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 JuneSeptember 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:001-39625
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 November 11, 2022, the registrant had 250,174,253common stock outstanding at January 13, 2022.
Page | ||||||
PART I. | 3 | |||||
Item 1. | 3 | |||||
Condensed Consolidated Balance Sheets | 3 | |||||
4 | ||||||
5 | ||||||
7 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 8 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 | ||||
Item 3. | 39 | |||||
Item 4. | 39 | |||||
Item 1. | 40 | |||||
Item 1A. | 40 | |||||
Item 2. | 40 | |||||
Item 3. | 40 | |||||
Item 4. | 41 | |||||
Item 5. | 41 | |||||
Item 6. | 42 | |||||
43 |
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)
| September 30, 2022 |
|
| December 31, 2021 |
| ||
| (unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents | $ | 28,111 |
|
| $ | 209,841 |
|
Receivables, related party |
| 731 |
|
|
| - |
|
Prepaid expenses and other current assets |
| 8,276 |
|
|
| 13,819 |
|
Cryptocurrencies |
| 2,263 |
|
|
| - |
|
Derivative asset |
| 30,393 |
|
|
| - |
|
Total current assets |
| 69,774 |
|
|
| 223,660 |
|
Deposits on equipment |
| 200,033 |
|
|
| 114,857 |
|
Property and equipment, net |
| 40,751 |
|
|
| 5,124 |
|
Security deposits |
| 11,455 |
|
|
| 10,352 |
|
Investment in equity investee |
| 31,690 |
|
|
| - |
|
Right-of-use asset |
| 5,303 |
|
|
| - |
|
Derivative asset |
| 48,487 |
|
|
| - |
|
Deferred investment costs |
| - |
|
|
| 174 |
|
Total assets | $ | 407,493 |
|
| $ | 354,167 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable | $ | 4,665 |
|
| $ | 242 |
|
Accounts payable, related party |
| 3,216 |
|
|
| - |
|
Operating lease liability, current portion |
| 1,002 |
|
|
| - |
|
Accrued expenses |
| 10,726 |
|
|
| 257 |
|
Total current liabilities |
| 19,609 |
|
|
| 499 |
|
Operating lease liability, net of current portion |
| 4,762 |
|
|
| - |
|
Warrant liability |
| 22 |
|
|
| 137 |
|
Total liabilities |
| 24,393 |
|
|
| 636 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
| ||
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding as of September 30, 2022 and December 31, 2021 |
| - |
|
|
| - |
|
Common stock, $0.001 par value, 500,000,000 shares authorized, 251,043,649 and 252,131,679 shares issued as of September 30, 2022 and December 31, 2021, respectively, and 247,518,966 and 249,279,420 shares outstanding as of September 30, 2022 and December 31, 2021, respectively |
| 251 |
|
|
| 252 |
|
Additional paid-in capital |
| 442,435 |
|
|
| 425,438 |
|
Treasury stock, at par, 3,524,683 and 2,852,259 shares at September 30, 2022 and December 31, 2021, respectively |
| (4 | ) |
|
| (3 | ) |
Accumulated deficit |
| (59,582 | ) |
|
| (72,156 | ) |
Total stockholders’ equity |
| 383,100 |
|
|
| 353,531 |
|
Total liabilities and stockholders’ equity | $ | 407,493 |
|
| $ | 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 September 30, |
|
| Nine Months Ended |
|
| Eight Months Ended |
| |||||||
| 2022 |
|
| 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Costs and operating expenses (income) |
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative | $ | 17,755 |
|
| $ | 2,283 |
|
| $ | 51,849 |
|
| $ | 2,942 |
|
Depreciation |
| 11 |
|
|
| - |
|
|
| 26 |
|
|
| 1 |
|
Change in fair value of derivative asset |
| (85,658 | ) |
|
| - |
|
|
| (85,658 | ) |
|
| - |
|
Realized gain on sale of cryptocurrencies |
| (6 | ) |
|
| - |
|
|
| (6 | ) |
|
| - |
|
Impairment of cryptocurrencies |
| 320 |
|
|
| - |
|
|
| 859 |
|
|
| - |
|
Equity in loss of equity investment |
| 8,345 |
|
|
| - |
|
|
| 20,577 |
|
|
| - |
|
Total costs and operating expenses (income) |
| (59,233 | ) |
|
| 2,283 |
|
|
| (12,353 | ) |
|
| 2,943 |
|
Operating income (loss) |
| 59,233 |
|
|
| (2,283 | ) |
|
| 12,353 |
|
|
| (2,943 | ) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 55 |
|
|
| 1 |
|
|
| 106 |
|
|
| 1 |
|
Interest expense |
| - |
|
|
| (26 | ) |
|
| - |
|
|
| (27 | ) |
Change in fair value of warrant liability |
| 4 |
|
|
| (113 | ) |
|
| 115 |
|
|
| (113 | ) |
Total other income (expense) |
| 59 |
|
|
| (138 | ) |
|
| 221 |
|
|
| (139 | ) |
Net income (loss) | $ | 59,292 |
|
| $ | (2,421 | ) |
| $ | 12,574 |
|
| $ | (3,082 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per share - basic | $ | 0.24 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
| $ | (0.01 | ) |
Net income (loss) per share - diluted | $ | 0.24 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding - basic |
| 247,508,745 |
|
|
| 217,644,991 |
|
|
| 248,461,373 |
|
|
| 206,708,013 |
|
Weighted average shares outstanding - diluted |
| 248,342,200 |
|
|
| 217,644,991 |
|
|
| 248,782,665 |
|
|
| 206,708,013 |
|
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 JuneSeptember 30, 2022
| Common Stock |
|
| Additional |
|
| Treasury Stock |
|
| Accumulated |
|
| Total Stockholders’ |
| |||||||||||||
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Equity |
| |||||||
Balance as of June 30, 2022 |
| 251,001,072 |
|
| $ | 251 |
|
| $ | 431,966 |
|
|
| (3,511,490 | ) |
| $ | (4 | ) |
| $ | (118,874 | ) |
| $ | 313,339 |
|
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement |
| 42,577 |
|
|
| - |
|
|
| (25 | ) |
|
| (13,193 | ) |
|
| - |
|
|
| - |
|
|
| (25 | ) |
Share-based compensation |
| - |
|
|
| - |
|
|
| 10,494 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,494 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59,292 |
|
|
| 59,292 |
|
Balance as of September 30, 2022 |
| 251,043,649 |
|
| $ | 251 |
|
| $ | 442,435 |
|
|
| (3,524,683 | ) |
| $ | (4 | ) |
| $ | (59,582 | ) |
| $ | 383,100 |
|
Three Months Ended September 30, 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 STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for share amounts)
(unaudited)
Nine Months Ended September 30, 2022
| Common Stock |
|
| Additional |
|
| Treasury Stock |
|
| Accumulated |
|
| Total Stockholders’ |
| |||||||||||||
| Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Shares |
|
| Amount |
|
| Deficit |
|
| 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 |
| 1,802,123 |
|
|
| 2 |
|
|
| (3,078 | ) |
|
| (672,424 | ) |
|
| (1 | ) |
|
| - |
|
|
| (3,077 | ) |
Warrants exercised |
| 20 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Common stock cancelled |
| (2,890,173 | ) |
|
| (3 | ) |
|
| (9,997 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,000 | ) |
Share-based compensation |
| - |
|
|
| - |
|
|
| 30,072 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,072 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,574 |
|
|
| 12,574 |
|
Balance as of September 30, 2022 |
| 251,043,649 |
|
| $ | 251 |
|
| $ | 442,435 |
|
|
| (3,524,683 | ) |
| $ | (4 | ) |
| $ | (59,582 | ) |
| $ | 383,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| ||||||
| Common Stock |
|
| Subscription |
|
| Additional |
|
| Accumulated |
|
| Stockholders’ |
| |||||||||
| Shares |
|
| Amount |
|
| Receivable |
|
| Paid-in Capital |
|
| Deficit |
|
| Equity (Deficit) |
| ||||||
Balance as of January 31, 2021 |
| 200,000,000 |
|
| $ | 200 |
|
| $ | - |
|
| $ | (200 | ) |
| $ | (3 | ) |
| $ | (3 | ) |
Business Combination, net of redemptions and equity issuance costs of $41.0 million |
| 46,381,119 |
|
|
| 46 |
|
|
| (1,690 | ) |
|
| 384,708 |
|
|
| - |
|
|
| 383,064 |
|
Net loss |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,082 | ) |
|
| (3,082 | ) |
Balance as of September 30, 2021 |
| 246,381,119 |
|
| $ | 246 |
|
| $ | (1,690 | ) |
| $ | 384,508 |
|
| $ | (3,085 | ) |
| $ | 379,979 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
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)
| Nine Months Ended |
|
| Eight Months Ended |
| ||
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income (loss) | $ | 12,574 |
|
| $ | (3,082 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
| ||
Depreciation |
| 26 |
|
|
| 1 |
|
Amortization of right-of-use assets |
| 556 |
|
|
| - |
|
Change in fair value of derivative asset |
| (85,658 | ) |
|
| - |
|
Change in fair value of warrant liability |
| (115 | ) |
|
| 113 |
|
Share-based compensation |
| 30,072 |
|
|
| - |
|
Equity in loss of equity investment |
| 20,577 |
|
|
| - |
|
Realized gain on sale of cryptocurrencies |
| (6 | ) |
|
| - |
|
Impairment of cryptocurrencies |
| 859 |
|
|
| - |
|
Changes in assets and liabilities: |
|
|
|
|
| ||
Proceeds from power sales |
| 1,722 |
|
|
| - |
|
Proceeds from reduction of scheduled power |
| 5,056 |
|
|
| - |
|
Proceeds from sale of cryptocurrencies |
| 23 |
|
|
| - |
|
Receivables, related party |
| (731 | ) |
|
| - |
|
Prepaid expenses and other current assets |
| 5,412 |
|
|
| (14,916 | ) |
Security deposits |
| (1,103 | ) |
|
| (9,381 | ) |
Accounts payable |
| 400 |
|
|
| 87 |
|
Accrued expenses |
| 1,408 |
|
|
| 78 |
|
Lease liability |
| 37 |
|
|
| - |
|
Net cash used in operating activities |
| (8,891 | ) |
|
| (27,100 | ) |
Cash flows from investing activities |
|
|
|
|
| ||
Deposits on equipment |
| (184,095 | ) |
|
| (74,346 | ) |
Purchases of property and equipment |
| (28,958 | ) |
|
| (130 | ) |
Capital distributions from equity investee |
| 43,291 |
|
|
| - |
|
Net cash used in investing activities |
| (169,762 | ) |
|
| (74,476 | ) |
Cash flows from financing activities |
|
|
|
|
| ||
Repurchase of common shares to pay employee withholding taxes |
| (3,077 | ) |
|
| - |
|
Business Combination, net of issuance costs paid |
| - |
|
|
| 383,853 |
|
Proceeds from borrowings on related party loan |
| - |
|
|
| 7,038 |
|
Repayments under related party loan |
| - |
|
|
| (7,038 | ) |
Net cash (used in) provided by financing activities |
| (3,077 | ) |
|
| 383,853 |
|
Net (decrease) increase in cash and cash equivalents |
| (181,730 | ) |
|
| 282,277 |
|
Cash and cash equivalents, beginning of the period |
| 209,841 |
|
|
| - |
|
Cash and cash equivalents, end of the period | $ | 28,111 |
|
| $ | 282,277 |
|
Supplemental disclosure of noncash investing and financing activities |
|
|
|
|
| ||
Equity method investment acquired for non-cash consideration | $ | 93,208 |
|
| $ | - |
|
Common stock cancelled | $ | 10,000 |
|
| $ | - |
|
Right-of-use asset obtained in exchange for operating lease liability | $ | 5,859 |
|
| $ | - |
|
Investment in equity investee in accrued expenses | $ | 5,316 |
|
| $ | - |
|
Property and equipment purchases in accounts payable | $ | 3,971 |
|
| $ | - |
|
Deposits on equipment in accrued expenses | $ | 3,746 |
|
| $ | - |
|
Cryptocurrencies received from equity method investment | $ | 3,139 |
|
| $ | - |
|
Property and equipment purchases in accounts payable, related party | $ | 2,724 |
|
| $ | - |
|
Deposits on equipment in accounts payable, related party | $ | 492 |
|
| $ | - |
|
Reclassification of deferred investment costs to equity method investment | $ | 174 |
|
| $ | - |
|
Prepaid rent reclassified to lease liability | $ | 132 |
|
| $ | - |
|
Deposits on equipment in accounts payable | $ | 51 |
|
| $ | - |
|
Business Combination costs included in accrued expenses | $ | - |
|
| $ | 1,024 |
|
Net assets assumed from GWAC in the Business Combination | $ | - |
|
| $ | 433 |
|
Non-cash fair value of private warrants | $ | - |
|
| $ | 261 |
|
Deferred investment costs included in accrued expenses | $ | - |
|
| $ | 174 |
|
Business combination costs included in accounts payable | $ | - |
|
| $ | 39 |
|
The accompanying notes toare an integral part of these unaudited condensed consolidated financial statements.
7
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, Merger Sub merged with and into Cipher Mining Technologies, the separate corporate existence of Merger Sub ceasing and Cipher Mining Technologies being the surviving corporation and a wholly-owned direct subsidiary of the Company (“Merger Sub”),GWAC (the “Merger” and, Cipher Mining Technologies Inc., a Delaware corporation (“Cipher”).
Business
The Company is subjectan emerging technology company that operates in the Bitcoin 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 in February 2022 at the partially-owned Alborz facility, located in Texas (the “Alborz Facility”). 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”). As of September 30, 2022, Bitfury Top HoldCo (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to certain closing conditions, including, but not limited to, (i) the expiration or terminationherein as “Bitfury Holding”) beneficially owned approximately 81.6% of the applicable waiting period underCompany’s common stock, $0.001 par value per share (“Common Stock”), with sole voting and sole dispositive power over those shares and, as a result, the HSR Act, (ii) the approval of Good Works stockholders, (iii) the approval 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 used $8.9 million of cash for its operations during the Merger Agreement) to be bound asnine months ended September 30, 2022. As of September 30, 2022, the closing,Company had approximate balances of cash and (iii) deliverycash equivalents of all ancillary agreements required to be executed$28.1 million, total stockholders’ equity of $383.1 million and delivered by Cipher or its sole stockholder and (iv) no Material Adverse Effect (as definedan accumulated deficit of $59.6 million. To date, the Company has, in the Merger Agreement) shall have occurred.
During the nine months ended September 30, 2022, the Company paid $184.1 million of deposits for miners and mining equipment. As of September 30, 2022, the Company had contributed equipment with a total cost of $93.2 million related to its contributions of 12,953 miners and other mining equipment to the Alborz Facility, which was reclassified from deposits on equipment to investment in equity investee on its consolidated balance sheet, with the exception of losses of $11.6 million and $7.2 million recognized by mutual written consentthe Company related to miners contributed in June 2022 and July 2022, respectively. See additional information regarding these losses in Note 8.
As of Good WorksSeptember 30, 2022, the Company had $200.0 million of deposits on equipment on its unaudited condensed consolidated balance sheet, primarily for miners and, Cipher, (ii) by Good Works if there is any breachas of September 30, 2022, it had additional future commitments related to these deposits as detailed in Note 6. See Note 15 for additional information regarding a supplementary agreement entered into on November 4, 2022 related to one of the representationsCompany’s purchase agreements for miners. The Company’s management believes that the Company’s existing financial resources, combined with the ability to delay certain equipment orders, projected cash and warrantiescryptocurrencies inflows from its sites, the ability to sell cryptocurrency received or earned, as well as potential sales of Cipher or if Cipher Mining fails to perform any covenant or agreement set forth in the Merger Agreement, in each case, such that certain conditions to closing cannot be satisfied and the breach or breaches of such representations or warranties or the failure to perform such covenant or agreement, as applicable, are not cured or cannot be cured within certain specified time periods, (iii) termination by Cipher if there is any breach of the representations and warranties of Good Works or if Good Works fails to perform any covenant or agreement set forth in the Merger Agreement, in each case, such that certain conditions to closing cannot be satisfied and the breach or breaches of such representations or warranties or the failure to perform such covenant or agreement, as applicable, are not cured or cannot be cured within certain specified time periods, (iv) subject to certain limited exceptions, by either Good Works or Cipher if the Business Combination is not consummated within six months of signing of the Merger Agreement, (v) by either Good Works or Cipher if certain required approvals are not obtained by Good Works stockholders after the conclusion of a meeting of Good Works stockholders held for such purpose at which such stockholders voted on such approvals, and (vi) termination by Good Works if Cipher’s sole stockholder does not deliver to Good Works a written consent approving the Business Combination within ten business days of the Consent Solicitation Statement (as defined in the Merger Agreement) being disseminated.
8
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
registration statement on Form S-3 (see additional information in the case of Willful Breach (as defined in the Merger Agreement).
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 exploration and/or the terminationdevelopment, and possible cost overruns due to price and cost increases in services. The Company’s management has no current intention of the Master Services and Supply Agreement (the “MSSA”) between Bitfury Holding B.V. (“BHBV”) and Cipher. Concurrently with the execution of the Merger Agreement, BHBV and Good Works enteredentering into a Restrictive Covenant Agreement pursuant to which BHBV agreed, duringmerger or acquisition within the term of the agreement and subject to the parameters and limitations set forthnext 12 months. 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.
As disclosed in Note 12, the Company entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC (the “Agent”) dated September 21, 2022 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $250.0 million in shares of the Company’s Common Stock through the Agent. The Company has not sold any shares of its Common Stock under the Sales Agreement as of the issuance of these unaudited condensed consolidated financial statements.
COVID-19 and other economic, business and political conditions
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 the Company’s 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 the date thatCompany’s business and management cannot anticipate all the ways in which the current economic climate and financial statements are issued. Theremarket conditions could adversely impact the Company’s business.
The Company may experience disruptions to its business operations resulting from supply delays or interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of its employees or its counterparties to perform their jobs. The Company may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, construction at the Alborz Facility was temporarily shut down in response to employees being impacted by COVID-19. The temporary shutdown was less than a week, and construction resumed at the site immediately after. If the Company is unable to effectively set up and service its miners, the Company’s 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 other pandemic, or other unfavorable global economic, business or political conditions, will not materially and adversely affect the Company’s plans to raise capital or to consummate a Business Combination will be successful within the Combination Period. Thebusiness, 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
9
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
Unaudited condensed consolidated financial statements
The accompanying unaudited 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 the Company’s management, these unaudited 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 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 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, 2021 and its fiscal year ending December 31, 2021. 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 investments are 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 an equity investee, which is accounted for as a distribution-in-kind. The Company’s share of investees’ earnings or losses is recorded, net of taxes, within equity in loss of equity investment on the Company’s consolidated statement of operations. Additionally, the Company’s interest in the net assets of its equity method investees is reflected on its consolidated balance sheet. If, upon Cipher’s contribution of nonfinancial assets to a joint venture, there is any difference between the cost of the investment and the amount of the underlying equity in the net assets of the 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
10
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the Company’s proportionate share of the investee’s net income or loss. If Cipher is unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.
The Company considers all short-termwhether the fair value of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered 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 the Company would record a write-down to the estimated fair value.
Property and equipment, net
Property and equipment consists primarily of construction-in-progress at the Company’s wholly-owned Odessa facility in Texas (the “Odessa Facility”), as well as office and computer equipment and software that is being developed for internal use. Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are 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 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):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Office and computer equipment |
| $ | 88 |
|
| $ | 60 |
|
Software |
|
| 392 |
|
|
| - |
|
Furniture and fixtures |
|
| 69 |
|
|
| - |
|
Miners and mining equipment |
|
| 26 |
|
|
| - |
|
Construction-in-progress |
|
| 40,192 |
|
|
| 5,069 |
|
Total cost of property and equipment |
|
| 40,767 |
|
|
| 5,129 |
|
Less: accumulated depreciation |
|
| (16 | ) |
|
| (5 | ) |
Property and equipment, net |
| $ | 40,751 |
|
| $ | 5,124 |
|
Depreciation expense was immaterial during the three and nine months ended September 30, 2022 and also during the three and eight months ended September 30, 2021.
Capitalized software costs
The Company accounts for the costs of software developed for internal use by capitalizing costs incurred during the application development stage to property and equipment, net on its consolidated balance sheet. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. The Company plans to amortize the capitalized costs of internal-use software on a straight-line basis over the estimated useful life of the asset, which is expected to be three years. The Company will recognize the amortization in the consolidated statements of operations once the software is technologically feasible.
Leases
The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”). Accordingly, the Company determines whether an original maturityarrangement contains a lease at the inception of threethe 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.
For leases with a term exceeding 12 months, 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 is also 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 generally uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not
11
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 asset may not be recoverable.
For the Company’s operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, when purchased to be cash equivalents.any fixed payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception are insignificant. 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. The Company didhas elected the practical expedient not have any cash equivalentsto 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 June 30, 2021 or December 31, 2020.the Company’s lease components for balance sheet purposes.
Cryptocurrencies
Cryptocurrencies, including Bitcoin, are included in Trust Account
Cryptocurrencies held by the Company are those securitiesaccounted 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. The Company determines the fair value of its cryptocurrencies on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on the lowest intra-day market price of the cryptocurrency at the single Bitcoin level (one Bitcoin). The excess, if any, represents a recognized impairment loss. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. The Company recognized impairment charges of $0.3 million and $0.9 million on its cryptocurrency assets during the three and nine months ended September 30, 2022, respectively.
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 statements of cash flows. The proceeds from sales of cryptocurrencies are included within operating activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in operating income (loss), net in the consolidated statements of operations. The receipt of cryptocurrency as distributions-in-kind from equity investees are included within investing activities in the consolidated statements of cash flows. The Company accounts for its sales of cryptocurrencies in accordance with the first in first out method of accounting.
Derivative Accounting
Luminant Power Agreement
On June 23, 2021, the Company entered into a power purchase agreement with Luminant ET Services Company LLC (“Luminant”), which was subsequently amended and restated on July 9, 2021, and further amended on February 28, 2022 (the “February Amendment”) and August 26, 2022 (the “August Amendment”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of five years with a subsequent automatic annual renewal provision (as amended, the “Luminant Power Agreement”). Cipher is expecting to receive interconnection approval from the Electric Reliability Council of Texas (“ERCOT”) this year, which will allow the Company to commence mining Bitcoin at the Odessa Facility. Starting from July 1, 2022, under the take or pay framework of the Luminant Power Agreement and pursuant to the ramp-up schedule agreed to between Luminant and Cipher as part of the February Amendment and amended under the August Amendment, Luminant began sales of the scheduled energy in the ERCOT market.
Because ERCOT allows for net settlement, the Company’s management determined that, as of July 1, 2022, the Luminant Power Agreement meets the definition of a derivative under ASC 815, Derivatives and Hedging (“ASC 815”). Because the Company has the ability to sell its electricity in the ERCOT market rather than take physical delivery, physical delivery is not probable through the entirety of the contract and intenttherefore, the Company’s management does not believe the normal purchases and normal sales scope
12
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
exception applies to hold until maturity.Held-to-maturitytreasury securities arethe Luminant Power Agreement. Accordingly, the Luminant Power Agreement (the non-hedging derivative contract) is recorded at amortized cost and adjusted foran estimated fair value each reporting period with the amortization or accretion of premiums or discounts.
Depending on the spot market price of electricity, the Company may opportunistically sell electricity in the ERCOT market in exchange for cash payments, rather than utilizing the power to mine for cryptocurrency at the Odessa Facility during peak times in order to most efficiently manage the Company’s operating costs. The Company, through Luminant, sold $1.7 million in electricity during the three months ended September 30, 2022. These power sales were recorded as part of the change in fair value of derivative asset in the methods used to measure fair valueaccompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2022. Once the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the sellerCompany begins cryptocurrency mining at the measurement date. In determining fair value,Odessa Facility, costs under the valuation techniques consistent withLuminant Power Agreement will be recorded in cost of revenues in the market approach,Company’s consolidated statements of operations.
Income (loss) per share
Basic net income approach and cost approach shall be used(loss) per share of Common Stock is computed by dividing net income (loss) allocated to measure fair value. ASC 820 establishes a fair value hierarchy for inputs, which represent the assumptions usedcommon shareholders by the buyer and sellerweighted average number of common shares outstanding during the period. Diluted net income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are thoseissuance of Common Stock that buyer and seller would usethen shared in pricing the asset or liability based on market data obtained from sources independentearnings of the Company. Unobservable inputs reflectentity. Dilutive potential common shares include the Company’s assumptions aboutoutstanding Public Warrants (as defined in Note 13) and Private Placement Warrants (as defined in Note 13) that were sold by GWAC in its initial public offering or concurrent with its initial public offering, respectively, and assumed by the inputsCompany as of the Effective Date of the Business Combination, as well as unvested restricted stock units (“RSUs”).
For the three and nine months ended September 30, 2022, the dilutive effect of RSUs was calculated using the treasury stock method. For warrants that are liability-classified, during periods when the buyerimpact is dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and seller would useadjusts the numerator to remove the change in pricing the asset or liability developed based on the best information available in the circumstances.
The Company’s potential common shares have been excluded from the computation of diluted net loss per common share for the three and eight months ended September 30, 2021, as the effect would be to reduce the net loss per common share. The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods indicated below:
|
| Three Months Ended September 30, |
|
| Nine Months Ended |
|
| Eight Months Ended |
| |||||||
|
| 2022 |
|
| 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Basic and diluted income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 59,292 |
|
| $ | (2,421 | ) |
| $ | 12,574 |
|
| $ | (3,082 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding - basic |
|
| 247,508,745 |
|
|
| 217,644,991 |
|
|
| 248,461,373 |
|
|
| 206,708,013 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
RSUs |
|
| 833,455 |
|
|
| - |
|
|
| 321,292 |
|
|
| - |
|
Weighted average shares outstanding - diluted |
|
| 248,342,200 |
|
|
| 217,644,991 |
|
|
| 248,782,665 |
|
|
| 206,708,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per share - basic |
| $ | 0.24 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
| $ | (0.01 | ) |
Net income (loss) per share - diluted |
| $ | 0.24 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
| $ | (0.01 | ) |
The following table presents the common shares that are excluded from the computation of diluted net income (loss) per common share at September 30, 2022 and September 30, 2021, because including them would have been antidilutive.
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Public Warrants |
|
| 8,499,980 |
|
|
| 8,500,000 |
|
Private Placement Warrants |
|
| 114,000 |
|
|
| 114,000 |
|
Unvested RSUs |
|
| 15,364,457 |
|
|
| - |
|
|
|
| 23,978,437 |
|
|
| 8,614,000 |
|
13
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on the Company’s consolidated financial statements or disclosures.
NOTE 3. FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities which qualifysubject to fair value measurement on a recurring basis and the level of inputs used for such measurements were as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed consolidated balance sheetfollows as of June 30, 2021 and the balance sheet as of December 31, 2020. The fairdates indicated (amounts in thousands):
|
| Fair Value Measured as of September 30, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market securities |
| $ | 11,111 |
|
| $ | - |
|
| $ | - |
|
| $ | 11,111 |
|
Derivative asset |
|
| - |
|
|
| - |
|
|
| 78,880 |
|
|
| 78,880 |
|
|
| $ | 11,111 |
|
| $ | - |
|
| $ | 78,880 |
|
| $ | 89,991 |
|
Liabilities included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrant liability |
| $ | - |
|
| $ | - |
|
| $ | 22 |
|
| $ | 22 |
|
|
| $ | - |
|
| $ | - |
|
| $ | 22 |
|
| $ | 22 |
|
|
| 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, accounts payable and accrued expenses are estimated to approximate the carryingtheir recorded values as of June 30, 2021 and December 31, 2020 due to the short maturitiesshort-term nature of these items.
There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented.
14
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Level 3 asset
On July 1, 2022, the Company recorded a derivative asset, divided between current and noncurrent assets, on its condensed consolidated balance sheet related to the Luminant Power Agreement as this is when both the quantities of electricity demand were known and penalties for nonperformance under the Luminant Power Agreement became enforceable, with an offsetting amount recorded to change in the fair value of derivative asset in operating income (loss) on the accompanying condensed consolidated statements of operations. Subsequent changes in fair value are also recorded to change in fair value of derivative asset in operating income (loss). The Luminant Power Agreement was not designated as a hedging instrument. The Company does not have any other derivative contracts. The estimated fair value of the Company’s derivative asset was derived from Level 2 and Level 3 inputs (i.e., unobservable inputs) due to a lack of quoted prices for similar type assets and as 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 following table presents the changes in the estimated fair value of the derivative asset measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 (amounts in thousands):
Balance, January 1, 2022 |
| $ | - |
|
Fair value on derivative asset effective date |
|
| 83,610 |
|
Proceeds from reduction of scheduled power |
|
| (5,056 | ) |
Change in fair value |
|
| 326 |
|
Balance, September 30, 2022 |
| $ | 78,880 |
|
Under the August Amendment to the Luminant Power Agreement, the Company and Luminant agreed to reduce Luminant’s obligation to provide specific amounts of scheduled power over upcoming months and, in exchange for the reduction in scheduled power supply by Luminant and as liabilities pursuantconsideration for the modification to ASC815-40areas such, the Company reduced the derivative asset by the amount received from Luminant as shown in the table above. For the nine months ended September 30, 2022, there was a change of $0.3 million in Level 3 assets measured at fair value. Additionally, during the three months ended September 30, 2022, the Company, through Luminant, sold electricity in the ERCOT market, resulting in $1.7 million recorded to change in fair value of derivative asset in the accompanying condensed consolidated statements of operations for both the three and nine months ended September 30, 2022.
Level 3 liability
The Company’s Private Placement Warrants (as defined in Note 13) are its only liability classified within Level 3 of the fair value hierarchy because the fair value is based on significant inputs that are unobservable in the market. 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.
15
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company engaged a valuation firm to determine the fair value of the Private Placement Warrants are recordedusing a Black-Scholes option-pricing model and the quoted price of the Company’s Common Stock. The following table presents significant assumptions utilized in the statementvaluations of operations each period.the Private Placement Warrants as of the dates indicated:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Risk-free rate |
|
| 4.08 | % |
|
| 1.20 | % |
Dividend yield rate |
|
| 0.00 | % |
|
| 0.00 | % |
Volatility |
|
| 78.2 | % |
|
| 58.8 | % |
Contractual term (in years) |
|
| 3.9 |
|
|
| 4.7 |
|
Exercise price |
| $ | 11.50 |
|
| $ | 11.50 |
|
The following table presents changes in the estimated fair value of the Private Placement Warrants for the nine months ended September 30, 2022 (amounts in thousands):
Balance, January 1, 2022 |
| $ | 137 |
|
Change in fair value |
|
| (115 | ) |
Balance, September 30, 2022 |
| $ | 22 |
|
NOTE 4. PREPAID EXPENSES AND ACCRUED EXPENSES
As of September 30, 2022 and December 31, 2021, the Company had $8.3 million and $13.8 million, respectively, of prepaid expenses and other current assets, which was determined using a Black Sholes valuation model using Level 3 inputs. Significant inputsalmost entirely related to prepaid insurance as of both balance sheet dates.
The Company’s accrued expenses consisted of the valuation arefollowing as follows:of the dates indicated (amounts in thousands):
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Taxes (primarily sales tax) |
| $ | 9,895 |
|
| $ | - |
|
Legal |
|
| 389 |
|
|
| 100 |
|
Accounting and audit |
|
| 238 |
|
|
| 153 |
|
Other |
|
| 204 |
|
|
| 4 |
|
Total accrued expenses |
| $ | 10,726 |
|
| $ | 257 |
|
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 | % |
NOTE 5. CRYPTOCURRENCIES
The following table presents a summary ofinformation about the changesCompany’s cryptocurrencies (Bitcoin) (amounts in thousands):
Balance, December 31, 2021 |
| $ | - |
|
Cryptocurrencies received from equity investees |
|
| 3,139 |
|
Proceeds from sale of cryptocurrencies |
|
| (23 | ) |
Realized gain on sale of cryptocurrencies |
|
| 6 |
|
Impairment of cryptocurrencies |
|
| (859 | ) |
Balance, September 30, 2022 |
| $ | 2,263 |
|
The Company’s cryptocurrency activity for the nine months ended September 30, 2022 was entirely from Bitcoin. The fair market value of the Private Warrants,Company’s Bitcoin as of September 30, 2022 was approximately $2.4 million and was estimated using the closing price of Bitcoin, which is a Level 3 liability, measured1 input (i.e., an observable input such as a quoted price in an active market for an identical asset). The Company had no cryptocurrency activity during the eight months ended September 30, 2021.
During the three and nine months ended September 30, 2022, the Company recorded impairment charges on its cryptocurrency holdings of $0.3 million and $0.9 million, respectively.
16
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. DEPOSITS ON EQUIPMENT
As of September 30, 2022, the Company had outstanding executed purchase agreements for the purchase of (1) 27,000 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”). The Company entered into an Amended and Restated Framework Agreement on Supply of Blockchain Servers with SuperAcme (the “Amended SuperAcme Agreement”) on May 6, 2022, 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 established a recurring basis.
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 | ||
The Company entered into two agreements with Bitfury USA Inc. (“Bitfury USA”), a subsidiary of 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, to purchase a total of 240 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 the statementMaster Services and Supply Agreement.
The Company previously had an agreement for the purchase of operations.
The purchase agreement commitments, deposits paid and expected delivery timing (remaining balances are payable in advance of shipping) are summarized below as of September 30, 2022 (amounts in thousands):
Vendor |
| Agreement Dates |
| 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 |
|
| $ | 55,500 |
|
| $ | 55,500 |
|
| October 2022 - December 2022 |
SuperAcme Technology (Hong Kong)**/*** |
| May 6, 2022 |
|
| 222,401 |
|
|
| 222,401 |
|
|
| 101,819 |
|
| October 2022 - December 2022 |
Bitfury USA and other vendors (primarily for BBACs)**** |
| Various |
|
|
|
|
| 57,173 |
|
|
| 42,715 |
|
|
| |
Total |
|
|
|
|
|
| $ | 335,074 |
|
| $ | 200,033 |
|
|
|
__________
* Maximum purchase commitment does not consider discounts that the Company may qualify for with the respective vendors, which could reduce the total cost.
** Pursuant to the Company’s agreements with Bitmain and SuperAcme, the Company is responsible for all logistics costs related to transportation, packaging for transportation and insurance related to the delivery of the miners.
*** See Note 15 for information regarding a cash accountsupplementary agreement entered into on November 4, 2022 with SuperAcme.
****See Notes 9 and 15 for additional information regarding payments for BBACs.
During the nine months ended September 30, 2022, the Company paid $184.1 million of deposits for miners and mining equipment. As of September 30, 2022, the Company had contributed equipment with a total cost of $93.2 million related to its contributions of 12,953 miners and other mining equipment to the Alborz Facility, which was reclassified from deposits on equipment to investment in a financial institution, which, at times, may exceedequity investee on its consolidated balance sheet, with the Federal Depository Insurance Coverageexception of $250,000. Atlosses of $11.6 million and $7.2 million recognized by the Company related to the batches of miners contributed in June 30,2022 and July 2022, respectively. See additional information in Note 8.
17
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 7. SECURITY DEPOSITS
Security deposits are shown in the table below as of the dates indicated (amounts in thousands):
|
| September 30, 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 |
|
| 960 |
|
|
| 922 |
|
Other deposits |
|
| 1,155 |
|
|
| 90 |
|
Total security deposits |
| $ | 11,455 |
|
| $ | 10,352 |
|
NOTE 8. INVESTMENT IN EQUITY INVESTEES
On June 10, 2021, the Company has not experienced losses on this account and management believesWindHQ LLC (“WindHQ”) signed a binding definitive framework agreement with respect to the construction, buildout, deployment and operation of one or more data centers (“Data Centers”) in the United States (the “WindHQ Joint Venture Agreement”). 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 a 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 Company is not exposedrequired to significant risks on such account.
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 reporting period.
A development fee equal to 2% of capital expenditures in respect of the initial 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 the Company’s management that its investment in any of the individual Data Center LLCs will meet the definition of a variable interest entity in accordance with ASC Topic 815, “Derivatives810, and Hedging”. Accordingly, the Company recognizeswill not have a controlling voting interest in any of the warrant instruments as liabilities at fair valueData Center LLCs. Based upon the Company's expectation that it will have significant influence over the operations and adjustmajor decisions of the instruments to fair value at each reporting period. The liabilities are subject tore-measurementat each balance sheet date until exercised, and any change in fair value is recognized inData Center LLCs, the Company’s statement49% ownership in each individual Data Center LLC will be separately accounted for under the equity method of operations. The fair value of warrants issuedaccounting, as the Company does not expect to exercise control over the Data Center LLCs.
18
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 classifies deferred underwriting commissions asnon-currentliabilities as their liquidation is not reasonably expected to requireuses the use of current assets or require the creation of current liabilities.
In June 2022 and July 2022, the Company is currently not awarecontributed 6,629 miners and 2,375 miners, respectively, to the Alborz Facility, which are included in the 12,953 total of any issues under reviewminers contributed to the Alborz Facility. At the time of these contributions, the contributed miners had a fair value that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
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 | ) | ||||
Activity in investment in equity investee during the nine months ended September 30, 2022 consisted of the Company. As a result, the Company restated its previously filed financial statements to present all redeemable common stock as temporary equity and to recognize accretion from the initial book value to redemption value at the time of its Initial Public Offering andfollowing (amounts in accordance with ASC 480.
Balance, December 31, 2021 |
| $ | - |
|
Cost of miners and mining equipment contributed, net of losses recognized upon contribution |
|
| 74,384 |
|
Sales taxes to be paid by Cipher on behalf of equity investee |
|
| 5,316 |
|
Accretion of basis difference |
|
| 821 |
|
Legal costs related to formation of joint ventures reclassified from deferred investment costs |
|
| 174 |
|
Capital distributions |
|
| (43,291 | ) |
Cryptocurrencies received from equity investee |
|
| (3,139 | ) |
Equity in net loss of equity investee |
|
| (2,574 | ) |
Balance, September 30, 2022 |
| $ | 31,690 |
|
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
Waiver, Lock-up and our officers and directors (collectively,Board Observer Agreements
On April 8, 2022, the “Founders”) purchased an aggregate of 4,312,500 sharesCompany entered into a waiver agreement with Bitfury Top HoldCo (the “Founder Shares”“Waiver Agreement”), pursuant to which the Company waived certain restrictions on transfer of the Company’s common stockCommon 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 Board. The Waiver Agreement (i) permits each Stockholder to pledge or otherwise hypothecate the Lock-up Shares (as defined in the Lock-up Agreements) held by such Stockholder as of the date of the Waiver Agreement (the shares that are actually pledged or otherwise hypothecated, the “Pledged Shares”) as collateral or security in connection with any loan meeting certain criteria set forth in the Waiver Agreement and
19
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ii) transfer the Pledged Shares upon foreclosure by such pledgee in accordance with the terms of the applicable pledge or hypothecation; provided that such waiver will only apply and be effective if certain conditions specified in the Waiver Agreement are satisfied or waived. Additionally, effective as of the date of consummation of any pledge or hypothecation, and solely in regard to any pledged shares, the Lock-up Period, as defined in the applicable Lock-up Agreement, shall be extended an additional three months to November 26, 2023. Furthermore, the Waiver Agreement provided for an aggregate pricethe cancellation 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 founder2,890,173 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 issuedCommon Stock held by Bitfury Top HoldCo and outstanding shares aftersubject to the Public Offering (assumingLock-up Agreements as consideration for the Founders or Anchor$10.0 million deposit paid by the Company for Bitfury Top HoldCo mining rigs under the agreement dated October 11, 2021, for which no order confirmation was made, as discussed in Note 6.
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 do not purchasehave the right to designate a representative to serve as an observer of the Board and any Public Sharescommittees thereof (subject to exceptions and limitations specified in the Public Offering)Board Observer Agreement). On November 17, 2020, the underwriters canceled the remainderThe Board Observer Agreement was negotiated and approved by an independent committee of the Over-Allotment Option. Board.
Master Services and 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 fee side letter, monthly fees for any potential future services, if any, would be determined by reference to two groups of services, 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 $1,000/MW up to 445MW (capped at $200,000/month) and $450USD/MW above 445MW (plus applicable duties and taxes).
Purchase commitments, deposits on equipment and related party payables
As discussed above in Note 6, the Company entered into two agreements with Bitfury USA made under, and as a part of, the Master Services and Supply Agreement to purchase a total of 240 units of BBACs, the modular data centers that house mining machines. During the nine months ended September 30, 2022, the Company paid a total of $21.7 million to Bitfury USA, which is recorded on the Company’s consolidated balance sheets as deposits on equipment until receipt and deployment of the earlierequipment. As of earlierSeptember 30, 2022 and December 31, 2021, the Company had a total of (1) one year after$21.9 million and $5.1 million, respectively, of deposits on equipment on its condensed consolidated balance sheets related to the Bitfury USA agreements. Additionally, as of September 30, 2022, the Company had a total of $2.7 million of construction-in-progress on its condensed consolidated balance sheet related to the Bitfury USA agreements.
Additionally, prior to the Business Combination, Bitfury USA contracted with third-party vendors for the purchase of equipment and the receipt of services related to Cipher’s future mining operations. Prior to December 31, 2021, Bitfury USA made payments under these arrangements totaling $2.4 million. The Company reimbursed Bitfury USA 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: $2.5 million was recorded to deposits on whichequipment and $0.1 million was recorded to construction-in-progress on the Company’s consolidated balance sheet as of December 31, 2021. Pursuant to one of these arrangements between Bitfury USA and a third-party vendor, Paradigm Controls of Texas, LLC (“Paradigm”), the Company consummates a liquidation, merger, capital stock exchange, reorganization,made payments directly to Paradigm in place of Bitfury USA, in respect of manufacturing services for BBACs, totaling $11.0 million during the three months ended September 30, 2022 and the Company’s obligations to Bitfury USA under the Master Services and Supply Agreement have been reduced by the same amount. Additionally, Cipher recorded additional invoices totaling $1.7 million, or $1.8 million including the 7% service fee owed to Bitfury USA, to accounts payable, related party during the three months ended September 30, 2022. These additional invoices related to mining equipment and services received by the Company prior to September 30, 2022 for which Bitfury USA had not yet paid
20
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Paradigm, and which Cipher intends to pay directly to the vendor in place of Bitfury USA. The total balance owed to Bitfury USA and recorded in accounts payable, related party on the condensed consolidated balance sheet was $3.2 million as of September 30, 2022. See Note 15 for additional information regarding the disposition of the additional $1.7 million in invoices after September 30, 2022.
The Company is in discussions with Bitfury USA to assign Cipher Mining Technologies certain service contracts related to the production of BBACs originally entered into between Bitfury USA and Paradigm. The Company will continue to work directly with Paradigm or other similar transaction aftervendors on any remaining BBACs that would have been purchased from Bitfury USA under the Business Combination that results in allMaster Services and Supply Agreement.
Related party receivables
The Company recorded a related party receivable of approximately $0.7 million as of September 30, 2022 related to expenses paid on behalf of the Company’s stockholders havingData Center LLCs for which it expects to be reimbursed.
NOTE 10. LEASES
The Company entered into an operating lease for office space located in New York. The lease has an initial term of 64 months, commencing on February 1, 2022. The lease does not provide the rightCompany with renewal options.
Total rent expense was approximately $0.4 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, which includes an immaterial amount of less than $0.1 million for short-term lease costs during both the three and nine months ended September 30, 2022. The Company did not incur any variable lease costs during the periods presented.
Supplemental information related to exchange their sharesthe lease was as follows (dollar amounts in thousands):
|
| Nine Months Ended |
| |
|
| September 30, 2022 |
| |
Operating cash flows - operating leases |
| $ | 395 |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 5,859 |
|
Weighted-average remaining lease term – operating leases (in years) |
|
| 4.7 |
|
Weighted-average discount rate – operating leases |
|
| 10.9 | % |
As of common stockSeptember 30, 2022, future minimum operating lease payments during the next five years are as follows (amounts in thousands):
Remaining Period Ended December 31, 2022 |
| $ | 395 |
|
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 |
|
| 7,378 |
|
Less present value discount |
|
| (1,614 | ) |
Operating lease liabilities |
| $ | 5,764 |
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.
21
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 September 30, 2022. The Company does not anticipate recognizing any significant losses relating to these arrangements.
Standard Power Hosting Agreement
Under the Standard Power Hosting Agreement entered into on February 3, 2021 by the Company and 500 N 4th Street LLC, doing business as Standard Power (“Standard Power”), the Company 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 obligated to (i) host the Miners in specialized containers and provide the electrical power and transmission and connection equipment necessary for cash, securities or other property. Notwithstanding the foregoing, ifmining and (ii) host, operate and manage the last sale priceMiners there, in each case in accordance with the terms and conditions of our common stock equals or exceeds $12.00 per share (as adjustedthe 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 stock splits, stock dividends, reorganizations, recapitalizations andMiners with the like) for any 20 trading days within any30-tradingday period commencing at least 150 days after the Business Combination, the Founder Sharesspecified energy utilization capacities that will be released fromdelivered to thelock-up.
Under the Standard Power Hosting Agreement, the Company completesis obligated to pay a Business Combination,hosting fee and an operational service fee. The Company’s payment obligations under the Company would repay the Working Capital Loans out of the proceeds of the Trust Account releasedStandard Power Hosting Agreement become effective on a pro rata basis according to the Company. Otherwise, the Working Capital Loans would be repaid only outnumber of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds heldMiners in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing,operation in accordance with the terms of such Working Capital Loans, if any, have not beenthis 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.
Luminant Lease and Purchase and Sale Agreements
The Company entered into a series of agreements with affiliates of 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”). The Luminant Lease Agreement leases a plot of land to the Company where the planned data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) will be set up for the Company’s Odessa Facility. 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 ASC 842 (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 (defined above in Note 2 under Derivative Accounting), the Company is required to provide Luminant with collateral of $10.00 per Private Unit. The Private Units would be identicalapproximately $12.6 million (the “Independent Collateral Amount”). Half, or approximately $6.3 million, of the Independent Collateral Amount was paid to the Private Units issuedLuminant on September 1, 2021 and is recorded 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 | ||||||||||
22
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
$3.1 million as collateral separate from the Independent Collateral Amount, which is also recorded in security deposits as of September 30, 2022 and December 31, 2021.
The Combined Luminant Lease Agreement is effective from the date of the Company’s notification of the Effective Date of the Business Combination, which was August 27, 2021, and shall continue for five years following completion of the substation, subject to renewal provisions aligned with the Luminant Power Agreement; however, the Company’s management determined that the Combined Luminant Lease Agreement contains two lease components; and the components should be accounted for together as a single lease component, because the effect of accounting for the land lease separately would be insignificant. Financing for use of the land and substation is provided by Luminant affiliates, with monthly installments of principal and interest due over a five-year period starting upon transfer of legal title of the substation to the Company (estimated total undiscounted principal payments of $13.1 million). At the end of the lease term for the Interconnection Electrical Facilities, the substation will be sold back to Luminant’s affiliate, Vistra Operations Company, LLC at a price to be determined based upon bids obtained in the secondary market.
Once the Company has control over the applicable leased asset, the Company will record both a ROU asset and a corresponding lease liability in accordance with ASC 842 for the single lease component as applicable under the Combined Luminant Lease Agreement.
NOTE 12. STOCKHOLDERS’ EQUITY
As of September 30, 2022, 510,000,000 shares with a par value of $0.001 per share are authorized, of which, 500,000,000 shares are designated as Common Stock and 10,000,000 shares are designated as preferred stock.
Common Stock
Holders of each share of Common Stock are entitled to dividends when, as and if declared by the Board. As of September 30, 2022, 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 other 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 13,193 shares and 672,424 shares of common stock areits Common Stock related to be releasedtax withholding settlements for RSUs that vested during the three and nine months ended September 30, 2022, respectively.
As disclosed above in Notes 6 and 9, on April 8, 2022, the Company accepted the return of 2,890,173 shares of its Common Stock held by Bitfury Top HoldCo as consideration for the $10.0 million deposit paid to Bitfury Top HoldCo for mining rigs under the agreement dated October 11, 2021. The returned shares were cancelled by the Company upon their return.
Shelf Registration and At-The-Market Offering Agreement
On September 21, 2022, the Company filed with the SEC a shelf registration statement on Form S-3, which was declared effective on October 6, 2022 (the “Registration Statement”). The Registration Statement covers: (i) the offer and sale by the Company, from escrow. The holderstime to time in one or more offering, securities having an aggregate public offering price of a majorityup to $500.0 million, (ii) the offer and sale from time to time by the selling securityholders identified therein of up to 23,265,565 shares of the Founder Shares, Private UnitsCompany’s Common Stock and Private Warrants or Private Units issued in paymentthe offer and sale from time to time by the selling securityholders of Working Capital Loans (or underlying securities) can electup to exercise these registration rights at any time after85,500 of the Company’s warrants and (iii) the offer and sale of (A) up to 8,499,978 shares of Common Stock that are issuable by the Company consummates a Business Combination. In addition,upon the holders have certain “piggy-back” registration rights with respectexercise of 8,499,978 public warrants that were previously registered and (B) up to registration statements filed subsequent to114,000 shares of Common Stock that are issuable by the consummationCompany upon the exercise of a Business Combination. The Company will bear the expenses incurred in114,000 private placement warrants.
In connection with the filing of any such registration statements.
23
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 one 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.
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 September 30, 2022, 1,638,142 shares of Common Stock are available for issuance under the Incentive Award Plan.
The Company recognized total share-based compensation for the following categories of awards during the periods indicated (amounts in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 30, 2022 |
|
| September 30, 2022 |
| ||
Service-Based RSUs |
| $ | 7,078 |
|
| $ | 19,936 |
|
Performance-Based RSUs |
|
| 3,416 |
|
|
| 10,136 |
|
Total share-based compensation expense |
| $ | 10,494 |
|
| $ | 30,072 |
|
Service-based RSUs
A summary of the Company's unvested Service-Based RSU activity for the nine months ended September 30, 2022 is shown below:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at January 1, 2022 |
|
| 6,798,238 |
|
| $ | 8.04 |
|
Granted |
|
| 9,108,086 |
|
|
| 1.90 |
|
Forfeited |
|
| (205,048 | ) |
|
| 6.34 |
|
Vested |
|
| (1,802,123 | ) |
|
| 7.55 |
|
Unvested at September 30, 2022 |
|
| 13,899,153 |
|
| $ | 4.10 |
|
As of September 30, 2022, there was approximately $35.5 million of unrecognized compensation expense related to unvested Service-Based RSUs, which is expected to be recognized over a weighted-average vesting period of approximately 1.8 years.
If not fully vested upon grant, Service-Based RSUs awarded generally vest in equal installments on the first three or 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
24
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 nine months ended September 30, 2022. There were 4,257,710 unvested Performance-Based RSUs at a weighted average grant date fair value of $7.76 as of both September 30, 2022 and December 31, 2021. There was approximately $21.2 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 1.7 years.
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. SUBSEQUENT EVENTS
Chief LLC Agreement
Effective October 7, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Chief Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Limited Liability Company Agreement of Chief Mountain LLC (the “Chief LLC Agreement”). The Chief LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Chief facility, located in Texas (the “Chief Facility”). Similar to the Alborz Facility and the Bear Facility, the Company is unablealso required to completesupport and monitor (remotely) the operations of the hardware at the Chief Facility (particularly the mining servers) under the WindHQ Joint Venture Agreement.
Miner contributions to Bear Facility and Chief Facility
In October 2022, the Company contributed approximately 6,500 miners to the Bear Facility and the Chief Facility. While the final quantities of miners going to each respective site, and therefore the relative pricing as between the two sites, is still being finalized, the estimated fair value of the relevant miners was lower than the cost paid by the Company to purchase them; therefore, the Company expects to record a Business Combination withinloss related to the Combination Periodcontribution of these miners of approximately $15 million.
SuperAcme Supplementary Agreement
On November 4, 2022, through its subsidiary, Cipher Mining Technologies, the Company entered into a supplementary agreement of the Framework Agreement on Supply of Blockchain Servers (the “Supplementary Agreement”) with SuperAcme, which supplements the Amended SuperAcme Agreement dated May 6, 2022, and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and the Company liquidateswill not be obligated to send any further money to SuperAcme. In connection with the funds heldAmended SuperAcme Agreement, SuperAcme has delivered 17,833 miners to date, at an aggregate value of approximately $53.6 million, and the Company has paid aggregate advance payments of $101.8 million. The remaining balance of $48.2 million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Trust Account, holdersSupplementary Agreement.
Payments on behalf 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 outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
After September 30, 2022, but before the issuance of these unaudited condensed consolidated financial statements, theS-4amendment which covered an amendment Company made payments totaling approximately $2.1 million directly to Paradigm in place of Bitfury USA, in respect of manufacturing services for
25
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
BBACs. The Company’s payment obligations to Bitfury USA under the Master Services and Supply Agreement were also reduced by $2.1 million related to these payments to Paradigm.
Luminant Power Agreement
On October 26, 2022, the Company received a letter from Luminant, disputing: (i) the payments of $1.7 million that Luminant had made to the Bitfury subscription agreement. On July 8, 2021, the Bitfury Subscription Agreement was amended and restated in its entirety to provide that the 25%benefit-in-kinddiscountCompany under the MSSA (inLuminant Power Agreement for the electricity sold in the ERCOT market during July 2022 and August 2022 and (ii) the payment of $5.1 million made to the Company by Luminant in September 2022 in consideration for Bitfury’s purchasethe modification to the ramp up schedule pursuant to the August Amendment to the Luminant Power Agreement. The Company received and recorded $1.7 million as part of an aggregatethe change in fair value of 5,000,000 sharesderivative asset in the condensed consolidated statements of Good Works Common Stock at a purchase price of $10.00 per share) will instead be paidoperations for the three and nine months ended September 30, 2022. The Company received and recorded $5.1 million as a $50 million cashreduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. The Company has not received payment whichfrom Luminant for electricity sold in the ERCOT market in September 2022 and October 2022.
The Company wholly disputes the claims made by Luminant and has been engaged in discussions with Luminant in an attempt to reach a mutually agreeable solution and resolve disagreements between the parties regarding these payments and whether the commencement of Luminant’s obligations under the Luminant Power Agreement should be tied to ERCOT’s interconnection approval. At this time the Company’s management does not know how or when this dispute will be made at closing (as defined inresolved.
On November 8, 2022, the Merger Agreement) in formCompany also received a letter from Luminant requesting the Company deposit to Luminant the remaining half of cash and/or forgivenessthe Independent Collateral Amount under the Luminant Power Agreement. The Company expects to deliver to Luminant the remaining half of outstanding indebtedness owed by Cipher to Bitfury. Only July 15, 2021,I-Bankersagreed to loan Good Works Acquisition Corp $100,000 to fund its operating expenses. The loan is unsecured andnon-interestbearing and matures on the earlierIndependent Collateral Amount before the end of December 31, 2021 or the date that the Business Combination is consummated.November 2022.
26
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 are developing and growing a cryptocurrency mining business specializing in Bitcoin. Our key mission is to become a leading Bitcoin mining company in the United States.
As a stand-alone, U.S.-based cryptocurrency mining business, we have begun our 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. We began deployment of capacity in the first quarter of 2022, with mining operations beginning at the partially-owned Alborz Facility in February 2022.
In connection with our planned buildout, we entered into the Standard Power Hosting Agreement, the WindHQ Joint Venture Agreement and the Luminant Power Agreement, all of which, together, are expected to cover at least four sites where we expect to begin our buildout. Pursuant to these 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 this will help competitively position us to achieve our goal of becoming a leading Bitcoin mining operator in the United States.
In August 2022, we completed installation of the last mining rigs to be delivered to the Alborz Facility. With that the Alborz Facility is capable of generating approximately 1.3 EH/s, of which we own approximately 0.64 EH/s under the WindHQ Joint Venture Agreement. In October 2022, we also completed the Bear Facility and Chief Facility, which, combined, are expected to generate approximately 0.65 EH/s, of which we own approximately 0.32 EH/s.
By early 2023, we plan to deploy approximately 267MW of electrical power capacity across four sites with a corresponding hashrate of approximately 8.0 EH/s, of which we expect to own approximately 7.0 EH/s.
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 September 30, 2022, Bitfury Top HoldCo B.V. (“Bitfury Top HoldCo”) (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owns approximately 81.6% of our common stock, $0.001 par value per share (“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 “controlled company” within the meaning of Nasdaq listing rules and, as a result, can rely on exemptions 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 Good Works Acquisition Corp. (“GWAC”), a Delaware corporation, Currency Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and a wholly‑owned direct subsidiary of GWAC, and the Company, the parties entered into the business combination transaction pursuant to which Merger Sub merged with and 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”). Following the Business
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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 Warrants began trading on August 30, 2021 on the Nasdaq under the ticker symbols “CIFR” and “CIFRW,” respectively. The Business Combination resulted in cash proceeds, net of issuance costs, of approximately $384.9 million.
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 Top HoldCo (the “Waiver Agreement”), pursuant to which we 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 Board of Directors (the “Board”). The Waiver Agreement permits each Stockholder to pledge or otherwise hypothecate up to one hundred percent (100%) of the Lock-up Shares (as defined in the Lock-Up Agreements) held by such Stockholder as of the date of the Waiver Agreement (the shares that are actually pledged or otherwise hypothecated, the “Pledged Shares”) as collateral or security in connection with any loan meeting certain criteria set forth in the Waiver Agreement and (ii) transfer the Pledged Shares upon foreclosure by such pledgee in accordance with the terms of the applicable pledge or hypothecation; provided that the Waiver will only apply and be effective if the following conditions are satisfied or waived: (i) any pledgee executes a joinder to the Lock-up Agreements and therefore be bound by the Transfer Restrictions as defined in the Lock-up Agreements, (ii) the pledgee in receipt of any pledged shares be in compliance with all Anti-Money Laundering and Know Your Customer laws and regulations in effect in the United States of America and be a nationally, internationally or regionally recognized bank or bona fide financial institution, private equity fund or other lender, (iii) any pledgee not be a competitor of the Company, and (iv) any loan for pledged shares be a bona fide loan containing customary market terms and have an initial 25% maximum loan-to-value ratio. Additionally, effective as of the date of consummation of any pledge or hypothecation, and solely in regard to any Pledged Shares, the Lock-Up Period, as defined in the applicable Lock-up Agreement, shall be extended an additional three months to November 26, 2023. Furthermore, the Waiver Agreement provides for a cancellation of 2,890,173 shares of our Common Stock held by Bitfury Top HoldCo and subject to the Lock-up Agreements (the “Cancelled Shares”) as consideration for the six$10.0 million deposit paid by us for Bitfury mining rigs under our agreement dated October 11, 2021, for which no order confirmation was made. The Cancelled Shares were part of the tranche of Lock-Up Shares with a Lock-Up Period during the period beginning on the date that is eighteen months ended June 30, 2021after the Closing Date and ending on the date that is two years after the Closing Date.
Also on April 8, 2022, we entered into an Observer Agreement (the “Affected Period”“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 (the “Observer”) of our Board and any committees thereof (subject to exceptions 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 certain exceptions specified in the Board Observer Agreement. The Investors’ rights under the Board Observer Agreement will terminate
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upon the date that the Investors no longer beneficially own at least 10% of the outstanding shares of our Common Stock. As of the date of this Quarterly Report, the Investors have not designated an Observer pursuant to the Board Observer Agreement.
The Board Observer Agreement was negotiated and approved by an independent committee of the Board.
Recent Developments
Effective October 7, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Chief Interests DC LLC, a subsidiary of WindHQ LLC (“WindHQ”), as filedmembers, entered into the Limited Liability Company Agreement of Chief Mountain LLC (the “Chief LLC Agreement”). The Chief LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Chief facility, located in Texas (the “Chief Facility”). Similar to the Alborz Facility and the Bear Facility, we are also required to support and monitor (remotely) the operations of the hardware at the Chief Facility (particularly the mining servers) under the WindHQ Joint Venture Agreement.
In October 2022, we contributed approximately 6,500 miners to the Bear Facility and the Chief Facility. While the final quantities of miners going to each respective site, and therefore the relative pricing as between the two sites, is still being finalized, the estimated fair value of the relevant miners was lower than the cost paid by us to purchase them; therefore, we expect to record a loss related to the contribution of these miners of approximately $15 million.
On November 4, 2022, through our subsidiary, Cipher Mining Technologies, we entered into a supplementary agreement of the Framework Agreement on Supply of Blockchain Servers (the “Supplementary Agreement”) with SuperAcme Technology (Hong Kong) Limited (“SuperAcme”), which supplements the Amended SuperAcme Agreement dated May 6, 2022, and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and provides that we will not be obligated to send any further money to SuperAcme. In connection with the SecuritiesAmended SuperAcme Agreement, SuperAcme has delivered 17,833 miners to date, at an aggregate value of approximately $53.6 million, and Exchange Commissionwe have paid aggregate advance payments of $101.8 million. The remaining balance of $48.2 million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Supplementary Agreement.
We are in discussions with Bitfury USA Inc. (“SEC”Bitfury USA”) to assign Cipher Mining Technologies certain service contracts related to the production of BlockBox air-cooled containers (each a “BBAC”) originally entered into between Bitfury USA and Paradigm Controls of Texas, LLC (“Paradigm”). Going forward, we will continue to work directly with Paradigm or other vendors on August 10, 2021 (the “Original Filing”).
On October 26, 2022, we received a letter from Luminant ET Services Company hasre-evaluatedthe Company’s application of ASC480-10-S99-3Ato its accounting classification of the redeemable common stock, par value $0.001 per share (the “Public Shares”LLC (“Luminant”), issueddisputing: (i) the payments of $1.7 million that Luminant had made to us under the Luminant Power Agreement for the electricity sold in the ERCOT market during July 2022 and August 2022 and (ii) the payment of $5.1 million made to us by Luminant in September 2022 in consideration for the modification to the ramp up schedule pursuant to the August Amendment (as defined below) to the Luminant Power Agreement. We received and recorded $1.7 million as part of the unitschange in fair value of derivative asset in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022. We received and recorded $5.1 million as a reduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. We have not received payment from Luminant for electricity sold in the Company’s initial public offering (the “IPO”) onERCOT market in September 2022 and October 22, 2020. Historically,2022.
We wholly dispute the claims made by Luminant and have been engaged in discussions with Luminant in an attempt to reach a portionmutually agreeable solution and resolve disagreements between the parties regarding these payments and whether the commencement of Luminant’s obligations under the Luminant Power Agreement should be tied to ERCOT’s interconnection approval. At this time we do not know how or when this dispute will be resolved.
On November 8, 2022, we also received a letter from Luminant requesting we deposit to Luminant the remaining half of the Public Shares was classified as permanent equityIndependent Collateral Amount under the Luminant Power Agreement. We expect to maintain stockholders’ equity greater than $5 million ondeliver to Luminant the basis thatremaining half of the Company will not redeem its Public Shares in an amount that would cause its net tangible assetsIndependent Collateral Amount before the end of November 2022.
For further information, see Note 15 to our unaudited condensed consolidated financial statements.
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Known Trends or Future Events
Impact of COVID-19 and Other Economic, Business and Political Conditions
Our results of operations could be less than $5,000,001, as describedadversely affected by general conditions in the Company’s amendedglobal economy and restated certificate of incorporation (the “Charter”). Pursuant to suchre-evaluation,the Company’s management has determined that the Public Shares include certain provisions that require classification of all of the Public Shares as temporary equity regardless of the net tangible assets redemption limitation contained in the Charter. In addition, in connection with the change in presentation for the Public Shares, the Company determined it should restate its earnings per share calculation to allocate income and losses shared pro rata between the two classesglobal financial markets, including conditions that are outside of shares (redeemable and non-redeemable). This presentation contemplates a Business Combinationour control, such as the most likely outcome, in which case, both classesoutbreak and global spread of shares share pro rataCOVID-19. The COVID-19 pandemic that was declared on March 11, 2020 has caused significant economic dislocation in the incomeUnited States and lossesglobally as governments, including the United States, introduced measures aimed at preventing the spread of the Company.
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 construction at the Alborz Facility in response to employees being impacted by COVID-19. The change in accounting classificationtemporary shutdown was less 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 redeemable common stock didCOVID-19 pandemic is still highly uncertain and there is no assurance that the COVID-19 pandemic or any other pandemic, or other unfavorable global economic, business or political conditions, will not have any impact on our liquidity, cash flows, revenues or costs of operatingmaterially and adversely affect our business, prospects, financial condition and operating results.
Change in Fiscal Year
Starting with the Affected Period or in anythree 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 fiscal 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 periods included in Item 8, Financial StatementsBusiness Combination, our activities were primarily organizational and Supplementary Data in this filing. The change in accounting classification of the redeemable common stock does not impact the amounts previously reportedthose necessary to prepare for the Company’s cash and cash equivalents, operating expenses or total cash flows from operations for anyBusiness Combination. Following the Business Combination, our activities have been focused on the set-up of these periods.
Comparative Results for the Three Months Ended September 30, 2022 and 2021
We generated no revenue during the three months ended September 30, 2022 and 2021. We incurred general and administrative expenses of $17.8 million and $2.3 million during the three months ended September 30, 2022 and 2021, respectively. Share-based compensation costs of $10.5 million were recognized in total general and administrative expenses during the three months ended September 30, 2022, related to restricted stock units (“RSUs”), awarded to our employees. The remaining $7.3 million of general and administrative expenses incurred during the three months ended September 30, 2022 was recognized predominantly as follows: $2.4 million for business insurance, $1.4 million for payroll and payroll-related benefits for employees, $0.8 million for accounting and audit services, $0.5 million for each of consulting fees and legal expenses, $0.4 million for rent expense at the Company’s headquarters, $0.3 million for information technology (“IT”) and related IT security expenses, and $0.2 million each for the following: travel expenses, office supplies and software expenses mainly for licenses, board fees, and specific costs of operating as a public company. Certain costs such as accounting, legal and public company costs were higher during the three months ended September 30, 2022 as compared to the same period in 2021 due to our Registration Statement filed in September 2022. See additional information above in “—Recent Developments” or in “—Liquidity and Capital Resources” below.
Comparatively, general and administrative expenses recognized during the three months ended September 30, 2021 were mainly related to $1.6 million for business insurance, compensation and benefits of approximately $0.3 million, as well as approximately $0.1 million for due diligenceeach of the following: accounting and audit expenses, investor relations and specific costs of operating as we locate a suitable Business Combination.
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Change in the sixfair value of derivative asset increased operating income by $85.7 million during the three months ended September 30, 2022, which was primarily due to recording an $83.6 million derivative asset related to the Luminant Power Agreement on July 1, 2022.
Equity in loss of equity investment totaled $8.3 million for the three months ended September 30, 2022 and consisted of: a loss of $7.2 million related to our contribution of miners to Alborz LLC in July 2022 with fair values at the time of the contribution that were less than the costs we paid to acquire the miners; $1.9 million for our share of the loss of Alborz LLC for the three months ended September 30, 2022; and $0.8 million for accretion of the basis differences that resulted from our contributions of miners at a loss in both June and July 2022. Additionally, we recognized $0.3 million for impairment during the three months ended September 30, 2022 on Bitcoin that we received from Alborz LLC.
We paid $27.3 million for deposits on miners and mining equipment during the three months ended September 30, 2022, bringing total deposits on equipment on our unaudited condensed consolidated balance sheet to approximately $200.0 million as of September 30, 2022, after removing the miners and mining equipment contributed to Alborz LLC. Additionally, during the three months ended September 30, 2022, we paid approximately $15.9 million for purchases of property and equipment, which was principally related to construction-in-progress at our wholly-owned site in Odessa, Texas (the “Odessa Facility”), which is under development.
Comparative Results for the Nine Months Ended September 30, 2022 and the Eight Months Ended September 30, 2021
We generated no revenue during the nine months ended September 30, 2022 or during the eight months ended September 30, 2021. We incurred general and administrative expenses of $51.8 million and $2.9 million during the nine months ended September 30, 2022 and the eight months ended September 30, 2021, respectively. Share-based compensation costs of $30.1 million were recognized in total general and administrative expenses during the nine months ended September 30, 2022, related to RSUs awarded to our employees and directors. The remaining $21.7 million of general and administrative expenses incurred during the nine months ended September 30, 2022 was recognized predominantly as follows: $7.3 million for business insurance, $3.0 million for payroll and payroll-related benefits for employees, $2.0 million for taxes, $2.0 million for legal expenses, $1.8 million for accounting and audit services, $1.2 million for consulting expenses, $1.0 million for rent expense at the Company’s headquarters, $0.7 million for board fees, $0.5 million for specific costs of operating as a public company, and $0.5 million each for travel expenses and also for office supplies and software, as well as $0.4 million for recruiting fees. Certain costs such as accounting, legal and public company costs were higher during the nine months ended September 30, 2022 as compared to the eight months ended September 30, 2021 due to our Registration Statement filed in September 2022. See additional information above in “—Recent Developments” or in “—Liquidity and Capital Resources” below.
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 Note 9 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Our legal expenses during the nine months ended September 30, 2022 totaled over $2.0 million and the expenses related to the Special Independent Committee and legal and advisory expenses related to entry into the Waiver Agreement and the Observer Agreement are included in our total legal expenses during this period.
Comparatively, general and administrative expenses recognized during the eight months ended September 30, 2021 were mainly related to $1.6 million of business insurance costs, compensation and benefits of approximately $0.6 million, as well as $0.3 million for accounting and audit expenses, $0.2 million for investor relations and approximately $0.1 million for each of the following: consulting expenses and specific costs of operating as a public company.
Change in the fair value of derivative asset increased operating income by $85.7 million during the three months ended September 30, 2022, which was primarily due to recording an $83.6 million derivative asset related to the Luminant Power Agreement on July 1, 2022.
Equity in loss of equity investment totaled $20.6 million for the nine months ended September 30, 2022 and consisted of: losses of $18.8 million related to our contribution of miners to Alborz LLC in June and July 2022 with fair values at the time of the contribution that were less than the costs we paid to acquire the miners; $2.6 million for our share of the loss of Alborz LLC for the nine months ended September 30, 2022; and $0.8 million for accretion of the basis differences that resulted from our contributions of miners at a loss in both June and July 2022. Additionally, we recognized $0.9 million of impairment during the nine months ended September 30, 2022 on Bitcoin that we received from Alborz LLC.
We paid $184.1 million for deposits on miners and mining equipment during the nine months ended September 30, 2022, increasing total deposits on equipment on our unaudited condensed consolidated balance sheet to approximately $200.0 million as of
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September 30, 2022, after removing the miners and mining equipment contributed to Alborz LLC. Additionally, during this period we also paid $29.0 million for purchases of property and equipment, which was principally related to construction-in-progress at our Odessa Facility, which is under development.
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 had negative cash flows from operations of $8.9 million for the nine months ended September 30, 2022. As of September 30, 2022, we had cash and cash equivalents of $28.1 million, total stockholders’ equity of $383.1 million and an accumulated deficit of $59.6 million. To date, we have relied in large part on proceeds from the consummation of the Business Combination to fund our operations. During the nine months ended September 30, 2022, we paid $184.1 million as deposits on equipment, primarily for miners, and had additional future commitments related to these deposits as detailed below under “—Contractual Obligations and Other Commitments.” See “—Recent Developments” for additional information regarding the Supplementary Agreement with SuperAcme. Our management believes that our existing financial resources, combined with the ability to delay certain equipment orders, projected cash and cryptocurrencies inflows from our sites, the ability to sell cryptocurrency received or earned, as well as potential sales of Common Stock under our shelf registration statement on Form S-3 (see additional information below), will be sufficient to meet its operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.
On September 21, 2022, we filed with the Securities and Exchange Commission a shelf registration statement on Form S-3, which was declared effective on October 6, 2022 (the “Registration Statement”). The Registration Statement covers: (i) the offer and sale by us, from time to time in one or more offering, securities having an aggregate public offering price of up to $500.0 million, (ii) the offer and sale from time to time by the selling securityholders identified therein of up to 23,265,565 shares of our Common Stock and the offer and sale from time to time by the selling securityholders of up to 85,500 of our warrants and (iii) the offer and sale of (A) up to 8,499,978 shares of Common Stock that are issuable by us upon the exercise of 8,499,978 public warrants that were previously registered and (B) up to 114,000 shares of Common Stock that are issuable by us upon the exercise of 114,000 private placement warrants.
In connection with the filing of the Registration Statement, we also entered into an at-the-market offering agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), under which we may, from time to time, sell shares of our Common Stock having an aggregate offering price of up to $250.0 million in “at-the-market” offerings through the Agent, which is included in the $500.0 million of securities that may be offered pursuant to the Registration Statement. Sales of the shares of Common Stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. Pursuant to the Sales Agreement, we will pay the Agent a commission of up to 3.0% of the gross proceeds from the sale of any shares of Common Stock under the Sales Agreement. We are not obligated to make any sales of shares of its Common Stock under the Sales Agreement. We have not sold any shares of our Common Stock under the Sales Agreement as of the issuance of these unaudited condensed consolidated financial statements.
Cash Flows
The following table summarizes our sources and uses of cash (in thousands):
|
| Nine Months Ended |
|
| Eight Months Ended |
| ||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
Net cash used in operating activities |
| $ | (8,891 | ) |
| $ | (27,100 | ) |
Net cash used in investing activities |
|
| (169,762 | ) |
|
| (74,476 | ) |
Net cash (used in) provided by financing activities |
|
| (3,077 | ) |
|
| 383,853 |
|
Net (decrease) increase in cash and cash equivalents |
| $ | (181,730 | ) |
| $ | 282,277 |
|
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2022 was $8.9 million, resulting from net income of $12.6 million, less non-cash income items of $85.8 million, consisting primarily of change in the fair value of derivative asset of $85.7 million and change in the fair value of our warrant liability of $0.1 million; partially offset by non-cash expense items of $52.1 million, which includes share-based compensation expense of $30.1 million, equity in loss of equity investment of $20.6 million
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(which is mainly comprised of the losses on our June and July 2022 contributions of equipment of $18.8 million), cryptocurrency impairment of $0.9 million and amortization of $0.5 million. The change in assets and liabilities of $12.2 million consisted primarily of a decrease in prepaid and other current assets of $5.4 million primarily for insurance costs, proceeds from reduction of scheduled power of $5.1 million, proceeds from electricity sales of $1.7 million, increases in accrued expenses of $1.4 million and increases in accounts payable of $0.4 million, partially offset by a $1.1 increase in security deposits mainly due to a bond covering the shipment of miners and a $0.7 million increase in related party receivables related to amounts that we will be reimbursed for by the Alborz LLC.
Net cash used in operating activities for the five months ended September 30, 2021 was approximately $27.1 million, resulting from a net loss of $2,058,979$3.1 million, an increase in prepaid expenses and other current assets of $14.9 million that was primarily due to business insurance, increased security deposits of $9.4 million and a combined increase in accounts payable and accrued expenses totaling $0.2 million.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2022 was $169.8 million, primarily related to $184.1 million for deposits for miners and mining equipment and $29.0 million for purchases of property and equipment primarily related to construction-in-progress at the Odessa Facility; partially offset by cash distributions of $43.3 million from the Alborz LLC.
Net cash used in investing activities during the eight months ended September 30, 2022 was $74.5 million and consisted mainly of $74.3 million for deposits on equipment.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2022 was $3.1 million, which consistedwas used to repurchase shares to cover the tax obligations of employees resulting from the vesting of RSUs.
Net cash provided by financing activities for the eight months ended September 30, 2021 was $383.9 million and represented the cash proceeds received in connection with the Business Combination, net of issuance costs.
Limited Business History; Need for Additional Capital
There is limited historical financial information about the Company upon which to base an evaluation of our performance. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in 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 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 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 and we may be required to delay or change our planned buildout, 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.
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.
33
Mining and Mining Equipment
As of September 30, 2022, we had the following contractual obligations and other commitments for miners and other mining equipment (amounts in thousands):
Vendor |
| Agreement Dates |
| 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 |
|
| $ | 55,500 |
|
| $ | 55,500 |
|
| October 2022 - December 2022 |
SuperAcme Technology (Hong Kong)**/*** |
| May 6, 2022 |
|
| 222,401 |
|
|
| 222,401 |
|
|
| 101,819 |
|
| October 2022 - December 2022 |
Bitfury USA and other vendors (primarily for BBACs)**** |
| Various |
|
|
|
|
| 57,173 |
|
|
| 42,715 |
|
|
| |
Total |
|
|
|
|
|
| $ | 335,074 |
|
| $ | 200,033 |
|
|
|
__________
* 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.
*** See “—Recent Developments” above and discussion below this table for additional information regarding the Supplementary Agreement with SuperAcme.
****See “—Recent Developments” for additional information regarding payments for BBACs.
On August 20, 2021 and on August 30, 2021, we and Bitmain Technologies Limited (“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. As of September 30, 2022, 12,953 miners have been received. The original purchase price under the Bitmain Agreement was $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 September 30, 2022, we had paid total deposits of $134.2 million for the miners (some of which are no longer reflected in the table above due to their receipt and deployment during the nine months ended September 30, 2022), and we do not expect to make any further payments to Bitmain to receive the rest of the miners.
On September 2, 2021, we entered into the Original SuperAcme Agreement to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners, which were 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 established 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. On November 4, 2022, through Cipher Mining Technologies we entered into the Supplementary Agreement with SuperAcme, which supplements the Amended SuperAcme Agreement and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and provides that we will not be obligated to send any further money to SuperAcme. In connection with the Amended SuperAcme Agreement, SuperAcme has delivered 17,833 miners to date, at an aggregate value of approximately $53.6 million, and we have paid aggregate advance payments of $101.8 million. The remaining balance of $48.2 million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Supplementary Agreement. Each batch of miners is paid in full prior to delivery.
On October 11, 2021, we entered into an agreement with Bitfury Top HoldCo, 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. Generally, under this agreement, we agreed to pay a maximum price of $6,250 per machine, with an advance payment 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. The $10.0 million advance payment was paid by us prior to December 31, 2021. The agreement was a non-binding commitment unless and until confirmed by a mutually executed order confirmation. We did not enter into any such order confirmations and, as mentioned above, we executed the Waiver Agreement with Bitfury Top HoldCo in April 2022, which provided for the Cancelled Shares as consideration for the $10.0 million deposit.
34
We also entered into two agreements with Bitfury USA, a subsidiary of Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement, to purchase a total of 240 units of BBACs. The delivery of the first 20 containers was received in the first quarter of 2022 and the remainder is expected to be delivered in 2022.
We are also party to several power and hosting arrangements. We expect to deliver to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement before the end of November 2022.
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 approximately $46.9 million, which is available in up to three tranches, maturing on May 2, 2024 (the “BlockFi Facility”) to finance the purchase, installation and operation of Bitmain miners (“Mining Equipment”) at the Alborz Facility. 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 to 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 of the BlockFi Facility. Alborz LLC completed all of the three contemplated disbursements under the BlockFi Facility. The principal amount of the loan issued to Alborz LLC is approximately $26.8 million.
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 the non-cash change in fair value of derivative asset and (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impact of depreciation of fixed assets, the non-cash change in fair value of derivative asset, the change in fair value of the warrant liability and stock compensation expense. These supplemental financial measures are not measurements of financial performance under accounting principles generally accepted in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.
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, (ii) the non-cash change in fair value of our derivative asset and (iii) stock compensation expense, which could vary significantly in comparison to other companies.
Non-GAAP net loss and non-GAAP diluted loss per share exclude the impact of (i) depreciation of fixed assets, (ii) change in fair value of warrant liability, (iii) non-cash change in fair value of $76,329, business combinationour derivative asset and (iv) stock compensation expense. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating expensesresults to those of $2,032,419 offset by interest income on marketable securities heldour 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 Trust Account of $49,769.
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, (ii) non-cash change in definingfair value of our derivative asset and (iii) stock compensation expense, to its most directly comparable GAAP measure for the appropriate assumptions integralperiods indicated:
|
| Three Months Ended September 30, |
|
| Nine Months Ended |
|
| Eight Months Ended |
| |||||||
|
| 2022 |
|
| 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Reconciliation of non-GAAP loss from operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income (loss) |
| $ | 59,233 |
|
| $ | (2,283 | ) |
| $ | 12,353 |
|
| $ | (2,943 | ) |
Depreciation |
|
| 11 |
|
|
| - |
|
|
| 26 |
|
|
| 1 |
|
Change in fair value of derivative asset |
|
| (83,936 | ) |
|
| - |
|
|
| (83,936 | ) |
|
| - |
|
Stock compensation expense |
|
| 10,494 |
|
|
| - |
|
|
| 30,072 |
|
|
| - |
|
Non-GAAP loss from operations |
| $ | (14,198 | ) |
| $ | (2,283 | ) |
| $ | (41,485 | ) |
| $ | (2,942 | ) |
35
The following are reconciliations of our non-GAAP net loss and non-GAAP basic and diluted net loss per share, in each case excluding the impact of (i) depreciation of fixed assets (ii) non-cash change in fair value of derivative asset, (iii) change in fair value of warrant liability and (iv) 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:
|
| Three Months Ended September 30, |
|
| Nine Months Ended |
|
| Eight Months Ended |
| |||||||
|
| 2022 |
|
| 2021 |
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||||
Reconciliation of non-GAAP net loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 59,292 |
|
| $ | (2,421 | ) |
| $ | 12,574 |
|
| $ | (3,082 | ) |
Non-cash adjustments to net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation |
|
| 11 |
|
|
| - |
|
|
| 26 |
|
|
| 1 |
|
Change in fair value of derivative asset |
|
| (83,936 | ) |
|
| - |
|
|
| (83,936 | ) |
|
| - |
|
Change in fair value of warrant liability |
|
| 4 |
|
|
| (113 | ) |
|
| 115 |
|
|
| (113 | ) |
Stock compensation expense |
|
| 10,494 |
|
|
| - |
|
|
| 30,072 |
|
|
| - |
|
Total non-cash adjustments to net income (loss) |
|
| (73,427 | ) |
|
| (113 | ) |
|
| (53,723 | ) |
|
| (112 | ) |
Non-GAAP net loss |
| $ | (14,135 | ) |
| $ | (2,534 | ) |
| $ | (41,149 | ) |
| $ | (3,194 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reconciliation of non-GAAP basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net income (loss) per share |
| $ | 0.24 |
|
| $ | (0.01 | ) |
| $ | 0.05 |
|
| $ | (0.01 | ) |
Depreciation of fixed assets (per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Change in fair value of derivative asset (per share) |
|
| (0.34 | ) |
|
| - |
|
|
| (0.34 | ) |
|
| - |
|
Change in fair value of warrant liability (per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Stock compensation expense (per share) |
|
| 0.04 |
|
|
| - |
|
|
| 0.12 |
|
|
| - |
|
Non-GAAP basic and diluted net loss per share |
| $ | (0.06 | ) |
| $ | (0.01 | ) |
| $ | (0.17 | ) |
| $ | (0.01 | ) |
Critical Accounting Policies and judgments to ensure that ourUse of Estimates
The preparation of financial statements Cryptocurrencies Cryptocurrencies, including Bitcoin, are included in current assets on the consolidated balance sheets. Cryptocurrencies received through our wholly-owned mining activities will be accounted for in connection with our revenue recognition policy. 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 held are 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. We determine the fair value of our cryptocurrencies on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on the lowest intra-day market price of the cryptocurrency at the single Bitcoin level (one Bitcoin). The excess, if any, represents a recognized impairment loss. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. 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 proceeds from sales of cryptocurrencies are included within operating activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in operating income (loss), net in the consolidated statements of operations. The receipt of cryptocurrency as distributions-in-kind from equity investees are included within investing activities in the consolidated statements of cash flows. We account for sales of cryptocurrencies in accordance with the first in first out method of accounting. 36 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 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 is 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 a 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 equity in loss of equity investment in the consolidated statements of operations. Additionally, our interest in the net assets of our equity method investee is reflected in the consolidated balance sheets. If, upon the contribution of nonfinancial assets to a 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 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 our proportionate share of the investee’s net income or loss. If we are unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill. We consider whether the fair value of our equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If we considered 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 record a write-down of our investment to the estimated fair value. Leases We account for leases in accordance with ASC 842, Leases (“ASC 842”). Accordingly, we determine 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 our use by the lessor. Our 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 we are reasonably certain of not exercising, as well as periods covered by renewal options which we are reasonably certain of exercising. We also determine 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. For leases with a term exceeding 12 months, a lease liability is recorded on the consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. Aare 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/ 10-K.Amendment No. 2 corresponding right-of-use (“ROU”) asset equal to the initial lease liability is also 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 generally 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 we 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 are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed payments are recognized on a straight-line basis over the lease term and are not recognized on the consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception are insignificant. 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.
37
Derivative Accounting
Luminant Power Agreement
On June 23, 2021, we entered into a power purchase agreement with Luminant, which was subsequently amended and restated on July 9, 2021, and further amended on February 28, 2022 (the “February Amendment”) and August 26, 2022 (the “August Amendment”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of five years with a subsequent automatic annual renewal provision (as amended, the “Luminant Power Agreement”). We are expecting to receive interconnection approval from the Electric Reliability Council of Texas (“ERCOT”) this year, ended December 31, 2020.
Because ERCOT allows for net settlement, our management determined that, as of July 1, 2022, the Luminant Power Agreement meets the definition of a derivative under ASC 815, Derivatives and Hedging (“ASC 815”). Because we have the ability to sell our electricity in the ERCOT market rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, our management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effectthe normal purchases and normal sales scope exception applies to the Luminant Power Agreement. Accordingly, the Luminant Power Agreement (the non-hedging derivative contract) is recorded at an estimated fair value each reporting period with the change in the fair value recorded in change in fair value of derivative asset in the consolidated statements of operations. See additional information regarding valuation of the Luminant Power Agreement derivative in Note 3.
Depending on the spot market price of electricity, we may opportunistically sell electricity in the ERCOT market in exchange for cash payments, rather than utilizing the power to mine for cryptocurrency at the Odessa Facility during peak times in order to most efficiently manage our operating costs. We, through Luminant, sold $1.7 million in electricity during the three months ended September 30, 2022. These power sales were recorded as part of the change in fair value of derivative asset in the accompanying financial statements.
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.
38
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 September 30, 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.
39
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
Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to differ materially from those in this report include the risk factors describedas previously disclosed in Part I, Item 1A, “Risk Factors” of our Amendment No. 1 to2021 Form 10-K and as updated in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form10-Kfiled with 10-Q for the SEC on May 7, 2021. As of the date of this report,first quarter 2022, which is incorporated herein by reference. Other than such updates and as noted below, there have been no material changes to the risk factors previously disclosed in our final prospectus filed2021 Form 10-K.
We have ongoing discussions with Luminant related to the SEC.
We and Luminant are in discussions with respect to payments Luminant made to us under the Luminant Power Agreement. Specifically, on October 26, 2022, we received a letter from Luminant, disputing: (i) the payments of $1.7 million that Luminant had made to us under the Luminant Power Agreement for the electricity sold in the ERCOT market during July 2022 and August 2022 and (ii) the payment of $5.1 million made to us by Luminant in September 2022 in consideration for the modification to the ramp up schedule pursuant to the August Amendment to the Luminant Power Agreement. We received and recorded $1.7 million as part of the change in fair value of derivative asset in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022. We received and recorded $5.1 million as a reduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. We have not received payment from Luminant for electricity sold in the ERCOT market in September 2022 and October 2022.
We wholly dispute the claims made by Luminant and have been engaged in discussions with Luminant in an attempt to reach a mutually agreeable solution and resolve disagreements between the parties regarding these payments and whether the commencement of Luminant’s obligations under the Luminant Power Agreement should be tied to ERCOT’s interconnection approval. At this time we do not know how or when this dispute will be resolved. On November 8, 2022, we also received a letter from Luminant requesting we deposit to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement. We expect to deliver to Luminant the remaining half of the Independent Collateral Amount before the end of November 2022.
Our management may devote significant time and resources to resolve these discussions, which may detract from time our management would otherwise devote to managing our operations, and could have a material adverse effect on our business, including potentially affecting the next quarterly valuation of the Luminant Power Agreement.
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.
40
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
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| 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 |
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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 |
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4.2 |
|
| 8-K |
| 001-39625 |
| 4.1 |
| 10/28/2020 |
|
| |
10.1 |
|
| 8-K |
| 001-39625 |
| 10.1 |
| 9/15/2022 |
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| |
10.2 |
|
| 8-K |
| 001-39625 |
| 10.1 |
| 9/1/2022 |
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| |
10.3 |
|
| S-3 |
| 333-267537 |
| 1.2 |
| 9/21/2022 |
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| |
10.4 |
|
| 8-K |
| 001-39625 |
| 10.1 |
| 11/7/2022 |
|
| |
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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| ** |
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
42
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 Officer) | |||||||||
43