424B3

 

Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-262283

Prospectus Supplement No. 1

(To Prospectus dated May 2, 2022)

https://cdn.kscope.io/23a63408190f2ca2e098681891e900c4-img55020082_0.jpg 

Cipher Mining Inc.

This prospectus supplement updates, amends and supplements the prospectus dated May 2, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-262283). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.

 

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2022, which is set forth below.

 

This prospectus supplement is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our common stock and warrants are listed on the Nasdaq Global Select Market (the “Nasdaq”) under the symbols “CIFR” and “CIFRW,” respectively. On May 9, 2022, the closing price of our common stock was $3.23 and the closing price for our warrants was $0.49.

 

Investing in our securities involves risks. See the section entitled “Risk Factors” beginning on page 12 of the Prospectus to read about factors you should consider before buying our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is May 10, 2022

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-39625

 

 


 

CIPHER MINING INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

85-1614529

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1 Vanderbilt Avenue, Floor 54, Suite C

New York, New York

10017

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (332) 262-2300

 

Securities registered pursuant to Section 12(b) of the 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 Nasdaq Stock Market LLC

Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per whole share

 

CIFRW

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

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 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2022, the registrant had 247,489,579, shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statement of Changes in Stockholder Deficit

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

36

Signatures

41

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding:

our planned buildout of cryptocurrency mining sites;
our ability to raise financing in the future;
our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations;
our commercial partnerships and supply agreements;
the ability to maintain the listing of our common stock and warrants on Nasdaq, and the potential liquidity and trading of such securities;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
the effects of competition and regulation on our business;
the effects of price fluctuations in the wholesale and retail power markets;
the effects of global economic, business or political conditions, such as the global coronavirus (“COVID-19”) pandemic and the disruption caused by various countermeasures to reduce its spread;
the value and volatility of Bitcoin and other cryptocurrencies; and
other factors discussed in other sections of this Quarterly Report, including the section titled “Risk Factors.”

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 forward-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 Exchange 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 to this Quarterly Report with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.

1


 

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 part of this Quarterly 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.

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 constitute incorporation by reference of the information contained on or available through those websites, and you should not consider such information to be a part of this Quarterly Report or any other filings we make with the SEC.

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CIPHER MINING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except for share and per share amounts)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

99,495

 

 

$

209,841

 

Prepaid expenses

 

11,400

 

 

 

13,819

 

Cryptocurrencies

 

191

 

 

 

-

 

Total current assets

 

111,086

 

 

 

223,660

 

 

 

 

 

 

 

Deposits on equipment

 

207,164

 

 

 

114,857

 

Property and equipment, net

 

15,178

 

 

 

5,124

 

Security deposits

 

11,362

 

 

 

10,352

 

Investment in equity investee

 

7,373

 

 

 

-

 

Right-of-use asset

 

5,718

 

 

 

-

 

Deferred investment costs

 

-

 

 

 

174

 

Total assets

$

357,881

 

 

$

354,167

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

1,991

 

 

$

242

 

Accounts payable, related party

 

3,863

 

 

 

-

 

Operating lease liability, current portion

 

557

 

 

 

-

 

Accrued expenses

 

3,611

 

 

 

257

 

Total current liabilities

 

10,022

 

 

 

499

 

 

 

 

 

 

 

Operating lease liability, net of current portion

 

5,276

 

 

 

-

 

Warrant liability

 

89

 

 

 

137

 

Total liabilities

 

15,387

 

 

 

636

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding as of March 31, 2022 and December 31, 2021

 

-

 

 

 

-

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 253,685,763 and 252,131,679 shares issued as of March 31, 2022 and December 31, 2021, respectively, and 250,174,273 and 249,279,420 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

 

254

 

 

 

252

 

Additional paid-in capital

 

431,899

 

 

 

425,438

 

Treasury stock, at par, 3,511,490 and 2,852,259 shares at March 31, 2022 and December 31, 2021, respectively

 

(4

)

 

 

(3

)

Accumulated deficit

 

(89,655

)

 

 

(72,156

)

Total stockholders’ equity

 

342,494

 

 

 

353,531

 

Total liabilities and stockholders’ equity

$

357,881

 

 

$

354,167

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

3


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except for share and per share amounts)

(unaudited)

 

 

Three Months Ended March 31, 2022

 

 

Two Months Ended March 31, 2021

 

Costs and expenses

 

 

 

 

 

 General and administrative

$

17,390

 

 

$

113

 

 Depreciation

 

7

 

 

 

-

 

 Impairment of cryptocurrencies

 

4

 

 

 

-

 

Total costs and expenses

 

17,401

 

 

 

113

 

Operating loss

 

(17,401

)

 

 

(113

)

Other income

 

 

 

 

 

 Interest income

 

7

 

 

 

-

 

 Change in fair value of warrant liability

 

48

 

 

 

-

 

 Equity in loss of equity investment

 

(153

)

 

 

-

 

Total other income

 

(98

)

 

 

-

 

Net loss

$

(17,499

)

 

$

(113

)

Basic and diluted net loss per share

$

(0.07

)

 

$

-

 

Basic and diluted weighted average number of shares outstanding

 

250,174,255

 

 

 

200,000,000

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands except for share amounts)

(unaudited)

 

Three Months Ended March 31, 2022

 

 

Common Stock

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Shares

 

 

Amount

 

 

Accumulated Deficit

 

 

Total Stockholders’ Equity

 

Balance as of December 31, 2021

 

252,131,679

 

 

$

252

 

 

$

425,438

 

 

 

(2,852,259

)

 

$

(3

)

 

$

(72,156

)

 

$

353,531

 

Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement

 

1,554,064

 

 

 

2

 

 

 

(3,053

)

 

 

(659,231

)

 

 

(1

)

 

 

-

 

 

 

(3,052

)

Warrants exercised

 

20

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

9,514

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,514

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,499

)

 

 

(17,499

)

Balance as of March 31, 2022

 

253,685,763

 

 

$

254

 

 

$

431,899

 

 

 

(3,511,490

)

 

$

(4

)

 

$

(89,655

)

 

$

342,494

 

 

Two Months Ended March 31, 2021

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Total Stockholders’ Deficit

 

Balance as of January 31, 2021

 

200,000,000

 

 

$

200

 

 

$

(200

)

 

$

(3

)

 

$

(3

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(113

)

 

 

(113

)

Balance as of March 31, 2021

 

200,000,000

 

 

$

200

 

 

$

(200

)

 

$

(116

)

 

$

(116

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5


 

CIPHER MINING INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended March 31, 2022

 

 

Two Months Ended March 31, 2021

 

Cash flows from operating activities

 

 

 

 

 

Net loss

$

(17,499

)

 

$

(113

)

 Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 Depreciation

 

7

 

 

 

-

 

 Amortization of right-of-use assets

 

140

 

 

 

-

 

 Change in fair value of warrant liability

 

(48

)

 

 

-

 

 Share-based compensation

 

9,514

 

 

 

-

 

 Equity in earnings (loss) of equity investment

 

153

 

 

 

-

 

 Impairment of cryptocurrencies

 

4

 

 

 

-

 

 Changes in assets and liabilities:

 

 

 

 

 

 Prepaid expenses

 

2,288

 

 

 

-

 

 Security deposits

 

(1,010

)

 

 

-

 

 Accounts payable

 

120

 

 

 

67

 

 Accounts payable, related party

 

-

 

 

 

2

 

 Accrued expenses

 

2,904

 

 

 

(1

)

 Lease liability

 

106

 

 

 

-

 

 Net cash used in operating activities

 

(3,321

)

 

 

(45

)

Cash flows from investing activities

 

 

 

 

 

 Deposits on equipment

 

(96,914

)

 

 

-

 

 Purchases of property and equipment

 

(7,059

)

 

 

-

 

 Net cash used in investing activities

 

(103,973

)

 

 

-

 

Cash flows from financing activities

 

 

 

 

 

 Proceeds from borrowings on related party loan

 

-

 

 

 

100

 

 Repurchase of common shares to pay employee withholding taxes

 

(3,052

)

 

 

-

 

 Net cash (used in) provided by financing activities

 

(3,052

)

 

 

100

 

Net (decrease) increase in cash and cash equivalents

 

(110,346

)

 

 

55

 

Cash and cash equivalents, beginning of the period

 

209,841

 

 

 

-

 

Cash and cash equivalents, end of the period

$

99,495

 

 

$

55

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 Cash paid for interest

$

-

 

 

$

-

 

 Cash paid for income taxes, net

$

-

 

 

$

-

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 Equity method investment acquired for non-cash consideration

$

7,118

 

 

$

-

 

 Right-of-use asset obtained in exchange for operating lease liability

$

5,859

 

 

$

-

 

 Deposits on equipment in accounts payable, related party

$

2,506

 

 

$

-

 

 Property and equipment purchases in accounts payable

$

1,624

 

 

$

3

 

 Property and equipment purchases in accounts payable, related party

$

1,357

 

 

$

-

 

 Investment in equity investee in accrued expenses

$

428

 

 

$

-

 

 Cryptocurrencies received from equity method investment

$

195

 

 

$

-

 

 Reclassification of deferred investment costs to equity method investment

$

174

 

 

$

-

 

 Property and equipment purchases in accrued expenses

$

22

 

 

$

-

 

 Deposits on equipment in accounts payable

$

5

 

 

$

-

 

 Deferred offering costs included in accrued expenses

$

-

 

 

$

1,525

 

 Deferred offering costs included in accounts payable

$

-

 

 

$

98

 

 Deferred investment costs included in accrued expenses

$

-

 

 

$

97

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1. ORGANIZATION AND BUSINESS

Organization

On August 27, 2021 (the “Closing Date”), Good Works Acquisition Corp. (“GWAC”), a special purpose acquisition company, consummated the Agreement and Plan of Merger dated as of March 4, 2021 (the “Merger Agreement”), by and among GWAC, Currency Merger Sub, Inc. (“Merger Sub”), a wholly owned direct subsidiary of GWAC, and Cipher Mining Technologies Inc. (“Cipher Mining Technologies”).

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 subsidiary of GWAC (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). Following the Business Combination, the combined company was named Cipher Mining Inc. (“Cipher” or the “Company”). The Company comprises all of GWAC’s and Cipher Mining Technologies’ operations.

Business

The Company is an 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 at the Alborz facility, located in Texas, in February 2022. See additional information about the Alborz facility in Note 8.

Cipher Mining Technologies was established on January 7, 2021, in Delaware, by Bitfury Top Holdco B.V. and its subsidiaries (“Bitfury Top Holdco” and, with its subsidiaries, the “Bitfury Group”), a global full-service blockchain and technology specialist and one of the leading private infrastructure providers in the blockchain ecosystem. Bitfury Top HoldCo (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owned approximately 82.3% and 83.4% of the Company’s common stock as of March 31, 2022 and upon completion of the Business Combination (as defined above), respectively, with sole voting and sole dispositive power over those shares and, as a result, the Bitfury Group has control of the Company as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation.”

Risks and uncertainties

Liquidity and capital resources and limited business history

The Company incurred a net loss of $17.5 million and negative cash flows from operations of $3.3 million for the three months ended March 31, 2022. As of March 31, 2022, the Company had approximate balances of cash and cash equivalents of $99.5 million, working capital of $101.1 million, total stockholders’ equity of $342.5 million and an accumulated deficit of $89.7 million. To date, the Company has, in large part, relied on proceeds from the consummation of the Business Combination to fund its operations. During the three months ended March 31, 2022, the Company paid approximately $96.9 million of deposits for miners and mining equipment and, as of March 31, 2022, had reclassified $7.1 million of those equipment deposits to investment in equity investee on the unaudited condensed consolidated balance sheet in connection with the contribution of 970 miners and other mining equipment to the Alborz facility. As of March 31, 2022, the Company had $207.2 million of deposits on equipment, primarily for miners, and has significant future commitments related to these deposits as detailed in Note 6, for which the Company will need additional capital in order to meet these commitments in accordance with the existing contractual terms. Management believes that the Company’s existing financial resources, combined with its ability to delay or change its planned buildout steps, are sufficient to meet its operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.

There is limited historical financial information about the Company upon which to base an evaluation of its performance and the Company has not generated any revenues from its business to date. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration and/or development, and possible cost overruns due to price and cost increases in services. Management of the Company has no current intention of entering into a merger or acquisition within the next 12 months and has a specific business plan and timetable to complete its 12-month plan of operation. The Company is in the process of an active operational buildout and anticipates that additional capital will be required to implement the buildout. The Company may also require additional capital to pursue certain business opportunities or respond to technological

7


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

advancements, competitive dynamics or technologies, customer demands, challenges, acquisitions or unforeseen circumstances. Additionally, the Company has incurred and expects to continue to incur significant costs related to becoming a public company. Accordingly, the Company may engage in equity or debt financings or enter into credit facilities for the above-mentioned or other reasons; however, the Company may not be able to timely secure additional debt or equity financings on favorable terms, if at all. If the Company raises additional funds through equity financing, its existing stockholders could experience significant dilution. Furthermore, any debt financing obtained by the Company in the future could involve restrictive covenants relating to the Company’s capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities. If the Company is unable to obtain adequate financing on terms that are satisfactory to the Company, when the Company requires it, the Company’s ability to continue to grow or support the business and to respond to business challenges could be significantly limited. If the Company is unable to obtain adequate debt or equity financing for its planned buildout, the Company may be required to delay or change its planned buildout steps, which may adversely affect the Company's business plan.

COVID-19

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the outbreak and global spread of the coronavirus (“COVID-19”). The COVID-19 pandemic that was declared on March 11, 2020 has caused significant economic dislocation in the United States and globally as governments, including the United States, introduced measures aimed at preventing the spread of COVID-19. The spread of COVID-19 and the imposition of related public health measures have resulted in, and are expected to continue to result in, increased volatility and uncertainty in the cryptocurrency space. Any severe or prolonged economic downturn, as result of the COVID-19 pandemic or otherwise, could result in a variety of risks to our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.

We may experience disruptions to our business operations resulting from supply interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of our employees or our counterparties to perform their jobs. We may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, we had to temporarily shut down the construction at our Alborz site in response to employees being impacted by COVID-19. The temporary shut down was less than a week, and we resumed the construction at the site immediately after. If we are unable to effectively set up and service our miners, our ability to mine Bitcoin will be adversely affected. The future impact of the COVID-19 pandemic is still highly uncertain and there is no assurance that the COVID-19 pandemic or any other pandemic, or other unfavorable global economic, business or political conditions, will not materially and adversely affect our business, prospects, financial condition, and operating results.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The Company prepares its unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) as determined by the FASB and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its controlled subsidiary, Cipher Mining Technologies. All intercompany transactions and balances have been eliminated.

Use of estimates

The preparation of financial statements in conformity with GAAP requires 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 expenses during the reporting period. The most significant estimates inherent in the preparation of the Company's financial statements include, but are not limited to, those related to equity instruments issued in share-based compensation arrangements, valuation of the warrant liability, useful lives of property and equipment, and the valuation allowance associated with the Company’s deferred tax assets, among others. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the

8


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ significantly from those estimates.

Unaudited interim condensed consolidated financial statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments, which consist of only normal recurring adjustments necessary for the fair presentation of the balances and results for the periods presented. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

A description of the Company’s significant accounting policies in included in the Company’s 2021 Form 10-K. You should read the unaudited interim condensed consolidated financial statements in conjunction with the Company’s audited consolidated financial statements and accompanying notes in the Company’s 2021 Form 10-K. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the Company’s audited consolidated financial statements included in the Company’s 2021 Form 10-K.

Change in fiscal year

Cipher Mining Technologies assumed GWAC’s financial calendar for the combined entity with the third fiscal quarter ending September 30 and its fiscal year ending December 31. This change to the fiscal year end was approved by the Company’s board of directors (“Board”) on September 23, 2021. Cipher Mining Technologies’ fiscal year previously ended on January 31.

Investment in equity investee

The Company accounts for investments using the equity method of accounting if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has 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 the joint venture from Cipher.

The Company’s investment is subsequently adjusted to recognize the Company’s share of net income or losses as they occur. The Company also adjusts its investment upon receipt of cryptocurrency from the equity investee, which is accounted for as a distribution-in-kind. The Company’s share of investee earnings or losses is recorded, net of taxes, within earnings (losses) of equity method investment in the unaudited condensed consolidated statements of operations. Additionally, the Company’s interest in the net assets of its equity method investee is reflected in the unaudited condensed consolidated balance sheets. If, upon the contribution of nonfinancial assets to the joint venture from Cipher, there is any difference between the cost of the investment and the amount of the underlying equity in the net assets of an investee, the difference is required to be accounted for as if the investee were a consolidated subsidiary. If the difference is assigned to depreciable or amortizable assets or liabilities, then the difference should be amortized or accreted in connection with the equity earnings based on the Company’s proportionate share of the investee’s net income or loss. If the investor is unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.

The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If 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 estimated fair value.

Property and equipment, net

Property and equipment consists primarily of construction-in-progress at one of the Company’s planned sites in Texas, as well as office and computer equipment, software that is being developed for internal use and several miners obtained for testing purposes. Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are

9


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

calculated using the straight-line method over the estimated useful lives of the assets, which is generally three years for office and computer-related assets and five years for miners. Construction-in-progress consists primarily of leasehold improvements at one of the Texas sites which, when placed into service, will be depreciated in accordance with the lease term of five years.

Property and equipment, net consisted of the following (amounts in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Office and computer equipment

 

$

84

 

 

$

60

 

Software

 

 

164

 

 

 

-

 

Miners and mining equipment

 

 

26

 

 

 

-

 

Construction-in-progress

 

 

14,916

 

 

 

5,069

 

Total cost of property and equipment

 

 

15,190

 

 

 

5,129

 

Less: accumulated depreciation

 

 

(12

)

 

 

(5

)

Property and equipment, net

 

$

15,178

 

 

$

5,124

 

Depreciation expense was immaterial during the three months ended March 31, 2022 and the two months ended March 31, 2021.

Capitalized software costs

The 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 the unaudited condensed consolidated balance sheets. 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 3 years. The Company will recognize the amortization in depreciation and 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”. Accordingly, the Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain of not exercising, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.

A lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability will also be recorded, adjusted for any accrued or prepaid rents and/or unamortized initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. ROU assets will be reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

For the Company’s operating leases, fixed lease payments will be recognized as lease expense on a straight-line basis over the lease term. Variable lease costs are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.

The Leases standard provides practical expedients for an entity’s ongoing accounting. The Company has elected the practical expedient not to separate lease and non-lease components for all leases, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of our lease components for balance sheet purposes.

The Company entered into a series of agreements with affiliates of Luminant ET Services Company LLC (“Luminant”), including the Lease Agreement dated June 29, 2021, with amendment and restatement on July 9, 2021 (as amended and restated, the “Luminant Lease Agreement”). Once the Luminant Lease Agreement is effective and the Company has control over the applicable leased asset,

10


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

the Company will record both a ROU asset and a corresponding lease liability in accordance with ASC 842 for each lease component as applicable under the agreements.

Cryptocurrencies

Cryptocurrencies, including Bitcoin, are included in current assets on the consolidated balance sheets. Cryptocurrencies awarded to the Company through its wholly owned mining activities will be accounted for in connection with the Company’s revenue recognition policy disclosed above. Cryptocurrencies awarded to the Company as distributions-in-kind from equity investees are accounted for in accordance with ASC 845, “Nonmonetary Transactions” and recorded at fair value upon receipt.

Cryptocurrencies will be accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. The Company has elected to bypass the optional qualitative impairment assessment and will track its cryptocurrency activity daily for impairment assessment purposes. The Company determines the fair value of its cryptocurrencies on a nonrecurring basis in accordance with ASC 820, “Fair Value Measurements and Disclosures”, based on quoted prices on the active trading platform that the Company determines is its principal market for Bitcoin (Level 1 input). The Company performs an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted prices on its active trading platform, indicate that it is more likely than not that its cryptocurrencies are impaired. For impairment testing purposes, daily fair value of the cryptocurrencies is based on the next day’s beginning market price of the cryptocurrency (UTC 00:00), at the single Bitcoin level (one Bitcoin). The excess, if any, of the current carrying amount of the cryptocurrency assets over the daily fair value represents an impairment loss. The total of all daily impairment losses for the given quarter are summed and recorded at the end of the quarter. 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 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 receipt of cryptocurrency as distributions-in-kind from equity investees and sales, if any, of cryptocurrencies are included within investing activities in the consolidated statements of cash flows and any realized gains or losses from such sales will be included in operating income (loss), net in the consolidated statements of operations. The Company will account for its sale of cryptocurrencies in accordance with the first in first out (“FIFO”) method of accounting.

Recently issued and adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. The new guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance on January 1, 2022 with no impact to the Company’s consolidated financial statements upon adoption.

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)”. ASU 2021-04 reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. ASU 2021-04 was effective for the Company on January 1, 2022 and there was no impact on the Company’s financial statements or disclosures upon adoption.

11


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.

NOTE 3. FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities subject to fair value measurement on a recurring basis and the level of inputs used for such measurements were as follows (amounts in thousands):

 

 

 

Fair Value Measured as of March 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets included in:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market securities

 

$

71,011

 

 

$

-

 

 

$

-

 

 

$

71,011

 

 

 

$

71,011

 

 

$

-

 

 

$

-

 

 

$

71,011

 

Liabilities included in:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

$

-

 

 

$

-

 

 

$

89

 

 

$

89

 

 

 

$

-

 

 

$

-

 

 

$

89

 

 

$

89

 

 

 

 

Fair Value Measured as of December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets included in:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market securities

 

$

101,004

 

 

$

-

 

 

$

-

 

 

$

101,004

 

 

 

$

101,004

 

 

$

-

 

 

$

-

 

 

$

101,004

 

Liabilities included in:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

$

-

 

 

$

-

 

 

$

137

 

 

$

137

 

 

 

$

-

 

 

$

-

 

 

$

137

 

 

$

137

 

Fair values of cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate the recorded value due to the short-term nature of these items. The Company’s Private Placement Warrants are 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 additional data impacting the assumptions and estimates are obtained.

The Company engaged a valuation firm to determine the fair value of the Private Placement Warrants using 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 valuations of the Private Placement Warrants as of the dates indicated:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Risk-free rate

 

 

2.40

%

 

 

1.20

%

Dividend yield rate

 

 

0.00

%

 

 

0.00

%

Volatility

 

 

60.0

%

 

 

58.8

%

Contractual term (in years)

 

 

4.41

 

 

 

4.65

 

Exercise price

 

$

11.50

 

 

$

11.50

 

The following table presents changes in the fair value of the Private Placement Warrants for the three months ended March 31, 2022 (amounts in thousands):

 

Balance, January 1, 2022

 

$

137

 

Change in fair value

 

 

(48

)

Balance, March 31, 2022

 

$

89

 

 

12


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 4. PREPAID EXPENSES AND ACCRUED EXPENSES

As of March 31, 2022 and December 31, 2021, the Company had $11.4 million and $13.8 million, respectively, of prepaid expenses on its unaudited condensed consolidated balance sheets, which was almost entirely related to prepaid insurance as of both dates.

The Company’s accrued expenses consisted of the following (amounts in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Legal

 

$

1,279

 

 

$

100

 

Taxes

 

 

1,823

 

 

 

-

 

Consulting

 

 

280

 

 

 

-

 

Accounting and audit

 

 

110

 

 

 

153

 

Other

 

 

119

 

 

 

4

 

Total accrued expenses

 

$

3,611

 

 

$

257

 

 

 

NOTE 5. CRYPTOCURRENCIES

The following table presents information about the Company’s cryptocurrencies (Bitcoin) (amounts in thousands):

 

Balance, January 1, 2022

 

$

-

 

Cryptocurrencies received from equity investee

 

 

195

 

Impairment of cryptocurrencies

 

 

(4

)

Balance, March 31, 2022

 

$

191

 

 

The Company’s cryptocurrency activity for the three months ended March 31, 2022 was all from Bitcoin. The Company had no cryptocurrency activity during the two months ended March 31, 2021.

 

During the three months ended March 31, 2022, the Company recorded immaterial impairment charges on it’s cryptocurrency holdings as shown in the table above.

 

NOTE 6. DEPOSITS ON EQUIPMENT

As of March 31, 2022, the Company had outstanding executed purchase agreements for the purchase of (1) 26,000 Antminer S19j Pro (100 TH/s) miners from Bitmain Technologies Limited (“Bitmain”) and (2) 60,000 MicroBT M30S, M30S+ and M30S++ miners from SuperAcme Technology (Hong Kong) Limited (“SuperAcme”). All of the miners to be acquired under the purchase agreements with Bitmain and SuperAcme are scheduled to be delivered through December 2022.

The Company also has an agreement for the purchase of between 28,000 to 56,000 mining rigs from Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement between the Company and Bitfury Top HoldCo dated August 26, 2021. The agreement is a non-binding commitment unless and until confirmed by a mutually executed order confirmation. Based on the Company’s latest market assessments, management does not anticipate entering into any such order confirmations. Additionally, the Company also entered into two agreements with Bitfury USA Inc., a subsidiary of Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement, to purchase a total of 200 units of BlockBox air-cooled containers (each a “BBAC”), the modular data centers that house mining machines. The delivery of those containers commenced in the first quarter of 2022 and is anticipated to be completed in 2022, as expected. See Note 9 for more information on the Master Services and Supply Agreement.

The purchase agreement commitments, deposits paid and expected delivery timing (remaining balances are payable in advance of shipping) are summarized below as of March 31, 2022 (amounts in thousands):

 

13


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Vendor

 

Agreement Date

 

Original Maximum Purchase Commitment*

 

 

Open Purchase Commitment

 

 

Deposits Paid

 

 

Expected Shipping for Open Purchase Commitments

Bitmain Technologies Limited**

 

August 20, 2021 and August 30, 2021

 

$

171,135

 

 

$

164,590

 

 

$

107,879

 

 

April 2022 - September 2022

SuperAcme Technology (Hong Kong)**/****

 

September 2, 2021

 

 

222,401

 

 

 

222,401

 

 

 

59,307

 

 

July 2022 - December 2022

Bitfury Top HoldCo B.V.

 

October 11, 2021

 

***

 

 

***

 

 

 

10,000

 

 

***

Bitfury USA Inc. and other vendors (primarily for BBACs)

 

Various

 

 

 

 

 

47,775

 

 

 

29,978

 

 

 

Total

 

 

 

 

 

 

$

434,765

 

 

$

207,164

 

 

 

__________

* Maximum purchase commitment does not consider discounts that the Company may qualify for with the respective vendors, which could reduce the total cost of the miner.

** Pursuant to the Company's agreements with Bitmain and SuperAcme, the Company is responsible for all logistics costs related to transportation, packaging for transportation and insurance related to the delivery of the miners.

*** As of March 31, 2022, there were no mutually executed order confirmations and as such, the Company had no binding commitments to acquire miners from Bitfury Top HoldCo. See Note 16 for additional information regarding the return of shares of the Company’s Common Stock held by Bitfury Top HoldCo as consideration for the $10.0 million deposit paid, which occurred after March 31, 2022.

**** See Note 16 regarding execution of an amended agreement with SuperAcme.

 

During the three months ended March 31, 2022, the Company received 970 Antminer model S19j Pro-A miners related to its purchase agreement with Bitmain, which were contributed to the Alborz facility as part of the Company’s investment in the joint venture. See additional information in Note 8.

NOTE 7. SECURITY DEPOSITS

Security deposits as of the dates indicated, are shown in the table below (amounts in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Luminant Power Purchase Agreement Independent Collateral Amount (see Note 9)

 

$

6,277

 

 

$

6,277

 

Luminant Purchase and Sale Agreement collateral (see Note 9)

 

 

3,063

 

 

 

3,063

 

Office lease security deposit

 

 

922

 

 

 

922

 

Other deposits

 

 

1,100

 

 

 

90

 

Total security deposits

 

$

11,362

 

 

$

10,352

 

 

NOTE 8. INVESTMENT IN EQUITY INVESTEE

On June 10, 2021, the Company and WindHQ, LLC (“WindHQ”) signed a binding definitive framework agreement with respect to the construction, buildout, deployment and operation of one or more data centers (“Data Centers”) in the United States (the “WindHQ Joint Venture Agreement”). See additional information regarding the WindHQ Joint Venture Agreement in Note 11.

On January 28, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Alborz Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Amended and Restated Limited Liability Company Agreement of Alborz LLC (the “Alborz LLC Agreement”). The Alborz LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Alborz LLC facility located in Texas (i.e., the first Data Center under the WindHQ Joint Venture Agreement. The Company is required to required to support and monitor (remotely) the operations of the hardware at the Alborz facility (particularly the mining servers) as required under the WindHQ Joint Venture Agreement.

The Company uses the equity method of accounting to account for its 49% equity interest in Alborz LLC. The Company contributed a total of $7.5 million of miners and mining equipment to Alborz LLC during the three months ended March 31, 2022. The Company also reclassified approximately $0.2 million of legal costs associated with the joint venture formation to investment in equity investee

14


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

during the three months ended March 31, 2022. The Company recognized approximately $0.2 million as equity in Alborz, LLC’s net loss in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2022. For the three months ended March 31, 2022, the Company received distributions-in-kind of Bitcoin of approximately $0.2 million from Alborz, LLC.

NOTE 9. RELATED PARTY TRANSACTIONS

Master Services and Supply Agreement

In connection with the Business Combination, Bitfury Top HoldCo and Cipher entered into the Master Services and Supply Agreement on August 26, 2021. The initial term of the agreement 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 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 United States. The Master Services and Supply Agreement is not exclusive to Bitfury Top HoldCo or any of its affiliates, and Cipher may retain any other parties to manufacture and deliver any equipment or perform any of the services required. Cipher is not obligated to order any equipment or services from the Bitfury Group under the Master Services and Supply Agreement.

In addition to the Master Services and Supply Agreement, Cipher and Bitfury Holding also entered into a fee side letter, which sets out the basic pricing framework applicable under the Master Services and Supply Agreement for any services. Under the side letter, monthly fees for any potential future services, if any, would be determined by reference to two groups of 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 $1000/MW up to 445MW (capped at $200,000/month) and $450USD/MW above 445MW (plus applicable duties and taxes).

Purchase commitments and deposits on equipment

As discussed above in Note 6, the Company entered into agreements with Bitfury Top HoldCo providing the Company an option to purchase mining rigs and with Bitfury USA Inc., a subsidiary of Bitfury Top HoldCo, for BBACs. Such agreements are pursuant to the Master Services and Supply Agreement. As of March 31, 2022, the Company had paid $10.0 million and $23.2 million to Bitfury Top HoldCo and Bitfury USA Inc., respectively, pursuant to these agreements, which were recorded as deposits on equipment on the Company’s unaudited condensed consolidated balance sheet. As of December 31, 2021, the Company had paid $10.0 and $5.1 million to Bitfury Top HoldCo and Bitfury USA Inc., respectively.

Additionally, Bitfury Top HoldCo made payments on the Company's behalf totaling approximately $2.4 million prior to December 31, 2021 for deposits on equipment and/or construction-in-progress. The Company reimbursed Bitfury Top HoldCo for these amounts plus a 7% service fee upon completion of the Business Combination and, as a result, recorded the amounts reimbursed to Bitfury (including the service fee) as follows: approximately $2.5 million is included in deposits on equipment and approximately $0.1 million in included in construction-in-progress on the Company's unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021. As of March 31, 2022, the Company recorded a $3.9 million payable to Bitfury Top HoldCo in accounts payable, related party on the unaudited condensed consolidated balance sheet comprised of $2.5 million and $1.4 million recorded as deposits on equipment and construction-in-progress, respectively, for additional payments that Bitfury Top HoldCo has made, or is making on the Company’s behalf.

NOTE 10. LEASE

The Company has entered into an operating lease for office space located in New York. The lease has an initial term of 64 months, commencing on February 1, 2022. The lease does not provide the Company with renewal options.

Total rent expense was approximately $0.2 million for the three months ended March 31, 2022, and consisted entirely of operating lease costs as the Company did not incur any variable lease costs or short-term lease costs during the period.

Supplemental information related to the lease was as follows (dollar amounts in thousands):

15


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

Operating cash flows - operating leases

 

$

-

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

5,859

 

Weighted-average remaining lease term – operating leases (in years)

 

 

5.2

 

Weighted-average discount rate – operating leases

 

 

10.9

%

 

As of March 31, 2022, future minimum operating lease payments during the next five years and thereafter are as follows (amounts in thousands):

 

Remaining Period Ended December 31, 2022

 

$

791

 

Year Ended December 31, 2023

 

 

1,581

 

Year Ended December 31, 2024

 

 

1,581

 

Year Ended December 31, 2025

 

 

1,581

 

Year Ended December 31, 2026

 

 

1,581

 

Year Ended December 31, 2027

 

 

659

 

Total

 

 

7,774

 

Less present value discount

 

 

(1,941

)

Operating lease liabilities

 

$

5,833

 

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is not a party to any material legal proceedings and is not aware of 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.

Commitments

In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. The Company's maximum exposure under these arrangements, if any, is unknown as of March 31, 2022. The Company does not anticipate recognizing any significant losses relating to these arrangements.

Power and hosting arrangements

The Company is party to several power and hosting arrangements as described below.

Luminant power arrangement

On June 23, 2021, the Company entered into a power purchase agreement, which was subsequently amended and restated on July 9, 2021 and further amended on February 28, 2022, with Luminant for the supply of electric power to one of our planned sites in Texas for a term of five years with a subsequent automatic annual renewal provision (as amended, the “Luminant Power Agreement”).

The Luminant Lease Agreement leases the Company a plot of land where the planned data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) will be set up for the Texas site. The Company also entered into the Purchase and Sale Agreement dated June 28, 2021, with amendment and restatement on July 9, 2021 (as amended and restated the “Luminant Purchase and Sale Agreement””) with another Luminant affiliate. The Company entered into the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement to build the infrastructure necessary to support its planned operations. The Company determined that the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement should be combined for accounting purposes under the new lease guidance (collectively, the “Combined Luminant Lease Agreement”) and that amounts exchanged under the combined contract should be allocated to the various components of the overall transaction based on relative fair values.

Under the Luminant Power Agreement, the Company is required to provide Luminant with collateral of approximately $12.6 million (the “Independent Collateral Amount”). Half, or approximately $6.3 million, of the Independent Collateral Amount was paid to Luminant on September 1, 2021 and is recorded in security deposits as of March 31, 2022 and December 31, 2021, as the Company

16


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

received notice that Luminant had commenced construction of the Interconnection Electrical Facilities. The other half will be due 15 days prior to the date on which the Interconnection Electrical Facilities are completed and made operational. The Independent Collateral Amount will remain in place throughout the term of the Luminant Power Agreement. Details of the construction of the Interconnection Electrical Facilities, including collateral arrangements that are in addition to the Independent Collateral Amount, are set out in the Luminant Purchase and Sale Agreement. Under the Luminant Purchase and Sale Agreement, the Company provided approximately $3.1 million as collateral separate from the Independent Collateral Amount, which is recorded in security deposits as of March 31, 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. 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.

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 the mining and (ii) host, operate and manage the Miners there, in each case in accordance with the terms and conditions of the Standard Power Hosting Agreement.

The Standard Power Hosting Agreement provides that Standard Power shall provide an electric power infrastructure, including containers, necessary to operate Miners with a specified energy utilization capacity at facility 1 in Ohio in accordance with the specifications and power availability date set out in the availability schedule.

Thereafter, Standard Power shall provide the hosting capacity, housing and equipment for Miners with the specified energy utilization capacities that will be delivered to the facilities in accordance with the availability schedule, as may be amended and supplemented. Standard Power also undertakes to be responsible for the proper installation and the costs of work for hosting the Miners in the specialized containers in each facility and for the proper care and maintenance of the Miners, the facilities and the containers in which the Miners are installed.

Under the Standard Power Hosting Agreement, the Company is obligated to pay a hosting fee and an operational service fee. The Company’s payment obligations under the Standard Power Hosting Agreement become effective on a pro rata basis according to the number of Miners in operation in accordance with the terms of this agreement. The Standard Power Hosting Agreement provides for a term of five years with automatic five-year renewal provisions. The associated fees paid under the Standard Power Hosting Agreement will be expensed as services are received.

WindHQ power arrangement and joint venture

The WindHQ Joint Venture Agreement provides that the parties shall collaborate to fund the construction and buildout of certain specified Data Centers at locations already identified by the parties (“Initial Data Centers”). Each Initial Data Center will be owned by a separate limited liability company (each, an “Initial Data Center LLC”), and WindHQ and the Company will each own 51% and 49%, respectively, of the initial membership interests of each Initial Data Center LLC.

The WindHQ Joint Venture Agreement includes a development schedule for additional electrical power capacity through the joint identification, procurement, development and operation of additional Data Centers (“Future Data Centers”). Each Future Data Center will be owned by a separate limited liability company (each, a “Future Data Center LLC”, and collectively with the Initial Data Center LLCs, the “Data Center LLCs”), and the Company and WindHQ, or respective affiliates of the Company or WindHQ, shall become a member of each Data Center LLC by entering into a limited liability company agreement for each such Data Center LLC (“LLC Agreement”). WindHQ will own at least 51% of the initial membership interests of each Data Center LLC and the Company will own 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

17


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Company is required to procure the applicable equipment needed for the Future Data Centers at the most favorable pricing then available.

Under the WindHQ Joint Venture Agreement, WindHQ agrees to provide a series of services to each of the Data Centers, including but not limited to: (i) the design and engineering of each of the Data Centers; (ii) the procurement of energy equipment and other related services such as logistics for each of the Data Centers; and (iii) the construction work for each of the Data Centers. Furthermore, the Company is required to support and monitor (remotely) the operations of the hardware at each Data Center (particularly the mining servers) as required under the WindHQ Joint Venture Agreement.

A development fee equal to 2% of capital expenditures in respect of the 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 management of the Company that the Company’s investment in any of the individual Data Center LLCs will meet the definition of a variable interest entity in accordance with ASC 810, “Consolidation” and the Company will not have a controlling voting interest in any of the Data Center LLCs. Based upon the Company's expectation that they will have significant influence over the operations and major decisions of the Data Center LLCs, the Company’s 49% ownership in each individual Data Center LLC will be separately accounted for under the equity method of accounting, as the Company does not expect to exercise control over the Data Center LLCs.

See discussion of the Alborz LLC Agreement entered into on January 28, 2022 between the Company and Alborz Interests DC LLC (a subsidiary of WindHQ) above in Note 8.

NOTE 12. STOCKHOLDERS’ EQUITY (DEFICIT)

As of March 31, 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 March 31, 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 659,231 shares of its common stock related to tax withholding settlements for restricted stock units (“RSUs”) that vested during the three months ended March 31, 2022.

NOTE 13. WARRANTS

Upon consummation of the Business Combination, the Company assumed 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 private 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. The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or the Company’s recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of shares of common stock at a price below their respective exercise prices. Additionally, in no event will the Company be required to net cash settle the warrants.

18


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 14. SHARE-BASED COMPENSATION

Upon Closing of the Business Combination, the Board approved the Cipher Mining Inc. 2021 Incentive Award Plan (the “Incentive Award Plan”). The Incentive Award Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, RSUs and other stock or cash-based awards to employees, consultants and directors. Upon vesting of an award, the Company may either issue new shares or reissue treasury shares.

Initially, up to 19,869,312 shares of Common Stock were available for issuance under awards granted pursuant to the Incentive Award Plan. In addition, the number of shares of Common Stock available for issuance under the Incentive Equity Plan will be increased on January 1 of each calendar year beginning in 2022 and ending in 2031 by an amount equal to the lesser of (a) three percent (3%) of the total number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares determined by the Board. On January 1, 2022, this resulted in an increase of 7,478,382 shares of Common Stock available for issuance under the Incentive Award Plan. As of March 31, 2022, 9,602,122 shares of Common Stock are available for issuance under the Incentive Award Plan.

During the three months ended March 31, 2022, the Company recognized total share-based compensation for the following categories of awards (amounts in thousands):

 

Service-Based RSUs

 

$

6,173

 

Performance-Based RSUs

 

 

3,341

 

Total share-based compensation expense

 

$

9,514

 

Service-Based RSUs

A summary of the Company's unvested Service-Based RSU activity for the three months ended March 31, 2022 is shown below:

 

 

 

Number of Shares

 

 

Weighted Average Grant Date Fair Value

 

Unvested at January 1, 2022

 

 

6,798,238

 

 

$

8.04

 

Granted

 

 

939,058

 

 

 

3.41

 

Vested

 

 

(1,554,064

)

 

 

8.15

 

Unvested at March 31, 2022

 

 

6,183,232

 

 

$

7.31

 

As of March 31, 2022, there was approximately $36.5 million of unrecognized compensation expense related to unvested Service-Based RSUs, which is expected to be recognized over a weighted-average vesting period of approximately 1.9 years.

If not fully-vested upon grant, Service-Based RSUs awarded generally vest in equal installments on the first four anniversaries of the vesting commencement date as determined by the Board, which will generally coincide with the timing when the employee or consultant began to provide services to the Company, and which may precede the grant date. Vesting is subject to the award recipient's continuous service on the applicable vesting date; provided, that if the award recipient’s employment is terminated by the Company without “cause”, due to award recipient’s death or permanent disability, or, for some award recipients, by the award recipient for “good reason” (if applicable, as such term or similar term may be defined in any employment, consulting or similar service agreement between award recipient and the Company), all unvested Service-Based RSUs will vest in full. In addition, in the event of a change in control, any unvested Service-Based RSUs will vest subject to the award recipient's continuous service to the Company through such change in control. In addition, if the $10 billion market capitalization milestone (described further below) is achieved and the Chief Executive Officer (“CEO”) remains in continuous service through such achievement, any then-unvested Service-Based RSUs awarded to the CEO will also vest.

Performance-Based RSUs

There was no activity for unvested Performance-Based RSUs during the three months ended March 31, 2022. There were 4,257,710 unvested Performance-Based RSUs at a weighted average grant date fair value of $7.76 as of March 31, 2022 and December 31, 2021. There was approximately $28.0 million of unrecognized compensation expense related to unvested Performance-Based RSUs, which is expected to be recognized over a weighted-average derived service period of approximately 2.2 years.

19


CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

One-third of the Performance-Based RSUs will vest upon the Company achieving a market capitalization equal to or exceeding $5 billion, $7.5 billion and $10 billion, in each case over a 30-day lookback period and subject to the CEO’s continuous service through the end of the applicable 30-day period. In the event of a change in control and CEO’s continuous service through such change in control, the per share price (plus the per share value of any other consideration) received by the Company’s stockholders in such change in control will be used to determine whether any of the market capitalization milestones are achieved (without regard to the 30-day lookback period). Any Performance-Based RSUs that do not vest prior to the CEO’s termination of service or, if earlier, in connection with a change in control will be forfeited for no consideration.

NOTE 15. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss allocable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share adjusts net loss and net loss per common share for the effect of all potentially dilutive shares of the Company’s Common Stock. Basic net loss per common share is the same as dilutive net loss per common share for the three months ended March 31, 2022 and the two months ended March 31, 2021, as the inclusion of all potential common shares would have been antidilutive. Potential common shares consist of Public Warrants and Private Placement Warrants to purchase Common Stock (using the treasury stock method) that were sold by GWAC in its initial public offering or concurrent with its initial public offering, respectively, and assumed by the Company as of the Effective Date of the Business Combination, as well as unvested RSUs.

The following table presents the common shares that are excluded from the computation of diluted net loss per common share as of March 31, 2022, because including them would have been antidilutive. There were no potentially dilutive securities as of March 31, 2021.