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Riot Blockchain, the cryptocurrency company whose stock skyrocketed after changing its name from Bioptix, announced what it called "material weaknesses" in internal control over financial reporting and an adverse auditor report in its latest annual report, filed Tuesday. The annual report filed with the Securities and Exchange Commission shows a company in the red. The company says it currently has just over $225,000 in cash compared to more than $41.6 million at year end 2017. Riot "generated approximately $7.7 million in revenue on the production of 1,081 Bitcoins … and 3,023 Litecoins for the year," according to a news release issued Tuesday on the company's 2018 financial performance. The auditor report, contained in the 10K filing, said Riot "has not maintained effective internal control over financial reporting as of December 31, 2018." The weaknesses could have had a material adverse impact on the company's operations and could result in material misstatements to the financial reports, according to the annual report. However, the issues did not affect the financial statements in the just filed annual report, according to Marcum, Riot's auditor, in their audit report. The company had problems with its information technology relating to risk mitigation, user access, and securing digital currency mining equipment and wallets, according to Marcum's audit report. Riot plans to fix the issues by end of fiscal year 2019, according to its filing.

'A concern they could get hacked'

Marcum has been Riot's auditor since late 2018. The firm replaced MNP, which was the company's auditor for slightly over a year, according to SEC filings. The financial control issue was not mentioned in the news release. Riot's CFO Robby Chang did not immediately respond to CNBC's request for comment. The SEC declined to comment. "I think it is a concern they could get hacked. That would be disastrous for a company if there is theft." Peter Henning, a professor of law at Wayne State University in Detroit, said in a phone interview. Henning was a senior attorney in the division of enforcement at the SEC. Jake Zamansky, of the securities law firm Zamansky LLC, called the issue very significant. "The internal control problems they cite go to the heart of the business," he said in a phone interview. Riot also says that an SEC subpoena received in April 2018 is an ongoing issue, according to its latest news release. "The Company has been cooperating with the SEC in that investigation," the news release said. The material weakness "may well draw even more attention from the SEC," Henning said. "When there is a subpoena, that means there is a formal investigation and the SEC can expand its investigation." Zamansky said the SEC will "absolutely" pay attention to the issue. He said the subpoena is a "major cloud hanging over [Riot's] head" Riot's annual report was delayed. The company on March 18 submitted a notification of late filing.

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