Among a long list of other potential risk factors to the business, the report assesses the potential disruptions due to the COVID-19 pandemic.
COVID-19 will affect cryptocurrency mining business
As part of the Form 10-K a company must include information about any significant risks to its business. Riot further subdivides these risks into several sections, although interestingly lists the risks from COVID-19 as a cryptocurrency-related risk, rather than a general risk:
“Our business will be adversely impacted by the effects of the novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to the activities of our international suppliers and, potentially, our mining activities.”
The report goes on to state that the company already has and will experience further disruptions to operations, due to quarantines, self isolation and other restrictions of movement, preventing employees from performing their jobs.
According to the report, Riot has six full-time employees, with activities relying on three consultants to manage and maintain mining rigs.
Biggest risk to third-party supply chain
While the risk of the new coronavirus to six employees and a warehouse full of Antminers may be limited, the effect on third-party offices and factories, border closures and supply chains could prove more drastic.
Riot cites the fact that replacements for obsolete mining rigs or spare parts to repair existing machines may no longer be available. Company recently received 4,000 new S17 Antminer Pro machines, initially ordered at the end of last year.
Finally, the report states that a wider lockdown, including mandatory business closures, would adversely affect operations. Regulators have not designated cryptocurrency an essential industry.
Lowering expectations in advance?
COVID-19 is by far not the only risk cited by Riot in its annual report. In fact a full 18 pages of the 48-page document is devoted to risk factors.
The report also notes that the company is not profitable and has incurred losses since inception. It expects to continue incurring losses for the foreseeable future, which may increase as the company develops its business. Mining costs currently outpace mining revenues.
The report also cites previous failures of the company in the animal health and life-sciences industries, and suggests that there is no guarantee that its pivot to a cryptocurrency mining strategy will be any more successful.
Riot was one of a number of companies who took advantage of the cryptocurrency boom in 2017, by changing its name to include the word ‘blockchain’ to see its share price rocket from $8 to over $40.