Riot To Issue MORE Dilutive Stock — To Settle Balance Of Obligation For Old Bitmain Antminers Purchased — From February 2018

Tonight, the boys filed an SEC Form 8-K — to disclose that the company has amended and reworked its obligation to pay $1.5 million MORE — for some of those highly impaired Bitmain Antminers, we mentioned last week.

Here is the operative bit (and a link to the full filing):

“…On August 21, 2018, the Company and BMSS entered into an waiver letter, amending the BMSS Purchase Agreement (the “Waiver”) whereby the Company and BMSS agreed to waive any and all past due amounts payable by the Company to BMSS pursuant to Section 2(b)(ii) of the BMSS Purchase Agreement. Pursuant to the Waiver, the Company agreed to pay to BMSS $150,000 on or before August 21, 2018, $200,000 on or before September 30, 2018 and on each 30 day anniversary thereafter for a total of 6 payments of $200,000 until a total of $1,350,000 has been paid. The Company will make a final payment equal to $150,000 plus accrued and unpaid interest calculated at a rate equal to 10% per year 30 days following the last payment of $200,000.

In addition to the foregoing, the Company agreed to issue to BMSS 50,000 shares of restricted common stock in connection with the Waiver within 7 days of the execution of the Waiver. In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering. The foregoing description of the Waiver does not purport to be complete and is qualified in its entirety by reference to the complete text of the Waiver, a copy of which is attached as Exhibit 10.1 to this Current Report on Form 8-K….”

So the company is issuing new equity (thus doubly diluting the existing investors) to cover the cash shortfall, here. First the boys overpaid in the first transaction, and now they are paying interest at 10 per cent, and additional stock. Hilarious.

This is all a rather stupid amendment, to what was a colossally stupid deal, in the first instance.

The intervening half-year has proved this, beyond any reasonable doubt.

Onward.

[U] A Winklevoss SRO? Hilarious. And A Week Late, A “Non-Results” Press Release On Q2 At Riot…

To the more germane topic, first: yesterday, a week late, Riot put out a press release that ostensibly described Q2 2018 results — but was bereft of all the actual financial statements. That is almost certainly because the statements are awash in a tsunami of red ink. Not good. Would scare the straights.

Whatever. The company’s Q2 SEC Form 10-Q made it all painfully plain. This is a loser.

Oh. Well.

Now — in the land of comedy — we note that the boys at right are holding a November 2018 confab, to begin to plan a self-regulatory organization for bitcoin/cyber currency ETFs.

All I can say is… good luck. It won’t improve the chances of an SEC approval until the structural defects of these markets are remedied.

Chief among these is the ability (which they are very likely to preserve) of deep in the money speculators with vast positions — like the twins at right — to manipulate these markets. I am not saying they have or will, but they certainly will be in a position to do so.

Just my $0.02.

UPDATED: 08.22.2018 @ 8 AM EDT — It is trivial, but overnight the SEC staff has granted confidential treatment to an exhibit to an October 2017 SEC Form 8-K filing by the company, based on the representation from Mr. O’Rourke that the exhibit contains confidential trade secret commercial terms.

We described that transaction right here — for sake of easy reference. It was our very first post.

Y A W N.

We will see the full exhibit in October 2020, but I expect very little of it. Primarily because the company is likely to be in Chapter 11 or Chapter 7 by then.

Onward.

Riot Has Written Off The Vast Bulk Of Its Early 2018 Bitmain Antminer Purchases, At Mid-Year…

It must be said that — in addition to paying RELATED parties for these assets, and overpaying wildly, at the very top of the market — the common stockholders have seen very little actual tangible benefit from these purchases.

To be sure, a part of that outcome is the collapse of the bitcoin spot market, but a much bigger part of it is the pure wild eyed overpayments, to related parties. Almost $27 million worth, of little more than $31 million (see page 27, et seq. of the SEC 10-Q). In sum, the boys simply burned up the shareholders’ cash.

And all in about… six months’ total elapsed time.

This company is a sub-$3 stock, very soon.

You’ve been warned.

Riot Is Essentially “Dead Stick” — But Hypes Itself Wildly — In Its Q2 2018 GAAP Losses Per Share Presser…

I won’t bother to dissect in detail the O’Rourke, et al., press release this morning, as it omits essentially all the real, tangible and factual downside of the SEC Form 10-Q, while wildly hyping the nutty pipe dreams of Messrs. Honig and O’Rourke.

Chief among these is that the company makes any actual positive “gross margin” on a mining business for which it has had to write off more than two-thirds of the asset values it previously recorded this year alone — due to entirely foreseeable declines in the carrying values of the equipment (a result of both wildly overpaying for the equipment, and the sharp declines, in bitcoin spot prices this year), married to a lack of production from the mine operations, in the blistering Oklahoma summer sunshine’s heat.

Yet here we are: the company is locked out (by the SEC Enforcement staff) from gaining access to the registered US equity and debt markets — due to an investigation by — and subpoena from — that agency, into allegedly fraudulent (non-)disclosure practices at the company, and the sale by its CEO of all his vested shares while arguably in possession of material adverse inside information, at the end of 2017.

Buckle up buttercup… it’s a down bubble from here.

No Chance Of Getting SEC Effectiveness Order — Until SEC Investigation And Subpoena Resolved.

The company’s second quarter SEC Form 10-Q just filed. More tomorrow — but this comes first.

We see these two disclosures as both new and ominous — there:

“…“The [SEC] comments raise matters related to, among other things, the unsettled nature of accounting treatment for the Company’s cryptocurrency mining and the fair value method selected by the Company (as opposed to intangible accounting methods proposed by some experts) and applicability to the Company of the Investment Company Act of 1940, particularly as relates to the Company’s minority interest in goNumerical, Inc. a/k/a Coinsquare….”

The SEC Letter states “While the Section 8(e) examination is pending, the Division of Corporation Finance will not take any further action on the Registration Statements, and all communications with regard to the Registration Statements and the Section 8(e) examination should be made to the Commission’s Division of Enforcement“….

The Company is engaged in conversations with the staff of the Division of Enforcement, Division of Investment Management and Division of Corporation Finance about their concerns and intends to cooperate fully with the examination.

Management is unable to make a meaningful estimate of the overall impact on the Company’s operations, if any, that would result from an unfavorable final determination of these matters or the investigation of the Company….”

Aside from the ballooning losses from operations, this company is living on borrowed time with its regulator. And bitcoin is swooning anew.