockholder after the expiration of four years from when the person first
became an interested stockholder.
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Because we do not currently intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their
shares unless they sell them.
We currently intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares
unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
We, and some of our current officers and directors, have been named as parties to various lawsuits arising out of, or related to, allegedly false and
misleading statements made in prior securities filings, and those lawsuits could adversely affect us, require significant management time and
attention, result in significant legal expenses or damages, and cause our business, financial condition, results of operations and cash flows to suffer.
A number of securities class action complaints and a stockholder derivative action have been filed against us and certain of our current officers and
directors, as described more fully in Item 3, "Legal Proceedings”. Stockholders have filed three class action complaints against us in three states, accusing
us of violations of the federal securities laws based on purported material misrepresentations or omissions allegedly made by the Company. Each class
action complaint seeks unspecified money damages and other relief on behalf of a putative class of persons who purchased or otherwise acquired our
common stock between November 13, 2017 and February 15, 2018. The stockholder derivative case alleges similar disclosure violations and seeks
unspecified monetary damages and corporate governance reforms. If these matters cannot be resolved expeditiously, management’s attention may be
diverted to this matter and there can be no assurance that the litigation would be settled. If the current litigation proceeds or if additional claims are filed,
the legal and other costs associated with the defense of these actions and their ultimate outcomes could have a material adverse effect on our business,
financial condition and results of operations. While we expect insurance to cover many of the costs associated with defending such litigation, including
claims for indemnification made by our existing and former management team and members of our Board of Directors, insurance coverage may be
insufficient and could require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect
customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable.
Because there has been limited precedent set for financial accounting of Bitcoin and other cryptocurrency assets, the determination that we have
made for how to account for cryptocurrency assets transactions may be subject to change.
Because there has been limited precedent set for the financial accounting of cryptocurrencies and related revenue recognition and no official guidance
has yet been provided by the Financial Accounting Standards Board ("FASB”) or the SEC, it is unclear how companies may in the future be required to
account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could
result in the necessity to change our accounting methods and restate our financial statements. Such a restatement could adversely affect the accounting
for our newly mined cryptocurrency rewards and more generally negatively impact our business, prospects, financial condition and results of operations.
Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would
have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expect to
acquire for our own account and harm investors.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the
future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or
cause us to fail to meet our periodic reporting obligations.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act. Section 404 requires that we document and test our internal
control over financial reporting and issue management’s assessment of our internal control over financial reporting. Management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on our assessment, as of
December 31, 2022, we concluded that our internal control over financial reporting contained material weaknesses. To remediate these material
weaknesses, our management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to
the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
We believe that these actions will remediate the material weakness. However, the remediation cannot be deemed successful until the applicable controls
operate for a sufficient period of time and our management has concluded, through testing, that these controls
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are operating effectively. If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, the accuracy and timeliness of the filing of
our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal control
over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require
additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and
financial condition.
We have issued new shares of our common stock, which has a dilutive effect.
We have, primarily, financed our strategic growth through our ATM offerings and issuances of common stock. The issuance of common stock by the
Company dilutes the ownership interest of current stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Leased Property
As of December 31, 2022, we leased our corporate offices in Castle Rock, Colorado, Austin, Texas and Costa Mesa, California, offices and manufacturing
facilities in Denver, Colorado, temporary office space at our Corsicana Facility, and had a long-term ground lease for the land upon which the Rockdale
Facility is constructed.
Property Owned
As of December 31, 2022, we owned the Rockdale Facility and the land upon which the Corsicana Facility is being constructed. We will own the Corsicana
Facility once it is constructed.
In our opinion, our facilities, whether owned or leased, are suitable and adequate for their intended purposes, are well-maintained and generally in regular
use and have capacities adequate for current and projected needs. Other than the ground lease for the Rockdale Facility noted above, there are no material
encumbrances on any of our owned facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company, and our subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to our business and
transactions arising in the ordinary course of business. We cannot predict the final outcome of such proceedings. Where appropriate, we vigorously
defend such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including, direct, consequential, exemplary,
and/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 our insurance program. We maintain property, and various types of liability insurance in an effort to protect ourselves from such
claims. In terms of any matters where there is no insurance coverage available to us, or where coverage is available and we maintain a retention or
deductible associated with such insurance, we may establish an accrual for such loss, retention or deductible based on current available information. In
accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial
statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by us in the
accompanying consolidated balance sheets. If it is reasonably possible that an asset may be impaired as of the date of the financial statement, then we
disclose the range of possible loss. Paid expenses related to the defense of such claims are recorded by us as incurred and paid. 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 our defense of such matters. On the basis of current information, we do 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 we are subject to
either individually, or in the aggregate.
Northern Data Working Capital Dispute
On September 7, 2022, the Company filed a complaint against Northern Data AG ("Northern Data”) in the Delaware Court of Chancery seeking declaratory
relief and specific performance under the Stock Purchase Agreement (the "SPA”) that Northern Data entered into with Riot for the purchase of
Whinstone. The SPA requires a post-closing true-up of the purchase price and provides
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specific procedures to resolve disputes over the same, including a mechanism for submitting any objections to an independent accounting expert for
resolution. The complaint alleges that Northern Data failed to engage in a contractually prescribed process to resolve disputes over the acquisition price.
Accordingly, the Company seeks an order affirmatively declaring that it is entitled to initiate the engagement of an independent accounting expert
pursuant to the terms of the SPA, as well as an order compelling specific performance from Northern Data to engage an accounting expert or through the
court’s appointment of one of the experts proposed by the Company.
On September 26, 2022, Northern Data filed its Answer, Affirmative Defenses, and Verified Counterclaims and Third-Party Claims, alleging that Riot and
Whinstone breached the SPA by withholding certain energy credit payments. Northern Data further alleges that Riot is improperly seeking to introduce
indemnification claims into the contractual process to resolve the parties’ dispute over purchase price. Northern Data seeks damages in an unspecified
amount, a declaration that Riot may not withhold payments for energy credits pending the resolution of the purchase price dispute, and specific
performance that Riot may not introduce indemnification claims into the purchase price dispute. On November 10, 2022, the Company timely filed its
answer and affirmative defenses denying Northern Data’s counterclaims.
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”). GMO alleges Whinstone breached the W Colocation Services Agreement (Texas), entered into by GMO and Whinstone on October 16,
2019 (the "Colocation Services Agreement”), by failing to indemnify GMO for certain contractual loss of profit and causing additional damages including
loss of revenue, lost profits and loss of savings. GMO is seeking – without substantiation – compensatory damages in excess of $50 million, and pre- and
post-judgment interest.
Whinstone’s Answer and Counterclaims were filed on August 22, 2022. On September 12, 2022, GMO filed its answer and affirmative defenses to
Whinstone’s counterclaims, which included additional claims against Whinstone, as permitted under the applicable local rules. 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 due to 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.
Class Actions and Related Claims
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. , Case No. 3: 18-cv-02293. The complaint asserts violations of federal
securities laws under Section 10(b) and Section 20(a) of the Exchange Act on behalf of a putative class of stockholders that purchased stock from
November 13, 2017 through February 15, 2018. The complaint alleges that the Company and certain of its officers and directors made, caused to be made,
or failed to correct false and/or misleading statements in press releases and public filings regarding its business plan in connection with its
cryptocurrency business. The complaint requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On April 18, 2018, Joseph J. Klapper, Jr., filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court
for the District of New Jersey (Klapper v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-8031). The complaint contained substantially similar allegations
and the same claims as those filed by Mr. Takata, and requests damages in unspecified amounts, costs and fees of bringing the action, and other
unspecified relief.
On November 6, 2018, the court in the Takata action issued an order consolidating Takata with Klapper into a single putative class action. The court also
appointed Dr. Golovac as Lead Plaintiff and Motely Rice as Lead Counsel of the consolidated class action.
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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. Defendants filed multiple motions to dismiss the amended complaint
starting on September 3, 2019. On April 30, 2020, the court granted the motions to dismiss, which resulted in the dismissal of all claims without prejudice.
On December 24, 2020, Lead Plaintiff filed another amended complaint. Defendants filed multiple motions to dismiss the amended complaint starting on
February 8, 2021, which were fully briefed. On February 28, 2022, the court issued an order instructing the parties to submit supplemental briefing by
March 14, 2022 on particular issues raised in the motions to dismiss. 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.
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., Case
No. 604520/18). The complaint contains similar allegations to those contained in the shareholder class action complaints and seeks recovery for alleged
breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement. The complaint seeks unspecified
monetary damages and corporate governance changes. At the last preliminary conference, the court adjourned the conference until June 27, 2023 in lieu of
staying the action. Defendants do not anticipate any other activity on this case until the next preliminary conference.
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., Case No. A-18-774890-B & Gaft v. O’Rourke, et al., Case No. A-18-774896-8). The two
complaints make identical allegations, which are similar to the allegations contained in the shareholder class action complaints. The shareholder derivative
plaintiffs also seek recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and aiding abetting a breach of fiduciary
duty. The complaints seek unspecific monetary damages and corporate governance changes.
On September 24, 2018, the court entered an order consolidating the Gaft and Kish actions, which is now styled as In re Riot Blockchain, Inc.
Shareholder Derivative Litigation, Case No. A-18-774890-B. The plaintiffs filed a consolidated complaint on March 15, 2019. The consolidated action has
been temporarily stayed 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 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., Case No. 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. The parties filed a motion with the court to temporarily stay 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. In
response, the court dismissed the action without prejudice with leave to refile a complaint following 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 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., Case No. 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 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.
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., Case No. 1:18-cv-01443). The shareholder plaintiffs allege claims for violation of Section 14(a) of the Exchange
Act, 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’ stipulation, the court
issued an order temporarily
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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.
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.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
PART II
Market Information
Our common stock trades on the Nasdaq Capital Market under the symbol "RIOT”.
Holders of our Common Stock
As of March 1, 2023, there were approximately 1,253 holders of record of our common stock. The actual number of stockholders is greater than this
number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Dividend Policy
We have historically not declared or paid cash dividends on our capital stock. Any future determination regarding the declaration and payment of
dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition,
operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.
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Stock Performance Graph
This performance graph shall not be deemed "filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of Riot
Platforms, Inc. under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
The following graph shows a comparison over a five year period from December 31, 2017 through December 31, 2022, of the cumulative total return on our
common stock, the Nasdaq Composite Index and the Russell 2000 Index. Due to the infancy of our industry, we have not compared our performance
against a self-constructed peer group or used a Published Industry Index. Such returns are based on historical results and are not intended to suggest
future performance. Data for the Nasdaq Composite Index and the Russell 2000 Index assumes an investment of $100 on December 31, 2017 and
reinvestment of dividends. We have historically not declared or paid cash dividends on our common stock.
Recent Sales of Unregistered Securities
On December 1, 2021, we issued 715,413 shares of our common stock, subject to a holdback of 70,165 shares to the sellers in connection with the ESS
Metron Acquisition. The shares of common stock in connection with the ESS Metron Acquisition were issued in reliance upon an exemption from
registration provided by Section 4(a)(2) of the Securities Act. Subsequently, we registered for resale the 645,248 shares issued to the sellers at the closing
of the ESS Metron Acquisition.
On May 26, 2021, at the closing of the Whinstone Acquisition, we issued 11.8 million shares of our common stock to Northern Data in exchange for all of
the issued and outstanding equity interests of Whinstone. These shares were issued in reliance upon an exemption from registration provided by Section
4(a)(2) of the Securities Act. Subsequently, we registered the shares issued to Northern Data for resale pursuant to registration rights granted under the
shareholders’ agreement we entered into with Northern Data in connection with closing of the Whinstone Acquisition.
ITEM 6. [RESERVED]
Not applicable.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements:
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A”) is intended to help the reader
understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and notes thereto included in Item 8 - Financial Statements and Supplementary Data. Our discussion includes forward-
looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of
factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar
expressions to identify forward-looking statements. See "Forward-Looking Statements.”
As discussed in Item 8. Financial Statements and Supplementary Data, in Note 2. Restatement of Previously Issued Financial Statements, we have
restated our previously issued audited Consolidated Financial Statements as of December 31, 2021, and for the years ended December 31, 2021 and 2020,
and our unaudited quarterly financial information for the quarterly periods ended March 31, June 30 and September 30, 2022 and 2021. Accordingly,
Management’s Discussion and Analysis of Financial Condition and Results of Operations have been revised for the effects of the restatement.
Business Overview:
We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin in support of the Bitcoin
blockchain. We also provide comprehensive and critical mining infrastructure for institutional-scale hosted clients to mine Bitcoin at our Rockdale Facility.
The Rockdale Facility currently provides 700 megawatts in total developed capacity for our Bitcoin mining and data center hosting services for
institutional-scale hosted clients. Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed
capacity, and we are currently further growing its capacity. Additionally, we are 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 our own Bitcoin mining and data
center hosting services for institutional-scale hosted clients.
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 investment.
As discussed further in this Annual Report, we operate in three business segments: Bitcoin Mining, Data Center Hosting, and Engineering.
Strategic Acquisitions
Corsicana
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, where the anticipated one-
gigawatt Corsicana Facility will be constructed. 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 to the facility. Construction of the substation and the data centers is expected to be carried out concurrently,
with self-mining and data center hosting operations expected to commence by the fourth quarter of 2023, following the commissioning of the substation,
which is also expected to be completed in the fourth quarter of 2023.
Industry Trends
During 2022, we observed several companies in the Bitcoin ecosystem experience significant challenges and initiate bankruptcy proceedings due to the
significant decline in the price of Bitcoin and other national and global macroeconomic factors. We anticipate this trend will likely continue as companies
attempt to shift their business models to operate on significantly compressed margins. The dramatic increase in the price of Bitcoin observed in the market
during prior years caused many companies to over-leverage themselves, thus operating in an unsustainable way given the recent instability in the price of
Bitcoin. Riot chose to refrain from
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engaging in debt-financing activities during this period and, as a result, has not been subject to the significant debt-service shortfalls some of its
competitors are experiencing. Despite such challenges in the ecosystem, Riot continues to focus on building long-term stockholder value by taking
strategic action to vertically integrate its business, expanding the Rockdale Facility and developing the Corsicana Facility. Management believes this
focus will positively affect each of Riot’s three business segments by providing more capacity for its Bitcoin Mining and Data Center Hosting, and by
capitalizing on supply chain efficiencies garnered through its Engineering segment. As we grow our business, we continue to focus on deploying our
efficient Bitcoin mining fleet, at scale, while realizing the benefits of being an owner and operator of our Bitcoin Mining and Data Center Hosting facilities.
We anticipate that other companies in the industry will continue to experience challenges and that 2023 will continue to be a period of consolidation in the
Bitcoin mining industry, and we believe that, given our relative position, liquidity and absence of long-term debt, in the competitive landscape, we are
likely positioned to benefit from this consolidation. As a result of any strategic action undertaken by us, our business and financial results may change
significantly. We are continuously evaluating strategic opportunities which we may decide to undertake as part of our strategic growth initiatives;
however, we can offer no assurances that any strategic opportunities which we decide to undertake will be achieved on the schedule or within the budget
we anticipate, if at all, in our competitive and evolving industry. See Part I, Item 1A. "Risk Factors” of this Annual Report for additional discussion
regarding potential impacts our competitive and evolving industry may have on our business.
Bitcoin Mining
The Company’s current focus is on its Bitcoin Mining operations, and during the year ended December 31, 2022, we continued to deploy miners at our
Rockdale Facility and continued development activities at the Corsicana Facility, with the objective of increasing the Company’s operational efficiency
and performance.
As of December 31, 2022, our Bitcoin Mining business segment operated 88,556 ASIC miners, with a hash rate capacity of 9.7 EH/s. In 2022, we mined
5,554 Bitcoin, which represented an increase of 45.7% over the 3,812 Bitcoin we mined in 2021. We anticipate we will have 111,216 miners in operation by
the end of 2023.
Miner Purchases and Deployments
During the year ended December 31, 2022, we purchased, received, and/or deployed the following:
Miners deployed as of January 1, 2022
Miners received and deployed during the year ended December 31, 2022
Miners received but not yet deployed
Miners under contract, but not yet received
Total miners under contract, expected to be received, or deployed as of December 31, 2022
30,907
57,649
17,530
5,130
111,216
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 shipped in January 2023. Pursuant to these agreements, as of December 31, 2022, no amounts remain payable to Bitmain.
To take advantage of our low-cost power supply agreement at our Rockdale Facility and eliminate third-party hosting fees, during the year ended
December 31, 2022, we elected to not renew our co-location mining services agreement with Coinmint, which therefore terminated automatically per its
terms as of July 8, 2022. Upon termination of the agreement, we fully exited our Bitcoin Mining operations at Coinmint. We believe this transition will lower
our overall cost of revenues for the Bitcoin Mining business as new miners will be deployed at the Rockdale Facility.
For the year ended December 31, 2022, Bitcoin Mining revenue was approximately $156.9 million.
Data Center Hosting
Upon completion of the Whinstone Acquisition, we commenced an 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 nearing
completion in the first quarter of 2023, which, when completed, will finalize our Rockdale Facility expansion. Two of the four buildings are self-mining
buildings dedicated to immersion-cooled Bitcoin mining.
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The expansion of our Rockdale Facility has provided capacity to enable us to deploy our current fleet of miners (including those expected to be delivered
in future shipments pursuant to our purchase orders with Bitmain) in a self-hosted facility, while allowing Whinstone to continue to operate and grow its
existing Data Center Hosting business segment. We believe deploying our miners at the expanded Rockdale Facility has many advantages for our mining
operations, including allowing us to operate our miners without incurring third-party colocation services fees and to do so at the fixed low energy costs
available to the Rockdale Facility under its long-term power supply agreement.
The Rockdale Facility currently hosts Bitcoin Mining operations for institutional-scale mining customers.
Data Center Hosting revenue includes upfront payments, which we record as deferred revenue and generally recognize as services are provided. We
provide energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale
Facility under long-term contracts. We account for these agreements as a single performance obligation for services being delivered in a series with
delivery being measured by daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of
performance obligations are met. The contracts are recognized in the amount for which we have the right to invoice because we elected the "right to
invoice” practical expedient.
For the year ended December 31, 2022, Data Center Hosting revenue was approximately $36.9 million.
Engineering
Our Engineering business segment designs and manufacturers power distribution equipment and custom engineered electrical products that provide us
with the ability to vertically integrate many of the critical electrical components and engineering services necessary for our Rockdale Facility expansion
and to reduce our execution and counter-party risk in ongoing and future expansion projects. Our engineers also allow us to continue to explore new
methods to optimize and develop a best-in-class Bitcoin mining operation and have been instrumental in the development of our industrial-scale
immersion-cooled Bitcoin mining hardware.
Our Engineering business segment also provides electricity distribution product design, manufacture, and installation services primarily focused on large-
scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power
generation, utility, water, industrial, and alternative energy. Products are custom built to client and industry specifications Additionally, we utilize an in-
house field service and repair department.
Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified
performance obligation. Engineering 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.
For the year ended December 31, 2022, Engineering revenue was approximately $65.3 million.
COVID-19
The COVID-19 global pandemic has been unprecedented and unpredictable; its impact is likely to continue to result in significant national and global
economic disruption, which may adversely affect our business. Based on our current assessment, however, we do not expect any material impact on our
long-term development, our operations, or our liquidity due to the worldwide spread of COVID-19, other than the potential impact of COVID-19 on global
logistics discussed below. We are actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers,
and industry.
In addition, nationally, we have experienced and are experiencing varying degrees of inflation, resulting in part from various supply chain disruptions,
increased shipping, and transportation costs, and increased raw material and labor costs, as well as other disruptions resulting from the continuing
COVID-19 pandemic and general global economic conditions. This inflationary impact on our cost structure has contributed to adjustments in operations,
ability to obtain materials and retain talent, despite a continued focus on reducing our costs where possible.
Global Logistics
Global supply logistics have caused delays across all channels of distribution. Similarly, we have also experienced delays in certain of our miner delivery
schedules and in our infrastructure development schedules due to constraints on the globalized supply chains for miners, electricity distribution
equipment and construction materials. Through the date of this Annual Report, we have been able to effectively mitigate any delivery delays to avoid
materially impacting our miner deployment schedule, however, there are no assurances we will be able to continue to mitigate any such delivery delays in
the future. Additionally, the expansion of the Rockdale
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Facility and the development of our new Corsicana Facility requires large quantities of construction materials, specialized electricity distribution
equipment and other component parts that can be difficult to source. We have procured and hold many of the required materials to help mitigate global
supply logistic and pricing concerns. We continue to monitor developments in the global supply chain and assess their potential impact on our expansion
plans.
Summary of Bitcoin Mining Results
The following table presents additional information about our Bitcoin Mining activities, including Bitcoin production and sales of the Bitcoin mined:
Balance as of January 1, 2020
Revenue recognized from Bitcoin mined
Mining pool operating fees
Proceeds from sale of Bitcoin
Realized gain on sale/exchange of Bitcoin (as restated)
Impairment of Bitcoin (as restated)
Bitcoin received from sale of equipment
Balance as of December 31, 2020 (as restated)
Revenue recognized from Bitcoin mined
Exchange of Bitcoin for employee compensation
Realized gain on sale/exchange of Bitcoin (as restated)
Impairment of Bitcoin (as restated)
Balance as of December 31, 2021 (as restated)
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
Balance as of December 31, 2022
Quantity
Amounts
514
1,033
$
—
(500)
26
—
5
1,078
3,812
(6)
—
—
4,884
5,554
(3,425)
(39)
—
—
$
6,974
3,839
11,984
(146)
(8,298)
6,350
(3,595)
52
10,186
184,422
(295)
253
(43,973)
150,593
156,870
(79,529)
(1,495)
30,346
(147,365)
109,420
Results of Operations Comparative Results for the Years Ended December 31, 2022 and 2021:
Revenues:
Total revenue for the years ended December 31, 2022 and 2021, was $259.2 million and $213.2 million, respectively, and consisted of our Bitcoin Mining
revenue, Data Center Hosting revenue, Engineering revenue, and other revenue.
For the years ended December 31, 2022 and 2021, Bitcoin Mining revenue was $156.9 million, and $184.4 million, respectively. The decrease of $27.6 million
in Bitcoin Mining revenue was due to lower values of Bitcoin mined in 2022, averaging $28,245 per coin, as compared to $45,744 per coin in 2021, partially
offset by a higher number of Bitcoin mined in 2022, which totaled 5,554, as compared to 3,812 in the 2021 period, and an increase in miners deployed. The
primary reason for the increase in the number of Bitcoin mined was due to the Company’s effective employment of its proprietary power strategy to
significantly reduce overall power costs. During the year ended December 31, 2022, the Company earned $27.3 million in power curtailment credits, to be
credited against its power invoices, as a result of temporarily pausing its operations. The power curtailment credits are recorded as an offset against
operating expenses and equate to approximately 1,815 Bitcoin, as computed by using the average daily closing BTC prices on a monthly basis. During the
year ended December 31, 2021, the Company earned $6.5 million in power credits, or the equivalent of approximately 251 Bitcoin.
For the years ended December 31, 2022 and 2021, Data Center Hosting revenue was $36.9 million and $24.5 million, respectively. The increase of $12.3 was
primarily attributable to 2021 only including activity subsequent to the acquisition of Whinstone in May 2021.
For the years ended December 31, 2022 and 2021, Engineering revenue was $65.3 million and $4.2 million, respectively. The increase of $61.2 was primarily
attributable to 2021 only including activity subsequent to the acquisition of ESS Metron in December 2021.
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Costs and expenses:
Cost of revenues for Bitcoin Mining for the years ended December 31, 2022 and 2021 were $74.3 million and $45.5 million, respectively, representing an
increase of approximately $28.8 million. As a percentage of Mining revenue, cost of revenues totaled 47.4% and 24.7% for each of the years ended
December 31, 2022 and 2021, respectively. Bitcoin Mining cost of revenues consist primarily of direct production costs of mining operations, including
electricity, labor, insurance and, for a portion of 2022, the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately
stated. The increase of $28.8 million is primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct
costs necessary to maintain and support the mining operations. During the years ended December 31, 2022 and 2021, the Company earned $27.3 million
and $6.5 million, respectively, in power credits, to be credited against its power invoices, as a result of temporarily pausing its operations. These credits
are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s overall
cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Mining revenue were 39.7%
and 24.7% for the years ended December 31, 2022 and 2021, respectively.
Cost of revenues for Data Center Hosting for the years ended December 31, 2022 and 2021 was $61.9 million and $33.0 million, respectively. The 2022 costs
consisted primarily of direct power costs, with the balance primarily incurred for compensation and rent costs. The increase in costs was primarily
attributable to 2021 only including activity subsequent to the acquisition of Whinstone in May 2021.
Cost of revenues for Engineering for the years ended December 31, 2022 and 2021 was $57.5 million and $3.6 million, respectively. The 2022 costs
consisted primarily of $40.3 million for direct materials and labor, as well as indirect manufacturing costs. The increase in costs was primarily attributable to
2021 only including activity subsequent to the acquisition of ESS Metron in December 2021.
Selling, general and administrative expenses during the years ended December 31, 2022 and 2021 totaled $67.5 million and $87.4 million, respectively. The
decrease of $20.0 million was primarily attributable to a decrease in stock-compensation expense of approximately $43.9 million resulting from the adoption
of the performance-based stock plan in August 2021, combined with lower grant date values of our common stock, partially offset by increases in
compensation expense, which increased by $12.4 million, and other expenses, due to 2022 including a full year’s of activity related to the operations of
Whinstone and ESS Metron.
Depreciation and amortization expense during the years ended December 31, 2022 and 2021 totaled $108.0 million and $26.3 million, respectively. The
increase of $81.6 million was primarily due to higher depreciation expense recognized for the Rockdale Facility, our recently acquired miners, and
depreciation of the assets acquired as part of the Whinstone and ESS Metron acquisitions not impacting all of 2021.
Changes in fair value of our derivative asset for the years ended December 31, 2022 and 2021 were gains of $71.4 and $12.1 million, respectively. The gains
were primarily due to the increase in the forward power market curve compared to the fixed-rate in our power purchase agreement.
Power curtailment credits during the years ended December 31, 2022 and 2021, were $27.3 and $6.5 million, respectively, from power sales to ERCOT
through its Demand Response Services Programs. Depending on the spot market price of electricity, we opportunistically sell electricity back to ERCOT in
exchange for cash payments or credits against future invoices, rather than using the power for the Company’s operations during these peak times. These
peak times and spot market prices can vary significantly depending on consumer demand for electricity, the time of day and extreme weather.
Realized gain on sale/exchange of Bitcoin for the years ended December 31, 2022 and 2021 were $30.3 million and $0.3 million, respectively. Beginning in
March 2022, the Company began selling a portion of its monthly Bitcoin production to fund its operations and expansion cash requirements. The
Company sold, or transferred for employee compensation, 3,464 Bitcoin during 2022 compared to only six during 2021.
Gain on exchange of equipment for the years ended December 31, 2022 and 2021 were $16.3 million and zero, respectively. The gain was a result of the
exchange of miners with a third-party Bitcoin mining company.
Casualty-related charges (recoveries), net during the years ended December 31, 2022 and 2021 were $9.7 million and zero, respectively. 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.
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Impairment of Bitcoin for the years ended December 31, 2022 and 2021 was $147.4 million and $44.0 million, respectively, attributable to the decline in
Bitcoin values and increase in Bitcoin mined in 2022 as compared to 2021.
Impairment of goodwill for the year ended December 31, 2022, was $335.6 million due to adverse changes in our business climate, including decreases in
the price of Bitcoin and increased volatility of equity markets, increased weighted-average costs of capital, primarily driven by an increase in interest rates,
and market concerns related to inflation, supply chain disruption issues and other macroeconomic factors indicating a triggering event had occurred.
Testing performed 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.
Impairment of miners for the year ended December 31, 2022, was $55.5 million and was entirely attributable to our miners. Adverse changes in our business
climate, including decreases in the price of Bitcoin and related decreases in market prices of miners indicated a triggering event had occurred. Testing
performed indicated the estimated fair value of our miners to be less than their net carrying value as of December 31, 2022, and the carrying value of miners
was written down to their estimated fair value.
Other Income (Expense):
For the years ended December 31, 2022 and 2021, total other income (expense) was ($8.6) million and $14.7 million, respectively. The $8.6 million loss
incurred in 2022 primarily consisted of realized losses on marketable equity securities of $9.0 million upon the sale of all of our marketable equity securities.
The income of $14.7 million in 2021 primarily consisted of $26.3 million of realized gain on the sale/exchange of long-term investments, partially offset by
$13.7 million of unrealized losses on marketable equity securities.
Income Taxes:
For the years ended December 31, 2022 and 2021 the Company recorded total income tax benefit (expense) of $11.7 million and ($0.3) million, respectively.
The increase in tax benefit of $12.0 million was primarily attributable to the change in the contingent consideration liability.
Results of Operations Comparative Results for the Years Ended December 31, 2021 and 2020:
Revenues:
Total revenue for the years ended December 31, 2021 and 2020, was $213.2 million and $12.1 million, respectively, and consisted of our Bitcoin Mining
revenue, Data Center Hosting revenue, Engineering revenue, and Other revenue.
For the years ended December 31, 2021 and 2020, Bitcoin Mining revenue was $184.4 million, and $12.0 million, respectively. The increase of $172.4 million
in mining revenue was due to higher Bitcoin values in the 2021 period, averaging $45,744 per coin as compared to $11,461 per coin in the 2020 period,
combined with a higher number of Bitcoin mined in 2021, which totaled 3,812, as compared to 1,033 in the 2020 period.
For the period from the acquisition of Whinstone on May 26, 2021 to December 31, 2021, Data Center Hosting revenue was $24.5 million; there was no
Data Center Hosting revenue for the year ended December 31, 2020.
For the period from the acquisition of ESS Metron on December 1, 2021 to December 31, 2021, Engineering revenue was $4.2 million; there was no
Engineering revenue for the year ended December 31, 2020.
Costs and expenses:
Cost of revenues for Mining for the years ended December 31, 2021 and 2020 was $45.5 million and $6.3 million, respectively, representing an increase of
approximately $39.2 million. As a percentage of Mining revenue, cost of revenues totaled 24.7% and 52.2% for each of the years ended December 31, 2021
and 2020, respectively. Cost of revenues consist 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. The increase of $39.2 million in cost of revenues is primarily due to the increases in variable mining costs, including the variable hosting fees
associated with increases in mining revenues.
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Cost of revenues for Data Center Hosting for the period from the acquisition of Whinstone on May 26, 2021 to December 31, 2021 was $33.0 million; there
were no Data Center Hosting costs for the year ended December 31, 2020. The 2021 costs consisted primarily of direct power costs, with the balance
primarily incurred for compensation and rent costs.
Cost of revenues for Engineering for the period from the acquisition of ESS Metron on December 1, 2021 to December 31, 2021 was $3.6 million; there were
no Engineering costs for the year ended December 31, 2020. The 2021 costs consisted primarily of $3.6 million for direct materials and labor, as well as
indirect manufacturing costs.
Acquisition-related costs for the year ended December 31, 2021 totaled $21.2 million and consisted of expenses incurred in connection with our
acquisitions of Whinstone and ESS Metron. There were no acquisition-related costs for the year ended December 31, 2020.
Selling, general and administrative expenses during the years ended December 31, 2021 and 2020 totaled $87.4 million and $10.3 million, respectively.
Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The
increase of $77.2 million is primarily due to an increase in stock-compensation expense of $65.1 million resulting from additional awards (including the
performance-based plan announced in August 2021), compensation expense, which increased by $5.7 million due to additional employees to support the
Company’s growth, and an increase in consulting fees of $2.6 million resulting primarily from assistance on internal control systems and procedures.
Depreciation and amortization expense during the year ended December 31, 2021 totaled $26.3 million, which is an increase of approximately $21.8 million,
as compared to $4.5 million for the year ended December 31, 2020. The increase is primarily due to higher depreciation expense recognized for the Rockdale
Facility and our recently acquired miners.
Change in fair value of our derivative asset for the period from the acquisition of Whinstone to December 31, 2021, was $12.1 million, recorded to adjust
the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value on the date of our acquisition of
Whinstone. There were no derivative assets for the year ended December 31, 2020.
Power curtailment credits during the year ended December 31, 2021 totaled $6.5 million and were from power sales to ERCOT through its Demand
Response Services Programs. Depending on the spot market price of electricity, we opportunistically sell electricity back to ERCOT in exchange for cash
payments, rather than using the power for the Company’s operations during these peak times. These peak times and spot market prices can vary
significantly depending on consumer demand for electricity, the time of day and extreme weather. There were no power curtailment credits for the year
ended December 31, 2020.
Impairment of long-term investments of $9.4 million recognized during the year ended December 31, 2020 was recorded in connection with the impairment
of our investment in Coinsquare Ltd., a Canadian cryptocurrency exchange ("Coinsquare”).
Impairment of Bitcoin for the years ended December 31, 2021 and 2020 was $44.0 million and $3.6 million respectively, arising from the decline in Bitcoin
prices during the periods.
Other Income:
Other income for the years ended December 31, 2021 and 2020 was $14.7 million and $1.4 million, respectively. The increase of $13.3 million is primarily
related to a $26.3 million realized gain on the sale/exchange of long-term investment recognized in connection with the exchange of our shares of
Coinsquare, partially offset by a $13.7 million unrealized loss on the decline in fair value our marketable equity securities.
Income Taxes:
For the year ended December 31, 2021 the Company recorded an income tax expense of $0.3 million. There was no income tax expense or benefit recorded
for the year ended December 31, 2020.
Non-GAAP Measures
In addition to financial measures presented under generally accepted accounting principles in the United States of America ("GAAP”), we consistently
evaluate our use of and calculation of the non-GAAP financial measures, "Adjusted EBITDA” and Adjusted earnings per share ("Adjusted EPS”).
Adjusted EBITDA is a financial measure defined as our EBITDA, adjusted to eliminate the effects of certain non-cash and/or non-recurring items, that do
not reflect our ongoing strategic business operations. EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted
EBITDA is EBITDA further
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adjusted for certain income and expenses, which management believes results in a performance measurement that represents a key indicator of the
Company’s core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments,
equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense
items. We exclude impairments and gains or losses on sales or exchanges of Bitcoin from our calculation of Adjusted EBITDA for all periods presented.
Adjusted EPS is a financial measure defined as our Adjusted EBITDA divided by our diluted weighted-average shares outstanding.
We believe Adjusted EBITDA and Adjusted EPS can be important financial measures because they allow management, investors, and our board of
directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such
adjustments.
Adjusted EBITDA and Adjusted EPS are provided in addition to, and should not be considered to be a substitute for, or superior to, net income, the
comparable measure under GAAP for Adjusted EBITDA, and to diluted net income (loss) per share, the comparable measure under GAAP for Adjusted
EPS. Further, Adjusted EBITDA and Adjusted EPS should not be considered as an alternative to revenue growth, net income, diluted earnings per share
or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our
liquidity. Adjusted EBITDA and Adjusted EPS have limitations as analytical tools, and you should not consider such measures either in isolation or as
substitutes for analyzing our results as reported under GAAP.
The following table reconciles Adjusted EBITDA to Net income (loss), the most comparable GAAP financial metric:
Net income (loss)
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Reversal of registration rights penalty
Gain on exchange of equipment
Casualty-related charges (recoveries), net
Impairment of goodwill
Impairment of miners
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
41
2022
Years Ended December 31,
2021
(as restated)
2020
(as restated)
$
$
(509,553)
(454)
(11,749)
107,950
(413,806)
$
(15,437)
296
254
26,324
11,437
(14,107)
(85)
—
4,494
(9,698)
24,555
78
(71,418)
(159)
—
8,996
—
—
(16,281)
9,688
335,648
55,544
59
68,491
21,198
(12,112)
975
(26,260)
—
13,655
—
—
—
—
—
(2,378)
(97)
(67,193)
$
$
(97)
74,909
$
3,407
—
—
—
—
—
—
(1,358)
(29)
—
—
—
6
(97)
(7,769)
Table of Contents
The following table reconciles Adjusted EPS to Diluted net income (loss) per share, the most comparable GAAP financial metric:
Diluted net income (loss) per share
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA per share
Adjustments, per share:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Reversal of registration rights penalty
Gain on exchange of equipment
Casualty-related charges (recoveries), net
Impairment of goodwill
Impairment of miners
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EPS
Years Ended December 31,
2022
2021
(as restated)
2020
(as restated)
$
(3.65) $
-
(0.08)
0.77
(2.96)
0.18
-
(0.51)
-
-
0.06
-
-
(0.12)
0.07
2.41
0.40
-
$
-
(0.47) $
(0.17)$
-
-
0.28
0.11
0.73
0.23
(0.13)
0.01
(0.28)
-
0.15
-
-
-
-
-
(0.03)
-
0.79 $
(0.34)
-
-
0.11
(0.23)
0.08
-
-
-
-
-
-
(0.03)
-
-
-
-
-
-
(0.18)
Diluted weighted average number of shares outstanding
139,433,901
93,452,764
41,976,704
In addition to the non-GAAP financial measures of Adjusted EBITDA and Adjusted EPS described above, we believe "Bitcoin Mining revenue in excess
of cost of revenues, net of power curtailment credits”, "Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits”,
"Cost of revenues – Bitcoin Mining, net of power curtailment credits” and "Cost of revenues – Data Center Hosting, net of power curtailment credits” are
additional performance measurements that represent a key indicator of the Company’s core business operations of both Bitcoin mining and Data Center
Hosting.
We believe our ability to offer power back to the grid at market-driven spot prices, thereby reducing our operating costs, is integral to our overall strategy,
specifically our power management strategy and our commitment to supporting the ERCOT grid. While participation in various grid demand response
programs may impact our Bitcoin production, we view this as an important part of our partnership-driven approach with ERCOT and our commitment to
being a good corporate citizen in our communities.
We also believe netting the power sales against our costs can be an important financial measure because it allows management, investors, and our board
of directors to evaluate and compare our operating results, including our operating efficiencies, from period-to-period by making such adjustments. We
have allocated the benefit of the power sales to our Data Center Hosting and Bitcoin Mining segments based on their proportional power consumption
during the periods presented.
Bitcoin Mining revenue in excess of cost of revenues, net of power curtailment credits, Data Center Hosting revenue in excess of cost of revenues, net of
power curtailment credits, Cost of revenues – Bitcoin Mining, net of power curtailment credits and Cost of revenues – Data Center Hosting, net of power
curtailment credits are provided in addition to and should not be considered to be a substitute for, or superior to Revenue – Bitcoin Mining, Revenue –
Data Center Hosting, Cost of revenues – Bitcoin Mining or Cost of revenues – Data Center Hosting as presented in our consolidated statements of
operations.
42
Table of Contents
Reconciliations of these measurements to the most comparable GAAP financial metrics for historical periods are presented in the table below:
Bitcoin Mining
Revenue
Costs of revenues
Power curtailment credits
Cost of revenues, net of power curtailment credits
Years Ended December 31,
2022
2021
2020
$
156,870
$
184,422 $ 11,984
74,335
(11,991)
62,344
45,513
—
45,513
6,251
—
6,251
Bitcoin Mining revenue in excess of cost of revenues, net of power curtailment credits
Bitcoin Mining revenue in excess of cost of revenues, net of power curtailment credits, as a percentage of
revenue
$
94,526
$
138,909 $
5,733
60.3%
75.3%
47.8%
Data Center Hosting
Revenue
Costs of revenues
Power curtailment credits
Cost of revenues, net of power curtailment credits
Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits
Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits, as a percentage of
revenue
Total power curtailment credits
RESTATEMENT OF INTERIM FINANCIAL STATEMENTS
Results of Operations Comparative Results for the Three Months Ended March 31, 2022 and 2021:
Revenue:
$
36,862
$
24,546 $
61,906
(15,354)
46,552
32,998
(6,514)
26,484
$
(9,690) $
(1,938) $
(26.3)%
(7.9)%
(27,345)
(6,514)
—
—
—
—
—
—
—
For the three months ended March 31, 2022 and 2021, mining revenue was $57.9 million, and $23.2 million, respectively. The increase of $34.7 million in
mining revenue was due to a higher number of Bitcoin mined of 1,405 in the 2022 period, as compared to 491 in the 2021 period, partially offset by lower
Bitcoin values in the 2022 period, averaging $41,241 per coin as compared to $46,729 per coin in the 2021 period.
For the three months ended March 31, 2022, hosting revenue was $9.7 million, and there was no hosting revenue for the three months ended March 31,
2021. Hosting revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide
energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Whinstone Facility
under long-term contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being
measured by daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance
obligations are met. The contracts are recognized in the amount for which we have the right to invoice because we elected the "right to invoice” practical
expedient.
For the three months ended March 31, 2022, engineering revenue was $12.1 million, and there was no engineering revenue for the three months ended
March 31, 2021. Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one
identified performance obligation. Engineering 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.
Other revenue consisting of license fees was not significant in either period.
43
Table of Contents
Costs and expenses:
Cost of revenues for mining for the three months ended March 31, 2022 and 2021 was $19.1 million and $7.5 million, respectively, representing an increase
of approximately $11.6 million. As a percentage of mining revenue, cost of revenues totaled 33.0% and 32.5% for each of the three months ended March
31, 2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance
and the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $11.6 million in cost of
revenues is primarily due to the increases in variable mining costs, including the variable hosting fees, associated with increases in mining revenues.
Cost of revenues for hosting for the three months ended March 31, 2022, was $15.0 million and there were no hosting costs for the three months ended
March 31, 2021. The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.
Cost of revenues for engineering for the three months ended March 31, 2022 was $11.5 million and there were no engineering costs for the three months
ended March 31, 2021. The 2022 costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.
Selling, general and administrative expenses during the three months ended March 31, 2022 and 2021 totaled $10.9 million and $5.5 million, respectively.
Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The
increase of $5.4 million is primarily due to an increase in stock-compensation expense of $2.1 million resulting from additional awards and compensation
expense, which increased by $3.5 million due to additional employees to support the Company’s growth.
Depreciation and amortization expenses during the three months ended March 31, 2022 totaled $14.2 million, which is an increase of approximately $11.4
million, as compared to $2.8 million for the three months ended March 31, 2021. The increase is primarily due to higher depreciation expense recognized for
the Whinstone Facility and our recently acquired miners.
Change in fair value of our derivative asset for the three months ended March 31, 2022, was $46.2 million, including $43.7 million recorded to adjust the fair
value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value on the date of our acquisition of Whinstone,
and $2.5 million from power sales into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of cryptocurrencies for the three months ended March 31, 2022 was $9.2 million. There was no realized gain or loss on
sale/exchange of cryptocurrencies for the three months ended March 31, 2021.
Impairment of cryptocurrencies for the three months ended March 31, 2022 and 2021 was $25.9 million and $2.4 million, respectively, arising from the
decline in Bitcoin prices.
Other income and expenses:
Other expense for the three months ended March 31, 2022 was $2.0 million and primarily consisted of the unrealized loss on marketable equity securities.
Other income for the three months ended March 31, 2021 was $0.2 million.
44
Table of Contents
Reconciliations of GAAP to Non-GAAP Measures
Net income (loss)
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized loss on sale of marketable equity securities
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
Three Months Ended March 31,
2022
(as restated)
2021
(as restated)
$
$
36,578
220
312
14,985
52,095
3,042
78
(46,235)
176
1,611
137
(24)
10,880
$
$
5,156
(175)
—
2,846
7,827
936
—
—
—
—
—
(24)
8,739
Results of Operations Comparative Results for the Three Months Ended June 30, 2022 and 2021:
Revenue:
For the three months ended June 30, 2022 and 2021, Mining revenue was $46.2 million, and $31.5 million, respectively. The increase of $14.7 million in
Mining revenue was due to a higher number of Bitcoin mined of 1,395 in the 2022 period, as compared to 675 in the 2021 period, partially offset by lower
Bitcoin values in the 2022 period, averaging $33,081 per coin as compared to $46,226 per coin in the 2021 period.
For the three months ended June 30, 2022 and 2021, Data Center Hosting revenue was $9.8 million, and $2.9 million, respectively. Data Center Hosting
revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide energized space
and operating and maintenance services to third-party mining companies who locate their mining hardware at our Whinstone Facility under long-term
contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by
daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are
met. The contracts are recognized in the amount for which we have the right to invoice because we elected the "right to invoice” practical expedient.
For the three months ended June 30, 2022, Engineering revenue was $16.9 million, and there was no Engineering revenue for the three months ended June
30, 2021. Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified
performance obligation. Engineering 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.
Costs and expenses:
Cost of revenues for Mining for the three months ended June 30, 2022 and 2021 was $18.0 million and $9.3 million, respectively, representing an increase of
approximately $8.7 million. As a percentage of Mining revenue, cost of revenues totaled 39.0% and 29.7% for each of the three months ended June 30,
2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance and
the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $8.7 million in cost of
revenues is primarily due to the increases in variable mining costs, including the variable hosting fees, associated with increases in mining revenues.
45
Table of Contents
Cost of revenues for Data Center Hosting for the three months ended June 30, 2022 and 2021 was $15.2 million and $3.7 million, respectively. The costs
consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.
Cost of revenues for Engineering for the three months ended June 30, 2022 was $15.2 million and there were no engineering costs for the three months
ended June 30, 2021. The 2022 costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.
Selling, general and administrative expenses during the three months ended June 30, 2022 and 2021 totaled $10.7 million and $3.5 million, respectively.
Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The
increase of $7.2 million is primarily due to an increase of $2.1 million in compensation-related expense due to additional employees to support the
Company’s growth, an increase in audit and consulting fees of $2.2 million resulting primarily from assistance on internal control systems and procedures
and information technology projects, an increase in insurance expense of $0.8 million, and other general operating costs, including rent, to support the
Company’s growth.
Depreciation and amortization expenses during the three months ended June 30, 2022 totaled $20.6 million, which is an increase of approximately $14.9
million, as compared to $5.7 million for the three months ended June 30, 2021. The increase is primarily due to higher depreciation expense recognized for
the Whinstone Facility and our recently acquired miners.
Change in fair value of our derivative asset for the three months ended June 30, 2022 and 2021, was $60.9 million and $16.4 million, respectively, and was
recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value on the date of our
acquisition of Whinstone.
Power curtailment credits for the three months ended June 30, 2022 and 2021, was $5.7 million and $1.1 million, respectively, and represents power sales
into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of cryptocurrencies for the three months ended June 30, 2022 was $14.4 million. The realized gain or loss on sale/exchange
of cryptocurrencies for the three months ended June 30, 2021 was nominal.
Gain on exchange of equipment for the three months ended June 30, 2022 was $8.6 million arising from the equipment exchange agreement with a third-
party Bitcoin mining company. There was no gain on exchange of equipment during the three months ended June 30, 2021.
Impairment of cryptocurrencies for the three months ended June 30, 2022 and 2021 was $101.4 million and $17.8 million, respectively, arising from the
decline in Bitcoin prices.
Impairment of goodwill for the three months ended June 30, 2022 was $349.1 million arising from recent 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. There was no impairment recognized during the three months ended June 30, 2021.
Other income and expenses:
Other expense for the three months ended June 30, 2022 was $6.5 million, and primarily consisted of the unrealized loss on marketable equity securities of
$4.8 million and the realized loss on sale of marketable equity securities of $1.6 million recognized in connection with the sale of our shares of Mogo. Other
income for the three months ended June 30, 2021 was $28.2 million, which primarily related to a $26.3 million realized gain on sale/exchange of long-term
investment recognized in connection with the exchange of our shares of Coinsquare Ltd. ("Coinsquare”) for shares of Mogo.
Results of Operations Comparative Results for the Six Months Ended June 30, 2022 and 2021:
Revenue:
For the six months ended June 30, 2022 and 2021, Mining revenue was $104.1 million, and $54.6 million, respectively. The increase of $49.5 million in
Mining revenue was due to a higher number of Bitcoin mined of 2,800 in the 2022 period, as compared to 1,166 in the 2021 period, partially offset by lower
Bitcoin values in the 2022 period, averaging $37,175 per coin as compared to $37,868 per coin in the 2021 period.
46
Table of Contents
For the six months ended June 30, 2022 and 2021, Data Center Hosting revenue was $19.5 million, and $2.9 million, respectively. Data Center Hosting
revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide energized space
and operating and maintenance services to third-party mining companies who locate their mining hardware at our Whinstone Facility under long-term
contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by
daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are
met. The contracts are recognized in the amount for which we have the right to invoice because we elected the "right to invoice” practical expedient.
For the six months ended June 30, 2022, Engineering revenue was $29.1 million, and there was no Engineering revenue for the six months ended June 30,
2021. Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified
performance obligation. Engineering 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.
Other revenue consisting of license fees was not significant in either period.
Costs and expenses:
Cost of revenues for Mining for the six months ended June 30, 2022 and 2021 was $37.1 million and $16.9 million, respectively, representing an increase of
approximately $20.2 million. As a percentage of Mining revenue, cost of revenues totaled 35.6% and 30.9% for each of the six months ended June 30, 2022
and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance and the
variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $20.2 million in cost of revenues is
primarily due to the increases in variable mining costs, including the variable hosting fees, associated with increases in mining revenues.
Cost of revenues for Data Center Hosting for the six months ended June 30, 2022 and 2021 was $30.2 million and $3.7 million, respectively. The costs
consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.
Cost of revenues for Engineering for the six months ended June 30, 2022 was $26.7 million and there were no Engineering costs for the six months ended
June 30, 2021. The 2022 costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.
Selling, general and administrative expenses during the six months ended June 30, 2022 and 2021 totaled $21.5 million and $7.7 million, respectively.
Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The
increase of $13.9 million is primarily due to an increase of $5.0 million in compensation expense and an increase of $1.8 million in stock-compensation
expense resulting from additional awards due to additional employees, an increase in audit and consulting fees of $2.4 million resulting primarily from
assistance on internal control systems and procedures and information technology projects, an increase in insurance expense of $1.6 million, and other
general operating costs, including rent, to support the Company’s growth.
Depreciation and amortization expenses during the six months ended June 30, 2022 totaled $34.8 million, which is an increase of approximately $26.2
million, as compared to $8.6 million for the six months ended June 30, 2021. The increase is primarily due to higher depreciation expense recognized for the
Whinstone Facility and our recently acquired miners.
Change in fair value of our derivative asset for the six months ended June 30, 2022 and 2021 was $104.6 million and $16.4 million, respectively, and was
recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value on the date of our
acquisition of Whinstone.
Power curtailment credits for the six months ended June 30, 2022 and 2021 was $8.3 million and $1.1 million, respectively, and represents power sales into
the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of cryptocurrencies for the six months ended June 30, 2022 was $23.6 million. The realized gain or loss on sale/exchange of
cryptocurrencies for the six months ended June 30, 2021 was nominal.
47
Table of Contents
Gain on exchange of equipment for the six months ended June 30, 2022 was $8.6 million arising from the equipment exchange agreement with a third-party
Bitcoin mining company. There was no gain on exchange of equipment during the six months ended June 30, 2021.
Impairment of cryptocurrencies for the six months ended June 30, 2022 and 2021 was $127.2 million and $20.2 million, respectively, arising from the decline
in Bitcoin prices.
Impairment of goodwill for the six months ended June 30, 2022 was $349.1 million arising from recent 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. There was no impairment recognized during the six months ended June 30, 2021.
Other income and expenses:
Other expense for the six months ended June 30, 2022 was $8.5. million and primarily consisted of the unrealized loss on marketable equity securities of
$6.4 million and the realized loss on sale of marketable equity securities of $1.6 million recognized in connection with the sale of our shares of Mogo. Other
income for the six months ended June 30, 2021 was $28.4 million, which primarily related to a $26.3 million realized gain on sale/exchange of long-term
investment recognized in connection with the exchange of our shares of Coinsquare for shares of Mogo.
Reconciliations of GAAP to Non-GAAP Measures
Non-GAAP Adjusted EBITDA
Net income (loss)
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Reversal of registration rights penalty
Gain on exchange of equipment
Impairment of goodwill
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
Three Months Ended June 30,
2022
(as restated)
2021
(as restated)
Six Months Ended June 30,
2022
2021
(as restated)
(as restated)
$
(353,559)
$
—
(6,199)
20,562
(339,196)
701
—
(60,931)
—
—
1,624
4,837
—
(8,614)
335,648
59
(24)
(65,896)
$
$
48
19,009
(80)
3,730
5,738
28,397
970
17,032
(16,393)
185
(26,260)
—
(339)
—
—
—
(1,510)
(24)
2,058
$
$
(316,981)
357
(5,887)
34,807
(287,704)
3,743
78
(104,614)
176
—
1,624
6,448
—
(8,614)
335,648
59
(48)
(53,204)
$
$
24,165
(80)
3,730
8,584
36,399
1,905
18,342
(16,393)
185
(26,260)
—
(339)
—
—
—
(1,510)
(48)
12,281
Table of Contents
Non-GAAP Adjusted EPS
Diluted net income (loss) per share
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Reversal of registration rights penalty
Gain on exchange of equipment
Impairment of goodwill
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
Three Months Ended June 30,
2022
(as restated)
2021
(as restated)
Six Months Ended June 30,
2021
2022
(as restated)
(as restated)
$
$
(2.71)
$
—
(0.05)
0.16
(2.60)
0.01
—
(0.47)
—
—
0.01
0.04
—
(0.07)
2.57
—
—
$
(0.51)
0.21
(0.00)
0.04
0.06
0.32
0.01
0.19
(0.18)
—
(0.29)
—
(0.00)
—
—
—
(0.02)
—
0.02
$
$
$
(2.56)
0.00
(0.05)
0.28
(2.32)
0.03
—
(0.85)
—
—
0.01
0.05
—
(0.07)
2.71
—
—
$
(0.43)
0.28
(0.00)
0.04
0.10
0.42
0.02
0.21
(0.19)
—
(0.30)
—
(0.00)
—
—
—
(0.02)
—
0.14
Diluted weighted average number of shares outstanding
130,405,502
89,241,044
123,760,839
86,501,471
Non-GAAP Costs of Revenues, Net
Costs of revenues - Data Center Hosting
Power curtailment credits
Cost of revenues - Data Center Hosting, net of power curtailment credits
Costs of revenues - Mining
Power curtailment credits
Cost of revenues - Mining, net of power curtailment credits
Total power curtailment credits
Three Months Ended June 30,
Six Months Ended June 30,
2021
2022
$
$
$
$
2022
15,184
(3,497)
11,687
17,995
(2,209)
15,786
(5,706)
2021
3,736 $
(1,143)
2,593 $
9,325 $
—
9,325 $
$
$
$
$
30,169
(5,438)
24,731
37,089
(2,820)
34,269
$
$
$
$
(1,143)
(8,258)
3,736
(1,143)
2,593
16,859
—
16,859
(1,143)
Results of Operations Comparative Results for the Three Months Ended September 30, 2022 and 2021:
Revenue:
For the three months ended September 30, 2022 and 2021, Mining revenue was $22.1 million, and $53.6 million, respectively. The decrease of $31.5 million
was due to a lower number of Bitcoin mined of 1,042 in the 2022 period, as compared to 1,292 in the 2021 period, combined with lower Bitcoin values in the
2022 period, averaging $21,184 per coin as compared to $41,837 per coin in the 2021 period. The primary reason for the decrease in the number of Bitcoin
mined was due to the Company’s effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below,
during the three months ended September 30, 2022, the Company earned $13.1 million in power credits, to be credited against its power invoices, as a
result of temporarily pausing its operations. The power credits equate to approximately 760 Bitcoin, as computed by using the average daily
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closing BTC prices on a monthly basis. During the three months ended September 30, 2021, the Company earned $2.5 million in power credits, or the
equivalent of approximately 66 Bitcoin.
For the three months ended September 30, 2022 and 2021, Data Center Hosting revenue was $8.4 million, and $11.2 million, respectively. The decrease of
$2.8 million was due primarily to lower revenue share from customers due to the lower Bitcoin values in the 2022 period combined with lower customer
billings due to Whinstone’s participation in ERCOT’s energy demand response programs. Data Center Hosting revenue includes upfront payments which
we record as deferred revenue and generally recognize as services are provided. We provide energized space and operating and maintenance services to
third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term contracts. We account for these agreements as a
single performance obligation for services being delivered in a series with delivery being measured by daily successful operation of the mining hardware.
As such, we recognize revenue over the life of the contract as its series of performance obligations are met. The contracts are recognized in the amount for
which we have the right to invoice because we elected the "right to invoice” practical expedient.
For the three months ended September 30, 2022, Engineering revenue was $15.8 million. There was no Engineering revenue for the three months ended
September 30, 2021 as such date was prior to the acquisition of the Engineering segment. Engineering revenue is derived from the sale of custom products
built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering 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.
Costs and expenses:
Cost of revenues for Mining for the three months ended September 30, 2022 and 2021 was $14.7 million and $13.0 million, respectively, representing an
increase of approximately $1.7 million. As a percentage of Mining revenue, cost of revenues totaled 66.5% and 24.3% for each of the three months ended
September 30, 2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor,
insurance and the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $1.6 million in
cost of revenues was primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary
to maintain and support the mining operations. As noted below, during the three months ended September 30, 2022 and 2021, the Company earned $13.1
million and $2.5 million, respectively, in power credits to be credited against its power invoices, as a result of temporarily pausing its operations. These
credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s
overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Mining revenue were
38.8% and 24.3% for the three months ended September 30, 2022 and 2021, respectively.
Cost of revenues for Data Center Hosting for the three months ended September 30, 2022 and 2021 was $14.2 million and $12.6 million, respectively. The
costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.
Cost of revenues for Engineering for the three months ended September 30, 2022 was $13.8 million. There were no engineering costs for the three months
ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. The 2022 costs consisted primarily of direct materials and
labor, as well as indirect manufacturing costs. The increase in cost of revenues was primarily due to the increase in headcount to support the Company’s
growth combined with an increase in power costs.
Selling, general and administrative expenses during the three months ended September 30, 2022 and 2021 totaled $16.0 million and $40.3 million,
respectively. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and
related costs. The decrease of $24.3 million is primarily due to a decrease of $29.7 million in compensation-related expense due to the adoption of the
Company’s performance-based stock plan in August 2021, partially offset by additional employees to support the Company’s growth, an increase in audit
and consulting fees of $1.9 million resulting primarily from assistance on internal control systems and procedures and information technology projects
and an increase in other general operating costs, including rent, to support the Company’s growth.
Depreciation and amortization expenses during the three months ended September 30, 2022 totaled $26.6 million, an increase of approximately $14.4 million
as compared to $12.2 million for the three months ended September 30, 2021. The increase was primarily due to higher depreciation expense recognized for
the Rockdale Facility and our recently acquired miners.
Change in fair value of our derivative asset for the three months ended September 30, 2022 and 2021, was ($17.7) million and $7.4 million, respectively, and
was recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value.
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Power curtailment credits for the three months ended September 30, 2022 and 2021, was $13.1 million and $2.5 million, respectively, and represents power
sales into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of Bitcoin for the three months ended September 30, 2022 was $3.1 million. The realized gain or loss on sale/exchange of
Bitcoin for the three months ended September 30, 2021 was nominal.
Gain on exchange of equipment for the three months ended September 30, 2022 was $7.7 million arising from the equipment exchange agreement with a
third-party Bitcoin mining company. There was no gain on exchange of equipment during the three months ended September 30, 2021.
Impairment of Bitcoin for the three months ended September 30, 2022 and 2021 was $3.0 million and $6.7 million, respectively, arising from the decline in
Bitcoin prices. There was no impairment of Bitcoin recognized during the three months ended September 30, 2021.
Other income and expenses:
Other income for the three months ended September 30, 2022 was $0.5 million, and primarily consisted of interest and other income of $0.3 million and the
unrealized gain on marketable equity securities of $0.1 million. Other expense for the three months ended September 30, 2021 was $11.2 million, which
primarily related to the unrealized loss recognized due to the decline in the fair value of our marketable equity securities.
Results of Operations Comparative Results for the Nine Months Ended September 30, 2022 and 2021:
Revenue:
For the nine months ended September 30, 2022 and 2021, Mining revenue was $126.2 million, and $108.2 million, respectively. The increase of $18.0 million
was due to a higher number of Bitcoin mined of 3,842 in the 2022 period, as compared to 2,458 in the 2021 period, partially offset by lower Bitcoin values in
the 2022 period, averaging $32,839 per coin as compared to $44,591 per coin in the 2021 period. The number of Bitcoin mined during 2022 was significantly
impacted by the Company’s effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below, during
the nine months ended September 30, 2022, the Company earned $21.3 million in power credits to be credited against its power invoices, as a result of
temporarily pausing its operations. The power credits equate to approximately 1,160 Bitcoin, as computed by using the average daily closing BTC prices
on a monthly basis. During the nine months ended September 30, 2021, the Company earned $3.7 million in power credits, or the equivalent of
approximately 92 Bitcoin.
For the nine months ended September 30, 2022 and 2021, Data Center Hosting revenue was $27.9 million, and $14.1 million, respectively. The $13.8 million
increase was primarily due to the 2021 period only containing four months of Data Center Hosting revenue versus nine for the 2022 period. Data Center
Hosting revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide energized
space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term
contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by
daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are
met. The contracts are recognized in the amount for which we have the right to invoice because we elected the "right to invoice” practical expedient. The
Data Center Hosting segment was acquired in May 2021, and therefore its results of operations are only included in the Company’s consolidated results
of operations for four months during 2021 compared to nine in 2022.
For the nine months ended September 30, 2022, Engineering revenue was $44.9 million. There was no Engineering revenue for the nine months ended
September 30, 2021 as such date was prior to the acquisition of the Engineering segment. Engineering revenue is derived from the sale of custom products
built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering 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.
Other revenue consisting of license fees was not significant in either period.
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Costs and expenses:
Cost of revenues for Mining for the nine months ended September 30, 2022 and 2021 was $51.8 million and $29.9 million, respectively, representing an
increase of approximately $21.9 million. As a percentage of Mining revenue, cost of revenues totaled 41.0% and 27.6% for each of the nine months ended
September 30, 2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor,
insurance and the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $21.9 million in
cost of revenues is primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to
maintain and support the mining operations. As noted below, during the nine months ended September 30, 2022 and 2021, the Company earned $21.3
million and $3.7 million, respectively, in power credits, to be credited against its power invoices, as a result of temporarily pausing its operations. These
credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s
overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Mining revenue were
34.6% and 27.6% for the nine months ended September 30, 2022 and 2021, respectively.
Cost of revenues for Data Center Hosting for the nine months ended September 30, 2022 and 2021 was $44.4 million and $16.3 million, respectively. The
costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs. Whinstone was acquired in May
2021, and therefore its results of operations are only included in the Company’s consolidated results of operations for four months during 2021 compared
to nine in 2022.
Cost of revenues for Engineering for the nine months ended September 30, 2022 was $40.5 million. There were no Engineering costs for the nine months
ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. The 2022 costs consisted primarily of direct materials and
labor, as well as indirect manufacturing costs.
Acquisition-costs for the nine months ended September 30, 2022 were nominal. Acquisition-related costs for the nine months ended September 30, 2021,
totaled $18.9 million, and consisted of expenses incurred in connection with our acquisition of Whinstone.
Selling, general and administrative expenses during the nine months ended September 30, 2022 and 2021 totaled $37.5 million and $48.0 million,
respectively. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and
related costs. The decrease of $10.5 million is primarily due to a decrease of $24.8 million in compensation-related expense due to the adoption of the
performance-based stock plan in August 2021, partially offset by additional employees to support the Company’s growth, an increase in audit and
consulting fees of $3.8 million resulting primarily from assistance on internal control systems and procedures and information technology projects, an
increase in insurance expense of $1.2 million, and an increase in other general operating costs, including rent, to support the Company’s growth.
Depreciation and amortization expenses during the nine months ended September 30, 2022 totaled $61.4 million, an increase of approximately $40.6 million
as compared to $20.8 million for the nine months ended September 30, 2021. The increase was primarily due to higher depreciation expense recognized for
the Rockdale Facility and our recently acquired miners.
Change in fair value of our derivative asset for the nine months ended September 30, 2022 and 2021 was $86.9 million and $23.8 million, respectively, and
was recorded to adjust the fair value of our Power Supply Agreement, which is classified as a derivative asset and measured at fair value.
Power curtailment credits for the nine months ended September 30, 2022 and 2021 was $21.3 million and $3.7 million, respectively, and represents power
sales into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of Bitcoin for the nine months ended September 30, 2022 and 2021 was $28.0 million and $0.1 million, respectively.
Gain on exchange of equipment for the nine months ended September 30, 2022 was $16.3 million arising from the equipment exchange agreement with a
third-party Bitcoin mining company. There was no gain on exchange of equipment during the nine months ended September 30, 2021.
Impairment of Bitcoin for the nine months ended September 30, 2022 and 2021 was $130.3 million and $26.9 million, respectively, arising from the decline in
Bitcoin prices.
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Impairment of goodwill for the nine months ended September 30, 2022 was $335.6 million arising from recent 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. There was no impairment recognized during the nine months ended September 30, 2021.
Other income and expenses:
Other expense for the nine months ended September 30, 2022 was $8.0 million and primarily consisted of the unrealized loss on marketable equity
securities of $6.3 million and the realized loss on sale of marketable equity securities of $1.6 million recognized in connection with the sale of a portion of
our shares of Mogo. Other income for the nine months ended September 30, 2021 was $17.2 million, which primarily related to a $26.3 million realized gain
on sale/exchange of long-term investment recognized in connection with the exchange of our shares of Coinsquare Ltd. ("Coinsquare”) for shares of
Mogo, partially offset by $10.8 million of unrealized loss recognized on our investment in Mogo.
Reconciliations of GAAP to Non-GAAP Measures
Non-GAAP Adjusted EBITDA
Net income (loss)
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Gain on exchange of equipment
Impairment of goodwill
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
Three Months Ended September 30,
Nine Months Ended September 30,
2022
(as restated)
2021
(as restated)
2022
(as restated)
2021
(as restated)
$
$
(32,435)
(348)
(2,952)
26,559
(9,176)
3,561
—
17,749
—
—
—
(142)
(7,667)
—
—
$
(25)
4,300
$
53
(22,035)
(40)
—
12,207
(9,868)
36,023
552
(7,413)
259
—
—
11,151
—
—
85
(25)
30,764
$
$
(349,416)
9
(8,839)
61,366
(296,880)
7,304
78
(86,865)
176
—
1,624
6,306
(16,281)
335,648
59
(73)
(48,904)
$
$
2,130
(295)
3,730
20,791
26,356
37,928
18,894
(23,806)
444
(26,260)
—
10,812
—
—
(1,425)
(73)
42,870
Table of Contents
Non-GAAP Adjusted EPS
Diluted net income (loss) per share
Interest (income) expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments:
Non-cash/non-recurring operating expenses:
Stock-based compensation expense
Acquisition-related costs
Change in fair value of derivative asset
Change in fair value of contingent consideration
Realized gain on sale/exchange of long-term investment
Realized loss on sale of marketable equity securities
Unrealized (gain) loss on marketable equity securities
Gain on exchange of equipment
Impairment of goodwill
Other (income) expense
Other revenue, (income) expense items:
License fees
Adjusted EBITDA
Three Months Ended September 30,
Nine Months Ended September 30,
2022
(as restated)
2021
(as restated)
2022
(as restated)
2021
(as restated)
$
$
(0.21)
$
—
(0.02)
0.17
(0.06)
0.02
—
0.12
—
—
—
—
(0.05)
—
—
—
$
0.03
(0.23)
—
—
0.13
(0.10)
0.37
0.01
(0.08)
—
—
—
0.12
—
—
—
—
0.32
$
$
(2.61)
$
—
(0.07)
0.46
(2.22)
0.05
—
(0.65)
—
—
0.01
0.05
(0.12)
2.51
—
—
$
(0.37)
0.02
—
0.04
0.23
0.29
0.42
0.21
(0.26)
—
(0.29)
—
0.12
—
—
(0.02)
—
0.47
Diluted weighted average number of shares outstanding
153,895,123
96,064,036
133,894,338
89,896,374
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Table of Contents
Non-GAAP Costs of Revenues, Net
Bitcoin Mining
Revenue
Costs of revenues
Power curtailment credits
Cost of revenues, net of power curtailment credits
Bitcoin Mining revenue in excess of cost of revenues, net of power
curtailment credits
Bitcoin Mining revenue in excess of cost of revenues, net of power
curtailment credits, as a percentage of revenue
Data Center Hosting
Revenue
Costs of revenues
Power curtailment credits
Cost of revenues, net of power curtailment credits
Data Center Hosting revenue in excess of cost of revenues, net of
power curtailment credits
Data Center Hosting revenue in excess of cost of revenues, net of
power curtailment credits, as a percentage of revenue
Total power curtailment credits
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
$
22,070
$
53,590 $
126,166
$
108,213
14,677
(6,104)
8,573
13,034
—
13,034
13,497
$
40,556 $
61.2%
75.7%
51,766
(8,175)
43,591
82,575
65.4%
8,371
$
11,193 $
27,899
14,223
(6,996)
7,227
12,581
(2,507)
10,074
44,392
(13,153)
31,239
$
$
1,144
$
1,119 $
(3,340)
$
13.7%
(13,100)
10.0%
(2,507)
(12.0)%
(21,328)
$
$
$
29,893
—
29,893
78,320
72.4%
14,067
16,317
(3,650)
12,667
1,400
10.0%
(3,650)
As of December 31, 2022, we had working capital of approximately $321.8 million, which included cash and cash equivalents of $230.3 million. We reported
a net loss of $509.6 million during the year ended December 31, 2022. The net loss included $415.0 million in non-cash items, primarily consisting of an
impairment of goodwill of $335.6, impairments of Bitcoin of $147.4, depreciation and amortization of $108.0 million, and impairment of miners of $55.5
million, partially offset by $156.9 of net Bitcoin revenue and the change in fair value of our derivative asset of $71.4 million.
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.
Contractual Commitments
As of December 31, 2022, we had no contractual commitments.
Coinmint Co-location Mining Services Agreement
On April 8, 2020, we entered into an agreement with Coinmint, pursuant to which Coinmint agreed to provide up to approximately 9.5 megawatts of
electrical power and to perform all maintenance necessary to operate the Company’s miners deployed at Coinmint. In exchange, Coinmint was reimbursed
for direct production expenses and received a performance fee based on the net Bitcoin generated by the Company’s miners deployed at Coinmint. The
amount of electrical power supplied to the Company’s miners at Coinmint was subsequently increased to accommodate the Company’s expanding miner
fleet. During the year ended December 31, 2022, we elected to not renew its co-location mining services agreement with Coinmint, which was therefore
terminated automatically per its terms as of July 8, 2022.
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Miners
During the year ended December 31, 2021, we entered into six 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, no amounts remained payable to Bitmain at December 31, 2022. All miners subject to these purchase orders were
delivered through December 31, 2022, except for 5,130 miners, which were delivered in January 2023.
During the year ended December 31, 2020, the Company entered into purchase agreements with Bitmain for the acquisition of a total of 33,646 of their
model S19, S19-Pro, and S19j-Pro Antminer series of miners, to be shipped and delivered during 2020 and 2021. During the year ended December 31, 2020,
the Company received 3,043 model S19 Antminers of these 33,646 new miners, all of which were deployed at the Coinmint Facility. The remaining 30,603 of
these new miners were delivered in monthly shipments through January 2022.
Development of the Corsicana Facility Data Center
During the year ended December 31, 2022, we announced the initiation of a large-scale development to expand our Bitcoin mining and data center hosting
capabilities in Navarro County, Texas with the acquisition of a 265-acre site where the anticipated one-gigawatt Corsicana Facility is being constructed.
The Company received approval from ERCOT for the entire one-gigawatt capacity. The initial phase of the development of the Corsicana Facility involves
the construction on the 265-acre site 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 to the facility. Construction of the substation and the
data centers is expected to be carried out concurrently, with self-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 of 2023.
This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission
construction, along with construction of ancillary buildings and four buildings utilizing the Company’s immersion-cooling infrastructure and technology.
The Company estimates that the total cost of the first phase of the development will be approximately $333 million, which is scheduled to be invested
through the first quarter of 2024. Through December 31, 2022, we had incurred costs of approximately $53.4 million related to the development of the
Corsicana Facility, which consisted of $10.1 million for land, $38.6 million of initial developments costs and equipment and a $4.7 million deposit for future
power usage. We expect to incur costs of approximately $199 million during 2023 and approximately $81 million during the first quarter of 2024.
Revenue from Operations
Bitcoin Mining
Funding our operations on a go-forward basis will rely significantly on our ability to mine Bitcoin at a price above our Bitcoin Mining costs and revenue
generated from our Data Center Hosting and Engineering customers. We expect to generate ongoing revenues from Bitcoin rewards from our Bitcoin
Mining operations and our ability to liquidate Bitcoin rewards at future values will be regularly evaluated to generate cash for operations.
Generating Bitcoin rewards, for example, which exceed our production and overhead costs will determine our ability to report profit margins related to such
mining operations, although accounting for our reported profitability is significantly complex. Furthermore, regardless of our ability to generate proceeds
from the sale of our Bitcoin produced from our Bitcoin Mining business, we may need to raise additional capital in the form of equity or debt to fund our
operations and pursue our business strategy.
The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and
uncertainties and, even if we were successful, future equity issuances or convertible debt offerings could result in dilution to our existing stockholders
and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions. Our ability to realize
revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including
regulatory, financial and business risks, many of which are beyond our control. Additionally, we have observed significant historical volatility in the
market price of Bitcoin and, as such, future prices cannot be predicted. See the discussion of risks affecting our business under Part I, Item 1A. "Risk
Factors” of this Annual Report.
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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 our performance).
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 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 the customers’ equipment. We bill the customer at a fixed monthly fee or at
an hourly rate. Revenue is recognized as these services are provided.
Engineering
Substantially all engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts. Revenues
are recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive
compensation as defined under the contract. The length of time required to complete a custom product varies but is typically between four to 12 weeks.
Customers are typically required to make periodic progress payments based on contractually agreed-upon milestones.
If we are unable to generate sufficient revenue from our Bitcoin Mining, Data Center Hosting, or Engineering operations when needed or secure additional
sources of funding, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.
At-the-Market Equity Offerings
2022 ATM Offering
In March 2022, we entered into an ATM sales agreement under which we could offer and sell up to $500.0 million in shares of the Company’s common
stock. During the year ended December 31, 2022, we 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 an average fair value of $8.23 per share.
2021 ATM Offering
In August 2021, we entered into an ATM sales agreement under which we could offer and sell up to $600.0 million in shares of the Company’s common
stock. During the year ended December 31, 2021, we 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 an average fair value of $29.53 per share. With the sale and issuance of
these shares, all $600.0 million in shares of our common stock available for sale under 2021 ATM Offering had been issued.
2020 ATM Offering
In January 2021, we 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 we 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 our common
stock available for sale under the December 2020 ATM Offering had been issued.
In October 2020, we entered into an ATM sales agreement under which we received proceeds of approximately $100.0 million from the sale of common
shares. We incurred fees of up to 3.0% of the gross proceeds received.
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Legal Proceedings
The Company has been named a defendant in several class action and other investor related lawsuits as more fully described in Part I, Item 3., "Legal
Proceedings”, of this Annual Report. While the Company maintains policies of insurance, such policies may not cover all of the costs or expenses
associated with responding to such matters or any liability or settlement associated with any lawsuits and are subject to significant deductible or
retention amounts.
Operating Activities
For the year ended December 31, 2022, Net cash provided by operating activities was $0.5 million, which primarily consisted of:
● the net loss of $509.6 million;
● an increase in assets and liabilities of $95.1 million, which consisted primarily of:
● proceeds from the sale of Bitcoin of $79.5 million and $59.0 million from the receipt of future power credits, partially offset by an
increase in prepaids and other assets of $25.5 million and a decrease in accounts receivable of $11.5 million; and
● non-cash reconciling items of $415.0 million, consisting primarily of:
● impairment of goodwill of $335.6 million,
● impairment of Bitcoin of $147.4 million,
● depreciation and amortization of $108.0 million,
● impairment of miners of $55.5 million,
partially offset by:
● the change in fair value of our derivative asset of $71.4 million, and
● net Bitcoin revenue of $156.9 million.
For the year ended December 31, 2021, Net cash used in operating activities was $86.1 million, which primarily consisted of:
● the net loss of $15.4 million; and
● a decreases in assets and liabilities of $2.6 million, which consisted primarily of:
● an increase in accrued expenses of $16.1 million, partially offset by a decrease in deferred revenue of $12.9 million; and
● non-cash reconciling items of $69.7 million, consisting primarily of:
● net Bitcoin revenue of $184.4 million,
● stock-based compensation expense of $68.5 million,
● impairment of Bitcoin of $44.0 million,
● depreciation and amortization of $26.3 million, and
● an unrealized loss on marketable equity securities of $13.7 million,
partially offset by:
● a realized gain on the sale/exchange of long-term investment of $26.3 million; and
● and the change in fair value of our derivative asset of $12.1 million.
For the year ended December 31, 2020, Net cash used in operating activities was $2.8 million, which primarily consisted of:
● the net loss of $14.1 million; and
● an increase in assets and liabilities of $9.7 million, which consisted primarily of:
● proceeds from the sale of Bitcoin of $8.3 million; and
● non-cash reconciling items of $1.6 million, consisting primarily of:
● net Bitcoin revenue of $11.8 million
● the impairment of our investment in Coinsquare of $9.4 million,
● depreciation and amortization of $4.5 million,
● impairment of Bitcoin of $3.6 million, and
● stock-based compensation expense of $3.4 million,
partially offset by:
● a $6.4 million realized gain on the sale/exchange of Bitcoin, and
● $1.4 million for the reversal of our accrual for the registration rights penalty.
Investing Activities
For the year ended December 31, 2022, Net cash used in investing activities was $354.9 million, which primarily consisted of:
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● Deposits paid on equipment of $194.9 million, and
● Purchases of property and equipment of $148.4 million.
For the year ended December 31, 2021, Net cash used in investing activities was $490.6 million, which primarily consisted of:
● deposits paid on equipment of $274.8 million,
● purchases of property and equipment of $147.1 million,
● net cash paid for our acquisition of Whinstone of $40.9 million, and
● net cash paid for our acquisition of ESS Metron of $29.6 million.
For the year ended December 31, 2020, Net cash used in investing activities was $41.1 million, which primarily consisted of:
● deposits paid on equipment of $33.1 million, and
● purchases of property and equipment of $8.1 million.
Financing Activities
For the year ended December 31, 2022, Net cash provided by financing activities was $272.3 million, which primarily consisted of:
● net proceeds from the issuance of our common stock in connection with our ATM Offerings of $298.2 million,
partially offset by:
● payments on our contingent consideration liability of $15.7 million, and
● the repurchase of shares of common stock withheld to satisfy employee withholding taxes of $10.1 million in connection with the settlement of
vested equity awards granted under our 2019 Equity Incentive Plan.
For the year ended December 31, 2021, Net cash provided by financing activities was $665.6 million, which primarily consisted of:
● net proceeds from the issuance of our common stock in connection with our ATM Offerings of $669.9 million, and
● proceeds received from the exercise of common stock warrants of $0.8 million,
partially offset by:
● the shares of common stock withheld to satisfy employee withholding taxes of $5.1 million in connection with the settlement of vested equity
awards granted under our 2019 Equity Incentive Plan.
For the year ended December 31, 2020, Net cash provided by financing activities was $259.9 million, which primarily consisted of:
● net proceeds from the issuance of our common stock in connection with our 2019 ATM Offering of $48.0 million and $209.5 million in connection
with our 2020 ATM Offering, and
● proceeds received from the exercise of common stock warrants of $2.9 million,
partially offset by:
● the repurchase of common stock to pay director and employee withholding taxes of $0.4 million.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect
the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our 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 our deferred tax assets.
The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. In order to get
a full understanding of the Company’s financial statements, one must have a clear understanding of the accounting policies employed. A summary of the
Company’s critical accounting policies follows:
Bitcoin
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.
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Bitcoin held are accounted for as intangible assets with indefinite useful lives. Bitcoin is measured on a first-in-first-out ("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. The Company accounts for its gains or losses on a FIFO basis.
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.
Leases
The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such
lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of
the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which
the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of
exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense
recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For leases with a term exceeding 12 months, 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. Leases qualifying for the short-term lease exception were insignificant. 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.
Revenue recognition
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
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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 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.
Or:
● 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.
● 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.
There is no significant financing component in these transactions.
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).
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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.
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 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 the customers’ 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’ equipment, as applicable.
Our primary data center 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 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.
Engineering
Substantially all revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified
performance obligation. Revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the
Company has an enforceable right to receive compensation as defined under the contract.
To determine the amount of revenue to recognize over time, the Company utilizes the cost-to-cost method as management believes cost incurred best
represents the amount of work completed and remaining on projects. As the cost-to-cost method is driven by incurred cost, the Company calculates
the percentage of completion by dividing costs incurred to date by the total estimated cost. The percentage of completion is then multiplied by estimated
revenues to determine inception-to-date revenue. Approved changes to design plans are generally recognized as a cumulative adjustment to
the percentage of completion calculation. Revenue recognized for the period is the current inception-to-date recognized revenue less the prior period
inception-to-date recognized revenue. If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was
first determined, and any additional losses incurred subsequently are recognized in the subsequent reporting periods as they are identified. Additionally,
contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract.
Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value
and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition. Any costs to obtain a contract are not material to
the Company’s financial statements and would be expensed as incurred. Because of the inherent uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near term. The length of time for the Company to complete a custom product varies but is typically
between four to 12 weeks.
Customers are typically required to make periodic progress payments to the Company based on contractually agreed-upon milestones. Invoices are due
net, 30 days, and retainage, if any, is generally due 30 days after delivery. Taxes collected from customers and remitted to governmental authorities are
excluded from revenue. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales.
Other Revenue
Other revenue is 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.
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Business combinations
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. Contingent consideration is included within the purchase price and is
recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value as of each reporting date
until the contingency is resolved, and subsequent changes in fair value are recognized in earnings. Contingent consideration is recorded in long-term
liabilities in our consolidated balance sheets.
While we use our best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date
as well as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the
measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including
estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies, and contingent consideration, where applicable.
Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience
and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible
assets we have acquired include; future expected cash flows from customer contracts, discount rates, and estimated market changes in the value of the
Power Supply Agreement, which is accounted for as a nonhedged derivative contract. Unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, estimates, or actual results.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Fair value of financial instruments
The Company recognizes financial instruments under the following fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or
similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value
drivers are observable; and
Level 3 — assets and liabilities whose significant value drivers are unobservable.
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market
assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability
may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of
input that is significant to the fair value measurement. Such determination requires significant management judgment. The carrying amounts of the
Company’s financial assets and liabilities, such as cash and cash equivalents, and accounts payable, approximate fair value due to the short-term nature
of these instruments.
Goodwill
Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. 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
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negative trend in our industry or overall economic trends, a significant change in how we use the acquired assets, a significant change in or our business
strategy, a significant decrease in the market value of the asset, a significant change in regulations or in the industry that could affect the value of the
asset, and a change in segments. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a
quantitative test to identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its
carrying amount. If the carrying amount exceeds the fair value, goodwill of the reporting unit is considered impaired and that excess is recognized as a
goodwill impairment loss.
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. Patents costs consisting of filing and legal fees incurred are initially
recorded at cost. Certain patents are in the legal application process and therefore are not currently being amortized. The Company performs assessments
to determine whether finite-lived classification is still appropriate at least annually. The carrying value of finite-lived assets and their remaining useful lives
are also reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period. A
finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it.
We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis. Impairment is measured by the amount
that the carrying value exceeds fair value.
The use of different estimates or assumptions could result in significantly different fair values for our reporting units and intangible assets.
Operating segments
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. 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.
Stock-based compensation
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 and adopted accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting
pronouncement affects the Company’s financial reporting, the Company undertakes a review to determine the consequences of the change to its financial
statements and believes that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change.
We have considered the recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material
impact on our consolidated financial statements.
See Note 4. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements, to our Consolidated Financial
Statements for a description of applicable recent accounting pronouncements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected
in our forward-looking statements. For more information regarding the forward-looking statements used in this section and elsewhere in this Annual
Report, see the Cautionary Note Regarding Forward-Looking Statements at the forepart of this Annual Report.
Risk Regarding the Price of Bitcoin.
Our business and development strategy is focused on maintaining and expanding our Bitcoin Mining operations to maximize the amount of new Bitcoin
rewards we earn. As of December 31, 2022, we held 6,974 Bitcoin, with a carrying value of $109.4 million, all of which were produced from our Bitcoin
mining operations. The carrying value of our Bitcoin assets as of December 31, 2022 reflects the $147.4 million of cumulative impairment charges we
recorded against the value of our Bitcoin assets during the fiscal year ended December 31, 2022 due to decreases in the fair value of our Bitcoin assets
after receipt.
Bitcoin held are accounted for as indefinite-lived intangible assets. Bitcoin is measured on a FIFO basis and measured for impairment daily based on the
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.
We cannot accurately predict the future market price of Bitcoin and, as such, we cannot accurately predict whether we will record impairment of the value
of our Bitcoin assets. The future value of Bitcoin will affect revenue from our operations, and any future impairment of the value of the Bitcoin we mine
and hold for our account would be reported in our financial statements and results of operations as charges against net income, which could have a
material adverse effect on the market price for our securities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm (PCAOB 00688); 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
F-1
F-3
F-4
F-7
F-8
F-10
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 688)
To the Stockholders and Board of Directors of
Riot Platforms, Inc.
Opinion on 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, 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. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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 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
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.
F-1
Table of Contents
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;
● 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; and
● Performed certain substantive analytical procedures to determine completeness and occurrence of digital assets earned by the Company as
consideration for services rendered.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2019.
Los Angeles, CA
March 2, 2023
F-2
Table of Contents
Riot Platforms, Inc.
Consolidated Balance Sheets
(in thousands, except for share and per share amounts)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings
Prepaid expenses and other current assets
Bitcoin
Future power credits, current portion
Investments in marketable equity securities, at fair value
Total current assets
Property and equipment, net
Deposits
Finite-lived intangible assets, net
Goodwill
Derivative asset
Operating lease right-of-use assets
Future power credits, less current portion
Other long-term assets
Total 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
Other long-term liabilities
Total liabilities
Commitments and contingencies - Note 19
Stockholders’ equity
Preferred stock, no par value, 15,000,000 shares authorized:
December 31,
2022
December 31,
2021
(as restated)
$
$
$
$
230,328
26,932
19,743
32,661
109,420
24,297
—
443,381
692,555
42,433
21,477
—
$
$
97,497
21,673
638
310
1,319,964
18,445
8,446
65,464
2,882
24,297
2,009
121,543
17,869
20,242
638
8,230
168,522
312,315
15,398
9,862
7,135
150,593
58,481
10,804
564,588
276,480
266,170
14,162
335,563
26,079
13,189
25,447
310
1,521,988
20,037
5,264
22,071
2,843
58,481
1,182
109,878
19,796
12,257
25,447
6,241
173,619
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 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; 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’ equity
Total liabilities and stockholders’ equity
—
—
—
11
1,907,784
(756,342)
1,151,442
1,319,964
$
1,595,147
(246,789)
1,348,369
1,521,988
$
See accompanying notes to consolidated financial statements.
F-3
Riot Platforms, Inc.
Consolidated Statements of Operations
(in thousands, except for share and per share amounts)
Table of Contents
Revenue:
Bitcoin Mining
Data Center Hosting
Engineering
Other revenue
Total revenue
Costs and expenses:
Cost of revenue:
Bitcoin Mining
Data Center Hosting
Engineering
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
Casualty-related charges (recoveries), net
Impairment of Bitcoin
Impairment of goodwill
Impairment of miners
Impairment of long-term investment
Total costs and expenses
Operating income (loss)
Other income (expense):
Reversal of registration rights penalty
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 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
2022
Years Ended December 31,
2021
(as restated)
2020
(as restated)
$
$
156,870
36,862
65,342
97
259,171
$
184,422
24,546
4,178
97
213,243
74,335
61,906
57,455
78
67,452
107,950
(71,418)
(27,345)
(159)
(30,346)
(16,281)
9,688
147,365
335,648
55,544
—
771,872
(512,701)
—
454
(8,996)
—
—
(59)
(8,601)
45,513
32,998
3,582
21,198
87,429
26,324
(12,112)
(6,514)
975
(253)
—
—
43,973
—
—
—
243,113
(29,870)
—
(296)
—
26,260
(13,655)
2,378
14,687
11,984
—
—
97
12,081
6,251
—
—
—
10,251
4,494
—
—
—
(6,350)
(29)
—
3,595
—
—
9,413
27,625
(15,544)
1,358
85
—
—
—
(6)
1,437
(521,302)
(15,183)
(14,107)
(789)
12,538
11,749
(254)
—
(254)
—
—
—
(509,553)
—
$
(509,553)
(15,437)
—
$
(15,437)
(14,107)
(7)
(14,114)
(3.65)
139,433,901
$
(0.17)
93,452,764
$
(0.34)
41,976,704
$
$
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
Riot Platforms, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except for share and per share amounts)
Balance as of January 1, 2020
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
Delivery of common stock underlying restricted stock units for consulting
and advisory services
Issuance of common stock/At-the-market offering, net of offering costs
Issuance of common stock related to exercise of warrants
Cancellation of Prive Escrow shares
Stock-based compensation
Net income attributable to non-controlling interest
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
Issuance of common stock for settlement of 1,257,235 warrants on a
cashless basis
Issuance of common stock in connection with the acquisition of
Whinstone
Issuance of common stock in connection with the acquisition of ESS
Metron, net of 70,156 shares withheld
Issuance of common stock/At-the-market offering, net of offering costs
Issuance of common stock warrant for settlement of advisory fees
Conversion of preferred stock to common stock
Stock option exercise
Stock-based compensation
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
Preferred Stock
Shares Amount
22
4,199 $
—
—
Common Stock
Accumulated stockholders’
Total Riot
Platforms
Shares
Amount
deficit
25,082,872 $
122,377
243,458 $ (217,238) $
—
175
equity
26,242 $
175
Non-
controlling
interest
Total
stockholders’
equity
26,235
175
(7) $
—
—
—
—
—
—
—
—
—
—
4,199
—
—
—
—
—
—
—
(2,000)
—
—
—
2,199
—
—
(2,199)
—
—
— $
—
—
—
—
—
—
—
—
—
22
—
—
—
5,000
—
2,048,096
(446)
—
—
—
(446)
40,634
49,932,051
1,492,487
(200,000)
—
—
—
78,523,517
—
257,472
2,895
—
3,407
—
—
—
—
— 257,472
2,895
—
—
—
3,407
—
—
—
(14,114)
(14,114)
275,631
506,961 (231,352)
464,021
415,657
(5,082)
806
543,686
—
—
—
—
(5,082)
806
—
—
—
—
(446)
—
—
— 257,472
2,895
—
—
—
3,407
—
7
7
(14,114)
—
275,631
—
—
—
—
(5,082)
806
—
—
11,800,000
326,152
— 326,152
— 326,152
645,248
24,344,057
—
2,000
10,286
—
—
—
—
—
(11)
—
—
—
11 116,748,472
26,735
669,916
1,157
11
—
68,491
—
1,595,147
—
26,735
— 669,916
1,157
—
—
—
—
—
68,491
—
(15,437)
(15,437)
(246,789)
1,348,369
13,947,829
37,052,612
2,199
—
—
(10,138)
—
—
— 298,209
—
—
—
(11)
24,555
—
—
—
— (509,553) (509,553)
— 167,751,112 $ 1,907,784 $ (756,342) $1,151,442 $
(10,138)
298,209
11
24,555
—
26,735
— 669,916
1,157
—
—
—
—
—
68,491
—
—
(15,437)
— 1,348,369
(10,138)
—
— 298,209
—
—
—
24,555
— (509,553)
— $1,151,442
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
Riot Platforms, Inc.
Consolidated Statements of Cash Flows
(in thousands)
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
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.
F-8
2022
Years Ended December 31,
2021
(as restated)
2020
(as restated)
$
(509,553)
$
(15,437)
$
(14,107)
—
—
24,555
107,950
(97)
12,181
(11,749)
147,365
335,648
55,544
(71,418)
(159)
8,996
(30,346)
—
—
(16,281)
9,688
(156,870)
68,491
26,324
(97)
275
254
1,157
—
43,973
—
(12,112)
975
—
(26,260)
(253)
13,655
—
—
(184,422)
—
—
79,529
(11,534)
(9,881)
(25,520)
58,993
(1,593)
3,182
13,555
1,989
(1,791)
(11,853)
530
295
(4,446)
3,343
(5,070)
(975)
(2,770)
(619)
16,070
6,124
(12,895)
(1,662)
(86,082)
1,808
—
—
—
—
(194,923)
(3,809)
(148,412)
(9,527)
(354,863)
—
—
(40,879)
(29,567)
1,800
(274,833)
—
(147,116)
(30)
(490,625)
304,849
(6,640)
—
(15,725)
(10,138)
272,346
(81,987)
312,315
230,328
$
684,817
(14,901)
806
—
(5,082)
665,640
88,933
223,382
312,315
$
$
3,407
4,494
(97)
367
—
—
9,413
3,595
—
(1,358)
—
—
—
—
(6,350)
—
(29)
—
(11,838)
8,298
—
—
795
—
1
—
928
—
—
(368)
(2,849)
—
—
—
—
146
(33,093)
—
(8,139)
(44)
(41,130)
264,727
(7,255)
2,895
—
(446)
259,921
215,942
7,440
223,382
Table of Contents
Riot Platforms, Inc.
Consolidated Statements of Cash Flows - continued
(in thousands)
Years Ended December 31,
2021
2020
2022
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock for business combination
Issuance of common stock to settle previously accrued executive compensation
Reclassification of deposits to property and equipment
Construction in progress included in accrued expenses
Bitcoin received from sale of equipment
Bitcoin exchanged for employee compensation
Conversion of preferred stock to common stock
Right of use assets exchanged for new operating lease liabilities
Property and equipment obtained in exchange transaction
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
F-9
— $
— $
— $
— $
— $
— $
$
$
— $
$
$
$
$
422,865
16,621
1,495
11
10,333
10,409
352,887
46,711
2,423
$
— $
$
$
— $
— $
$
11
$
13,622
— $
—
—
—
175
1,449
—
52
—
—
—
—
Table of Contents
Note 1. Organization
Nature of Operations
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
Note 2. 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:
Consolidated Balance Sheet
Bitcoin
Total current assets
Total assets
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31, 2021
As previously
reported
Adjustment
As restated
159,544
573,539
1,530,939
(237,838)
1,357,320
1,530,939
$
$
(8,951)
(8,951)
(8,951)
(8,951)
(8,951)
(8,951)
$
$
150,593
564,588
1,521,988
(246,789)
1,348,369
1,521,988
$
$
F-10
Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
Consolidated Statements of Operations
Impairment of Bitcoin
Total costs and expenses
Operating loss
Net loss before taxes
Net loss
Net loss attributable to Riot Platforms, Inc.
Basis and diluted net loss per share
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
Net loss attributable to Riot Platforms, Inc.
Basis and diluted net loss per share
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)
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)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
F-11
For the year ended December 31, 2021
As previously
reported
Adjustment
As restated
36,462
235,602
(22,359)
(7,672)
(7,926)
(7,926)
(0.08)
$
$
$
7,511
7,511
(7,511)
(7,511)
(7,511)
(7,511)
(0.09)
$
$
$
43,973
243,113
(29,870)
(15,183)
(15,437)
(15,437)
(0.17)
For the year ended December 31, 2020
As previously
reported
Adjustment
As restated
989
(5,184)
26,214
(14,133)
(12,667)
(12,667)
(12,674)
(0.30)
$
$
$
2,606
(1,166)
1,411
(1,411)
(1,440)
(1,440)
(1,440)
(0.04)
$
$
$
3,595
(6,350)
27,625
(15,544)
(14,107)
(14,107)
(14,114)
(0.34)
For the year ended December 31, 2021
Total Riot
Platforms, Inc.
stockholders'
equity
Total
stockholders'
equity
Accumulated
deficit
(7,926)
(7,511)
(15,437)
(237,838)
(8,951)
(246,789)
$
$
$
$
(7,926)
(7,511)
(15,437)
1,357,320
(8,951)
1,348,369
$
$
$
$
(7,926)
(7,511)
(15,437)
1,357,320
(8,951)
1,348,369
For the year ended December 31, 2020
Total Riot
Platforms, Inc.
stockholders'
equity
Total
stockholders'
equity
Accumulated
deficit
(12,674)
(1,440)
(14,114)
(229,912)
(1,440)
(231,352)
$
$
$
$
(12,674)
(1,440)
(14,114)
277,071
(1,440)
275,631
$
$
$
$
(12,674)
(1,440)
(14,114)
277,071
(1,440)
275,631
Table of Contents
Consolidated Statements of Cash Flows
Net loss
Impairment of Bitcoin
Consolidated Statements of Cash Flows
Net loss
Impairment of Bitcoin
Realized gain on sale/exchange of Bitcoin
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 2021
As previously
reported
Adjustment
As restated
(7,926)
36,462
$
$
(7,511)
7,511
$
$
(15,437)
43,973
For the year ended December 31, 2020
As previously
reported
(12,667)
989
(5,184)
$
$
$
Adjustment
As restated
(1,440)
2,606
(1,166)
$
$
$
(14,107)
3,595
(6,350)
$
$
$
$
$
The remainder of these notes to the consolidated financial statements have been updated, as applicable, to reflect the impacts of the revisions described
above.
Note 3. Liquidity and Financial Condition
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.
COVID-19
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 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.
Inflation
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.
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
Note 4. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements of the Company include the accounts of the Company and its wholly or majority owned and
controlled subsidiaries. Consolidated subsidiaries’ results are included from the date the subsidiary was formed or acquired. 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.
The accompanying audited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. 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 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, 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
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. 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 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 and presents the net amount of the financial instrument expected to be collected. The CECL impairment model requires an estimate of
expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to
information about past events and current conditions. Based on this model, the Company considers many factors, including the age of the balance,
collection history, and current economic trends. Bad debts are written off after all collection efforts have ceased.
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, 2022, 2021 and 2020, 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 $1.9 million as of
December 31, 2022. No allowance was recorded as of December 31, 2021.
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Bitcoin
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
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 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:
● Step 1: Identify the contract with the customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: 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.
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 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
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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 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.
Or:
● 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.
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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.
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).
We have determined that our contracts contain a series of performance obligations which qualify to be recognized under a practical expedient available
known as the "right to invoice.” This determination allows variable consideration in such contracts to be allocated to and recognized in the period to
which the consideration relates, which is typically the period in which it is billed, rather than requiring estimation of variable consideration at the inception
of the contract. We have also determined that the contracts contain a significant financing component because the timing of revenue recognition differs
from the timing of invoicing by a period, exceeding one year.
The Company also installs certain hosted customers’ mining equipment and bills the customer at a fixed fee per piece of equipment or at an hourly rate.
Revenue is recognized upon completion of the installation.
We generate engineering and construction services revenue from the fabrication and deployment of immersion cooling technology for Bitcoin mining
customers, 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 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’ equipment.
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.
Engineering
Substantially all revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified
performance obligation. Revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the
Company has an enforceable right to receive compensation as defined under the contract.
To determine the amount of revenue to recognize over time, the Company utilizes the cost-to-cost method as management believes cost incurred best
represents the amount of work completed and remaining on projects. As the cost-to-cost method is driven by incurred cost, the Company calculates
the percentage of completion by dividing costs incurred to date by the total estimated cost. The percentage of completion is then multiplied by estimated
revenues to determine inception-to-date revenue. Approved changes to design plans are generally recognized as a cumulative adjustment to
the percentage of completion calculation. Revenue recognized for the period is the current inception-to-date recognized revenue less the prior period
inception-to-date recognized revenue. If a
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value
and the total estimated costs to complete those contracts, and therefore, profit and revenue recognition. Any costs to obtain a contract are not material to
the Company’s financial statements and would be expensed as incurred. Because of the inherent uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near term. The length of time for the Company to complete a custom product varies but is typically
between four to 12 weeks.
Customers are typically required to make periodic progress payments to the Company based on contractually agreed-upon milestones. Invoices are due
net, 30 days, and retainage, if any, is generally due 30 days after delivery. Taxes collected from customers and remitted to governmental authorities are
excluded from revenue. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales.
Other Revenue
Other revenue is 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
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:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined
using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement.
The Company 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.
Property and equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Estimated useful
lives for leasehold improvements are typically the lesser of the estimated useful life of the asset or the life of the term of the lease. The estimated useful
lives for all the Company’s property and equipment are as follows:
Buildings and building improvements
Miners and mining equipment
Machinery and facility equipment
Office and computer equipment
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Life (Years)
10-25
2
5-7
3
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Impairment of long-lived assets
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
Goodwill represents the cost of a business acquisition in excess of the fair value of the net assets acquired. 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 our business strategy, a significant
decrease in the market value of the asset, a significant change in regulations or in the industry that could affect the value of the asset, and a change in
segments. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the quantitative test to
identify and measure the amount of goodwill impairment loss. The Company compares the fair value of the reporting unit with its carrying amount. If the
carrying amount exceeds the fair value, goodwill of the reporting unit is considered impaired and that excess is recognized as a goodwill impairment loss.
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. Patents costs consisting of filing and legal fees incurred are initially
recorded at cost. Certain patents are in the legal application process and therefore are not currently being amortized. The Company performs assessments
to determine whether finite-lived classification is still appropriate at least annually. The carrying value of finite-lived assets and their remaining useful lives
are also reviewed at least annually to determine if circumstances exist which may indicate a potential impairment or revision to the amortization period. A
finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it.
We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis. Impairment is measured by the amount
that the carrying value exceeds fair value.
The use of different estimates or assumptions could result in significantly different fair values for our reporting units and intangible assets.
Business combinations
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. Contingent consideration is included within the purchase price and is
recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value as of each reporting date
until the contingency is resolved, and subsequent changes in fair value are recognized in earnings. Contingent consideration is recorded in long-term
liabilities in our consolidated balance sheets.
While we use our best estimates and assumptions to accurately apply preliminary values to assets acquired and liabilities assumed at the acquisition date
as well as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the
measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations.
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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.
Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience
and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible
assets we have acquired include; future expected cash flows from customer contracts, discount rates, and estimated market changes in the value of the
Power Supply Agreement, which is accounted for as a nonhedged derivative contract. Unanticipated events and circumstances may occur that may affect
the accuracy or validity of such assumptions, estimates, or actual results.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Investment in marketable equity securities
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.
Leases
The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such
lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of
the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which
the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of
exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense
recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For leases with a term exceeding 12 months, 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. Leases qualifying for the short-term lease exception were insignificant. 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.
Income taxes
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
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
● 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, 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 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 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.
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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. It specifically addresses: (1) how an entity should treat a modification of
the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;
(2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity
classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-
classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years
beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the
effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2021-04 on January 1, 2022
did not have a material impact on the Company’s financial statements.
Note 5. Acquisitions
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 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.
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
Accounts receivable
Prepaid and other current assets
Inventory and work-in-progress
Costs and estimated earnings in excess of billings
Property and equipment
Intangible assets
Right of use asset
Accounts payable
Accrued expenses
Billings in excess of costs and estimated earnings
Operating lease liabilities
Warranty liability
Total identifiable assets and liabilities acquired
Goodwill
Total purchase consideration
$
$
549
9,879
636
1,175
13,205
4,501
14,000
6,714
(9,235)
(1,239)
(5,883)
(6,714)
(116)
27,472
29,379
56,851
Goodwill represents the excess of total purchase consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.
Goodwill is attributable to the assembled workforce of experienced personnel at ESS Metron and synergies expected to be achieved from the combined
operations of Riot and ESS Metron. The goodwill recognized is expected to be deductible for tax purposes. We assigned the goodwill to our Engineering
segment. See Note 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. This consideration relates to representations and warranties of
circumstances that existed as of the acquisition date and which the Company believes to be accurate, with future issuance of the share consideration
deemed likely to occur.
The fair values of cash and cash equivalents, accounts receivable, prepaid and other current assets, inventory and work-in-progress, accounts payable,
accrued expenses, and warranty liability were determined to be the carrying values due to the short-term nature of the assets and liabilities. The fair value
of the acquired trade receivables was determined to be the net realizable amount of the closing date book value of $9.9 million.
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. The fair values of these assets and liabilities were determined to be the carrying values
due to the short-term nature of the underlying project contracts incurring costs and the associated customer billings.
The fair value of property and equipment was estimated by applying the cost approach. The cost approach uses the replacement or reproduction cost as
an indicator of fair value. The assumptions of the cost approach include replacement cost new, projected capital expenditures, and physical deterioration
factors including economic useful life, remaining useful life, age, and effective age.
Intangible assets reflect the identifiable intangible assets acquired, consisting of customer relationships, a trademark and UL Listings. Customer
relationships are assigned an estimated useful life of approximately 10 years based on the low attrition of the customer base, in part due to the customized
nature of the Company’s products. Fair value of the customer relationships was estimated by applying an income approach – multi period excess earnings
method. The fair value was determined by calculating the present value of estimated future operating cash flows generated from the existing customers
less costs to realize the revenue. The Company applied a discount rate of 21%, which reflected the nature of the assets as they relate to the risk and
uncertainty of the estimated
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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 assigned a 10-year life due to the Company obtaining more data center
customers where the longevity of the projects may be shorter than have been historically. Fair value of the trademark was estimated by applying the relief
from royalty rate method. The fair value was determined by applying an estimated royalty rate to revenues, measuring the value the Company would pay
in royalties to a market participant if it did not own the trademark and had to license it from a third party.
UL Listings were assigned a 12-year life. A UL Listing means that UL, LLC has tested representative samples of a product and determined that the product
meets specific, defined requirements. These requirements are often based on UL’s published and nationally recognized Standards for Safety. Although
the UL Listing certifications do not expire, due to technological improvements in similar products, particularly in the data center industry, a 12-year life
was assumed. Fair value of the UL Listings was estimated by applying an estimated developer’s profit margin of approximately 4.5% to estimated costs to
be incurred over an estimated six months to re-acquire the UL Listings. The Company applied a discount rate of 15%, which reflected the short time
necessary to re-acquire the asset.
The right of use asset and operating lease liabilities consist of two operating leases of the manufacturing facility in Denver, CO. These leases have
combined annual payments of approximately $0.9 million and 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 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.
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The following table presents the allocation of the purchase consideration:
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Property and equipment
Derivative asset
Right of use asset
Security deposits
Future power credits
Accounts payable
Accrued expenses
Deferred revenues and customer deposits
Operating lease liabilities
Total identifiable assets and liabilities acquired
Goodwill
Total purchase consideration
$
$
10,400
1,072
2,176
91,707
13,967
6,547
1,775
82,953
(12,853)
(504)
(34,856)
(8,184)
154,200
306,184
460,384
Goodwill represents the excess of total purchase consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed.
Goodwill is attributable to the assembled workforce of experienced personnel at Whinstone and synergies expected to be achieved from the combined
operations of Riot and Whinstone. None of the goodwill recognized is expected to be deductible for tax purposes. We assigned the goodwill to our
Hosting segment. See Note 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. Those power credits arose from the February 2021 weather event. The purchase price
included the estimated fair value of the contingent consideration at the Whinstone Acquisition Date of approximately $83 million. The fair value
measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The significant assumptions used to
estimate the fair value are described in Note 18, Fair Value Measurements. These assumptions for the power credits whose utilization by Whinstone is
contingent on ERCOT’s future power billings, include the timing of receipt or realization of the power credits, estimates of future power consumption, the
discount rate and credit risk of the Company and the owing party (ERCOT).
The fair value of the acquired trade receivables was determined to be the net realizable amount of the closing date book value of $1.1 million.
The fair value of the acquired long-term other asset of approximately $83 million relates to the estimated amount of power credits due Whinstone from the
February 2021 weather event. We estimated the fair value of the power credits to be the same as that of the contingent consideration arrangement because
the Company is required to remit to the Seller in cash as additional consideration the amount of such power credits received or realized by Whinstone. See
discussion above on contingent consideration.
The derivative asset acquired pertains to Whinstone’s Power Supply Agreement. Fair value of the contract of approximately $14 million was estimated by
applying a discounted debt-free cash flow approach. This fair value measurement is based on significant inputs not observable in the market and thus
represents a Level 3 measurement as defined in ASC 820. The significant assumptions used to estimate fair value of the derivative contract include a
discount rate of 21%, which reflected the nature of the contract as it relates to the risk and uncertainty of the estimated future mark-to-market adjustments,
forward price curves of the power supply, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.
The fair value of property and equipment was estimated by applying the cost approach. The cost approach uses the replacement or reproduction cost as
an indicator of fair value. The 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.
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.
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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)
The following unaudited pro forma financial information summarizes the combined results of operations for Riot, Whinstone, and ESS Metron as if the
companies were combined as of January 1, 2020. The unaudited pro forma information does not reflect the effect of costs or synergies that may result from
the acquisition. The pro forma information excludes acquisition-related costs of $21.2 million during the year ended December 31, 2021. The pro forma
information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on January 1,
2020, or of future results of the consolidated entities. This unaudited pro forma information is presented for informational purposes only and is not
necessarily indicative of future operating results of the combined company.
Total revenue
Net loss
Note 6. Revenue from Contracts with Customers
Disaggregated revenue
Years Ended December 31,
2020
2021
$
$
237,650
9,615
$
$
73,608
51,890
Revenue disaggregated by reportable segment is presented in See Note 22. Segments Information.
Contract balances
Contract assets consist of Costs and estimated earnings in excess of billings on uncompleted engineering contracts. 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.
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. The following table presents changes in the total deferred revenue liability and billings in
excess of costs and estimated earnings:
Beginning balance
Revenue recognized
Billings in excess of costs and estimated earnings
Acquired contract balances
Termination of an acquired customer contract
Ending balance
Remaining performance obligation
Years Ended December 31,
2021
2022
$
$
$
33,167
(12,416)
8,446
—
—
$
29,197
776
(1,597)
5,264
34,424
(5,700)
33,167
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)
Engineering
Other
Total contract liabilities
$
$
2023
2024
2,396 $ 2,114 $
8,446
97
10,939
—
97
$ 2,211
$
2025
2,255 $
—
97
2,352
$
2026
2,397 $
—
97
2,494
Thereafter
11,007 $
—
194
11,201
$
$
Total
20,169
8,446
582
29,197
(a) Data Center Hosting deferred revenue primarily consists of upfront payments, which the Company generally recognizes as services are provided.
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Concentrations
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
Note 7. Bitcoin
The following table presents information about the Company’s Bitcoin:
Beginning balance
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
December 31,
December 31,
2022
150,593
156,870
(79,529)
(1,495)
30,346
(147,365)
109,420
$
$
$
$
2021
(as restated)
10,186
184,422
—
(295)
253
(43,973)
150,593
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.
Note 8. 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 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 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.
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 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.
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.
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
During the year ended December 31, 2021, under agreements between Coinsquare, Coinsquare’s shareholders (including Riot) and Mogo Inc. (NASDAQ:
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, 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 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.
Note 9. Property and Equipment
Property and equipment consist of the following:
Buildings and building improvements
Land rights and land improvements
Miners and mining equipment
Machinery and facility equipment
Office and computer equipment
Construction in progress
Total cost of property and equipment
Less accumulated depreciation
Property and equipment, net
December 31,
2022
December 31,
2021
229,685
10,164
441,324
35,125
1,206
97,231
814,735
(122,180)
692,555
$
$
88,808
—
87,921
15,613
1,007
113,598
306,947
(30,467)
276,480
$
$
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
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Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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, 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. Mr. 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.
Commitment
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:
Agreement Date
Original Purchase Open Purchase
Commitment
Commitment
Deposit Balance
Received
November 22, 2021
December 10, 2021
December 24, 2021
Total
$
32,550
97,650
202,860
333,060
$
—
—
—
— $
3,467 First Quarter 2023
9,879 First Quarter 2023
19,927 First Quarter 2023
33,273
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Note 10. Goodwill and Intangible Assets
Goodwill
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
Impairment
Balance as of December 31, 2022
$
$
335,563
85
(335,648)
—
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
Trademark
UL Listings
Patents
Finite-lived intangible assets
Gross
Accumulated
$
$
book value amortization
(671) $
(542)
(244)
(1,126)
(2,583) $
6,300
5,000
2,700
10,060
24,060
$
$
Weighted-
average life
(years)
10
10
12
Various
Net book
value
5,629
4,458
2,456
8,934
21,477
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.
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Table of Contents
The following table presents the Company’s finite-lived intangible assets as of December 31, 2021:
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
Gross
Accumulated Net book
Customer contracts
Trademark
UL Listings
Patents
Finite-lived intangible assets
$
book value amortization
(51) $
$
(42)
(19)
(468)
(580) $
6,300
5,000
2,700
742
14,742
$
$
value
6,249
4,958
2,681
274
14,162
Weighted-
average life
(years)
10
10
12
Various
The following table presents the estimated future amortization of the Company’s finite-lived intangible assets as of December 31, 2022:
2023
2024
2025
2026
2027
Thereafter
Total
$
$
5,830
5,815
1,355
1,355
1,355
5,767
21,477
The Company did not identify any impairment of its finite-lived intangible assets during the years ended December 31, 2022, 2021, and 2020
Note 11. Derivatives
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”). 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 revenue: 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.
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Table of Contents
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
Note 12. Long-Term Assets
Deposits
Deposits consist of the following:
Deposits on equipment:
Beginning balance
Additions
Reclassification to property and equipment
Ending balance
Security deposits
Total deposits
Deposits on Equipment
$
$
—
13,967
12,112
26,079
71,418
97,497
December 31,
December 31,
2022
2021
$
$
261,215
194,923
(422,865)
33,273
9,160
42,433
$
$
33,093
274,833
(46,711)
261,215
4,955
266,170
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. See Note 9. 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.
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Table of Contents
Security Deposits
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
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
Rockdale Facility. As of December 31, 2021, the Company had security deposits totaling approximately $5.0 million, including its ground lease of $1.8
million.
Note 13. Accrued Expenses
Accrued expenses consist of the following:
Construction in progress
Power related costs and remittances
Accrued compensation
Insurance
Other
Total accrued expenses
Note 14. Debt
Credit and Security Facility
December 31,
December 31,
2022
2021
$
$
16,621
32,632
8,582
3,660
3,969
65,464
$
$
12,110
—
5,741
2,507
1,713
22,071
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.
Note 15. Leases
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.
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Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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:
Operating lease cost
Variable lease cost
Operating lease expense
Short-term lease rent expense
Total lease expense
The following table presents supplemental lease information:
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
The following table represents our future minimum operating lease payments as of December 31, 2022:
Years Ended December 31,
2022
2021
$
$
$
3,193
182
3,375
—
$
3,375
2020
1,240
1,040
2,280
20
2,300
$
$
678
51
729
19
748
$
$
Years Ended December 31,
2022
2021
$
$
2,789
10,333
8.5
6.6 %
$
$
435
13,622
8.6
5.8 %
2020
1,207
—
—
— %
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Less present value discount
Present value of lease liabilities
Note 16. Stockholders’ Equity
Preferred Stock
0% Series B Convertible Preferred Stock
Ground lease Office and other leases
Total
$
$
1,939
1,998
2,058
2,119
2,183
9,618
19,915
(5,720)
14,195
$
$
1,487
1,495
1,182
1,107
1,134
3,222
9,627
(1,571)
8,056
$
$
3,426
3,493
3,240
3,226
3,317
12,840
29,542
(7,291)
22,251
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
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Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
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
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
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.
Warrants
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.
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2022 Transactions
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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 5. 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 5. 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 Incentive Plan, as amended. 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
Incentive Plan.
During the year ended December 31, 2021, the Company issued 415,657 shares of its common stock in connection with the exercise of 415,657 common
stock warrants issued to investors in connection with the Company’s January 2019 private placement transaction, for net proceeds of approximately $0.8
million.
During the year ended December 31, 2021, the Company issued 543,686 shares of its common stock in connection with the cashless exercise of warrants to
purchase 1,257,235 shares of common stock, which were issued to investors in connection with private placement transactions in December 2017.
During the year ended December 31, 2021, the Company issued 10,286 shares of its common stock upon the cashless exercise of 12,000 stock options.
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
During the year ended December 31, 2020, the Company received net proceeds under the Sales Agreement, as amended with H.C. Wainwright of
approximately $257.5 million (after deducting $7.3 million in commissions and expenses), at a weighted average gross sales price of $5.30 per share, from
sales of 49,932,051 shares of its common stock.
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.
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Table of Contents
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.
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 Incentive Plan, as amended. 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 Incentive Plan, as amended.
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 Incentive Plan, as amended.
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.
Note 17. Stock-Based Compensation
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:
Performance-based stock awards
Service-based stock awards
Total stock-based compensation
Years Ended December 31,
2022
16,444
8,111
24,555
2021
63,556
4,935
68,491
2020
—
3,407
3,407
$
$
$
$
$
$
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.
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Table of Contents
Restricted Common Stock Awards
Performance-based awards
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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:
RSU Balance as of January 1, 2022
RSUs Granted
RSUs Vested
RSUs Forfeited
RSUs converted to RSAs
RSU Balance as of December 31, 2022
RSUs converted to RSAs
RSAs Granted
RSAs Vested
RSAs Forfeited
RSA Balance as of December 31, 2022
Number of Shares
Weighted Average
Grant-Date
Fair Value
3,404,585
1,412,299
(577,507)
(406,439)
(3,832,938)
—
3,832,938
245,266
(151,702)
(7,567)
3,918,935
$
$
$
$
$
$
$
$
$
$
36.68
10.66
35.21
34.96
28.75
28.75
6.83
6.83
6.39
31.05
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:
RSU Balance as of January 1, 2022
RSUs Granted
RSUs Vested
RSUs Forfeited
RSUs converted to RSAs
RSU Balance as of December 31, 2022
RSUs converted to RSAs
RSAs Granted
RSAs Vested
RSAs Forfeited
RSA Balance as of December 31, 2022
Number of Shares
Weighted Average
Grant-Date
Fair Value
610,561
922,552
(808,071)
(22,514)
(702,528)
—
702,528
10,310,115
(154,499)
(2,002,400)
8,855,744
$
$
$
$
$
$
$
$
$
$
5.93
6.89
7.91
9.11
8.20
8.20
6.73
6.83
6.33
6.84
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.
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Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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.
Note 18. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis
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
Total carrying
Value
Quoted prices in
active markets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
97,497
24,935
$
$
— $
— $
— $
— $
97,497
24,935
Fair value measured as of December 31, 2021
Total carrying
Value
Quoted prices in
active markets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
26,079
83,928
$
$
— $
— $
— $
— $
26,079
83,928
$
$
$
$
Derivative asset (a)
Contingent consideration liability (b)
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.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a
nonrecurring basis. Our non-financial assets, including goodwill, intangible assets, operating lease right of use assets, and property, plant and equipment,
are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows.
These assets are recorded at fair value only when an impairment charge is recognized.
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.
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 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.
F-38
Table of Contents
Note 19. Commitments and Contingencies
Commitments
Operating Leases
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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 15. Leases.
Water Reservation Agreement
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.
Business Combination Contingent Consideration
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, 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. 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
F-39
Table of Contents
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
$
$
—
82,953
975
83,928
(58,834)
(159)
24,935
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. Where appropriate, the
Company vigorously defends such claims, lawsuits and proceedings. 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
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. In terms of any matters where there is no insurance coverage available to the Company, or
where coverage is available and the Company maintains a retention or deductible associated with such insurance, the Company may establish an accrual
for such loss, retention or deductible based on current available information. In accordance with accounting guidance, if it is probable that an asset has
been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for
the cost to resolve or settle these claims is recorded by the Company in the accompanying consolidated balance sheets. If it is reasonably possible that
an asset may be impaired as of the date of the financial statement, then the Company discloses the range of possible loss. 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. v. 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
F-40
Table of Contents
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. , Case No. 3: 18-cv-02293. The complaint asserts violations of federal
securities laws under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of stockholders that purchased
stock from November 13, 2017 through February 15, 2018. The complaint alleges that the Company and certain of its officers and directors made, caused to
be made, or failed to correct false and/or misleading statements in press releases and public filings regarding its business plan in connection with its
cryptocurrency business. The complaint requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On April 18, 2018, Joseph J. Klapper, Jr., filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court
for the District of New Jersey (Klapper v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-8031). The complaint contained substantially similar allegations
and the same claims as those filed by Mr. Takata, and requests damages in unspecified amounts, costs and fees of bringing the action, and other
unspecified relief. On November 6, 2018, the court in the Takata action issued an order consolidating Takata with Klapper into a single putative class
action. The court also appointed Dr. Golovac as Lead Plaintiff and Motely Rice as Lead Counsel of the consolidated class action.
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. Defendants filed multiple motions to dismiss the amended complaint
starting on September 3, 2019.
On April 30, 2020, the court granted the motions to dismiss, which resulted in the dismissal of all claims without prejudice. On December 24, 2020, Lead
Plaintiff filed another amended complaint. Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021, which have
been fully briefed. On February 28, 2022, the court issued an order instructing the parties to submit supplemental briefing by March 14, 2022 on particular
issues raised in the motions to dismiss. 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.
F-41
Table of Contents
Shareholder Derivative Cases
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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., Case
No. 604520/18). The complaint contains similar allegations to those contained in the shareholder class action complaints and seeks recovery for alleged
breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement. The complaint seeks unspecified
monetary damages and corporate governance changes. At the last preliminary conference, the court adjourned the conference until June 27, 2023 in lieu of
staying the action. Defendants do not anticipate any other activity on this case until the next preliminary conference.
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., Case No. A-18-774890-B & Gaft v. O’Rourke, et al., Case No. A-18-774896-8). The two
complaints make identical allegations, which are similar to the allegations contained in the shareholder class action complaints. The shareholder derivative
plaintiffs also seek recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and aiding abetting a breach of fiduciary
duty. The complaints seek unspecific monetary damages and corporate governance changes.
On September 24, 2018, the court entered an order consolidating the Gaft and Kish actions, which is now styled as In re Riot BlockChain, Inc.
Shareholder Derivative Litigation, Case No. A-18-774890-B. The plaintiffs filed a consolidated complaint on March 15, 2019. The consolidated action has
been temporarily stayed 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 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., Case No. 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. The parties filed a motion with the court to temporarily stay 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. In
response, the court dismissed the action without prejudice with leave to refile a complaint following 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 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., Case No. 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 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.
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., Case No. 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’ 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.
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.
F-42
Table of Contents
Note 20. Income taxes
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
The following table presents the components of the loss from continuing operations before income taxes:
Domestic
Foreign
Loss from Continuing Operations before Income Taxes
The following table presents the components of income tax benefit (expense):
Current:
US Federal
US State
Foreign
Total current benefit (expense)
Deferred:
US Federal
US State
Foreign
Total deferred benefit
Total benefit (expense) for income taxes
For the years ended December 31,
2020
2021
2022
(14,107)
(15,183) $
(521,302) $
—
—
—
(14,107)
(15,183) $
(521,302) $
$
$
As of December 31,
2022
2021
2020
$
$
$
$
— $
(789)
—
(789) $
12,538
$
—
—
12,538
11,749
$
(254)
— $ —
—
— —
(254) $ —
— $ —
— —
— —
— —
(254) $ —
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:
Deferred income tax assets:
Net operating loss carryforwards
Research and development credit carryforwards
Long-term investments
Operating lease liabilities
Stock option expense
Bitcoin assets
Intangible assets
Other assets
Deferred revenue
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred income tax liabilities:
Derivative asset
Property and equipment and other
Net deferred tax assets (liabilities)
As of December 31,
2022
2021
$
150,167
1,063
$
—
5,178
17,422
29,111
6,501
1,330
4,595
215,367
(108,060)
107,307
(22,678)
(84,629)
$
— $
65,681
1,119
3,402
1,454
15,827
11,403
—
—
—
98,886
(61,609)
37,277
(5,477)
(31,800)
—
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.
F-43
Table of Contents
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 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. Currently, no federal or state income tax returns are under examination by the respective taxing authorities.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income
and taxing strategies in making this assessment. In case the deferred tax assets will not be realized in future periods, the Company has provided a
valuation allowance for the full amount of the deferred tax assets as of December 31, 2022 and 2021. The valuation allowance increased by approximately
$46.4 million during the year ended December 31, 2022.
The following table reconciles the tax expense (benefit) based on the U.S. federal statutory rate with actual tax expense (benefit):
Statutory federal income tax expense (benefit)
State taxes, net of federal tax expense (benefit)
Goodwill impairment
Contingent payment
Stock compensation
Other nondeductible expenses
Tax return to provision true-up
State tax rate change
Other
Change in valuation allowance
Income taxes expense (benefit)
$
For the years ended December 31,
2020
2021
2022
(2,660)
(3,188) $
(109,376) $
(471)
67
(3,403)
(45)
—
64,295
—
—
(12,538)
(2,904)
11,433
(9,026)
3,321
1,732
67
(1,908)
—
—
46,449
(11,749)
$
3,484
254
$
$
—
(8,737)
2,231
—
9,682
—
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, 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.
Note 21. 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
Total
F-44
2022
63,000
—
—
—
63,000
December 31,
2021
63,000
—
4,015,146
2,199
4,080,345
2020
2,061,770
12,000
633,305
4,199
2,711,274
Table of Contents
Note 22. Segment Information
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
The Company has three reportable 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.
The Company does not allocate all assets to the reporting segments as these are managed on an entity-wide basis. Therefore, the Company does not
separately disclose the total assets of its reportable operating segments.
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 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.
F-45
Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
The following table presents revenue and cost of revenues for the Company’s reportable segments, reconciled to the Consolidated Statements of
Operations:
Reportable segment revenue:
Bitcoin Mining
Data Center Hosting
Engineering
Other revenue
Eliminations
Total segment and consolidated revenue
Reportable segment cost of revenues:
Bitcoin Mining
Data Center Hosting
Engineering
Eliminations
Total segment and consolidated cost of revenues
Reconciling Items:
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
Casualty-related charges (recoveries), net
Impairment of Bitcoin
Impairment of goodwill
Impairment of miners
Impairment of long-term investment
Reversal of registration rights penalty
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)
Current income tax benefit (expense)
Deferred income tax benefit (expense)
Net income (loss)
2022
Years Ended December 31,
2021
(as restated)
2020
(as restated)
$
$
$
$
$
$
$
156,870
101,718
85,358
97
(84,872)
259,171
84,897
116,200
70,283
(77,684)
193,696
(78)
(67,452)
(107,950)
71,418
27,345
159
30,346
16,281
(9,688)
(147,365)
(335,648)
(55,544)
—
—
454
(8,996)
—
—
(59)
(789)
12,538
(509,553)
$
184,422
24,546
5,265
97
(1,087)
213,243
45,513
32,998
4,351
(769)
82,093
$
$
$
(21,198)
(87,429)
(26,324)
12,112
6,514
(975)
253
—
—
(43,973)
—
—
—
—
(296)
—
26,260
(13,655)
2,378
(254)
—
$
(15,437)
11,984
—
—
97
—
12,081
6,251
—
—
—
6,251
—
(10,251)
(4,494)
—
—
—
6,350
29
—
(3,595)
—
—
(9,413)
1,358
85
—
—
—
(6)
—
—
(14,107)
Note 23. 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.
F-46
Table of Contents
Restated Condensed Consolidated Balance Sheets (Unaudited)
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2022 (unaudited)
As of March 31, 2021 (unaudited)
ASSETS
As previously
reported Adjustment As restated
Current assets
Cash and cash equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings
Prepaid expenses and other current assets
Bitcoin
Future power credits, current portion
Investments in marketable equity securities, at fair value
Total current assets
Property and equipment, net
Deposits
Finite-lived intangible assets, net
Goodwill
Derivative asset
Operating lease right-of-use assets
Other long-term assets
Total assets
Current liabilities
LIABILITIES AND STOCKHOLDERS’ EQUITY
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
As
previously
reported
$ 241,012 $
—
—
629
34,567
—
—
276,208
28,306
70,730
351
—
—
—
310
$ 375,905 $
$
2,904 $
—
4,432
97
—
—
7,433
655
—
—
8,088
Adjustment As restated
— $ 241,012
—
—
—
—
629
—
30,753
(3,814)
—
—
—
—
(3,814) 272,394
—
—
—
—
—
—
—
28,306
70,730
351
—
—
—
310
(3,814)$ 372,091
— $
—
—
—
—
—
—
—
—
—
—
2,904
—
4,432
97
—
—
7,433
655
—
—
8,088
—
—
—
11
— 590,188
(3,814) (226,196)
(3,814) 364,003
(3,814)$ 372,091
— $
—
—
—
(8,002)
—
—
(8,002)
113,581
16,019
11,058
20,958
181,632
79,261
9,193
431,702
—
—
—
—
—
—
—
338,632
330,360
13,723
335,648
69,762
21,616
310
(8,002)$ 1,541,753
— $
—
—
—
—
—
—
—
—
—
—
11,269
4,963
16,430
2,747
79,261
1,507
116,177
19,328
20,346
6,220
162,071
$
113,581 $
16,019
11,058
20,958
189,634
79,261
9,193
439,704
338,632
330,360
13,723
335,648
69,762
21,616
310
$ 1,549,755 $
$
11,269 $
4,963
16,430
2,747
79,261
1,507
116,177
19,328
20,346
6,220
162,071
—
—
1,589,893
(202,209)
1,387,684
$ 1,549,755 $
F-47
—
—
—
—
— 1,589,893
(8,002)
(210,211)
(8,002) 1,379,682
(8,002)$ 1,541,753
—
11
590,188
(222,382)
367,817
$ 375,905 $
Table of Contents
Current assets
ASSETS
Cash and cash equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings
Prepaid expenses and other current assets
Bitcoin
Future power credits, current portion
Investments in marketable equity securities, at fair value
Total current assets
Property and equipment, net
Deposits
Finite-lived intangible assets, net
Goodwill
Derivative asset
Operating lease right-of-use assets
Future power credits, less current portion
Other long-term assets
Total 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 June 30, 2022 (unaudited)
As of June 30, 2021 (unaudited)
As previously
reported Adjustment As restated
$
270,483 $
16,091
13,779
12,999
126,574
54,477
2,028
496,431
— $
—
—
—
(8,727)
—
—
(8,727)
270,483
16,091
13,779
12,999
117,847
54,477
2,028
487,704
As
previously
reported
$ 147,183 $
27
—
1,060
48,254
—
24,799
221,323
424,744
363,010
13,371
—
—
—
—
— 130,693
21,166
—
—
—
310
—
(8,727)$ 1,440,998
142,315
78,861
89,713
— 253,909
30,360
6,440
83,138
310
$ 906,369 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
18,761
6,389
16,771
2,651
54,477
1,518
100,567
18,851
19,968
—
—
8,274
147,660
$
28,607 $
—
4,464
2,724
—
1,680
37,475
20,789
6,620
83,138
41,491
2,693
192,206
—
—
—
—
— 1,857,108
(8,727)
(563,770)
(8,727) 1,293,338
(8,727)$ 1,440,998
—
11
917,197
(203,045)
714,163
$ 906,369 $
424,744
363,010
13,371
—
130,693
21,166
—
310
$ 1,449,725 $
$
18,761 $
6,389
16,771
2,651
54,477
1,518
100,567
18,851
19,968
—
—
8,274
147,660
—
—
1,857,108
(555,043)
1,302,065
$ 1,449,725 $
F-48
Adjustment As restated
— $ 147,183
27
—
—
—
1,060
—
44,112
(4,142)
—
—
— 24,799
(4,142) 217,181
— 142,315
78,861
—
—
89,713
— 253,909
— 30,360
—
6,440
— 83,138
310
—
(4,142)$ 902,227
— $
—
—
—
—
—
—
28,607
—
4,464
2,724
—
1,680
37,475
20,789
—
6,620
—
— 83,138
— 41,491
2,693
—
192,206
—
—
—
—
11
— 917,197
(4,142) (207,187)
(4,142) 710,021
(4,142)$ 902,227
Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2022
(unaudited)
As of September 30, 2021
(unaudited)
As previously
reported Adjustment As restated
As
previously
reported
Adjustment As restated
Current assets
ASSETS
Cash and cash equivalents
Accounts receivable, net
Costs and estimated earnings in excess of billings
Prepaid expenses and other current assets
Bitcoin
Future power credits, current portion
Investments in marketable equity securities, at fair value
Total current assets
Property and equipment, net
Deposits
Finite-lived intangible assets, net
Goodwill
Derivative asset
Operating lease right-of-use assets
Future power credits, less current portion
Other long-term assets
Total 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
$
254,974 $
17,385
15,119
22,100
125,151
39,996
2,170
476,895
— $
—
—
—
(4,593)
—
—
(4,593)
254,974
17,385
15,119
22,100
120,558
39,996
2,170
472,302
$
57,880 $
3,632
—
1,552
102,313
—
13,647
179,024
650,191
178,502
13,017
—
—
—
—
— 112,944
21,763
—
—
—
310
—
(4,593)$ 1,449,029
214,251
94,416
84,807
— 253,737
37,773
6,692
83,397
310
$ 954,407 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
12,664
11,229
38,915
2,555
39,996
1,699
107,058
18,364
20,510
—
—
8,319
154,251
$
14,651 $
—
7,252
2,546
—
1,125
25,574
20,256
7,254
83,397
41,491
6,120
184,092
—
—
—
—
— 1,890,983
(596,205)
(4,593)
(4,593) 1,294,778
(4,593)$ 1,449,029
—
11
988,692
(218,388)
770,315
$ 954,407 $
650,191
178,502
13,017
—
112,944
21,763
—
310
$ 1,453,622 $
$
12,664 $
11,229
38,915
2,555
39,996
1,699
107,058
18,364
20,510
—
—
8,319
154,251
—
—
1,890,983
(591,612)
1,299,371
$ 1,453,622 $
F-49
57,880
— $
3,632
—
—
—
1,552
—
91,479
(10,834)
—
—
— 13,647
168,190
(10,834)
214,251
—
94,416
—
84,807
—
253,737
—
— 37,773
—
6,692
— 83,397
310
—
(10,834)$ 943,573
— $
—
—
—
—
—
—
14,651
—
7,252
2,546
—
1,125
25,574
—
20,256
7,254
—
— 83,397
— 41,491
6,120
—
184,092
—
—
—
—
—
11
988,692
(10,834) (229,222)
(10,834)
759,481
(10,834)$ 943,573
Table of Contents
Restated Condensed Consolidated Statements of Operations (Unaudited)
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
For the three months ended March 31, 2022 (unaudited)
As previously
reported
Adjustment
As restated
Revenue:
Bitcoin Mining
Data Center Hosting
Engineering
Other revenue
Total revenue
Costs and expenses:
Cost of revenue:
Bitcoin Mining
Data Center Hosting
Engineering
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
$
$
$
F-50
$
57,945
9,694
12,124
24
79,787
19,094
14,985
11,549
10,910
14,245
(46,235)
176
(9,236)
26,390
41,878
37,909
(357)
(1,611)
(1,968)
35,941
(312)
—
(312)
35,629
—
$
35,629
0.30
117,042,347
$
— $
—
—
—
—
—
—
—
—
—
—
—
(429)
(520)
(949)
949
—
—
—
949
—
—
—
949
—
$
949
0.01
$
—
57,945
9,694
12,124
24
79,787
19,094
14,985
11,549
10,910
14,245
(46,235)
176
(9,665)
25,870
40,929
38,858
(357)
(1,611)
(1,968)
36,890
(312)
—
(312)
36,578
—
36,578
0.31
117,042,347
Table of Contents
Revenue:
Bitcoin Mining
Data Center Hosting
Engineering
Other revenue
Total revenue
Costs and expenses:
Cost of revenue:
Bitcoin Mining
Data Center Hosting
Engineering
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)
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
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$
46,151 $
9,834
16,938
24
72,947
— $
—
—
—
—
$
46,151
9,834
16,938
24
72,947
104,096 $
19,528
29,062
48
152,734
— $
—
—
—
—
104,096
19,528
29,062
48
152,734
17,995
15,184
15,175
—
10,713
20,562
(60,931)
(5,706)
—
(14,353)
(8,614)
99,787
335,648
425,460
(352,513)
—
(1,624)
(4,837)
(59)
(6,520)
—
—
—
—
—
—
—
—
—
(907)
—
1,632
—
725
(725)
—
—
—
—
—
17,995
15,184
15,175
—
10,713
20,562
(60,931)
(5,706)
—
(15,260)
(8,614)
101,419
335,648
426,185
(353,238)
—
(1,624)
(4,837)
(59)
(6,520)
37,089
30,169
26,724
78
21,545
34,807
(104,614)
(8,258)
176
(23,589)
(8,614)
126,177
335,648
467,338
(314,604)
(357)
(1,624)
(6,448)
(59)
(8,488)
—
—
—
—
—
—
—
—
—
(1,336)
—
1,112
—
(224)
224
—
—
—
—
—
37,089
30,169
26,724
78
21,545
34,807
(104,614)
(8,258)
176
(24,925)
(8,614)
127,289
335,648
467,114
(314,380)
(357)
(1,624)
(6,448)
(59)
(8,488)
(359,033)
(725)
(359,758)
(323,092)
224
(322,868)
(427)
6,626
6,199
—
—
—
(427)
6,626
6,199
(739)
6,626
5,887
—
—
—
(739)
6,626
5,887
Net income (loss)
(352,834)
(725)
(353,559)
(317,205)
224
(316,981)
Basic and diluted net income (loss) per share
Basic and diluted weighted average number of shares outstanding
$
(2.71)$
130,405,502
(0.01) $
(2.71)
— 130,405,502
$
(2.56)$
123,760,839
0.00 $
(2.56)
— 123,760,839
F-51
Table of Contents
Revenue:
Bitcoin Mining
Data Center Hosting
Engineering
Other revenue
Total revenue
Costs and expenses:
Cost of revenue:
Bitcoin Mining
Data Center Hosting
Engineering
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)
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
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$
22,070 $
8,371
15,824
25
46,290
— $
—
—
—
—
14,677
14,223
13,780
—
16,004
26,559
17,749
(13,070)
—
(1,854)
(7,667)
5,900
—
86,301
(40,011)
348
—
142
—
490
—
—
—
—
—
—
—
—
—
(1,255)
—
(2,879)
—
(4,134)
4,134
—
—
—
—
—
22,070
8,371
15,824
25
46,290
14,677
14,223
13,780
—
—
16,004
26,559
17,749
(13,070)
(3,109)
(7,667)
3,021
—
82,167
(35,877)
348
—
142
—
490
$
126,166 $
27,899
44,886
73
199,024
— $
—
—
—
—
126,166
27,899
44,886
73
199,024
51,766
44,392
40,504
78
37,549
61,366
(86,865)
(21,328)
176
(25,443)
(16,281)
132,077
335,648
553,639
(354,615)
(9)
(1,624)
(6,306)
(59)
(7,998)
—
—
—
—
—
—
—
—
—
(2,591)
—
(1,767)
—
(4,358)
4,358
—
—
—
—
—
51,766
44,392
40,504
78
37,549
61,366
(86,865)
(21,328)
176
(28,034)
(16,281)
130,310
335,648
549,281
(350,257)
(9)
(1,624)
(6,306)
(59)
(7,998)
(39,521)
4,134
(35,387)
(362,613)
4,358
(358,255)
(89)
3,041
2,952
—
—
—
(89)
3,041
2,952
(828)
9,667
8,839
—
—
—
(828)
9,667
8,839
(36,569)
4,134
(32,435)
(353,774)
4,358
(349,416)
Basic and diluted net income (loss) per share
Basic and diluted weighted average number of shares outstanding
$
(0.24)$
153,895,123
0.03 $
(0.21)
— 153,895,123
$
(2.64)$
133,894,338
0.03 $
(2.61)
— 133,894,338
F-52
Table of Contents
Revenue:
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)
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
For the three months ended March 31, 2021 (unaudited)
As previously
reported
Adjustment
As restated
$
$
$
$
23,173
24
23,197
7,534
5,462
2,846
—
15,842
7,355
175
7,530
— $
—
—
—
—
—
2,374
2,374
(2,374)
—
(2,374)
—
—
7,530
0.09
0.09
83,163,400
83,712,151
$
$
(2,374)
(0.03)
(0.03)
$
$
—
—
23,173
24
23,197
7,534
5,462
2,846
2,374
18,216
4,981
175
5,156
—
5,156
0.06
0.06
83,163,400
83,712,151
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
F-53
Table of Contents
Revenue:
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)
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
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$
31,450 $
2,874
24
34,348
$
— $
—
—
—
31,450
2,874
24
34,348
54,623 $
2,874
48
57,545
— $
—
—
—
54,623
2,874
48
57,545
9,325
3,736
17,032
3,512
5,738
(16,393)
(1,143)
185
(29)
17,507
39,470
(5,122)
80
26,260
339
1,510
28,189
—
—
—
—
—
—
—
—
—
328
328
(328)
—
—
—
—
—
9,325
3,736
17,032
3,512
5,738
(16,393)
(1,143)
185
(29)
17,835
39,798
(5,450)
80
26,260
339
1,510
28,189
23,067
(328)
22,739
—
(3,730)
(3,730)
—
—
—
—
(3,730)
(3,730)
19,337
(328)
19,009
16,859
3,736
18,342
7,664
8,584
(16,393)
(1,143)
185
(29)
17,507
55,312
2,233
255
26,260
339
1,510
28,364
30,597
—
(3,730)
(3,730)
26,867
—
—
—
—
—
—
—
—
—
2,702
2,702
(2,702)
—
—
—
—
—
16,859
3,736
18,342
7,664
8,584
(16,393)
(1,143)
185
(29)
20,209
58,014
(469)
255
26,260
339
1,510
28,364
(2,702)
27,895
—
—
—
—
(3,730)
(3,730)
(2,702)
24,165
(0.03)$
(0.03)$
0.28
0.28
— 85,937,612
— 86,501,471
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
0.22 $
$
$
0.22 $
88,681,338
89,241,044
(0.01) $
(0.01) $
0.21
0.21
— 88,681,338
— 89,241,044
0.31 $
$
$
0.31 $
85,937,612
86,501,471
F-54
Table of Contents
Revenue:
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)
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
For the three months ended September
30, 2021 (unaudited)
For the nine months ended September 30,
2021 (unaudited)
As previously
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$
53,590 $
11,193
25
64,808
— $
—
—
—
53,590
11,193
25
64,808
$
108,213 $
14,067
73
122,353
— $
—
—
—
108,213
14,067
73
122,353
13,034
12,581
552
40,307
12,207
(7,413)
(2,507)
259
(65)
—
68,955
(4,147)
40
—
(11,151)
(85)
(11,196)
—
—
—
—
—
—
—
—
—
6,692
6,692
(6,692)
13,034
12,581
552
40,307
12,207
(7,413)
(2,507)
259
(65)
6,692
75,647
(10,839)
—
—
—
—
—
40
—
(11,151)
(85)
(11,196)
(15,343)
(6,692)
(22,035)
—
—
—
—
—
—
—
—
—
(15,343)
(6,692)
(22,035)
29,893
16,317
18,894
47,971
20,791
(23,806)
(3,650)
444
(94)
17,507
124,267
(1,914)
295
26,260
(10,812)
1,425
17,168
15,254
—
(3,730)
(3,730)
11,524
—
—
—
—
—
—
—
—
—
9,394
9,394
(9,394)
—
—
—
—
—
29,893
16,317
18,894
47,971
20,791
(23,806)
(3,650)
444
(94)
26,901
133,661
(11,308)
295
26,260
(10,812)
1,425
17,168
(9,394)
5,860
—
—
—
—
(3,730)
(3,730)
(9,394)
2,130
(0.11)$
(0.10)$
0.02
0.02
— 89,350,180
— 89,896,374
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
(0.16) $
$
$
(0.16) $
96,064,036
96,064,036
(0.07) $
(0.07) $
(0.23)
(0.23)
— 96,064,036
— 96,064,036
0.13 $
$
$
0.13 $
89,350,180
89,896,374
F-55
Table of Contents
Restated Condensed Consolidated Statements of Cash Flow (Unaudited)
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
For the three months ended March 31,
2022 (unaudited)
For the three months ended March 31, 2021
(unaudited)
As previously
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$
35,629 $
949 $
36,578
$
7,530 $
(2,374)$
5,156
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
3,042
14,245
(24)
357
312
26,390
(43,683)
176
(9,236)
1,611
(56,662)
9,418
(621)
(1,196)
(13,817)
4,667
(8,768)
(301)
(5,926)
(22)
(540)
(369)
(45,318)
(103,161)
(37,079)
(26)
(140,266)
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
—
—
—
(4,843)
(8,307)
(13,150)
(520)
(429)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,042
14,245
(24)
357
312
25,870
(43,683)
176
(9,665)
1,611
(56,662)
9,418
(621)
(1,196)
(13,817)
4,667
(8,768)
(301)
(5,926)
(22)
(540)
(369)
(45,318)
—
(103,161)
—
—
—
(37,079)
(26)
(140,266)
—
—
—
—
—
—
—
—
—
(4,843)
(8,307)
(13,150)
936
2,846
(24)
—
—
—
—
—
—
—
(22,941)
—
—
—
628
—
2,186
—
2,850
—
—
—
(5,989)
(56,353)
(2,270)
(38)
(58,661)
84,817
(2,137)
806
—
(1,206)
82,280
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(198,734)
312,315
113,581 $
$
—
—
— $
(198,734)
312,315
113,581
17,630
223,382
241,012 $
$
F-56
—
936
—
2,846
—
(24)
—
—
—
—
2,374
2,374
—
—
—
—
—
—
—
—
— (22,941)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
628
—
2,186
—
2,850
—
—
—
(5,989)
—
(56,353)
—
—
—
(2,270)
(38)
(58,661)
—
84,817
—
—
—
—
—
(2,137)
806
—
(1,206)
82,280
—
17,630
— 223,382
— $ 241,012
Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
For the six months ended June 30, 2022
(unaudited)
For the six months ended June 30, 2021
(unaudited)
As previously
reported
Adjustment
As restated
As previously
reported
Adjustment
As restated
$ (317,205) $
224 $
(316,981)
$
26,867 $
(2,702)$
24,165
3,743
34,807
(48)
807
(5,887)
126,177
335,648
(104,614)
176
1,624
—
(23,589)
6,448
(8,614)
(102,734)
33,116
(693)
(3,917)
(5,858)
29,451
(1,276)
1,125
(13,287)
2,032
(1,089)
(736)
(14,393)
704
—
—
(192,485)
(709)
(77,403)
(28)
(269,921)
—
—
—
—
—
1,112
—
—
—
—
—
(1,336)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,743
34,807
(48)
807
(5,887)
127,289
335,648
(104,614)
176
1,624
—
(24,925)
6,448
(8,614)
(102,734)
33,116
(693)
(3,917)
(5,858)
29,451
(1,276)
1,125
(13,287)
2,032
(1,089)
(736)
(14,393)
704
—
—
(192,485)
(709)
(77,403)
(28)
(269,921)
272,737
—
272,737
(5,715)
—
(15,725)
(8,815)
242,482
—
—
—
—
—
—
—
— $
(5,715)
—
(15,725)
(8,815)
242,482
(41,832)
312,315
270,483
1,905
8,584
(48)
54
3,730
17,507
—
(16,393)
—
—
(26,260)
(29)
(339)
—
(54,106)
—
1,045
—
2,373
—
15,036
—
2,379
2,693
(12,071)
(87)
(27,160)
—
(40,879)
1,800
(84,986)
—
(7,126)
(16)
(131,207)
84,817
(2,137)
806
—
(1,318)
82,168
(76,199)
223,382
147,183 $
$
1,905
—
8,584
—
(48)
—
54
—
3,730
—
20,209
2,702
—
—
(16,393)
—
—
—
—
—
(26,260)
—
(29)
—
(339)
—
—
—
— (54,106)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,045
—
2,373
—
15,036
—
2,379
2,693
(12,071)
(87)
(27,160)
—
(40,879)
1,800
(84,986)
—
(7,126)
—
—
(16)
— (131,207)
—
—
—
—
—
—
84,817
(2,137)
806
—
(1,318)
82,168
(76,199)
—
—
223,382
— $ 147,183
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(41,832)
312,315
270,483 $
$
F-57
Table of Contents
Riot Platforms, Inc.
Notes to Consolidated Financial Statements
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
For the nine months ended September
30, 2022 (unaudited)
For the nine months ended September 30,
2021 (unaudited)
As previously
reported
Adjustment
As restated
reported
Adjustment
As restated
$ (353,774) $
4,134 $
(349,640)
$
11,524 $
(9,394)$
2,130
7,304
61,366
(73)
2,891
(8,839)
—
—
132,077
335,648
—
—
(86,865)
176
1,624
—
(25,443)
6,306
(16,281)
—
(124,732)
52,491
(1,987)
(5,257)
(14,959)
43,932
(7,373)
5,965
(2,673)
2,078
(1,647)
(2,695)
(740)
704
—
—
—
—
(194,923)
(5,479)
(129,672)
(27)
(329,397)
—
—
—
—
—
—
—
(1,767)
—
—
—
—
—
—
—
(2,591)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(224)
—
—
—
—
—
—
—
—
—
—
7,304
61,366
(73)
2,891
(8,839)
—
—
130,310
335,648
—
—
(86,865)
176
1,624
—
(28,034)
6,306
(16,281)
—
(124,732)
52,491
(1,987)
(5,257)
(14,959)
43,932
(7,373)
5,965
(2,673)
2,078
(1,647)
(2,695)
(964)
704
—
—
—
—
(194,923)
(5,479)
(129,672)
(27)
(329,397)
304,849
—
304,849
(6,455)
—
(15,725)
(9,873)
272,796
F-58
—
—
—
—
—
(6,455)
—
(15,725)
(9,873)
272,796
37,928
20,791
(73)
(25)
3,730
1,157
—
17,507
—
—
—
(23,806)
444
—
(26,260)
(94)
10,812
—
—
(108,100)
—
(2,559)
—
(1,220)
(444)
1,080
—
3,380
6,120
(12,757)
(9)
(60,874)
—
(40,879)
—
1,800
—
(103,158)
—
(78,858)
(16)
(221,111)
120,516
(3,045)
806
—
(1,794)
116,483
37,928
—
20,791
—
(73)
—
(25)
—
3,730
—
1,157
—
—
—
26,901
9,394
—
—
—
—
—
—
(23,806)
—
444
—
—
—
(26,260)
—
(94)
—
10,812
—
—
—
—
—
— (108,100)
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,559)
—
(1,220)
(444)
1,080
—
3,380
6,120
(12,757)
(9)
(60,874)
—
—
(40,879)
—
—
—
1,800
—
—
—
— (103,158)
—
—
(78,858)
—
—
(16)
— (221,111)
—
120,516
—
—
—
—
—
(3,045)
806
—
(1,794)
116,483
Table of Contents
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
(57,341)
312,315
254,974 $
$
(224)
—
(224) $
(57,565)
312,315
254,750
(165,502)
223,382
57,880 $
$
— (165,502)
223,382
—
57,880
— $
Note 24. Subsequent Events:
The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued. No
significant recognized or non-recognized subsequent events were noted.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
Annual Report to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in
the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, our management concluded that our disclosure
controls and procedures were not effective at the reasonable assurance level as of December 31, 2022, due to the material weakness described below.
As further discussed below under "Management’s Report on Internal Control Over Financial Reporting,” management has identified a material weakness
in the design of our control pertaining to the proper review of impairment charges associated with our Bitcoin, as further described below, which is a part
of our internal control over financial reporting. We have developed a remediation plan for the weakness, which is described below under "Remediation.”
As a result of such material weakness, the report of our independent registered public accounting firm for the fiscal year ended December 31, 2022,
Marcum LLP, regarding its audit of our internal control over financial reporting as of December 31, 2022, which is included below under the heading
"Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting”, expresses an adverse opinion on our internal
control over financial reporting as of December 31, 2022.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and
procedures.
Changes in Internal Control
We periodically review our internal control over financial reporting as part of our efforts to ensure compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act. In addition, we routinely review our system of internal control over financial reporting to identify potential changes to our processes
and systems that may improve controls and increase efficiency, with the goal of establishing and maintaining an effective internal control environment.
Changes may include such activities as implementing new, more efficient systems, consolidating the activities of business units, migrating certain
processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls.
Other than the changes described above, there have been no changes in our internal control over financial reporting that occurred during the fiscal year
ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) to assess the effectiveness of our internal control over financial reporting as of December 31, 2022. Based on this
evaluation, management identified the following weakness in internal control over financial reporting as described below:
1) The Company’s control pertaining to the review of its Bitcoin for potential impairment charges was not designed properly. Such control weakness
resulted in the Company calculating impairment on a daily basis using a spot price at a standard cutoff time that was not in compliance with the ASC
350-30-35-19 requirement to recognize impairment whenever carrying value exceeds fair value, which effectively calls for the intraday low price to be
utilized in calculating impairment.
This material weakness creates a reasonable possibility that a material misstatement to our consolidated financial statements or disclosures would not be
prevented or detected on a timely basis.
Our independent registered public accounting firm, Marcum LLP, has issued an audit report on management’s assessment of internal control over
financial reporting as of December 31, 2022. The report of Marcum LLP, which expresses an adverse opinion on the Company’s internal control over
financial reporting as of December 31, 2022, is included below under the heading "Report of Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting”.
Remediation
Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. During the
year ended December 31, 2022, the Company completed the process of designing and implementing effective compensating controls that ultimately
alleviated the severity of our previously identified material weaknesses in our information technology (IT) environment and related IT-dependent process
level controls. Management continues to work to improve its controls related to the material weakness described above. Management will continue to
implement measures to remediate the material weakness, such that these controls are designed, implemented, and operating effectively. In order to achieve
the timely implementation of the above, Management has commenced the following actions and will continue to assess additional opportunities for
remediation on an ongoing basis.
● Engaging a third-party specialist to assist Management with improving the Company’s overall control environment, focusing on financial
reporting controls
● Implementing new applications and systems that are aligned with Management’s focus on creating strong internal controls, as well as complete
and accurate financial statements
● Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong SOX and internal control
backgrounds.
However, the material weakness in our internal control over financial reporting will not be considered remediated until other process-level controls operate
for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. We cannot provide any
assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.
In addition, we continue to evaluate and work to improve our internal control over financial reporting related to the identified material weakness, and
Management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors of
Riot Platforms, Inc.
Adverse Opinion on Internal Control over Financial Reporting
We have audited the Riot Platforms, Inc. and Subsidiaries’ (the "Company") internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of
the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The
following material weakness has been identified and included in "Management's Annual Report on Internal Control Over Financial Reporting”:
● The Company’s control pertaining to the review of its Bitcoin for potential impairment charges was not designed properly. Such control
weakness resulted in the Company calculating impairment on a daily basis using a spot price at a standard cutoff time that was not in compliance
with the ASC 350-30-35-19 requirement to recognize impairment whenever carrying value exceeds fair value, which effectively calls for the
intraday low price to be utilized in calculating impairment.
The material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2022 consolidated
financial statements, and this report does not affect our report dated March 2, 2023 on those financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB”), the
consolidated balance sheets as of December 31, 2022 and 2021 and 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, of the Company and our report dated March 2, 2023
expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying "Management’s Annual Report on Internal Control Over Financial Reporting".
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance
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with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of
compliance with the policies or procedures may deteriorate.
/s/ Marcum LLP
Marcum llp
Los Angeles, CA
March 2, 2023
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item 10 is included in our definitive proxy statement for our 2023 annual meeting of stockholders (our "2023 Proxy
Statement”), which is expected to be filed within 120 days after the end of our fiscal year ended December 31, 2022.
a)
b)
Identification of Directors: The information required by this Item with respect to our directors is incorporated herein by reference to the discussion
under the headings "Proposal No. 1: Election of Directors—Information Regarding Directors” in our 2023 Proxy Statement.
Identification of Executive Officers: Certain information regarding our executive officers is included in Part I of this Annual Report under the heading
"Information about our Executive Officers” in accordance with General Instruction G(3) of Form 10-K.
c) Audit Committee Information; Financial Expert: The information required by this Item with respect to the Audit Committee of our Board of Directors
and "audit committee financial experts” is incorporated herein by reference to the discussion under the heading "Committees of the Board of
Directors—Audit Committee” in our 2023 Proxy Statement.
d) Delinquent Section 16(a) Reports: Information related to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the
discussion under the heading "Delinquent Section 16(a) Beneficial Ownership Reports” in our 2023 Proxy Statement.
e) Code of Ethics: All of our directors and employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and other
senior accounting and financial officers, are required to abide by our Code of Ethics and Business Conduct. Our Code of Ethics and Business
Conduct is filed as an exhibit to this Annual Report and is posted on our website at https://www.riotplatforms.com/investors/corporate-
governance/governance-documents. We
at
on
https://www.riotplatforms.com/investors/corporate-governance/governance-documents any amendment to, or waiver from, our Code of Ethics and
Business Conduct that is required to be disclosed to stockholders, within four business days following such amendment or waiver. The information
required by this Item with respect to codes of ethics is incorporated herein by reference to the discussion under the heading "Corporate Governance
—Corporate Governance Guidelines, Code of Ethics and Business Conduct, and Committee Charters” in our 2023 Proxy Statement.
our website
of Conduct
the Code
disclose
section
intend
to
of
f)
Policy for Nominees: The information required under Item 407(c)(3) of Regulation S-K is incorporated herein by reference to the discussion under the
heading "General Information—When are stockholder proposals due for next year’s annual general meeting?” in our 2023 Proxy Statement
concerning procedures by which shareholders may recommend nominees to our Board of Directors. No material changes to those procedures have
occurred since the disclosure regarding those procedures in our Proxy Statement for our 2022 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be provided in the section entitled "Executive Compensation” in our 2023 Proxy Statement and, pursuant to
General Instruction G(3) to Form 10-K, is hereby incorporated by reference in this section.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except as set forth below regarding securities authorized under our equity compensation plans, the information required to be disclosed by this Item is
incorporated into this Annual Report by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management”
contained in our definitive proxy statement for our 2023 annual meeting of stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
In October 2019, the Company’s stockholders approved the 2019 Equity Incentive Plan ("2019 Equity Plan”). The 2019 Equity Plan authorizes the granting
of stock-based compensation awards to directors, employees, and consultants in the form of RSAs or
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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, under the 2019 Equity Plan.
In November 2020, the Company’s stockholders approved the First Amendment to the 2019 Equity 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 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 Plan, which increased the shares of common stock reserved
for issuance by 10.0 million shares.
As of December 31, 2022, the Company had 2,895,000 shares of common stock reserved for issuance under the 2019 Equity Plan.
The following table provides information as of December 31, 2022, about the shares of common stock that may be issued upon the vesting of performance
and non-performance based restricted common stock under the 2019 Plan:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be
issued
upon exercise of
outstanding
options and
restricted
common
stock
Weighted
average exercise
price of
outstanding
options
— $
—
— $
Number of
securities
remaining
available for
future issuance
2,895,000
—
2,895,000
—
—
—
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item 13 will be provided in the section entitled "Certain Relationships and Related-Party Transactions” in our 2023 Proxy
Statement and, pursuant to General instruction G(3) to Form 10-K, is hereby incorporated by reference in this section.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be provided in the section entitled "Fees to Independent Auditors” in our 2023 Proxy Statement and,
pursuant to General Instruction G(3) to Form 10-K, is hereby incorporated by reference in this section.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
We have filed the following documents as part of this Annual Report:
1. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB 00688); 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
2. Financial Statement Schedules
F-1
F-3
F-4
F-7
F-8
F-10
All schedules are omitted because they are not applicable, not required, or the information has been otherwise included in the consolidated financial
statements or notes to consolidated financial statements.
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3.
Index of Exhibits
Exhibit
2.
Description
Plan of acquisition, reorganization, arrangement, liquidation,
or succession.
Location
2.1
3.
3.1
3.2
3.3
3.4
3.5
3.6
4.
4.1
4.2
Plan of Merger, dated effective as of December 30, 2022, by and
between Riot Blockchain, Inc. and Riot Platforms, Inc.
Exhibit 2.1 of the Current Report on Form 8-K filed January 3, 2023.
Certificate of Incorporation and Bylaws.
Articles of Incorporation filed September 20, 2017.
Exhibit 3.1 of the Current Report on Form 8-K filed September 25,
2017.
Articles of Merger between Bioptix, Inc., and Riot Blockchain,
Inc.
Exhibit 3.1 of the Current Report on Form 8-K filed October 4, 2017.
Bylaws effective September 20, 2017.
Exhibit 3.2 of the Current Report on Form 8-K filed September 25,
2017.
Amendment to Bylaws effective March 9, 2018.
Exhibit 3.1 of the Current Report on Form 8-K filed March 12, 2018.
Amendment to the Articles of Incorporation of Riot Blockchain,
Inc. dated November 21, 2022.
Exhibit 3.1 of the Current Report on Form 8-K filed November 23,
2022.
Articles of Merger between Riot Blockchain, Inc. and Riot
Platforms, Inc.
Exhibit 3.1 of the Current Report on Form 8-K filed January 3, 2023.
Instruments Defining the Rights of Security Holders, Including Indentures.
Certificate of Designations, Preferences and Rights of the 0%
Series B Convertible Preferred Stock of the Company.
Amendment to Certificate of Designation of 0% Series B
Convertible Preferred Stock of the Company.
4.3 +
2017 Equity Incentive Plan, as amended.
4.4 +
Riot Blockchain, Inc. 2019 Equity Incentive Plan.
Exhibit 3.1 of the Current Report on Form 8-K filed November 3, 2017.
Exhibit 3.1 of the Current Report on Form 8-K filed December 21, 2017.
Appendix E to the Definitive Proxy Statement on Schedule DEF14A
filed July 10, 2017, as amended; Definitive Proxy Statement on
Schedule DEF14A filed March 26, 2018; and Schedule DEFA14A filed
April 2, 2018.
Appendix A to the Definitive Proxy Statement on Schedule DEF14A
filed September 20, 2019.
4.5 +
4.6 +
4.7 +
Amendment No. 1 to the Riot Blockchain, Inc. 2019 Equity
Incentive Plan.
Appendix A to the Definitive Proxy Statement on Schedule DEF 14A
filed October 14, 2020.
Amendment No. 2 to the Riot Blockchain, Inc. 2019 Equity
Incentive Plan.
Amendment No. 3 to the Riot Blockchain, Inc. 2019 Equity
Incentive Plan.
Exhibit 10.1 of the Current Report on Form 8-K filed October 22, 2021.
Exhibit 10.1 of the Current Report on Form 8-K filed August 2, 2022.
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Exhibit
Description
Location
4.8 +
4.9 +
4.10 +
4.11 +
4.12 +
4.13
4.14
4.15
4.16
4.17
4.18
10.
10.1
10.2
10.3
10.4
10.5
Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended.
Exhibit 10.2 of the Current Report on Form 8-K filed August 2, 2022.
Form of Time-Based Restricted Stock Unit Award Agreement
under the Riot Blockchain, Inc. 2019 Equity Incentive Plan.
Exhibit 4.7 of the Registration Statement on Form S-8 filed on
November 15, 2021.
Form of Performance-Based Restricted Stock Unit Award
Agreement under the Riot Blockchain, Inc. 2019 Equity
Incentive Plan
Exhibit 10.1 of the Current Report on Form 8-K filed August 16, 2021.
Form of Service-Based Restricted Stock Award Agreement.
Exhibit 10.1 of the Current Report on Form 8-K filed October 3, 2022.
Form of Performance-Based Restricted Stock Award
Agreement.
Form of Senior Secured Convertible Promissory Note dated as
of January 28, 2019
Form of Common Stock Purchase Warrant Agreement dated
as of January 28, 2019
Exhibit 10.2 of the Current Report on Form 8-K filed October 3, 2022.
Exhibit 4.1 of the Current Report on Form 8-K filed February 1, 2019.
Exhibit 4.2 of the Current Report on Form 8-K filed February 1, 2019.
Form of Registration Rights Agreement dated as of January
28, 2019.
Exhibit 10.03 of the Current Report on Form 8-K filed on February 1,
2019.
Form of Escrow Deposit Agreement.
Exhibit 10.2 of the Current Report on Form 8-K filed February 16, 2018.
Shareholder Agreement dated as of May 26, 2021, by and
between Riot Blockchain, Inc. and Northern Data AG.
Exhibit 10.1 to the Current Report on Form 8-K filed May 26, 2021.
Description of Securities
Material Contracts.
Filed herewith.
Lease Agreement dated as of February 27, 2018.
Exhibit 10.1 of the Current Report on Form 8-K filed February 28, 2018.
First Amendment to Lease Agreement, dated March 26, 2018.
Incorporated by reference to Exhibit 10.1 of the Current Report on
Form 8-K filed March 27, 2018.
Second Amendment to Lease, dated November 29, 2018.
Exhibit 10.1 of the Current Report on Form 8-K filed December 6, 2018.
Third Amendment to Lease, dated as of January 8, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed January 13, 2020.
Fourth Amendment to Lease, dated effective as of April 10,
2020.
Exhibit 10.1 of the Current Report on Form 8-K filed April 20, 2020.
10.6 †
Coinmint Co-Location Mining Services Agreement by and
between Riot Blockchain, Inc. and Coinmint, LLC, dated
effective as of April 8, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed April 14, 2020.
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Exhibit
Description
Location
10.7 +
10.8 +
10.9 +
10.10 +
10.11 +
10.12 +
10.13 +
10.14 †+
10.15 +
Jeffrey G. McGonegal Executive Employment Agreement
dated as of February 6, 2019.
Amended and Restated McGonegal Executive Employment
Agreement by and between Riot Blockchain, Inc., and Jeffrey
McGonegal, dated as of February 7, 2020.
First Amendment to the Amended and Restated McGonegal
Employment Agreement by and between Riot Blockchain, Inc.
and Jeffrey McGonegal, dated as of February 8, 2021.
to
Second Amendment
the Amended and Restated
McGonegal Employment Agreement by and between Riot
Blockchain, Inc. and Jeffrey McGonegal, dated as of February
7, 2022.
Executive Employment Agreement by and between Riot
Blockchain, Inc. and Jason Les, dated as of February 8, 2021.
Executive Employment Agreement by and between Riot
Blockchain, Inc. and Megan Brooks, dated as of April 6, 2021.
Amendment No. 1 to the Executive Employment Agreement
by and between Riot Blockchain, Inc. and Megan Brooks,
dated as of November 5, 2021.
Separation and Release Agreement, executed on March 21,
2022, between Riot Blockchain, Inc. and Megan Brooks-
Anderson.
Executive Employment Agreement by and between Riot
Blockchain, Inc. and Soo il Benjamin Yi, dated as of May 24,
2021.
Exhibit 10.1 of the Current Report on Form 8-K filed February 11, 2019.
Exhibit 10.1 of the Current Report on Form 8-K filed February 11, 2020.
Exhibit 10.2 of the Current Report on Form 8-K filed February 10, 2021.
Exhibit 10.1 of the Current Report on Form 8-K, filed February 8, 2022.
Exhibit 10.1 of the Current Report on Form 8-K filed February 10, 2021.
Exhibit 10.2 to the Current Report on Form 8-K filed on April 7, 2021.
Exhibit 10.2 to the Current Report on Form 8-K filed on November 8,
2021.
Exhibit 10.1 to the Current Report on Form 8-K filed March 23, 2022.
Exhibit 10.1 to the Current Report on Form 8-K filed May 24, 2021.
10.16 +
Form of Executive Employment Agreement.
Exhibit 10.3 to the Current Report on Form 8-K filed October 3, 2022.
10.17
10.18
10.19
Subscription Agreement by and between the Company and
goNumerical, Ltd. (Coinsquare) dated as of September 29,
2017.
Asset Purchase Agreement by and between the Company and
Prive Technologies, LLC dated as of February 15, 2018.
Sale and Purchase Agreement by and between Bitmaintech
PTE. Ltd. and Riot Blockchain, Inc., dated as of December 2,
2019.
Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2017 filed November 13, 2017.
Exhibit 10.1 of the Current Report on Form 8-K filed February 16, 2018.
Exhibit 10.01 of the Current Report on Form 8-K filed on December 4,
2019.
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Exhibit
10.20 †
10.21 †
10.22 †
10.23 †
10.24 †
10.25 †
10.26 †
10.27 †
10.28 †
10.29 †
10.30 †
10.31 †
10.32 †
Description
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd. and Riot Blockchain, Inc. dated as of April 28, 2020.
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd and Riot Blockchain, Inc., dated as of May 6, 2020.
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd and Riot Blockchain, Inc.
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd and Riot Blockchain, Inc. dated as of August 12,
2020.
Amendment No. 1 to Sale and Purchase Agreement by and
between Bitmaintech PTE, Ltd and Riot Blockchain, Inc. dated
as of August 25, 2020.
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd and Riot Blockchain, Inc. dated as of August 24,
2020.
Sale and Purchase Agreement by and between Bitmaintech
PTE, Ltd and Riot Blockchain, Inc. dated as of September 30,
2020.
Sale and Purchase Agreement by and between Riot
Blockchain, Inc. and Bitmain Technologies Limited, dated as
of December 18, 2020, for the acquisition of 3,000 S19 Pro (110
TH/s) Miners.
Sale and Purchase Agreement by and between Riot
Blockchain, Inc. and Bitmain Technologies Limited, dated as
of December 18, 2020, for the acquisition of 12,000 S19j Pro
(100 TH/s) Miners.
Sale and Purchase Agreement by and between Riot
Blockchain, Inc. and Bitmain Technologies Limited, dated as
of March 11, 2021, for the acquisition of 1,500 S19j Pro (90
TH/s) Miners.
Future Sales and Purchase Agreement by and between Riot
Blockchain, Inc. and Bitmain Technologies Limited, dated as
of April 5, 2021.
Non-Fixed Price Sales and Purchase Agreement by and
between Riot Blockchain, Inc. and Bitmain Technologies
Limited, dated as of October 29, 2021.
Non-Fixed Price Sales and Purchase Agreement by and
between Riot Blockchain, Inc. and Bitmain Technologies
Limited, dated as of December 24, 2021.
77
Location
Exhibit 10.1 of the Current Report on Form 8-K filed May 5, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed May 12, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed June 5, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed August 18, 2020.
Exhibit 10.2 of the Current Report on Form 8-K filed August 27, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed August 27, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed October 7, 2020.
Exhibit 10.1 of the Current Report on Form 8-K filed December 22,
2020.
Exhibit 10.2 of the Current Report on Form 8-K filed December 22,
2020.
Exhibit 10.1 of the Current Report on Form 8-K filed March 17, 2021.
Exhibit 10.1 of the Current Report on Form 8-K filed April 7, 2021.
Exhibit 10.1 to the Current Report filed on November 8, 2021.
Exhibit 10.1 to the Current Report filed on January 3, 2022.
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Exhibit
10.33
10.34
Description
Exclusive License Agreement between the Company and The
Washington University, dated May 1, 2004, as amended.
Location
Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2010, filed August 5, 2010.
Form of Securities Purchase Agreement dated as of January
28, 2019.
Exhibit 10.01 of the Current Report on Form 8-K filed on February 1,
2019.
10.35
Form of Security Agreement dated as of January 28, 2019.
At the Market Offering Agreement by and between Riot
Blockchain, Inc. and H. C. Wainwright & Co., LLC, dated May
24, 2019.
Exhibit 10.02 of the Current Report on Form 8-K filed on February 1,
2019.
Exhibit 1.01 of the Current Report on Form 8-K filed on May 24, 2019.
First Amendment to the At The Market Offering Agreement,
dated as of October 6, 2020, with H.C. Wainwright & Co., LLC.
Exhibit 1.3 of the Registration Statement on Form S-3 filed on
December 4, 2020.
Second Amendment
the At The Market Offering
Agreement, dated as of December 24, 2020, with H.C.
Wainwright & Co., LLC.
to
Sales Agreement, dated as of August 31, 2021, by and among
Riot Blockchain, Inc., Cantor Fitzgerald & Co., B. Riley FBR,
Inc., BTIG, LLC, Compass Point Research & Trading, LLC,
and Roth Capital Partners, LLC.
Sales Agreement, dated as of March 31, 2022, by and among
Riot Blockchain, Inc. and its sales agents, Cantor Fitzgerald &
Co., B. Riley FBR, Inc., BTIG, LLC, Roth Capital Partners, LLC
D.A. Davidson & Co., Macquarie Capital (USA) Inc., and
Northland Securities, Inc.
Stock Purchase Agreement dated as of April 8, 2021, by and
among Riot Blockchain, Inc., Whinstone US, Inc., and
Northern Data AG.
Share Purchase Agreement, dated as of June 4, 2021, by and
between Riot Blockchain, Inc. and Mogo, Inc.
Membership Interest Purchase Agreement dated as of
December 1, 2021 by and among Riot Blockchain, Inc.,
Electrode Acquisition Corp., and Steven R. Ferrie and David
P. Franzmann.
Code of Ethics.
Exhibit 1.1 of the Registration Statement on Form S-3 filed on
December 4, 2020.
Exhibit 1.2 to the Form S-3ASR filed August 31, 2021.
Exhibit 1.1 to the Current Report on Form 8-K filed on March 31, 2022.
Exhibit 2.1 to the Current Report on Form 8-K filed on April 9, 2021.
Exhibit 10.1 to the Current Report on Form 8-K filed June 8, 2021.
Exhibit 2.1 to the Current Report on Form 8-K filed December 1, 2021.
Riot Blockchain, Inc. Code of Ethics and Business Conduct
Adopted July 27, 2022.
Exhibit 14.1 of the Current Report on Form 8-K filed on August 2,
2022.
Subsidiaries.
List of Subsidiaries of Riot Platforms, Inc.
Filed herewith.
78
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
14.
14.1
21.
21
Table of Contents
Exhibit
23.
Description
Consent of Independent Registered Public Accounting Firm.
Location
23
31.
31.1
31.2
32.1
32.2
Consent of Marcum LLP.
Certifications.
Filed herewith.
Rule 13a-14(a)/15d-14(a) - Certification of Chief Executive
Officer (principal executive officer).
Filed herewith.
Rule 13a-14(a)/15d-14(a) - Certification of Chief Financial
Officer (principal financial officer).
Filed herewith.
Section 1350 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Principal Executive Officer).
Section 1350 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (Principal Financial Officer).
Filed herewith.
Filed herewith.
Filed herewith.
101.INS
Inline XBRL Instance Document (the instance document does
not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
Filed herewith.
101.CAL
101.DEF
Inline XBRL Taxonomy Extension Calculation Linkbase
Document.
Inline XBRL Taxonomy Extension Definition Linkbase
Document.
Filed herewith.
Filed herewith.
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document.
Filed herewith.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
Document.
Filed herewith.
104
†
+
Cover Page Interactive Data File - the cover page XBRL tags
are embedded within the Inline XBRL document.
Filed herewith.
Portions of this exhibit have been omitted as confidential information.
Indicates a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY.
None.
79
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf on March 2, 2023, by the undersigned thereunto duly authorized.
SIGNATURES
RIOT PLATFORMS, INC.
/s/ Jason Les
Jason Les,
Chief Executive Officer
RIOT PLATFORMS, INC.
/s/ Colin Yee
Colin Yee,
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jason Les and Colin Yee, each
and individually, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for them and in their name,
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, and generally to do all such things in their names and behalf in their
capacities as officers and directors to enable the Company to comply with the provisions of the Securities Exchange Act of 1934 and all requirements of
the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person,
ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant on March 2, 2023 in the capacities indicated.
/s/ Jason Les
Jason Les
Chief Executive Officer and Director (principal executive officer)
/s/ Colin Yee
Colin Yee
Chief Financial Officer (principal financial officer)
/s/ Ryan Werner
Ryan Werner
Chief Accounting Officer (principal accounting officer)
/s/ Benjamin Yi
Benjamin Yi, Director & Chairperson
/s/ Hannah Cho
Hannah Cho, Director
/s/ Lance D’Ambrosio
Lance D’Ambrosio, Director
/s/ Hubert Marleau
Hubert Marleau, Director
80
Exhibit 4.18
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Riot Platforms, Inc. ("us”, "our”, "we”, "Riot”, or the "Company”) has one class of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act”): our common stock, no par value per share
("Common Stock”).
CAPITAL STRUCTURE
Our authorized capital stock consists of (i) 340,000,000 shares of common stock, no par value per share, ("Common Stock”)
and (ii) 15,000,000 shares of "blank check” preferred stock, no par value per share, ("Preferred Stock”). Our Preferred
Stock includes (a) 2,000,000 shares of preferred stock designated as "2% Series A Convertible Preferred Stock” and (b)
1,750,001 shares of preferred stock designated as "0% Series B Convertible Preferred Stock.”
DESCRIPTION OF CAPITAL STOCK
The following are summary descriptions of our capital stock and related provisions of our Articles of Incorporation, as
amended, (the "Articles”) our Bylaws, as amended, (the "Bylaws”) and applicable provisions of Nevada law. These
summary descriptions do not purport to be complete and are qualified in their entirety by reference to our Articles and
Bylaws, which are filed with the U.S. Securities and Exchange Commission (the "SEC”) as exhibits to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2022 (of which this Exhibit 4.18 is a part) and incorporated
by reference herein. These summary descriptions of our capital stock are subject to, and should be read in conjunction with,
our Articles and Bylaws, as well as to the relevant provisions of Nevada law.
Common Stock
The Company is authorized to issue up to 340,000,000 shares of Common Stock, without any par value per share.
Voting Rights
Each holder of our 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 our Common Stock are not entitled to cumulative voting rights.
Except as required by law or provided by our Articles or Bylaws, the affirmative vote of the majority of shares present or
represented by proxy and voting at a meeting is required to approve a matter presented to the vote of our stockholders.
A vote of at least a majority of the voting power of all affected outstanding shares of our capital stock entitled to vote is
required to amend provisions of our Articles of Incorporation.
Holders of our Common Stock elect directors to our Board of Directors ("Board”). Director nominees are elected to the
Board by a plurality of votes cast at a meeting of stockholders called for that purpose. Vacancies created on the Board by
the departure, death or removal of a director may be filled by approval of the remaining directors on the Board.
Classified Board
Under our Bylaws, our Board is divided into three classes of directors serving staggered three-year terms. Thus, only one
third of our directors are required to stand for election by our stockholders each year. We believe that a classified board
structure helps to ensure the continuity and stability of the Board and our business strategies and policies.
Dividend Rights
The holders of shares of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time
by the Board, in its sole discretion, from funds legally available therefor. Dividends may be paid on our preferred stock out of
funds legally available for dividends, when and if declared by our Board. We have never declared or paid a cash dividend on
our preferred stock and intend to retain earnings, if any, to finance the expansion of our business. We do not anticipate
paying any cash dividends in the foreseeable future.
Liquidation, Dissolution or Winding Up
Upon liquidation, dissolution or winding-up, holders of our Common Stock are entitled to share ratably in the net assets
legally available for distribution to such holders after payment of all our debts and other liabilities, and subject to any
preferential rights of the holders of such Preferred Stock, if any.
No Preemptive, Redemption or Conversion Rights
Our Common Stock is not redeemable, has no sinking fund provision or subscription rights, and does not entitle the holder to
any conversion or preemptive rights. The rights, preferences, and privileges of the holders of our Common Stock are subject
to, and may be adversely affected by, the rights, preferences, and privileges of the holders of shares of our Preferred Stock
(if any), including any series of Preferred Stock that our Board may designate in the future (if any).
Fully Paid and Non-assessable
All outstanding shares of our Common Stock are fully paid and non-assessable.
Listing
Riot common stock is listed on the Nasdaq Capital Market under the trading symbol "RIOT”.
No Liability for Further Calls or Assessments
The Company’s common stock is not liable to further calls and assessments beyond any consideration required in connection
with their initial issuance or vesting.
Transfer and Registration of Stock
The transfer agent and registrar for our common stock is Equiniti Trust Company, d/b/a "EQ by Equiniti,”. Its address is
1110 Centre Pointe Curve Suite 101, Mendota Heights, MN 55120.
Preferred Stock
The Company is authorized to issue up to 15,000,000 shares of "blank check” Preferred Stock, without any par value per
share, in one or more series approved by the Board, subject to any limitations prescribed
by applicable law, without further vote or action by the stockholders. Each such series of Preferred Stock shall have such
number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall
be authorized and designated by our Board, which may include, among others, dividend rights, voting rights, liquidation
preferences, conversion rights, and preemptive rights.
Preferred Stock is available for possible future financings or acquisitions and for general corporate purposes without further
authorization of stockholders unless such authorization is required by applicable law, the rules of the Nasdaq Capital Market
or other securities exchange or market on which our stock is then listed or admitted to trading.
Our Board may authorize the issuance of Preferred Stock with voting, conversion, or preferential rights that could adversely
affect the voting power or other rights of the holders of Common Stock. Further, the issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other corporate purposes could, under some circumstances,
have the effect of delaying, deferring or preventing a change in control of the Company.
The terms, if any, on which shares of our Preferred Stock may be convertible into or exchangeable for shares of our
Common Stock shall be established by the Board and stated in the certificate of designation or applicable offering document
pertaining to any issuance of Preferred Stock.
As of February 27, 2023, 2,000,000 shares of our Preferred Stock have been designated by the Board as "2% Series A
Convertible Preferred Stock” and 1,750,001 shares of our Preferred Stock have been designated by the Board as "0%
Series B Convertible Preferred Stock.”
As of February 27, 2023, there were no shares of our Preferred Stock outstanding, following the conversion into shares of
our Common Stock of all previously issued shares of our 2% Series A Convertible Preferred Stock and our 0% Series B
Convertible Preferred Stock.
Series B Preferred Stock
On November 2, 2917 we 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.
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 following is a list of subsidiaries of the registrant, Riot Platforms, Inc., a Nevada corporation (Nasdaq: RIOT), omitting subsidiaries which, considered in
the aggregate as a single subsidiary, would not constitute a significant subsidiary of the registrant as of December 31, 2022:
SUBSIDIARIES OF RIOT PLATFORMS, INC.
Exhibit 21
Name of Subsidiary
Whinstone US, Inc.
ESS Metron, LLC
Place of Formation
Delaware
Colorado
We also have additional operating and holding company subsidiaries that, if considered in the aggregate as a single subsidiary, do not constitute a significant
subsidiary.
All of the above listed subsidiaries have been consolidated in our consolidated financial statements.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements of Riot Platforms, Inc. on Form S-3 (File No. 333-259039 and File No. 333-259212)
and Form S-8 (File No. 333-261086, File No. 333-235355 and File No. 333-267567) of our report dated March 2, 2023, with respect to our audits of the
consolidated financial statements of Riot Platforms, Inc. and Subsidiaries as of December 31, 2022 and 2021 and for each of the three years in the period ended
December 31, 2022 and our report dated March 2, 2023 with respect to our audit of internal control over financial reporting of Riot Platforms, Inc. and
Subsidiaries as of December 31, 2022, which reports are included in this Annual Report on Form 10-K of Riot Platforms, Inc. for the year ended December 31,
2022.
Our report on the effectiveness of internal control over financial reporting expressed an adverse opinion because of the existence of a material weakness.
Our report also includes an explanatory paragraph regarding the restatement of the previously issued consolidated financial statements as of December 31,
2021 and for the years ended December 31, 2021 and 2020 to correct misstatements.
Exhibit 23
/s/ Marcum llp
Marcum llp
Los Angeles, CA
March 2, 2023
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jason Les, certify that:
1)
I have reviewed this annual report on Form 10-K of Riot Platforms, Inc. for the year ended December 31, 2022;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
March 2, 2023
/s/ Jason Les
Jason Les
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Colin Yee, certify that:
1)
I have reviewed this annual report on Form 10-K of Riot Platforms, Inc. for the year ended December 31, 2022;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
March 2, 2023
/s/ Colin Yee
Colin Yee
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Riot Platforms, Inc. (the "Company”) on Form 10-K for the year ended December 31, 2022, as filed with the Securities
and Exchange Commission on the date hereof (the "Report”), the undersigned Chief Executive Officer (principal executive officer) of the Company, Jason Les,
hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1)
(2)
the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.1
March 2, 2023
/s/ Jason Les
Jason Les
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Riot Platforms, Inc. (the "Company”) on Form 10-K for the year ended December 31, 2022, as filed with the Securities
and Exchange Commission on the date hereof (the "Report”), the undersigned Chief Financial Officer (principal financial officer) of the Company, Colin Yee,
hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1)
(2)
the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
March 2, 2023
/s/ Colin Yee
Colin Yee
Chief Financial Officer
(Principal Financial Officer)