UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 4, 2023, the registrant had
Table of Contents
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PART I. |
4 |
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Item 1. |
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4 |
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5 |
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Condensed Consolidated Statement of Changes in Stockholder’s Equity |
6 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
31 |
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Item 4. |
31 |
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PART II. |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
33 |
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Item 3. |
33 |
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Item 4. |
33 |
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Item 5. |
33 |
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Item 6. |
34 |
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35 |
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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 contained in this Quarterly Report, other than statements of historical fact, including, without limitation, statements regarding our future results of operations and financial position, business strategy, timing and likelihood of success, potential expansion of bitcoin mining data centers, and management plans and objectives are 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, although not all forward-looking statements use these words or expressions. The forward-looking statements in this Quarterly Report are only predictions and are largely based on our current expectations and projections about future events and 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 following :
1
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.
2
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.
3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CIPHER MINING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
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March 31, 2023 |
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December 31, 2022 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable |
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Receivables, related party |
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Prepaid expenses and other current assets |
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Bitcoin |
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Derivative asset |
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Total current assets |
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Property and equipment, net |
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Deposits on equipment |
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Investment in equity investees |
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Derivative asset |
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Operating lease right-of-use asset |
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Security deposits |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
$ |
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$ |
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Accounts payable, related party |
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Accrued expenses and other current liabilities |
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Finance lease liability, current portion |
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Operating lease liability, current portion |
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Warrant liability |
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Total current liabilities |
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Asset retirement obligation |
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Finance lease liability |
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Operating lease liability |
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Deferred tax liability |
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Total liabilities |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Treasury stock, at par, |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share amounts)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenue - bitcoin mining |
$ |
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$ |
- |
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Costs and operating expenses (income) |
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Cost of revenue |
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- |
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General and administrative |
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Depreciation |
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Change in fair value of derivative asset |
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( |
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- |
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Power sales |
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( |
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- |
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Equity in losses of equity investees |
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Realized gain on sale of bitcoin |
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( |
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- |
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Impairment of bitcoin |
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Other gains |
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( |
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- |
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Total costs and operating expenses |
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Operating loss |
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( |
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( |
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Other income (expense) |
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Interest income |
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Interest expense |
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( |
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- |
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Change in fair value of warrant liability |
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( |
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Total other income (expense) |
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( |
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Loss before taxes |
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( |
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( |
) |
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Current income tax expense |
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( |
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- |
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Deferred income tax expense |
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( |
) |
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- |
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Total income tax expense |
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( |
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- |
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Net loss |
$ |
( |
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$ |
( |
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Net loss per share - basic and diluted |
$ |
( |
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$ |
( |
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Weighted average shares outstanding - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except for share amounts)
(unaudited)
Three Months Ended March 31, 2023
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Common Stock |
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Additional |
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Accumulated |
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Treasury Stock |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Shares |
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Amount |
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Stockholders’ Equity |
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Balance as of January 1, 2023 |
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$ |
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$ |
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$ |
( |
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( |
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$ |
( |
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$ |
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Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement |
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( |
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- |
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( |
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- |
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( |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
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( |
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$ |
( |
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$ |
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Three Months Ended March 31, 2022
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Common Stock |
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Additional |
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Accumulated |
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Treasury Stock |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Shares |
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Amount |
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Stockholders’ Equity |
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Balance as of January 1, 2022 |
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$ |
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$ |
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$ |
( |
) |
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( |
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$ |
( |
) |
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$ |
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Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement |
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( |
) |
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- |
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( |
) |
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( |
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( |
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Warrants exercised |
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- |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
) |
Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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( |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
CIPHER MINING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation |
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Amortization of operating right-of-use asset |
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Share-based compensation |
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Equity in losses of equity investees |
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Impairment of bitcoin |
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Non-cash lease expense |
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- |
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Deferred income taxes |
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- |
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Bitcoin received as payment for services |
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( |
) |
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- |
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Change in fair value of derivative asset |
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( |
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- |
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Change in fair value of warrant liability |
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( |
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Realized gain on sale of bitcoin |
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( |
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- |
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Changes in assets and liabilities: |
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Proceeds from sale of bitcoin |
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- |
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Accounts receivable |
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( |
) |
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- |
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Receivables, related party |
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( |
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- |
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Prepaid expenses and other current assets |
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Security deposits |
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( |
) |
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( |
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Accounts payable |
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Accounts payable, related party |
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( |
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- |
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Accrued expenses and other current liabilities |
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Lease liabilities |
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( |
) |
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Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities |
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Deposits on equipment |
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( |
) |
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( |
) |
Purchases of property and equipment |
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( |
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( |
) |
Capital distributions from equity investees |
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- |
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Investment in equity investees |
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( |
) |
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- |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Repurchase of common shares to pay employee withholding taxes |
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( |
) |
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( |
) |
Net cash used in financing activities |
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( |
) |
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( |
) |
Net decrease in cash and cash equivalents |
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( |
) |
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( |
) |
Cash and cash equivalents, beginning of the period |
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Cash and cash equivalents, end of the period |
$ |
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$ |
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Supplemental disclosure of noncash investing and financing activities |
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Reclassification of deposits on equipment to property and equipment |
$ |
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$ |
- |
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Property and equipment purchases in accounts payable, accounts payable, related party and accrued expenses |
$ |
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$ |
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Equity method investment acquired for non-cash consideration |
$ |
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$ |
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Finance lease costs in accrued expenses |
$ |
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$ |
- |
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Deposits on equipment in accounts payable and accounts payable, related party |
$ |
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$ |
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Bitcoin received from equity investees |
$ |
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$ |
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Right-of-use asset obtained in exchange for operating lease liability |
$ |
- |
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$ |
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Investment in equity investees in accrued expenses |
$ |
- |
|
|
$ |
|
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Reclassification of deferred investment costs to investment in equity investees |
$ |
- |
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION
Nature of operations
Cipher Mining Inc. (“Cipher” or the “Company”) is an emerging technology company that develops and operates industrial scale bitcoin mining data centers. The Company operates or jointly operates
Cipher Mining Technologies Inc. (“CMTI”) 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”). 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
Out-of-period-adjustments
Cost of revenue and power sales for the three months ended March 31, 2023 included out-of-period adjustments of approximately $
Risks and uncertainties
Liquidity, capital resources and limited business history
The Company has experienced net losses and negative cash flows from operations. As of March 31, 2023, the Company had approximate balances of cash and cash equivalents of $
8
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
expenses (income) as other gains on its unaudited condensed consolidated statement of operations during the three months ended March 31, 2023.
The Company monitors its balance sheet on an ongoing basis to determine the proper mix of bitcoin retention and bitcoin sales to support its cash requirements and ongoing operations. Bitcoin is classified as a current asset on the Company’s balance sheets due to its intent and ability to sell bitcoin to support operations when needed. Operating activities provided approximately $
During the three months ended March 31, 2023, the Company paid approximately $
As of March 31, 2023, the Company had approximately $
Management intends to continue with the infrastructure buildout at the Odessa Facility to get the site to full capacity in support of the Company’s current business plans. Management believes that the Company’s existing financial resources, combined with projected cash and bitcoin inflows from its data centers and its intent and ability to sell bitcoin received or earned, will be sufficient to enable the Company 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. 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 development, and possible cost overruns due to price and cost increases in services. The Company’s management has no current intention of entering into a merger or acquisition within the next 12 months. The Company may require additional capital to pursue certain business opportunities or respond to technological advancements, competitive dynamics or technologies, challenges, acquisitions or unforeseen circumstances. Additionally, the Company has incurred and expects to continue to incur significant costs related to operating as 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, which may adversely affect the Company’s business plan.
Macroeconomic conditions: COVID-19 and other economic, business and political conditions
The Company’s 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 any epidemics, pandemics or disease outbreaks or other public health conditions. For example, the COVID-19 pandemic (“COVID-19”) that was declared on March 11, 2020 has caused significant economic dislocation in the United States (“U.S.”) and globally as governments across the world, including the U.S., introduced measures aimed at preventing the spread of COVID-19. While most policies and regulations implemented by governments in response to COVID-19 have been lifted, they have had a significant impact, both directly and indirectly, on global business and commerce.
The Company may experience disruptions to its business operations resulting from supply 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. If the Company is unable to effectively set
9
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
up and service its miners, its ability to mine bitcoin will be adversely affected. There is no assurance that COVID-19 or any other pandemic, or other unfavorable global economic, business or political conditions, such as a rise in energy prices, a slowdown in the U.S. or international economy, high inflation rates or other factors, will not materially and adversely affect the Company’s 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 U.S. (“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, CMTI. All intercompany transactions and balances have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. Equity in losses of equity investees is presented as a separate line item within costs and operating expenses (income) on the Company’s unaudited condensed consolidated statements of operations, whereas this line item was previously included as a separate line item within other income (expense). This reclassification did not have a material impact on the Company’s reported results of operations and related disclosures. The impact on any prior period disclosures was immaterial.
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, valuations of its derivative asset and warrant liability under Level 3 of the fair value hierarchy, useful lives of property and equipment, the asset retirement obligation 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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Unaudited 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 2022 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 2022 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 2022 Form 10-K.
Segment information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
10
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company’s chief operating decision maker is comprised of several members of its executive management team. The Company views its operations and manages its business in one segment.
Net loss per share
Basic net loss per share is computed by dividing net loss allocated 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 Common Stock. Potential common shares consist of the Company’s outstanding public and private placement warrants to purchase Common Stock, as well as unvested restricted stock units (“RSUs”). Basic net loss per common share is the same as dilutive net loss per common share for all periods presented as the inclusion of all potential common shares would have been antidilutive.
The following table presents the common shares that are excluded from the computation of diluted net loss per common share at March 31, 2023 and 2022, because including them would have been antidilutive.
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2022 |
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Public warrants |
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Recently issued and adopted accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update ASU No.
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change. The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on its condensed consolidated financial statements.
NOTE 3. BITCOIN
The following table presents information about the Company’s bitcoin (in thousands):
Balance as of January 1, 2023 |
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$ |
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Bitcoin received from equity investees |
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Revenue recognized from bitcoin mined, net of receivable |
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Proceeds from sale of bitcoin, net of realized gain |
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( |
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Impairment of bitcoin |
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( |
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Balance as of March 31, 2023 |
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$ |
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The fair value of the Company’s bitcoin as of March 31, 2023 was approximately $
During the three months ended March 31, 2023, the Company recorded impairment charges on its bitcoin holdings of approximately $
11
CIPHER MINING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4. DERIVATIVE ASSET
Luminant Power Agreement
On
Because ERCOT allows for net settlement, the Company’s management determined that, as of July 1, 2022, the Luminant Power Agreement met 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 therefore, the Company’s management does not believe the 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 its 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 16, Fair Value Measurements.
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 bitcoin at the Odessa Facility during peak times in order to most efficiently manage the Company’s operating costs. The Company earned approximately $
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
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March 31, 2023 |
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December 31, 2022 |
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Miners and mining equipment |
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$ |
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Leasehold improvements |
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Software |
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Office and computer equipment |
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Autos |
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