Cipher Digital Inc.: Form 10-Q for the period ended Mar 31, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, as well as our audited consolidated financial statements and related notes disclosed in our 2023 Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” sections of our 2023 Form 10-K and this Quarterly Report and in other parts of this Quarterly Report.

Unless the context otherwise requires, references in this Quarterly Report to the “Company,” “Cipher,” “Cipher Mining,” “we,” “us” or “our” refers to Cipher Mining Inc. and its consolidated subsidiaries, unless otherwise indicated.

Overview

We are an emerging technology company that develops and operates industrial scale bitcoin mining data centers. Cipher Mining Inc., through itself and its consolidated subsidiaries, including Cipher Mining Technologies Inc. (“CMTI”), currently operates four bitcoin mining data centers in Texas. We are also developing an additional wholly-owned data center in Winkler County, TX (“Black Pearl” or the “Black Pearl Facility”) for up to 300 MW, and we expect to energize 300 MW in 2025. Bitcoin mining is our principal revenue generating business activity.

We operate four bitcoin mining data centers in Texas, including one wholly-owned and three partially-owned data centers acquired through investments in joint ventures. Our largest data center is our Odessa data center (the “Odessa Facility”), which is our wholly-owned 207 MW facility located in Odessa, Texas. We also operate our Alborz data center (the “Alborz Facility”), which is located near Happy, Texas and is partially-owned through a joint venture with WindHQ LLC (“WindHQ”). Our Bear data center (the “Bear Facility”) and our Chief data center (the “Chief Facility”) are both located near Andrews, Texas and are also partially-owned through separate joint ventures with WindHQ. We have a 49% membership interest in Alborz LLC, Bear LLC and Chief LLC, which own the Alborz Facility, the Bear Facility and the Chief Facility, respectively. Our fifth data center, Black Pearl, is expected to commence operations in 2025.

Our current intention is to continue to expand our bitcoin mining business by developing additional data centers, expanding capacity at our current data centers, developing our treasury management platform and entering into other arrangements, such as joint ventures, data center hosting agreements, or software licensing arrangements.

Our key mission is to expand and strengthen the Bitcoin network’s critical infrastructure. As of April 30, 2024, we operated an aggregate hashrate capacity of approximately 8.7 EH/s, deploying approximately 267 MW of electricity, of which we owned an aggregate hashrate capacity of approximately 7.7 EH/s, deploying approximately 236 MW of electricity.

Recent Developments

In April 2024, the Bitcoin protocol underwent a halving. A halving is an event where the bitcoin reward produced upon mining a block is reduced by 50%. Halvings are scheduled to occur once every 210,000 blocks are mined, which occurs roughly every four years.

As noted in the “Risk Factors” section of our 2023 Form 10-K, a halving reduces the number of new bitcoin being generated by the network. While the effect is to slow the pace of the release of new coins, it has no impact on the quantity of total bitcoin already outstanding. As a result, the price of bitcoin could rise or fall based on overall investor and consumer demand. Given a stable network hashrate, should the price of bitcoin remain unchanged after the halving, our revenue related to mining new coins would be reduced by 50%, with a significant impact on profit.

Factors Affecting Our Results of Operations

There have been no material changes to the “Factors Affecting Our Results of Operations” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2023 Form 10-K. Our financial position and results of operations depend to a significant extent on those factors.

Summary of Bitcoin Mining Results

The following table presents information about our Bitcoin mining activities, including bitcoin production and sales of bitcoin (dollar amounts in thousands):

Components of our Results of Operations

For a description of the components of our results of operations, refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2023 Form 10-K.

Results of Operations

Comparative Results for the Three Months Ended March 31, 2024 and 2023

Revenue

Bitcoin mining operations at our Odessa Facility mined 924 bitcoin, generating revenue of $48.1 million for the three months ended March 31, 2024, at an average price per bitcoin of approximately $52.1 thousand, compared to 943 bitcoin, generating revenue of $21.9 million for the three months ended March 31, 2023, at an average price per bitcoin of approximately $23.2 thousand. The increase in revenue in the current period was primarily driven by the increase in bitcoin price and our ability to maintain production despite an increase in network hashrate.

Cost of revenue

Cost of revenue for the three months ended March 31, 2024 was $14.8 million, compared to $8.1 million for the three months ended March 31, 2023 and consisted primarily of power costs at the Odessa Facility as delivered under our power purchase agreement with Luminant ET Services Company LLC (the “Luminant Power Agreement”), as well as maintenance expenses for mining equipment.

The increase was primarily driven by increased maintenance expenses as a result of the Odessa Facility being fully operational. In the current quarter, Cost of revenue included $1.1 million of non-recurring costs to purchase upgraded parts to increase the efficiency of our miners.

Compensation and benefits

Compensation and benefits increased to $13.0 million for the three months ended March 31, 2024 compared to $11.9 million for the three months ended March 31, 2023. The increase is primarily driven by an increase in headcount throughout 2023.

General and administrative

General and administrative expenses were $6.1 million for the three months ended March 31, 2024 compared to $5.5 million for the three months ended March 31, 2023. The increase was primarily driven by an increase in professional fees in preparation for transitioning away from emerging growth company status during the three months ended March 31, 2024.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2024 was $17.2 million, compared to $11.7 million for the three months ended March 31, 2023. Depreciation and amortization primarily relates to miners, mining equipment and leasehold improvements at the Odessa Facility. Also included in depreciation is the amortization of our finance lease right-of-use asset for our Interconnection Electrical Facilities (as defined below) that provides power to the Odessa Facility, amortization on our intangible assets, and accretion of our estimated asset retirement obligation related to the Odessa Facility and depreciation of the associated capitalized costs. The increase in depreciation in the current period primarily relates to increased assets placed into service in late 2023 to finish the build-out at the Odessa Facility.

Change in fair value of derivative asset

The change in the fair value of our derivative asset related to the Luminant Power Agreement resulted in a gain of $7.4 million during the three months ended March 31, 2024 compared to $5.3 million for the three months ended March 31, 2023. The gains in both periods were primarily due to the change in the power market forward curve over the respective periods as power prices in the futures market continue to increase.

Power sales

In accordance with the Luminant Power Agreement, we sold excess electricity that is available under the Luminant Power Agreement, but not needed in our mining operations at the Odessa Facility, back to the ERCOT market through Luminant for which we received proceeds of $1.2 million for the three months ended March 31, 2024 compared to $0.1 million for the three months ended March 31, 2023. Power sales vary each period due to changes in the opportunity cost of selling power instead of mining bitcoin.

Equity in (gains) losses of equity investees

Equity in gains of equity investees totaled approximately $0.7 million for the three months ended March 31, 2024, compared to Equity in losses of equity investees of $0.8 million for the three months ended March 31, 2023. Equity in losses of equity investees consists of our 49% share in the earnings (losses) generated by our three partially-owned mining sites, and the accretion of the basis differences in our investments in the equity investees that resulted from contributions of miners during the year ended December 31, 2022 with values at the time of the contributions that were less than the costs we paid to obtain the miners. We are accreting these basis differences over the five-year useful life of the miners. We recognized an expense of approximately $1.7 million for the three months ended March 31, 2024 and 2023, respectively, for the accretion of basis differences.

Gains on fair value of bitcoin

Pursuant to the adoption of ASC 2023-08, which we adopted as of January 1, 2023, crypto assets are required to be presented at fair value on the balance sheet, with changes in fair value recorded to the statement of operations. On January 1, 2023, upon adoption of ASC 2023-08, we recorded an opening retained earnings adjustment of $0.2 million, which represents the difference between the carrying value (presented as cost less impairment prior to the adoption of ASC 2023-08) and the fair value of our bitcoin holdings. Gains on fair value of bitcoin was $40.6 million during the three months ended March 31, 2024, compared to $4.3 million for the three months ended March 31, 2023. The increase in the current period was primarily driven by an increase in bitcoin held at higher prices by the Company with a bitcoin inventory of 1730 held at $71.3 thousand per bitcoin at March 31, 2024, compared to 416 bitcoin held at roughly $28.5 thousand per bitcoin at March 31, 2023.

Other gains

We recognized proceeds of approximately $2.3 million during the three months ended March 31, 2023 related to the sale of transferable coupons received from Bitmain Technologies Limited (“Bitmain”), with no comparable activity for the three months ended March 31, 2024. These coupons could be redeemed by us only through the purchase of additional miners from Bitmain prior to the April 2023 expiration date; however, we did not expect to use them and instead sold the coupons to a third party that approached us with interest to purchase them.

Other income (expense)

Other expense totaled $1.3 million for the three months ended March 31, 2024, consisting of a realized loss on derivative trading on the expiry of options of $1.9 million, $0.4 million of interest expense recognized related to our finance lease for the Interconnection Electrical Facilities, partially offset by $0.8 million of interest income earned on Cash and cash equivalent balances held in interest bearing accounts. Other income for the three months ended March 31, 2023 was not significant.

Income tax expense

Income tax expense totaled $5.6 million, or 12.2% of income before taxes, and $0.1 million, or (1.6%) of a loss before taxes for the three months ended March 31, 2024 and 2023, respectively, and was determined using the estimated effective tax rate for the year, adjusted for the impact of any discrete items which are accounted for in the period in which they occur.

Liquidity and Capital Resources

We used cash flows from operations of $26.6 million for the three months ended March 31, 2024. As of March 31, 2024, we had cash and cash equivalents of $88.7 million, total stockholders’ equity of $600.9 million and an accumulated deficit of $96.9 million. For our fiscal years prior to 2023, we relied in large part on proceeds from the consummation of our business combination with Good Works Acquisition Corp. (“GWAC”) to fund our operations. During fiscal year 2023, we funded operations through a combination of at-the-market stock issuances and bitcoin sales. During the three months ended March 31, 2024, we have not needed to sell our bitcoin inventory to support operating expenses.

On August 14, 2023, we entered into a master loan agreement with Coinbase Credit, Inc., as lender, and Coinbase, Inc., as lending service provider. Pursuant to the master loan agreement, we established a secured line of credit up to $10.0 million (the “Credit Facility”). We will not incur commitment fees for unused portions of the Credit Facility. The borrowing rate on amounts drawn against the Credit Facility is determined on the basis of the Federal Funds Target Rate - Upper Bound, plus 2.5%, calculated daily based on a 365-day year and payable monthly for the duration of the loan. Borrowings under the Credit Facility are available on demand, open term, and collateralized by bitcoin transferred to the lending service provider’s platform. As of March 31, 2024 we have not drawn upon the Credit Facility.

On September 21, 2022, we filed the Registration Statement with the SEC. In connection with the filing of the Registration Statement, we also entered into an at-the market offering agreement (the “Prior Sales Agreement”) with H.C. Wainwright & Co., LLC (the “Prior Agent”), under which we may, from time to time, sell shares of our Common Stock having an aggregate offering price of up to $250.0 million in “at-the-market” offerings through the Agent, which is included in the $500.0 million of securities that may be offered pursuant to the Registration Statement. Effective August 1, 2023, the Company terminated the Prior Sales Agreement.

On August 3, 2023, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., Canaccord Genuity LLC, Needham & Company, LLC and Compass Point Research & Trading, LLC (each, an “Original Agent” and, together, the “Original Agents”), pursuant to which we may offer and sell pursuant to a prospectus supplement, from time to time through or to the Original Agents, shares of our Common Stock, for aggregate gross proceeds of up to $250.0 million. The offering and sale of up to $250.0 million of the Shares has been registered under the Registration Statement, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed with the SEC on August 4, 2023 (the “Prospectus Supplement”).

On March 6, 2024, we entered into an amendment (the “Amendment”) to the Sales Agreement (as amended, the “Amended Sales Agreement”) by and among the Original Agents, Stifel, Nicolaus & Company, Incorporated (“Stifel”) and Virtu Americas LLC (“Virtu”) (each of the Original Agents, Stifel and Virtu, an “Agent” and, together, the “Agents”). The Amendment modifies the Sales Agreement to include Stifel and Virtu as additional agents under the Amended Sales Agreement. On March 6, 2024, we also filed an amendment to the Prospectus Supplement (i) increasing the dollar amount of shares available to be sold pursuant to the Amended Sales Agreement, to $296,560,661, which consists of $96,560,661 remaining as originally authorized under the Prospectus Supplement and an additional $200,000,000, and (ii) including Stifel, Nicolaus & Company, Incorporated and Virtu Americas LLC as additional Agents. For the quarter ended March 31, 2024, we received net proceeds on sales of 14.2 million shares of common stock under the Prior Sales Agreement and the Amended Sales Agreement of approximately $64.5 million (net of commissions and expenses) at a weighted average price of $4.53.

Management believes that our existing financial resources, combined with projected cash and bitcoin inflows from our data centers and our intent and ability to sell bitcoin received or earned, will be sufficient to enable us to meet our operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.

Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Operating Activities

Net cash used in operating activities increased by $16.5 million to $26.6 million for the three months ended March 31, 2024 from $10.1 million for the three months ended March 31, 2023. We earned net income of $39.9 million for the three months ended March 31, 2024, compared to a net loss of $4.6 million for the three months ended March 31, 2023, representing an increase of $44.5 million. Cash flows from operating activities was impacted by a $53.9 million increase in non-cash items, primarily driven by a $26.4 million increase in bitcoin received as payment from our mining pool operator, and a $36.3 million increase in gains on the fair value of bitcoin. Additionally, changes in assets and liabilities resulted in a decrease in cash used of $7.1 million between the three months ended March 31, 2024 and 2023.

Investing Activities

Cash flows from investing activities decreased by $33.6 million to $31.0 million of net cash used in investing activities for the three months ended March 31, 2024 compared to $2.6 million of net cash provided by investing activities for the three months ended March 31, 2023, primarily related to a $21.0 million decrease in proceeds from bitcoin sales as we build bitcoin inventory, and a $15.2 million increase in contributions to equity investees related to expansions at the Bear and Chief facilities, partially offset by a $10.0 million decrease in purchases of property and equipment which in the prior period related to building out the Odessa facility.

Financing Activities

Cash flows from financing activities increased by $60.6 million to $60.2 million net cash provided by financing activities for the three months ended March 31, 2024 from $0.5 million net cash used in financing activities for the three months ended March 31, 2023, primarily driven by $66.2 million of proceeds from the issuance of common stock during the three months ended March 31, 2024, with no comparable activity in the prior year period.

Limited Business History; Need for Additional Capital

There is limited historical financial information about us upon which to base an evaluation of our performance. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in exploration and/or development, and possible cost overruns due to price and cost increases in services. We may require additional capital to pursue certain business opportunities or respond to technological advancements, competitive dynamics or technologies, customer demands, challenges, acquisitions or unforeseen circumstances. Additionally, we have incurred and expect to continue to incur significant costs related to becoming a public company. Accordingly, we may engage in equity or debt financings or enter into credit facilities for the above-mentioned or other reasons; however, we may not be able to timely secure additional debt or equity financings on favorable terms, if at all. If we raise additional funds through equity financing, our existing stockholders could experience significant dilution. Furthermore, any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing on terms that are satisfactory to us, when we require it, our ability to continue to grow or support the business and to respond to business challenges could be significantly limited, which may adversely affect our business plan. For risks associated with this, see “Risks Factors—Risks Related to Our Business, Industry and Operations—We may need to raise additional capital, which may not be available on terms acceptable to us, or at all” in our 2023 Form 10-K.

Contractual Obligations and Other Commitments

On December 17, 2021, we entered into a lease agreement for executive office space, with an effective term that commenced on February 1, 2022 and monthly rent payments of approximately $0.1 million. The initial lease term is for a period of five years and four months.

We also 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”). The Luminant Lease Agreement leases a plot of land to us where our data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) have been set up for our Odessa Facility. We entered into the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement to build the infrastructure necessary to support our planned operations. Management determined that the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement should be combined for accounting purposes under ASC 842 (collectively, the “Combined Luminant Lease Agreement”) and that amounts exchanged under the combined contract should be allocated to the various components of the overall transaction based on relative fair values.

Our management determined that the Combined Luminant Lease Agreement contains two lease components; and the components should be accounted for together as a single lease component, because the effect of accounting for the land lease separately would be insignificant.

The Combined Luminant Lease Agreement commenced on November 22, 2022 and has an initial term of five years, with renewal provisions that are aligned with the Luminant Power Agreement. Financing for use of the land and substation is provided by Luminant affiliates. Despite lease commencement in November 2022, we had not been required by Luminant to make any lease payments for the substation prior to July 2023, therefore we accrued amounts due under the Combined Luminant Lease Agreement in accrued expenses and other current liabilities on its unaudited condensed consolidated balance sheet.

On August 23, 2023, we entered into a second amendment of the Luminant Lease Agreement, the terms of which included an amended payment schedule, reflecting monthly installments of principal and interest totaling $19.7 million on an undiscounted basis, due over the remaining four-year period starting in July 2023. This amendment did not have a material impact on our unaudited condensed consolidated financial statements.

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.

Non-GAAP Financial Measures

We are providing supplemental financial measures for Adjusted Earnings that excludes the impact of depreciation and amortization, the non-cash change in fair value of derivative asset, the non-cash change in fair value of the warrant liability, nonrecurring gains and losses, deferred income taxes, and share-based compensation expense. This supplemental financial measure is not a measurement of financial performance under accounting principles generally accepted in the United Stated (“GAAP”) and, as a result, this supplemental financial measure may not be comparable to similarly titled measures of other companies. Management uses this non-GAAP financial measure internally to help understand, manage, and evaluate our business performance and to help make operating decisions. We believe the use of this non-GAAP financial measure can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the non-GAAP financial measure, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers and directors. Similarly, we expect that depreciation and amortization will continue to be a recurring expense over the term of the useful life of the related assets. Our non-GAAP financial measure is not meant to be considered in isolation and should be read only in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with GAAP. We rely primarily on such condensed consolidated financial statements to understand, manage and evaluate our business performance and use the non-GAAP financial measures only supplementally.

The following is a reconciliation of our Adjusted Earnings to the most directly comparable GAAP measure for the periods indicated (in thousands):

Critical Accounting Policies and 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 unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period. A description of our significant accounting policies in included in our 2023 Form 10-K. You should read the accompanying unaudited condensed consolidated financial statements in conjunction with our audited consolidated financial statements and accompanying notes in our 2023 Form 10-K. There have been no material changes in the information disclosed in the notes to our audited consolidated financial statements included in our 2023 Form 10-K.

Recent accounting pronouncements

Information regarding recent accounting pronouncements applicable to us, adopted and not yet adopted as of the date of this report, is included in Note 2 to our unaudited condensed consolidated financial statements located in “Part I - Financial Information, Item 1. Financial Statements” in this Quarterly Report.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of March 31, 2024, the end of the period covered by this Quarterly Report. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, with the goal being that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2024.

Remediation of Material Weakness

As noted in the 2023 Form 10-K, during management’s assessment of internal controls over financial reporting, a material weakness was identified related to certain Information Technology General Controls over user access, segregation of duties and change management controls.

As management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, we understand the importance of developing a resolution plan aligned with management and overseen by the Audit Committee of our Board of Directors. Since the material weakness was identified, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. Our plan includes the following:

• Enhance our remediation efforts by continuing to devote resources in 2024 in key financial reporting and information technology areas, including hiring additional employees.
• Continue to utilize an external third-party internal audit and SOX 404 implementation firm to work to improve the Company’s controls related to our material weaknesses, specifically relating to user access and change management surrounding the Company’s IT systems and applications.
• Continue to implement new processes and controls and engage external resources when required in connection with remediating this material weakness, such that these controls are designed, implemented, and operating effectively.
• Continue to formalize our policies and processes including those over outside service providers with a specific focus on enhancing design and documentation related to (i) developing and communicating additional policies and procedures to govern the areas of IT change management and user access processes and related control activities and (ii) develop robust processes to validate data received from third-parties and relied upon to generate financial statements that are complete and accurate.

We recognize that the material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. Because our remediation efforts involve our outsourced service providers, we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

We continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. In addition, we report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.

Changes in Internal Control over Financial Reporting

Other than the remediation efforts described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to the risk factors as previously disclosed in Part I, Item 1A, “Risk Factors” of our 2023 Form 10-K, which is incorporated herein by reference. There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K.