In an annual report filed with the U.S. Securities and Exchange Commission, XM said the latest report from its auditors, KPMG, said its need for additional debt or equity financing "raises substantial doubt about our ability to continue as a going concern."

However, XM Chairman Gary Parsons said KPMG has raised the "going concern" issue every quarter since the company has gone public.

"Accurately, that is the situation, but it has always been the situation since the company was founded," he said.

Parsons also said the company is "comfortable with its ability to continue to fund its business in the normal course."

XM shares were down $1.95, or 13 percent at $13.05 in mid-afternoon Nasdaq trade. They were among the most active shares and the biggest percentage losers on the exchange.

XM, which provides 100 channels of digital radio, some of them commercial-free, launched its nationwide service last November, 4 years after its license was first awarded and 11 years after it first applied.

In late January, XM said it expected to have 350,000 subscribers by year's end and said it had enough cash to operate through the end of the year.

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