Investments in Marketable Equity Securities and Long-term Investments
|12 Months Ended|
Dec. 31, 2021
|Investments, All Other Investments [Abstract]|
|Investments in Marketable Equity Securities and Long-term Investments||
Note 7. Investments in Marketable Equity Securities and Long-term Investments
Investments in Marketable Equity Securities
Coinsquare and Mogo
In September 2017, and February 2018, the Company acquired a minority interest for $9.4 million in Coinsquare, which operates a digital crypto currency exchange platform in Canada. The investment resulted in an ownership in Coinsquare by the Company of approximately 11.7% ownership in Coinsquare on a fully diluted basis. The Company evaluated the guidance in ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Coinsquare. The measurement alternative at cost, less any impairment, plus or minus changes resulting from observable price changes.
During June 2020, the Company became aware of allegations brought by the Ontario Securities Commission (the “OSC”) that Coinsquare and certain of its executives and directors engaged in systematic “wash trading” of cryptocurrencies on its Coinsquare market to manipulate the market’s trading volume during 2018 and 2019.
On July 21, 2020, a hearing panel of the OSC entered an order (the “Order”) approving the settlement agreement between OSC, Coinsquare, and certain of its executives and directors (the “Settlement Agreement”), in which they admitted to breaches of Ontario securities laws and/or conduct contrary to the public interest including, market manipulation through reporting inflated trading volumes on its Coinsquare Market, misleading its clients and investors about these trading volumes, and taking reprisal against an internal whistleblower who brought this conduct to the attention of the named executives and directors. The Order requires certain oversight and governance procedures and to prohibit the named executives and directors from engaging in certain activities with respect to Coinsquare; additionally, the named executives and directors were required to resign from Coinsquare and Coinsquare and the named executives and directors were required to pay penalties and costs totaling approximately CAD 2.2 million.
The Company thereupon determined there were indicators that would cause a 100% impairment of the Coinsquare investment and observed price changes, which was recorded as of June 30, 2020. The Company therefore recorded an impairment expense of $9.4 million for its investment in Coinsquare during the year ended December 31, 2020, as reflected in the accompanying consolidated statements of operations.
During the year ended December 31, 2021, under agreements generally between Coinsquare, Coinsquare’s shareholders (including Riot) and Mogo Inc. (NASDAQ: MOGO) (“Mogo Agreement”), a digital payments and financial technology company (“Mogo”), Riot sold its 3.4 million common shares of Coinsquare (the “Coinsquare Shares”) in exchange for approximately 3.2 million common shares of Mogo (the “Mogo Shares”) and approximately US $1.8 million in cash.
During the year ended December 31, 2021, the Company recorded a gain on sale/exchange of long-term investments of $26.3 million for the sale of its shares of Coinsquare. Concurrently, in accordance with ASC 321, we recorded the fair value of the MOGO shares, received in the exchange of $24.8 million in investments in marketable equity securities within current assets on our consolidated balance sheets. The fair value was calculated as 3.2 million shares of Mogo common stock multiplied by the fair value of the Mogo shares received. During the year ended December 31, 2021, we recorded an unrealized loss on the shares of approximately $13.7 million based on the closing price per share of Mogo common stock on NASDAQ on December 31, 2021 of $3.42. The daily share price is extremely volatile and may be more or less than the amount recorded as of December 31, 2021.
In 2017, the Company acquired approximately 52% of Tess which is developing blockchain solutions for telecommunications companies. Under the terms of the Purchase Agreement (the “Purchase Agreement”) the Company invested cash of approximately $0.3 million in Tess and issued 75,000 shares of restricted Common Stock to Tess in exchange for 2,708,333 shares of common stock of Tess. The 75,000 shares of Common Stock were valued at the $8.49 market price as of October 20, 2017 for a total of approximately $0.6 million. Accordingly, Tess became a majority-owned subsidiary of the Company. As part of the transaction, the Company and Tess entered into a registration rights agreement pursuant to which the Company agreed to file a registration statement to register the resale of 25,000 shares (of 75,000 shares) of Common Stock issued to Tess. The 2017 acquisition of Tess was accounted for as a business combination in accordance with the provisions of ASC 805. The allocation of purchase consideration includes $0.7 million as in-process research and development (IPR&D) related to the TessPay project. As of December 31, 2018, the Company had $0.6 million of intangibles related to Tess’s internal technology platform.
In January 2018, following the execution of a non-binding letter of intent as of December 11, 2017, the parties executed a definitive agreement providing that Tess agreed to merge with Cresval Capital Corp. (“Cresval”) (TSX-V: CRV). Assuming closing conditions are met, upon closing of the anticipated merger, Tess would be publicly traded on the TSX Venture Exchange (the “TSXV”).
During the year ended December 31, 2018, Tess received approximately $0.5 million from the sale of shares of Riot Blockchain common stock held by Tess, which has been recorded as a credit to the consolidated Common Stock of the Company. Additionally, Tess issued approximately 189,000 of its common shares in exchange for cash proceeds of approximately $220,000 thereby reducing the investment percentage held by the Company from 52.01% to 50.2% as of December 31, 2018. Due to the termination of the Cresval Agreement on February 15, 2019, the Company recorded an impairment loss of $2.1 million consisting of $0.7 million of in process research and development costs, $0.6 million related to capitalized costs of Tess’s internal technology platform and $0.8 million of goodwill during the year ended December 31, 2018.
On April 10, 2019, Tess closed on a funding agreement under which approximately 23.8 million shares of Tess were issued for CAD $1.2 million. As a result of this and subsequent funding’s, the Company’s ownership in Tess was reduced to approximately 8.8%. Subsequently Tess was no longer being consolidated in the Company’s consolidated financial statements.
As of December 31, 2019, the Company evaluated its remaining interest in Tess under the guidance of ASU 2016-01 and determined it should remeasure its retained interest at fair value upon deconsolidation to establish a new cost basis. As of December 31, 2021 and 2020, the fair value of the Tess shares owned by the Company is approximately $0.1 million, calculated based upon the April 10, 2019 funding price as follows:
During November 2017, the Company made a $0.2 million investment in a convertible note as part of a series of notes issued by Verady, LLC (“Verady”). The notes are unsecured, subordinated to other approved liabilities, mature December 31, 2022, bear interest at 6%, unless previously repaid or converted and contain other conditions and restrictions, all as defined under the subscription documents. The Verady convertible note was previously recorded at fair value (which approximates cost). The conversion rate of the convertible note is defined based upon the possible occurrence of certain defined events which may or may not occur. The Company has no other relationship or rights associated with Verady. Founded in 2016, Verady is privately held and recently launched VeraNet, a decentralized network of financial reporting and accounting tools targeted to the needs of the cryptocurrency community.
During the year ended December 31, 2019, Verady completed a financing that under the terms of the Company’s original investment, resulted in the automatic conversion of the Company’s convertible note plus accrued interest totaling approximately $0.2 million, into equity of Verady. The 2019 automatic conversion resulted in an ownership in Verady by the Company of approximately 3.2% on a fully diluted basis. The Company has evaluated the guidance in ASU 2016-01 and elected to account for the investment using the measurement alternative as the equity securities are without a readily determinable fair value and do not give the Company significant influence over Verady. The investment is valued at cost, less any impairment, plus or minus changes resulting from observable price changes. During the year ended December 31, 2021 and 2020, there were no price changes in orderly transactions for identical or similar investments in Verady or Tess.
The entire disclosure for investment.
Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef