Chad Everett Harris, Whinstone, Chad Harris, Chad Everett H., Riot Blockchain, former gardener, and owner of The Garden Gates, a company that reneged on numerous debts owed to customers and vendors. This thread can be found on Reddit.
Here’s RIOT’s latest 10-Q. That looks like it is seriously full of accounting tricks to report a press release with $19.3M net income when it’s really a $24M+ net loss!
I wrote down some of my guesses for their Q2 results in July. The tl;dr: is that I was generous and RIOTs numbers were mostly far worse than I guessed. Here’s how I did:
I guessed $23.5M mining revenue and -$4.9M crypto impairment for a net of $18.6M on just crypto. The 10-Q accounted for this differently by marking the revenue at price at the time they mined it rather than at the end of the quarter, and then marking down the price at the end of the quarter as additional impairment, but the result is about the same. $31.4M mining revenue and -$17.5M impairment for a net of $13.9M on just crypto. tl;dr: they did $4.7M worse than I thought.
I guessed –$10.9M electric costs or “cost of revenue”. They reported –$9.3M electric costs. I was a bit pessimistic here, but was only $1.6M off.
I guessed -$4.35M depreciation. It was -$5.7M depreciation. They did $1.3M worse than I thought.
I guessed -$5.5M general/admin, it was only $3.5M general/admin. I was $2M pessimistic here, but I guess since they didn’t add any miners in Q2 (see below) maybe these costs dropped.
Then there are the other big losses: -$17M costs associated with the acquisition. A net loss -$1.1M on their hosting business with $2.8M hosting revenue and $3.7M hosting business expenses. I didn’t consider either of these in my guesses.
So, if I was generally a tad generous and didn’t even include some of these other losses, why did I guess a -$2.15M loss when they reported a $19.3M profit?
Well, if you look at the report, page 7 of the PDF, they actually reported a $5.151M operating loss. This is even after they add in a $17.536M “change in fair value of derivative asset”. This specific line item is them essentially claiming that their power agreement that they bought as part of the Whinstone purchase has (through the magic of accounting) become worth $17.5M more. I honestly don’t understand the details of how they make this determination, it’s vaguely described. Essentially they say that they thought the Power Agreement was worth $13.9M on May 26 when they bought Whinstone and then later they decided it was worth $30.4M on June 30 – see page 34 of the PDF. So it’s paper value doubled in basically 1 month? Not an actual profit of any kind, I call this just making shit up. The term used in the 10-Q is “qualitative judgment”.
Even still a $5M paper loss so they the add in $26.26M of “other income” in the one-time sale of Coinsquare to MOGO. This sale was on-paper only, because they gained only 3.1M shares of MOGO, next to no cash. They priced these shares at $7.87/share but MOGO is already down so much since then that they have lost another $7.5M on paper with this too that isn’t in the report.
So, if you take out *only* the one-time $17.536M “qualitative judgement” accounting for Whinstone’s power agreement and the one-time $26.26M paper-only accounting for Coinsquare, you get an quarterly loss of $24.5M.
They lost money on mining. They lost money on hosting. They lost really big in Q2, but used some accounting to make it look like a profit. I wonder if the markets will notice tomorrow.
Another gem I noticed: “Through June 30, 2021, 100% of the Company’s cryptocurrency mining revenue was generated from the Coinmint Facility in New York”. In other words, they hadn’t gotten a single miner running in Whinstone until at least July. It seems my guess was right on that too.
Oh and on page 23 of the PDF, they break down the asset value of Whinstone and conclude that it was worth only $192M but they paid $460M for it. It’s written right there on p23. They also still owe Northern Data as much as another $83M, on the same page.
To be fair the market seems fine with results (by market I mean funds with professional analysts). If riot are really hiding losses they’ll be easily found out. Its a not a big company and has easy to understand accounts. Its was up after hours and up pre market as I’m typing this. Seems fine to me.
Edit: for the page 23, assets vs price paid. Doesn’t seem like a big red flag. Its pretty normal to pay over market for assets (just look at company takeovers is almost always above the stock value at the time). Its very simplistic to say the asset was worth 192m so they overpaid. Its about the future potential of the asset and what its worth to the business. As a crude example, google paid 1.6 billion for youtube and they were only generating 15m of revenue (maybe even less per month in 2006) but it was about what that asset could do for them long term. Im not analyzing this in depth and making a value judgment on this purchase (I dont know enough to be honest) but you cant simply look at the number and say they overpaid.
Sure, you are absolutely right about that. But I don’t understand why Whinstone would be the type of asset you’d overpay for by like 3x. YouTube had a userbase and a growing recognizable brand. Whinstone has a couple hosted customers sure, but it’s a few million in revenue a quarter and that’s at a loss. I don’t get the bull argument for why this would be worth such a multiple.
I also admit the market hasn’t reacted poorly. I’m surprised!
That’s funny. The highly respected investment research firm H.C. Wainwright just increased their price target from $40 to $50 this morning. I’ll follow them, thank you.
I mean, Kevin Dede (the analyst you refer to) has been setting Buy ratings for RIOT since 2018, including a $64 price target in April when the price was $53. He’s bound to be right some of the time, but he’s been wrong before too. In fact, he’s wrong 55% of the time. He’d do better flipping coins, no?
Their #s did not match your guesses??? OMG. What’s up with this trickery?
Me too. “I call this just making shit up”
The numbers do line up pretty well, they just added in a few paper-only numbers on top to make it look better. You should have taken me up on my offer though, you’d be sitting on Reddit gold this moment!
It really does seem like they are not currently mining or adding any btc, no correlation happening with btcs pump.
Disclosure: This thread can be found on Reddit. Medianista has no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. The views and opinions expressed herein are the views and opinions of the authors.
Chad Everett Harris, Whinstone US, Riot, Northern AG, accused of accounting fraud. Click here to read the article.
Chad Harris defaults on million dollar loan, click here to learn more. Be sure to read the court doc. It’s a hoot, He tries to play the victim. The judge ain’t buying it.
Chad Everett Harris owned this business while defaulting on loans and invoices. Click here to learn more.
Chad Everett Harris is a porn spammer? We believe he did that while sending email like these to the people he owed money to.