UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Q/A
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file number:
CIPHER MINING INC.
(Exact Name of Registrant as Specified in Itsits Charter)
Delaware | 85-1614529 | |
(State or incorporation or | (I.R.S. Employer Identification No.) | |
1 Vanderbilt Avenue, Floor 54, Suite C New York, New York | 10017 | |
(Address of | (Zip Code) |
Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | CIFR | The | ||
Warrants, each whole warrant exercisable for one share of | CIFRW | The |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule
Large accelerated filer | ☐ | Accelerated | ☐ | |||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||
Emerging growth company | ☒ | |||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule☒☐ No ☐
As of May 6, 2022, the registrant had 250,174,253outstanding at January 13, 2022.
Page | ||||||
PART I. | 3 | |||||
Item 1. | 3 | |||||
Condensed Consolidated Balance Sheets | 3 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||
Item 3. | 32 | |||||
Item 4. | 32 | |||||
Item 1. | 33 | |||||
Item 1A. | 33 | |||||
Item 2. | 35 | |||||
Item 3. | 35 | |||||
Item 4. | 35 | |||||
Item 5. | 35 | |||||
Item 6. | 36 | |||||
37 | ||||||
i
CAUTIONARY NOTE
This Quarterly Report on Form“we,” “us,” “Cipher Mining,” “Company” or “our company” are to Cipher Mining Inc. (formerly known as Good Works Acquisition Corp.), unlessbe covered by the context otherwise indicates.
The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the Company’s principal executive officerforward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and principal financial officerExchange Commission (the “SEC”) on March 4, 2022 *(the “2021 Form 10-K”), Part II, Item 1A, “Risk Factors” in this Quarterly Report and our future reports filed with the SEC. The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits (in Exhibits 31.1 to 32.2) to this Amendment No. 1 under Item 6Quarterly Report with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of Part II hereof.
1 does
WHERE YOU CAN FIND MORE INFORMATION
Our corporate website address is https://www.ciphermining.com/ (“Corporate Website”).The contents of, or information accessible through, our Corporate Website are not reflect or purport to reflect any information or events occurring after the original filing date or modify or update those disclosures affected by subsequent events. Accordingly,part of this Amendment No. 1 should be read in conjunction with the Original Filing and the Company’s otherQuarterly Report.
The company maintains a dedicated investor website at https://investors.ciphermining.com/investors (“Investors’ Website”) which is similarly not part of this Quarterly Report. We make our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, available free of charge on our Investors’ Website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC. Capitalized terms used but
We may use our Investors’ Website as a distribution channel of material information about the Company including through press releases, investor presentations, sustainability reports, and notices of upcoming events. We intend to utilize our Investors’ Website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD.
Any reference to our Corporate Website or Investors’ Website addresses do not defined herein shall haveconstitute incorporation by reference of the meanings ascribedinformation contained on or available through those websites, and you should not consider such information to such terms inbe a part of this Quarterly Report or any other filings we make with the Original Filing. Unless the context otherwise requires, references to “warrants” in this Amendment No. 1 refers to both the Company’s Public Warrants and the Company’s Private Placement Warrants (as defined herein).
2
PART I - I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CIPHER MINING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2021 | December 31, 2020 | |||||||
(Restated) (Unaudited) | ||||||||
Assets | ||||||||
| Cash | $ | 127,722 | $ | 1,276,364 | ||||
| Prepaid expenses | 247,593 | 297,371 | ||||||
Total current assets | 375,315 | 1,573,735 | ||||||
Cash and securities held in Trust Accoun t | 170,032,591 | 170,027,342 | ||||||
Total Assets | $ | 170,407,906 | $ | 171,601,077 | ||||
Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable and accrued expenses | $ | 918,867 | $ | 129,388 | ||||
Total current liabilities | 918,867 | 129,388 | ||||||
Warrant liability | 199,402 | 123,070 | ||||||
Total Liabilities | 1,118,269 | 252,458 | ||||||
Commitments | 0 | 0 | ||||||
| Common stock subject to possible redemption, $0.001 par value, 17,000,000 and 17,000,000 shares at June 30,2021 and December 31, 2020, respectively, at redemption value | 170,000,000 | 170,000,000 | ||||||
Stockholders’ Equity: | ||||||||
| Preferred stock, $0.001 par value; 1,000,000 shares authorized; NaN issued and outstanding | 0— | 0— | ||||||
| Common stock, $0.001 par value; 100,000,000 shares authorized; 4,478,000 and 4,478,000 shares of common stock issued and outstanding at June 30, 2021 and December 31, 2020, excluding 17,000,000 and 17,000,000 shares, respectively, subject to possible redemption | 4,478 | 4,478 | ||||||
Additional paid-in capital | 1,451,172 | 1,451,172 | ||||||
| Accumulated Deficit | (2,166,013 | ) | (107,031 | ) | ||||
Total stockholders’ equity | (710,363 | ) | 1,348,619 | |||||
Total Liabilities and Stockholders’ Equity | $ | 170,407,906 | $ | 171,601,077 | ||||
(in thousands except for share and per share amounts)
| March 31, 2022 |
|
| December 31, 2021 |
| ||
| (unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents | $ | 99,495 |
|
| $ | 209,841 |
|
Prepaid expenses |
| 11,400 |
|
|
| 13,819 |
|
Cryptocurrencies |
| 191 |
|
|
| 0 |
|
Total current assets |
| 111,086 |
|
|
| 223,660 |
|
|
|
|
|
|
| ||
Deposits on equipment |
| 207,164 |
|
|
| 114,857 |
|
Property and equipment, net |
| 15,178 |
|
|
| 5,124 |
|
Security deposits |
| 11,362 |
|
|
| 10,352 |
|
Investment in equity investee |
| 7,373 |
|
|
| - |
|
Right-of-use asset |
| 5,718 |
|
|
| - |
|
Deferred investment costs |
| - |
|
|
| 174 |
|
Total assets | $ | 357,881 |
|
| $ | 354,167 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable | $ | 1,991 |
|
| $ | 242 |
|
Accounts payable, related party |
| 3,863 |
|
|
| - |
|
Operating lease liability, current portion |
| 557 |
|
|
| - |
|
Accrued expenses |
| 3,611 |
|
|
| 257 |
|
Total current liabilities |
| 10,022 |
|
|
| 499 |
|
|
|
|
|
|
| ||
Operating lease liability, net of current portion |
| 5,276 |
|
|
| - |
|
Warrant liability |
| 89 |
|
|
| 137 |
|
Total liabilities |
| 15,387 |
|
|
| 636 |
|
|
|
|
|
|
| ||
Commitments and contingencies (Note 11) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
| ||
Preferred stock, $0.001 par value; 10,000,000 shares authorized, NaN issued and outstanding as of March 31, 2022 and December 31, 2021 |
| - |
|
|
| - |
|
Common stock, $0.001 par value, 500,000,000 shares authorized, 253,685,763 and 252,131,679 shares issued as of March 31, 2022 and December 31, 2021, respectively, and 250,174,273 and 249,279,420 shares outstanding as of March 31, 2022 and December 31, 2021, respectively |
| 254 |
|
|
| 252 |
|
Additional paid-in capital |
| 431,899 |
|
|
| 425,438 |
|
Treasury stock, at par, 3,511,490 and 2,852,259 shares at March 31, 2022 and December 31, 2021, respectively |
| (4 | ) |
|
| (3 | ) |
Accumulated deficit |
| (89,655 | ) |
|
| (72,156 | ) |
Total stockholders’ equity |
| 342,494 |
|
|
| 353,531 |
|
Total liabilities and stockholders’ equity | $ | 357,881 |
|
| $ | 354,167 |
|
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
3
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
(in thousands except for share and Six Months Ended June 30, 2021
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(As Restated) | (As Restated) | |||||||||||||||
| Operating expenses | $ | 230,534 | $ | 2,000 | $ | 462,987 | $ | 2,000 | ||||||||
Business combination expenses | 859,590 | 0— | 1,569,432 | 0— | ||||||||||||
| Loss from operations | (1,090,124 | ) | (2,000 | ) | (2,032,419 | ) | (2,000 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income | 12,113 | 0— | 49,769 | 0— | ||||||||||||
| Change in warrant liability | 34,540 | 0— | (76,332 | ) | 0— | |||||||||||
| Total other income (expense) | 46,653 | 0— | (26,563 | ) | 0— | |||||||||||
| Net loss | $ | (1,043,471 | ) | $ | (2,000 | ) | $ | (2,058,982 | ) | $ | (2,000 | ) | ||||
| Basic and diluted weighted average redeemable common shares outstanding | 17,000,000 | 0— | 17,000,000 | 0— | ||||||||||||
| Basic and diluted net loss per redeemable common share | $ | (0.05 | ) | $ | 0— | $ | (0.10 | ) | $ | 0— | ||||||
Basic and diluted weighted average non-redeemable common shares outstanding | 4,478,000 | 0— | 4,478,000 | 0— | ||||||||||||
Basic and diluted net loss per non-redeemable common share | $ | (0.05 | ) | $ | 0— | $ | (0.10 | ) | $ | 0— | ||||||
(unaudited)
| Three Months Ended March 31, 2022 |
|
| Two Months Ended March 31, 2021 |
| ||
Costs and expenses |
|
|
|
|
| ||
General and administrative | $ | 17,390 |
|
| $ | 113 |
|
Depreciation |
| 7 |
|
|
| - |
|
Impairment of cryptocurrencies |
| 4 |
|
|
| - |
|
Total costs and expenses |
| 17,401 |
|
|
| 113 |
|
Operating loss |
| (17,401 | ) |
|
| (113 | ) |
Other income |
|
|
|
|
| ||
Interest income |
| 7 |
|
|
| - |
|
Change in fair value of warrant liability |
| 48 |
|
|
| - |
|
Equity in loss of equity investment |
| (153 | ) |
|
| - |
|
Total other income |
| (98 | ) |
|
| - |
|
Net loss | $ | (17,499 | ) |
| $ | (113 | ) |
Basic and diluted net loss per share | $ | (0.07 | ) |
| $ | 0 |
|
Basic and diluted weighted average number of shares outstanding |
| 250,174,255 |
|
|
| 200,000,000 |
|
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
4
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands except for share amounts)
(unaudited)
Three Months Ended June 30,March 31, 2022
| Common Stock |
|
|
|
|
| Treasury Stock |
|
|
|
|
|
|
| |||||||||||||
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Shares |
|
| Amount |
|
| Accumulated Deficit |
|
| Total Stockholders’ Equity |
| |||||||
Balance as of December 31, 2021 |
| 252,131,679 |
|
| $ | 252 |
|
| $ | 425,438 |
|
|
| (2,852,259 | ) |
| $ | (3 | ) |
| $ | (72,156 | ) |
| $ | 353,531 |
|
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement |
| 1,554,064 |
|
|
| 2 |
|
|
| (3,053 | ) |
|
| (659,231 | ) |
|
| (1 | ) |
|
| - |
|
|
| (3,052 | ) |
Warrants exercised |
| 20 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share-based compensation |
| - |
|
|
| - |
|
|
| 9,514 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,514 |
|
Net loss |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (17,499 | ) |
|
| (17,499 | ) |
Balance as of March 31, 2022 |
| 253,685,763 |
|
| $ | 254 |
|
| $ | 431,899 |
|
|
| (3,511,490 | ) |
| $ | (4 | ) |
| $ | (89,655 | ) |
| $ | 342,494 |
|
Two Months Ended March 31, 2021
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance - December 31, 2020 | 4,478,000 | $ | 4,478 | $ | 1,451,172 | $ | (107,031 | ) | $ | 1,348,619 | ||||||||||
| Net loss | — | 0— | 0— | (1,015,511 | ) | (1,015,511 | ) | |||||||||||||
Balance - March 31, 2021 | 4,478,000 | 4,478 | 1,451,172 | (1,122,542 | ) | 333,108 | ||||||||||||||
| Net loss | — | 0— | 0— | (1,043,471 | ) | (1,043,471 | ) | |||||||||||||
Balance - June 30, 2021 | $ | 4,478,000 | $ | 4,478 | $ | 1,451,172 | $ | (2,166,013 | ) | $ | (710,363 | ) | ||||||||
The | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, | ||||||||
2021 | 2020 | |||||||
(As Restated) | ||||||||
Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,058,982 | ) | $ | (2,000 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Change in warrant liability | 76,332 | 00 | ||||||
| Interest earned on cash and marketable securities held in Trust Account | (5,249 | ) | 0 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 49,778 | $ | (23,000 | ) | ||||
| Accounts payable and accrued expenses | 789,479 | 50,000 | ||||||
| Net cash (used in) provided by operating activities | (1,148,642 | ) | 25,000 | |||||
| Net change in cash | (1,148,642 | ) | 25,000 | |||||
Cash, beginning of the period | 1,276,364 | 0 | ||||||
Cash, end of period | $ | 127,722 | $ | 25,000 | ||||
(in thousands)
(unaudited)
| Three Months Ended March 31, 2022 |
|
| Two Months Ended March 31, 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net loss | $ | (17,499 | ) |
| $ | (113 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
| ||
Depreciation |
| 7 |
|
|
| - |
|
Amortization of right-of-use assets |
| 140 |
|
|
| - |
|
Change in fair value of warrant liability |
| (48 | ) |
|
| - |
|
Share-based compensation |
| 9,514 |
|
|
| - |
|
Equity in earnings (loss) of equity investment |
| 153 |
|
|
| - |
|
Impairment of cryptocurrencies |
| 4 |
|
|
| - |
|
Changes in assets and liabilities: |
|
|
|
|
| ||
Prepaid expenses |
| 2,288 |
|
|
| - |
|
Security deposits |
| (1,010 | ) |
|
| - |
|
Accounts payable |
| 120 |
|
|
| 67 |
|
Accounts payable, related party |
| - |
|
|
| 2 |
|
Accrued expenses |
| 2,904 |
|
|
| (1 | ) |
Lease liability |
| 106 |
|
|
| - |
|
Net cash used in operating activities |
| (3,321 | ) |
|
| (45 | ) |
Cash flows from investing activities |
|
|
|
|
| ||
Deposits on equipment |
| (96,914 | ) |
|
| - |
|
Purchases of property and equipment |
| (7,059 | ) |
|
| - |
|
Net cash used in investing activities |
| (103,973 | ) |
|
| - |
|
Cash flows from financing activities |
|
|
|
|
| ||
Proceeds from borrowings on related party loan |
| - |
|
|
| 100 |
|
Repurchase of common shares to pay employee withholding taxes |
| (3,052 | ) |
|
| - |
|
Net cash (used in) provided by financing activities |
| (3,052 | ) |
|
| 100 |
|
Net (decrease) increase in cash and cash equivalents |
| (110,346 | ) |
|
| 55 |
|
Cash and cash equivalents, beginning of the period |
| 209,841 |
|
|
| - |
|
Cash and cash equivalents, end of the period | $ | 99,495 |
|
| $ | 55 |
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
| ||
Cash paid for interest | $ | - |
|
| $ | - |
|
Cash paid for income taxes, net | $ | - |
|
| $ | - |
|
Supplemental disclosure of noncash investing and financing activities |
|
|
|
|
| ||
Equity method investment acquired for non-cash consideration | $ | 7,118 |
|
| $ | - |
|
Right-of-use asset obtained in exchange for operating lease liability | $ | 5,859 |
|
| $ | - |
|
Deposits on equipment in accounts payable, related party | $ | 2,506 |
|
| $ | - |
|
Property and equipment purchases in accounts payable | $ | 1,624 |
|
| $ | 3 |
|
Property and equipment purchases in accounts payable, related party | $ | 1,357 |
|
| $ | - |
|
Investment in equity investee in accrued expenses | $ | 428 |
|
| $ | - |
|
Cryptocurrencies received from equity method investment | $ | 195 |
|
| $ | - |
|
Reclassification of deferred investment costs to equity method investment | $ | 174 |
|
| $ | - |
|
Property and equipment purchases in accrued expenses | $ | 22 |
|
| $ | - |
|
Deposits on equipment in accounts payable | $ | 5 |
|
| $ | - |
|
Deferred offering costs included in accrued expenses | $ | - |
|
| $ | 1,525 |
|
Deferred offering costs included in accounts payable | $ | - |
|
| $ | 98 |
|
Deferred investment costs included in accrued expenses | $ | - |
|
| $ | 97 |
|
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
6
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND BUSINESS
Organization and Business Operations
On August 27, 2021 (the “Closing Date”), Good Works Acquisition Corp. until August 27, 2021) (the “Company”(“GWAC”) was incorporated in Delaware on June 24, 2020. The Company is, a blank checkspecial purpose acquisition company, formed forconsummated the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (the “Business Combination”).
Pursuant to the terms of the Merger Agreement, and the transactions contemplated thereby were approved by the boards of directors of each of Good Works and Cipher.
Business
The Company is subject to certain closing conditions, including, but not limited to, (i)an emerging technology company that operates in the expiration or terminationBitcoin mining ecosystem in the United States. Specifically, the Company is developing and growing a cryptocurrency mining business specializing in Bitcoin. As a stand-alone, U.S.-based cryptocurrency mining business, the Company has begun its buildout of cryptocurrency mining sites in the United States that will include both wholly-owned sites and partially-owned sites acquired through investments in joint ventures. The Company began deployment of capacity in the first quarter of 2022, with mining operations beginning at the Alborz facility, located in Texas, in February 2022. See additional information about the Alborz facility in Note 8.
Cipher Mining Technologies was established on January 7, 2021, in Delaware, by Bitfury Top Holdco B.V. and its subsidiaries (“Bitfury Top Holdco” and, with its subsidiaries, the “Bitfury Group”), a global full-service blockchain and technology specialist and one of the applicable waiting period underleading private infrastructure providers in the HSR Act, (ii)blockchain ecosystem. Bitfury Top HoldCo (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owned approximately 82.3% and 83.4% of the approvalCompany’s common stock as of Good Works stockholders, (iii) the approvalMarch 31, 2022 and upon completion of Cipher’s stockholders and (iv) the Registration Statement (as defined below) becoming effective.
Risks and uncertainties
Liquidity and capital resources and limited business history
The Company incurred a net loss of $17.5 million and negative cash flows from operations of $3.3 million for the Merger Agreement) to be bound asthree months ended March 31, 2022. As of March 31, 2022, the closing,Company had approximate balances of cash and (iii) deliverycash equivalents of all ancillary agreements required to be executed$99.5 million, working capital of $101.1 million, total stockholders’ equity of $342.5 million and delivered by Cipher or its sole stockholder and (iv) no Material Adverse Effect (as definedan accumulated deficit of $89.7 million. To date, the Company has, in large part, relied on proceeds from the Merger Agreement) shall have occurred.
There is limited historical financial information about the Company upon which to base an evaluation of its execution performance and the Company has not generated any revenues from its business to date. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration and/or the terminationdevelopment, and possible cost overruns due to price and cost increases in services. Management of the Master Services and Supply Agreement (the “MSSA”) between Bitfury Holding B.V. (“BHBV”) and Cipher. Concurrently with the executionCompany has no current intention of the Merger Agreement, BHBV and Good Works enteredentering into a Restrictive Covenant Agreement pursuantmerger or acquisition within the next 12 months and has a specific business plan and timetable to which BHBV agreed, during the termcomplete its 12-month plan of the agreement and subject to the parameters and limitations set forthoperation. The Company is in the agreement, not to hire or solicit Cipher Mining Inc.’s employees, not to compete with Cipher Mining Inc.process of an active operational buildout and not to disparage Cipher Mining Inc.. The agreement will terminate upon the earlier of seven years from the date of its execution or the termination of the MSSA.
7
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
advancements, competitive dynamics or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
COVID-19
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the outbreak and global spread of the coronavirus (“COVID-19”). The COVID-19 pandemic that was declared on March 11, 2020 has caused significant economic dislocation in the United States and globally as governments, including the United States, introduced measures aimed at preventing the spread of COVID-19. The spread of COVID-19 and the imposition of related public health measures have resulted in, and are expected to continue to result in, increased volatility and uncertainty in the cryptocurrency space. Any severe or prolonged economic downturn, as result of the COVID-19 pandemic or otherwise, could result in a going concern within one year aftervariety of risks to our business and we cannot anticipate all the date thatways in which the current economic climate and financial statementsmarket conditions could adversely impact our business.
We may experience disruptions to our business operations resulting from supply interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of our employees or our counterparties to perform their jobs. We may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, we had to temporarily shut down the construction at our Alborz site in response to employees being impacted by COVID-19. The temporary shut down was less than a week, and we resumed the construction at the site immediately after. If we are issued. Thereunable to effectively set up and service our miners, our ability to mine Bitcoin will be adversely affected. The future impact of the COVID-19 pandemic is still highly uncertain and there is no assurance that the Company’s plans to raise capitalCOVID-19 pandemic or to consummate a Business Combinationany other pandemic, or other unfavorable global economic, business or political conditions, will be successful within the Combination Period. Thenot materially and adversely affect our business, prospects, financial statements do not include any adjustments that might result from the outcome of this uncertainty.condition, and operating results.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation (Restated)
The accompanyingCompany prepares its unaudited condensed consolidated financial statements are presented in conformityaccordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the FASB and pursuant to the accounting and disclosure rules and regulations of the SEC,Securities and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the financial position as of March 31, 2021 and the results of operations and cash flows for the period presented and should be read in conjunction with the Company’s final prospectus for its Initial Public Offering as filed with the SEC on October 20, 2020, the Company’s annual report on Form
The interim results for the period ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future periods.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
8
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Unaudited interim condensed consolidated financial statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments, which consist of only normal recurring adjustments necessary for the fair presentation of the balances and results for the periods presented. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.
A description of the Company’s significant accounting policies in included in the Company’s 2021 Form 10-K. You should read the unaudited interim condensed consolidated financial statements in conjunction with the Company’s audited consolidated financial statements and accompanying notes in the Company’s 2021 Form 10-K. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the Company’s audited consolidated financial statements included in the Company’s 2021 Form 10-K.
Change in fiscal year
Cipher Mining Technologies assumed GWAC’s financial calendar for the combined entity with the third fiscal quarter ending September 30 and its fiscal year ending December 31. This change to the fiscal year end was approved by the Company’s board of directors (“Board”) on September 23, 2021. Cipher Mining Technologies’ fiscal year previously ended on January 31.
The Company’s investment is subsequently adjusted to recognize the Company’s share of net income or losses as they occur. The Company also adjusts its investment upon receipt of cryptocurrency from the equity investee, which is accounted for as a distribution-in-kind. The Company’s share of investee earnings or losses is recorded, net of taxes, within earnings (losses) of equity method investment in the unaudited condensed consolidated statements of operations. Additionally, the Company’s interest in the net assets of its equity method investee is reflected in the unaudited condensed consolidated balance sheets. If, upon the contribution of nonfinancial assets to the joint venture from Cipher, there is any difference between the cost of the investment and the amount of the underlying equity in the net assets of an investee, the difference is required to be accounted for as if the investee were a consolidated subsidiary. If the difference is assigned to depreciable or amortizable assets or liabilities, then the difference should be amortized or accreted in connection with the equity earnings based on the Company’s proportionate share of the investee’s net income or loss. If the investor is unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.
The Company considers all short-term investments with an original maturitywhether the fair value of three monthsits equity method investment has declined below its carrying value whenever adverse events or less when purchased tochanges in circumstances indicate that recorded values may not be cash equivalents. The Company did not have any cash equivalents as of June 30, 2021 or December 31, 2020.
Property and equipment, net
Property and equipment consists primarily of construction-in-progress at one of the Company’s planned sites in Texas, as well as office and computer equipment, software that is being developed for internal use and several miners obtained for testing purposes. Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are
9
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
calculated using the straight-line method over the estimated useful lives of the assets, which is generally three years for office and computer-related assets and five years for miners. Construction-in-progress consists primarily of leasehold improvements at one of the Texas sites which, when placed into service, will be depreciated in accordance with the lease term of five years.
Property and equipment, net consisted of the following (amounts in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Office and computer equipment |
| $ | 84 |
|
| $ | 60 |
|
Software |
|
| 164 |
|
|
| - |
|
Miners and mining equipment |
|
| 26 |
|
|
| - |
|
Construction-in-progress |
|
| 14,916 |
|
|
| 5,069 |
|
Total cost of property and equipment |
|
| 15,190 |
|
|
| 5,129 |
|
Less: accumulated depreciation |
|
| (12 | ) |
|
| (5 | ) |
Property and equipment, net |
| $ | 15,178 |
|
| $ | 5,124 |
|
Depreciation expense was immaterial during the three months ended March 31, 2022 and the two months ended March 31, 2021.
Capitalized software costs
The impairment is charged to earnings and a new cost basisCompany accounts for the security is established. To determine whether an impairment is other than temporary,costs of software developed for internal use by capitalizing costs incurred during the application development stage to property and equipment, net on the unaudited condensed consolidated balance sheets. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. The Company considers whether it hasplans to amortize the ability and intent to hold the investment untilcapitalized costs of internal-use software on a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of the impairment, changes in value subsequent toyear-end,forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
Leases
The Company accounts for leases in accordance with ASC 842, “Leases”. Accordingly, the Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.
A lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability will also be recorded, adjusted for any accrued or prepaid rents and/or unamortized initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. ROU assets will be reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an adjustment to yield usingasset may not be recoverable.
For the effective-interest method. Such amortizationCompany’s operating leases, fixed lease payments will be recognized as lease expense on a straight-line basis over the lease term. Variable lease costs are expensed as incurred and accretion isare not included in the “interest income” line itemmeasurement of ROU assets and lease liabilities.
The Leases standard provides practical expedients for an entity’s ongoing accounting. The Company has elected the practical expedient not to separate lease and non-lease components for all leases, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of our lease components for balance sheet purposes.
The Company entered into a series of agreements with affiliates of Luminant ET Services Company LLC (“Luminant”), including the Lease Agreement dated June 29, 2021, with amendment and restatement on July 9, 2021 (as amended and restated, the “Luminant Lease Agreement”). Once the Luminant Lease Agreement is effective and the Company has control over the applicable leased asset,
10
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the Company will record both a ROU asset and a corresponding lease liability in accordance with ASC 842 for each lease component as applicable under the agreements.
Cryptocurrencies
Cryptocurrencies, including Bitcoin, are included in current assets on the consolidated statement of operations. Interest income is recognized when earned.
Cryptocurrencies will be accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the methods used to measureindefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, andwhich is measured using the expanded disclosures aboutquoted price of the cryptocurrency at the time its fair value measurements. Fair value is being measured. In testing for impairment, the priceCompany has the option to first perform a qualitative assessment to determine whether it is more likely than not that would be receivedan impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to sell an asset or paidperform a quantitative impairment test. The Company has elected to transfer a liability in an orderly transaction betweenbypass the buyeroptional qualitative impairment assessment and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC 820 establishes a fair value hierarchywill track its cryptocurrency activity daily for inputs, which representimpairment assessment purposes. The Company determines the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
Cryptocurrencies awarded to the Company through its mining activities will be included as an adjustment to reconcile net income to cash used in operating activities in the consolidated balance sheetstatements of cash flows. The receipt of cryptocurrency as distributions-in-kind from equity investees and sales, if any, of June 30,cryptocurrencies are included within investing activities in the consolidated statements of cash flows and any realized gains or losses from such sales will be included in operating income (loss), net in the consolidated statements of operations. The Company will account for its sale of cryptocurrencies in accordance with the first in first out (“FIFO”) method of accounting.
Recently issued and adopted accounting pronouncements
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. The new guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance on January 1, 2022 with no impact to the Company’s consolidated financial statements upon adoption.
In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)”. ASU 2021-04 reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. ASU 2021-04 was effective for the Company on January 1, 2022 and there was no impact on the Company’s financial statements or disclosures upon adoption.
11
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.
NOTE 3. FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities subject to fair value measurement on a recurring basis and the balance sheetlevel of inputs used for such measurements were as of December 31, 2020. The fairfollows (amounts in thousands):
|
| Fair Value Measured as of March 31, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market securities |
| $ | 71,011 |
|
| $ | - |
|
| $ | - |
|
| $ | 71,011 |
|
|
| $ | 71,011 |
|
| $ | - |
|
| $ | - |
|
| $ | 71,011 |
|
Liabilities included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrant liability |
| $ | - |
|
| $ | - |
|
| $ | 89 |
|
| $ | 89 |
|
|
| $ | - |
|
| $ | - |
|
| $ | 89 |
|
| $ | 89 |
|
|
| Fair Value Measured as of December 31, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market securities |
| $ | 101,004 |
|
| $ | - |
|
| $ | - |
|
| $ | 101,004 |
|
|
| $ | 101,004 |
|
| $ | - |
|
| $ | - |
|
| $ | 101,004 |
|
Liabilities included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrant liability |
| $ | - |
|
| $ | - |
|
| $ | 137 |
|
| $ | 137 |
|
|
| $ | - |
|
| $ | - |
|
| $ | 137 |
|
| $ | 137 |
|
Fair values of cash and cash equivalents, prepaid assets,expenses, accounts payable and accrued expenses are estimated to approximate the carrying values as of June 30, 2021 and December 31, 2020recorded value due to the short maturitiesshort-term nature of such instruments.
Fair Value Measured as of June 30, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
| U.S. Money Market held in Trust Account | $ | 170,032,591 | $ | 0— | $ | 0— | $ | 170,032,591 | ||||||||
| $ | 170,032,591 | $ | 0— | $ | 0— | $ | 170,032,591 | |||||||||
Fair Value Measured as of June 30, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
| Private stock warrant liabilities | $ | 0— | $ | 0— | $ | 199,402 | $ | 199,402 | ||||||||
| $ | 0— | $ | 0— | $ | 199,402 | $ | 199,402 | |||||||||
Fair Value Measured as of December 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
| U.S. Money Market held in Trust Account | $ | 203 | $ | 0— | $ | 0— | $ | 203 | ||||||||
| U.S. Treasury Securities held in Trust Account | 170,027,139 | 0— | 0— | 170,027,139 | ||||||||||||
| $ | 170,027,342 | $ | 0— | $ | 0— | $ | 170,027,342 | |||||||||
Liabilities: | ||||||||||||||||
| Private stock warrant liabilities | $ | 0— | $ | 0— | $ | 123,070 | $ | 123,070 | ||||||||
| $ | 0— | $ | 0— | $ | 123,070 | $ | 123,070 | |||||||||
The valuation of the Private Placement Warrants uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as of each reporting period. Changes inadditional data impacting the assumptions and estimates are obtained.
The Company engaged a valuation firm to determine the fair value of the Private Placement Warrants are recorded inusing a Black-Scholes option-pricing model and the statement of operations each period.
As of December 31, 2020 | As of June 30 2021 | |||||||
| Exercise price | $ | 11.50 | $ | 11.50 | ||||
| Stock price | 9.95 | 9.95 | ||||||
| Volatility | 18.40 | % | 23.8 | % | ||||
| Probability of completing a business combination | 88.30 | % | 90 | % | ||||
| Term | 5.42 | 5.17 | ||||||
| Risk-free rate | 0.42 | % | 0.90 | % | ||||
| Dividend yield | 0.00 | % | 0.00 | % | ||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Risk-free rate |
|
| 2.40 | % |
|
| 1.20 | % |
Dividend yield rate |
|
| 0.00 | % |
|
| 0.00 | % |
Volatility |
|
| 60.0 | % |
|
| 58.8 | % |
Contractual term (in years) |
|
| 4.41 |
|
|
| 4.65 |
|
Exercise price |
| $ | 11.50 |
|
| $ | 11.50 |
|
The following table presents changes in the fair value of the Private Placement Warrants a Level 3 liability, measured on a recurring basis.for the three months ended March 31, 2022 (amounts in thousands):
Balance, January 1, 2022 |
| $ | 137 |
|
Change in fair value |
|
| (48 | ) |
Balance, March 31, 2022 |
| $ | 89 |
|
12
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Warrant liabilities at January 1, 2021 | $ | 123,070 | ||
| Change in fair value of warrant liabilities | 110,872 | |||
| Warrant liabilities at March 31, 2021 | $ | 233,942 | ||
| Change in fair value of warrant liabilities | (34,540 | ) | ||
| Warrant liabilities at June 30, 2021 | $ | 199,402 | ||
NOTE 4. PREPAID EXPENSES AND ACCRUED EXPENSES
As of the Private Warrants is included in change in warrant liability on the statement of operations.
The Company’s accrued expenses consisted of the following (amounts in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Legal |
| $ | 1,279 |
|
| $ | 100 |
|
Taxes |
|
| 1,823 |
|
|
| 0 |
|
Consulting |
|
| 280 |
|
|
| 0 |
|
Accounting and audit |
|
| 110 |
|
|
| 153 |
|
Other |
|
| 119 |
|
|
| 4 |
|
Total accrued expenses |
| $ | 3,611 |
|
| $ | 257 |
|
NOTE 5. CRYPTOCURRENCIES
The following table presents information about the Company’s cryptocurrencies (Bitcoin) (amounts in thousands):
Balance, January 1, 2022 |
| $ | 0 |
|
Cryptocurrencies received from equity investee |
|
| 195 |
|
Impairment of cryptocurrencies |
|
| (4 | ) |
Balance, March 31, 2022 |
| $ | 191 |
|
The Company’s cryptocurrency activity for the three months ended March 31, 2022 was all from Bitcoin. The Company had no cryptocurrency activity during the two months ended March 31, 2021.
During the three months ended March 31, 2022, the Company recorded immaterial impairment charges on it’s cryptocurrency holdings as shown in the table above.
NOTE 6. DEPOSITS ON EQUIPMENT
As of March 31, 2022, the Company had outstanding executed purchase agreements for the purchase of (1) 26,000 Antminer S19j Pro (100 TH/s) miners from Bitmain Technologies Limited (“Bitmain”) and (2) 60,000 MicroBT M30S, M30S+ and M30S++ miners from SuperAcme Technology (Hong Kong) Limited (“SuperAcme”). All of the miners to be acquired under the purchase agreements with Bitmain and SuperAcme are scheduled to be delivered through December 2022.
The Company also has an agreement for the purchase of between 28,000 to 56,000 mining rigs from Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement between the Company and Bitfury Top HoldCo dated August 26, 2021. The agreement is a non-binding commitment unless and until confirmed by a mutually executed order confirmation. Based on the Company’s latest market assessments, management does not experienced lossesanticipate entering into any such order confirmations. Additionally, the Company also entered into two agreements with Bitfury USA Inc., a subsidiary of Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement, to purchase a total of 200 units of BlockBox air-cooled containers (each a “BBAC”), the modular data centers that house mining machines. The delivery of those containers commenced in the first quarter of 2022 and is anticipated to be completed in 2022, as expected. See Note 9 for more information on this accountthe Master Services and management believesSupply Agreement.
The purchase agreement commitments, deposits paid and expected delivery timing (remaining balances are payable in advance of shipping) are summarized below as of March 31, 2022 (amounts in thousands):
13
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Vendor |
| Agreement Date |
| Original Maximum Purchase Commitment* |
|
| Open Purchase Commitment |
|
| Deposits Paid |
|
| Expected Shipping for Open Purchase Commitments | |||
Bitmain Technologies Limited** |
| August 20, 2021 and August 30, 2021 |
| $ | 171,135 |
|
| $ | 164,590 |
|
| $ | 107,879 |
|
| April 2022 - September 2022 |
SuperAcme Technology (Hong Kong)**/**** |
| September 2, 2021 |
|
| 222,401 |
|
|
| 222,401 |
|
|
| 59,307 |
|
| July 2022 - December 2022 |
Bitfury Top HoldCo B.V. |
| October 11, 2021 |
| *** |
|
| *** |
|
|
| 10,000 |
|
| *** | ||
Bitfury USA Inc. and other vendors (primarily for BBACs) |
| Various |
|
|
|
|
| 47,775 |
|
|
| 29,978 |
|
|
| |
Total |
|
|
|
|
|
| $ | 434,765 |
|
| $ | 207,164 |
|
|
| |
__________
* Maximum purchase commitment does not consider discounts that the Company may qualify for with the respective vendors, which could reduce the total cost of the miner.
** Pursuant to the Company's agreements with Bitmain and SuperAcme, the Company is not exposedresponsible for all logistics costs related to significant risks ontransportation, packaging for transportation and insurance related to the delivery of the miners.
*** As of March 31, 2022, there were no mutually executed order confirmations and as such, account.
**** See Note 16 regarding execution of an amended agreement with SuperAcme.
During the three months ended March 31, 2022, the Company received 970 Antminer model S19j Pro-A miners related to fair value at each reporting period. The liabilities are subjectits purchase agreement with Bitmain, which were contributed tore-measurementat each balance sheet date until exercised, and any change in fair value is recognized the Alborz facility as part of the Company’s investment in the Company’s statementjoint venture. See additional information in Note 8.
NOTE 7. SECURITY DEPOSITS
Security deposits as of operations. The fair valuethe dates indicated, are shown in the table below (amounts in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Luminant Power Purchase Agreement Independent Collateral Amount (see Note 9) |
| $ | 6,277 |
|
| $ | 6,277 |
|
Luminant Purchase and Sale Agreement collateral (see Note 9) |
|
| 3,063 |
|
|
| 3,063 |
|
Office lease security deposit |
|
| 922 |
|
|
| 922 |
|
Other deposits |
|
| 1,100 |
|
|
| 90 |
|
Total security deposits |
| $ | 11,362 |
|
| $ | 10,352 |
|
NOTE 8. INVESTMENT IN EQUITY INVESTEE
On June 10, 2021, the Company and WindHQ, LLC (“WindHQ”) signed a binding definitive framework agreement with respect to the construction, buildout, deployment and operation of warrants issuedone or more data centers (“Data Centers”) in the United States (the “WindHQ Joint Venture Agreement”). See additional information regarding the WindHQ Joint Venture Agreement in Note 11.
On January 28, 2022, in connection with our private placement was initiallythe WindHQ Joint Venture Agreement, Cipher Mining Technologies and subsequently remeasured at fair value usingAlborz Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Black Sholes method.
The Company uses the equity method of accounting to account for its 49% equity interest in Alborz LLC. The Company contributed a total of $7.5 million of miners and mining equipment to Alborz LLC during the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented asnon-operatingexpenses in the statementthree months ended March 31, 2022. The Company also reclassified approximately $0.2 million of operations. Offeringlegal costs associated with the common stock issued were charged againstjoint venture formation to investment in equity investee
14
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
during the carrying value of the Public Shares upon the completion of the Initial Public Offering.three months ended March 31, 2022. The Company classifies deferred underwriting commissionsrecognized approximately $0.2 million asnon-currentliabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
For the Three Months | For the Six Months | |||||||||||||||
ended June 30, 2021 | ended June 30, 2021 | |||||||||||||||
Redeemable | Non-redeemable | Redeemable | Non-redeemable | |||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
| Allocation of net loss | $ | (825,915 | ) | $ | (217,556 | ) | $ | (1,629,700 | ) | $ | (429,282 | ) | ||||
Denominator: | ||||||||||||||||
| Basic and diluted weighted average shares outstanding | 17,000,000 | 4,478,000 | 17,000,000 | 4,478,000 | ||||||||||||
| Basic and diluted net loss per share | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.10 | ) | $ | (0.10 | ) | ||||
As Previously Reported | Adjustment | As Restated | ||||||||||
Balance - December 31, 2020 (Restated) | $ | 5,000,010 | $ | (3,651,391 | ) | $ | 1,348,619 | |||||
| Net loss (Restated) | (1,015,510 | ) | (1 | ) | (1,015,511 | ) | ||||||
| Change in value of common stock subject to possible redemption (Restated) | (3,651,392 | ) | 3,651,392 | — | ||||||||
Balance as of March 31, 2021 | $ | 333,108 | $ | — | $ | 333,108 | ||||||
| Net loss (Restated) | (1,043,471 | ) | — | (1,043,471 | ) | |||||||
Balance as of June 30, 2021 | $ | (710,363 | ) | $ | — | $ | (710,363 | ) | ||||
For the Period from January 1, 2021 through June 30, 2021 | ||||||||||||
As Previously Reported | Adjustment | As Restated | ||||||||||
Supplemental Disclosure of Noncash Financing Activities: | ||||||||||||
| Change in value of common stock subject to possible redemption (restated) | $ | 3,651,391 | $ | (3,651,391 | ) | $ | 0 | |||||
Earnings Per Share for Common Stock | ||||||||||||
As Previously Reported (1) | Adjustment | As Restated | ||||||||||
For the Three Months Ended June 30, 2021 | ||||||||||||
| Net loss | $ | (1,043,472 | ) | $ | 1 | $ | (1,043,471 | ) | ||||
| Basic and Diluted weighted-average redeemable common shares outstanding | 17,000,000 | — | 17,000,000 | |||||||||
| Basic and Diluted net loss per redeemable common share | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.05 | ) | |||
Basic and Diluted weighted-average non-redeemable common shares outstanding | 4,478,000 | — | 4,478,000 | |||||||||
Basic and Diluted net loss per non-redeemable common shares | $ | (0.23 | ) | $ | 0.18 | $ | (0.05 | ) | ||||
Earnings Per Share for Common Stock | ||||||||||||
As Previously Reported (1) | Adjustment | As Restated | ||||||||||
For the Six Months Ended June 30, 2021 | ||||||||||||
| Net loss | $ | (2,058,982 | ) | $ | — | $ | (2,058,982 | ) | ||||
| Basic and Diluted weighted-average redeemable common shares outstanding | 16,818,439 | 181,561 | 17,000,000 | |||||||||
| Basic and Diluted net loss per redeemable common share | $ | (0.00 | ) | $ | (0.10 | ) | $ | (0.10 | ) | |||
Basic and Diluted weighted-average non-redeemable common shares outstanding | 4,659,492 | (181,492 | ) | 4,478,000 | ||||||||
Basic and Diluted net loss per non-redeemable common shares | $ | (0.44 | ) | $ | 0.34 | $ | (0.10 | ) | ||||
NOTE 9. RELATED PARTY TRANSACTIONS
Master Services and our officers and directors (collectively, the “Founders”) purchased an aggregate of 4,312,500 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. In August 2020, certain of our initial stockholders forfeited 1,355,000 Founder Shares and the Anchor Investors purchased 1,355,000 Founder Shares for an aggregate purchase price of approximately $7,855, or approximately $0.006 per share. In October 2020, Sponsor forfeited an aggregate of 562,500 founder shares for no consideration, and GW Sponsor 2, LLC, an entity managed by Management, purchased from the Company 562,500 shares for a purchase price of $163,125. The Founder Shares include an aggregate of up to 562,500 shares subject to forfeiture by Sponsor to the extent that the underwriters’ over-allotment is not exercised in full or in part, so that the Founders and Anchor Investors will collectively own 20% of the Company’s issued and outstanding shares after the Public Offering (assuming the Founders or Anchor Investors do not purchase any Public Shares in the Public Offering). On November 17, 2020, the underwriters canceled the remainder of the Over-Allotment Option. Supply Agreement
In connection with the cancellationBusiness Combination, Bitfury Top HoldCo and Cipher entered into the Master Services and Supply Agreement on August 26, 2021. The initial term of the remainderagreement is 84 months, with automatic 12-month renewals thereafter (unless either party provides sufficient notice of non-renewal). Pursuant to this agreement, Cipher can request and Bitfury Top HoldCo is required to use commercially reasonable efforts to provide, or procure the Over-Allotment Option,provision of, certain equipment and/or services, such as construction, engineering and operations, in each case as may be required to launch and maintain Cipher’s mining centers in the Company cancelled an aggregateUnited States. The Master Services and Supply Agreement is not exclusive to Bitfury Top HoldCo or any of 62,500 shares of common stock issuedits affiliates, and Cipher may retain any other parties to Sponsor.
In addition to the Master Services and Supply Agreement, Cipher and Bitfury Holding also entered into a fee side letter, which sets out the basic pricing framework applicable under the Master Services and Supply Agreement for any services. Under the side letter, monthly fees for any potential future services, if any, would be determined by reference to two groups of earlierservices, which may be provided under the Master Services and Supply Agreement: (i) Bitfury Top HoldCo’s “onsite” services fee would be calculated on a straight cost +5% basis (plus applicable duties and taxes); and (ii) Bitfury Top HoldCo’s “remote services” would be calculated on a ratchet basis applying a management fee of (1) one year after$1000/MW up to 445MW (capped at $200,000/month) and $450USD/MW above 445MW (plus applicable duties and taxes).
Purchase commitments and deposits on equipment
As discussed above in Note 6, the Company entered into agreements with Bitfury Top HoldCo providing the Company an option to purchase mining rigs and with Bitfury USA Inc., a subsidiary of Bitfury Top HoldCo, for BBACs. Such agreements are pursuant to the Master Services and Supply Agreement. As of March 31, 2022, the Company had paid $10.0 million and $23.2 million to Bitfury Top HoldCo and Bitfury USA Inc., respectively, pursuant to these agreements, which were recorded as deposits on equipment on the Company’s unaudited condensed consolidated balance sheet. As of December 31, 2021, the Company had paid $10.0 and $5.1 million to Bitfury Top HoldCo and Bitfury USA Inc., respectively.
Additionally, Bitfury Top HoldCo made payments on the Company's behalf totaling approximately $2.4 million prior to December 31, 2021 for deposits on equipment and/or construction-in-progress. The Company reimbursed Bitfury Top HoldCo for these amounts plus a 7% service fee upon completion of the Business Combination and, (2)as a result, recorded the dateamounts reimbursed to Bitfury (including the service fee) as follows: approximately $2.5 million is included in deposits on whichequipment and approximately $0.1 million in included in construction-in-progress on the Company's unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. As of March 31, 2022, the Company consummatesrecorded a liquidation, merger, capital stock exchange, reorganization,$3.9 million payable to Bitfury Top HoldCo in accounts payable, related party on the unaudited condensed consolidated balance sheet comprised of $2.5 million and $1.4 million recorded as deposits on equipment and construction-in-progress, respectively, for additional payments that Bitfury Top HoldCo has made, or other similar transaction after the Business Combination that results in all ofis making on the Company’s stockholders having the right to exchange their sharesbehalf.
NOTE 10. LEASE
The Company has entered into an operating lease for office space located in New York. The lease has an initial term of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of our common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any30-tradingday period64 months, commencing at least 150 days after the Business Combination, the Founder Shares will be released from thelock-up.
Total rent expense was approximately $0.2 million for the three months ended March 31, 2022, and consisted entirely of operating lease costs as may be required (“Working Capital Loans”). If the Company completes a Business Combination,did 0t incur any variable lease costs or short-term lease costs during the Company would repay the Working Capital Loans out of the proceeds of the Trust Account releasedperiod.
Supplemental information related to the Company. Otherwise,lease was as follows (dollar amounts in thousands):
15
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
| Three Months Ended |
| |
|
| March 31, 2022 |
| |
Operating cash flows - operating leases |
| $ | 0 |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 5,859 |
|
Weighted-average remaining lease term – operating leases (in years) |
|
| 5.2 |
|
Weighted-average discount rate – operating leases |
|
| 10.9 | % |
As of March 31, 2022, future minimum operating lease payments during the Working Capital Loans would be repaid only outnext five years and thereafter are as follows (amounts in thousands):
Remaining Period Ended December 31, 2022 |
| $ | 791 |
|
Year Ended December 31, 2023 |
|
| 1,581 |
|
Year Ended December 31, 2024 |
|
| 1,581 |
|
Year Ended December 31, 2025 |
|
| 1,581 |
|
Year Ended December 31, 2026 |
|
| 1,581 |
|
Year Ended December 31, 2027 |
|
| 659 |
|
Total |
|
| 7,774 |
|
Less present value discount |
|
| (1,941 | ) |
Operating lease liabilities |
| $ | 5,833 |
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is not a party to any material legal proceedings and is not aware of funds held outside the Trust Account. In the event that a Business Combination does not close,any pending or threatened claims. From time to time, the Company may use a portion of proceeds held outside the Trust Accountbe subject to repay the Working Capital Loans, but no proceeds heldvarious legal proceedings and claims that arise in the Trust Account would be usedordinary course of its business activities.
Commitments
In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. The Company's maximum exposure under these arrangements, if any, is unknown as of March 31, 2022. The Company does not anticipate recognizing any significant losses relating to repaythese arrangements.
Power and hosting arrangements
The Company is party to several power and hosting arrangements as described below.
Luminant power arrangement
On June 23, 2021, the Working Capital Loans. ExceptCompany entered into a power purchase agreement, which was subsequently amended and restated on July 9, 2021 and further amended on February 28, 2022, with Luminant for the foregoing,supply of electric power to one of our planned sites in Texas for a term of five years with a subsequent automatic annual renewal provision (as amended, the terms“Luminant Power Agreement”).
The Luminant Lease Agreement leases the Company a plot of such Working Capital Loans, if any, have not beenland where the planned data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) will be set up for the Texas site. The Company also entered into the Purchase and Sale Agreement dated June 28, 2021, with amendment and restatement on July 9, 2021 (as amended and restated the “Luminant Purchase and Sale Agreement””) with another Luminant affiliate. The Company entered into the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement to build the infrastructure necessary to support its planned operations. The Company determined that the Luminant Lease Agreement and no written agreements exist with respectthe Luminant Purchase and Sale Agreement should be combined for accounting purposes under the new lease guidance (collectively, the “Combined Luminant Lease Agreement”) and that amounts exchanged under the combined contract should be allocated to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into Private Unitsvarious components of the post Business Combination entity at a priceoverall transaction based on relative fair values.
Under the Luminant Power Agreement, the Company is required to provide Luminant with collateral of $10.00 per Private Unit. The Private Units would be identical to the Private Units issued in the Private Placement. At June 30, 2021, no Working Capital Loans have been issued.
Carrying Value/Amortized Cost | Gross Unrealized Gains | Gross Unrealized losses | Fair Value as of December 31, 2021 | |||||||||||||
| U.S. Money Market | $ | 203 | $ | — | $ | — | $ | 203 | ||||||||
| U.S. Treasury Securities | 170,027,139 | 4,916 | (148 | ) | 170,031,907 | |||||||||||
| $ | 170,027,342 | $ | 4,916 | $ | (148 | ) | $ | 170,032,110 | ||||||||
Carrying Value/Amortized Cost | Gross Unrealized Gains | T-Bill Maturity | Gross Unrealized Losses | Fair Value as of June 30, 2021 | ||||||||||||||||
| U.S. Money Market | $ | 203 | $ | 2,908 | $ | 170,074,000 | $ | (44,520 | ) | $ | 170,032,591 | |||||||||
| U.S. Treasury Securities | 170,064,795 | 9,205 | $ | (170,074,000 | ) | — | — | |||||||||||||
| $ | 170,064,998 | $ | 12,113 | $ | 0 | $ | (44,520 | ) | $ | 170,032,591 | ||||||||||
16
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
received notice that Luminant had commenced construction of the Founder Shares, as well as the holders of the Private Units and any Private Warrants or Private Units that mayInterconnection Electrical Facilities. The other half will be issued in payment of Working Capital Loans made to the Company (and all underlying securities), are entitled to registration rights pursuant to an agreement that was signed on the effective date of Public Offering. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founders Shares can elect to exercise these registration rights at any time commencing three monthsdue 15 days prior to the date on which these shares of common stockthe Interconnection Electrical Facilities are to be released from escrow.completed and made operational. The holders of a majorityIndependent Collateral Amount will remain in place throughout the term of the Founder Shares, Private UnitsLuminant Power Agreement. Details of the construction of the Interconnection Electrical Facilities, including collateral arrangements that are in addition to the Independent Collateral Amount, are set out in the Luminant Purchase and Private Warrants or Private Units issued in payment of Working Capital Loans (or underlying securities) can elect to exercise these registration rights at any time afterSale Agreement. Under the Luminant Purchase and Sale Agreement, the Company consummates a Business Combination. In addition,provided approximately $3.1 million as collateral separate from the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummationIndependent Collateral Amount, which is recorded in security deposits as of a Business Combination. March 31, 2022 and December 31, 2021.
The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Standard Power hosting agreement
Under the Company pays 60% of the actual time charges incurred each month. If the business combination is not completed, no additional fees are payableStandard Power Hosting Agreement entered into on February 3, 2021 by the Company however ifand 500 N 4th Street LLC, doing business as Standard Power (“Standard Power”), the business combinationCompany agrees to provide Standard Power with Bitcoin miners with a specified energy utilization capacity necessary to generate computational power at three Ohio facilities (the “Miners”). Standard Power, in turn, is completed,obligated to (i) host the Miners in specialized containers and provide the electrical power and transmission and connection equipment necessary for the mining and (ii) host, operate and manage the Miners there, in each case in accordance with the terms and conditions of the Standard Power Hosting Agreement.
The Standard Power Hosting Agreement provides that Standard Power shall provide an electric power infrastructure, including containers, necessary to operate Miners with a specified energy utilization capacity at facility 1 in Ohio in accordance with the specifications and power availability date set out in the availability schedule.
Thereafter, Standard Power shall provide the hosting capacity, housing and equipment for Miners with the specified energy utilization capacities that will be delivered to the facilities in accordance with the availability schedule, as may be amended and supplemented. Standard Power also undertakes to be responsible for the proper installation and the costs of work for hosting the Miners in the specialized containers in each facility and for the proper care and maintenance of the Miners, the facilities and the containers in which the Miners are installed.
Under the Standard Power Hosting Agreement, the Company is obligated to pay a hosting fee and an operational service fee. The Company’s payment obligations under the Standard Power Hosting Agreement become effective on a pro rata basis according to the number of Miners in operation in accordance with the terms of this agreement. The Standard Power Hosting Agreement provides for a term of five years with automatic five-year renewal provisions. The associated fees paid under the Standard Power Hosting Agreement will be expensed as services are received.
WindHQ power arrangement and joint venture
The WindHQ Joint Venture Agreement provides that the parties shall collaborate to fund the construction and buildout of certain specified Data Centers at locations already identified by the parties (“Initial Data Centers”). Each Initial Data Center will be owned by a separate limited liability company (each, an “Initial Data Center LLC”), and WindHQ and the Company will each own 51% and 49%, respectively, of the initial membership interests of each Initial Data Center LLC.
The WindHQ Joint Venture Agreement includes a development schedule for additional electrical power capacity through the joint identification, procurement, development and operation of additional Data Centers (“Future Data Centers”). Each Future Data Center will be owned by a separate limited liability company (each, a “Future Data Center LLC”, and collectively with the Initial Data Center LLCs, the “Data Center LLCs”), and the Company and WindHQ, or respective affiliates of the Company or WindHQ, shall become a member of each Data Center LLC by entering into a limited liability company agreement for each such Data Center LLC (“LLC Agreement”). WindHQ will own at least 51% of the initial membership interests of each Data Center LLC and the Company will own an additional amounta maximum of 49% of the initial membership interests of each Data Center LLC. Furthermore, under the WindHQ Joint Venture Agreement, WindHQ is required to procure energy for Future Data Centers at the most favorable pricing then available. Similarly, the
17
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Company is required to procure the applicable equipment needed for the Future Data Centers at the most favorable pricing then available.
Under the WindHQ Joint Venture Agreement, WindHQ agrees to provide a series of services to each of the Data Centers, including but not limited to: (i) the design and engineering of each of the Data Centers; (ii) the procurement of energy equipment and other related services such as logistics for each of the Data Centers; and (iii) the construction work for each of the Data Centers. Furthermore, the Company is required to support and monitor (remotely) the operations of the hardware at each Data Center (particularly the mining servers) as required under the WindHQ Joint Venture Agreement.
A development fee equal to 2% of capital expenditures in respect of the amounts billed (soinitial development of each Data Center shall be paid 50% to WindHQ and 50% to the Company. Furthermore, a fee equal to 2% of the gross revenues of each of the Data Center LLCs will be payable monthly, based on the immediately prior month gross revenue of such Data Center, 50% to WindHQ and 50% to the Company.
For each Data Center, WindHQ and the Company will cooperate to prepare a financial model incorporating the relevant economic factors of such Data Center, and both WindHQ and the Company will provide the initial funding required for each Data Center on a pro rata basis in accordance with the parties’ respective ownership interests in the applicable Data Center LLC.
In the absence of any material breaches by either party, the WindHQ Joint Venture Agreement may only be terminated by mutual written consent of both parties.
Currently, it is not anticipated by management of the Company that the aggregate amount paid wouldCompany’s investment in any of the individual Data Center LLCs will meet the definition of a variable interest entity in accordance with ASC 810, “Consolidation” and the Company will not have a controlling voting interest in any of the Data Center LLCs. Based upon the Company's expectation that they will have significant influence over the operations and major decisions of the Data Center LLCs, the Company’s 49% ownership in each individual Data Center LLC will be 120%separately accounted for under the equity method of actual time charges). accounting, as the Company does not expect to exercise control over the Data Center LLCs.
See discussion of the Alborz LLC Agreement entered into on January 28, 2022 between the Company and Alborz Interests DC LLC (a subsidiary of WindHQ) above in Note 8.
NOTE 12. STOCKHOLDERS’ EQUITY (DEFICIT)
As of June 30, 2021, if the business combination had closed on that date, the Company would owe $321,545 in additional legal fees.
Common Stock
Holders of each share of Common Stock are entitled to dividends when, as and if declared by the Board. As of March 31, 2020, respectively, there were 4,478,0002022, the Company had not declared any dividends. The holder of each share of Common Stock is entitled to one vote. The voting, dividend, liquidation and 4,478,000other rights and powers of the Common Stock are subject to and qualified by the rights, powers and preferences of any outstanding series of Preferred Stock.
The Company repurchased 659,231 shares of its common stock issued and outstanding, excluding 17,000,000 and 17,000,000 shares, respectively, subjectrelated to possible redemption.tax withholding settlements for restricted stock units (“RSUs”) that vested during the three months ended March 31, 2022.
NOTE 13. WARRANTS
Upon consummation of the Business Combination, and (2) the date on which the Company consummatesassumed common stock warrants that were originally issued in GWAC’s initial public offering (the “Public Warrants”), as well as warrants that were issued in a liquidation, merger, capital stock exchange, reorganization, or other similar transaction afterprivate placement that closed concurrently with GWAC’s initial public offering (the “Private Placement Warrants”). The Public and Private Placement Warrants entitle the holder to purchase 1 share of Common Stock at an exercise price of $11.50 per share, subject to adjustment. There were 8,500,000 Public Warrants and 114,000 Private Placement Warrants outstanding as of the Closing Date of the Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any30-tradingday period commencing at least 150 days after the Business Combination, the Founder Shares will be released from thelock-up.Any permitted transferees will be subject to the same restrictions and other agreements of the initial stockholders with respect to any Founder Shares.
18
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 14. SHARE-BASED COMPENSATION
Upon Closing of the Business Combination, the Board approved the Cipher Mining Inc. 2021 Incentive Award Plan (the “Incentive Award Plan”). The Incentive Award Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, RSUs and other stock or cash-based awards to employees, consultants and directors. Upon vesting of an award, the Company may either issue new shares or reissue treasury shares.
Initially, up to 19,869,312 shares of Common Stock were available for issuance under awards granted pursuant to the Incentive Award Plan. In addition, the number of shares of Common Stock available for issuance under the Incentive Equity Plan will be increased on January 1 of each calendar year beginning in 2022 and ending in 2031 by an amount equal to the lesser of (a) three percent (3%) of the total number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares determined by the Board. On January 1, 2022, this resulted in an increase of 7,478,382 shares of Common Stock available for issuance under the Incentive Award Plan. As of March 31, 2022, 9,602,122 shares of Common Stock are available for issuance under the Incentive Award Plan.
During the three months ended March 31, 2022, the Company recognized total share-based compensation for the following categories of awards (amounts in thousands):
Service-Based RSUs |
| $ | 6,173 |
|
Performance-Based RSUs |
|
| 3,341 |
|
Total share-based compensation expense |
| $ | 9,514 |
|
Service-Based RSUs
A summary of the Company's unvested Service-Based RSU activity for the three months ended March 31, 2022 is unableshown below:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at January 1, 2022 |
|
| 6,798,238 |
|
| $ | 8.04 |
|
Granted |
|
| 939,058 |
|
|
| 3.41 |
|
Vested |
|
| (1,554,064 | ) |
|
| 8.15 |
|
Unvested at March 31, 2022 |
|
| 6,183,232 |
|
| $ | 7.31 |
|
As of March 31, 2022, there was approximately $36.5 million of unrecognized compensation expense related to completeunvested Service-Based RSUs, which is expected to be recognized over a weighted-average vesting period of approximately 1.9 years.
If not fully-vested upon grant, Service-Based RSUs awarded generally vest in equal installments on the first four anniversaries of the vesting commencement date as determined by the Board, which will generally coincide with the timing when the employee or consultant began to provide services to the Company, and which may precede the grant date. Vesting is subject to the award recipient's continuous service on the applicable vesting date; provided, that if the award recipient’s employment is terminated by the Company without “cause”, due to award recipient’s death or permanent disability, or, for some award recipients, by the award recipient for “good reason” (if applicable, as such term or similar term may be defined in any employment, consulting or similar service agreement between award recipient and the Company), all unvested Service-Based RSUs will vest in full. In addition, in the event of a change in control, any unvested Service-Based RSUs will vest subject to the award recipient's continuous service to the Company through such change in control. In addition, if the $10 billion market capitalization milestone (described further below) is achieved and the Chief Executive Officer (“CEO”) remains in continuous service through such achievement, any then-unvested Service-Based RSUs awarded to the CEO will also vest.
Performance-Based RSUs
There was no activity for unvested Performance-Based RSUs during the three months ended March 31, 2022. There were 4,257,710 unvested Performance-Based RSUs at a weighted average grant date fair value of $7.76 as of March 31, 2022 and December 31, 2021. There was approximately $28.0 million of unrecognized compensation expense related to unvested Performance-Based RSUs, which is expected to be recognized over a weighted-average derived service period of approximately 2.2 years.
19
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
One-third of the Performance-Based RSUs will vest upon the Company achieving a market capitalization equal to or exceeding $5 billion, $7.5 billion and $10 billion, in each case over a 30-day lookback period and subject to the CEO’s continuous service through the end of the applicable 30-day period. In the event of a change in control and CEO’s continuous service through such change in control, the per share price (plus the per share value of any other consideration) received by the Company’s stockholders in such change in control will be used to determine whether any of the market capitalization milestones are achieved (without regard to the 30-day lookback period). Any Performance-Based RSUs that do not vest prior to the CEO’s termination of service or, if earlier, in connection with a change in control will be forfeited for no consideration.
NOTE 15. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss allocable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share adjusts net loss and net loss per common share for the effect of all potentially dilutive shares of the Company’s Common Stock. Basic net loss per common share is the same as dilutive net loss per common share for the three months ended March 31, 2022 and the two months ended March 31, 2021, as the inclusion of all potential common shares would have been antidilutive. Potential common shares consist of Public Warrants and Private Placement Warrants to purchase Common Stock (using the treasury stock method) that were sold by GWAC in its initial public offering or concurrent with its initial public offering, respectively, and assumed by the Company as of the Effective Date of the Business Combination, withinas well as unvested RSUs.
The following table presents the Combination Period andcommon shares that are excluded from the computation of diluted net loss per common share as of March 31, 2022, because including them would have been antidilutive. There were no potentially dilutive securities as of March 31, 2021.
Public Warrants | 8,499,980 | |||
Private Placement Warrants | 114,000 | |||
Unvested RSUs | 10,440,942 | |||
19,054,922 |
NOTE 16. SUBSEQUENT EVENTS
On April 8, 2022, the Company liquidatesentered into a waiver agreement with Bitfury Top HoldCo (the “Waiver Agreement”), pursuant to which the funds held in the Trust Account, holdersCompany waived certain restrictions on transfer of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outsideCommon Stock under (a) that certain Lock-up Agreement, dated as of August 26, 2021, by and between GWAC and Bitfury Top HoldCo and (b) those certain Lock-up Agreements, dated August 26, 2021, by and between GWAC and each of (i) I-B Goodworks, LLC, (ii) Magnetar Financial LLC, (iii) Mint Tower Capital Management B.V., (iv) Periscope Capital, Inc. and (v) Polar Asset Management Partners Inc., respectively (the stockholders contemplated by clauses (a)-(b), the “Stockholders”) imposing similar restrictions on the Stockholders (collectively, the “Lock-up Agreements” and each a “Lock-up Agreement”).
The Waiver Agreement was negotiated and approved by an independent committee of the Trust Account withBoard. The Waiver Agreement (i) permits each Stockholder to pledge or otherwise hypothecate the respect to such warrants. Accordingly, the warrants may expire worthless.
On April 8, 2022, the Company also entered into an observer agreement (the “Board Observer Agreement”) with Bitfury Holding and Bitfury Top HoldCo (together with Bitfury Holding, the “Investors”), which provides that the Investors have the right to designate a representative to serve as an observer of the Board and any committees thereof (subject to exceptions and limitations specified in the Board Observer Agreement). The Board Observer Agreement was negotiated and approved by an independent committee of the Board.
20
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
On May 6, 2022, the Company entered into an Amended and Restated Framework Agreement on Supply of Blockchain Servers with SuperAcme (the “Amended SuperAcme Agreement”), which amended that certain Framework Agreement on Supply of Blockchain Servers with SuperAcme, dated September 2, 2021, to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners (the “Original SuperAcme Agreement”).
The Amended SuperAcme Agreement establishes a new delivery quantity ratio of miners as well as new fixed subtotal pricing. In connection with the Original SuperAcme Agreement, the Company previously paid an initial deposit of $22.2 million. NaN additional initial deposit was required as a result of the execution of the Amended SuperAcme Agreement. The expected final purchase price under the Amended SuperAcme Agreement is subject to both the new fixed price terms and certain floating price terms, with advance payment due in formadvance of cash and/or forgivenesscertain batches of outstanding indebtedness owed by Ciphersupply being delivered.
After March 31, 2022, but before the issuance of these unaudited condensed consolidated financial statements, the Company made payments totaling approximately $16.6 million to Bitfury. Only July 15, 2021,I-BankersagreedBitmain and $18.5 million to loan Good Works Acquisition Corp $100,000SuperAcme for miners, as well as payments totaling approximately $2.5 million to fund its operating expenses. The loan is unsecuredBitfury USA Inc. for BBACs. These payments were related to purchase commitments disclosed above in Note 6 andnon-interestbearing and matures increased the Company's deposits on equipment on the earlierunaudited condensed consolidated balance sheet, except for the payment made to Bitfury USA Inc. which was already reflected in deposits on equipment of DecemberMarch 31, 2021 or the date that the Business Combination is consummated.2022.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, onas well as our audited consolidated financial statements and related notes as disclosed in our 2021 Form10-Qincludes forward-looking statements. These 10-K. This discussion contains forward-looking statements are based on ourupon current plans, expectations and beliefs concerning future developmentsinvolving risks and their potential effects on us. There can be no assurance that future developments affecting us will beuncertainties. Our actual results may differ materially from those that we have anticipated. Theseanticipated in these forward-looking statements involveas a numberresult of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances,various factors, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in the Risk Factors section“Risk Factors” sections of our 2021 Form 10-K and this Quarterly Report and other factors set forth in other parts of this Quarterly Report.
Unless the context otherwise requires, references in this Quarterly Report to the “Company,” “Cipher,” “we,” “us” or “our” refer to Cipher Mining Technologies Inc., prior to the consummation of the Company’s registration statementBusiness Combination (the “Closing” and, prospectus forsuch date of the Company’s initial public offering filed withconsummation of the SEC. The following discussion should be read in conjunction with our financial statementsBusiness Combination, the “Closing Date”) and related notes thereto included elsewhere in this report.
Overview
We are an emerging technology company that operates in the Bitcoin mining ecosystem in the United States. Specifically, we plan to develop and grow a cryptocurrency mining business, specializing in Bitcoin. Our key mission is to become a leading Bitcoin mining company in the United States.
We were established by the Bitfury Group, a global full-service blockchain and technology specialist and one of the units soldleading private infrastructure providers in the Company’s initial public offering (the “IPO”) on October 22, 2020. Historically,blockchain ecosystem. On August 27, 2021, we consummated the Business Combination with Good Works. As a portionstand-alone, U.S.-based cryptocurrency mining business, specializing in Bitcoin, we have begun our buildout of the Public Shares was classified as permanent equity to maintain stockholders’ equity greater than $5 million on the basis that the Company will not redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001, as describedcryptocurrency mining sites in the Company’s amendedUnited States. We began deployment of capacity in the first quarter of 2022, with mining operations beginning at one site in February 2022.
In connection with our planned buildout, we entered into the Standard Power Hosting Agreement, the WindHQ Joint Venture Agreement and restated certificatethe Luminant Power Agreement, all of incorporation (the “Charter”).which, together, are expected to cover at least four sites where we expect to begin our buildout. Pursuant to suchre-evaluation,the Company’s management has determinedthese agreements, we expect to have access, for at least five years, to an average cost of electricity of approximately 2.7 c/kWh. We expect that the Public Shares include certain provisions that require classificationthis will help competitively position us to achieve our goal of all of the Public Shares as temporary equity regardless of the net tangible assets redemption limitation containedbecoming a leading Bitcoin mining operator in the Charter. In addition,United States.
On January 28, 2022, in connection with the changeWindHQ Joint Venture Agreement, Cipher Mining Technologies and Alborz Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Alborz LLC Agreement. The Alborz LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Alborz facility located in presentationTexas (“Alborz”). Pursuant to the terms of the WindHQ Joint Venture Agreement, our investment and ownership of 49% of the data center referred to as “Alborz LLC” is accounted for under the equity method of accounting. The first shipment of 970 Bitmain miners was received and deployed at Alborz during the first quarter of 2022. For additional discussion regarding the accounting treatment for the Public Shares,Alborz LLC, please see Note 2, Note 8 and Note 11 to the Company determined it should restate its earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares (redeemable and non-redeemable). This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of shares share pro rata in the income and losses of the Company.
We expect that in the near-term the substantial majority of our capital expenditures will be devoted to the buildout of our mining sites and the acquisition of mining hardware. In August 2021, we entered into an agreement with Bitmain to purchase 27,000 Antminer S19j Pro (100 TH/s) miners, which were expected to be delivered in nine batches on a monthly basis between January 2022 and September 2022; however, as of March 31, 2022, only one monthly batch has been received. In September 2021, we also entered into a framework agreement with SuperAcme to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners, which are expected to be delivered in six batches on a monthly basis between July 2022 and year-end 2022, subject to updated terms pursuant to the Amended and Restated Framework Agreement on Supply of Blockchain Servers, dated May 6, 2022. For further details on these and other agreements, see —“Liquidity and Capital Resources—Contractual Obligations and Other Commitments.”
We aim to deploy the computing power that we will create to mine Bitcoin and validate transactions on the Bitcoin network. We believe that Cipher will become an important player in the Bitcoin network due to our planned large-scale operations, best-in-class technology, market-leading power and hosting arrangements and a seasoned, dedicated senior management team.
As of May 6, 2022, Bitfury Top HoldCo (together with Bitfury Holding) beneficially owns approximately 82.1% of our common stock with sole voting and sole dispositive power over those shares and, as a result, Bitfury Top HoldCo has the power to elect all of our directors and we are a “controlled company” under Nasdaq corporate governance standards. For additional information, see “Risk Factors—Risks Related to our Common Stock and Warrants—We are a blank check company incorporated“controlled company” within the meaning of Nasdaq listing
22
rules and, as a result, can rely on June 24, 2020exemptions from certain corporate governance requirements that provide protection to shareholders of other companies” in our 2021 Form 10-K.
The Business Combination
On August 27, 2021, as contemplated by the Agreement and Plan of Merger dated as of March 4, 2021 (the “Merger Agreement”), by and among GWAC, a Delaware corporation, Currency Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and formed fora wholly‑owned direct subsidiary of GWAC, and the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similarCompany, the parties entered into the business combination transaction pursuant to which Merger Sub merged with one or more businesses (aand into the Company, the separate corporate existence of Merger Sub ceasing and the Company being the surviving corporation and a wholly‑owned subsidiary of GWAC (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). We consummatedFollowing the Business Combination, the combined company was named Cipher Mining Inc. (“Cipher Mining”). Cipher Mining comprises all of GWAC’s and Cipher Mining Technologies’ operations.
Upon the consummation of the Business Combination, all holders of Cipher common stock received shares of our common stock of $10.00 per share after giving effect to the Exchange Ratio, resulting in 200,000,000 shares of our common stock to be immediately issued and outstanding to Bitfury Top HoldCo (in addition to 8,146,119 shares of our common stock held by GWAC), 32,235,000 shares of our common stock held by the PIPE Investors and 6,000,000 shares of our common stock received by Bitfury Holding B.V., an affiliate of Bitfury Top HoldCo, under the Bitfury Private Placement, based on the following events contemplated by the Merger Agreement:
In connection with the execution of the Merger Agreement, GWAC entered into: (i) the PIPE Subscription Agreements to sell to certain investors (the “PIPE Investors”), an aggregate of 32,235,000 shares of GWAC Common Stock, immediately following the Closing, for a purchase price of $10.00 per share and at an aggregate gross proceeds of $322.4 million (the “PIPE Financing”) and (ii) the Bitfury Subscription Agreement to sell to Bitfury Top HoldCo (or an affiliate of Bitfury Top HoldCo), an aggregate of 6,000,000 shares of GWAC Common Stock, following the Closing, for a purchase price of $10.00 per share and Bitfury Top HoldCo’s payment in cash and/or forgiveness of outstanding indebtedness for aggregate gross proceeds of $60.0 million (the “Bitfury Private Placement”).
Upon the consummation of the Business Combination, GWAC Common Stock and GWAC Warrants ceased trading on the Nasdaq Stock Exchange (the “Nasdaq”), and our common stock and Public Offering (as defined below)Warrants began trading on October 22, 2020August 30, 2021 on the Nasdaq under the ticker symbols “CIFR” and are currently“CIFRW,” respectively. The Business Combination resulted in the process of locating suitable targets for our business combination. We intend to use the cash proceeds, from our Public Offeringnet of issuance costs, of approximately $384.9 million.
Recent Developments
On May 6, 2022, we entered into an Amended and the Private Placement described belowRestated Framework Agreement on Supply of Blockchain Servers with SuperAcme Technology (Hong Kong) Limited (the “Amended SuperAcme Agreement”), which amended that certain Framework Agreement on Supply of Blockchain Servers with SuperAcme, dated September 2, 2021, to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners (the “Original SuperAcme Agreement”).
The Amended SuperAcme Agreement establishes a new delivery quantity ratio of miners as well as new fixed subtotal pricing. In connection with the Original SuperAcme Agreement, we previously paid an initial deposit of $22.2 million. No additional issuances, ifinitial deposit was required as a result of the execution of the Amended SuperAcme Agreement. The expected final purchase price under the Amended SuperAcme Agreement is subject to both the new fixed price terms and certain floating price terms, with advance payment due in advance of certain batches of supply being delivered.
On May 2, 2022, Alborz LLC, as borrower, entered into a facility and security agreement with BlockFi Lending LLC (“BlockFi”), as lender. Pursuant to this agreement, BlockFi agreed to provide a secured credit facility in the amount of up to $46,907,216 which is available in up to four tranches, maturing on May 2, 2024 (the “BlockFi Facility”) to finance the purchase, installation and operation of Bitmain miners (“Mining Equipment”) at Alborz. The proceeds from the BlockFi Facility will be used by Alborz LLC to purchase Mining Equipment from us pursuant to that certain contribution agreement entered into between us and Alborz LLC on May 2, 2022 (the “Contribution Agreement”). Pursuant the Contribution Agreement, Cipher Mining Technologies agreed to acknowledge and consent to the use of the Mining Equipment as well as any digital currency mined using the Mining Equipment as collateral in respect
23
of the BlockFi Facility.
On April 8, 2022, we, as successor-in-interest to GWAC, and Cipher Mining Technologies, with respect to certain sections (collectively, the “Company”), entered into a Waiver Agreement, with Bitfury (the “Waiver Agreement”), pursuant to which the Company waived certain restrictions on transfer of shares under (a) that certain Lock-up Agreement, dated as of August 26, 2021, by and between Good Works Acquisition Corp. and Bitfury and (b) those certain Lock-up Agreements, dated as of August 26, 2021, by and between Good Works Acquisition Corp. and each of (i) I-B Goodworks, LLC, (ii) Magnetar Financial LLC, (iii) Mint Tower Capital Management B.V., (iv) Periscope Capital, Inc. and (v) Polar Asset Management Partners Inc., respectively (the stockholders contemplated by clauses (a)-(b), the “Stockholders”) imposing similar restrictions on the Stockholders (collectively, the “Lock-up Agreements” and each a “Lock-up Agreement”). The Waiver Agreement was negotiated and approved by an independent committee of our capital stock, debtBoard of Directors (the “Board”). The Waiver Agreement permits each Stockholder to pledge or a combinationotherwise hypothecate up to one hundred percent (100%) of cash, stock and debt to complete the Business Combination.
Also on April 8, 2022, we entered into an Observer Agreement (the “Board Observer Agreement”) with Bitfury Holding B.V. (“Bitfury Holding”) and Bitfury (together with “Bitfury Holding,” the “Investors”), which provides that the Investors have the right to designate a representative to serve as an observer (the “Observer”) of our plansBoard and any committees thereof (subject to raise capitalexceptions specified therein). The Observer has the right to attend and observe meetings of the Board, including any meetings of the committees of the Board, and to participate in discussions of matters brought to the Board or any committee thereof, in each case, subject to completecertain exceptions specified in the Board Observer Agreement. The Investors’ rights under the Board Observer Agreement will terminate upon the date that the Investors no longer beneficially own at least 10% of the outstanding shares of our initial Business Combination will be successful.
Known Trends or Future Events
Impact of COVID-19
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the outbreak and global spread of COVID-19. The CompanyCOVID-19 pandemic that was declared on March 11, 2020 has neither engagedcaused significant economic dislocation in any significantthe United States and globally as governments, including the United States, introduced measures aimed at preventing the spread of COVID-19. The spread of COVID-19 and the imposition of related public health measures have resulted in, and are expected to continue to result in, increased volatility and uncertainty in the cryptocurrency space. Any severe or prolonged economic downturn, as a result of the COVID-19 pandemic or otherwise, could result in a variety of risks to our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.
We may experience disruptions to our business operations nor generatedresulting from supply interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of our employees or our counterparties to perform their jobs. We may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, we had to temporarily shut down the construction at the Alborz site in response to employees being impacted by COVID-19. The temporary shutdown was less
24
than a week, and we resumed the construction at the site immediately after. If we are unable to effectively set up and service our miners, our ability to mine Bitcoin will be adversely affected. The future impact of the COVID-19 pandemic is still highly uncertain and there is no assurance that the COVID-19 pandemic or any revenues to date. All activities to date relateother pandemic, or other unfavorable global economic, business or political conditions, will not materially and adversely affect our business, prospects, financial condition, and operating results.
Change in Fiscal Year
Starting with the three and eight months ended September 30, 2021, we assumed GWAC’s financial calendar for our third fiscal quarter ending September 30 and our fiscal year ending December 31. This change to the Company’s formationfiscal year end was approved by the Board on September 23, 2021. Cipher Mining Technologies’ fiscal year previously ended on January 31.
Results of Operations
Since our inception on January 7, 2021 and until the time of the Business Combination, our activities were primarily organizational and those necessary to prepare for the Business Combination. Following the Business Combination, our activities have been focused on the set-up of cryptocurrency mining data centers as part of our planned buildout, including entry into agreements with Bitmain, SuperAcme and the Public Offering. We expect to generatenon-operatingincome in the formBitfury Group for supply of interest income on cash, cash equivalents,miners and marketable securities that are held in the Trust Account (as defined below).other equipment and services. For further details, see “—Contractual Obligations and Other Commitments.” We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as. Our plan of operation for due diligence expenses as we locate a suitable Business Combination.
We generated no revenue during either the three months ended June 30,March 31, 2022 or the two months ended March 31, 2021. We incurred general and administrative expenses of $17.4 million and $0.1 million during the three months ended March 31, 2022 and the two months ended March 31, 2021, respectively. Share-based compensation costs of $9.5 million were recognized in total general and administrative expenses for the three months ended March 31, 2022, primarily related to restricted stock units awarded to our employees. The remaining $7.9 million of general and administrative expenses incurred during the three months ended March 31, 2022 was recognized predominantly as follows: $2.4 million for business insurance, $1.4 million for taxes, $1.2 million for legal expenses, $0.8 million for payroll and payroll-related benefits for employees and $0.4 million each for consulting and accounting and audit expenses. General and administrative expenses recognized during the two months ended March 31, 2021 were mainly related to accounting and audit, investor relations and consulting expenses of $0.05 million, $0.04 million and $0.02 million, respectively.
We paid $76.5 million for deposits on miners and $20.4 million for deposits on other mining equipment during the three months ended March 31, 2022, increasing total deposits on equipment on our unaudited condensed consolidated balance sheet to approximately $207.2 million. Additionally, we hadpaid $7.1 million for purchases of property and equipment, which was principally related to construction-in-progress at one of our planned wholly-owned sites under development in Texas.
On March 15, 2022, we formed the Special Independent Committee to review, consider, deliberate, investigate, analyze, explore, evaluate, monitor and exercise general oversight of any and all activities of the Company directly or indirectly involving entry into the Waiver Agreement and the Observer Agreement. For more information about the Special Independent Committee, the Waiver and the Observer Agreements, see Notes 2 and 16 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Our legal expenses during the three months ended March 31, 2022 totaled $1.2 million and comprised primarily expenses related to the Special Independent Committee and legal and advisory expenses related to entry into the Waiver Agreement and the Observer Agreement.
Factors Expected to Affect Our Future Results
There have been no material changes to the “Factors Expected to Affect Our Future Results” in the Management’s Discussion and Analysis section of our 2021 Form 10-K. Our financial position and results of operations depend to a significant extent on those factors.
Liquidity and Capital Resources
We incurred a net loss of $2,058,979$17.5 million and negative cash flows from operations of $3.3 million for the three months ended March 31, 2022. As of March 31, 2022, we had working capital of approximately $101.1 million, which included cash and cash equivalents of $99.5 million, total stockholders’ equity of $342.5 million and an accumulated deficit of $89.7 million. To date, we have relied in large part on proceeds from the consummation of the Business Combination to fund our operations. During the three months ended March 31, 2022, we paid approximately $96.9 million as deposits on equipment, primarily for miners, and have significant future commitments related to these deposits as detailed below under “—Contractual Obligations and Other Commitments,” for which we will need additional capital in order to meet these commitments in accordance with the existing contractual terms. Management believes that our existing financial resources, combined with our abilityto delay or change our planned buildout steps, are sufficient to
25
meet our operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.
Cash Flows
The following table summarizes our sources and uses of cash (in thousands):
|
| Three Months Ended |
|
| Two Months Ended March 31, 2021 |
| ||
Net cash used in operating activities |
| $ | (3,321 | ) |
| $ | (45 | ) |
Net cash used in investing activities |
|
| (103,973 | ) |
|
| - |
|
Net cash (used in) provided by financing activities |
|
| (3,052 | ) |
|
| 100 |
|
Net (decrease) increase in cash and cash equivalents |
| $ | (110,346 | ) |
| $ | 55 |
|
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $3.3 million, resulting from a net loss of $17.3 million, less non-cash share-based compensation expenses of $9.5 million. The change in assets and liabilities of $4.4 million consisted of a decrease in prepaid expenses of $2.4 million primarily for insurance costs and an increase of $2.9 million for accrued expenses mainly for taxes and legal expenses; offset by a $1.0 increase in security deposits due to a bond covering the shipment of miners.
Net cash used in operating activities for the two months ended March 31, 2021 was approximately $45,000, resulting from a loss of $0.1 million and an increase in accounts payable of $67,000.
Investing Activities
Net cash used in investing activities during the three months ended March 31, 2022 was $104.0 million, primarily related to $96.9 million for deposits on equipment and $7.1 million for purchases of property and equipment primarily related to construction-in-progress at one of our planned Texas sites.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2022 was $3.1 million, which was used to repurchase shares to cover the tax obligations of employees resulting from the vesting of restricted stock units in the first quarter of 2022.
Net cash provided by financing activities for the two months ended March 31, 2021 was related to the receipt of a $0.1 million loan from Bitfury Top HoldCo to provide funding to the Company for its expenses.
Limited Business History; Need for Additional Capital
There is limited historical financial information about the Company upon which to base an evaluation of its performance. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration and/or development, and possible cost overruns due to price and cost increases in services. We have no current intention of entering into a merger or acquisition within the next 12 months and we have a specific business plan and timetable to complete our 12-month plan of operation. We are in the process of an active operational buildout and anticipate that additional capital will be required to implement the buildout. See also “—Liquidity and Capital Resources.” We may also require additional capital to progress our buildout plan, pursue certain business opportunities or respond to technological advancements, competitive dynamics or technologies, customer demands, challenges, acquisitions or unforeseen circumstances. Additionally, we have incurred and expect to continue to incur significant costs related to becoming a public company. Accordingly, we may in the future engage in equity or debt financings or enter into credit facilities for the above-mentioned or other reasons; however, we may not be able to timely secure additional debt or equity financings on favorable terms, if at all. If we raise additional funds through equity financing, our existing stockholders could experience significant dilution. Furthermore, any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing on terms that are satisfactory to us, when we require it, our ability to continue to grow or support the business and to respond to business challenges could be significantly limited. If the Company is unable to obtain adequate debt or equity financing for its planned buildout, we may be required to delay or change our planned buildout steps, which may adversely affect our business plan. For risks associated with this, see “Risks Factors—Risks Related to Our Business, Industry and Operations—We will need to raise additional capital, which may not be available on terms acceptable to us, or at all” in our 2021 Form 10-K.
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Contractual Obligations and Other Commitments
We have a lease agreement for executive office space, with an effective term that commenced on February 1, 2022 and monthly rent payments of approximately $0.1 million commencing on June 1, 2022. The initial lease term is for a period of five years and four months.
Mining and Mining Equipment
At March 31, 2022, we had the following contractual obligations and other commitments for miners and other mining equipment (amounts in thousands):
Vendor |
| Agreement Date |
| Original Maximum Purchase Commitment* |
|
| Open Purchase Commitment |
|
| Deposits Paid |
|
| Expected Shipping for Open Purchase Commitments | |||
Bitmain Technologies Limited** |
| August 20, 2021 and August 30, 2021 |
| $ | 171,135 |
|
| $ | 164,590 |
|
| $ | 107,879 |
|
| April 2022 - September 2022 |
SuperAcme Technology (Hong Kong)**/**** |
| September 2, 2021 |
|
| 222,401 |
|
|
| 222,401 |
|
|
| 59,307 |
|
| July 2022 - December 2022 |
Bitfury Top HoldCo B.V. |
| October 11, 2021 |
| *** |
|
| *** |
|
|
| 10,000 |
|
| *** | ||
Bitfury USA Inc. and other vendors (primarily for BBACs) |
| Various |
|
|
|
|
| 47,775 |
|
|
| 29,978 |
|
|
| |
Total |
|
|
|
|
|
| $ | 434,765 |
|
| $ | 207,164 |
|
|
| |
__________
* Maximum purchase commitment does not consider discounts that we may qualify for with the respective vendors, which could reduce the total cost of the miners.
** Pursuant to our agreements with Bitmain and SuperAcme, we are responsible for all logistics costs related to transportation, packaging for transportation and insurance related to the delivery of the miners.
*** As of March 31, 2022, there were no mutually executed order confirmations and as such, we had no binding commitments to acquire miners from Bitfury Top HoldCo. See “—Recent Developments” above for additional information regarding the return of shares of our Common Stock held by Bitfury Top HoldCo as consideration for the $10.0 million deposit paid, which occurred after March 31, 2022.
****See “—Recent Developments” above for additional information regarding the execution of the Amended SuperAcme Agreement.
On August 20, 2021 and on August 30, 2021, we and Bitmain entered into a Non-Fixed Price Sales and Purchase Agreement and a Supplemental Agreement to Non-Fixed Price Sales and Purchase Agreement, respectively, (together, the “Bitmain Agreement”) for us to purchase 27,000 Antminer S19j Pro (100 TH/s) miners, which were expected to be delivered in nine batches on a monthly basis between January 2022 and September 2022; however, as of March 31, 2022, only one monthly batch has been received. The original purchase price under the Bitmain Agreement is $171.1 million (the “Total Purchase Price”) with (i) 25% of the Total Purchase Price due paid within five days of execution of the Bitmain Agreement, (ii) 35% of the purchase price of each batch due five months prior to each delivery, and (iii) the remaining 40% of the purchase price of each batch due 15 days prior to each delivery. As of March 31, 2022, we had paid total deposits of $114.0 million for the miners (some of which are no longer reflected in the table above due to the receipt of one batch of miners during the three months ended March 31, 2022).
On September 2, 2021, we entered into the Original SuperAcme Agreement to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners, which are expected to be delivered in six batches on a monthly basis between July 2022 and December 2022. On May 6, 2022, we entered into the Amended SuperAcme Agreement, which establishes a new delivery quantity ratio of miners as well as new fixed subtotal pricing. In connection with the Original SuperAcme Agreement, we previously paid an initial deposit of $22.2 million. No additional initial deposit was required as a result of the execution of the Amended SuperAcme Agreement. The expected final purchase price under the Amended SuperAcme Agreement is subject to both the new fixed price terms and certain floating price terms. Each batch of miners will continue to be paid in full prior to delivery. As of March 31, 2022, we had paid deposits of $59.3 million for the miners.
On October 11, 2021, we entered into an agreement with Bitfury Top HoldCo B.V., made under, and as a part of, the Master Services and Supply Agreement, to purchase a total of between 28,000 to 56,000 mining rigs, to be delivered in seven batches on a monthly basis between June 2022 and December 2022. The agreement is a non-binding commitment unless and until confirmed by a mutually executed order confirmation. Based on our latest market assessments, we currently do not anticipate entering into any such order confirmations. Generally, under this agreement, we agreed to pay a maximum price of $6,250 per machine, with an advance payment
27
of $10.0 million due on or before the third business day following the execution of the agreement, and advance payments for each monthly batch due thereafter in accordance with the terms of the agreement. As of March 31, 2022, we had paid a deposit of $10.0 for the miners. If we do not enter into any order confirmations, the deposit is expected to be returned to us or used to partially offset amounts that we may owe to the Bitfury Group under any other arrangements.
Additionally, we also entered into two agreements with Bitfury USA Inc., a subsidiary of Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement, to purchase a total of 200 units of BlockBox air-cooled containers (each a “BBAC”), the modular data centers that house mining machines. The delivery of the first 20 containers is expected to begin in the first quarter of 2022 and the remainder are expected to be delivered in 20 batches between May 2022 and October 2022.
We are also party to several power and hosting arrangements. Under the Luminant Power Agreement, the other half of the Independent Collateral Amount, or approximately $12.6 million, is due 15 days prior to the date on which the Interconnection Electric Facilities are completed and made operational. See “Business—Material Agreements—Power Arrangements and Hosting Arrangements” for more information.
Non-GAAP Financial Measures
We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of depreciation of fixed assets, stock compensation expense and (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impact of depreciation of fixed assets, change in fair value of warrant liability and stock compensation expense. These supplemental financial measures are not measurements of $76,329, business combination and operating expenses of $2,032,419 offset by interest income on marketable securities heldfinancial performance under accounting principles generally accepted in the Trust AccountUnited States (”GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of $49,769.
We believe that these non-GAAP financial measures are also useful to investors in comparing our performance across reporting periods on a consistent basis. Non-GAAP loss from operations excludes non-cash operational expenses that we believe are not reflective of our general business performance such as (i) depreciation of fixed assets and (ii) stock compensation expense that could vary significantly in comparison to other companies.
Non-GAAP net loss and non-GAAP diluted loss per share exclude the Company (or “Good Works”) entered intoimpact of (i) depreciation of fixed assets, (ii) change in fair value of warrant liability and (iii) stock compensation expense. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.
Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among Currency Merger Sub, Inc., a Delaware corporation and a wholly-owned direct subsidiaryimportant part of the Company (“Merger Sub”), and Cipher Mining Technologies Inc., a Delaware corporation (“Cipher”).
The following is a reconciliation of our accounting policies require that management apply significant judgmentsnon-GAAP loss from operations, which excludes the impact of (i) depreciation of fixed assets and (ii) stock compensation expense, to its most directly comparable GAAP measure for the periods indicated:
|
| Three Months Ended |
|
| Two Months Ended March 31, 2021 |
| ||
Reconciliation of non-GAAP loss from operations: |
|
|
|
|
|
| ||
Operating loss |
| $ | (17,401 | ) |
| $ | (113 | ) |
Depreciation |
|
| 7 |
|
|
| - |
|
Impairment of cryptocurrencies |
|
| 4 |
|
|
| - |
|
Stock compensation expense |
|
| 9,514 |
|
|
| - |
|
Non-GAAP loss from operations |
| $ | (7,876 | ) | �� | $ | (113 | ) |
The following are reconciliations of our non-GAAP net loss and non-GAAP basic and diluted net loss per share, in definingeach case excluding the appropriate assumptions integralimpact of (i) depreciation of fixed assets (ii) change in fair value of warrant liability and (iii) stock compensation expense, to financial estimates. On an ongoing basis, management reviews the accounting policies, assumptions, estimatesmost directly comparable GAAP measures for the periods indicated:
28
|
| Three Months Ended |
|
| Two Months Ended March 31, 2021 |
| ||
Reconciliation of non-GAAP net loss: |
|
|
|
|
|
| ||
Net loss |
| $ | (17,499 | ) |
| $ | (113 | ) |
Non-cash adjustments to net loss |
|
|
|
|
|
| ||
Depreciation |
|
| 7 |
|
|
| - |
|
Change in fair value of warrant liability |
|
| 48 |
|
|
| - |
|
Impairment of cryptocurrencies |
|
| 4 |
|
|
| - |
|
Stock compensation expense |
|
| 9,514 |
|
|
| - |
|
Total non-cash adjustments to net loss |
|
| 9,573 |
|
|
| - |
|
Non-GAAP net loss |
| $ | (7,926 | ) |
| $ | (113 | ) |
|
| |||||||
|
| |||||||
Reconciliation of non-GAAP basic and diluted net loss per |
|
|
|
|
|
| ||
Basic and diluted net loss per share |
| $ | (0.07 | ) |
| $ | - |
|
Depreciation of fixed assets (per share) |
|
| - |
|
|
| - |
|
Change in fair value of warrant liability (per share) |
|
| - |
|
|
| - |
|
Impairment of cryptocurrencies (per share) |
|
| - |
|
|
| - |
|
Stock compensation expense (per share) |
|
| 0.04 |
|
|
| - |
|
Non-GAAP basic and diluted net loss per share |
| $ | (0.03 | ) |
| $ | - |
|
Critical Accounting Policies and judgments to ensure that ourUse of Estimates
The preparation of financial statements are presented fairly and in accordanceconformity with U.S. GAAP. Judgments are based on historical experience, terms of existing contracts, industry trends and information available from outside sources, as appropriate. However, by their nature, judgments are subjectGAAP requires management to an inherent degree of uncertainty, and, therefore, actual results could differ from our estimates. For a full discussion of our accountingmake estimates and assumptions that have been identified as critical inaffect the preparationreported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Company’sunaudited condensed consolidated financial statements please referand the reported amounts of expenses during the reporting period. A description of our significant accounting policies in included in our 2021 Form 10-K. You should read the unaudited condensed consolidated financial statements in conjunction with our audited consolidated financial statements and accompanying notes in our 2021 Form 10-K. Except as disclosed below, there has been no material change in the information disclosed in the notes to Good Works Acquisition Corp.’sour audited consolidated financial statements included in our 2021 Form10-K/AAmendment No. 2 10-K.
Cryptocurrencies
Cryptocurrencies, including Bitcoin, will be included in current assets on the consolidated balance sheets. Cryptocurrencies awarded to us through our wholly owned mining activities will be accounted for in connection with our revenue recognition policy disclosed above. Cryptocurrencies awarded to us as distributions-in-kind from equity investees are accounted for in accordance with ASC 845, “Nonmonetary Transactions” and recorded at fair value upon receipt.
Cryptocurrencies will be accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If we conclude otherwise, it is required to perform a quantitative impairment test. We have elected to bypass the optional qualitative impairment assessment and will track our cryptocurrency activity daily for impairment assessment purposes. We will determine the fair value of our cryptocurrencies on a nonrecurring basis in accordance with ASC 820, Fair Value Measurements and Disclosures, based on quoted prices on the active trading platform that we determine is our principal market for Bitcoin (Level 1 input). We will perform an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted prices on active trading platforms, indicate that it is more likely than not that our cryptocurrencies are impaired. For impairment testing purposes, daily fair value of the cryptocurrencies is based on the next day’s beginning market price of the cryptocurrency (UTC 00:00), at the single Bitcoin level (one Bitcoin). The excess, if any, of the current carrying amount of the cryptocurrency assets over the daily fair value represents an impairment loss. The total of all daily impairment losses for the year ended December 31, 2020.
Cryptocurrencies awarded to us through our mining activities will be included as an adjustment to reconcile net income to cash used in operating activities in the consolidated statements of cash flows. The receipt of cryptocurrency as distributions-in-kind from equity investees and sales, if any, recently issued,of cryptocurrencies are included within investing activities in the consolidated statements of cash flows and
29
any realized gains or losses from such sales will be included in operating income (loss), net in the consolidated statements of operations. We will account for our sale of cryptocurrencies in accordance with the first in first out (“FIFO”) method of accounting.
Investment in equity investee
We account for investments using the equity method of accounting if the investment provides us with the ability to exercise significant influence, but not yet effective,control, over an investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an investee of between 20 percent and 50 percent, or an ownership interest greater than three to five percent in certain partnerships, unincorporated joint ventures and limited liability companies, although other factors are considered in determining whether the equity method of accounting standardsis appropriate. Under this method, an investment in the common stock of an investee (including a joint venture) shall be initially measured and recorded at cost.; however, an investor shall initially measure at fair value an investment in the common stock of an investee (including a joint venture) recognized upon the derecognition of a distinct nonfinancial asset at the time that control over the distinct nonfinancial asset is transferred to the equity investee, such as that which occurs upon the transfer of miners and mining equipment to the joint venture from us.
Our investment is subsequently adjusted to recognize our share of net income or losses as they occur. We also adjust our investment upon receipt of cryptocurrency from the equity investee, which is accounted for as a distribution-in-kind. Our share of investee earnings or losses is recorded, net of taxes, within earnings (losses) of equity method investment in the consolidated statements of operations. Additionally, our interest in the net assets of its equity method investee is reflected in the consolidated balance sheets. If, upon the contribution of nonfinancial assets to the joint venture from us, there is any difference between the cost of the investment and the amount of the underlying equity in the net assets of an investee, the difference is required to be accounted for as if currently adoptedthe investee were a consolidated subsidiary. If the difference is assigned to depreciable or amortizable assets or liabilities, then the difference should be amortized or accreted in connection with the equity earnings based on our proportionate share of the investee’s net income or loss. If the investor is unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.
We consider whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If we consider any such decline to be other than temporary (based on various factors, including historical financial results, success of the mining operations and the overall health of the investee’s industry), then we would haverecord a material effectwrite-down of our investment to estimated fair value.
Leases
We account for leases in accordance with ASC 842, Leases. Accordingly, management determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the accompanying financial statements.
A lease liability is recorded on our consolidated balance sheet at lease commencement reflecting the present value of our fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability will also be recorded, adjusted for any accrued or prepaid rents and/or unamortized initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, we use our incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. Our incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. ROU assets will be reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
For our operating leases, fixed lease payments will be recognized as lease expense on a straight-line basis over the lease term. Variable lease costs are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.
ASC 842 provides practical expedients for an entity’s ongoing accounting. We have elected the practical expedient not to separate lease and non-lease components for all leases, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of our lease components for balance sheet purposes.
The JOBS Act contains provisions that, among other things, relax certain reporting requirementsCompany entered into a series of agreements with affiliates of Luminant ET Services Company LLC (“Luminant”), including the Lease Agreement dated June 29, 2021, with amendment and restatement on July 9, 2021 (as amended and restated, the “Luminant
30
Lease Agreement”). Once the Luminant Lease Agreement is effective and we have control over the applicable leased asset, we will record both a ROU asset and a corresponding lease liability in accordance with ASC 842 for qualifying public companies. each lease component as applicable under the agreement.
Emerging Growth Company
We qualify asare an “emerging growth company” undercompany,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, and are allowedemerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting pronouncements based onstandards that have different effective dates for public and private companies until the effectiveearlier of the date for private (not publicly traded) companies. Wewe (i) are electing to delayno longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards onextended transition period provided in the relevant dates on which adoption of such standards is required fornon-emerginggrowth companies.JOBS Act. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Public OfferingExchange Act and are not required to provide the Private Placement, including amounts in the Trust Account, were invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditionsinformation under Rule2a-7under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there was no associated material exposure to interest rate risk.
Item 4. Controls and Procedures
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the supervisiondesired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our management we conducted an evaluationprincipal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2021, as such term is(as defined in Rules
Changes in Internal Control over Financial Reporting
There were no changechanges in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. We plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
32
PART II - II—OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business.
Item 1A. Risk Factors
For a discussion of potential risks and uncertainties related to us, see the information included in Part I, Item 1A, “Risk Factors” of our actual results to differ materially from those in this report include the risk factors described in our Amendment No. 1 to our2021 Form10-Kfiled with the SEC on May 7, 2021. As of the date of this report, there 10-K. There have been no material changes to the risk factors previously disclosed in our final prospectus filed2021 Form 10-K, except as noted below.
Unless the context otherwise requires, references in this Quarterly Report to the “Company,” “Cipher,” “we,” “us” or “our” refer to Cipher Mining Inc.
If we are unable to successfully maintain our power and hosting arrangements or secure the sites for our data centers, on acceptable terms or at all, or if we must otherwise relocate to replacement sites, our operations may be disrupted, and our business results may suffer.
As part of our strategy, we plan to set up and begin operations at several sites in the United States. We began deployment of capacity in the first quarter of 2022, with mining operations beginning at one site in February 2022. For further details on our planned buildout, see “Business—Our Planned Cryptocurrency Operations— Operational Buildout Plan” in our 2021 Form 10-K. We entered into definitive power and hosting arrangements with Standard Power, WindHQ and Luminant, which intend to cover our sites referenced above. For further details, see “Business— Material Agreements—Power Arrangements and Hosting Arrangements” in our 2021 Form 10-K. Furthermore, although these definitive agreements include provisions allowing us to secure the sites for our data centers, actually securing these sites on terms acceptable to us may not occur within our timing expectations or at all. Securing the sites for our data centers may also be subject to various governmental approvals and require entry into ancillary agreements. Our inability to secure the sites for our data centers could adversely impact the anticipated timing of our buildout. Additionally, we may need to secure interconnection agreements as part of securing the sites for our datacenters. Even if we are successful in negotiating and maintaining interconnection agreements for the relevant datacenters, our operations still remain subject to risks related to the availability of electricity and deployment of the required electrical infrastructure as per these interconnection agreements. For further details, see “—Bitcoin mining activities are energy-intensive, which may restrict the geographic locations of miners and have a negative environmental impact. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations, such as ours, or even fully or partially ban mining operations” in our 2021 Form 10-K.
If we fail to timely complete the planned construction of our sites and commence operations, it could have a material adverse effect on our business.
We began deployment of capacity, with mining operations beginning at one site in February 2022. For further details, see “Business—Our Planned Cryptocurrency Operations—Operational Buildout Plan” in our 2021 Form 10-K. We cannot give assurances that the construction at any of our planned sites will be completed as scheduled, without cost overrun or at all. Given current lead times for new mining hardware and certain equipment, we need to commit to purchasing mining machines and equipment in advance of a site becoming fully operational, and we may not have the power capacity or finalized infrastructure to support these mining machines. A failure or material delay in our ability to develop and operate the sites in accordance with, or in excess of, expectations could have a material adverse effect on our business, prospects, financial condition and operating results. Even if the construction is completed on a timely basis, we cannot give assurances that the full commercial operations will begin as we expected due to delays in receipt and installation of mining machines or otherwise.
Delays or disruptions in the development or operation of our Texas sites could also materially and adversely affect our business, results of operations and financial condition.
We currently expect to have a concentration of sites in Texas and, consequently, expect to be particularly exposed to changes in market conditions and natural disasters in this state. Texas, through its regulatory and economic incentives, has encouraged cryptocurrency mining companies, like ours, to locate their operations in the state. As such, we may face increased competition in Texas for suitable mining sites and skilled workers. If we experience delays in construction or commencement of mining operations, supply chain disruptions (such as the global microchip and semiconductor shortage), increased costs of component parts or raw materials, increased costs or lack of skilled labor or disputes with our third party contractors or service providers, or if other unforeseen events occur, our business, financial condition and results of operations could be adversely impacted.
33
Regulatory actions in one or more countries could severely affect the right to acquire, own, hold, sell or use certain cryptocurrencies or to exchange them for fiat currency.
In 2021, the Chinese government declared that all digital currency-related business activities are illegal, effectively banning mining and trading in cryptocurrencies, such as Bitcoin. One or more countries, such as India or Russia, may take similar regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use cryptocurrencies or to exchange them for fiat currency. In some nations, it is illegal to accept payment in Bitcoin and other cryptocurrencies for consumer transactions and banking institutions are barred from accepting deposits of cryptocurrencies. Such restrictions may adversely affect us as the large-scale use of cryptocurrencies as a means of exchange is presently confined to certain regions.
Furthermore, in the future, foreign governments may decide to subsidize or in some other way support certain large-scale cryptocurrency mining projects, thus adding hashrate to the overall network. Such circumstances could have a material adverse effect on the amount of Bitcoin we may be able to mine, the value of Bitcoin and any other cryptocurrencies we may potentially acquire or hold in the future and, consequently, our business, prospects, financial condition and operating results.
Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of Bitcoin and other digital assets.
Central banks in some countries have started to introduce digital forms of legal tender. For example, China’s CBDC project was made available to consumers in January 2022, and governments from Russia to the European Union have been discussing potential creation of new digital currencies. A 2021 survey of central banks by the Bank for International Settlements found that 86% are actively researching the potential for CBDCs, 60% were experimenting with the SEC.
BitfuryTop HoldCo is our controlling shareholder and, as such, may be able to control our strategic direction and exert substantial influence over all matters submitted to our stockholders for approval, including the election of directors and amendments of our organizational documents, and an approval right over any acquisition or liquidation.
As of May 6, 2022, Bitfury Top HoldCo (together with Bitfury Holding B.V. (“Bitfury Holding”),an affiliate of Bitfury Top HoldCo) held approximately 82.1% of our common stock. Accordingly, Bitfury is able to control or exert substantial influence over all matters submitted to our stockholders for approval, including the election of directors and amendments of our organizational documents, and an approval right over any acquisition or liquidation. Bitfury Top HoldCo may have interests that differ from those of the other stockholders and may vote in a way with which the other stockholders disagree and which may be adverse to their interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of Cipher, could deprive Cipher’s stockholders of an opportunity to receive a premium for theircapital stock as part of a sale of Cipher, and might ultimately affect the market price of shares of our common stock.
Furthermore, Bitfury Top HoldCo is our counterparty under the Master Services and Supply Agreement. For further details, see “Business—Material Agreements—Master Services and Supply Agreement” and “—BitfuryTop HoldCo is our counterparty under the Master Services and Supply Agreement and is a holding company with limited assets” in our 2021 Form 10-K. The Master Services and Supply Agreement and any potential agreements thereunder constitute related-party transactions, see “Certain Relationships and Related Person Transactions—Master Services and Supply Agreement” in our 2021 Form 10-K. Bitfury Top HoldCo is entitled to appoint a majority of the members of the Board, and it has the power to determine the decisions to be taken at our shareholder meetings on matters of our management that require the prior authorization of our shareholders, including in respect of related party transactions, such as the Master Services and Supply Agreement, corporate restructurings and the date of payment of dividends and other capital distributions. Thus, the decisions of Bitfury Top HoldCo as our controlling shareholder on these matters, including its decisions with respect to its or our performance under the Master Services and Supply Agreement, may be contrary to the expectations or preferences of our common stock holders and could have a material adverse effect on our business, prospects, financial condition, and operating results.
Any offer or sale by Bitfury Top HoldCo, of our common stock or securities in the Bitfury Top HoldCo itself or another entity that may have a direct or indirect control over us, could have a negative effect on the price and trading volume of our common stock.
As of May 6, 2022, Bitfury Top HoldCo (together with Bitfury Holding)held approximately 82.1% of our common stock. The market price and trading volume of our common stock could be adversely affected by, among other factors, sales of substantial amounts of common stock in the public market, investor perception that substantial amounts of common stock could be sold or by the fact or perception of other events that could have a negative effect on the market for our common stock.
34
In the future, upon expiration of its respective lock-up, Bitfury Top HoldCo may offer or sell our common stock on the market. Furthermore, on April8, 2022, we entered into the Waiver Agreement with Bitfury Top HoldCo, pursuant to which we waived certain restrictions on transfer of our common stock held by Bitfury Top HoldCo and certain other stockholders, which were subject to lock-ups. For further details, see “Certain Relationships and Related Person Transactions—Waiver Agreement.” At any time, Bitfury Top HoldCo may also engage in capital markets transactions with respect to securities in Bitfury Top HoldCo itself or another entity that may have direct or indirect control over us.
Any future transactions by Bitfury Top HoldCo with other investors, such as the ones listed above, could decrease the price and trading volume of our common stock. Furthermore, as the cryptocurrency industry is developing and investments in cryptocurrency and cryptocurrency-related securities may still be highly speculative, it can contribute to any potential price volatility of our common stock and exacerbate any effects of the risks discussed above.
Exercise of our outstanding warrants for our common stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of May 6, 2022, we had 8,613,980 outstanding warrants to purchase our common stock, which became exercisable beginning on October 19, 2021. The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the holders of our common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the prevailing market price of our common stock. However, there is no guarantee that the public warrants will be in the money at a given time prior to their expiration, and as such, the warrants may expire worthless. See “—There is no guarantee that our warrants will ever be in the money, and they may expire worthless” in our 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of our initial stockholders purchased 4,312,500 founder shares for an aggregate purchase priceUnregistered Equity Securities
None.
Use of $25,000 (up to 562,500 of which are subject to forfeiture). In August 2020, certain of our initial stockholders forfeited 1,355,000 founder shares and the Anchor Investors purchased 1,355,000 founder shares for an aggregate purchase price of approximately $7,855, or approximately $0.006 per share. In October 2020, our Sponsor forfeited an aggregate of 562,500 founder shares for no consideration, and GW Sponsor 2, LLC, an entity managed by our management, purchased from us 562,500 shares for a purchase price of $163,125. Simultaneously with the closing of the Public Offering, our Anchor Investors purchased an aggregate of 228,000 private placement units at a price of $10.00 per unit, for an aggregate purchase price of $2,280,000, in a private placement. The private placement units are identical to the units sold in the Public Offering except that the private placement warrants included in the private placement units: (i) will not be redeemable by us and (ii) may be exercised for cash or on a cashless basis, in each case so long as they are held by the initial purchasers or any of their permitted transferees. If the private placement warrants are held by holders other than the initial purchasers or any of their permitted transferees, the private placement warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants included in the units being sold in the Public Offering. The proceeds from the private placement units were added to the proceeds from the Public Offering held in the Trust Account. No underwriting discounts or commissions were paid with respect to such sales. The issuance of the founder shares and the private placement units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
On October 22, 2020, we consummated the Public Offering of 15,000,000 Units. The Units wereGWAC completed its initial public offering (the “GWAC IPO”). All shares sold at a price of $10.00 per unit, generating gross proceeds to the Company of $150,000,000. In connection with the IPO, the underwriters were granted a45-dayoption from the date of the prospectus (the “Over-Allotment Option”) to purchase up to 2,250,000 additional units to cover over-allotments (the “Over-Allotment Units”), if any. On October 26, 2020, the underwriters purchased an additional 1,500,000 Over-Allotment Units pursuant to the partial exercise of the Over-Allotment Option. On November 17, 2020, the underwriters purchased an additional 500,000 Over- Allotment Units pursuant to the partial exercise of the Over-Allotment Option. The Over-Allotment Units were sold at an offering price of $10.00 per Over-Allotment Unit, generating aggregate additional gross proceeds of $20,000,000 to the Company.
There has been no material change in the Public Offering, received a portionexpected use of the underwriting discounts and commissions related to the Public Offering. We also repaid the promissory note to an affiliate of our Sponsor from the proceeds of the Public Offering. After deducting the underwriting discounts and commissions and incurred offering costs, the total net proceeds from our Public Offering (including the Units sold in the Over-Allotment Option)GWAC IPO and the sale of the private placement units was $171,409,880, of which $170,000,000 (or $10.00 per unit sold in the Public Offering) was placed in the Trust Account. Other than as described above, no payments were made by us to directors, officers or persons owning ten percent or more ofin our common stock or to their associates, or to our affiliates.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
35
Item 6. Exhibits
|
|
|
| Incorporated by Reference |
| Filed/ | ||||||
Exhibit |
| Exhibit Description |
| From |
| File No. |
| Exhibit |
| Filing |
| Furnished Herewith |
2.1† |
|
| 8-K |
| 001-39625 |
| 2.1 |
| 3/5/2021 |
|
| |
3.1 |
| Second Amended and Restated Certificate of Incorporation of Cipher Mining Inc. |
| 8-K |
| 001-39625 |
| 3.1 |
| 8/31/2021 |
|
|
3.2 |
|
| 8-K |
| 001-39625 |
| 3.2 |
| 8/31/2021 |
|
| |
4.1 |
| Specimen Warrant Certificate of Good Works Acquisition Corp. |
| S-1/A |
| 333-248333 |
| 4.3 |
| 10/9/2020 |
|
|
4.2 |
|
| 8-K |
| 001-39625 |
| 4.1 |
| 10/28/2020 |
|
| |
10.1 |
|
| 10-K |
| 001-39625 |
| 10.35 |
| 3/4/2022 |
|
| |
10.2 |
|
| 8-K |
| 001-39625 |
| 99.1 |
| 4/14/2022 |
|
| |
10.3 |
|
| 8-K |
| 001-39625 |
| 99.2 |
| 4/14/2022 |
|
| |
31.1 |
| Certification of Chief Executive Officer pursuant to Rule 13a‑14(a)/15d‑14(a). |
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| * |
31.2 |
| Certification of Chief Financial Officer pursuant to Rule 13a‑14(a)/15d‑14(a). |
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|
| * |
32.1 |
| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
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| ** |
32.2 |
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
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|
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| ** |
101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| * |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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| * |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| * |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| * |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| * |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| * |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| * |
* Filed herewith.
** Furnished herewith.
† Certain of Contents
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CIPHER MINING INC. | |||||||||
Date: | By: | /s/ Tyler Page | |||||||
Tyler Page | |||||||||
Chief Executive Officer | |||||||||
(Principal Executive Officer) | |||||||||
Date: | By: | /s/ Edward Farrell | |||||||
Edward Farrell | |||||||||
Chief Financial Officer | |||||||||
(Principal Financial | |||||||||
37