UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-33675

		Riot Blockchain, Inc.
		(Exact name of registrant as specified in its charter)

Nevada		84-1553387
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	3855 Ambrosia Street, Suite 301, Castle Rock, CO 80109
	(Address of principal executive offices) (Zip Code)

	(303) 794-2000
	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol(s):		Name of each exchange on which registered:
Common Stock, no par value per share		RIOT		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of no-par value common stock outstanding as of August 11, 2022 was 154,536,152.

RIOT BLOCKCHAIN, INC.

		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41
Signatures		42

RIOT BLOCKCHAIN, INC.

As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” “Riot Blockchain, Inc.,” and “Riot” mean Riot Blockchain, Inc. and its consolidated subsidiaries, unless otherwise indicated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report and the documents incorporated by reference herein contain forward-looking statements that involve risks and uncertainties, including those discussed under the heading “Risk Factors” in this Quarterly Report and under similar headings in the other filings we make with the U.S. Securities and Exchange Commission (the “SEC”), and are based on management’s assumptions and beliefs about the future 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 contained in this Quarterly Report and the documents incorporated by reference herein other than statements of historical fact, such as those set forth under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, are statements that could be deemed forward-looking statements. Such forward-looking statements may include, without limitation, statements concerning: our plans, strategies and objectives for future operations; new equipment, systems, technologies, services or developments, such as our investment in our development and implementation of industrial-scale immersion-cooled Bitcoin mining hardware and our planned one gigawatt data center development in Corsicana, Texas; future economic conditions, performance or outlook; future political conditions; the outcome of contingencies; potential acquisitions or divestitures; the number and value of Bitcoin rewards we earn from our 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 our assumptions and beliefs underlying or based upon any of the foregoing. 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. 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,” or the negative of these words, and similar words or expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking, and you should consider any statement contained in this Quarterly Report or the documents incorporated by reference herein other than statements of historical fact to be a “forward-looking statement” within the meaning of this cautionary note. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date such statements are made and are not guarantees of future performance or actual results. The following are some of the risks, factors and uncertainties which we believe could cause our actual results to differ materially from our historical results or our current expectations or projections expressed in or underlying 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 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 can only be successful if our mining costs are lower than the value of the Bitcoin we mine, which has been subject to significant price volatility; therefore, 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, and if we are unable to effectively implement this innovative technology because of these risks or other factors, we may not realize the benefits we anticipate from our substantial investment in immersion-cooled Bitcoin mining on the 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 disruption affecting our facilities could severely impact our ability to operate and could have a material adverse effect on our business, results of operations, financial condition, and the market price of our securities;

• we cannot predict the consequences of future geo-political events, such as international conflict and related sanctions, COVID-19 and the ongoing global supply chain crisis that has resulted, to our business, our suppliers, and the markets in which we operate, which significantly impairs our ability to make accurate projections of future revenues, costs, and risks, and we may be unable to properly insure against these risks as a result;

• the growing public awareness of climate change and the negative media attention given to the energy consumption of proof-of-work cryptography 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;

• we may be required to record a significant charge to earnings if the value of our goodwill, amortizable intangible assets, or Bitcoin holdings become impaired due to a change in circumstances indicating that these assets’ carrying value may not be recoverable, such as a sustained decline in the value of a Bitcoin from the value recorded when we mine it, a decline in our stock price and market capitalization, reduced future cash flow estimates, and other changes to our industry and the macroeconomic environment in which we operate;

• we have made, and expect to continue to make, strategic acquisitions and investments, including our recent decision to develop a second large-scale Bitcoin mining and data center facility in 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 to 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 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;

• global macroeconomic conditions have given rise to significantly increased competition for labor, and we may be unable to hire the qualified and talented personnel we need for our operations and to carry out our business strategy, or to retain our workforce without substantially increasing our compensation and other benefits, which could increase our operating costs significantly;

• our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners; and

• the outcome of litigation or arbitration 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 are set forth under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended (the “2021 Annual Report”), as well as those which may be disclosed in current reports on Form 8-K and other subsequent filings we make with the SEC. The foregoing list of factors and the factors set forth under the heading “Risk Factors” included in our 2021 Annual Report, this Quarterly Report, and the other filings we make with the SEC are not exhaustive. Additional risks and uncertainties not known to us or that we currently believe not to be material may adversely impact our business, financial condition, results of operations and cash flows. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Accordingly, you should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from our historical results and from those expressed in or implied by the forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein. The forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein speak only as of the date they are made and, unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

iii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

	June 30, 2022			December 31, 2021
ASSETS		(Unaudited)
Current assets
Cash and cash equivalents	$	270,483		$	312,315
Accounts receivable		16,091			15,398
Costs and estimated earnings in excess of billings		13,779			9,862
Prepaid expenses and other current assets		12,999			7,135
Cryptocurrencies		126,574			159,544
Future power credits, current portion		54,477			58,481
Investments in marketable equity securities, at fair value		2,028			10,804
Total current assets		496,431			573,539
Property and equipment, net		411,244			262,980
Deposits		363,010			266,170
Intangible assets, net		13,371			14,162
Goodwill		—			349,063
Derivative asset		130,693			26,079
Right of use assets		21,166			13,189
Future power credits, less current portion		—			25,447
Other long-term assets		310			310
Total assets	$	1,436,225		$	1,530,939

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	18,761		$	20,037
Billings in excess of costs and estimated earnings		6,389			5,264
Accrued compensation		3,247			5,927
Accrued expenses		13,524			16,144
Deferred revenue, current portion		2,651			2,843
Contingent consideration liability - future power credits, current portion		54,477			58,481
Operating lease liability, current portion		1,518			1,182
Total current liabilities		100,567			109,878

Deferred revenue, less current portion		18,851			19,796
Operating lease liability, less current portion		19,968			12,257
Contingent consideration liability - future power credits, less current portion		—			25,447
Other long-term liabilities		8,274			6,241
Total liabilities		147,660			173,619

Commitments and contingencies - Note 16

Stockholders' equity
Preferred stock, no par value, 15,000,000 shares authorized:
2% Series A Convertible stock, 2,000,000 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021		—			—
0% Series B Convertible stock, 1,750,001 shares authorized; no shares issued and outstanding as of June 30, 2022 and 2,199 shares issued and outstanding as of December 31, 2021, liquidation preference over common stock, equal to carrying value		—			11
Common stock, no par value; 170,000,000 shares authorized; 147,986,173 and 116,748,472 shares issued and outstanding as of June 30, 2022 and December 31, 2021		1,857,108			1,595,147
Accumulated deficit		(568,543	)		(237,838	)
Total stockholders' equity		1,288,565			1,357,320
Total liabilities and stockholders' equity	$	1,436,225		$	1,530,939

See the accompanying Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

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

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenue, net:
Mining	$	46,151		$	31,450		$	104,096		$	54,623
Data Center Hosting		9,834			2,874			19,528			2,874
Engineering		16,938			—			29,062			—
Other revenue		24			24			48			48
Total revenue		72,947			34,348			152,734			57,545

Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown below):
Mining		17,995			9,325			37,089			16,859
Data Center Hosting		15,184			3,736			30,169			3,736
Engineering		15,175			—			26,724			—
Acquisition-related costs		—			17,032			78			18,342
Selling, general and administrative		10,713			3,512			21,545			7,664
Depreciation and amortization		20,562			5,738			34,807			8,584
Change in fair value of derivative asset		(60,931	)		(16,393	)		(104,614	)		(16,393	)
Power curtailment credits		(5,706	)		(1,143	)		(8,258	)		(1,143	)
Change in fair value of contingent consideration		—			185			176			185
Realized gain on sale/exchange of cryptocurrencies		(14,353	)		(29	)		(23,589	)		(29	)
Gain on exchange of equipment		(8,614	)		—			(8,614	)		—
Impairment of cryptocurrencies		99,787			17,507			126,177			17,507
Impairment of goodwill		349,148			—			349,148			—
Total costs and expenses		438,960			39,470			480,838			55,312
Operating income (loss)		(366,013	)		(5,122	)		(328,104	)		2,233

Other income (expense):
Interest income (expense)		—			80			(357	)		255
Realized loss on sale of marketable equity securities		(1,624	)		—			(1,624	)		—
Realized gain on sale/exchange of long-term investment		—			26,260			—			26,260
Unrealized gain (loss) on marketable equity securities		(4,837	)		339			(6,448	)		339
Other income (expense)		(59	)		1,510			(59	)		1,510
Total other income (expense)		(6,520	)		28,189			(8,488	)		28,364

Net income (loss) before taxes		(372,533	)		23,067			(336,592	)		30,597

Current income tax benefit (expense)		(427	)		—			(739	)		—
Deferred income tax benefit (expense)		6,626			(3,730	)		6,626			(3,730	)
Total income tax benefit (expense)	$	6,199		$	(3,730	)	$	5,887		$	(3,730	)

Net income (loss)	$	(366,334	)	$	19,337		$	(330,705	)	$	26,867

Basic net income (loss) per share	$	(2.81	)	$	0.22		$	(2.67	)	$	0.31
Diluted net income (loss) per share	$	(2.81	)	$	0.22		$	(2.67	)	$	0.31


Basic weighted average number of shares outstanding		130,405,502			88,681,338			123,760,839			85,937,612
Diluted weighted average number of shares outstanding		130,405,502			89,241,044			123,760,839			86,501,471

See the accompanying Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

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

(Unaudited)

Three Months Ended June 30, 2022

													Total
	Preferred Stock				Common Stock					Accumulated			stockholders'
	Shares		Amount		Shares		Amount			deficit			equity
Balance as of April 1, 2022		—	$	—		117,304,304	$	1,589,893		$	(202,209	)	$	1,387,684
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		—		—		122,052		(508	)		—			(508	)
Issuance of common stock/At-the-market offering, net of offering costs		—		—		30,559,817		267,022			—			267,022
Stock-based compensation		—		—		—		701			—			701
Net loss		—		—		—		—			(366,334	)		(366,334	)
Balance as of June 30, 2022		—	$	—		147,986,173	$	1,857,108		$	(568,543	)	$	1,288,565

Three Months Ended June 30, 2021

													Total
	Preferred Stock				Common Stock					Accumulated			stockholders'
	Shares		Amount		Shares		Amount			deficit			equity
Balance as of April 1, 2021		2,199	$	11		84,120,723	$	590,188		$	(222,382	)	$	367,817
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		—		—		27,509		(113	)		—			(113	)
Issuance of common stock in connection with the acquisition of Whinstone		—		—		11,800,000		326,152			—			326,152
Stock-based compensation		—		—		—		970			—			970
Net income		—		—		—		—			19,337			19,337
Balance as of June 30, 2021		2,199	$	11		95,948,232	$	917,197		$	(203,045	)	$	714,163

See the accompanying Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

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

(Unaudited)

Six Months Ended June 30, 2022

															Total
	Preferred Stock						Common Stock					Accumulated			stockholders'
	Shares			Amount			Shares		Amount			deficit			equity
Balance as of January 1, 2022		2,199		$	11			116,748,472	$	1,595,147		$	(237,838	)	$	1,357,320
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		—			—			675,685		(8,815	)		—			(8,815	)
Issuance of common stock/At-the-market offering, net of offering costs		—			—			30,559,817		267,022			—			267,022
Conversion of preferred stock to common stock		(2,199	)		(11	)		2,199		11			—			—
Stock-based compensation		—			—			—		3,743			—			3,743
Net loss		—			—			—		—			(330,705	)		(330,705	)
Balance as of June 30, 2022		—		$	—			147,986,173	$	1,857,108		$	(568,543	)	$	1,288,565

Six Months Ended June 30, 2021

															Total
	Preferred Stock						Common Stock					Accumulated			stockholders'
	Shares			Amount			Shares		Amount			deficit			equity
Balance as of January 1, 2021		4,199		$	22			78,523,517	$	506,961		$	(229,912	)	$	277,071
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		—			—			229,904		(1,318	)		—			(1,318	)
Issuance of common stock related to exercise of warrants		—			—			415,657		806			—			806
Issuance of common stock for settlement of 1,257,235 warrants on a cashless basis		—			—			543,686		—			—			—
Issuance of common stock in connection with the acquisition of Whinstone		—			—			11,800,000		326,152			—			326,152
Issuance of common stock/At-the-market offering, net of offering costs		—			—			4,433,468		82,680			—			82,680
Conversion of preferred stock to common stock		(2,000	)		(11	)		2,000		11			—			—
Stock-based compensation		—			—			—		1,905			—			1,905
Net income		—			—			—		—			26,867			26,867
Balance as of June 30, 2021		2,199		$	11			95,948,232	$	917,197		$	(203,045	)	$	714,163

See the accompanying Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities
Net income (loss)	$	(330,705	)	$	26,867
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		3,743			1,905
Depreciation and amortization		34,807			8,584
Amortization of license fee revenue		(48	)		(48	)
Amortization of right of use assets		807			54
Income tax expense		(5,887	)		3,730
Impairment of cryptocurrencies		126,177			17,507
Impairment of goodwill		349,148			—
Change in fair value of derivative asset		(104,614	)		(16,393	)
Change in fair value of contingent consideration		176			—
Realized loss on sale of marketable equity securities		1,624			—
Realized gain on sale/exchange of long-term investment		—			(26,260	)
Realized gain on sale/exchange of cryptocurrencies		(23,589	)		(29	)
Unrealized (gain)/loss on marketable equity securities		6,448			(339	)
Gain on exchange of equipment		(8,614	)		—
Cryptocurrencies - mining, net		(102,734	)		(54,106	)
Changes in assets and liabilities:
Proceeds from sale of cryptocurrencies		33,116			—
Accounts receivable		(693	)		1,045
Costs and estimated earnings in excess of billings		(3,917	)		—
Prepaid expenses and other current assets		(5,858	)		2,373
Future power credits		29,451			—
Accounts payable		(1,276	)		15,036
Billings in excess of costs and estimated earnings		1,125			—
Accrued compensation		(2,680	)		659
Accrued expenses		(10,607	)		1,720
Customer deposits		2,032			2,693
Deferred revenue		(1,089	)		(12,071	)
Lease liability		(736	)		(87	)
Net cash used in operating activities		(14,393	)		(27,160	)

Cash flows from investing activities
Proceeds from the sale of marketable equity securities		704			—
Acquisition of Whinstone, net of cash acquired		—			(40,879	)
Proceeds from the sale of long-term investments		—			1,800
Deposits on equipment		(192,485	)		(84,986	)
Other deposits		(709	)		—
Purchases of property and equipment, including construction in progress		(77,403	)		(7,126	)
Patent costs incurred		(28	)		(16	)
Net cash used in investing activities		(269,921	)		(131,207	)

Cash flows from financing activities
Proceeds from the issuance of common stock / At-the-market offering		272,737			84,817
Offering costs for the issuance of common stock / At-the-market offering		(5,715	)		(2,137	)
Proceeds from exercise of common stock warrants		—			806
Payments on contingent consideration liability – future power credits		(15,725	)		—
Repurchase of common shares to pay employee withholding taxes		(8,815	)		(1,318	)
Net cash provided by financing activities		242,482			82,168

Net decrease in cash and cash equivalents		(41,832	)		(76,199	)
Cash and cash equivalents at beginning of period		312,315			223,382
Cash and cash equivalents at end of period	$	270,483		$	147,183

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	$	—		$	326,152
Reclassification of deposits to property and equipment	$	96,348		$	40,993
Conversion of preferred stock to common stock	$	11		$	11
Property and equipment obtained in exchange transaction	$	10,409		$	—

See the accompanying Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Operation of Our Business

Nature of Operations:

We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin. We also provide the critical mining infrastructure for our institutional-scale hosted clients to mine Bitcoin at our Bitcoin mining facility in Rockdale, Texas (the “Whinstone Facility”), with 700 megawatts in total capacity. Additionally, we are beginning development of a second large-scale Bitcoin mining data center facility in Corsicana, Texas (the “Corsicana Facility”), which is expected to have approximately one gigawatt of capacity for both our Bitcoin mining operations and to host institutional-scale Bitcoin mining and data center clients upon completion. Our Whinstone Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and we are currently expanding its capacity.

We operate 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 capital.

As described in Note 17. “Segment Information” to these unaudited Notes to Condensed Consolidated Financial Statements, we operate in three business segments: (1) Bitcoin Mining (“Mining”), (2) Data Center Hosting (“Data Center Hosting”), and (3) Electrical Products and Engineering (“Engineering”).

Note 2. Liquidity and Financial Condition

At June 30, 2022, the Company had approximate balances of cash and cash equivalents of $270.5 million, working capital of $395.9 million, total stockholders’ equity of $1.3 billion and an accumulated deficit of $568.5 million. To date, the Company has, in large part, relied on equity financings to fund its operations. During the six months ended June 30, 2022, the Company sold 1,000 Bitcoin for proceeds of approximately $33.1 million. The Company is monitoring its balance sheet on an ongoing basis, evaluating the level of Bitcoin retained from monthly production in consideration of operational and expansion cash requirements. The Company continues to hold a long-term view on its Bitcoin holdings and believes it is in the best interest of its stockholders to have Bitcoin on its balance sheet. The Company believes its current cash and Bitcoin on hand is sufficient to meet its operating and capital requirements for at least one year from the date these unaudited condensed consolidated financial statements are issued.

During the six months ended June 30, 2022, the Company paid approximately $192.5 million as deposits primarily for miners and as of June 30, 2022, reclassified $96.3 million to property and equipment in connection with the deployment of miners at the Whinstone Facility. During the six months ended June 30, 2022, the Company received 17,438 miners at the Whinstone Facility.

2022 ATM Offering:

As disclosed in Note 13, “Stockholders’ Equity”, the Company entered into a Sales Agreement with Cantor Fitzgerald & Co., B. Riley Securities, Inc., BTIG, LLC, Roth Capital Partners, LLC, D.A. Davidson & Co., Macquarie Capital (USA) Inc., and Northland Securities, Inc. (the “Sales Agents”) dated March 31, 2022 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $500 million in shares of the Company’s common stock through the Sales Agents, acting as the Company’s sales agent and/or principal, in a continuous at-the-market offering (the “2022 ATM Offering”). The Company paid the Sales Agents a commission of up to 3.0% of the aggregate gross proceeds the Company receives from all sales of the Company’s common stock under the Sales Agreement. As of June 30, 2022, the Company received net proceeds on sales of 30,559,817 million shares of common stock under the Sales Agreement of approximately $267.0 million (after deducting $5.7 million in commissions and expenses) at a weighted average price of $8.92 per share.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

COVID-19:

The COVID-19 global pandemic has been unprecedented and unpredictable; there continues to be widespread impact as a result of the COVID-19 pandemic and it 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 impacts of COVID-19 on global logistics discussed below. We continue to monitor 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 and our ability to obtain materials and retain talent, despite a continued focus on reducing our costs where possible.

Global Logistics:

Ongoing 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 Quarterly 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 Whinstone 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 against global supply logistic and pricing concerns. We monitor developments in the global supply chain and how that may potentially impact our expansion plans. See the discussion under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and under Part I, Item 1A of the 2021 Annual Report for additional discussion regarding potential impacts the global supply chain crisis may have on our operations and plans for expansion.

Note 3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation and Principles of Consolidation:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results. Amounts are in thousands except for share, per share and miner amounts.

The results for the unaudited condensed consolidated statements of operations are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2022 or for any future interim period. The unaudited condensed consolidated financial statements do not include all the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2021 and notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC on March 16, 2022.

Reclassifications:

Certain prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and these accompanying notes. The reclassifications did not have a material impact on the Company's unaudited condensed consolidated financial statements and related disclosures. The impact on any prior period disclosures was immaterial.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Use of Estimates:

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

Significant Accounting Policies:

For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2021 consolidated financial statements included in its 2021 Annual Report.

Segment and Reporting Unit Information:

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The CODM is comprised of a committee of the Company’s executive officers. The Company has three operating segments as of June 30, 2022. See Note 17. “Segment Information” to these unaudited Notes to Condensed Consolidated Financial Statements.

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 in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

ASC Topic 740, Income Taxes, (“ASC 740”), also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

Income (Loss) Per Share:

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company excludes its unvested restricted stock units (“RSUs”) and the holdback of 70,165 shares as security for the ESS Metron sellers’ indemnification obligations under the December 1, 2021 membership interest purchase agreement covering the acquisition, from the net income (loss) per share calculation.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

For the three and six months ended June 30, 2021, the Company recorded net income and therefore, EPS was calculated using the treasury stock method. Dilutive potential common shares include outstanding stock options, restricted stock shares, warrants and the outstanding shares of the Company’s 0% Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, restricted stock awards and warrants. Potentially dilutive shares issuable upon conversion of our Series B Preferred Stock for 2021 are calculated using the if-converted method. During the six months ended June 30, 2022, the remaining 2,199 shares of the Series B Preferred Stock outstanding as of January 1, 2022 were converted into 2,199 shares of the Company’s common stock.

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below (in thousands except for share and per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Basic and diluted income (loss) per share:
Net income (loss)	$	(366,334	)	$	19,337	$	(330,705	)	$	26,867

Basic weighted average number of shares outstanding		130,405,502			88,681,338		123,760,839			85,937,612
Add:
Options to purchase common stock		—			10,627		—			10,697
Unvested restricted stock awards		—			546,880		—			550,759
Convertible Series B preferred shares		—			2,199		—			2,403
Diluted weighted average number of shares outstanding		130,405,502			89,241,044		123,760,839			86,501,471

Basic net income (loss) per share	$	(2.81	)	$	0.22	$	(2.67	)	$	0.31

Diluted net income (loss) per share	$	(2.81	)	$	0.22	$	(2.67	)	$	0.31

Securities that could potentially dilute income (loss) per share in the future were not included in the computation of diluted income (loss) per share at June 30, 2022 because their inclusion would be anti-dilutive are as follows:

	June 30, 2022
Warrants to purchase common stock		63,000
Unvested restricted stock awards		4,244,534
Total		4,307,534

Recently Issued and Adopted Accounting Pronouncements:

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 is 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 condensed consolidated financial statements or disclosures.

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 condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s unaudited condensed consolidated financial statements properly reflect the change.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4. Acquisitions

Acquisition of ESS Metron:

On December 1, 2021 (the “ESS Metron Acquisition Date”), the Company acquired 100% of the equity interests of ESS Metron, LLC (“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 is expected to enhance the Company’s ability to scale its Bitcoin mining and data center hosting business as planned.

The ESS Metron Acquisition Date fair value of the total consideration transferred was comprised of $25 million of cash, adjusted for net working capital and other items, and 715,413 shares of the Company’s common stock, no par value, with a fair value of approximately $26.7 million. Of the 715,413 shares of common stock, 645,248 shares were issued upon closing, and the remaining 70,165 shares were withheld as security for the sellers’ indemnification obligations for the 18 months following the transaction closing date.

Other than an insignificant post-closing settlement of preliminary net working capital pursuant to the Membership Interest Purchase Agreement dated December 1, 2021, there have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions” of the 2021 Annual Report. The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the ESS Metron Acquisition Date. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

Acquisition of Whinstone:

On May 26, 2021 (the “Whinstone Acquisition Date”), the Company acquired 100% of the equity interests of Whinstone US, Inc. (“Whinstone”), the owner and operator of a Bitcoin mining and data center hosting facility, for approximately $460 million (the “Whinstone Acquisition”). The assets, operations and skilled workforce of Whinstone immediately increased the scale and scope of Riot’s operations, and is a foundational element in the Company’s strategy to become an industry-leading, vertically-integrated Bitcoin mining platform on a global scale.

The Whinstone Acquisition Date fair value of the total consideration transferred was comprised of $80 million of cash, adjusted for net working capital and other items, and 11.8 million shares of the Company’s common stock, no par value, with a fair value of approximately $326 million. As part of cash at closing, net debt outstanding from Whinstone to its former parent, Northern Data AG (the “Whinstone Seller”), totaling approximately $38 million was repaid and certain Whinstone Seller transaction costs were paid. The Company also agreed to pay Whinstone Seller up to approximately $86 million (undiscounted) in additional consideration if certain future power credits are realized by Whinstone.

There have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions”, of the 2021 Annual Report. The Company finalized the valuation of these assets and liabilities, and consideration transferred, in May of 2022.

Impairment of Goodwill:

In response to recent adverse changes in business climate, including decreases in the price of Bitcoin and related volatility of equity markets, especially in Riot’s industry, as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices, during the three and six months ended June 30, 2022, the Company recognized a non-cash impairment charge of $349.1 million to completely write off the Company’s balance of goodwill related to the Whinstone Acquisition and the ESS Metron Acquisition. See Note 9. Intangible Assets and Goodwill for further details.

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 acquisitions. The pro forma information excludes acquisition-related costs of $21.3 million as these costs were included in pro forma net income for the year ended December 31, 2020. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on January 1, 2020, or of future results of the consolidated entities. This unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of future operating results of the combined company (in thousands).

	Three Months Ended June 30,		Six Months Ended June 30,
	2021		2021
Total revenue	$	40,628	$	67,886
Net income	$	22,657	$	122,151

Acquisition of Corsicana Facility Land Site:

During the six months ended June 30, 2022, the Company announced that it has initiated a large-scale development to expand its Bitcoin mining and data center hosting capabilities in Navarro County, Texas with the acquisition of the 265-acre site where the anticipated one-gigawatt Corsicana Facility will be constructed. 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 operations commencing following the commissioning of the substation, which is expected to be completed in summer 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. Through June 30, 2022, the Company has incurred costs of approximately $10.1 million related to the development of the Corsicana Facility.

Note 5. Revenue from Contracts with Customers

The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.

Disaggregated revenue:

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Mining	$	46,151	$	31,450	$	104,096	$	54,623
Data Center Hosting		9,834		2,874		19,528		2,874
Engineering		16,938		—		29,062		—
Other		24		24		48		48
Total revenue	$	72,947	$	34,348	$	152,734	$	57,545

Contract balances:

Contract assets consist of costs and estimated earnings in excess of billings on uncompleted engineering contracts. The balance was entirely from the ESS Metron acquisition, and was $13.8 million and $9.9 million as of June 30, 2022 and December 31, 2021, respectively.

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company’s contract liabilities primarily relate to upfront payments and consideration received from customers for Data Center Hosting, billings in excess of costs and estimated earnings on uncompleted Engineering contracts and the upfront license fee generated from our legacy animal health business. The table below presents changes in the total deferred revenue liability and billings in excess of costs and estimated earnings, for the six months ended June 30, 2022 (in thousands):

Beginning balance - January 1, 2022	$	27,903
Revenue recognized		(1,137	)
Billings in excess of costs and estimated earnings		1,125
Ending balance - June 30, 2022	$	27,891

Transaction price allocated to remaining performance obligations:

Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. Amounts related to Bitcoin mining are not included because the Company elected the practical expedient to not disclose amounts related to contracts with a duration of one year or less.

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

Note 6. Cryptocurrencies

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

SEC Form 10-Q filed by Riot Blockchain Inc.