RIOT stock followers were a bit shocked to see the stock gaining in Wednesday’s session despite a series of bad news. Riot Blockchain, Inc.’s (NASDAQ: RIOT) stock ended higher about 12% to $4.86 on the NASDAQ. This is a bit shocking considering that the company just announced that an internal audit report has revealed material weakness in the latest annual financial report filed with SEC.
Key Issues In The Auditor Report
The company has been flagged over reports that it currently has merely ~$225, 000 in cash from over $41.6 million in 2017. Riot issued a news release on Tuesday on its 2018 financial performance which indicated that the company generated an estimated revenue of $7.7 million on the production of 3, 023 Litecoins and 1,081 Bitcoins last year. The annual financial report indicated that the cryptocurrency company did not maintain effective internal control in its financial reporting on 31 December 2018.
According to the Marcum’s audit report the company has been dealing with information-technology problems related to users’ access, risk mitigation and the securing of the wallets, and digital currency mining tool. The company plans to fix the problems by the end of 2019.
Issue Raising Concerns Of Hacking
According to Professor of law at Wayne University, Peter Henning the company failed to mention the issue because of concern that they might get hacked. In 2018 the SEC subpoenaed Riot over the material weakness issue. Henning believes that the material weakness raises eyebrows and with the subpoena, the SEC can decide to expand the investigation.
Besides the internal control issues, Riot is experiencing working capital deficiencies, considerable. The company reported a net loss of $58 million attributed to the $45.2 million stock-based compensation expenses, depreciation and noncash aggregate impairments. Equally the Oklahoma City mining facility that the company leases for $190, 000 per month and the $7,000 Florida office could also affect the company finances.
In its filing the company indicated that without working capital it will be hard to meet its operational obligation. Riot will therefore need to raise additional capital from debt or equity to fund operations. The company indicated in the latest filing that it will never return to profitability and even if it did it will be hard to sustain it in future.