The internal control was not the only issue the auditor found.
“[T]he Company has a significant working capital deficiency, has incurred significant losses, and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern,” Marcum said in an auditor’s report included in the 10k.
Riot’s cash on hand, around $225,000 could impair the company. The company leases a mining facility in Oklahoma City for $190,000 per month and an office in Florida for appoximately $7,000, according to the filing.
The company said that to continue normal operations for the next 12 months it will need to raise capital either from equity or debt.
“Without additional capital, the Company’s ability to continue to operate will be limited,” Riot said in its filing.
The annual report also raised potential concerns about Riot’s management.
“Our chief executive officer is new; loss of key members of management, or our inability to attract and retain qualified personnel could adversely affect our business,” the report said. “Our chief executive officer and our management team has limited experience.”
Riot has announced three CEOs and one interim CEO since changing its name and business plan in October 2017. The current CEO is Jeff McGonegal, who took on the role in February.
One former CEO, John O’Rourke, resigned September in the wake of unrelated allegations over what an SEC news release called “lucrative market manipulation schemes.”
A CNBC investigation in February 2018 found a number of red flags at Riot Blockchain, including annual meetings that were postponed at the last minute, sales of stock by company insiders soon after the company’s name change, dilutive share issuances on favorable terms to large investors, confusing SEC filings and evidence that a major shareholder was selling shares while everyone else was buying.
“We have made significant inroads in building a diversified portfolio of investments and to begin securing digital assets,” O’Rourke said in a letter to shareholders the day the CNBC investigation aired.
As bitcoin’s price hit record highs in late December 2017, Riot was making news on a daily basis. The company’s stock shot from $8 a share to more than $40 as investors chased the craze of all things crypto.
“[W]e may never become profitable,” Riot warned in its latest filing, as well as the prior annual report. “Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.”