20-F/A: Argo Blockchain Restates 2022 Financials Due to Material Weakness in Internal Controls

Argo Blockchain plc files an amendment to its 2022 annual report, restating financial statements due to a material weakness identified in internal control over financial reporting related to income tax accounting.

Summary

• Argo Blockchain plc is filing an amendment to its 2022 annual report on Form 20-F.
• The amendment restates 'Item 15. Control and Procedures' and the 'Independent Auditor's Report'.
• The company is revising its consolidated financial statements for the year ended December 31, 2022, to correct immaterial errors.
• The CEO and CFO initially concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022.
• A re-assessment identified a material weakness in internal control over financial reporting related to income tax accounting, leading to the conclusion that internal control over financial reporting was not effective as of December 31, 2022.
• The material weakness resulted in immaterial errors in the previously issued annual consolidated financial statements for the year ended December 31, 2022.
• Management concluded that these errors did not result in a material misstatement of the company's previously issued annual or interim consolidated financial statements.
• The company is implementing enhanced policies and procedures, including the use of external tax advisors, to address the identified material weakness.
• The company had 477,825,166 ordinary shares outstanding as of December 31, 2022.
• The company's independent auditor, PKF Littlejohn LLP, has issued an opinion on the consolidated financial statements.
• The company's management has identified a material weakness in internal control over financial reporting related to income tax accounting.
• The company is implementing a plan to remediate the identified material weakness.
• The company's CEO and CFO have concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022.
• The company's management is responsible for establishing and maintaining adequate internal control over financial reporting.
• The company's management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2022, based on the framework established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Sentiment

Score: 3

Explanation: The document reveals a material weakness in internal controls and a restatement of financials, indicating significant issues. While the company is taking steps to remediate the weakness, the overall tone is negative due to the identified problems and the resulting financial impact.

Positives

• The company is taking steps to remediate the identified material weakness in internal control over financial reporting.
• The company is implementing enhanced policies and procedures, including the use of external tax advisors, to address the identified material weakness.
• The company's independent auditor has issued an opinion on the consolidated financial statements.
• The company is actively working to improve its internal control over financial reporting and disclosure controls and procedures.

Negatives

• A material weakness was identified in internal control over financial reporting related to income tax accounting.
• The CEO and CFO initially deemed controls effective but a re-assessment found them ineffective as of December 31, 2022.
• The company is restating its 2022 financials due to the material weakness.
• The company's disclosure controls and procedures were not effective as of December 31, 2022.
• The company's net loss for 2022 was 185.107 million, compared to a net income of 30.765 million in 2021.
• The company's basic loss per share for 2022 was (39.1p), compared to earnings per share of 7.7p in 2021.

Risks

• The company's ability to remediate the identified material weakness in internal control over financial reporting.
• The company's ability to improve its disclosure controls and procedures.
• The company's ability to generate sufficient revenue to offset its expenses.
• The company's ability to comply with applicable laws and regulations.
• The company's ability to maintain its listing on the Nasdaq Global Select Market.
• The company's ability to continue as a going concern.

Future Outlook

The company is implementing enhanced policies and procedures to address the identified material weakness and improve its internal control over financial reporting and disclosure controls and procedures. The company's future performance is subject to various risks and uncertainties, including its ability to remediate the identified material weakness, improve its disclosure controls and procedures, generate sufficient revenue, comply with applicable laws and regulations, and maintain its listing on the Nasdaq Global Select Market.

Management Comments

• Management concluded that the errors did not result in a material misstatement of the company's previously issued annual or interim consolidated financial statements.
• Management is implementing enhanced policies and procedures, including the use of external tax advisors, to address the identified material weakness.

Industry Context

The document highlights the challenges faced by Bitcoin miners in 2022, including depressed Bitcoin prices, elevated global hashrate, and increased electricity prices. These factors significantly reduced Argo's profitability and its ability to generate free cash flow. The company's actions, such as selling the Helios facility and restructuring its debt, reflect the broader trend of consolidation and restructuring within the cryptocurrency mining industry in response to these challenges.

Comparison to Industry Standards

• Given the limited information in the document, a detailed comparison to industry standards is challenging.
• However, the identification of a material weakness in internal control over financial reporting is a serious issue that could raise concerns among investors and regulators.
• Companies like Marathon Digital Holdings, Riot Platforms, and Hut 8 Mining Corp. are key competitors in the Bitcoin mining space.
• These companies are also subject to similar industry risks, including Bitcoin price volatility, hashrate fluctuations, and energy costs.
• A comparison of Argo's financial performance and internal control environment to these peers would provide a more comprehensive assessment of its relative position within the industry.
• For example, Marathon Digital Holdings has also faced challenges related to internal controls, as disclosed in their SEC filings.
• Riot Platforms has focused on expanding its mining capacity and improving its operational efficiency.
• Hut 8 Mining Corp. has pursued a diversified strategy, including Bitcoin mining, hosting, and high-performance computing.

Management Changes

Legal Proceedings

• The company is subject to a class action lawsuit, Murphy vs Argo Blockchain plc et al, filed in the Eastern District of New York on 26 January 2023.
• The company refutes all of the allegations and believes that this class action lawsuit is without merit.
• The company is vigorously defending itself against the action.

Related Party Transactions

• Key management compensation was paid to related parties in respect of key management for employee services during the period.
• 75,955 paid to POMA Enterprises Limited in respect of fees of Matthew Shaw (Non-executive director).
• 571,931 due to Vernon Blockchain Inc in respect of fees of Peter Wall (CEO).
• Maria Perrella and Raghav Chopra (Non-executive directors) were paid 66,175 and 96,653 as at year end respectively.
• Alex Appleton (CFO) through Appleton Business Advisors Limited was paid 587,960.
• Sarah Gow was paid 33,782 as at year end.

Stakeholder Impact

• Shareholders: The restatement of financials and the identification of a material weakness in internal controls could negatively impact shareholder confidence and the company's stock price.
• Employees: The company's efforts to remediate the internal control weakness could require additional training and resources for employees.
• Customers: The company's financial performance and internal control environment could impact its ability to provide reliable services to customers.
• Suppliers: The company's financial performance could impact its ability to meet its obligations to suppliers.
• Creditors: The company's financial performance and internal control environment could impact its ability to meet its obligations to creditors.

Next Steps

• Implement enhanced policies and procedures to remediate the identified material weakness.
• Improve disclosure controls and procedures.
• Continue to evaluate and improve internal control over financial reporting and disclosure controls and procedures.
• Monitor the effectiveness of the remediation plan.
• Defend against the class action lawsuit.

Key Dates

Keywords

financial reporting, internal control, material weakness, restatement, Argo Blockchain, amendment, income tax, disclosure controls, financial statements, audit