10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

OR

¨ 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.)
202 6th Street, Suite 401 Castle Rock, CO  80104
(Address of principal executive offices) (Zip Code)
(303) 794-2000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x      No  ¨

Indicate by check mark whether the registrant has submitted electronically 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 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	x
Non-accelerated Filer	☐	Smaller Reporting Company	x
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 x

The number of shares of no par value common stock outstanding as of August 8, 2019 was 23,555,930.

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

RIOT BLOCKCHAIN, INC.

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Interim Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2019 (Interim and Unaudited) and December 31, 2018	2
	Condensed Interim Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	3
	Condensed Interim Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)	4
	Condensed Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)	8
	Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) including in Management's Discussion and Analysis of Financial Condition and Results of Operations, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor created thereby. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements relate to future events or the Company's future performance and include statements regarding expectations, beliefs, plans, intentions and strategies of the Company. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or other comparable terminology. These forward-looking statements are made based on management's expectations and beliefs concerning future events affecting the Company as of the date of the filing of this Quarterly Report and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management's control. Accordingly, you should not place undue reliance on these forward-looking statements, as actual results, performance and achievements could differ materially from those expressed in, or implied by, these forward-looking statements due to a variety of risks, uncertainties and other factors, including, but not limited to, the following:

· our history of operating losses and our ability to achieve or sustain profitability;

· our recent shift to an entirely new business and our ability to succeed in this new business;

· intense competition;

· our ability to raise additional capital needed to finance our business;

· general economic conditions in the U.S. and globally;

· our ability to maintain the value and reputation of our brand;

· our ability to attract and retain senior management and other qualified personnel;

· cryptocurrency-related risks, including regulatory changes or actions and uncertainty regarding acceptance and/or widespread use of virtual currency;

· risks relating to our virtual currency mining operations, including among others risks associated with the need for significant electrical power and cybersecurity risks;

· our dependence in large part upon the value of virtual currencies, especially Bitcoin, which have historically been subject to significant volatility in their market prices;

· risks relating to our planned establishment of a virtual currency exchange, including, among others, regulatory requirements and challenges and security threats;

· our ability to protect our intellectual property rights;

· volatility in the trading price of our common stock;

· our ability to maintain the Nasdaq listing of our common stock;

· our investments in other virtual currency and blockchain focused companies may not be realizable;

· legal proceedings to which we are subject, or associated with, including actions by private plaintiffs and the SEC, for which we may face significant potential liability that may not be adequately covered by insurance or indemnity; and

· the risks, uncertainties discussed in Part II. Item 1A. “Risk Factors” included in this Quarterly Report and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as amended (the “2018 Annual Report”), and any other reports filed or which will be filed by the Company.

Accordingly, you should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. 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. 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. The forward-looking statements contained in this Quarterly Report speak only as of the date of filing of this Quarterly Report and, unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1 

PART I — FINANCIAL INFORMATION

Item 1. Condensed Interim Consolidated Financial Statements (Unaudited)

Riot Blockchain, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	June 30, 2019			December 31, 2018
ASSETS		(Unaudited)
Current assets
Cash and cash equivalents	$	16,110,630		$	225,390
Prepaid expenses and other current assets		331,642			1,378,534
Digital currencies		1,923,813			706,625
Total current assets		18,366,085			2,310,549
Property and equipment, net		27,977			26,269
Right of use assets		957,332			—
Intangible rights acquired		700,167			700,167
Long-term investments		9,502,900			9,412,726
Security deposits		703,275			703,275
Other long-term assets, net:
Patents, net		490,094			507,342
Convertible note and accrued interest		219,578			200,000
Total assets	$	30,967,408		$	13,860,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	817,454		$	3,829,315
Accrued expenses		1,982,790			1,516,252
Deferred purchase price - BMSS		—			1,200,000
Operating lease liability, current		889,232			—
Deferred revenue, current portion		96,698			96,698
Current liabilities of discontinued operations		16,340			16,340
Total current liabilities		3,802,514			6,658,605
Notes payable		—			1,696,083
Operating lease liability, less current portion		61,055			—
Deferred revenue, less current portion		823,570			871,919
Deferred income tax liability		142,709			142,709
Total liabilities		4,829,848			9,369,316
Commitments and contingencies - Note 13
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, 2019 and December 31, 2018		—			—
0% Series B Convertible stock, 1,750,001 shares authorized; 4,999 and 13,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively, liquidation preference over common stock, equal to carrying value		26,556			69,059
Common stock, no par value; 170,000,000 shares authorized;  22,625,111 and 14,519,058 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		238,082,374			202,917,443
Accumulated deficit		(212,006,522	)		(197,199,197	)
Total Riot Blockchain stockholders' equity		26,102,408			5,787,305
Non-controlling interest		35,152			(1,296,293	)
Total stockholders' equity		26,137,560			4,491,012
Total liabilities and stockholders' equity	$	30,967,408		$	13,860,328

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

2 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Operations

(Unaudited)

	Three Months Ended  June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue:
Revenue - digital currency mining	$	2,442,876		$	2,768,619		$	3,848,961		$	3,669,999
License fees		24,174			24,175			48,349			48,349
Total Revenue		2,467,050			2,792,794			3,897,310			3,718,348
Costs and expenses:
Cost of revenues  (exclusive of depreciation and  amortization shown below)		1,587,983			1,477,587			3,059,321			1,826,598
Selling, general and administrative		2,225,499			6,432,883			5,377,637			10,343,612
Depreciation and amortization		23,229			2,870,899			47,068			5,027,326
Impairment of property and equipment		—			15,377,532			—			26,858,023
Impairment of digital currencies		—			511,170			—			2,979,045
Total costs and expenses		3,836,711			26,670,071			8,484,026			47,034,604
Operating loss from continuing operations		(1,369,661	)		(23,877,277	)		(4,586,716	)		(43,316,256	)
Other income (expense):
Loss on issuance of convertible notes, common stock and warrants		—			—			(6,154,660	)		—
Change in fair value of warrant liability		(116,498	)		—			(2,869,726	)		—
Change in fair value of convertible notes		(2,250,651	)		—			(3,895,233	)		—
Gain on deconsolidation of Tess		1,138,787			—			1,138,787			—
Non-compliance penalty for SEC registration requirement		—			—			—			(333,338	)
Interest expense		(48,819	)		(15,093	)		(117,182	)		(16,162	)
Other income		729,154			—			808,026			—
Investment income		3,261			6,690			20,103			69,276
Realized gain on sale of digital currencies		636,822			—			641,610			—
Other expense		(696	)		(1,020,158	)		(13,737	)		(1,023,840	)
Total other income (expense)		91,360			(1,028,561	)		(10,442,012	)		(1,304,064	)
Loss from continuing operations before income taxes		(1,278,301	)		(24,905,838	)		(15,028,728	)		(44,620,320	)
Deferred income tax benefit		—			472,000			—			3,525,000
Loss from continuing operations		(1,278,301	)		(24,433,838	)		(15,028,728	)		(41,095,320	)
Discontinued operations
Income from operations		—			—			—			96,132
Income from discontinued operations		—			—			—			96,132
Net loss		(1,278,301	)		(24,433,838	)		(15,028,728	)		(40,999,188	)
Net (income) loss attributable to non-controlling interest		(19	)		416,918			221,403			632,176
Net loss attributable to Riot Blockchain	$	(1,278,320	)	$	(24,016,920	)	$	(14,807,325	)	$	(40,367,012	)
Basic and diluted net loss per share:
Continuing operations attributable to Riot Blockchain	$	(0.08	)	$	(1.81	)	$	(0.97	)	$	(3.19	)
Discontinued operations attributable to Riot Blockchain		—			—			—			0.01
Net loss per share	$	(0.08	)	$	(1.81	)	$	(0.97	)	$	(3.18	)
Basic and diluted weighted average number of shares outstanding		15,995,092			13,511,427			15,226,629			12,897,147

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

3 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statement of Stockholders’ Equity (Deficit)

Three Months Ended June 30, 2019

(Unaudited)

	Preferred Stock						Common Stock				Accumulated			Total Riot Blockchain stockholders' equity			Non-controlling			Total stockholders' equity
	Shares			Amount			Shares		Amount		deficit			(deficit)			interest			(deficit)
Balance as of April 1, 2019		13,000		$	69,059			14,762,809	$	203,407,485	$	(210,728,202	)	$	(7,251,658	)	$	(1,517,715	)	$	(8,769,373	)
Delivery of common stock underlying restricted stock units		—			—			12,500		—		—			—			—			—
Common stock issued in connection with conversion of notes payable		—			—			1,813,500		10,225,959		—			10,225,959			—			10,225,959
Reclassification of warrant liability to equity		—			—			—		5,438,660		—			5,438,660			—			5,438,660
Preferred stock converted to common stock		(8,001	)		(42,503	)		8,001		42,503		—			—			—			—
Stock-based compensation		—			—			—		115,026		—			115,026			—			115,026
Issuance of common stock, net of offering costs/At-the-market offering		—			—			6,028,301		18,852,741		—			18,852,741			—			18,852,741
Net income attributable to non-controlling interest		—			—			—		—		—			—			19			19
Deconsolidation of Tess		—			—			—		—		—			—			1,552,848			1,552,848
Net loss		—			—			—		—		(1,278,320	)		(1,278,320	)		—			(1,278,320	)
Balance as of June 30, 2019		4,999		$	26,556			22,625,111	$	238,082,374	$	(212,006,522	)	$	26,102,408		$	35,152		$	26,137,560

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

4 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statement of Stockholders’ Equity

Three Months Ended June 30, 2018

(Unaudited)

	Preferred Stock						Common Stock				Accumulated			Total Riot Blockchain stockholders'			Non-controlling			Total stockholders'
	Shares			Amount			Shares		Amount		deficit			equity			interest			equity
Balance as of January 1, 2019		13,000		$	69,059			14,519,058	$	202,917,443	$	(197,199,197	)	$	5,787,305		$	(1,296,293	)	$	4,491,012
Delivery of common stock underlying restricted stock units		—			—			106,251		—		—			—			—			—
Common stock issued with convertible notes		—			—			150,000		255,000		—			255,000			—			255,000
Common stock issued in connection with conversion of notes payable		—			—			1,813,500		10,225,959		—			10,225,959			—			10,225,959
Reclassification of warrant liability to equity		—			—			—		5,438,660		—			5,438,660			—			5,438,660
Preferred stock converted to common stock		(8,001	)		(42,503	)		8,001		42,503		—			—			—			—
Stock-based compensation		—			—			—		350,068		—			350,068			—			350,068
Issuance of common stock, net of offering costs/At-the-market offering		—			—			6,028,301		18,852,741		—			18,852,741			—			18,852,741
Net loss attributable to non-controlling interest		—			—			—		—		—			—			(221,403	)		(221,403	)
Deconsolidation of Tess		—			—			—		—		—			—			1,552,848			1,552,848
Net loss		—			—			—		—		(14,807,325	)		(14,807,325	)		—			(14,807,325	)
Balance as of June 30, 2019		4,999		$	26,556			22,625,111	$	238,082,374	$	(212,006,522	)	$	26,102,408		$	35,152		$	26,137,560

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

5 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2019

(Unaudited)

	Preferred Stock						Common Stock				Accumulated			Total Riot Blockchain stockholders'			Non-controlling			Total stockholders'
	Shares			Amount			Shares		Amount		deficit			equity			interest			equity
Balance as of April 1, 2018		928,000		$	4,929,768			13,327,615	$	193,335,481	$	(155,613,572	)	$	42,651,677		$	583,378		$	43,235,055
Preferred stock converted to Common stock		(225,000	)		(1,195,256	)		225,000		1,195,256		—			—			—			—
Stock-based compensation		—			—			—		1,608,086		—			1,608,086			—			1,608,086
Common stock issued for services		—			—			18,000		257,941		—			257,941			—			257,941
Delivery of common stock underlying restricted stock units		—			—			74,583		—		—			—			—			—
Net loss attributable to non-controlling interest		—			—			—		—		—			—			(416,918	)		(416,918	)
Net loss		—			—			—		—		(24,016,920	)		(24,016,920	)		—			(24,016,920	)
Balance as of June 30, 2018		703,000		$	3,734,512			13,645,198	$	196,396,764	$	(179,630,492	)	$	20,500,784		$	166,460		$	20,667,244

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

6 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statement of Stockholders’ Equity - Continued

Six Months Ended June 30, 2018

(Unaudited)

	Preferred Stock						Common Stock				Accumulated			Total Riot Blockchain stockholders'			Non-controlling			Total stockholders'
	Shares			Amount			Shares		Amount		deficit			equity			interest			equity
Balance as of January 1, 2018		1,458,001		$	7,745,266			11,622,112	$	180,387,518	$	(139,263,480	)	$	48,869,304		$	758,095		$	49,627,399
Common stock issued for asset purchase - Prive		—			—			800,000		8,480,000		—			8,480,000			—			8,480,000
Common stock escrow shares issued for asset purchase - Prive		—			—			200,000		—		—			—			—			—
Preferred stock converted to Common stock		(755,001	)		(4,010,754	)		755,001		4,010,755		—			1			—			1
Exercise of warrants		—			—			100,000		350,000		—			350,000			—			350,000
Stock-based compensation		—			—			—		2,492,029		—			2,492,029			—			2,492,029
Exercise of stock options		—			—			19,533		78,522		—			78,522			—			78,522
Common stock issued for services		—			—			20,754		277,940		—			277,940			—			277,940
Sale of Riot shares held by Tess Pay, Inc.		—			—			—		320,000		—			320,000			—			320,000
Cashless exercise of stock purchase warrants		—			—			3,215		—		—			—			—			—
Delivery of common stock underlying restricted stock units		—			—			124,583		—		—			—			—			—
Non-controlling interest - Logical Brokerage		—			—			—		—		—			—			40,541			40,541
Net loss attributable to non-controlling interest		—			—			—		—		—			—			(632,176	)		(632,176	)
Net loss		—			—			—		—		(40,367,012	)		(40,367,012	)		—			(40,367,012	)
Balance as of June 30, 2018		703,000		$	3,734,512			13,645,198	$	196,396,764	$	(179,630,492	)	$	20,500,784		$	166,460		$	20,667,244

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements

7 

Riot Blockchain, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)  

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities
Net loss	$	(15,028,728	)	$	(40,999,188	)
Income from discontinued operations		—			96,132
Loss from continuing operations		(15,028,728	)		(41,095,320	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities of continuing operations:
Stock-based compensation		350,068			2,492,029
Depreciation and amortization		47,068			5,027,326
Deferred income tax benefit		—			(3,525,000	)
Amortization of license fee revenue		(48,349	)		(48,349	)
Amortization of right of use assets		1,148,481			—
Common stock issued for services		—			277,940
Loss on issuance of convertible notes, common stock and warrants		6,154,660			—
Change in fair value of convertible notes		3,895,233			—
Change in fair value of warrant liability		2,869,726			—
Gain on deconsolidation of Tess		(1,138,787	)		—
Gain on extiguishment of accounts payable, other liabilities and accrued interest		(808,026	)		—
Impairment of property and equipment		—			26,858,023
Impairment of digital currencies		—			2,979,045
Realized gain on sale of digital currencies		(641,610	)		—
Changes in assets and liabilities:
Prepaid contracts		—			(2,584,699	)
Prepaid expenses and other current assets		916,460			221,142
Digital currencies - mining, net of mining pool operating fees		(3,771,888	)		(3,669,999	)
Accrued interest		(19,578	)		—
Accounts payable		(1,831,697	)		2,303,611
Accrued expenses		880,210			1,253,072
Lease liability		(1,155,526	)		—
Net cash used in operating activities of continuing operations		(8,182,283	)		(9,511,179	)
Net cash used in operating activities of discontinued operations		—			(68,824	)
Net cash used in operating activities		(8,182,283	)		(9,580,003	)
Cash flows from investing activities - continuing operations:
Proceeds from sale of digital currencies		3,196,310			1,626,800
Purchase of digital currencies		—			(5,625,000	)
Purchases of property and equipment		(5,569	)		(20,084,225	)
Purchases of other investments		—			(6,412,726	)
Security deposits		—			(703,275	)
Purchases of patent costs		(25,959	)		(31,068	)
Investment in Logical Brokerage, net of cash acquired		—			(516,918	)
Purchase of developed technology by Tess		—			(60,019	)
Net cash provided by (used in) investing activities		3,164,782			(31,806,431	)
Cash flows from financing activities - continuing operations:
Proceeds from issuance of convertible notes		3,000,000			775,555
Repayment of notes payable and other obligations		(950,000	)		(135,574	)
Proceeds from the issuance of common stock / At-the-market offering		19,671,712			—
Offering costs for the issuance of common stock / At-the-market offering		(818,971	)		—
Proceeds from exercise of warrants		—			350,000
Proceeds from exercise of stock options		—			78,522
Proceeds from sale of Riot shares held by Tess Pay, Inc.		—			320,000
Net cash provided by financing activities of continuing operations		20,902,741			1,388,503
Net increase (decrease) in cash and cash equivalents		15,885,240			(39,997,931	)
Cash and cash equivalents at beginning of period		225,390			41,651,965
Cash and cash equivalents at end of period	$	16,110,630		$	1,654,034
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	1,526
Cash paid for taxes	$	—		$	—
Supplemental disclosure of noncash investing and financing activities:
Conversion of notes payable to common stock	$	10,225,959		$	—
Reclassification of warrant liability to equity	$	5,438,660		$	—
Value of shares issued for Prive asset acquisition	$	—		$	8,480,000
Conversion of preferred stock to common stock	$	42,503		$	4,010,755
Deferred purchase price for BMSS	$	—		$	1,500,000

See Accompanying Notes to Unaudited Condensed Interim Consolidated Financial Statements 

8 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Note 1.  Organization:

Nature of operations:

Riot Blockchain, Inc. (“we,” “us,” “our,” the “Company,” “Riot” or “Riot Blockchain”) was originally organized on July 24, 2000, as a Colorado corporation.  Effective October 19, 2017, the Company's name was changed to Riot Blockchain, Inc., from Bioptix, Inc., and changed its state of incorporation to Nevada from Colorado.

The Company operates a digital currency mining operation, which utilizes specialized computers (also known as “miners”) that generate digital currency (primarily bitcoin) from the blockchain. The Company acquired approximately 8,000 miners through its acquisition of Kairos Global Technology, Inc. (“Kairos”) in November 2017, and from Prive Technologies, Inc. (“Prive”), and separately from Blockchain Mining Supply & Services Ltd. (“BMSS”) in February 2018.

Note 2. Liquidity and Financial Condition:

The Company has experienced recurring losses and negative cash flows from operations.  At June 30, 2019, the Company had approximate balances of cash and cash equivalents of $16.1 million, digital currencies of $1.9 million, working capital of $14.6 million, total stockholders' equity of $26.1 million and an accumulated deficit of $212.0 million. To date, the Company has, in large part, relied on equity and debt financing to fund its operations.

The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as the Company incurs costs and expenses associated with recent and potential future acquisitions, and development of the RiotX exchange platform, as well as public company, legal and administrative related expenses being incurred. As disclosed in Note 8, during the six months ended June 30, 2019, the Company issued a series of Senior Secured Convertible Promissory Notes (the “Notes”), to investors for an aggregate principal amount of $3,358,333 and an equal value of warrants for the purchase of shares of the Company’s common stock (the “Warrants”) in exchange for a total investment of $3,000,000. During the three months ended June 30, 2019, all of the Notes were converted into common stock and have been satisfied in full. The Company is closely monitoring its cash balances, cash needs and expense levels.

As disclosed in Note 9, during the six months ended June 30, 2019, the Company entered into a Sales Agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) dated May 24, 2019 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $100.0 million in shares of the Company’s common stock through H.C. Wainwright, acting as the Company’s sales agent and/or principal, in an at-the-market offering (“ATM Offering”). All sales of the shares in connection with the ATM Offering have been made pursuant to an effective shelf registration statement on Form S-3 filed with the U.S. Securities and Exchange Commission (“SEC”). The Company pays H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (net of commissions) during the six months ended June 30, 2019.

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 interim 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 interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the unaudited condensed interim consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The unaudited condensed interim consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 2, 2019.

9 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Use of estimates:

The preparation of 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 interim consolidated financial statements include estimates associated with revenue recognition, asset valuations, the useful lives and recoverability of long-lived assets, impairment analysis of intangibles and goodwill, stock-based compensation, assumptions used in estimating the fair value of convertible notes and warrants, 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 2018 Annual Report.

Sequencing:

On January 28, 2019, the Company adopted a sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging (“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees or directors are not subject to the sequencing policy.

Notes Payable Fair Value Option:

As described further in Note 8 - Notes and Other Obligations, in January 2019, the Company issued Senior Secured Promissory Notes (the “Notes”) to Oasis Capital, LLC, Harbor Gates Capital, LLC and SG3 Capital, LLC (each an “Investor” and collectively, the “Investors”) in the aggregate principal amount of $3,358,333. The Company has elected the fair value option to account for these Notes due to the complexity and number of embedded features. The fair value of the Notes is classified within Level 3 of the fair value hierarchy because the fair values were estimated utilizing a Monte Carlo simulation model. Accordingly, the Company recorded these Notes at fair value with changes in fair value recorded in the statement of operations. As a result of applying the fair value option, direct costs and fees related to the Notes were recognized in earnings as incurred and were not deferred. The change in fair value of the Notes has been presented as change in value of convertible notes payable on the unaudited condensed interim consolidated statements of operations.

During the three months ended June 30, 2019, all of the Notes were converted into 1,813,500 shares of the Company’s common stock valued at their estimated fair value at the time of conversion totaling approximately $10.2 million.

Warrant Liability:

The Company issued Warrants to purchase 1,908,144 shares of its common stock in connection with the Notes issued to the Investors in January 2019, and recorded these outstanding Warrants as a liability at fair value utilizing a Monte Carlo simulation model. This liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company's condensed interim consolidated statements of operations.

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

Leases:

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

10 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842.  The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Loss per share:

Basic net loss per share (“EPS”) of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company excludes its unvested restricted shares and escrow shares from the net loss per share calculation. The escrow shares are excluded due to their related contingencies, the inclusion of which would result in anti-dilution.

Since the Company has net losses attributable to Riot Blockchain, basic and diluted net loss per share is the same.  Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share at June 30, 2019 and 2018 because their inclusion would be anti-dilutive are as follows:

	June 30,
	2019		2018
Warrants to purchase common stock		3,574,257		1,671,113
Options to purchase common stock		12,000		150,000
Escrow shares		200,000		200,000
Unvested restricted stock awards		42,980		571,567
Convertible Series B preferred shares		4,999		703,000
Total		3,834,236		3,295,680

Recently issued and adopted accounting pronouncements:

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, effectively allowing entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $1.5 million.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is A Service Contract” (“ASU 2018-15”). This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted.  The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is still evaluating the prospective impact of this guidance on its future consolidated financial statements and related disclosures.

11 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

Note 4. Digital Currencies:

The following table presents additional information about digital currencies:

	June 30, 2019
		(Unaudited)
Beginning balance, January 1, 2019	$	706,625
Revenue recognized from digital currencies mined		3,848,961
Mining pool operating fees		(77,073	)
Sale of digital currencies		(3,196,310	)
Realized gain on sale of digital currencies		641,610
Ending balance	$	1,923,813

Note 5. Fair value measurements:

During the six months ended June 30, 2019 the Company issued the Notes and Warrants in connection with the Notes. The Notes and Warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the consolidated statements of operations and disclosed in the unaudited condensed interim consolidated financial statements. During the three months ended June 30, 2019, in accordance with their original terms, all of the Notes were converted into a total of 1,813,500 shares of the Company’s common stock by their holders.

A summary of weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s Notes and Warrants at the issuance date of January 28, 2019 and during the conversion of the Notes for the three months ended June 30, 2019, are as follows:

Senior Secured Promissory Notes:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	119.5%	122.2%-127.1%
Risk free interest rate	2.60%	2.07%-2.44%
Expected term	1 year	-

12 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Warrants:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	111.6%	119.9%-120.5%
Risk free interest rate	2.58%	2.23%-2.58%
Expected term	5 years	4 years, 10 months

There were no assets or liabilities measured at fair value during the six months ended June 30, 2018.

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

The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2019.

	Convertible Notes			Warrant Liability
Issuance of senior secured convertible notes	$	6,330,726		$	—
Issuance of warrants in connection with convertible notes		—			2,568,934
Balance at January 28, 2019		6,330,726			2,568,934
Change in fair value		1,644,582			2,753,228
Balance at March 31, 2019		7,975,307			5,322,162
Change in fair value		2,250,651			116,498
Conversion of convertible notes to common stock		(10,225,959	)		—
Recalssification of warrant liability to equity		—			(5,438,660	)
Balance at June 30, 2019	$	—		$	—

Note 6. Investment in Coinsquare:

In September 2017, the Company acquired a minority interest for $3.0 million in Coinsquare, which operates a digital crypto-currency exchange platform in Canada. During February 2018, the Company invested an additional $6.4 million to acquire additional common stock of Coinsquare. The investment included an additional equity investment of $2.8 million that was part of an approximate $24 million financing by Coinsquare. Additionally, warrants acquired in the original investment were exercised in exchange of a cash payment of $3.6 million. These additional investments resulted in a current ownership in Coinsquare by the Company of approximately 12% based upon Coinsquare’s issued and outstanding shares. The Company has evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Coinsquare. The investment is valued at cost, less any impairment, plus or minus changes resulting from observable price changes. As of June 30, 2019 and December 31, 2018, the Company considered the cost of the investment to not exceed the fair value of the investment and did not observe price changes.

Note 7. Investment in Tess:

In October 2017, the Company acquired approximately 52.01% of Tess, which is developing blockchain solutions for telecommunications companies. During the year ended December 31, 2018, Tess issued approximately 189,000 of its common shares, reducing the investment percentage held by the Company from 52.01% to 50.2%. On April 10, 2019, Tess closed on a funding agreement under which approximately 23.8 million shares of Tess were issued for CAD $1.2 million. As a result of this funding, the Company’s ownership in Tess was reduced to approximately 9% and Tess will no longer be consolidated in the Company’s consolidated financial statements.

13 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

As of June 30, 2019, the Company evaluated its remaining interest in Tess under the guidance of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and determined it should remeasure its retained interest at fair value upon deconsolidation to establish a new cost basis. As of April 10, 2019, the fair value of the Tess shares owned by the Company is approximately $0.1 million, calculated based upon the April 10, 2019 funding price as follows:

	April 10, 2019
Tess shares held by Riot Blockchain, Inc.		2,708,333
Per share fair value	$	0.03
Fair value of Tess shares held by Riot Blockchain, Inc.	$	90,174

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

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

Current assets	$	130,432
Less:
Accounts payable		761,875
Accrued expenses		273,935
Convertible notes		1,696,083
Net liabilities		(2,601,461	)
Non-controlling interest share		1,552,848
Sub-total		(1,048,613	)
Less: fair value of shares owned by Riot Blockchain		90,174
Gain on deconsolidation of Tess	$	(1,138,787	)

Note 8.  Notes and Other Obligations:

Senior Secured Convertible Promissory Notes and Warrants

On January 28, 2019, in connection with a private financing (the “Private Financing”), the Company issued the Notes, to investors (collectively, the “Investors” and each an “Investor”) for an aggregate principal amount of $3,358,333, along with Warrants for the purchase of and equal value of shares of the Company’s common stock in exchange for $3,000,000 of private financing. The Notes were convertible into shares of the Company’s common stock at any time after the issuance date, provided that at no time would the Company be required to issue shares in excess of the aggregate number of shares of its commons stock outstanding. The Notes were set to mature twelve months from date of issuance and accrue interest at a rate of 8% per annum, with twelve months of interest guaranteed. The Notes were subject to prepayment penalties, default conditions and other terms and conditions, as further defined in the Financing Agreements (the “Financing Agreements”) as disclosed in the Company’s current report on Form 8-K filed with the SEC on February 1, 2019. As additional consideration for the investment, the Company issued a total of 150,000 restricted common shares to the Investors.

The Notes were convertible into shares of the common stock of the Company at a price equal to the lower of $2.00 or 80% of the lowest volume-weighted adjusted price of shares of the Company’s common stock in the twenty trading days prior to the conversion date, subject to adjustments in certain cases as defined in the Financing Agreements. Provided, however, that according to the Notes, the cumulative shares of the Company’s common stock issuable upon conversion of the Notes cannot exceed 19.99% of the total number of the Company’s outstanding common stock as of January 28, 2019. Pursuant to the Financing Agreements between the Company and the Investors, the Company granted the Investors a security interest in its assets to secure repayment of the Notes. Further to the Financing Agreements, the Company also reserved a number of shares of its common stock equal to 300% of the total number of shares issuable upon full conversion of the Notes.

Due to the complexity and number of embedded features within the Notes and as permitted under applicable accounting guidance, the Company elected to account for the Notes and all the embedded features under the fair value option, which records the Notes at fair value rather than at historical cost, with changes in fair value recorded in the condensed interim consolidated statements of operations. Direct costs and fees incurred to issue the Notes were recognized in earnings as incurred and were not deferred. On the initial measurement date of January 28, 2019, the fair value of the Notes was estimated at $6,330,726. Upfront costs and fees related to items for which the fair value option was elected were approximately $358,333 and were recorded as a component of other expenses for the six months ended June 30, 2019.

14 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

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

During the three months ended June 30, 2019, holders of the Notes issued on January 28, 2019, converted 100% of the Notes into 1,813,500 shares of the Company’s common stock. The aggregate fair value of the Notes converted during the three months ended June 30, 2019 was $10.2 million, an increase in fair value of $3.9 million, which is reflected on the interim condensed consolidated statements of operations for the six months ended June 30, 2019, as change in fair value of convertible note (See Note 5 to the unaudited condensed interim consolidated financial statements). Accordingly, having satisfied the Notes in full, the Company’s obligations under the Notes have been cancelled.

In connection with the Private Financing, the Company also issued the Warrants to the Investors to acquire up to an aggregate of 1,908,144 shares of the Company’s common stock at an exercise price of $1.94 per share. The Warrants are exercisable by the Investors beginning on July 29, 2019, through the fifth year anniversary of the effective date of the Private Financing; provided, however, each Investor’s beneficial ownership of the Company’s common stock may not exceed 4.99% of the total outstanding shares of the Company’s common stock without first providing sixty days’ notice to the Company, and, in any event, the ownership, including beneficial ownership, of shares of the Company’s common stock by each of the Investors, shall not exceed 9.99% of the total outstanding shares of our common stock.

Tess Investment

As of March 28, 2018, Tess, a subsidiary of the Company, entered into a note purchase agreement with a private investor under which a convertible promissory note issued by Tess in the principal amount CAD $2.2 million (the “Tess Convertible Note”) and cash proceeds of CAD $2.2 million were placed into a third-party controlled escrow account. Upon the successful achievement of conditions defined under the escrow agreement relating to closing of a transaction between Tess and Cresval Capital Corp, (“Cresval”) whereby Tess and Cresval would merge as provided in the merger agreements and Tess would become publicly traded on the TSX-V exchange, the then-remaining cash and the Tess Convertible Note would be issued to Tess and the investor, respectively. The Tess Convertible Note was convertible at $0.10 per share of the merged entity, as defined, subject to certain adjustments.  On February 15, 2019, Cresval terminated its definitive agreement with Tess due to Tess’s inability to complete one of the specified closing conditions in the agreement.

The interim release consisted of CAD $1.0 million (USD $775,555) of cash released to Tess and an unsecured promissory note issued by Tess (“Tess Promissory Note”) released to the investor. The Tess Promissory Note bears interest at 5%, is unsecured and due in 2021. On August 23, 2018, the final release from escrow occurred. Tess received approximately USD $921,000, bringing the total Tess Promissory Note balance to approximately USD $1,696,000. During the six months ended June 30, 2019, the Company’s ownership in Tess was reduced to 9% and as a result, Tess is no longer consolidated in the Company’s unaudited interim condensed consolidated financial statements (see Note 7).

BMSS and Other Liabilities Settlements

On February 21, 2018, the Company completed an asset purchase under an agreement (the "BMSS Purchase Agreement") with BMSS, to purchase the 3,000 AntMiner S9 bitcoin mining machines owned by BMSS Equipment (the "BMSS Equipment"). Pursuant to the BMSS Purchase Agreement, the Company purchased the BMSS Equipment for aggregate consideration of Eight Million Five Hundred Thousand Dollars ($8,500,000). As of June 27, 2019, in connection with the BMSS agreement, the Company owed approximately $1,340,000 of principal and interest and the Company and BMSS agreed to a one-time settlement payment totaling $950,000. The remaining $390,000 was recorded as a gain on extinguishment of notes and interest, and included in other income in the accompanying interim consolidated statement of operations for the three and six months ended June 30, 2019.

During the six months ended June 30, 2019, the Company reached agreements with certain creditors to settle the amounts of outstanding liabilities at a discount. The computed value of the modifications as compared to the liability balances were recorded as other income from the gains on extinguishment of debt. The liabilities settled including BMSS, during the period totaled approximately $3,287,000 in exchange for cash payments of $2,479,000, resulting in a gain of $808,000 of which $729,000 was recognized in the three months ended June 30, 2019.

15 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Note 9.  Stockholders’ equity:

Preferred Stock:

During the six months ended June 30, 2019, 8,001 shares of the Company’s Series B preferred stock were converted into 8,001 shares of the Company’s common stock.

At-the-Market Equity Offering:

The Company entered into a Sales Agreement with H.C. Wainwright dated May 24, 2019, pursuant to which the Company may, from time to time, sell up to $100 million in shares of the Company’s common stock through H. C. Wainwright, as the Company’s sales agent and/or principal, in the ATM Offering. All sales of the shares have been made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC. The Company paid H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales of 6,028,301 shares of common stock under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (excluding commissions) during the six months ended June 30, 2019.

Restricted Stock:

During the six months ended June 30, 2019, 106,251 shares of restricted common stock related to fully vested shares of restricted stock were issued under the Company’s 2017 Equity Incentive Plan. The fully vested shares were issued to two former officers who separated from the Company in February 2019 and a former director who resigned in October of 2018 totaling 93,751 shares. The remaining 12,500 fully vested shares were issued to a consultant.

Note 10. Stock based compensation, options and warrants:

Stock based compensation:

The Company’s stock-based compensation expenses recognized during the six months ended June 30, 2019 and 2018, were attributable to selling, general and administrative expenses, which are included in the accompanying unaudited condensed interim consolidated statements of operations.

The Company recognized total stock-based compensation expense during the three and six months ended June 30, 2019 and 2018 granted under the Company’s 2017 equity incentive plan (the “Plan”), from the following categories:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Restricted stock awards under the Plan	$	115,026	$	1,432,593	$	291,570	$	2,199,542
Stock option awards under the Plan		—		175,493		58,498		292,487
Total stock-based compensation	$	115,026	$	1,608,086	$	350,068	$	2,492,029

Restricted stock:

A summary of the Company’s unvested restricted stock activity in the six months ended June 30, 2019 is presented here:

	Number of Shares			Weighted Average Grant-Date  Fair Value
Unvested at January 1, 2019		95,939		$	12.49
Vested		(37,459	)	$	8.01
Granted		24,500		$	5.11
Forfeited		(40,000	)	$	16.82
Unvested at June 30, 2019		42,980		$	7.43

During the six months ended June 30, 2019, the Company granted 24,500 shares of restricted stock to consultants. The total fair value of restricted stock granted during the six months ended June 30, 2019 was approximately $0.1 million. The fair value of each restricted stock was based upon the closing stock price on the grant date.

16 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

During the six months ended June 30, 2019, forfeitures of restricted common stock totaled 40,000, which consisted of shares forfeited due to the termination of two of the Company’s officers.

The fair value of restricted stock grants is measured based on their fair value on the date of grant and amortized over the vesting period of twelve to twenty-four months. As of June 30, 2019, there was approximately $0.3 million of unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a remaining weighted-average vesting period of approximately 5 months.

Stock incentive plan options:

A summary of activity under the Plan for the six months ended June 30, 2019 is presented below:

	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		62,000		$	15.71		9.2	$	—
Forfeited		(50,000	)	$	18.50		—		—
Outstanding at June 30, 2019		12,000		$	4.09		9.2	$	—
Exercisable at June 30, 2019		12,000		$	4.09		9.2	$	—

Aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on June 30, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on June 30, 2019.

Other common stock purchase warrants:

Following is a summary of outstanding warrants that were issued outside of the Plan for the six months ended June 30, 2019:

	Shares Underlying Options/Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		1,671,113		$	39.47		2.0	$	—
Granted		1,908,144		$	1.94		5.2	$	2,537,832
Forfeited		(5,000	)	$	7.90		—	$	—
Outstanding at June 30, 2019		3,574,257		$	19.48		3.4	$	2,289,773
Exercisable at June 30, 2019		1,928,144		$	19.48		0.7	$	—

The Company granted Warrants to purchase 1,908,144 shares of its common stock with an exercise price of $1.94, in connection with the Notes issued on January 28, 2019. (See Note 8).

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on June 30, 2019 and the exercise price, multiplied by the number of in-the-money warrants) that would have been received by the warrant holders, had all warrant holders exercised their warrants on June 30, 2019.

17 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Note 11. Discontinued Operations:

During the quarter ended March 31, 2017, the Company made the decision to discontinue the operations of its wholly-owned subsidiary BDI. BDI had developed a proprietary Enhanced Surface Plasmon Resonance technology platform for the detection of molecular interactions. The decision to adopt this plan was made following an evaluation by the Company's Board of Directors in January 2017 of the estimated results of operations projected during the near to mid-term period for BDI, including consideration of product development required and updated sales forecasts, and estimated additional cash resources required. The Company substantially disposed of the assets and operations during 2017 by selling the assets and licensing the intellectual property rights.  The Company has recognized the exit of BDI in accordance with ASC 205-20, Discontinued Operations. As such, the historical results of BDI, following its 2016 acquisition, have been classified as discontinued operations.

The Company's historical financial statements have been revised to present the operating results of the BDI business as a discontinued operation. Liabilities related to the discontinued operations of BDI totaled approximately $16,000 in accounts payable as of June 30, 2019 and December 31, 2018, respectively.

There were no results of discontinued operations for the three and six months ended June 30, 2019. Summarized results of the discontinued operation are as follows for the three and six months ended June 30, 2018:

Revenue	$	137,000
Cost of revenue		41,000
Gross margin		96,000
Operating expenses		—
Operating income		96,000
Income from discontinued operations, net of tax	$	96,000

Note 12. Leases:

Oklahoma Lease Agreement.

On February 27, 2018, Kairos entered into a lease agreement (the “Lease”) with 7725 Reno #1, LLC (the “Landlord”) to lease an approximately 107,600 square foot warehouse located in Oklahoma City, Oklahoma, including improvements thereon.  Under the Lease, Kairos has the right to operate from the premises on a 24 hour/seven day a week basis. The initial term of the Lease was scheduled to terminate on February 15, 2019; however the term of the Lease was extended by agreement of the parties as discussed below.

Prior to the first amendment of the Lease discussed below, the base rent for the facility was equal to $55.95/kW per month for a total of 4 Megawatts (MW) of available electrical power, or $223,800 per month. 

On March 26, 2018, Kairos entered into a first amendment to the Lease, whereby the Landlord agreed to increase the electrical power available for Kairos’s use from 6MW to 12MW, and, effective as of the date when such additional power became available for use, the base rent under the Lease was increased to approximately $664,760 per month.

Effective November 29, 2018, Kairos entered into the second amendment to the Lease which provides the following:

· extends the initial term of the Lease through August 19, 2019;

· monthly base rent of $235,000 for December 2018, $230,000 for January and $190,000 per month thereafter for the duration of the Lease, including any renewals;

· changes the monthly electricity usage charges; and

· Kairos shall have the option to renew the Lease for up to two, three-month periods after expiration of the initial term.

On May 15, 2019, the Company renewed the Lease for the first renewal term of three months, extending the lease through November 15, 2019.

18 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Corporate Lease Agreement

On April 9, 2018, the Company entered into a commercial lease covering 1,694 rentable square feet of office space in Fort Lauderdale, Florida, with a third-party. The lease is for an initial term of thirty-nine months, with one five-year option to renew. The lease requires initial monthly rent of approximately $7,000, including base rent and associated operating expenses.

Operating Leases

At June 30, 2019, the Company had operating lease liabilities of approximately $1.0 million and right of use assets of approximately $1.0 million, which are included in the condensed interim consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases:

Lease cost	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost	$	600,593		$	1,201,185
Variable lease cost		861,282			1,637,335
Operating lease expense		1,461,875			2,838,520
Short-term lease rent expense		4,620			9,240
Total rent expense	$	1,466,495		$	2,847,760
Other information
Operating cash flows from operating leases	$	584,255		$	1,208,231
Right of use assets exchanged for new operating lease liabilities	$	558,314		$	2,105,813
Weighted-average remaining lease term – operating leases		0.5 years			0.5 years
Weighted-average discount rate – operating leases		10.00	%		10.00	%

Maturities of the Company’s operating lease liabilities, are as follows (unaudited):

For the six months ended December 31, 2019	$	883,790
For the year ended December 31, 2020		58,731
For the year ended December 31, 2021		35,040
Total	$	977,561
Less present value discount		(27,274	)
Operating lease liabilities	$	950,287

Rent expense, recorded on a straight-line basis, was approximately $1.5 million for each of the three months ended June 30, 2019 and 2018; and was approximately $2.8 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

19 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Note 13.  Commitments and contingencies:

Contingencies:

The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business. The Company cannot predict the final outcome of such proceedings. 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 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. Paid expenses related to the defense of such claims are recorded by the Company as incurred and paid 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.

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.

Two additional, nearly identical complaints were subsequently filed by Richard Roys and Bruce Greenawalt in the United District States Court for the Southern District of Florida (Roys v. Riot Blockchain Inc., et al., Case No. 9:18-cv-80225) and the United States District Court for the District of Colorado (Greenawalt v. Riot Blockchain Inc., et al., Case No. 1:18-cv-00440), respectively. On March 27, 2018, the court closed the Roys case for administrative purposes. On April 2, 2018, Mr. Greenawalt filed a notice of voluntary dismissal of his action, which the court entered on the same date.

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 intend to file motions to dismiss the amended complaint on September 3, 2019. Briefing on the motions to dismiss is expected to be completed on October 22, 2019. Subject to the outcome of the pending motions, defendants intend to continue to vigorously contest Lead Plaintiff’s allegations. 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.

20 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

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 preliminary conference, the court adjourned the conference until September 9, 2019 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, a fifth 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.

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.

SEC Subpoena and Other Matters

On April 9, 2018, the Company received a subpoena from the SEC, requesting documents and information.  The SEC has continued to request information from the Company and the Company has been fully cooperating with the SEC in that investigation.

Beneficial Ownership

Pursuant to the rules of the SEC, the Company has consistently reported its beneficial ownership positions in its proxy and other filings where beneficial ownership disclosures are presented, for certain beneficial owners with respect to any person (including any “group” as that term is used in Section 13(d)(3) of the Securities and Exchange Act of 1934 (the “Exchange Act”) who is known to the Company to be the beneficial owner of more than 5% of the Company’s common stock.  The Company has relied on each person who has reported to the SEC beneficial ownership of more than 5% of our common stock to provide complete and accurate information regarding their ownership, based on the reports filed by these persons.

On September 7, 2018, a complaint was filed by the SEC (Case 1:18-cv-08175) and as subsequently amended, (the “Complaint”) against, among others, a number of individuals and entities some of whom the Company has previously disclosed as its beneficial owners, as well as, Mr. John O’Rourke III, the Company’s former chairman of the board of directors and chief executive officer who resigned from the Company on September 8, 2018, as disclosed in the Current Periodic Report on Form 8-K filed September 10, 2018.  Other persons named in the Complaint have previously reported that they were beneficial owners of the Company’s common stock, however, the Company has no basis to determine whether any such persons may have operated as a control group, collectively beneficially owning more than 5% of the Company’s common stock.

21 

Riot Blockchain, Inc. and Subsidiaries

Notes to Condensed Interim Consolidated Financial Statements

Six Months Ended June 30, 2019

(Unaudited) 

Note 14.  Tess Related Party Transactions:

Tess related parties include: Powercases Inc., and 2227470 Ontario Inc., (companies that are wholly-owned by Jeffrey Mason, President and Chief Executive Officer of Tess), 1038088 Ontario Limited (a company that is wholly-owned by Fraser Mason, Chairman and Chief Financial Officer of Tess), and JLM Strategic Marketing (a proprietorship owned by Jennifer Mason, Manager Corporate Communications of Tess).

The following table provides the total amount of transactions that have been entered into with Tess related parties and outstanding balances with Tess related parties as of and for the periods identified:

	Period Ended
Services to Tess provided by (1):	June 30, 2019		June 30, 2018
Powercases Inc.	$	231,328	$	379,385
JLM Strategic Marketing	$	—	$	267,304
1038088 Ontario Limited	$	45,062	$	110,123
Payable to:		June 30, 2019		December 31, 2018
Powercases Inc.	$	—	$	37,250
JLM Strategic Marketing	$	—	$	9,483
1038088 Ontario Limited	$	—	$	52,053

(1) - 2019 amounts provided by related parties are up to the date of de-consolidation.

During the period ended June 30, 2019 (up to the point of de-consolidation) and six months ended June 30, 2018, included in Tess's recorded services from related parties was approximately $260,000 and $180,000, respectively for Tess's key management personnel salaries.

Note 15.  Subsequent Events: 

Financing

During July 2019, in connection with the Company’s Sales Agreement with H.C. Wainwright, the Company received gross proceeds of approximately $2.6 million from the sale of 930,019 shares of common stock.

Preferred Stock

Subsequent to June 30, 2019, 800 shares of the Company’s Series B preferred stock were converted into 800 shares of the Company’s common stock.

Restricted Stock

Subsequent to June 30, 2019, a total of 36,500 restricted stock rights were awarded to a consultant and advisory board members. The shares vest monthly over one to two year periods.

Miner acquisitions

During June 2019, the Company initiated purchases of approximately 200 S9 and 30 L3 miners at a total cost of approximately $100,000.  These miners are expected to be operational early in the third quarter of 2019.  

22 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes in “Item 1. Condensed Interim Consolidated Financial Statements.” The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and should not be construed either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.”

Management’s plans and basis of presentation:

The Company has experienced recurring losses and negative cash flows from operations.  At June 30, 2019, the Company had approximate balances of cash and cash equivalents of $16.1 million, working capital of $14.6 million, total stockholders' equity of $26.1 million and an accumulated deficit of $212.0 million. To date, the Company has in large part relied on debt and equity financing to fund its operations. 

During the six months ended June 30, 2019, the Company entered into a Sales Agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) dated May 24, 2019, pursuant to which the Company may, from time to time, sell up to $100.0 million in shares of the Company’s common stock through H. C. Wainwright, acting as the Company’s sales agent and/or principal, in an at-the-market offering (“ATM Offering”). All sales of the shares have been made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC (File No. 333-226111). The Company pays H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (before offering expenses) during the six months ended June 30, 2019. Subsequent to June 30, 2019, additional gross proceeds of $2.6 million was generated from the ATM Offering.

The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as the Company incurs costs and expenses associated with recent and potential future acquisitions and development of the RiotX exchange platform, as well as public company, legal and administrative related expenses being incurred. The Company is closely monitoring its cash balances, cash needs and expense levels.

Management's strategic plans include the following:

• continuing expansion of digital currency mining operations relative to the price of digital currencies;

• continuing to evaluate opportunities for acquisitions in the blockchain and digital currency sector; 

• establishing a digital currency exchange;

• exploring other possible strategic options and financing opportunities available to the Company;

• evaluating options to monetize, partner or license the Company's assets; and

• continuing to implement cost control initiatives to conserve cash.

Results of Operations

Comparative Results for the Three Months Ended June 30, 2019 and 2018

Revenue for the three months ended June 30, 2019 and 2018 consisted of cryptocurrency mining revenue of $2,443,000, and $2,769,000, respectively, and other revenue consisting of license payments of $24,000 in each period. Mining production for the three months ended June 30, 2019, was 316.19 bitcoin, 143.81 bitcoin cash and 870.01 litecoin, as compared to 311.12 bitcoin, 272.81 bitcoin cash and 314.04 litecoin, mined during the three months ended June 30, 2018.

23 

Cost of revenue for the three months ended June 30, 2019 and 2018 of $1,588,000 and $1,478,000, respectively, consisted primarily of direct production costs of the mining operations, including rent and utilities, but excluding depreciation and amortization which are separately stated. During November 2018 the lease for our Oklahoma City, Oklahoma mining facility was amended whereby monthly base rent was reduced and monthly electricity usage was charged at actual usage. The actual electricity usage in the three months ended June 30, 2019 caused to the cost of revenue to be higher than the same period ended in 2018.

Selling, general and administrative expenses in the three months ended June 30, 2019 totaled $2,225,000, which is approximately $4,208,000, or a 65.4% decrease, as compared to $6,433,000 in the 2018 period. Stock-based compensation decreased by approximately $1,493,000 for the three months ended June 30, 2019, as compared to the 2018 period. Consulting fees decreased approximately $964,000 for services related to our miners. Investor, public relations and public company expenses reduced to $133,000 for the three months ended June 30, 2019 compared to $518,000 in comparable expenses for the 2018 period. Legal fees decreased approximately $137,000 due to legal matters associated primarily with the fees for special SEC related matters in the 2018 period. Audit fees decreased approximately $263,000, due to the timing of fees incurred in the 2019 versus 2018 three month period. Compensation related expense decreased by approximately $301,000 due primarily to staff reductions in early 2019.

Depreciation and amortization expenses during the three months ended June 30, 2019 totaled $23,000, which is a decrease of approximately $2,848,000, as compared with $2,871,000 during the three months ended June 30, 2018. The decrease is primarily due to, lower depreciation expenses recognized for our cryptocurrency machines, which is a result of $29,238,000 impairment charges recorded during the year ended December 31, 2018.

There were no asset impairment charges recorded during the three months ended June 30, 2019. Asset impairment charges of $15,378,000 were recognized for the three months ended June 30, 2018 to record our miners at their fair value.

There were no impairment charges for digital currencies for the three months ended June 30, 2019; impairment charges for digital currencies totaled $511,000 for the three months ended June 30, 2018, which was recorded to recognize our digital currencies at fair value.

During the three months ended June 30, 2019, we recognized expenses totaling $2,367,000 to revalue the Notes and the related Warrant liability to fair value at June 30, 2019.

During the three months ended June 30, 2019, we recorded a gain of $1,139,000 on the deconsolidation of Tess due to our reduced ownership interest in Tess from 50.2% to 9% which occurred during the three month period ended June 30, 2019.

Interest expense for the three months ended June 30, 2019 and 2018 was $49,000 and $15,000, respectively. 

Other income was $729,000 for the three months ended June 30, 2019, which was due to a $390,000 gain on forgiveness of our payable and interest in connection with our agreement with Blockchain Mining Supply & Services Ltd. (“BMSS”), and a $339,000 gain on forgiveness of various accounts payable balances. There was no other income recognized for the three months ended June 30, 2018.

For the three months ended June 30, 2019 and 2018, we recorded investment income of approximately $3,000 and $7,000, respectively.

Other expenses for the three months ended June 30, 2018 include $1,020,000 for the penalty accrual related to our registration rights agreement associated with our December 19, 2017 private placement. The agreement provided that the Company register our securities by the effectiveness date of March 5, 2018. The registration rights were not registered by the effectiveness date and the Company recognized a contingency. 

Comparative Results for the Six Months Ended June 30, 2019 and 2018

Revenue for the six months ended June 30, 2019 and 2018, consisted of cryptocurrency mining revenue of $3,849,000, and $3,670,000, respectively, and other revenue consisting of license payments of $48,000 in each period. Mining production for the six months ended June 30, 2019, was 645.71 bitcoin, 500.07 bitcoin cash and 2,292.51 litecoin, as compared to 391.07 bitcoin, 426.23 bitcoin cash and 314.04 litecoin, mined during the six months ended June 30, 2018.

Cost of revenue for the six months ended June 30, 2019 and 2018 of $3,059,000 and $1,827,000, respectively, consisted primarily of direct production costs of the mining operations, including rent and utilities, but excluding depreciation and amortization which are separately stated. The approximate $1,232,000 increase related primarily to the Oklahoma City mining facility not commencing operations until February 2018, net of base rent reductions and monthly electricity usage being charged at actual usage following the November 2018 Lease amendment.

24 

Selling, general and administrative expenses in the six months ended June 30, 2019 totaled $5,378,000, which is approximately $4,966,000, or a 48% decrease, as compared to $10,344,000 in the 2018 period. Stock-based compensation decreased by approximately $2,142,000 for the six months ended June 30, 2019, as compared to the 2018 period. Consulting fees decreased approximately $1,343,000 for services related to our miners. Investor, public relations and public company expenses reduced to $296,000 for the six months ended June 30, 2019 compared to $1,051,000 in comparable expenses for the 2018 period. Legal fees decreased by approximately $458,000 due to legal matters associated primarily with the fees for special SEC related matters in the 2018 period. Audit fees increased approximately $174,000 due to the increased level of financial activities and the audit of internal controls over financial reporting for the year ended December 31, 2018, which were primarily incurred in the 2019 period. Compensation related expense decreased by approximately $352,000 due primarily to staff reductions in early 2019, net of severance costs in the period ended June 30, 2019.

Depreciation and amortization expenses during the six months ended June 30, 2019 totaled $47,000, which is a decrease of approximately $4,980,000, as compared with $5,027,000 during the three months ended June 30, 2018. The decrease is primarily due to, lower depreciation expenses recognized for our cryptocurrency machines, which is a result of $29,238,000 impairment charges recorded during the year ended December 31, 2018.

There were no asset impairment charges recorded during the six months ended June 30, 2019. Asset impairment charges of $26,858,000 were recognized for the six months ended June 30, 2018 to record our miners at their fair value.

There were no impairment charges for digital currencies for the six months ended June 30, 2019, and totaled $2,979,000 for the six months ended June 30, 2018, which was recorded to recognize our digital currencies at fair value.

During the six months ended June 30, 2019, we recognized losses related to the issuance of our Senior Secured Convertible Notes (the “Notes”) of $6,155,000. We also recognized expenses totaling $6,765,000 to revalue the Notes and the related warrant liability to fair value at June 30, 2019.

During the six months ended June 30, 2019, we recorded a gain of $1,139,000 on the deconsolidation of Tess, due to our reduced ownership interest from 50.2% to 9%.

Interest expense for the six months ended June 30, 2019 and 2018 was $117,000 and $16,000, respectively. 

Other income was $808,000 for the six months ended June 30, 2019, due to a $390,000 gain on forgiveness of our payable and interest in connection with our agreement with BMSS, and a $418,000 gain on forgiveness of various accounts payable balances. There was no other income recognized for the six months ended June 30, 2018.

For the six months ended June 30, 2019 and 2018, we recorded investment income of approximately $20,000 and $69,000, respectively.

Other expenses for the six months ended June 30, 2018 includes $1,357,000 for the penalty accrual related to our registration rights agreement associated with our December 19, 2017 private placement. The agreement provided that the Company register our securities by the effectiveness date of March 5, 2018. The registration rights were not registered by the effectiveness date and the Company recognized a contingency.

Liquidity and Capital Resources

At June 30, 2019, we had working capital of approximately $14,564,000, which included cash and cash equivalents of $16,111,000.  We reported a net loss of $15,029,000, during the six months ended June 30, 2019.  The net loss included $11,828,000 in non-cash items consisting of, a loss on the issuance of our convertible notes of $6,155,000, the change in fair value of our convertible notes and the related warrant liability of $6,765,000, amortization of our right of use assets of $1,148,000, stock-based compensation totaling $350,000, and depreciation and amortization totaling $47,000, offset by a $1,139,000 gain recognized on the deconsolidation of Tess, a $808,000 gain on the extinguishment of notes, interest and accounts payable, other income of approximately $48,000, primarily related to the amortization of our deferred revenue related to our legacy animal health business and $642,000 related to the gain from the sale of digital currencies.

The time and costs to advance development of the RiotX exchange are expected to grow as and if the exchange’s operations grow and expansion into additional states is pursued.  Such costs include expenses for additional development, current and additional service providers, insurance and bonding requirements, sales and marketing activities to support the launch and general overhead and associated information technology (“IT”) costs.  Such costs could be significant and there is no assurance that the RiotX exchange will be launched and, once it’s operational, that it will be able to generate sufficient revenues needed to achieve profitability.

We expect to continue to incur losses from operations for the near-term and these losses could be significant as we incur costs and expenses associated with recent and potential future acquisitions and development of the RiotX exchange platform, as well as public company, legal and administrative related expenses being incurred. We are closely monitoring our cash balances, cash needs and expense levels.

25 

During May 2019, the Company entered into the Sales Agreement with H.C. Wainwright, pursuant to which the Company may, from time to time, sell up to $100.0 million in shares of the Company’s common stock through H. C. Wainwright, acting as the Company’s sales agent and/or principal, via the ATM Offering. All sales of the shares have been made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC. The Company pays H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (before offering expenses) during the six months ended June 30, 2019. Subsequent to June 30, 2019, additional gross proceeds of $2.6 million was generated from the ATM Offering.

Funding our operations on a go-forward basis will rely significantly on our ability to continue to mine digital currency and the spot or market price of the digital currency we mine.  We expect to generate ongoing revenues from the production of digital currencies, in our mining facilities and our ability to liquidate digital currency rewards at future values will be evaluated from time to time to generate cash for operations.  Generating bitcoin currency 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 revenue from the sale of our digital currency assets, we will 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 as equity, debt or conversion of digital currency to maintain our operations is subject to many risks and uncertainties and, even if we were successful, future equity issuances would 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, the value of bitcoin currency rewards has been extremely volatile recently and, although and such volatility has reduced recently, future prices cannot be predicted with any reasonable degree of accuracy.

During 2018, the Company was named a defendant in several lawsuits seeking class action status, and other lawsuits as more fully described in Part II – Item 1. Legal Proceedings, of this report. In addition, the Company has received comments, inquiries and subpoenas from regulatory bodies, including NASDAQ and the SEC, which are costly and time consuming to respond to. 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.

If we are unable to generate sufficient revenue from our bitcoin production when needed or secure additional sources of funding, or if certain contingent liabilities become due and are not adequately covered by our insurance policies, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.

Operating Activities

Net cash used in operating activities was $8,182,000 during the six months ended June 30, 2019. Cash was consumed from continuing operations by the loss of $15,029,000, less non-cash items of $11,828,000, consisting of a loss on the issuance of our convertible notes of $6,155,000, the change in fair value of our convertible notes and the related warrant liability of $6,765,000, amortization of our right of use assets of $1,148,000, stock-based compensation totaling $350,000, and depreciation and amortization totaling $47,000, offset by a $1,139,000 gain recognized on the deconsolidation of Tess, a gain on extinguishment of notes, interest and accounts payable totaling $808,000, the amortization of license fee revenue totaling $48,000 and a gain from the sale of our digital currencies of $642,000.  Digital currencies increased by $3,772,000, offset by, a decrease in the lease liability of $1,156,000, a decrease in accounts payable and accrued expenses of $951,000, and a decrease in prepaid expenses and other current assets of $916,000, primarily due to the amortization of our directors and officers life insurance premiums.

Net cash used in operating activities was $9,580,000, consisting of $9,511,000 from continuing operations and $69,000 from discontinued operations during the six months ended June 30, 2018. Cash was consumed from continuing operations by the loss of $41,000,000, less non-cash items of $34,061,000 consisting of an asset impairment for the Company’s miners of $26,858,000, revaluation of our digital currencies of $2,979,000, depreciation and amortization of $5,027,000, stock-based compensation totaling $2,492,000, and other non-cash charges totaling $278,000, net of deferred income tax benefit of $3,525,000 and amortization of license fee revenue totaling $48,000. Prepaid contracts increased $2,585,000 due to the advance consulting payment made to Ingenium, for future services associated with the set-up of the new mining facility and its operations and other services, digital currencies increased $3,670,000, accounts payable and accrued expenses increased $3,557,000 related to the significant expansion of the Company’s operating activities in 2018, offset by a slight decrease in prepaid and other current assets.

Investing Activities

Net cash provided by investing activities during the six months ended June 30, 2019 was $3,165,000, consisting of proceeds from the sale of digital currencies of $3,196,000, offset by $26,000 for the amortization of patent costs, and $6,000 for the purchase of equipment.

Net cash used in investing activities during the six months ended June 30, 2018 was $31,806,000, primarily consisting of purchases of property and equipment of $20,084,000 related to the Company’s cryptocurrency machines, an additional investment in Coinsquare of $6,413,000, purchases of digital currencies of $5,625,000, security deposits of $703,000 and an investment in Logical Brokerage of $517,000, offset by the sale of digital currencies of $1,627,000.

26 

Financing Activities

Net cash provided by financing activities was $20,903,000 during the six months ended June 30, 2019, which consisted of net proceeds from the issuance of our common stock in connection with our ATM Offering of $18,853,000, the proceeds received from the issuance of our Notes and Warrants of $3,000,000, offset by the repayment of the principal balance related to our agreement with BMSS of $950,000, net of the $250,000 gain recorded on extinguishment of the notes principal balance.

Net cash provided by financing activities was $1,389,000 during the six months ended June 30, 2018, primarily consisting of $776,000 of proceeds from a demand note, $350,000 from the exercise of warrants, $320,000 from the sale of the Company’s shares of common stock held by Tess, and $79,000 from the exercise of stock options, offset by $136,000 used in scheduled payments under debt agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Our critical accounting policies and significant estimates are detailed in our 2018 Annual Report. Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2018 Annual Report, except for those accounting subjects mentioned in the section of the notes to the condensed interim consolidated financial statements titled Recently Issued and Adopted Accounting Pronouncements. 

Recently issued and adopted accounting pronouncements: 

The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company's financial statements. See Note 3 of the condensed interim consolidated financial statements at June 30, 2019.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Not required for a Smaller Reporting Company.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that information is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer) as appropriate, to allow timely decisions regarding required disclosures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report, the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting as described below.

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) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.

27 

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2019. 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 (2013). 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 June 30, 2019, we concluded that our internal control over financial reporting are not effective due to the following material weaknesses identified:

1) We did not implement or properly maintain control activities at either the entity or activity level that were designed or were operating effectively to identify and address (i) all significant risks that could have a material adverse impact on the Company’s ongoing operations and (ii) all likely sources that could result in a material misstatement to the financial statements.

2) We did not design or maintain effective general IT controls over certain information systems that are relevant to the mitigation of the risk pertaining to the misappropriation of assets and to the preparation of the consolidated financial statements. Specifically, we did not design and implement:

a. User access controls to ensure appropriate segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to the appropriate Company personnel;

b. Program change management controls for certain financially relevant systems to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency mining equipment, (iii) digital currency hardware wallets, and (iv) underlying accounting records, are identified, tested, authorized and implemented appropriately; and

c. Physical security controls to ensure that the (i) digital currency hardware wallets, (ii) digital currency hardware wallet master seed phrases, (iii) digital currency hardware wallet pin codes, and (iv) the digital currency mining equipment were safeguarded, monitored, validated, and restorable, both physically and electronically.

Remediation

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. The remediation actions include: (i) creating and filling an information technology compliance oversight function; (ii) developing a training program addressing Information Technology General Controls (“ITGC”) and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change-management over information technology systems impacting financial reporting; (iii) developing and maintaining documentation underlying ITGCs to enhance control knowledge across the entire IT organization; (iv) developing enhanced risk assessment procedures and controls related to changes in information technology systems; (v) implementing an information technology management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and (vi) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Company’s Board of Directors.

We believe that these actions will remediate the material weakness. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2019.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28 

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

Disclosure under this Item is incorporated by reference to the disclosure provided in this report under Part I, Item 1., Financial Statements in Note 13, commitments and contingencies.

Item 1A.  Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors discussed under the heading “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as amended by Amendment No. 1 on Form 10-K/A filed on April 23, 2019 (the “2018 Annual Report”) and our Registration Statement on Form S-3, as amended, filed on May 2, 2019 (File No. 333-226111) (the “Registration Statement”).  For the period ended June 30, 2019, there have been no material changes to those risk factors disclosed in our 2018 Annual Report and Registration Statement.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Other than those previously disclosed by the Company in its current reports on Form 8-K as filed with the SEC, there have been no unregistered sales of the Company’s equity securities during the period covered by this Quarterly Report.

Item 3.  Defaults Upon Senior Securities

N/A – none.

Item 4.  Mine Safety Disclosures

N/A – none.

Item 5.  Other Information

N/A – none.

Item 6.  Exhibits

EXHIBIT	DESCRIPTION
4.	Instruments Defining the Rights of Security Holders, Including Indentures.
4.1	Form of Senior Secured Promissory Note dated January 28, 2019. (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K, filed February 1, 2019)
4.2	Form of Warrant Agreement dated January 28, 2019. (Incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K, filed February 1, 2019)
10.	Material Contracts.
10.01	Form of Securities Purchase Agreement dated January 28, 2019. (Incorporated by reference to Exhibit 10.01 of the Current Report on Form 8-K, filed February 1, 2019)
10.02	Form of Security Agreement dated January 28, 2019. (Incorporated by reference to Exhibit 10.02 of the Current Report on Form 8-K, filed February 1, 2019)
10.03	Form of Registration Rights Agreement dated January 28, 2019. (Incorporated by reference to Exhibit 10.03 of the Current Report on Form 8-K, filed February 1, 2019)
10.04	Jeffrey G. McGonegal Executive Employment Agreement dated as of February 6, 2019. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed February 11, 2019)
31.	Certifications.
31.1	Rule 13a-14(a)/15d-14(a) - Certification of Chief Executive Officer.*
31.2	Rule 13a-14(a)/15d-14(a) - Certification of Chief Financial Officer.*
32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer furnished herewith Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Condensed Interim Consolidated Financial Statements. *

* Filed herewith.

29 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Castle Rock, Colorado on August 8, 2019.

	Riot Blockchain, Inc. (Registrant)
Dated: August 8, 2019	/s/ Jeffrey G. McGonegal
	Jeffrey G. McGonegal Chief Executive Officer (Principal Executive Officer)

Dated: August 8, 2019	/s/ Robby Chang
	Robby Chang Chief Financial Officer (Principal Financial and Accounting Officer)

30 

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jeffrey G. McGonegal, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Riot Blockchain, Inc. for the quarter ended June 30, 2019;

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 officer 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 officer 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.

August 8, 2019
	/s/ Jeffrey G. McGonegal
	Jeffrey G. McGonegal Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

 I, Robby Chang, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Riot Blockchain, Inc. for the quarter ended June 30, 2019;

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 officer 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 officer 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.

August 8, 2019
	/s/ Robby Chang
	Robby Chang Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

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 this Quarterly Report on Form 10-Q, (the “Report”) of Riot Blockchain, Inc. (the “Company”) for the quarter ended June 30, 2019, each of the undersigned, Jeffrey G. McGonegal and Robby Chang, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned's knowledge and belief:

(1)	the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 8, 2019
	/s/ Jeffrey G. McGonegal
	Jeffrey G. McGonegal, Chief Executive Officer (Principal Executive Officer)
August 8, 2019
	/s/ Robby Chang
	Robby Chang, Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 08, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	Riot Blockchain, Inc.
Entity Central Index Key	0001167419
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		23,555,930
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 16,110,630	$ 225,390
Prepaid expenses and other current assets	331,642	1,378,534
Digital currencies	1,923,813	706,625
Total current assets	18,366,085	2,310,549
Property and equipment, net	27,977	26,269
Right of use assets	957,332
Intangible rights acquired	700,167	700,167
Long-term investments	9,502,900	9,412,726
Security deposits	703,275	703,275
Other long-term assets, net:
Patents, net	490,094	507,342
Convertible note and accrued interest	219,578	200,000
Total assets	30,967,408	13,860,328
Current liabilities
Accounts payable	817,454	3,829,315
Accrued expenses	1,982,790	1,516,252
Deferred purchase price - BMSS		1,200,000
Operating lease liability, current	889,232
Deferred revenue, current portion	96,698	96,698
Current liabilities of discontinued operations	16,340	16,340
Total current liabilities	3,802,514	6,658,605
Notes payable		1,696,083
Operating lease liability, less current portion	61,055
Deferred revenue, less current portion	823,570	871,919
Deferred income tax liability	142,709	142,709
Total liabilities	4,829,848	9,369,316
Commitments and contingencies - Note 13
Stockholders' equity
Common stock, no par value; 170,000,000 shares authorized; 22,625,111 and 14,519,058 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	238,082,374	202,917,443
Accumulated deficit	(212,006,522)	(197,199,197)
Total Riot Blockchain stockholders' equity	26,102,408	5,787,305
Non-controlling interest	35,152	(1,296,293)
Total stockholders' equity	26,137,560	4,491,012
Total liabilities and stockholders' equity	30,967,408	13,860,328
2% Convertible Preferred Stock Series A [Member]
Stockholders' equity
Preferred stock, no par value
0% Convertible Preferred Stock Series B [Member]
Stockholders' equity
Preferred stock, no par value	$ 26,556	$ 69,059

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Preferred stock, par value
Preferred stock, shares authorized	15,000,000	15,000,000
Common stock, par value
Common stock, shares authorized	170,000,000	170,000,000
Common stock, shares issued	22,625,111	14,519,058
Common stock, shares outstanding	22,625,111	14,519,058
2% Convertible Preferred Stock Series A [Member]
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
0% Convertible Preferred Stock Series B [Member]
Preferred stock, shares authorized	1,750,001	1,750,001
Preferred stock, shares issued	4,999	13,000
Preferred stock, shares outstanding	4,999	13,000

XML

Condensed Interim Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue:
Total Revenue	$ 2,467,050	$ 2,792,794	$ 3,897,310	$ 3,718,348
Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown below)	1,587,983	1,477,587	3,059,321	1,826,598
Selling, general and administrative	2,225,499	6,432,883	5,377,637	10,343,612
Depreciation and amortization	23,229	2,870,899	47,068	5,027,326
Impairment of property and equipment		15,377,532		26,858,023
Impairment of digital currencies		511,170		2,979,045
Total costs and expenses	3,836,711	26,670,071	8,484,026	47,034,604
Operating loss from continuing operations	(1,369,661)	(23,877,277)	(4,586,716)	(43,316,256)
Other income (expense):
Loss on issuance of convertible notes, common stock and warrants			(6,154,660)
Change in fair value of warrant liability	(116,498)		(2,869,726)
Change in fair value of convertible notes	(2,250,651)		(3,895,233)
Gain on deconsolidation of Tess	1,138,787		1,138,787
Non-compliance penalty for SEC registration requirement				(333,338)
Interest expense	(48,819)	(15,093)	(117,182)	(16,162)
Other income	729,154		808,026
Investment income	3,261	6,690	20,103	69,276
Realized gain on sale of digital currencies	636,822		641,610
Other expense	(696)	(1,020,158)	(13,737)	(1,023,840)
Total other income (expense)	91,360	(1,028,561)	(10,442,012)	(1,304,064)
Loss from continuing operations before income taxes	(1,278,301)	(24,905,838)	(15,028,728)	(44,620,320)
Deferred income tax benefit		472,000		3,525,000
Loss from continuing operations	(1,278,301)	(24,433,838)	(15,028,728)	(41,095,320)
Discontinued operations
Income from operations				96,132
Income from discontinued operations				96,132
Net loss	(1,278,301)	(24,433,838)	(15,028,728)	(40,999,188)
Net (income) loss attributable to non-controlling interest	(19)	416,918	221,403	632,176
Net loss attributable to Riot Blockchain	$ (1,278,320)	$ (24,016,920)	$ (14,807,325)	$ (40,367,012)
Basic and diluted net loss per share:
Continuing operations attributable to Riot Blockchain	$ (0.08)	$ (1.81)	$ (0.97)	$ (3.19)
Discontinued operations attributable to Riot Blockchain				0.01
Net loss per share	$ (0.08)	$ (1.81)	$ (0.97)	$ (3.18)
Basic and diluted weighted average number of shares outstanding	15,995,092	13,511,427	15,226,629	12,897,147
Revenue - digital currency mining [Member]
Revenue:
Total Revenue	$ 2,442,876	$ 2,768,619	$ 3,848,961	$ 3,669,999
License fees [Member]
Revenue:
Total Revenue	$ 24,174	$ 24,175	$ 48,349	$ 48,349

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Condensed Interim Consolidated Statement of Stockholders' Equity (Deficit) (Unaudited) - USD ($)	Preferred Stock	Common Stock [Member]	Accumulated Deficit	Total riot blockchain stockholder's equity [Member]	Noncontrolling Interest [Member]	Total
BALANCE at Dec. 31, 2017	$ 7,745,266	$ 180,387,518	$ (139,263,480)	$ 48,869,304	$ 758,095	$ 49,627,399
BALANCE, shares at Dec. 31, 2017	1,458,001	11,622,112
Delivery of common stock underlying restricted stock units
Delivery of common stock underlying restricted stock units, shares		124,583
Common stock issued for asset purchase - Prive		$ 8,480,000		8,480,000		8,480,000
Common stock issued for asset purchase - Prive, shares		800,000
Common stock escrow shares issued for asset purchase - Prive
Common stock escrow shares issued for asset purchase - Prive, shares		200,000
Preferred stock converted to Common stock	$ (4,010,754)	$ 4,010,755		1		1
Preferred stock converted to Common stock, shares	(755,001)	755,001
Exercise of warrants		$ 350,000		350,000		350,000
Exercise of warrants, shares		100,000
Stock-based compensation		$ 2,492,029		2,492,029		2,492,029
Stock-based compensation, shares
Exercise of stock options		$ 78,522		78,522		78,522
Exercise of stock options, shares		19,533
Common stock issued for services		$ 277,940		277,940		277,940
Common stock issued for services, shares		20,754
Sale of Riot shares held by Tess Pay, Inc.		$ 320,000		320,000		320,000
Sale of Riot shares held by Tess Pay, Inc., shares
Cashless exercise of stock purchase warrants
Cashless exercise of stock purchase warrants, shares		3,215
Non-controlling interest - Logical Brokerage					40,541	40,541
Net income (loss) attributable to non-controlling interest					(632,176)	(632,176)
Net loss			(40,367,012)	(40,367,012)		(40,367,012)
BALANCE at Jun. 30, 2018	$ 3,734,512	$ 196,396,764	(179,630,492)	20,500,784	166,460	20,667,244
BALANCE, shares at Jun. 30, 2018	703,000	13,645,198
BALANCE at Mar. 31, 2018	$ 4,929,768	$ 193,335,481	(155,613,572)	42,651,677	583,378	43,235,055
BALANCE, shares at Mar. 31, 2018	928,000	13,327,615
Delivery of common stock underlying restricted stock units
Delivery of common stock underlying restricted stock units, shares		74,583
Preferred stock converted to Common stock	$ (1,195,256)	$ 1,195,256
Preferred stock converted to Common stock, shares	(225,000)	225,000
Stock-based compensation		$ 1,608,086		1,608,086		1,608,086
Stock-based compensation, shares
Common stock issued for services		$ 257,941		257,941		257,941
Common stock issued for services, shares		18,000
Net income (loss) attributable to non-controlling interest					(416,918)	(416,918)
Net loss			(24,016,920)	(24,016,920)		(24,016,920)
BALANCE at Jun. 30, 2018	$ 3,734,512	$ 196,396,764	(179,630,492)	20,500,784	166,460	20,667,244
BALANCE, shares at Jun. 30, 2018	703,000	13,645,198
BALANCE at Dec. 31, 2018	$ 69,059	$ 202,917,443	(197,199,197)	5,787,305	(1,296,293)	4,491,012
BALANCE, shares at Dec. 31, 2018	13,000	14,519,058
Delivery of common stock underlying restricted stock units
Delivery of common stock underlying restricted stock units, shares		106,251
Common stock issued with convertible notes		$ 255,000		255,000		255,000
Common stock issued with convertible notes, shares		150,000
Common stock issued in connection with conversion of notes payable		$ 10,225,959		10,225,959		10,225,959
Common stock issued in connection with conversion of notes payable, shares		1,813,500
Reclassification of warrant liability to equity		$ 5,438,660		5,438,660		5,438,660
Preferred stock converted to Common stock	$ (42,503)	$ 42,503
Preferred stock converted to Common stock, shares	(8,001)	8,001
Stock-based compensation		$ 350,068		350,068		350,068
Stock-based compensation, shares
Issuance of common stock, net of offering costs/At-the-market offering		$ 18,852,741		18,852,741		18,852,741
Issuance of common stock, net of offering costs/At-the-market offering, shares		6,028,301
Net income (loss) attributable to non-controlling interest					(221,403)	(221,403)
Deconsolidation of Tess					1,552,848	1,552,848
Net loss			(14,807,325)	(14,807,325)		(14,807,325)
BALANCE at Jun. 30, 2019	$ 26,556	$ 238,082,374	(212,006,522)	26,102,408	35,152	26,137,560
BALANCE, shares at Jun. 30, 2019	4,999	22,625,111
BALANCE at Mar. 31, 2019	$ 69,059	$ 203,407,485	(210,728,202)	(7,251,658)	(1,517,715)	(8,769,373)
BALANCE, shares at Mar. 31, 2019	13,000	14,762,809
Delivery of common stock underlying restricted stock units
Delivery of common stock underlying restricted stock units, shares		12,500
Common stock issued in connection with conversion of notes payable		$ 10,225,959		10,225,959		$ 10,225,959
Common stock issued in connection with conversion of notes payable, shares		1,813,500				1,813,500
Reclassification of warrant liability to equity		$ 5,438,660		5,438,660		$ 5,438,660
Preferred stock converted to Common stock	$ (42,503)	$ 42,503
Preferred stock converted to Common stock, shares	(8,001)	8,001
Stock-based compensation		$ 115,026		115,026		115,026
Stock-based compensation, shares
Issuance of common stock, net of offering costs/At-the-market offering		$ 18,852,741		18,852,741		18,852,741
Issuance of common stock, net of offering costs/At-the-market offering, shares		6,028,301
Net income (loss) attributable to non-controlling interest					19	19
Deconsolidation of Tess					1,552,848	1,552,848
Net loss			(1,278,320)	(1,278,320)		(1,278,320)
BALANCE at Jun. 30, 2019	$ 26,556	$ 238,082,374	$ (212,006,522)	$ 26,102,408	$ 35,152	$ 26,137,560
BALANCE, shares at Jun. 30, 2019	4,999	22,625,111

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Condensed Interim Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net loss	$ (15,028,728)	$ (40,999,188)
Income from discontinued operations		96,132
Loss from continuing operations	(15,028,728)	(41,095,320)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities of continuing operations:
Stock-based compensation	350,068	2,492,029
Depreciation and amortization	47,068	5,027,326
Deferred income tax benefit		(3,525,000)
Amortization of license fee revenue	(48,349)	(48,349)
Amortization of right of use assets	1,148,481
Common stock issued for services		277,940
Loss on issuance of convertible notes, common stock and warrants	6,154,660
Change in fair value of convertible notes	3,895,233
Change in fair value of warrant liability	2,869,726
Gain on deconsolidation of Tess	(1,138,787)
Gain on extiguishment of accounts payable, other liabilities and accrued interest	(808,026)
Impairment of property and equipment		26,858,023
Impairment of digital currencies		2,979,045
Realized gain on sale of digital currencies	(641,610)
Changes in assets and liabilities:
Prepaid contracts		(2,584,699)
Prepaid expenses and other current assets	916,460	221,142
Digital currencies - mining, net of mining pool operating fees	(3,771,888)	(3,669,999)
Accrued interest	(19,578)
Accounts payable	(1,831,697)	2,303,611
Accrued expenses	880,210	1,253,072
Lease liability	(1,155,526)
Net cash used in operating activities of continuing operations	(8,182,283)	(9,511,179)
Net cash used in operating activities of discontinued operations		(68,824)
Net cash used in operating activities	(8,182,283)	(9,580,003)
Cash flows from investing activities - continuing operations:
Proceeds from sale of digital currencies	3,196,310	1,626,800
Purchase of digital currencies		(5,625,000)
Purchases of property and equipment	(5,569)	(20,084,225)
Purchases of other investments		(6,412,726)
Security deposits		(703,275)
Purchases of patent costs	(25,959)	(31,068)
Investment in Logical Brokerage, net of cash acquired		(516,918)
Purchase of developed technology by Tess		(60,019)
Net cash provided by (used in) investing activities	3,164,782	(31,806,431)
Cash flows from financing activities - continuing operations:
Proceeds from issuance of convertible notes	3,000,000	775,555
Repayment of notes payable and other obligations	(950,000)	(135,574)
Proceeds from the issuance of common stock / At-the-market offering	19,671,712
Offering costs for the issuance of common stock / At-the-market offering	(818,971)
Proceeds from exercise of warrants		350,000
Proceeds from exercise of stock options		78,522
Proceeds from sale of Riot shares held by Tess Pay, Inc.		320,000
Net cash provided by financing activities of continuing operations	20,902,741	1,388,503
Net increase (decrease) in cash and cash equivalents	15,885,240	(39,997,931)
Cash and cash equivalents at beginning of period	225,390	41,651,965
Cash and cash equivalents at end of period	16,110,630	1,654,034
Supplemental disclosure of cash flow information:
Cash paid for interest		1,526
Cash paid for taxes
Supplemental disclosure of noncash investing and financing activities:
Conversion of notes payable to common stock	10,225,959
Reclassification of warrant liability to equity	5,438,660
Value of shares issued for Prive asset acquisition		$ 8,480,000
Conversion of Preferred stock to Common stock	42,503	4,010,755
Deferred purchase price for BMSS		$ 1,500,000

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Organization

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Note 1.  Organization:

Nature of operations:

Riot Blockchain, Inc. (“we,” “us,” “our,” the “Company,” “Riot” or “Riot Blockchain”) was originally organized on July 24, 2000, as a Colorado corporation.  Effective October 19, 2017, the Company's name was changed to Riot Blockchain, Inc., from Bioptix, Inc., and changed its state of incorporation to Nevada from Colorado.

The Company operates a digital currency mining operation, which utilizes specialized computers (also known as “miners”) that generate digital currency (primarily bitcoin) from the blockchain. The Company acquired approximately 8,000 miners through its acquisition of Kairos Global Technology, Inc. (“Kairos”) in November 2017, and from Prive Technologies, Inc. (“Prive”), and separately from Blockchain Mining Supply & Services Ltd. (“BMSS”) in February 2018.

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Liquidity and Financial Condition

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Liquidity and Financial Condition

Note 2. Liquidity and Financial Condition:

The Company has experienced recurring losses and negative cash flows from operations.  At June 30, 2019, the Company had approximate balances of cash and cash equivalents of $16.1 million, digital currencies of $1.9 million, working capital of $14.6 million, total stockholders' equity of $26.1 million and an accumulated deficit of $212.0 million. To date, the Company has, in large part, relied on equity and debt financing to fund its operations.

The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as the Company incurs costs and expenses associated with recent and potential future acquisitions, and development of the RiotX exchange platform, as well as public company, legal and administrative related expenses being incurred. As disclosed in Note 8, during the six months ended June 30, 2019, the Company issued a series of Senior Secured Convertible Promissory Notes (the “Notes”), to investors for an aggregate principal amount of $3,358,333 and an equal value of warrants for the purchase of shares of the Company’s common stock (the “Warrants”) in exchange for a total investment of $3,000,000. During the three months ended June 30, 2019, all of the Notes were converted into common stock and have been satisfied in full. The Company is closely monitoring its cash balances, cash needs and expense levels.

As disclosed in Note 9, during the six months ended June 30, 2019, the Company entered into a Sales Agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”) dated May 24, 2019 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $100.0 million in shares of the Company’s common stock through H.C. Wainwright, acting as the Company’s sales agent and/or principal, in an at-the-market offering (“ATM Offering”). All sales of the shares in connection with the ATM Offering have been made pursuant to an effective shelf registration statement on Form S-3 filed with the U.S. Securities and Exchange Commission (“SEC”). The Company pays H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (net of commissions) during the six months ended June 30, 2019.

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Basis of presentation, summary of significant accounting policies and recent accounting pronouncements

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of presentation, summary of significant accounting policies and recent accounting pronouncements

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 interim 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 interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the unaudited condensed interim consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The unaudited condensed interim consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 2, 2019.

Use of estimates:

The preparation of 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 interim consolidated financial statements include estimates associated with revenue recognition, asset valuations, the useful lives and recoverability of long-lived assets, impairment analysis of intangibles and goodwill, stock-based compensation, assumptions used in estimating the fair value of convertible notes and warrants, 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 2018 Annual Report.

Sequencing:

On January 28, 2019, the Company adopted a sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging (“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees or directors are not subject to the sequencing policy.

Notes Payable Fair Value Option:

As described further in Note 8 - Notes and Other Obligations, in January 2019, the Company issued Senior Secured Promissory Notes (the “Notes”) to Oasis Capital, LLC, Harbor Gates Capital, LLC and SG3 Capital, LLC (each an “Investor” and collectively, the “Investors”) in the aggregate principal amount of $3,358,333. The Company has elected the fair value option to account for these Notes due to the complexity and number of embedded features. The fair value of the Notes is classified within Level 3 of the fair value hierarchy because the fair values were estimated utilizing a Monte Carlo simulation model. Accordingly, the Company recorded these Notes at fair value with changes in fair value recorded in the statement of operations. As a result of applying the fair value option, direct costs and fees related to the Notes were recognized in earnings as incurred and were not deferred. The change in fair value of the Notes has been presented as change in value of convertible notes payable on the unaudited condensed interim consolidated statements of operations.

During the three months ended June 30, 2019, all of the Notes were converted into 1,813,500 shares of the Company’s common stock valued at their estimated fair value at the time of conversion totaling approximately $10.2 million.

Warrant Liability:

The Company issued Warrants to purchase 1,908,144 shares of its common stock in connection with the Notes issued to the Investors in January 2019, and recorded these outstanding Warrants as a liability at fair value utilizing a Monte Carlo simulation model. This liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company's condensed interim consolidated statements of operations.

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

Leases:

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842.  The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Loss per share:

Basic net loss per share (“EPS”) of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company excludes its unvested restricted shares and escrow shares from the net loss per share calculation. The escrow shares are excluded due to their related contingencies, the inclusion of which would result in anti-dilution.

Since the Company has net losses attributable to Riot Blockchain, basic and diluted net loss per share is the same.  Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share at June 30, 2019 and 2018 because their inclusion would be anti-dilutive are as follows:

	June 30,
	2019		2018
Warrants to purchase common stock		3,574,257		1,671,113
Options to purchase common stock		12,000		150,000
Escrow shares		200,000		200,000
Unvested restricted stock awards		42,980		571,567
Convertible Series B preferred shares		4,999		703,000
Total		3,834,236		3,295,680

Recently issued and adopted accounting pronouncements:

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, effectively allowing entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $1.5 million.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is A Service Contract” (“ASU 2018-15”). This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted.  The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is still evaluating the prospective impact of this guidance on its future consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

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Digital Currencies

6 Months Ended

Jun. 30, 2019

Indefinite-lived Intangible Assets (Excluding Goodwill) [Abstract]

Digital Currencies

Note 4. Digital Currencies:

The following table presents additional information about digital currencies:

	June 30, 2019
		(Unaudited)
Beginning balance, January 1, 2019	$	706,625
Revenue recognized from digital currencies mined		3,848,961
Mining pool operating fees		(77,073	)
Sale of digital currencies		(3,196,310	)
Realized gain on sale of digital currencies		641,610
Ending balance	$	1,923,813

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Fair value measurements

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair value measurements

Note 5. Fair value measurements:

During the six months ended June 30, 2019 the Company issued the Notes and Warrants in connection with the Notes. The Notes and Warrants were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the consolidated statements of operations and disclosed in the unaudited condensed interim consolidated financial statements. During the three months ended June 30, 2019, in accordance with their original terms, all of the Notes were converted into a total of 1,813,500 shares of the Company’s common stock by their holders.

A summary of weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s Notes and Warrants at the issuance date of January 28, 2019 and during the conversion of the Notes for the three months ended June 30, 2019, are as follows:

Senior Secured Promissory Notes:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	119.5%	122.2%-127.1%
Risk free interest rate	2.60%	2.07%-2.44%
Expected term	1 year	-

Warrants:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	111.6%	119.9%-120.5%
Risk free interest rate	2.58%	2.23%-2.58%
Expected term	5 years	4 years, 10 months

There were no assets or liabilities measured at fair value during the six months ended June 30, 2018.

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

The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2019.

	Convertible Notes			Warrant Liability
Issuance of senior secured convertible notes	$	6,330,726		$	—
Issuance of warrants in connection with convertible notes		—			2,568,934
Balance at January 28, 2019		6,330,726			2,568,934
Change in fair value		1,644,582			2,753,228
Balance at March 31, 2019		7,975,307			5,322,162
Change in fair value		2,250,651			116,498
Conversion of convertible notes to common stock		(10,225,959	)		—
Recalssification of warrant liability to equity		—			(5,438,660	)
Balance at June 30, 2019	$	—		$	—

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Investment in Coinsquare

6 Months Ended

Jun. 30, 2019

Investments, All Other Investments [Abstract]

Investment in Coinsquare

Note 6. Investment in Coinsquare:

In September 2017, the Company acquired a minority interest for $3.0 million in Coinsquare, which operates a digital crypto-currency exchange platform in Canada. During February 2018, the Company invested an additional $6.4 million to acquire additional common stock of Coinsquare. The investment included an additional equity investment of $2.8 million that was part of an approximate $24 million financing by Coinsquare. Additionally, warrants acquired in the original investment were exercised in exchange of a cash payment of $3.6 million. These additional investments resulted in a current ownership in Coinsquare by the Company of approximately 12% based upon Coinsquare’s issued and outstanding shares. The Company has evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Coinsquare. The investment is valued at cost, less any impairment, plus or minus changes resulting from observable price changes. As of June 30, 2019 and December 31, 2018, the Company considered the cost of the investment to not exceed the fair value of the investment and did not observe price changes.

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Investment in Tess

6 Months Ended

Jun. 30, 2019

Investments, All Other Investments [Abstract]

Investment in Tess

Note 7. Investment in Tess:

In October 2017, the Company acquired approximately 52.01% of Tess, which is developing blockchain solutions for telecommunications companies. During the year ended December 31, 2018, Tess issued approximately 189,000 of its common shares, reducing the investment percentage held by the Company from 52.01% to 50.2%. On April 10, 2019, Tess closed on a funding agreement under which approximately 23.8 million shares of Tess were issued for CAD $1.2 million. As a result of this funding, the Company’s ownership in Tess was reduced to approximately 9% and Tess will no longer be consolidated in the Company’s consolidated financial statements.

As of June 30, 2019, the Company evaluated its remaining interest in Tess under the guidance of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and determined it should remeasure its retained interest at fair value upon deconsolidation to establish a new cost basis. As of April 10, 2019, the fair value of the Tess shares owned by the Company is approximately $0.1 million, calculated based upon the April 10, 2019 funding price as follows:

	April 10, 2019
Tess shares held by Riot Blockchain, Inc.		2,708,333
Per share fair value	$	0.03
Fair value of Tess shares held by Riot Blockchain, Inc.	$	90,174

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

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

Current assets	$	130,432
Less:
Accounts payable		761,875
Accrued expenses		273,935
Convertible notes		1,696,083
Net liabilities		(2,601,461	)
Non-controlling interest share		1,552,848
Sub-total		(1,048,613	)
Less: fair value of shares owned by Riot Blockchain		90,174
Gain on deconsolidation of Tess	$	(1,138,787	)

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Notes and Other Obligations

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Notes and Other Obligations

Note 8.  Notes and Other Obligations:

Senior Secured Convertible Promissory Notes and Warrants

On January 28, 2019, in connection with a private financing (the “Private Financing”), the Company issued the Notes, to investors (collectively, the “Investors” and each an “Investor”) for an aggregate principal amount of $3,358,333, along with Warrants for the purchase of and equal value of shares of the Company’s common stock in exchange for $3,000,000 of private financing. The Notes were convertible into shares of the Company’s common stock at any time after the issuance date, provided that at no time would the Company be required to issue shares in excess of the aggregate number of shares of its commons stock outstanding. The Notes were set to mature twelve months from date of issuance and accrue interest at a rate of 8% per annum, with twelve months of interest guaranteed. The Notes were subject to prepayment penalties, default conditions and other terms and conditions, as further defined in the Financing Agreements (the “Financing Agreements”) as disclosed in the Company’s current report on Form 8-K filed with the SEC on February 1, 2019. As additional consideration for the investment, the Company issued a total of 150,000 restricted common shares to the Investors.

The Notes were convertible into shares of the common stock of the Company at a price equal to the lower of $2.00 or 80% of the lowest volume-weighted adjusted price of shares of the Company’s common stock in the twenty trading days prior to the conversion date, subject to adjustments in certain cases as defined in the Financing Agreements. Provided, however, that according to the Notes, the cumulative shares of the Company’s common stock issuable upon conversion of the Notes cannot exceed 19.99% of the total number of the Company’s outstanding common stock as of January 28, 2019. Pursuant to the Financing Agreements between the Company and the Investors, the Company granted the Investors a security interest in its assets to secure repayment of the Notes. Further to the Financing Agreements, the Company also reserved a number of shares of its common stock equal to 300% of the total number of shares issuable upon full conversion of the Notes.

Due to the complexity and number of embedded features within the Notes and as permitted under applicable accounting guidance, the Company elected to account for the Notes and all the embedded features under the fair value option, which records the Notes at fair value rather than at historical cost, with changes in fair value recorded in the condensed interim consolidated statements of operations. Direct costs and fees incurred to issue the Notes were recognized in earnings as incurred and were not deferred. On the initial measurement date of January 28, 2019, the fair value of the Notes was estimated at $6,330,726. Upfront costs and fees related to items for which the fair value option was elected were approximately $358,333 and were recorded as a component of other expenses for the six months ended June 30, 2019.

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

During the three months ended June 30, 2019, holders of the Notes issued on January 28, 2019, converted 100% of the Notes into 1,813,500 shares of the Company’s common stock. The aggregate fair value of the Notes converted during the three months ended June 30, 2019 was $10.2 million, an increase in fair value of $3.9 million, which is reflected on the interim condensed consolidated statements of operations for the six months ended June 30, 2019, as change in fair value of convertible note. (See Note 5 to the unaudited condensed interim consolidated financial statements). Accordingly, having satisfied the Notes in full, the Company’s obligations under the Notes have been cancelled.

In connection with the Private Financing, the Company also issued the Warrants to the Investors to acquire up to an aggregate of 1,908,144 shares of the Company’s common stock at an exercise price of $1.94 per share. The Warrants are exercisable by the Investors beginning on July 29, 2019, through the fifth year anniversary of the effective date of the Private Financing; provided, however, each Investor’s beneficial ownership of the Company’s common stock may not exceed 4.99% of the total outstanding shares of the Company’s common stock without first providing sixty days’ notice to the Company, and, in any event, the ownership, including beneficial ownership, of shares of the Company’s common stock by each of the Investors, shall not exceed 9.99% of the total outstanding shares of our common stock.

Tess Investment

As of March 28, 2018, Tess, a subsidiary of the Company, entered into a note purchase agreement with a private investor under which a convertible promissory note issued by Tess in the principal amount CAD $2.2 million (the “Tess Convertible Note”) and cash proceeds of CAD $2.2 million were placed into a third-party controlled escrow account. Upon the successful achievement of conditions defined under the escrow agreement relating to closing of a transaction between Tess and Cresval Capital Corp, (“Cresval”) whereby Tess and Cresval would merge as provided in the merger agreements and Tess would become publicly traded on the TSX-V exchange, the then-remaining cash and the Tess Convertible Note would be issued to Tess and the investor, respectively. The Tess Convertible Note was convertible at $0.10 per share of the merged entity, as defined, subject to certain adjustments.  On February 15, 2019, Cresval terminated its definitive agreement with Tess due to Tess’s inability to complete one of the specified closing conditions in the agreement.

The interim release consisted of CAD $1.0 million (USD $775,555) of cash released to Tess and an unsecured promissory note issued by Tess (“Tess Promissory Note”) released to the investor. The Tess Promissory Note bears interest at 5%, is unsecured and due in 2021. On August 23, 2018, the final release from escrow occurred. Tess received approximately USD $921,000, bringing the total Tess Promissory Note balance to approximately USD $1,696,000. During the six months ended June 30, 2019, the Company’s ownership in Tess was reduced to 9% and as a result, Tess is no longer consolidated in the Company’s unaudited interim condensed consolidated financial statements (see Note 7).

BMSS and Other Liabilities Settlements

On February 21, 2018, the Company completed an asset purchase under an agreement (the "BMSS Purchase Agreement") with BMSS, to purchase the 3,000 AntMiner S9 bitcoin mining machines owned by BMSS Equipment (the "BMSS Equipment"). Pursuant to the BMSS Purchase Agreement, the Company purchased the BMSS Equipment for aggregate consideration of Eight Million Five Hundred Thousand Dollars ($8,500,000). As of June 27, 2019, in connection with the BMSS agreement, the Company owed approximately $1,340,000 of principal and interest and the Company and BMSS agreed to a one-time settlement payment totaling $950,000. The remaining $390,000 was recorded as a gain on extinguishment of notes and interest, and included in other income in the accompanying interim consolidated statement of operations for the three and six months ended June 30, 2019.

During the six months ended June 30, 2019, the Company reached agreements with certain creditors to settle the amounts of outstanding liabilities at a discount. The computed value of the modifications as compared to the liability balances were recorded as other income from the gains on extinguishment of debt. The liabilities settled including BMSS, during the period totaled approximately $3,287,000 in exchange for cash payments of $2,479,000, resulting in a gain of $808,000 of which $729,000 was recognized in the three months ended June 30, 2019.

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Stockholders' equity

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Stockholders' equity

Note 9.  Stockholders’ equity:

Preferred Stock:

During the six months ended June 30, 2019, 8,001 shares of the Company’s Series B preferred stock were converted into 8,001 shares of the Company’s common stock.

At-the-Market Equity Offering:

The Company entered into a Sales Agreement with H.C. Wainwright dated May 24, 2019, pursuant to which the Company may, from time to time, sell up to $100 million in shares of the Company’s common stock through H. C. Wainwright, as the Company’s sales agent and/or principal, in the ATM Offering. All sales of the shares have been made pursuant to an effective shelf registration statement on Form S-3 filed with the SEC. The Company paid H.C. Wainwright a commission of approximately 3.0% of the aggregate gross proceeds the Company received from all sales of the Company's common stock under the Sales Agreement. The Company received net proceeds on sales of 6,028,301 shares of common stock under the Sales Agreement of approximately $18.9 million at a weighted average price of $3.26 (excluding commissions) during the six months ended June 30, 2019.

Restricted Stock:

During the six months ended June 30, 2019, 106,251 shares of restricted common stock related to fully vested shares of restricted stock were issued under the Company’s 2017 Equity Incentive Plan. The fully vested shares were issued to two former officers who separated from the Company in February 2019 and a former director who resigned in October of 2018 totaling 93,751 shares. The remaining 12,500 fully vested shares were issued to a consultant.

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Stock based compensation, options and warrants

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock based compensation, options and warrants

Note 10. Stock based compensation, options and warrants:

Stock based compensation:

The Company’s stock-based compensation expenses recognized during the six months ended June 30, 2019 and 2018, were attributable to selling, general and administrative expenses, which are included in the accompanying unaudited condensed interim consolidated statements of operations.

The Company recognized total stock-based compensation expense during the three and six months ended June 30, 2019 and 2018 granted under the Company’s 2017 equity incentive plan (the “Plan”), from the following categories:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Restricted stock awards under the Plan	$	115,026	$	1,432,593	$	291,570	$	2,199,542
Stock option awards under the Plan		—		175,493		58,498		292,487
Total stock-based compensation	$	115,026	$	1,608,086	$	350,068	$	2,492,029

Restricted stock:

A summary of the Company’s unvested restricted stock activity in the six months ended June 30, 2019 is presented here:

	Number of Shares			Weighted Average Grant-Date  Fair Value
Unvested at January 1, 2019		95,939		$	12.49
Vested		(37,459	)	$	8.01
Granted		24,500		$	5.11
Forfeited		(40,000	)	$	16.82
Unvested at June 30, 2019		42,980		$	7.43

During the six months ended June 30, 2019, the Company granted 24,500 shares of restricted stock to consultants. The total fair value of restricted stock granted during the six months ended June 30, 2019 was approximately $0.1 million. The fair value of each restricted stock was based upon the closing stock price on the grant date.

During the six months ended June 30, 2019, forfeitures of restricted common stock totaled 40,000, which consisted of shares forfeited due to the termination of two of the Company’s officers.

The fair value of restricted stock grants is measured based on their fair value on the date of grant and amortized over the vesting period of twelve to twenty-four months. As of June 30, 2019, there was approximately $0.3 million of unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a remaining weighted-average vesting period of approximately 5 months.

Stock incentive plan options:

A summary of activity under the Plan for the six months ended June 30, 2019 is presented below:

	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		62,000		$	15.71		9.2	$	—
Forfeited		(50,000	)	$	18.50		—		—
Outstanding at June 30, 2019		12,000		$	4.09		9.2	$	—
Exercisable at June 30, 2019		12,000		$	4.09		9.2	$	—

Aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on June 30, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on June 30, 2019.

Other common stock purchase warrants:

Following is a summary of outstanding warrants that were issued outside of the Plan for the six months ended June 30, 2019:

	Shares Underlying Options/Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		1,671,113		$	39.47		2.0	$	—
Granted		1,908,144		$	1.94		5.2	$	2,537,832
Forfeited		(5,000	)	$	7.90		—	$	—
Outstanding at June 30, 2019		3,574,257		$	19.48		3.4	$	2,289,773
Exercisable at June 30, 2019		1,928,144		$	19.48		0.7	$	—

The Company granted Warrants to purchase 1,908,144 shares of its common stock with an exercise price of $1.94, in connection with the Notes issued on January 28, 2019. (See Note 8).

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price on June 30, 2019 and the exercise price, multiplied by the number of in-the-money warrants) that would have been received by the warrant holders, had all warrant holders exercised their warrants on June 30, 2019.

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Discontinued Operations

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Note 11. Discontinued Operations:

During the quarter ended March 31, 2017, the Company made the decision to discontinue the operations of its wholly-owned subsidiary BDI. BDI had developed a proprietary Enhanced Surface Plasmon Resonance technology platform for the detection of molecular interactions. The decision to adopt this plan was made following an evaluation by the Company's Board of Directors in January 2017 of the estimated results of operations projected during the near to mid-term period for BDI, including consideration of product development required and updated sales forecasts, and estimated additional cash resources required. The Company substantially disposed of the assets and operations during 2017 by selling the assets and licensing the intellectual property rights.  The Company has recognized the exit of BDI in accordance with ASC 205-20, Discontinued Operations. As such, the historical results of BDI, following its 2016 acquisition, have been classified as discontinued operations.

The Company's historical financial statements have been revised to present the operating results of the BDI business as a discontinued operation. Liabilities related to the discontinued operations of BDI totaled approximately $16,000 in accounts payable as of June 30, 2019 and December 31, 2018, respectively.

There were no results of discontinued operations for the three and six months ended June 30, 2019. Summarized results of the discontinued operation are as follows for the three and six months ended June 30, 2018:

Revenue	$	137,000
Cost of revenue		41,000
Gross margin		96,000
Operating expenses		—
Operating income		96,000
Income from discontinued operations, net of tax	$	96,000

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Note 12. Leases:

Oklahoma Lease Agreement.

On February 27, 2018, Kairos entered into a lease agreement (the “Lease”) with 7725 Reno #1, LLC (the “Landlord”) to lease an approximately 107,600 square foot warehouse located in Oklahoma City, Oklahoma, including improvements thereon.  Under the Lease, Kairos has the right to operate from the premises on a 24 hour/seven day a week basis. The initial term of the Lease was scheduled to terminate on February 15, 2019; however the term of the Lease was extended by agreement of the parties as discussed below.

Prior to the first amendment of the Lease discussed below, the base rent for the facility was equal to $55.95/kW per month for a total of 4 Megawatts (MW) of available electrical power, or $223,800 per month. 

On March 26, 2018, Kairos entered into a first amendment to the Lease, whereby the Landlord agreed to increase the electrical power available for Kairos’s use from 6MW to 12MW, and, effective as of the date when such additional power became available for use, the base rent under the Lease was increased to approximately $664,760 per month.

Effective November 29, 2018, Kairos entered into the second amendment to the Lease which provides the following:

· extends the initial term of the Lease through August 19, 2019;

· monthly base rent of $235,000 for December 2018, $230,000 for January and $190,000 per month thereafter for the duration of the Lease, including any renewals;

· changes the monthly electricity usage charges; and

· Kairos shall have the option to renew the Lease for up to two, three-month periods after expiration of the initial term.

On May 15, 2019, the Company renewed the Lease for the first renewal term of three months, extending the lease through November 15, 2019.

Corporate Lease Agreement

On April 9, 2018, the Company entered into a commercial lease covering 1,694 rentable square feet of office space in Fort Lauderdale, Florida, with a third-party. The lease is for an initial term of thirty-nine months, with one five-year option to renew. The lease requires initial monthly rent of approximately $7,000, including base rent and associated operating expenses.

Operating Leases

At June 30, 2019, the Company had operating lease liabilities of approximately $1.0 million and right of use assets of approximately $1.0 million, which are included in the condensed interim consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases:

Lease cost	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost	$	600,593		$	1,201,185
Variable lease cost		861,282			1,637,335
Operating lease expense		1,461,875			2,838,520
Short-term lease rent expense		4,620			9,240
Total rent expense	$	1,466,495		$	2,847,760
Other information
Operating cash flows from operating leases	$	584,255		$	1,208,231
Right of use assets exchanged for new operating lease liabilities	$	558,314		$	2,105,813
Weighted-average remaining lease term – operating leases		0.5 years			0.5 years
Weighted-average discount rate – operating leases		10.00	%		10.00	%

Maturities of the Company’s operating lease liabilities, are as follows (unaudited):

For the six months ended December 31, 2019	$	883,790
For the year ended December 31, 2020		58,731
For the year ended December 31, 2021		35,040
Total	$	977,561
Less present value discount		(27,274	)
Operating lease liabilities	$	950,287

Rent expense, recorded on a straight-line basis, was approximately $1.5 million for each of the three months ended June 30, 2019 and 2018; and was approximately $2.8 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

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Commitments and contingencies

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and contingencies

Note 13.  Commitments and contingencies:

Contingencies:

The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business. The Company cannot predict the final outcome of such proceedings. 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 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. Paid expenses related to the defense of such claims are recorded by the Company as incurred and paid 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.

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.

Two additional, nearly identical complaints were subsequently filed by Richard Roys and Bruce Greenawalt in the United District States Court for the Southern District of Florida (Roys v. Riot Blockchain Inc., et al., Case No. 9:18-cv-80225) and the United States District Court for the District of Colorado (Greenawalt v. Riot Blockchain Inc., et al., Case No. 1:18-cv-00440), respectively. On March 27, 2018, the court closed the Roys case for administrative purposes. On April 2, 2018, Mr. Greenawalt filed a notice of voluntary dismissal of his action, which the court entered on the same date.

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 intend to file motions to dismiss the amended complaint on September 3, 2019. Briefing on the motions to dismiss is expected to be completed on October 22, 2019. Subject to the outcome of the pending motions, defendants intend to continue to vigorously contest Lead Plaintiff’s allegations. 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 preliminary conference, the court adjourned the conference until September 9, 2019 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, a fifth 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.

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.

SEC Subpoena and Other Matters

On April 9, 2018, the Company received a subpoena from the SEC, requesting documents and information.  The SEC has continued to request information from the Company and the Company has been fully cooperating with the SEC in that investigation.

Beneficial Ownership

Pursuant to the rules of the SEC, the Company has consistently reported its beneficial ownership positions in its proxy and other filings where beneficial ownership disclosures are presented, for certain beneficial owners with respect to any person (including any “group” as that term is used in Section 13(d)(3) of the Securities and Exchange Act of 1934 (the “Exchange Act”) who is known to the Company to be the beneficial owner of more than 5% of the Company’s common stock.  The Company has relied on each person who has reported to the SEC beneficial ownership of more than 5% of our common stock to provide complete and accurate information regarding their ownership, based on the reports filed by these persons.

On September 7, 2018, a complaint was filed by the SEC (Case 1:18-cv-08175) and as subsequently amended, (the “Complaint”) against, among others, a number of individuals and entities some of whom the Company has previously disclosed as its beneficial owners, as well as, Mr. John O’Rourke III, the Company’s former chairman of the board of directors and chief executive officer who resigned from the Company on September 8, 2018, as disclosed in the Current Periodic Report on Form 8-K filed September 10, 2018.  Other persons named in the Complaint have previously reported that they were beneficial owners of the Company’s common stock, however, the Company has no basis to determine whether any such persons may have operated as a control group, collectively beneficially owning more than 5% of the Company’s common stock.

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Tess Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Tess Related Party Transactions

Note 14.  Tess Related Party Transactions:

Tess related parties include: Powercases Inc., and 2227470 Ontario Inc., (companies that are wholly-owned by Jeffrey Mason, President and Chief Executive Officer of Tess), 1038088 Ontario Limited (a company that is wholly-owned by Fraser Mason, Chairman and Chief Financial Officer of Tess), and JLM Strategic Marketing (a proprietorship owned by Jennifer Mason, Manager Corporate Communications of Tess).

The following table provides the total amount of transactions that have been entered into with Tess related parties and outstanding balances with Tess related parties as of and for the periods identified:

	Period Ended
Services to Tess provided by (1):	June 30, 2019		June 30, 2018
Powercases Inc.	$	231,328	$	379,385
JLM Strategic Marketing	$	—	$	267,304
1038088 Ontario Limited	$	45,062	$	110,123
Payable to:		June 30, 2019		December 31, 2018
Powercases Inc.	$	—	$	37,250
JLM Strategic Marketing	$	—	$	9,483
1038088 Ontario Limited	$	—	$	52,053

(1) - 2019 amounts provided by related parties are up to the date of de-consolidation.

During the period ended June 30, 2019 (up to the point of de-consolidation) and six months ended June 30, 2018, included in Tess's recorded services from related parties was approximately $260,000 and $180,000, respectively for Tess's key management personnel salaries.

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 15.  Subsequent Events: 

Financing

During July 2019, in connection with the Company’s Sales Agreement with H.C. Wainwright, the Company received gross proceeds of approximately $2.6 million from the sale of 930,019 shares of common stock.

Preferred Stock

Subsequent to June 30, 2019, 800 shares of the Company’s Series B preferred stock were converted into 800 shares of the Company’s common stock.

Restricted Stock

Subsequent to June 30, 2019, a total of 36,500 restricted stock rights were awarded to a consultant and advisory board members. The shares vest monthly over one to two year periods.

Miner acquisitions

During June 2019, the Company initiated purchases of approximately 200 S9 and 30 L3 miners at a total cost of approximately $100,000.  These miners are expected to be operational early in the third quarter of 2019.

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Basis of presentation, summary of significant accounting policies and recent accounting pronouncements (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of presentation and principles of consolidation

Basis of presentation and principles of consolidation

The accompanying unaudited condensed interim 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 interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the unaudited condensed interim consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2019 or for any future interim period. The unaudited condensed interim consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2018 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 2, 2019.

Use of estimates

Use of estimates:

The preparation of 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 interim consolidated financial statements include estimates associated with revenue recognition, asset valuations, the useful lives and recoverability of long-lived assets, impairment analysis of intangibles and goodwill, stock-based compensation, assumptions used in estimating the fair value of convertible notes and warrants, and the valuation allowance associated with the Company’s deferred tax assets.

Sequencing

Sequencing:

On January 28, 2019, the Company adopted a sequencing policy under Accounting Standards Codification (“ASC”) 815-40-35 Derivatives and Hedging (“ASC 815”) whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities convertible or exchangeable for a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees or directors are not subject to the sequencing policy.

Notes Payable Fair Value Option

Notes Payable Fair Value Option:

As described further in Note 8 - Notes and Other Obligations, in January 2019, the Company issued Senior Secured Promissory Notes (the “Notes”) to Oasis Capital, LLC, Harbor Gates Capital, LLC and SG3 Capital, LLC (each an “Investor” and collectively, the “Investors”) in the aggregate principal amount of $3,358,333. The Company has elected the fair value option to account for these Notes due to the complexity and number of embedded features. The fair value of the Notes is classified within Level 3 of the fair value hierarchy because the fair values were estimated utilizing a Monte Carlo simulation model. Accordingly, the Company recorded these Notes at fair value with changes in fair value recorded in the statement of operations. As a result of applying the fair value option, direct costs and fees related to the Notes were recognized in earnings as incurred and were not deferred. The change in fair value of the Notes has been presented as change in value of convertible notes payable on the unaudited condensed interim consolidated statements of operations.

During the three months ended June 30, 2019, all of the Notes were converted into 1,813,500 shares of the Company’s common stock valued at their estimated fair value at the time of conversion totaling approximately $10.2 million.

Warrant Liability

Warrant Liability:

The Company issued Warrants to purchase 1,908,144 shares of its common stock in connection with the Notes issued to the Investors in January 2019, and recorded these outstanding Warrants as a liability at fair value utilizing a Monte Carlo simulation model. This liability is subject to re-measurement at each balance sheet date, and any change in fair value is recognized in the Company's condensed interim consolidated statements of operations.

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

Leases

Leases:

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842.  The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under ASC Topic 840.

Loss per share

Loss per share:

Basic net loss per share (“EPS”) of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company excludes its unvested restricted shares and escrow shares from the net loss per share calculation. The escrow shares are excluded due to their related contingencies, the inclusion of which would result in anti-dilution.

Since the Company has net losses attributable to Riot Blockchain, basic and diluted net loss per share is the same.  Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share at June 30, 2019 and 2018 because their inclusion would be anti-dilutive are as follows:

	June 30,
	2019		2018
Warrants to purchase common stock		3,574,257		1,671,113
Options to purchase common stock		12,000		150,000
Escrow shares		200,000		200,000
Unvested restricted stock awards		42,980		571,567
Convertible Series B preferred shares		4,999		703,000
Total		3,834,236		3,295,680

Recently issued and adopted accounting pronouncements

Recently issued and adopted accounting pronouncements:

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, effectively allowing entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $1.5 million.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is A Service Contract” (“ASU 2018-15”). This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted.  The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is still evaluating the prospective impact of this guidance on its future consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

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Basis of presentation, summary of significant accounting policies and recent accounting pronouncements (Tables)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Schedule of Antidilutive Securities

Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share at June 30, 2019 and 2018 because their inclusion would be anti-dilutive are as follows:

	June 30,
	2019		2018
Warrants to purchase common stock		3,574,257		1,671,113
Options to purchase common stock		12,000		150,000
Escrow shares		200,000		200,000
Unvested restricted stock awards		42,980		571,567
Convertible Series B preferred shares		4,999		703,000
Total		3,834,236		3,295,680

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Digital Currencies (Tables)

6 Months Ended

Jun. 30, 2019

Indefinite-lived Intangible Assets (Excluding Goodwill) [Abstract]

Summary of Additional Information About Digital Currencies

The following table presents additional information about digital currencies:

	June 30, 2019
		(Unaudited)
Beginning balance, January 1, 2019	$	706,625
Revenue recognized from digital currencies mined		3,848,961
Mining pool operating fees		(77,073	)
Sale of digital currencies		(3,196,310	)
Realized gain on sale of digital currencies		641,610
Ending balance	$	1,923,813

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Fair value measurements (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of Weighted Average Unobservable Inputs

A summary of weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s Notes and Warrants at the issuance date of January 28, 2019 and during the conversion of the Notes for the three months ended June 30, 2019, are as follows:

Senior Secured Promissory Notes:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	119.5%	122.2%-127.1%
Risk free interest rate	2.60%	2.07%-2.44%
Expected term	1 year	-

Warrants:

	January 28, 2019	Three months ended June 30, 2019
	(Unaudited)	(Unaudited)
Dividend yield	0%	0%
Expected price volatility	111.6%	119.9%-120.5%
Risk free interest rate	2.58%	2.23%-2.58%
Expected term	5 years	4 years, 10 months

Schedule of Changes in Level 3 Liabilities Measured at Fair Value

The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2019.

	Convertible Notes			Warrant Liability
Issuance of senior secured convertible notes	$	6,330,726		$	—
Issuance of warrants in connection with convertible notes		—			2,568,934
Balance at January 28, 2019		6,330,726			2,568,934
Change in fair value		1,644,582			2,753,228
Balance at March 31, 2019		7,975,307			5,322,162
Change in fair value		2,250,651			116,498
Conversion of convertible notes to common stock		(10,225,959	)		—
Recalssification of warrant liability to equity		—			(5,438,660	)
Balance at June 30, 2019	$	—		$	—

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Investment in Tess (Tables)

6 Months Ended

Jun. 30, 2019

Investments, All Other Investments [Abstract]

Schedule of Fair Value Shares

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

	April 10, 2019
Tess shares held by Riot Blockchain, Inc.		2,708,333
Per share fair value	$	0.03
Fair value of Tess shares held by Riot Blockchain, Inc.	$	90,174

Schedule of Deconsolidation Result

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

Current assets	$	130,432
Less:
Accounts payable		761,875
Accrued expenses		273,935
Convertible notes		1,696,083
Net liabilities		(2,601,461	)
Non-controlling interest share		1,552,848
Sub-total		(1,048,613	)
Less: fair value of shares owned by Riot Blockchain		90,174
Gain on deconsolidation of Tess	$	(1,138,787	)

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Stock based compensation, options and warrants (Tables)

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

Schedule of Recognized Stock-based Compensation

The Company recognized total stock-based compensation expense during the three and six months ended June 30, 2019 and 2018 granted under the Company’s 2017 equity incentive plan (the “Plan”), from the following categories:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Restricted stock awards under the Plan	$	115,026	$	1,432,593	$	291,570	$	2,199,542
Stock option awards under the Plan		—		175,493		58,498		292,487
Total stock-based compensation	$	115,026	$	1,608,086	$	350,068	$	2,492,029

Summary of Restricted Plan Activity

A summary of the Company’s unvested restricted stock activity in the six months ended June 30, 2019 is presented here:

	Number of Shares			Weighted Average Grant-Date  Fair Value
Unvested at January 1, 2019		95,939		$	12.49
Vested		(37,459	)	$	8.01
Granted		24,500		$	5.11
Forfeited		(40,000	)	$	16.82
Unvested at June 30, 2019		42,980		$	7.43

Summary of Stock Incentive Plan Activity

A summary of activity under the Plan for the six months ended June 30, 2019 is presented below:

	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		62,000		$	15.71		9.2	$	—
Forfeited		(50,000	)	$	18.50		—		—
Outstanding at June 30, 2019		12,000		$	4.09		9.2	$	—
Exercisable at June 30, 2019		12,000		$	4.09		9.2	$	—

Schedule of Changes in Outstanding Warrants

Following is a summary of outstanding warrants that were issued outside of the Plan for the six months ended June 30, 2019:

	Shares Underlying Options/Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual  Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		1,671,113		$	39.47		2.0	$	—
Granted		1,908,144		$	1.94		5.2	$	2,537,832
Forfeited		(5,000	)	$	7.90		—	$	—
Outstanding at June 30, 2019		3,574,257		$	19.48		3.4	$	2,289,773
Exercisable at June 30, 2019		1,928,144		$	19.48		0.7	$	—

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Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Operation and Assets and Liabilities Related to Discontinued Operations

Summarized results of the discontinued operation are as follows for the three and six months ended June 30, 2018:

Revenue	$	137,000
Cost of revenue		41,000
Gross margin		96,000
Operating expenses		—
Operating income		96,000
Income from discontinued operations, net of tax	$	96,000

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Schedule of Operating Leases

The following summarizes quantitative information about the Company’s operating leases:

Lease cost	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost	$	600,593		$	1,201,185
Variable lease cost		861,282			1,637,335
Operating lease expense		1,461,875			2,838,520
Short-term lease rent expense		4,620			9,240
Total rent expense	$	1,466,495		$	2,847,760
Other information
Operating cash flows from operating leases	$	584,255		$	1,208,231
Right of use assets exchanged for new operating lease liabilities	$	558,314		$	2,105,813
Weighted-average remaining lease term – operating leases		0.5 years			0.5 years
Weighted-average discount rate – operating leases		10.00	%		10.00	%

Schedule of Maturities of Operating Lease Liabilities

Maturities of the Company’s operating lease liabilities, are as follows (unaudited):

For the six months ended December 31, 2019	$	883,790
For the year ended December 31, 2020		58,731
For the year ended December 31, 2021		35,040
Total	$	977,561
Less present value discount		(27,274	)
Operating lease liabilities	$	950,287

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Tess Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Schedule of Tess Related Party Transactions

The following table provides the total amount of transactions that have been entered into with Tess related parties and outstanding balances with Tess related parties as of and for the periods identified:

	Period Ended
Services to Tess provided by (1):	June 30, 2019		June 30, 2018
Powercases Inc.	$	231,328	$	379,385
JLM Strategic Marketing	$	—	$	267,304
1038088 Ontario Limited	$	45,062	$	110,123
Payable to:		June 30, 2019		December 31, 2018
Powercases Inc.	$	—	$	37,250
JLM Strategic Marketing	$	—	$	9,483
1038088 Ontario Limited	$	—	$	52,053

(1) - 2019 amounts provided by related parties are up to the date of de-consolidation.

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Organization (Details)	Jun. 30, 2019
Kairos Global Technology, Inc [Member]
Number of computers acquired	8,000

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Liquidity and Financial Condition (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Jan. 28, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Cash and cash equivalents	$ 16,110,630	$ 1,654,034			$ 225,390		$ 41,651,965
Digital currencies	1,900,000
Working capital	14,600,000
Stockholders' equity	(26,137,560)	(20,667,244)	$ 8,769,373		(4,491,012)	$ (43,235,055)	$ (49,627,399)
Accumulated deficit	212,006,522				$ 197,199,197
Total investment	3,000,000
Proceeds from the sale of stock	19,671,712
Common Stock [Member] | H.C. Wainwright [Member]
Maximum amount of sales shares	100,000,000
Proceeds from the sale of stock	$ 18,900,000
Percentage of commission	3.00%
Weighted average price	$ 3.26
Senior Secured Convertible Promissory Notes [Member] | Investors [Member]
Debt instrument face amount	$ 3,358,333			$ 3,358,333

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Basis of presentation, summary of significant accounting policies (Narrative) (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jan. 28, 2019	Dec. 31, 2018
Conversion of notes into shares	1,813,500
Fair value of notes	$ 10,225,959	$ 10,225,959
Expected operating liabilities to be recorded from adoption of FASB ASU 2016-02				$ 1,500,000
Senior Secured Promissory Notes [Member]
Warrant issued			1,908,144
Senior Secured Convertible Promissory Notes [Member]
Conversion of notes into shares	1,813,500
Fair value of notes	$ 10,200,000	3,900,000
Senior Secured Convertible Promissory Notes [Member] | Investors [Member]
Debt instrument face amount	$ 3,358,333	$ 3,358,333	$ 3,358,333
Warrant issued			1,908,144

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Basis of presentation, summary of significant accounting policies (Schedule of Antidilutive Securities) (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	3,834,236	3,295,680
Warrants to purchase common stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	3,574,257	1,671,113
Option to purchase common stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	12,000	150,000
Escrow shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	200,000	200,000
Unvested restricted stock awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	42,980	571,567
Convertible Preferred Stock Series B [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares not included in the computation of EPS	4,999	703,000

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Digital Currencies (Summary of Additional Information About Digital Currencies) (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
Indefinite-lived Intangible Assets (Excluding Goodwill) [Abstract]
Beginning balance, January 1, 2019	$ 706,625
Revenue recognized from digital currencies mined	3,848,961
Mining pool operating fees	(77,073)
Sale of digital currencies	(3,196,310)
Realized gain on sale of digital currencies	641,610
Digital currencies, ending balance	$ 1,923,813

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Fair value measurements (Narrative) (Details)	3 Months Ended
	Jun. 30, 2019 shares
Fair Value Disclosures [Abstract]
Conversion of notes into shares	1,813,500

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Fair value measurements (Schedule of Weighted Average Unobservable Inputs) (Details) - Fair Value, Inputs, Level 3 [Member]	1 Months Ended	3 Months Ended
	Jan. 28, 2019	Jun. 30, 2019
Dividend yield [Member] | Warrant [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	0%	0%
Expected Price volatility [Member] | Warrant [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	111.6%	119.9%-120.5%
Risk free interest rate [Member] | Warrant [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	2.58%	2.23%-2.58%
Expected term [Member] | Warrant [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	5 years	4 years, 10 months
Senior Secured Convertible Promissory Notes [Member] | Dividend yield [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	0%	0.00
Senior Secured Convertible Promissory Notes [Member] | Expected Price volatility [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	119.5%	122.2%-127.1%
Senior Secured Convertible Promissory Notes [Member] | Risk free interest rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	2.60%	2.07%-2.44%
Senior Secured Convertible Promissory Notes [Member] | Expected term [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Weighted Average Unobservable Inputs	1 year

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Fair value measurements (Schedule of Changes in Level 3 Liabilities Measured at Fair Value) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2019	Jun. 30, 2018
Conversion of convertible notes to common stock	$ (10,225,959)		$ (10,225,959)
Recalssification of warrant liability to equity			5,438,660
Convertible Notes [Member] | Fair Value, Inputs, Level 3 [Member]
Issuance of senior secured convertible notes		$ 6,330,726
Issuance of warrants in connection with convertible notes
Balance Beginning	7,975,907	6,330,726	6,330,726
Change in fair value	2,250,651	1,644,582
Conversion of convertible notes to common stock	(10,225,959)
Recalssification of warrant liability to equity
Balance Ending		7,975,907
Warrant [Member] | Fair Value, Inputs, Level 3 [Member]
Issuance of senior secured convertible notes
Issuance of warrants in connection with convertible notes		2,568,934
Balance Beginning	5,322,162	2,568,934	2,568,934
Change in fair value	116,498	2,753,228
Conversion of convertible notes to common stock
Recalssification of warrant liability to equity	(5,438,660)
Balance Ending		$ 5,322,162

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Investment in Coinsquare (Details) - Coinsquare [Member] - USD ($)	1 Months Ended
	Sep. 30, 2017	Feb. 28, 2018
Minority interest	$ 3,000,000
Amount of Investment		$ 6,400,000
Equity investment		2,800,000
Financing amount		24,000,000
Warrant acquired cash payment		$ 3,600,000
Percentage of owned		12.00%

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Investment in Tess (Narrative) (Details) - Tess Inc [Member] - CAD ($)		12 Months Ended
	Apr. 10, 2019	Dec. 31, 2018	Oct. 31, 2017
Business Acquisition [Line Items]
Ownership acquired	9.00%		52.01%
Common Stock [Member]
Business Acquisition [Line Items]
Shares issued	23,800,000	189,000
Common Stock [Member] | Canada, Dollars [Member]
Business Acquisition [Line Items]
Shares issued, value	$ 1,200,000
Minimum [Member]
Business Acquisition [Line Items]
Ownership acquired		52.01%
Maximum [Member]
Business Acquisition [Line Items]
Ownership acquired		50.20%

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Investment in Tess (Shedule of Fair value shares) (Details) - Tess Inc [Member]	Apr. 10, 2019 USD ($) $ / shares shares
Tess shares held by Riot Blockchain, Inc. | shares	2,708,333
Per share fair value | $ / shares	$ 0.03
Fair value of Tess shares held by Riot Blockchain, Inc. | $	$ 90,174

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Investment in Tess (Schedule of Deconsolidation Result) (Details) - USD ($)		3 Months Ended		6 Months Ended
	Apr. 10, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Current assets		$ 18,366,085		$ 18,366,085		$ 2,310,549
Less:
Net liabilities		(4,829,848)		(4,829,848)		$ (9,369,316)
Gain on deconsolidation on Tess		$ 1,138,787		$ 1,138,787
Tess Inc [Member]
Current assets	$ 130,432
Less:
Accounts payable	761,875
Accrued expenses	273,935
Convertiable notes	1,696,083
Net liabilities	(2,601,461)
Non-controlling interest share	1,552,848
Sub-total	(1,048,613)
Less: Fair value of shares owned by Riot Blockchain	90,174
Gain on deconsolidation on Tess	$ (1,138,787)

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Notes and Other Obligations (Details)	1 Months Ended					3 Months Ended		6 Months Ended
	Jun. 27, 2019 USD ($)	Aug. 23, 2018 USD ($)	Aug. 23, 2018 CAD ($)	Mar. 28, 2018 CAD ($)	Feb. 21, 2018 USD ($)	Jun. 30, 2019 USD ($) shares	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) shares	Jun. 30, 2018 USD ($)	Jan. 28, 2019 USD ($) $ / shares shares	Mar. 28, 2018 $ / shares
Debt Instrument [Line Items]
Conversion of notes into shares | shares						1,813,500
Fair value of conversion of shares						$ 10,225,959		$ 10,225,959
Gain on extinguishment of debt								808,026
One time settlement amount								100,000
Other income						$ 729,154		$ 808,026
Restricted Stock [Member]
Debt Instrument [Line Items]
Issuance of common stock | shares								106,251
Senior Secured Convertible Promissory Notes [Member]
Debt Instrument [Line Items]
Interest rate										8.00%
Fair value of notes										$ 6,330,726
Upfront costs and fees								$ 358,333
Conversion of notes into shares | shares						1,813,500
Fair value of conversion of shares						$ 10,200,000		$ 3,900,000
Senior Secured Convertible Promissory Notes [Member] | Restricted Stock [Member]
Debt Instrument [Line Items]
Issuance of common stock | shares								150,000
Senior Secured Convertible Promissory Notes [Member] | Investors [Member]
Debt Instrument [Line Items]
Conversion price | $ / shares										$ 2.00
Percentage of lowest volume-weighted adjusted price of shares										80.00%
Exercise price | $ / shares										$ 1.94
Debt instrument face amount						$ 3,358,333		$ 3,358,333		$ 3,358,333
Percentage amount of shares issuable upon full conversion of Notes										300.00%
Warrant issued | shares										1,908,144
Senior Secured Convertible Promissory Notes [Member] | Investors [Member] | Maximum [Member]
Debt Instrument [Line Items]
Percentage of number of shares issuable										19.99%
Percentage of beneficial ownership of shares										9.99%
Senior Secured Convertible Promissory Notes [Member] | Investors [Member] | Minimum [Member]
Debt Instrument [Line Items]
Percentage of beneficial ownership of shares										4.99%
Senior Secured Convertible Promissory Notes [Member] | Private Financing [Member]
Debt Instrument [Line Items]
Debt instrument face amount										$ 3,000,000
Tess Inc [Member]
Debt Instrument [Line Items]
Ownership acquired						9.00%		9.00%
Tess Inc [Member] | Convertible Note [Member] | Private Placement [Member]
Debt Instrument [Line Items]
Conversion price | $ / shares											$ 0.10
Tess Inc [Member] | Convertible Note [Member] | Canada, Dollars [Member] | Private Placement [Member]
Debt Instrument [Line Items]
Proceeds from convertible debt held in escrow				$ 2,200,000
Tess Inc [Member] | Promissory Note [Member] | Private Placement [Member]
Debt Instrument [Line Items]
Notes Payable		$ 1,696,000
Cash released		$ 921,000
Interest rate		5.00%	5.00%
Proceeds from convertible debt held in escrow		$ 775,555
Tess Inc [Member] | Promissory Note [Member] | Canada, Dollars [Member] | Private Placement [Member]
Debt Instrument [Line Items]
Proceeds from convertible debt held in escrow			$ 1,000,000
Tess Inc [Member] | Third party [Member] | Convertible Note [Member] | Canada, Dollars [Member]
Debt Instrument [Line Items]
Proceeds from convertible debt held in escrow				$ 2,200,000
BMSS Purchase Agreement [Member]
Debt Instrument [Line Items]
Debt instrument face amount	$ 1,340,000
Purchase cost					$ 8,500,000
Gain on extinguishment of debt	390,000
One time settlement amount	$ 950,000
Settlement with certain creditors [Member]
Debt Instrument [Line Items]
Gain on extinguishment of debt								$ 808,000
Value of liabilities settled with certain creditors						$ 3,287,000		3,287,000
Cash payment made to settle liabilities with certain creditors								2,479,000
Other income								$ 729,000

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Stockholders' equity (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Class of Stock [Line Items]
Proceeds from the sale of stock	$ 19,671,712
Restricted Stock [Member]
Class of Stock [Line Items]
Issuance of common stock	106,251
Restricted Stock [Member] | Director [Member]
Class of Stock [Line Items]
Issuance of common stock	93,751
Restricted Stock [Member] | Consultant [Member]
Class of Stock [Line Items]
Issuance of common stock	12,500
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock converted into common shares	8,001
Series B Preferred Stock [Member] | H.C. Wainwright [Member]
Class of Stock [Line Items]
Maximum amount of sales shares	$ 100,000,000
Proceeds from the sale of stock	$ 18,900,000
Percentage of commission	3.00%
Weighted average price	$ 3.26

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Stock based compensation, options and warrants (Narrative) (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Unrecognized compensation cost	$ 300,000
Unrecognized compensation cost, period	5 months
Restricted Stock [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Fair value of restricted stock granted	$ 100,000

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Stock based compensation, options and warrants (Schedule of Recognized Stock-based Compensation) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Total stock-based compensation	$ 115,026	$ 1,608,086	$ 350,068	$ 2,492,029
Restricted Stock [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Total stock-based compensation	115,026	1,432,593	291,570	2,199,542
Stock options awards under the Plan [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Total stock-based compensation		$ 175,493	$ 58,498	$ 292,487

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Stock based compensation, options and warrants (Schedule of Restricted Stock Activity) (Details) - Restricted Stock [Member]	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Number of shares
Unvested at January 1, 2019 | shares	95,939
Vested | shares	(37,459)
Granted | shares	24,500
Forfeited | shares	(40,000)
Unvested at June 30, 2019 | shares	42,980
Weighted Average Grant Date Fair value
Unvested at January 1, 2019 | $ / shares	$ 12.49
Vested | $ / shares	8.01
Granted | $ / shares	5.11
Forfeited | $ / shares	16.82
Unvested at June 30, 2019 | $ / shares	$ 7.43

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Stock based compensation, options and warrants (Schedule of Award Activity) (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Stock Incentive Plan [Member]
Shares Underlying Options
Outstanding at January 1, 2019	62,000
Forfeited	(50,000)
Outstanding at June 30, 2019	12,000	62,000
Exercisable at June 30, 2019	12,000
Weighted Average Exercise Price
Outstanding at June 30, 2019	$ 15.71
Forfeited	18.50
Outstanding at June 30, 2019	4.09	$ 15.71
Exercisable at June 30, 2019	$ 4.09
Weighted Average Remaining Contractual Term
Outstanding at June 30, 2019	9 years 2 months 12 days	9 years 2 months 12 days
Exercisable at June 30, 2019	9 years 2 months 12 days
Aggregate Intrinsic Value
Outstanding at June 30, 2019
Outstanding at June 30, 2019
Exercisable at June 30, 2019
Other common stock purchase options and warrants [Member]
Shares Underlying Options
Outstanding at January 1, 2019	1,671,113
Granted	1,908,144
Forfeited	(5,000)
Outstanding at June 30, 2019	3,574,257	1,671,113
Exercisable at June 30, 2019	1,928,144
Weighted Average Exercise Price
Outstanding at June 30, 2019	$ 39.47
Granted	1.94
Forfeited	7.90
Outstanding at June 30, 2019	19.48	$ 39.47
Exercisable at June 30, 2019	$ 19.48
Weighted Average Remaining Contractual Term
Outstanding at June 30, 2019	5 years 2 months 12 days	2 years
Granted	3 years 4 months 24 days
Exercisable at June 30, 2019	8 months 12 days
Aggregate Intrinsic Value
Outstanding at June 30, 2019
Granted	2,537,832
Outstanding at June 30, 2019	2,289,773
Exercisable at June 30, 2019

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Discontinued Operations (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
BDI Member
Current liabilities:
Accounts payable	$ 16,000	$ 16,000

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Discontinued Operations (Schedule of Operation and Assets and Liabilities Related to Discontinued Operations) (Details) - BDI [Member]	6 Months Ended
	Jun. 30, 2018 USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenue	$ 137,000
Cost of revenue	41,000
Gross margin	96,000
Operating expenses
Operating income	96,000
Income from discontinued operations, net of tax	$ 96,000

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Leases (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Apr. 09, 2018 USD ($) ft²	Mar. 26, 2018 USD ($)	Feb. 27, 2018 USD ($) ft²
Lessee, Lease, Description [Line Items]
Operating lease liabilities	$ 1,000,000		$ 1,000,000
Right of use assets	1,000,000		1,000,000
Rent expense	1,500,000	$ 1,500,000	2,800,000	$ 1,800,000
Office Space - Fort Lauderdale, Florida [Member]
Lessee, Lease, Description [Line Items]
Area of lease | ft²					1,694
Base rent per month					$ 7,000
Lease term					39 months
Lease renewal term					5 years
Kairos Global Technology, Inc [Member]
Lessee, Lease, Description [Line Items]
Area of lease | ft²							107,600
Base rent per month	235,000		235,000			$ 664,760	$ 223,800
Monthly base rent owed for December 2018	230,000		230,000
Monthly base rent owed for all remaining periods thereafter for the duration of the lease, including any renewals	$ 190,000		$ 190,000

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Leases (Schedule of Operating Leases) (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)
Lease cost
Operating lease cost	$ 600,593	$ 1,201,185
Variable lease cost	861,282	1,637,335
Operating lease expense	1,461,875	2,838,520
Short-term lease rent expense	4,620	9,240
Total rent expense	1,466,495	2,847,760
Other information
Operating cash flows from operating leases	584,255	1,208,231
Right of use assets exchanged for new operating lease liabilities	$ 558,314	$ 2,105,813
Weighted-average remaining lease term - operating leases	10 months 25 days	10 months 25 days
Weighted-average discount rate - operating leases	10.00%	10.00%

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Leases (Schedule of Maturities of Operating Lease Liabilities) (Details)	Jun. 30, 2019 USD ($)
Leases [Abstract]
For the nine months ended December 31,2019	$ 883,790
For the year ended December 31, 2020	58,731
For the year ended December 31, 2021	35,040
Total operating lease obligation	977,561
Less present value discount	(27,274)
Operating lease liabilities	$ 950,287

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Tess Related Party Transactions (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Tess [Member]
Related Party Transaction [Line Items]
Key management personnel salaries	$ 260,000	$ 180,000

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Tess Related Party Transactions (Schedule of Tess Related Party Transactions) (Details) - USD ($)		6 Months Ended		12 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Powercases Inc [Member]
Related Party Transaction [Line Items]
Services to Tess provided by	[1]	$ 231,328	$ 379,385
Payable to				$ 37,250
JLM Strategic Marketing [Member]
Related Party Transaction [Line Items]
Services to Tess provided by	[1]		267,304
Payable to				9,483
1038088 Ontario Limited [Member]
Related Party Transaction [Line Items]
Services to Tess provided by	[1]	45,062	$ 110,123
Payable to				$ 52,053

[1] - 2019 amounts provided by related parties are up to the date of de-consolidation

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Subsequent Events (Details) - USD ($)	1 Months Ended	6 Months Ended
	Jul. 31, 2019	Jun. 30, 2019	Jun. 30, 2018
Subsequent Event [Line Items]
Proceeds from the sale of stock		$ 19,671,712
Purchase cost		$ 100,000
Restricted Stock [Member]
Subsequent Event [Line Items]
Sale of common stock		106,251
Stock granted		24,500
Series B Preferred Stock [Member]
Subsequent Event [Line Items]
Preferred stock converted into common shares		8,001
H.C. Wainwright [Member] | Common Stock [Member]
Subsequent Event [Line Items]
Proceeds from the sale of stock		$ 18,900,000
H.C. Wainwright [Member] | Series B Preferred Stock [Member]
Subsequent Event [Line Items]
Proceeds from the sale of stock		$ 18,900,000
Subsequent Event [Member] | Restricted Stock [Member] | Consultant [Member]
Subsequent Event [Line Items]
Stock granted	36,500
Subsequent Event [Member] | Series B Preferred Stock [Member]
Subsequent Event [Line Items]
Preferred stock converted into common shares	800
Subsequent Event [Member] | H.C. Wainwright [Member]
Subsequent Event [Line Items]
Proceeds from the sale of stock	$ 2,600,000
Subsequent Event [Member] | H.C. Wainwright [Member] | Common Stock [Member]
Subsequent Event [Line Items]
Sale of common stock	930,019