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Riot Blockchain May Be Near Bankruptcy Or A Dilutive Capital Raise

Summary

RIOT's recent operating losses appear to be out of control.

Excluding potential one-time costs RIOT is losing >1.7M per Month.

Given RIOT's burn rate, late Aug may be critical time for a cap raise.

Looking over Riot Blockchain's recent quarterly numbers (June 2018) there are a few items that stand out.

Revenue: $2.79 Mln

Cost of Rev: $1.48 Mln

SG&A: $6.42 Mln

Losses excluding all other items: $5.11 Mln

This wouldn’t necessarily be devastating if the company had a large cash balance. They seems to be growing revenue rapidly. However they don’t have much in the way of liquid assets (relative to cash burn) as detailed below:

Current Assets: $9.45 Mln

Current Liabilities: $6.57 Mln

C.A. – C.L. = $2.88 Mln

*As a side note $4.9 Mln of current assets were designated as “digital currencies.” Unfortunately since June 30th many digital currencies have dramatically declined in value. We can't calculate where this stands today as they don’t breakdown what “digital currencies” they hold and their respective proportion.

Given their operating cash burn of $1.7 Mln per month and their cash balance  of $2.88 Mln(potentially overvalued) they should have had about 1.7 months left of liquidity as of June 30th, 2018. Those results, if they continued at the same rate going forward, project that the upcoming few weeks are a potential liquidity event for Riot Blockchain.

They either need to raise money via an offering (which they filed a $100M mixed securities shelf on 7-10-2018), file for bankruptcy, or find a financing through other means(perhaps an asset sale). They may have issues raising money since they have recently (July 30th, 2018) been subpoenaed by the SEC over accounting issues.

Please refer to the following SEC filing to reference all the data presented here as well as the “SEC Subpoena” detail:

https://www.sec.gov/Archives/edgar/data/1167419/000107997318000474/riot_10q-063018.htm

Conclusion:

With little in the way of upcoming catalysts to liquefy RIOT's balance sheet, the risk/reward of being long RIOT seems skewed greatly to the downside.

Disclosure: I am/we are short RIOT.