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.

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 November ~~11, 2022,~~6, 2023, the registrant had ~~247,518,966~~254,660,072, shares of Common Stock, $0.001 par value per share, outstanding.

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 ~~facts contained in this Quarterly Report may be~~fact, including, without limitation, statements regarding our future results of operations and financial position, business strategy, timing and likelihood of success, potential expansion of or additional bitcoin mining data centers, expectations regarding the operations of mining 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. ~~Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding:~~

The forward-looking statements in this Quarterly Report are only ~~predictions. We have~~predictions and are largely 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 following:

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.

Our corporate website address is https://~~www.ciphermining.com/~~www.ciphermining.com (“Corporate Website”). The contents of, or information accessible through, our Corporate Website are not part of this Quarterly Report.

The ~~company~~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.

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

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

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

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

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

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

NOTE 1. ORGANIZATION ~~AND BUSINESS~~

~~Organization~~Nature of operations

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 develops and operates industrial scale bitcoin mining data centers. The Company operates or jointly operates four bitcoin mining data centers in ~~the Bitcoin mining ecosystem in the United States. Specifically, the Company is developing~~Texas including one wholly-owned data center 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 Statesthree partially-owned data centers that ~~will include both wholly-owned sites and partially-owned sites~~were acquired through investments in joint ventures. Bitcoin mining is the Company’s principal revenue generating business activity. The Company began deployment of capacity in the first quarter of 2022, with mining operations beginning ~~in February 2022~~ at the partially-owned Alborz facility ~~located~~ in ~~Texas~~February 2022 (the “Alborz Facility”). ~~See additional information about~~In August 2022, installation of the last mining rigs delivered to the Alborz Facility ~~in Note 8.~~was completed. In October 2022, installation at the partially-owned Bear facility (the “Bear Facility”) and the partially-owned Chief facility (the “Chief Facility”) was also completed. In November 2022, the Company began bitcoin mining operations at the wholly-owned Odessa facility (the “Odessa Facility”). In September 2023, the Company finalized the buildout of the operations at the Odessa Facility.

Cipher Mining Technologies Inc. (“CMTI”) was established on January 7, 2021, in Delaware, by Bitfury Top ~~Holdco~~HoldCo B.V. and its subsidiaries (“Bitfury Top ~~Holdco”~~HoldCo” and, with its subsidiaries, the “Bitfury Group”). ~~As of September 30, 2022,~~ Bitfury Top HoldCo (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owned approximately ~~81.6~~79.3% of the Company’s common stock, $0.001 par value per share (“Common Stock”), as of September 30, 2023, with sole voting and sole dispositive power over those shares and, as a result, ~~the~~ Bitfury ~~Group~~Top HoldCo has control of the Company as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”). The previously reported Lock-up Agreement, dated as of August 26, 2021, by and between Good Works Acquisition Corp. (“GWAC”) and Bitfury Top HoldCo, expired on August 27, 2023.

Out-of-period-adjustments

Cost of revenue and power sales for the nine months ended September 30, 2023 included out-of-period adjustments of approximately $2.0 million and $1.6 million, respectively, that increased both cost of revenue and power sales on the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2023, and resulted in net increases to operating loss and loss before taxes of approximately $0.4 million during the same period. These out-of-period adjustments related to power costs and power sales for the year ended December 31, 2022 at the Company’s Odessa Facility, which are invoiced on a net basis by the Company’s power provider. Management evaluated the impact of this error on the Company’s previously issued audited consolidated financial statements for the year ended December 31, 2022, as well as on its unaudited condensed consolidated financial statements for the nine months ended September 30, 2023, assessing the error both quantitatively and qualitatively, and concluded that the error was not material to the financial statements for either period.

Risks and uncertainties

Liquidity, ~~and~~ capital resources and limited business history

The Company ~~used $8.9~~ ~~million of~~has historically experienced net losses and negative cash ~~for its operations during the nine months ended September 30, 2022.~~flows from operations. As of September 30, ~~2022,~~2023, the Company had approximate balances of cash and cash equivalents of $~~28.1~~3.3 million, working capital of $15.5 million, total stockholders’ equity of $~~383.1~~342.7 million and an accumulated deficit of $~~59.6~~148.2 million. ~~To date,~~For fiscal years ended December 31, 2022 and 2021, the Company, ~~has,~~ in large part, relied on proceeds from the consummation of ~~the Business Combination~~its business combination with GWAC to fund its ~~operations.~~

operations; however, during the nine months ended September 30, 2023, the Company utilized proceeds from sales of bitcoin earned by or received from its bitcoin mining data centers to support its operating expenses. During the nine months ended September 30, ~~2022,~~2023, the Company ~~paid~~sold 3,005 bitcoin for proceeds of approximately $~~184.1~~78.7 ~~million of deposits for miners and mining equipment. As of September 30, 2022,~~million. Additionally, in January 2023, the Company was approached by a third party that offered to purchase coupons that the Company had ~~contributed equipment~~received from Bitmain Technologies Limited (“Bitmain”) during fiscal year 2022. These transferable coupons provided the Company with ~~a total cost~~potential discounts of approximately $~~93.2~~10.9 million ~~related to its contributions~~that could only be redeemed with the purchase of ~~12,953~~additional miners ~~and other mining equipment~~from Bitmain prior to the ~~Alborz Facility, which was reclassified from deposits on equipment~~coupons’ April 2023 expiration date. As the Company did not intend to ~~investment in equity investee on its consolidated balance sheet, with~~purchase additional Bitmain miners prior to the ~~exception~~expiration date of ~~losses~~the coupons, it sold the coupons to the interested third party for proceeds of approximately $~~11.6~~2.3 million, which it recorded in other gains within costs and $~~7.2~~ ~~million recognized by the Company related to miners contributed in June 2022 and July 2022, respectively. See additional information regarding these losses in Note 8.~~

~~As of September 30, 2022, the Company had $200.0~~ ~~million of deposits on equipment~~operating expenses (income) on its unaudited condensed consolidated statement of operations during the nine months ended September 30, 2023.

The Company monitors its balance sheet ~~primarily for miners~~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 ~~of September 30, 2022, it had additional future commitments related to these deposits as detailed in Note 6. See Note 15 for additional information regarding~~ a ~~supplementary agreement entered into~~current asset on ~~November 4, 2022 related to one of~~ the Company’s ~~purchase agreements for miners. The Company’s management believes that the Company’s existing financial resources, combined with the ability~~balance sheets due to delay certain equipment orders, projected cash and cryptocurrencies inflows from its sites, the ability to sell cryptocurrency received or earned, as well as potential sales of Common Stock under the Company’s shelf

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~registration statement on Form S-3 (see~~its intent and ability to sell bitcoin to support operations when needed. Operating activities provided approximately $32.4 million of cash during the nine months ended September 30, 2023.

During the nine months ended September 30, 2023, the Company paid approximately $4.5 million of deposits for mining equipment and reclassified approximately $74.2 million to property and equipment in connection with the receipt of miners and other equipment at the Odessa Facility. In September 2023, the Company finalized the buildout of the operations at the Odessa Facility. As of September 30, 2023, the Company had 61,024 miners located at the Odessa Facility and had 12,953, 3,254 and 3,254 contributed miners at its partially-owned Alborz Facility, Bear Facility and Chief Facility, respectively.

On August 14, 2023, the Company, through CMTI, entered into a master loan agreement with Coinbase Credit, Inc., as lender, and Coinbase, Inc., as lending service provider, for a secured credit line up to $10.0 million (the “Credit Facility”). See Note 12. Commitments and Contingencies for additional information ~~in Note 12),~~regarding the Credit Facility. As of September 30, 2023, the Company has not drawn upon the Credit Facility.

Management believes that the Company’s existing financial resources, including access to the Credit Facility, 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 and the Company has not generated any revenues from its business to date.~~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 ~~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 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~~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, ~~and it may be required to delay or change its planned buildout,~~ which may adversely affect the Company’s business plan.

As disclosed in Note 12, the Company entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC (the “Agent”) dated September 21, 2022 (the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $~~250.0~~ million in shares of the Company’s Common Stock through the Agent. The Company has not sold any shares of its Common Stock under the Sales Agreement as of the issuance of these unaudited condensed consolidated financial statements.

Macroeconomic conditions: COVID-19 and other economic, business and political conditions

~~Results~~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 ~~outbreak and global spread of the coronavirus~~COVID-19 pandemic (“COVID-19”)~~. The COVID-19 pandemic~~ 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 ~~United States,~~U.S., introduced measures aimed at preventing the spread of COVID-19. ~~The spread of~~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 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 the Company’sindirectly, on global business and ~~management cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact the Company’s business.~~commerce.

The Company may experience disruptions to its business operations resulting from supply ~~delays or~~ interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of its employees or its counterparties to perform their jobs. The Company may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, construction at the Alborz Facility was temporarily shut down in response to employees being impacted by COVID-19. The temporary shutdown was less than a week, and construction resumed at the site immediately after. If the Company is unable to effectively set up and service its miners, ~~the Company’s~~its ability to mine ~~Bitcoin~~bitcoin will be adversely affected. ~~The future impact of the COVID-19 pandemic is still highly uncertain and there~~There is no assurance that ~~the~~ COVID-19 ~~pandemic~~ 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 ~~United States~~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”).

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The unaudited condensed consolidated financial statements include the accounts of the Company and its controlled subsidiary, ~~Cipher Mining Technologies.~~CMTI. 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, valuations of ~~the~~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 inis included in the Company’s ~~2021~~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 ~~2021~~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 ~~2021~~2022 Form 10-K.

~~Change in fiscal year~~Segment information

~~Cipher Mining Technologies assumed GWAC’s financial calendar~~Operating segments are defined as components of an enterprise about which separate discrete information is available for ~~the combined entity with the third fiscal quarter ending September 30, 2021 and its fiscal year ending December 31, 2021. This change to the fiscal year end was approved~~evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s ~~board~~chief operating decision maker is comprised of ~~directors (“Board”) on September 23, 2021. Cipher Mining Technologies’ fiscal year previously ended on January 31.~~

~~Investment in equity investees~~

several members of its executive management team. The Company ~~accounts for investments using the equity method of accounting if the investments provide the Company the ability to exercise significant influence, but not control, over~~views its ~~investees. 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 a joint venture from Cipher.

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

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

the Company’s proportionate share of the investee’s net income or loss. If Cipher is unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.

The Company considers whether the fair value of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary (based on various factors, including historical financial results, success of the mining operations and ~~the overall health of the investee’s industry), then the Company would record a write-down to the estimated fair value.~~

~~Property and equipment, net~~

~~Property and equipment consists primarily of construction-in-progress at the Company’s wholly-owned Odessa facility~~manages its business in Texas (the “Odessa Facility”), as well as office and computer equipment and software that is being developed for internal use. Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, which is generally ~~three years~~ ~~for office and computer-related assets and~~ ~~five years~~ ~~for miners. Construction-in-progress consists primarily of leasehold improvements which, when placed into service, will be depreciated in accordance with the lease term of~~ ~~five years~~.

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

September 30, 2022

December 31, 2021

Office and computer equipment

$
88

$
60

Software

392

-

Furniture and fixtures

69

-

Miners and mining equipment

26

-

Construction-in-progress

40,192

5,069

Total cost of property and equipment

40,767

5,129

Less: accumulated depreciation

(16
)

(5
)
Property and equipment, net

$
40,751

$
5,124

~~Depreciation expense was immaterial during the three and nine months ended September 30, 2022 and also during the three and eight months ended September 30, 2021.~~

~~Capitalized software costs~~

The Company accounts for the costs of software developed for internal use by capitalizing costs incurred during the application development stage to property and equipment, net on its consolidated balance sheet. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. The Company plans to amortize the capitalized costs of internal-use software on a straight-line basis over the estimated useful life of the asset, which is expected to be ~~three years. The Company will recognize the amortization in the consolidated statements of operations once the software is technologically feasible.~~

~~Leases~~

~~The Company accounts for leases in accordance with ASC 842,~~ ~~Leases~~ (“ASC 842”). Accordingly, the Company determines whether an 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.

For leases with a term exceeding 12 months, a lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability is also recorded, adjusted for any accrued or prepaid rents and/or unamortized initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company generally uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

readily determinable. The Company’s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. ROU assets will be reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

For the Company’s operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed payments are recognized on a straight-line basis over the lease term and are not recognized on the Company’s consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception are insignificant. Variable lease costs are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.

ASC 842 provides practical expedients for an entity’s ongoing accounting. The Company 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 the Company’s lease components for balance sheet purposes.

~~Cryptocurrencies~~

Cryptocurrencies, including Bitcoin, are included in current assets on the Company’s consolidated balance sheets. Cryptocurrencies received through the Company’s wholly-owned mining activities will be accounted for in connection with the Company’s revenue recognition policy. 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 held by the Company are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. The Company determines the fair value of its cryptocurrencies on a nonrecurring basis in accordance with ASC 820, ~~Fair Value Measurement~~, based on the lowest intra-day market price of the cryptocurrency at the single Bitcoin level (one Bitcoin). The excess, if any, represents a recognized impairment loss. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. The Company recognized impairment charges of $~~0.3~~ ~~million and $0.9~~ ~~million on its cryptocurrency assets during the three and nine months ended September 30, 2022, respectively.~~

Cryptocurrencies awarded to the Company through its mining activities will be included as an adjustment to reconcile net income to cash used in operating activities in the consolidated statements of cash flows. The proceeds from sales of cryptocurrencies are included within operating activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in operating income (loss), net in the consolidated statements of operations. The receipt of cryptocurrency as distributions-in-kind from equity investees are included within investing activities in the consolidated statements of cash flows. The Company accounts for its sales of cryptocurrencies in accordance with the first in first out method of accounting.

~~Derivative Accounting~~

~~Luminant Power Agreement~~

On ~~June 23, 2021, the Company entered into a power purchase agreement with Luminant ET Services Company LLC (“Luminant”), which was subsequently amended and restated on~~ ~~July 9, 2021, and further amended on~~ ~~February 28, 2022~~ ~~(the “February Amendment”) and~~ ~~August 26, 2022~~ ~~(the “August Amendment”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of~~ ~~five years~~ with a subsequent automatic annual renewal provision (as amended, the “Luminant Power Agreement”). Cipher is expecting to receive interconnection approval from the Electric Reliability Council of Texas (“ERCOT”) this year, which will allow the Company to commence mining Bitcoin at the Odessa Facility. Starting from ~~July 1, 2022~~, under the take or pay framework of the Luminant Power Agreement and pursuant to the ramp-up schedule agreed to between Luminant and Cipher as part of the February Amendment and amended under the August Amendment, Luminant began sales of the scheduled energy in the ERCOT market.

~~Because ERCOT allows for net settlement, the Company’s management determined that, as of July 1, 2022, the Luminant Power Agreement meets the definition of a derivative under ASC 815,~~ ~~Derivatives and Hedging~~ (“ASC 815”). Because the Company has the ability to sell its electricity in the ERCOT market rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, the Company’s management does not believe the normal purchases and normal sales scope

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

exception applies to the Luminant Power Agreement. Accordingly, the Luminant Power Agreement (the non-hedging derivative contract) is recorded at an estimated fair value each reporting period with the change in the fair value recorded in change in fair value of derivative asset in the consolidated statements of operations. See additional information regarding valuation of the Luminant Power Agreement derivative in Note 3.

Depending on the spot market price of electricity, the Company may opportunistically sell electricity in the ERCOT market in exchange for cash payments, rather than utilizing the power to mine for cryptocurrency at the Odessa Facility during peak times in order to most efficiently manage the Company’s operating costs. The Company, through Luminant, sold $~~1.7~~ million in electricity during the three months ended September 30, 2022. These power sales were recorded as part of the change in fair value of derivative asset in the accompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2022. Once the Company begins cryptocurrency mining at the Odessa Facility, costs under the Luminant Power Agreement will be recorded in cost of revenues in the Company’s consolidated statements of operations.one segment.

Income (loss) per share

Basic net income (loss) per share ~~of Common Stock~~ is computed by dividing net income (loss) allocated to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share ~~reflects~~adjusts net income (loss) and net income (loss) per common share for the ~~potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance~~effect of all potentially dilutive shares of Common ~~Stock that then shared in the earnings of the entity. Dilutive potential~~Stock. Potential common shares ~~include~~consist of the Company’s outstanding ~~Public Warrants (as defined in Note 13)~~public and Private Placement Warrants (as defined in Note 13) that were sold by GWAC in its initial public offering or concurrent with its initial public offering, respectively, and assumed by the Company as of the Effective Date of the Business Combination,private placement warrants to purchase Common Stock, as well as unvested restricted stock units (“RSUs”).

For the three and nine months ended September 30, 2022, the dilutive effect of RSUs was calculated using the treasury stock method. For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company’s potential common shares have been excluded from the computation of diluted net loss per common share for the three and ~~eight~~nine months ended September 30, ~~2021,~~2023, as the effect would be to reduce the net loss per common share.

The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods indicated below:


	Three Months Ended September 30,					Nine Months Ended		Eight Months Ended			Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			September 30, 2022		September 30, 2021			2023			2022		2023			2022
Basic and diluted income (loss) per share:
Net income (loss)	$	59,292	$	(2,421	)	$	12,574	$	(3,082	)
Basic and diluted (loss) income per share:
Net (loss) income											$	(17,711	)	$	59,292	$	(37,013	)	$	12,574

Weighted average shares outstanding - basic		247,508,745		217,644,991			248,461,373		206,708,013			251,789,350			247,508,745		249,858,033			248,461,373
Add:
RSUs		833,455		-			321,292		-			-			833,455		-			321,292
Weighted average shares outstanding - diluted		248,342,200		217,644,991			248,782,665		206,708,013			251,789,350			248,342,200		249,858,033			248,782,665

Net income (loss) per share - basic	$	0.24	$	(0.01	)	$	0.05	$	(0.01	)
Net income (loss) per share - diluted	$	0.24	$	(0.01	)	$	0.05	$	(0.01	)
Net (loss) income per share - basic											$	(0.07	)	$	0.24	$	(0.15	)	$	0.05
Net (loss) income per share - diluted											$	(0.07	)	$	0.24	$	(0.15	)	$	0.05

The following table presents the common shares that are excluded from the computation of diluted net income (loss) per common share at September 30, ~~2022~~2023 and ~~September 30, 2021,~~2022, because including them would have been antidilutive.

September 30, 2022

September 30, 2021

Public Warrants

8,499,980

8,500,000

Private Placement Warrants

114,000

114,000

Unvested RSUs

15,364,457

-

23,978,437

8,614,000


	September 30,
	2023		2022
Public warrants		8,499,980		8,499,980
Private placement warrants		114,000		114,000
Unvested RSUs		21,234,610		15,364,457
		29,848,590		23,978,437

Recently issued and adopted accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update ASU No. 2016‑13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was codified with its subsequent amendments as ASC Topic 326, Financial Instruments – Credit Losses (“ASC 326”). ASC 326 seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in other GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of this guidance on January 1, 2023 did not have a material impact on the Company’s unaudited condensed consolidated financial statements and disclosures.

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.

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3. BITCOIN

The following table presents information about the Company’s bitcoin (in thousands):


Balance as of January 1, 2023	$	6,283
Bitcoin received from equity investees		317
Revenue recognized from bitcoin mined, net of receivable		83,162
Proceeds from sale of bitcoin, net of realized gain		(68,019	)
Impairment of bitcoin		(8,076	)
Balance as of September 30, 2023	$	13,667

The fair value of the Company’s bitcoin as of September 30, 2023 was approximately $14.5 million and was estimated using the closing price of bitcoin, which is a Level 1 input (i.e., an observable input such as a quoted price in an active market for an identical asset).

During the three and nine months ended September 30, 2023, the Company recorded impairment charges on its bitcoin holdings of approximately $3.4 million and $8.1 million, respectively. Impairment charges were approximately $0.3 million and $0.9 million for the three and nine months ended September 30, 2022, respectively.

NOTE 4. DERIVATIVE ASSET

Luminant Power Agreement

On June 23, 2021, the Company entered into a power purchase agreement with Luminant ET Services Company LLC (“Luminant”), which was subsequently amended and restated on July 9, 2021, and further amended on February 28, 2022, August 26, 2022 and August 23, 2023 (as amended, the “Luminant Power Agreement”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of five years, subject to certain early termination exemptions. The Luminant Power Agreement provides for a subsequent automatic annual renewal unless either party provides written notice to the other party of its intent to terminate the agreement at least six months prior to the expiration of the then current term. Starting from July 1, 2022, and prior to the receipt of interconnection approval from the Electric Reliability Council of Texas (“ERCOT”), under the take or pay framework of the Luminant Power Agreement and pursuant to the ramp-up schedule agreed to between Luminant and Cipher, Luminant began sales of the scheduled energy in the ERCOT market.

Because ERCOT allows for net settlement, the Company’s management determined that, as of July 1, 2022, the Luminant Power Agreement 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 $2.7 million and $8.5 million, respectively from power sales for the three and nine months ended September 30, 2023, and recorded this amount in power sales within costs and operating expenses (income) on the unaudited condensed consolidated statement of operations, with the corresponding cost of the power sold recorded in cost of revenue. See Note 1. Organization for information regarding the out-of-period adjustments recorded during the nine months ended September 30, 2023, which affected cost of power, power sales, net operating loss and net loss on the Company’s unaudited condensed consolidated statement of operations.

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Recently issued~~NOTE 5. PROPERTY AND EQUIPMENT

Property and ~~adopted accounting pronouncements~~equipment, net consisted of the following (in thousands):

~~In December 2019,~~


	September 30, 2023			December 31, 2022
Miners and mining equipment	$	160,477		$	79,909
Leasehold improvements		135,688			94,807
Software		1,342			596
Office and computer equipment		279			88
Autos		73			73
Furniture and fixtures		88			69
Construction-in-progress		3,167			20,437
Total cost of property and equipment		301,114			195,979
Less: accumulated depreciation		(42,819	)		(4,195	)
Property and equipment, net	$	258,295		$	191,784

During the ~~FASB issued ASU No. 2019-12,~~ nine months ended September 30, 2023 and 2022, the Company placed approximately $~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~37.5 million and nil, ~~which is intended to simplify various aspects related to accounting for income taxes. The new guidance removes certain exceptions to~~respectively, of construction-in-progress into service at the ~~general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company~~ Odessa Facility. Depreciation expense was approximately $~~adopted~~16.2 ~~this guidance on~~ million and $~~January 1, 2022~~42.3 ~~with~~ million, respectively, for the three and nine months ended September 30, 2023 and included approximately $~~no impact~~0.4 million and $1.3 million, respectively, of accretion expense related to the Company’s ~~consolidated financial statements upon adoption.~~asset retirement obligation. Depreciation expense was immaterial for the three and nine months ended September 30, 2022.

InDuring the first quarter of fiscal 2023, the Company received the remaining 17,094 MicroBT M30S, M30S+ and M30S++ miners (“MicroBT miners”) related to the framework agreement of September 2021 with SuperAcme Technology (Hong Kong) Limited (“SuperAcme”), which was amended and restated by the Amended and Restated Framework Agreement on Supply of Blockchain Servers (the “Amended and Restated Framework Agreement”), dated as of May ~~2021,~~6, 2022, and subject to the ~~FASB issued ASU 2021-04,~~ Supplementary Agreement of the Framework Agreement on Supply of Blockchain Servers (the “Supplementary Agreement). These MicroBT miners received during the first quarter of fiscal 2023 had an aggregate cost of approximately $~~Earnings Per Share (Topic 260), Debt-Modifications~~50.7 million and ~~Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718),~~were purchased by the Company at the new fixed and ~~Derivatives~~floating price terms set forth in the Supplementary Agreement. The Company also received 4,622 Antminer S19j Pro (100 TH/s) (“S19j Pro”) miners from Bitmain with a cost basis of approximately $1.6 million during the first quarter of fiscal 2023. As of September 30, 2023, the Company had a total of 35,117 MicroBT miners, 14,907 S19j Pro miners 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 guidance11,000 Canaan A1346 model miners for a ~~modification or an exchange~~total of ~~a freestanding equity-classified written call option that is not within~~61,024 miners at its Odessa Facility. See additional information regarding 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 wasCanaan miners in Note 11. ~~effective~~Leases ~~for the Company on~~ ~~January 1, 2022~~ ~~and there was~~ no ~~impact on the Company’s financial statements or disclosures upon adoption.~~

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

~~NOTE 3. FAIR VALUE MEASUREMENTS~~

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

Fair Value Measured as of September 30, 2022

Level 1

Level 2

Level 3

Total

Assets included in:

Cash and cash equivalents

Money market securities

$
11,111

$
-

$
-

$
11,111

Derivative asset

-

-

78,880

78,880

$
11,111

$
-

$
78,880

$
89,991

Liabilities included in:

Warrant liability

$
-

$
-

$
22

$
22

$
-

$
-

$
22

$
22

Fair Value Measured as of December 31, 2021

Level 1

Level 2

Level 3

Total

Assets included in:

Cash and cash equivalents

Money market securities

$
101,004

$
-

$
-

$
101,004

$
101,004

$
-

$
-

$
101,004

Liabilities included in:

Warrant liability

$
-

$
-

$
137

$
137

$
-

$
-

$
137

$
137

~~Fair values of cash and cash equivalents, accounts payable and accrued expenses approximate their recorded values due to the short-term nature of these items.~~

~~There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented.~~

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Level 3 asset~~

On July 1, 2022, the Company recorded a derivative asset, divided between current and noncurrent assets, on its condensed consolidated balance sheet related to the Luminant Power Agreement as this is when both the quantities of electricity demand were known and penalties for nonperformance under the Luminant Power Agreement became enforceable, with an offsetting amount recorded to change in the fair value of derivative asset in operating income (loss) on the accompanying condensed consolidated statements of operations. Subsequent changes in fair value are also recorded to change in fair value of derivative asset in operating income (loss). The Luminant Power Agreement was not designated as a hedging instrument. The Company does not have any other derivative contracts. The estimated fair value of the Company’s derivative asset was derived from Level 2 and Level 3 inputs (i.e., unobservable inputs) due to a lack of quoted prices for similar type assets and as such, is classified in Level 3 of the fair value hierarchy. Specifically, the discounted cash flow estimation models contain quoted spot and forward prices for electricity, as well as estimated usage rates consistent with the terms of the Luminant Power Agreement, the initial term of which is ~~five years. The valuations performed by the third-party valuation firm engaged by the Company utilized discount rates of~~ ~~7.19% and~~ ~~7.39~~% as of the derivative effective date of July 1, 2022 and September 30, 2022, respectively, and include observable market inputs, but also include unobservable inputs based on qualitative judgment related to company-specific risk factors. Unrealized gains associated with the derivative asset within the Level 3 category include changes in fair value that were attributable to amendments to the Luminant Power Agreement, changes to the quoted forward electricity rates, as well as unobservable inputs (e.g., changes in estimated usage rates and discount rate assumptions).

The following table presents the changes in the estimated fair value of the derivative asset measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 (amounts in thousands):

Balance, January 1, 2022

$
-

Fair value on derivative asset effective date

83,610

Proceeds from reduction of scheduled power

(5,056
)
Change in fair value

326

Balance, September 30, 2022

$
78,880

~~Under the~~ August Amendment to the Luminant Power Agreement, the Company and Luminant agreed to reduce Luminant’s obligation to provide specific amounts of scheduled power over upcoming months and, in exchange for the reduction in scheduled power supply by Luminant and as consideration for the modification to the ramp up schedule under the Luminant Power Agreement, Luminant paid the Company $~~5.1~~ million. The Company’s management determined that the August Amendment did not represent a freestanding instrument to be assessed separately from the Luminant Power Agreement and, as such, the Company reduced the derivative asset by the amount received from Luminant as shown in the table above. For the nine months ended September 30, 2022, there was a change of $~~0.3~~ ~~million in Level 3 assets measured at fair value. Additionally, during the three months ended September 30, 2022, the Company, through Luminant, sold electricity in the ERCOT market, resulting in $1.7~~ ~~million recorded to change in fair value of derivative asset in the accompanying condensed consolidated statements of operations for both the three and nine months ended September 30, 2022.~~

~~Level 3 liability~~

The Company’s Private Placement Warrants (as defined in Note 13) are its only liability classified within Level 3 of the fair value hierarchy because the fair value is based on significant inputs that are unobservable in the market. The valuation of the Private Placement Warrants uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained.

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The Company engaged a valuation firm to determine the fair value of the Private Placement Warrants 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:~~

September 30, 2022

December 31, 2021

Risk-free rate

4.08
%

1.20
%
Dividend yield rate

0.00
%

0.00
%
Volatility

78.2
%

58.8
%
Contractual term (in years)

3.9

4.7

Exercise price

$
11.50

$
11.50

~~The following table presents changes in the estimated fair value of the Private Placement Warrants for the nine months ended September 30, 2022 (amounts in thousands):~~

Balance, January 1, 2022

$
137

Change in fair value

(115
)
Balance, September 30, 2022

$
22

NOTE 7. ~~SECURITY DEPOSITS~~INVESTMENTS IN EQUITY INVESTEES

~~Security deposits~~The Company uses the equity method of accounting to account for its 49% equity interest in its partially owned mining operations Alborz LLC, Bear LLC and Chief, LLC (the “Data Center LLCs”). The Company recognized a total of approximately $2.0 million and $4.2 million of net losses in equity in losses of equity investees within the condensed consolidated statements of operations during the three and nine months ended September 30, 2023, respectively, and $8.3 million and $20.6 million of net losses in equity in losses of equity investees during the three and nine months ended September 30, 2022, respectively.

During fiscal year 2022, the Company contributed miners and mining equipment to the Alborz, Bear and Chief Facilities. The majority of these contributed miners had a fair value that was lower than the cost paid by the Company to obtain them, and the Company recognized losses at the time of the contributions, resulting in basis differences related to the Company’s investments in Alborz LLC, Bear LLC and Chief LLC, all of which recorded the contributions of equipment from the Company at the historical cost paid by the Company to obtain the equipment. As Alborz LLC, Bear LLC and Chief LLC depreciate the historical cost of these miners on their respective financial statements over the expected depreciation period of five years, the Company accretes these basis differences over the same period and records the accretion amount for each reporting period within equity in losses of equity investees on its statements of operations until these miners are fully depreciated and the corresponding basis differences are fully accreted. As of September 30, 2023, the Company had remaining basis differences totaling approximately $26.4 million that have not yet been accreted. Accretion recorded by the Company during the nine months ended September 30, 2023 is shown in the table below asand was recorded within equity in losses of equity investees on the statement of operations.

Activity in the Company’s investments in equity investees during the nine months ended September 30, 2023 consisted of the ~~dates indicated (amounts in~~following (in thousands):

September 30, 2022

December 31, 2021

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

$
6,277

$
6,277

Luminant Purchase and Sale Agreement collateral (see Note 9)

3,063

3,063

Office lease security deposit

960

922

Other deposits

1,155

90

Total security deposits

$
11,455

$
10,352


Balance as of January 1, 2023	$	37,478
Cost of contributed mining equipment and other capital contributions		4,435
Accretion of basis differences related to miner contributions		5,012
Capital distributions		(3,807	)
Bitcoin received from equity investees		(317	)
Equity in net losses of equity investees		(9,192	)
Balance as of September 30, 2023	$	33,609

NOTE 8. ~~INVESTMENT IN EQUITY INVESTEES~~SECURITY DEPOSITS

~~On June 10, 2021,~~The Company’s security deposits consisted of the ~~Company~~following (in thousands):


	September 30, 2023		December 31, 2022
Luminant Power Purchase Agreement collateral	$	12,554	$	12,554
Luminant Purchase and Sale Agreement collateral		3,063		3,063
Operating lease security deposits		967		960
Other deposits		1,002		1,153
Total security deposits	$	17,586	$	17,730

NOTE 9. SUPPLEMENTAL FINANCIAL INFORMATION

Prepaid expenses and other current assets was $4.0 million and $7.3 million as of September 30, 2023 and December 31, 2022, respectively, primarily consisting of prepaid insurance. As of December 31, 2022, the prepaid expenses and other current assets balance also included approximately $1.2 million of bitcoin temporarily held for the Company’s joint venture partner, 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”). The WindHQ Joint Venture Agreement provides that the parties shall collaborate to fund the construction and buildout of certain specified Data Centers at locations already identified by the parties (“Initial Data Centers”). Each Initial Data Center will be owned by a separate limited liability company (each, an “Initial Data Center LLC”), and WindHQ and the Company will each own 51~~% and~~ 49~~%, respectively, of the initial membership interests of each Initial Data Center LLC.~~

The WindHQ Joint Venture Agreement includes a development schedule for additional electrical power capacity through the joint identification, procurement, development and operation of additional Data Centers (“Future Data Centers”). Each Future Data Center will be owned by a separate limited liability company (each, a “Future Data Center LLC”, and collectively with the Initial Data Center LLCs, the “Data Center LLCs”), and the Company and WindHQ, or respective affiliates of the Company or WindHQ, shall become a member of each Data Center LLC by entering into a limited liability company agreement for each such Data Center LLC (“LLC Agreement”). WindHQ will own at least 51~~% of the initial membership interests of each Data Center LLC and the Company will own a maximum of~~ 49% of the initial membership interests of each Data Center LLC. Furthermore, under the WindHQ Joint Venture Agreement, WindHQ is required to procure energy for Future Data Centers at the most favorable pricing then available. Similarly, the Company is 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 the Company’s management that its investment in any of the individual Data Center LLCs will meet the definition of a variable interest entity in accordance with ASC 810, and the Company will not have a controlling voting interest in any of the Data Center LLCs. Based upon the Company's expectation that it 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.~~

1815

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~On January 28, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies~~The Company’s accrued expenses 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”). On May 16, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Bear Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Amended and Restated Limited Liability Company Agreement of Bear LLC (the “Bear LLC Agreement”). The Alborz and Bear LLC Agreements delineate the rights and obligationsother current liabilities consisted of the ~~members related to~~following (in thousands):


	September 30, 2023		December 31, 2022
Taxes (primarily sales tax)	$	12,551	$	18,798
Power costs		4,594		-
Employee compensation		3,636		-
Finance lease (1)		1,742		339
Legal settlement (2)		1,500		-
Other		790		216
Total accrued expenses and other current liabilities	$	24,813	$	19,353

__________

(1) See Note 11. Leases for additional information regarding the construction, operation and management, respectively, of the Alborz Facility and the Bear facility (the “Bear Facility”) also located in Texas. The Company is required to support and monitor (remotely) the operations of the hardware at the Alborz Facility and the Bear Facility (particularly the mining servers) under the WindHQ Joint Venture Agreement.Company’s finance leases.

~~The Company uses~~(2) See Note 12. Commitments and Contingencies for additional information regarding the ~~equity method of accounting to account for its~~ 49~~% equity interest in the LLCs. The Company recognized $1.9~~ ~~million and $2.6~~ million as equity in the net loss of Alborz LLC in the accompanying unaudited condensed consolidated statements of operations during the three and nine months ended September 30, 2022, respectively. Cryptocurrency mining operations had not commenced at the Bear Facilitylegal settlement accrual as of September 30, ~~2022.~~2023.

~~In June 2022 and July 2022, the Company contributed~~ ~~6,629~~ ~~miners and~~ ~~2,375~~ ~~miners, respectively, to the Alborz Facility, which are included in the~~ ~~12,953~~ total of miners contributed to the Alborz Facility. At the time of these contributions, the contributed miners had a fair value that was lower than the cost paid by the Company to obtain them, and the Company recognized losses of $~~7.2~~ ~~million and $18.8~~ million during the three and nine months ended September 30, 2022, respectively. These losses were recorded within equity in loss of equity investment on the unaudited condensed consolidated statements of operations and represent a basis difference related to the Company’s investment in Alborz LLC as Alborz LLC recorded the equipment at the historical cost paid by the Company to obtain the equipment. As Alborz LLC depreciates the historical cost of these batches of miners on its financial statements over the expected depreciation period of ~~five years~~, the Company will accrete this basis difference over the same period and will record the accretion amount for each reporting period within equity in earnings (loss) of equity investment on its consolidated statements of income until the miners are fully depreciated and the corresponding basis difference is fully accreted. See accretion recorded during the nine months ended September 30, 2022 in the table below.

~~Activity~~ ~~in investment in equity investee during the nine months ended September 30, 2022 consisted of the following (amounts in thousands):~~

Balance, December 31, 2021

$
-

Cost of miners and mining equipment contributed, net of losses recognized upon contribution

74,384

Sales taxes to be paid by Cipher on behalf of equity investee

5,316

Accretion of basis difference

821

Legal costs related to formation of joint ventures reclassified from deferred investment costs

174

Capital distributions

(43,291
)
Cryptocurrencies received from equity investee

(3,139
)
Equity in net loss of equity investee

(2,574
)
Balance, September 30, 2022

$
31,690

NOTE 9.10. RELATED PARTY TRANSACTIONS

~~Waiver, Lock-up and Board Observer Agreements~~Related party receivables

On April 8, 2022, the Company entered into a waiver agreement with Bitfury Top HoldCo (the “Waiver Agreement”), pursuant to which the Company waived certain restrictions on transfer of the Company’s Common Stock under (a) that certain Lock-up Agreement, dated as of August 26, 2021, by and between GWAC and Bitfury Top HoldCo and (b) those certain Lock-up Agreements, dated August 26, 2021, by and between GWAC and each of (i) I-B Goodworks, LLC, (ii) Magnetar Financial LLC, (iii) Mint Tower Capital Management B.V., (iv) Periscope Capital, Inc. and (v) Polar Asset Management Partners Inc., respectively (the stockholders contemplated by clauses (a)-(b), the “Stockholders”) imposing similar restrictions on the Stockholders (collectively, the “Lock-up Agreements” and each a “Lock-up Agreement”).

The Waiver Agreement was negotiated and approved by an independent committee of the Board. The Waiver Agreement (i) permits each Stockholder to pledge or otherwise hypothecate the Lock-up Shares (as defined in the Lock-up Agreements) held by such Stockholder as of the date of the Waiver Agreement (the shares that are actually pledged or otherwise hypothecated, the “Pledged Shares”) as collateral or security in connection with any loan meeting certain criteria set forth in the Waiver Agreement and

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

(ii) transfer the Pledged Shares upon foreclosure by such pledgee in accordance with the terms of the applicable pledge or hypothecation; provided that such waiver will only apply and be effective if certain conditions specified in the Waiver Agreement are satisfied or waived. Additionally, effective as of the date of consummation of any pledge or hypothecation, and solely in regard to any pledged shares, the Lock-up Period, as defined in the applicable Lock-up Agreement, shall be extended an additional three months to November 26, 2023. Furthermore, the Waiver Agreement provided for the cancellation of ~~2,890,173~~ ~~shares of the Company’s Common Stock held by Bitfury Top HoldCo and subject to the Lock-up Agreements as consideration for the~~Related party receivables were $~~10.0~~1.1 million ~~deposit~~as of December 31, 2022, consisting of expenses paid ~~by the Company for Bitfury Top HoldCo mining rigs under the agreement dated October 11, 2021, for which no order confirmation was made, as discussed in Note 6.~~

On April 8, 2022, the Company also entered into an observer agreement (the “Board Observer Agreement”) with Bitfury Holding and Bitfury Top HoldCo (together with Bitfury Holding, the “Investors”), which provides that the Investors have the right to designate a representative to serve as an observeron behalf of the ~~Board and any committees thereof (subject to exceptions and limitations specified in~~Data Center LLCs. The Company recorded an additional $1.0 million of related party receivables during the ~~Board Observer Agreement). The Board Observer Agreement was negotiated and approved by an independent committee~~nine months ended September 30, 2023, representing additional expenses paid on behalf of the ~~Board.~~

~~Master Services~~Data Center LLCs, and ~~Supply Agreement~~

~~In connection with~~subsequently reclassified 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 fee side letter, monthly fees for any potential future services, if any, would be determined by reference to two groups of services, which may be provided under the Master Services and Supply Agreement: (i) ~~Bitfury Top HoldCo’s “onsite” services fee would be calculated on a straight cost +5% basis (plus applicable duties and taxes); and (ii) Bitfury Top HoldCo’s “remote services” would be calculated on a ratchet basis applying a management fee~~total outstanding balance of $~~1,000~~2.1~~/MW up~~ million to investment in equity investees on the condensed consolidated balance sheet as of September 30, 2023. As a result of this reclassification, related party receivables were ~~445~~nil~~MW (capped at $200,000/month) and $450USD/MW above~~ ~~445MW (plus applicable duties and taxes).~~ as of September 30, 2023.

Purchase commitments, deposits on equipment and related party payables

~~As discussed above in Note 6, the~~The Company entered into two agreements with Bitfury USA Inc. (“Bitfury USA”), made under, and as a part of, the Master Services and Supply Agreement to purchase ~~a total of~~ ~~240~~ ~~units of BBACs, the modular data centers that house mining machines. During the nine months ended September 30, 2022, the Company paid a total of $21.7~~ million to Bitfury USA, which is recorded on the Company’s consolidated balance sheets as deposits on equipment until receipt and deployment of the equipment. As of September 30, 2022 and December 31, 2021, the Company had a total of $~~21.9~~ ~~million and $5.1~~ ~~million, respectively, of deposits on equipment on its condensed consolidated balance sheets related to the Bitfury USA agreements.~~BBACs. Additionally, ~~as of September 30, 2022, the Company had a total of $2.7~~ ~~million of construction-in-progress on its condensed consolidated balance sheet related to the Bitfury USA agreements.~~

~~Additionally, prior to the Business Combination,~~ Bitfury USA contracted with third-party vendors for the purchase of equipment and the receipt of services related to Cipher’s future mining operations. ~~Prior to December 31, 2021, Bitfury USA made payments under these arrangements totaling $2.4~~ ~~million. The Company reimbursed Bitfury USA for these amounts plus a~~ 7~~% service fee upon completion of the Business Combination and, as a result, recorded the amounts reimbursed to Bitfury (including the service fee) as follows: $2.5~~ ~~million was recorded to deposits on equipment and $0.1~~ ~~million was recorded to construction-in-progress on the Company’s consolidated balance sheet as of December 31, 2021.~~ Pursuant to one of these arrangements between Bitfury USA and a third-party vendor, Paradigm Controls of Texas, LLC (“Paradigm”), the Company made payments directly to Paradigm in place of Bitfury USA, in respect of manufacturing services for BBACs, totaling approximately $~~11.0~~5.8 million during the ~~three~~nine months ended September 30, ~~2022~~2023 and the Company’s obligations to Bitfury USA under the Master Services and Supply Agreement ~~have been~~were reduced by the same amount. ~~Additionally, Cipher recorded additional invoices totaling~~

As of December 31, 2022, in relation to the Company assisting WindHQ with the liquidation of some of WindHQ’s bitcoin holdings, the Company had approximately $~~1.7~~1.2 million orof bitcoin and approximately $~~1.8~~0.3 million ~~including the~~ 7~~% service fee owed~~of proceeds received, but not yet transferred to ~~Bitfury USA, to~~WindHQ, respectively, recorded in accounts payable, related party ~~during~~on its consolidated balance sheet. During the ~~three~~nine months ended September 30, ~~2022. These additional invoices related to mining equipment and services received~~2023, all of the bitcoin held by the Company ~~prior~~on behalf of WindHQ was liquidated and all proceeds received from the liquidation were forwarded to WindHQ, leaving no remaining amount payable to WindHQ in accounts payable, related party as of September 30, ~~2022~~2023 on the Company’s unaudited condensed consolidated balance sheet.

NOTE 11. LEASES

Combined Luminant Lease Agreement

The Company entered into a series of agreements with affiliates of Luminant, including the Lease Agreement dated June 29, 2021, with amendment and restatement on July 9, 2021 and August 23, 2023 (as amended and restated, the “Luminant Lease Agreement”). The Luminant Lease Agreement leases a plot of land to the Company for ~~which Bitfury USA had not yet paid~~the data center, ancillary infrastructure and electrical system (the “Interconnection Electrical Facilities” or “substation”) of the Odessa Facility. The Company entered into the Luminant Lease Agreement and the Luminant Purchase and Sale Agreement to build the infrastructure necessary to support its Odessa Facility operations. The Company 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

2016

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Paradigm, and which Cipher intends to pay directly~~exchanged under the combined contract should be allocated to the ~~vendor~~various components of the overall transaction based on relative fair values.

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

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 ~~place of Bitfury USA. The total balance owed~~November 2022, the Company had not been required by Luminant to ~~Bitfury USA~~make any lease payments for the substation prior to July 2023, therefore the Company accrued amounts due under the Combined Luminant Lease Agreement in accrued expenses and ~~recorded in accounts payable, related party~~other current liabilities on ~~the~~its unaudited condensed consolidated balance ~~sheet was~~sheet.

On July 11, 2023, the Company entered into an amendment of the payment schedule to the Luminant Purchase and Sale Agreement, reflecting monthly installments of principal and interest totaling $~~3.2~~19.7 million ason an undiscounted basis, due over the remaining four-year period starting in July 2023. On August 23, 2023, the Company entered into a second amendment of the Luminant Lease Agreement, the terms of which included confirming the initial term will end on July 31, 2027. These amendments did not have a material impact on the Company’s 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.

Canaan Agreement

On May 4, 2023, the Company entered into the Canaan Agreement to purchase 11,000 new A1346 model miners, all of which were received during the nine months ended September 30, ~~2022. See Note 15 for additional information regarding~~2023 and have been installed at the ~~disposition~~Odessa Facility. The Company was required to pay a total of approximately $4.1 million prior to delivery of the ~~additional~~miners. The Company will also make six monthly installment payments of approximately $1.7 million ~~in invoices after September 30, 2022.~~

each month, through November 2023, at which time the Company will obtain title to the miners. The Company isdetermined that the Canaan Agreement contains embedded leases as defined in ~~discussions with Bitfury USA~~ASC 842, one for each batch of miners delivered. Based on the terms of the arrangement and intent of the parties, the Company has classified the leases of the Canaan miners as finance leases. Each lease commences upon delivery of the associated batch, as the delivery date represents the date upon which the Company obtains the right to ~~assign Cipher Mining Technologies certain service contracts related~~use the assets for a period of time in exchange for consideration. As a result of all 11,000 miners being delivered to the ~~production~~Company in June 2023, the Company determined there will effectively be a single lease commencement date for all of ~~BBACs originally entered into between Bitfury USA~~the underlying right-of-use assets. The lease term for the Canaan miners will be six months, aligning with the final payment and ~~Paradigm. The~~title transfer date. Upon title transfer, the Company will continue ~~to work directly with Paradigm or other vendors on any~~depreciating the residual value of the miners over their remaining ~~BBACs that would have been purchased from Bitfury USA under the Master Services and Supply Agreement.~~useful life.

~~Related party receivables~~

~~The Company recorded a related party receivable of approximately $0.7~~ ~~million as of September 30, 2022 related to expenses paid on behalf of the Data Center LLCs for which it expects to be reimbursed.~~

~~NOTE 10. LEASES~~Office headquarters lease

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

~~Total rent expense was approximately $~~Additional lease information

~~0.4~~Components of the Company’s lease expenses are as follows (in thousands):

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Finance leases:
Amortization of ROU assets (1)	$	1,481	$	-	$	3,297	$	-
Interest on lease liability		600		-		1,478		-
Total finance lease expense		2,081		-		4,775		-
Operating leases:
Operating lease expense		470		391		1,391		1,009
Variable lease cost		-		-		-		-
Total operating lease expense		470		391		1,391		1,009
Total lease expense	$	2,551	$	391	$	6,166	$	1,009

__________

(1) ~~million and $1.0~~ ~~million for the three and nine months ended September 30, 2022, respectively, which includes an immaterial amount~~Amortization of ~~less than $0.1~~ ~~million for short-term~~finance lease ~~costs during both the three and nine months ended September 30, 2022.~~ ROU assets is included within depreciation expense.

The Company did not incur any variable lease costs during any of the periods presented.

~~Supplemental~~Other information related to the ~~lease was as follows~~Company’s leases is shown below (dollar amounts in thousands):

Nine Months Ended

September 30, 2022

Operating cash flows - operating leases

$
395

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

$
5,859

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

4.7

Weighted-average discount rate – operating leases

10.9
%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating cash flows - operating lease	$	396	$	-	$	1,187	$	-
Right-of-use assets obtained in exchange for operating lease liabilities	$	-	$	-	$	-	$	5,859


	September 30, 2023			December 31, 2022
Weighted-average remaining lease term – finance lease (in years)		3.2			4.7
Weighted-average remaining lease term – operating lease (in years)		3.7			4.4
Weighted-average discount rate – finance lease		11.0	%		11.0	%
Weighted-average discount rate – operating lease		10.9	%		10.9	%
Finance lease ROU assets (1)	$	25,186		$	14,471

__________

(1) As of September 30, 2023 and December 31, 2022, the Company had recorded accumulated amortization of approximately $1.5 million and $0.5 million, respectively, for the finance lease ROU assets. Finance lease ROU assets are recorded within property and equipment, net on the Company’s consolidated balance sheets.

As of September 30, ~~2022,~~2023, future minimum ~~operating~~ lease payments during the next five years are as follows ~~(amounts in~~(in thousands):


Remaining Period Ended December 31, 2022	$	395
Year Ended December 31, 2023		1,581
				Finance Lease			Operating Lease			Total
Remaining Period Ended December 31, 2023				$	4,693		$	394		$	5,087
Year Ended December 31, 2024		1,581			4,834			1,581			6,415
Year Ended December 31, 2025		1,581			4,834			1,581			6,415
Year Ended December 31, 2026		1,581			4,834			1,581			6,415
Year Ended December 31, 2027		659			3,223			659			3,882
Total lease payments					22,418			5,796			28,214
Less present value discount					(3,654	)		(1,034	)		(4,688	)
Total		7,378		$	18,764		$	4,762		$	23,526
Less present value discount		(1,614	)
Operating lease liabilities	$	5,764

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE ~~11.~~12. 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.

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Commitments

In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. The ~~Company's~~Company’s maximum exposure under these arrangements, if any, is unknown as of September 30, ~~2022.~~2023. The Company does not anticipate recognizing any significant losses relating to these arrangements.

~~Standard Power Hosting Agreement~~On August 14, 2023, the Company, through CMTI, 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, the Company established a secured line of credit up to $10.0 million (the “Credit Facility”). The Company 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 September 30, 2023 the Company has not drawn upon the Credit Facility.

~~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.~~

~~Luminant Lease and Purchase and Sale Agreements~~Contingencies

The Company, ~~entered into a series~~and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of ~~agreements with affiliates~~business. The Company cannot predict the final outcome of ~~Luminant,~~such proceedings. Where appropriate, the Company vigorously defends such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant. Certain of the ~~Lease Agreement dated~~ ~~June 29, 2021, with amendment~~claims, lawsuits and ~~restatement on~~ ~~July 9, 2021~~ ~~(as amended~~proceedings arising in the ordinary course of business are covered by the Company’s insurance program. The Company maintains property and ~~restated,~~various types of liability insurance in an effort to protect the ~~“Luminant Lease Agreement”). The Luminant Lease Agreement leases a plot~~Company from such claims. In terms of ~~land~~any matters where there is no insurance coverage available to the Company, or where coverage is available and the ~~planned~~Company maintains a retention or deductible associated with such insurance, the Company may establish an accrual for such loss, retention or deductible based on current available information. In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by the Company in the accompanying unaudited condensed consolidated balance sheets. If it is reasonably possible that an asset may be impaired as of the date of the financial statements, then the Company discloses the range of possible loss. Expenses related to the defense of such claims are recorded by the Company as incurred and included in the accompanying unaudited condensed consolidated statements of operations. Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting the Company’s defense of such matters. On the basis of current information, the Company does not believe there is a reasonable possibility that a material loss, if any, will result from any claims, lawsuits and proceedings to which the Company is subject to either individually, or in the aggregate.

Luminant Power Agreement

On November 18, 2022, Luminant filed suit against CMTI in the 95th District Court of Dallas County, Texas, asserting Texas state law claims for declaratory judgment and “money had and received”, seeking recoupment and return of money previously paid by Luminant to CMTI in connection with Luminant’s (and its affiliates’) construction and energization of Cipher’s bitcoin mining data center ~~ancillary infrastructure~~in Odessa, Texas. These prior payments were (i) the sum of $5.1 million paid to CMTI in September 2022 pursuant to a contractual provision requiring such payment in the parties’ written and executed August 25, 2022 Third Amendment to the Luminant Power Agreement, and (ii) the sum of $1.7 million also paid to CMTI in September 2022, as agreed by the parties, for electrical ~~system (the “Interconnection Electrical Facilities” or “substation”) will be set up~~power sold by Luminant for CMTI’s benefit into the open market prior to the final energization of the Odessa Facility. Luminant contended that such payments were mistaken because, although voluntarily made by Luminant, they were not actually due under the terms of the Luminant Power Agreement, as amended. The Company filed its answer on January 17, 2023, denying any liability to Luminant. Cipher has not received payment from Luminant for electricity sold in the ERCOT market in September 2022 and October 2022.

The Company established a $2.0 million accrual for the ~~Company’s Odessa Facility. The Company also entered into~~cost of resolving the ~~Purchase and Sale Agreement dated~~ claims in the second quarter of 2023.

~~June 28, 2021, with amendment and restatement on~~On July ~~9, 2021~~ ~~(as amended and restated,~~11, 2023, the ~~“Luminant Purchase and Sale Agreement”) with another Luminant affiliate. The~~ Company entered into an amendment of the ~~Luminant Lease Agreement and~~payment schedule to the Luminant Purchase and Sale Agreement, ~~to build the infrastructure necessary to support its planned operations. The Company determined that the Luminant Lease Agreement~~reflecting monthly installments of principal 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.

~~Under the Luminant Power Agreement (defined above in Note 2 under~~ ~~Derivative Accounting), the Company is required to provide Luminant with collateral of approximately~~interest totaling $~~12.6~~19.7 million ~~(the “Independent Collateral Amount”).~~on an undiscounted basis, due over the remaining ~~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 on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.four-year ~~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~~period starting 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 approximatelyJuly 2023.

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

$~~3.1~~ ~~million as collateral separate from the Independent Collateral Amount, which is also recorded in security deposits as of September 30, 2022 and December 31, 2021.~~

~~The Combined~~On August 23, 2023, the Company settled the dispute with 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~~(the “Luminant Settlement”). In connection with the Luminant Settlement, the Company, through CMTI, entered into (i) a Fourth Amendment to the Power ~~Agreement; however,~~Purchase Agreement (the “Amended PPA”) with Luminant, which amended the ~~Company’s management determined that~~Luminant Power Agreement and (ii) a Second Amendment to the ~~Combined Luminant~~ Lease Agreement ~~contains two lease components; and~~(the "Amended Lease") with an affiliate of Luminant, which amended the components should be accounted for together as a single lease component, because the effect of accounting for the land lease separately would be insignificant. Financing for use of the land and substation is provided by Luminant affiliates, with monthly installments of principal and interest due over a ~~five-year~~ ~~period starting upon transfer of legal title of the substation to the Company (estimated total undiscounted principal payments of $13.1~~ million). At the end of the lease term for the Interconnection Electrical Facilities, the substation will be sold back to Luminant’s affiliate, Vistra Operations Company, LLC at a price to be determined based upon bids obtained in the secondary market.

Once the Company has control over the applicable leased asset, the Company will record both a ROU asset and a corresponding lease liability in accordance with ASC 842 for the single lease component as applicable under the Combined Luminant Lease Agreement.

The Amended PPA, among other items, reduces the notice requirements that CMTI must satisfy in connection with changes to its energy consumption at the Odessa Facility and the Amended Lease provides that the initial term of the agreement shall end on July 31, 2027.

NOTE ~~12.~~13. STOCKHOLDERS’ EQUITY

As of September 30, ~~2022,~~2023, 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.~~stock (“Preferred Stock”).

Common Stock

Holders of each share of Common Stock are entitled to dividends when, as and if declared by the Board. As of ~~September 30, 2022,~~the issuance of these unaudited condensed consolidated financial statements, 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.~~Preferred Stock, for which there currently are none outstanding.

~~The Company repurchased~~ ~~13,193~~ ~~shares and~~ ~~672,424~~ ~~shares of its Common Stock related to tax withholding settlements for RSUs that vested during~~During the ~~three and~~ nine months ended September 30, ~~2022, respectively.~~

~~As disclosed above in Notes 6 and 9, on April 8, 2022,~~2023, the Company ~~accepted the return of~~issued ~~2,890,173~~4,457,708 shares of ~~its~~ Common Stock ~~held by Bitfury Top HoldCo as consideration for~~to officers, employees and consultants in settlement of an equal number of fully vested RSUs awarded to these individuals, and 319,786 shares of Common Stock to directors, pursuant to grants made under the Cipher Mining Inc. 2021 Incentive Award Plan (the “Incentive Award Plan”). The Company immediately repurchased 1,581,217 of these shares of Common Stock from officers and employees, with a fair value of approximately $~~10.0~~3.2 million, ~~deposit paid~~ to ~~Bitfury Top HoldCo for mining rigs under~~cover taxes related to the ~~agreement dated October 11, 2021. The returned shares were cancelled~~settlement of vested RSUs, as permitted by the Incentive Award Plan. The Company ~~upon their return.~~placed the repurchased shares in treasury stock.

~~Shelf Registration and At-The-Market Offering~~At-the-Market Sales Agreement

On September 21, 2022, the Company filed with the SEC a shelf registration statement on Form S-3, which was declared effective on October 6, 2022 (the “Registration Statement”). ~~The Registration Statement covers: (i) the offer and sale by the Company, from time to time in one or more offering, securities having an aggregate public offering price of up to $500.0~~ ~~million, (ii) the offer and sale from time to time by the selling securityholders identified therein of up to~~ ~~23,265,565~~ ~~shares of the Company’s Common Stock and the offer and sale from time to time by the selling securityholders of up to~~ ~~85,500~~ ~~of the Company’s warrants and (iii) the offer and sale of (A) up to~~ ~~8,499,978~~ ~~shares of Common Stock that are issuable by the Company upon the exercise of~~ ~~8,499,978~~ ~~public warrants that were previously registered and (B) up to~~ ~~114,000~~ ~~shares of Common Stock that are issuable by the Company upon the exercise of~~ ~~114,000~~ ~~private placement warrants.~~

In connection with the filing of the Registration Statement, the Company also entered into an at the market offering agreement (the “Prior Sales ~~Agreement~~Agreement”) with H.C. Wainwright & Co., LLC ~~as the Agent,~~(the “Prior Agent”), under which the Company may, from time to time, sell shares of its Common Stock having an aggregate offering price of up to $250.0 million in ~~“at-the-market”~~“at the market” offerings through the ~~Agent,~~Prior Agent. Effective August 1, 2023, the Company terminated the Prior Sales Agreement.

On August 3, 2023, the Company 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 “Agent” and, together, the “Agents”), pursuant to which ~~is included in~~ the Company may offer and sell, from time to time through or to the Agents, shares of its Common Stock, for aggregate gross proceeds of up to $~~500.0~~250.0 million (the “Shares”). The offering and sale of up to $250.0 million of ~~securities that may be offered pursuant to~~the Shares has been registered under the Registration ~~Statement. Sales of~~Statement, the ~~shares of Common Stock, if any, will be made at prevailing market prices at~~base prospectus contained within the ~~time of sale, or as otherwise agreed~~Registration Statement, and a prospectus supplement that was filed with the ~~Agent.~~ SEC on August 4, 2023 (the “Prospectus Supplement”).

Pursuant to the Sales Agreement, the Agent selected by the Company (such Agent, the “Designated Agent”) may sell the Shares in sales deemed to be “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act. The Company has no obligation to sell any of the Shares under the Sales Agreement and may at any time suspend or terminate the offering of the Shares pursuant to the Sales Agreement upon notice and subject to other conditions. The Agents will act as sales agents and will use commercially reasonable efforts to sell on the Company’s behalf all of the Shares requested to be sold by it, on mutually agreed terms between the Agents and the Company. Under the terms of the Sales Agreement, the Company agreed to pay the Designated Agent a commission of up to 3.0% of the aggregate gross proceeds from any Shares sold through such Designated Agent pursuant to the Sales Agreement. In addition, the Company agreed to reimburse certain expenses incurred by the Agents in connection with the Sales Agreement. During the nine months ended September 30, 2023, in connection with the Prior Sales Agreement and the Sales Agreement, the Company received proceeds of approximately $11.3 million, net of issuance costs, from the sale of ~~any~~3,809,943 shares of ~~Common Stock under the Sales Agreement. The Company is not obligated to make any sales~~common stock, with an average fair value of shares of its Common Stock under the Sales Agreement. The Company has not sold any shares of its Common Stock under the Sales Agreement as of the issuance of these unaudited condensed consolidated financial statements.$3.02 per share.

2320

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE ~~13.~~14. WARRANTS

Upon consummation of the ~~Business Combination,~~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~~8,499,980 Public Warrants and 114,000 Private Placement Warrants outstanding as of ~~the Closing Date of the Business Combination.~~both September 30, 2023 and December 31, 2022. 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.

NOTE ~~14.~~15. 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~~is 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,~~2023, this resulted in an increase of ~~7,478,382~~7,426,559 shares of Common Stock available for issuance under the Incentive Award Plan. As of September 30, ~~2022,~~2023, ~~1,638,142~~6,282,366 shares of Common Stock ~~are~~were available for issuance under the Incentive Award Plan.

The Company recognized total share-based compensation expense in general and administrative expenses on the unaudited condensed consolidated statements of operations for the following categories of awards ~~during the periods indicated (amounts in~~as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2022

Service-Based RSUs

$
7,078

$
19,936

Performance-Based RSUs

3,416

10,136

Total share-based compensation expense

$
10,494

$
30,072


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Service-based RSUs	$	7,038	$	7,078	$	17,865	$	19,936
Performance-based RSUs		3,416		3,416		10,136		10,136
Common stock, fully-vested		245		-		686		-
Total share-based compensation expense	$	10,699	$	10,494	$	28,687	$	30,072

Service-based RSUs

A summary of the ~~Company's~~Company’s unvested ~~Service-Based~~Service-based RSU activity for the nine months ended September 30, ~~2022~~2023 is shown below:

Number of Shares

Weighted Average Grant Date Fair Value

Unvested at January 1, 2022

6,798,238

$
8.04

Granted

9,108,086

1.90

Forfeited

(205,048
)

6.34

Vested

(1,802,123
)

7.55

Unvested at September 30, 2022

13,899,153

$
4.10


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2023		14,441,044		$	3.96
Granted		6,993,565		$	2.27
Vested		(4,457,709	)	$	4.05
Unvested at September 30, 2023		16,976,900		$	3.24

As of September 30, ~~2022,~~2023, there was approximately $~~35.5~~26.2 million of unrecognized compensation expense related to unvested ~~Service-Based~~Service-based RSUs, which is expected to be recognized over a weighted-average vesting period of approximately ~~1.8~~1.5 years.

If not fully vested upon grant, ~~Service-Based~~Service-based RSUs awarded generally vest over a period ranging from two to four years in equal installments on the ~~first~~ ~~three~~ or ~~four~~ ~~anniversaries~~award’s anniversary 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, as determined by the Board, and which may precede the grant date. Vesting is subject to the award ~~recipient's~~recipient’s continuous service on the applicable vesting date; provided, that if the award recipient’s employment is terminated by the Company

~~CIPHER MINING INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

without “cause”, ~~due to award recipient’s death or permanent disability, or, for some award recipients,~~ by ~~the~~ award recipient for “good reason” (if applicable, as such term or similar term may be defined in any employment, consulting or similar service agreement between award recipient and the Company),

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

or due to award recipient’s death or permanent disability, all unvested ~~Service-Based~~Service-based RSUs will vest in full. In addition, in the event of a change in control, any unvested ~~Service-Based~~Service-based RSUs will vest subject to the award ~~recipient's~~recipient’s continuous service to the Company through such change in control. In addition, if the Company achieves a $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~~Service-based RSUs awarded to the CEO will also vest.

Performance-based RSUs

There was no new activity for unvested ~~Performance-Based~~Performance-based RSUs during the nine months ended September 30, ~~2022.~~2023 There were 4,257,710 unvested ~~Performance-Based~~Performance-based RSUs atwith a weighted average grant date fair value of $7.76 as of both September 30, ~~2022~~2023 and December 31, ~~2021. There~~2022. As of September 30, 2023, there was approximately $~~21.2~~7.7 million of unrecognized compensation expense related to unvested ~~Performance-Based~~Performance-based RSUs, which is expected to be recognized over a weighted-average derived service period of approximately ~~1.7~~0.7 years.

One-third of the ~~Performance-Based~~outstanding 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~~Performance-based RSUs that do not vest prior to the CEO’s termination of service or, if earlier, in connection with a change in control will be forfeited for no consideration.

NOTE ~~15. SUBSEQUENT EVENTS~~16. FAIR VALUE MEASUREMENTS

~~Chief LLC Agreement~~


	Fair Value Measured as of September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets included in:
Cash and cash equivalents
Money market securities	$	3,208	$	-	$	-	$	3,208
Accounts receivable		360		-		-		360
Derivative asset		-		-		80,050		80,050
	$	3,568	$	-	$	80,050	$	83,618
Liabilities included in:
Warrant liability	$	-	$	-	$	56	$	56
	$	-	$	-	$	56	$	56


	Fair Value Measured as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets included in:
Cash and cash equivalents
Money market securities	$	10,943	$	-	$	-	$	10,943
Accounts receivable		98		-		-		98
Derivative asset		-		-		66,702		66,702
	$	11,041	$	-	$	66,702	$	77,743
Liabilities included in:
Warrant liability	$	-	$	-	$	7	$	7
	$	-	$	-	$	7	$	7

The carrying values reported in the Company’s consolidated balance sheets for cash (excluding cash equivalents which are recorded at fair value on a recurring basis), accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair values due to the short-term nature of these items.

Effective October 7, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Chief Interests DC LLC (a subsidiary of WindHQ), as members, entered into the Limited Liability Company Agreement of Chief Mountain LLC (the “Chief LLC Agreement”). The Chief LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Chief facility, located in Texas (the “Chief Facility”). Similar to the Alborz Facility and the Bear Facility, the Company is also required to support and monitor (remotely) the operations of the hardware at the Chief Facility (particularly the mining servers) under the WindHQ Joint Venture Agreement.

~~Miner contributions to Bear Facility and Chief Facility~~

~~In October 2022, the Company contributed approximately~~ ~~6,500~~ miners to the Bear Facility and the Chief Facility. While the final quantities of miners going to each respective site, and therefore the relative pricing as between the two sites, is still being finalized, the estimated fair value of the relevant miners was lower than the cost paid by the Company to purchase them; therefore, the Company expects to record a loss related to the contribution of these miners of approximately $15 ~~million.~~

~~SuperAcme Supplementary Agreement~~

On November 4, 2022, through its subsidiary, Cipher Mining Technologies, the Company entered into a supplementary agreement of the Framework Agreement on Supply of Blockchain Servers (the “Supplementary Agreement”) with SuperAcme, which supplements the Amended SuperAcme Agreement dated May 6, 2022, and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and the Company will not be obligated to send any further money to SuperAcme. In connection with the Amended SuperAcme Agreement, SuperAcme has delivered ~~17,833~~ ~~miners to date, at an aggregate value of approximately $53.6~~ ~~million, and the Company has paid aggregate advance payments of $101.8~~ ~~million. The remaining balance of $48.2~~ ~~million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Supplementary Agreement.~~

~~Payments on behalf of Bitfury~~

~~After September 30, 2022, but before the issuance of these unaudited condensed consolidated financial statements, the Company made payments totaling approximately $2.1~~ ~~million directly to Paradigm in place of Bitfury USA, in respect of manufacturing services for~~

2522

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~BBACs.~~ There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented.

Level 3 asset

The Company’s ~~payment obligations to Bitfury USA under the Master Services and Supply Agreement were also reduced by $2.1~~ ~~million~~derivative asset, related to ~~these payments to Paradigm.~~

~~Luminant Power Agreement~~

~~On October 26, 2022, the Company received a letter from Luminant, disputing: (i) the payments of $1.7~~ ~~million that Luminant had made to the Company under~~ the Luminant Power Agreement, ~~for~~is divided between current and noncurrent assets, and was initially recorded on its unaudited condensed consolidated balance sheets on the ~~electricity sold in the ERCOT market during~~derivative asset’s effective date of July 1, 2022, ~~and August 2022 and (ii) the payment of $5.1~~ ~~million made~~with an offsetting amount recorded to the Company by Luminant in September 2022 in consideration for the modification to the ramp up schedule pursuant to the August Amendment to the Luminant Power Agreement. The Company received and recorded $~~1.7~~ ~~million as part of the~~ change in fair value of derivative asset in costs and operating expenses on the unaudited condensed consolidated statements of operations. Subsequent changes in fair value are also recorded to change in fair value of derivative asset. The Luminant Power Agreement was not designated as a hedging instrument. The estimated fair value of the Company’s derivative asset was derived from Level 2 and Level 3 inputs (i.e., unobservable inputs) due to a lack of quoted prices for similar type assets and as such, is classified in Level 3 of the fair value hierarchy. Specifically, the discounted cash flow estimation models contain quoted spot and forward prices for electricity, as well as estimated usage rates consistent with the terms of the Luminant Power Agreement, which has a remaining term of approximately 3.6 years. The valuations performed by the third-party valuation firm engaged by the Company utilized pre-tax discount rates of 7.55% and 6.83% as of September 30, 2023 and December 31, 2022, respectively, and include observable market inputs, but also include unobservable inputs based on qualitative judgment related to company-specific risk factors. Unrealized gains associated with the derivative asset within the Level 3 category include changes in fair value that were attributable to changes to the quoted forward electricity rates, as well as unobservable inputs (e.g., changes in estimated usage rates and discount rate assumptions).


Balance as of January 1, 2023	$	66,702
Change in fair value		13,348
Balance as of September 30, 2023	$	80,050

Level 3 liability

The Company’s Private Placement Warrants (as defined in Note 14. Warrants) are its only liability classified within Level 3 of the fair value hierarchy because the fair value is based on significant inputs that are unobservable in the market. The valuation of the Private Placement Warrants uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as 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 its Common Stock. The following table presents significant assumptions utilized in the valuations of the Private Placement Warrants as of the dates indicated:


	September 30, 2023			December 31, 2022
Risk-free rate		4.71	%		4.06	%
Dividend yield rate		0.00	%		0.00	%
Volatility		85.0	%		90.0	%
Contractual term (in years)		2.9			3.7
Exercise price	$	11.50		$	11.50

The following table presents changes in the estimated fair value of the Private Placement Warrants for the nine months ended September 30, 2023 (in thousands):


Balance as of January 1, 2023	$	7
Change in fair value		49
Balance as of September 30, 2023	$	56

CIPHER MINING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 17. INCOME TAXES

The determination of income tax expense in the unaudited condensed consolidated statements of operations is based upon the estimated effective tax rate for the ~~three~~year, adjusted for the impact of any discrete items which are accounted for in the period in which they occur. The Company recorded an income tax benefit of approximately 1.1% andnil of income (loss) before taxes for each of the nine months ended September 30, ~~2022. The Company received~~2023 and ~~recorded $5.1~~ ~~million as a reduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. The Company has~~ no~~t received payment from Luminant for electricity sold in the ERCOT market in September~~ 2022, ~~and October 2022.~~

The Company wholly disputes the claims made by Luminant and has been engaged in discussions with Luminant in an attempt to reach a mutually agreeable solution and resolve disagreements between the parties regarding these payments and whether the commencement of Luminant’s obligations under the Luminant Power Agreement should be tied to ERCOT’s interconnection approval. At this time the Company’s management does not know how or when this dispute will be resolved.

On November 8, 2022, the Company also received a letter from Luminant requesting the Company deposit to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement. The Company expects to deliver to Luminant the remaining half of the Independent Collateral Amount before the end of November 2022.respectively.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~NOTE 18. SUBSEQUENT EVENTS

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 as disclosed in our 2021 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 2021 Form 10-K and this Quarterly Report and other factors set forth in other parts of this Quarterly Report.

Unless the context otherwise requires, references in this Quarterly Report to the “Company,” “Cipher,” “we,” “us” or “our” refer to Cipher Mining Technologies Inc., prior to the consummation of the Business Combination (the “Closing” and, such date of the consummation of the Business Combination, the “Closing Date”) and to Cipher Mining Inc. and its consolidated subsidiaries following the Business Combination. References to “GWAC” or “Good Works” refer to our predecessor company prior to the consummation of the Business Combination.

~~Overview~~

We are an emerging technology company that operates in the Bitcoin mining ecosystem in the United States. Specifically, we are developing and growing a cryptocurrency mining business specializing in Bitcoin. Our key mission is to become a leading Bitcoin mining company in the United States.

As a stand-alone, U.S.-based cryptocurrency mining business, we have begun our buildout of cryptocurrency mining sites in the United States that will include both wholly-owned sites and partially-owned sites acquired through investments in joint ventures. We began deployment of capacity in the first quarter of 2022, with mining operations beginning at the partially-owned Alborz Facility in February 2022.

In connection with our planned buildout, we entered into the Standard Power Hosting Agreement, the WindHQ Joint Venture Agreement and the Luminant Power Agreement, all of which, together, are expected to cover at least four sites where we expect to begin our buildout. Pursuant to these agreements, we expect to have access, for at least five years, to an average cost of electricity of approximately 2.7 c/kWh. We expect that this will help competitively position us to achieve our goal of becoming a leading Bitcoin mining operator in the United States.

In August 2022, we completed installation of the last mining rigs to be delivered to the Alborz Facility. With that the Alborz Facility is capable of generating approximately 1.3 EH/s, of which we own approximately 0.64 EH/s under the WindHQ Joint Venture Agreement. In October 2022, we also completed the Bear Facility and Chief Facility, which, combined, are expected to generate approximately 0.65 EH/s, of which we own approximately 0.32 EH/s.

By early 2023, we plan to deploy approximately 267MW of electrical power capacity across four sites with a corresponding hashrate of approximately 8.0 EH/s, of which we expect to own approximately 7.0 EH/s.

We aim to deploy the computing power that we will create to mine Bitcoin and validate transactions on the Bitcoin network. We believe that Cipher will become an important player in the Bitcoin network due to our planned large-scale operations, best-in-class technology, market-leading power and hosting arrangements and a seasoned, dedicated senior management team.

As of September 30, 2022, Bitfury Top HoldCo B.V. (“Bitfury Top HoldCo”) (together with Bitfury Holding B.V., a subsidiary of Bitfury Top HoldCo, and referred to herein as “Bitfury Holding”) beneficially owns approximately 81.6% of our common stock, $0.001 par value per share (“Common Stock”), with sole voting and sole dispositive power over those shares and, as a result, Bitfury Top HoldCo has the power to elect all of our directors and we are a “controlled company” under Nasdaq corporate governance standards. For additional information, see “Risk Factors—Risks Related to our Common Stock and Warrants—We are a “controlled company” within the meaning of Nasdaq listing rules and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies” in our 2021 Form 10-K.

~~The Business Combination~~Miner Purchase

On ~~August 27, 2021, as contemplated by the Agreement and Plan of Merger dated as of March~~October 4, 2021 (the “Merger Agreement”), by and among Good Works Acquisition Corp. (“GWAC”), a Delaware corporation, Currency Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and a wholly‑owned direct subsidiary of GWAC, and2023, the Company ~~the parties~~ entered into ~~the business combination transaction pursuant~~an agreement with Bitmain Technologies Delaware Limited to ~~which Merger Sub merged with and into the Company, the separate corporate existence~~purchase 1.2 EH/s worth of ~~Merger Sub ceasing and the Company being the surviving corporation and~~HASH Super Computing Servers (Antminer S21-200.0T model), for a ~~wholly‑owned subsidiary~~total commitment of ~~GWAC (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). Following the Business~~$24.0

~~Combination, the combined company was named Cipher Mining Inc. (“Cipher Mining”). Cipher Mining comprises all of GWAC’s and Cipher Mining Technologies’ operations.~~

Upon the consummation of the Business Combination, all holders of Cipher Common Stock received shares of our Common Stock of $10.00 per share after giving effect to the Exchange Ratio, resulting in 200,000,000 shares of our Common Stock million to be immediately issued and outstanding to Bitfury Top HoldCo (in addition to 8,146,119 shares of our Common Stock held by GWAC), 32,235,000 shares of our Common Stock held by the PIPE Investors and 6,000,000 shares of our Common Stock received by Bitfury Holding B.V., an affiliate of Bitfury Top HoldCo, under the Bitfury Private Placement, based on the following events contemplated by the Merger Agreement:

•

~~the cancellation of each issued and outstanding share of Cipher Common Stock; and~~

•

~~the conversion into the right to receive a number of shares of our Common Stock based upon the Exchange Ratio.~~

In connection with the execution of the Merger Agreement, GWAC entered into: (i) the PIPE Subscription Agreements to sell to certain investors (the “PIPE Investors”), an aggregate of 32,235,000 shares of GWAC Common Stock, immediately following the Closing, for a purchase price of $10.00 per share and at an aggregate gross proceeds of $322.4 million (the “PIPE Financing”) and (ii) the Bitfury Subscription Agreement to sell to Bitfury Top HoldCo (or an affiliate of Bitfury Top HoldCo), an aggregate of 6,000,000 shares of GWAC Common Stock, following the Closing, for a purchase price of $10.00 per share and Bitfury Top HoldCo’s paymentpaid in cash ~~and/~~and coupons, or ~~forgiveness of outstanding indebtedness for aggregate gross proceeds of $60.0~~$16.8 million ~~(the “Bitfury Private Placement”).~~

Upon the consummation of the Business Combination, GWAC Common Stock and GWAC Warrants ceased trading on the Nasdaq Stock Exchange (the “Nasdaq”), and our Common Stock and Public Warrants began trading on August 30, 2021 on the Nasdaq under the ticker symbols “CIFR” and “CIFRW,” respectively. The Business Combination resulted in cash ~~proceeds, net of issuance costs, of approximately $384.9 million.~~

On April 8, 2022, we, as successor-in-interest to GWAC, and Cipher Mining Technologies, with respect to certain sections (collectively, the “Company”), entered into a Waiver Agreement, with Bitfury Top HoldCoafter applying coupons (the “Waiver Agreement”), pursuant to which we waived certain restrictions on transfer of shares under (a) that certain Lock-up Agreement, dated as of August 26, 2021, by and between Good Works Acquisition Corp. and Bitfury and (b) those certain Lock-up Agreements, dated as of August 26, 2021, by and between Good Works Acquisition Corp. and each of (i) I-B Goodworks, LLC, (ii) Magnetar Financial LLC, (iii) Mint Tower Capital Management B.V., (iv) Periscope Capital, Inc. and (v) Polar Asset Management Partners Inc., respectively (the stockholders contemplated by clauses (a)-(b), the “Stockholders”) imposing similar restrictions on the Stockholders (collectively, the “Lock-up Agreements” and each a “Lock-up“Bitmain Agreement”). The ~~Waiver Agreement was negotiated~~Company expects the miners purchased under this agreement to be shipped in batches between January and ~~approved by an independent committee of our Board of Directors (the “Board”).~~June 2024. The ~~Waiver Agreement permits each Stockholder~~Company expects to pledge or otherwise hypothecate up to one hundred percent (100%) of the Lock-up Shares (as defined in the Lock-Up Agreements) held by such Stockholder as of the date of the Waiver Agreement (the shares that are actually pledged or otherwise hypothecated, the “Pledged Shares”) as collateral or security in connection with any loan meeting certain criteria set forth in the Waiver Agreement and (ii) transfer the Pledged Shares upon foreclosure by such pledgeemake periodic payments in accordance with the ~~terms~~payment schedule under the Bitmain Agreement, with the final payment expected to occur one year after the delivery of the applicable pledge or hypothecation; provided that the Waiver will only apply and be effective if the following conditions are satisfied or waived: (i) any pledgee executes a joinder to the Lock-up Agreements and therefore be bound by the Transfer Restrictions as defined in the Lock-up Agreements, (ii) the pledgee in receiptlast batch of any pledged shares be in compliance with all Anti-Money Laundering and Know Your Customer laws and regulations in effect in the United States of America and be a nationally, internationally or regionally recognized bank or bona fide financial institution, private equity fund or other lender, (iii) any pledgee not be a competitor of the Company, and (iv) any loan for pledged shares be a bona fide loan containing customary market terms and have an initial 25% maximum loan-to-value ratio. Additionally, effective as of the date of consummation of any pledge or hypothecation, and solely in regard to any Pledged Shares, the Lock-Up Period, as defined in the applicable Lock-up Agreement, shall be extended an additional three months to November 26, 2023. Furthermore, the Waiver Agreement provides for a cancellation of 2,890,173 shares of our Common Stock held by Bitfury Top HoldCo and subject to the Lock-up Agreements (the “Cancelled Shares”) as consideration for the $10.0 million deposit paid by us for Bitfury mining rigs under our agreement dated October 11, 2021, for which no order confirmation was made. The Cancelled Shares were part of the tranche of Lock-Up Shares with a Lock-Up Period during the period beginning on the date that is eighteen months after the Closing Date and ending on the date that is two years after the Closing Date.

Also on April 8, 2022, we entered into an Observer Agreement (the “Board Observer Agreement”) with Bitfury Holding and Bitfury Top HoldCo (together with “Bitfury Holding,” the “Investors”), which provides that the Investors have the right to designate a representative to serve as an observer (the “Observer”) of our Board and any committees thereof (subject to exceptions specified therein). The Observer has the right to attend and observe meetings of the Board, including any meetings of the committees of the Board, and to participate in discussions of matters brought to the Board or any committee thereof, in each case, subject to certain exceptions specified in the Board Observer Agreement. The Investors’ rights under the Board Observer Agreement will terminate

upon the date that the Investors no longer beneficially own at least 10% of the outstanding shares of our Common Stock. As of the date of this Quarterly Report, the Investors have not designated an Observer pursuant to the Board Observer Agreement.

~~The Board Observer Agreement was negotiated and approved by an independent committee of the Board.~~

~~Recent Developments~~

Effective October 7, 2022, in connection with the WindHQ Joint Venture Agreement, Cipher Mining Technologies and Chief Interests DC LLC, a subsidiary of WindHQ LLC (“WindHQ”), as members, entered into the Limited Liability Company Agreement of Chief Mountain LLC (the “Chief LLC Agreement”). The Chief LLC Agreement delineates the rights and obligations of the members related to the construction, operation and management of the Chief facility, located in Texas (the “Chief Facility”). Similar to the Alborz Facility and the Bear Facility, we are also required to support and monitor (remotely) the operations of the hardware at the Chief Facility (particularly the mining servers) under the WindHQ Joint Venture Agreement.

In October 2022, we contributed approximately 6,500 miners to the Bear Facility and the Chief Facility. While the final quantities of miners going to each respective site, and therefore the relative pricing as between the two sites, is still being finalized, the estimated fair value of the relevant miners was lower than the cost paid by us to purchase them; therefore, we expect to record a loss related to the contribution of these miners of approximately $15 million.

On November 4, 2022, through our subsidiary, Cipher Mining Technologies, we entered into a supplementary agreement of the Framework Agreement on Supply of Blockchain Servers (the “Supplementary Agreement”) with SuperAcme Technology (Hong Kong) Limited (“SuperAcme”), which supplements the Amended SuperAcme Agreement dated May 6, 2022, and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and provides that we will not be obligated to send any further money to SuperAcme. In connection with the Amended SuperAcme Agreement, SuperAcme has delivered 17,833 miners to date, at an aggregate value of approximately $53.6 million, and we have paid aggregate advance payments of $101.8 million. The remaining balance of $48.2 million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Supplementary Agreement.

We are in discussions with Bitfury USA Inc. (“Bitfury USA”) to assign Cipher Mining Technologies certain service contracts related to the production of BlockBox air-cooled containers (each a “BBAC”) originally entered into between Bitfury USA and Paradigm Controls of Texas, LLC (“Paradigm”). Going forward, we will continue to work directly with Paradigm or other vendors on any remaining BBACs that would have been purchased from Bitfury USA under the Master Services and Supply Agreement. In connection with these discussions, as of November 11, 2022, we have paid a total of $13.1 million to Paradigm and our obligations to Bitfury USA under the Master Services and Supply Agreement were reduced by the same amount.

On October 26, 2022, we received a letter from Luminant ET Services Company LLC (“Luminant”), disputing: (i) the payments of $1.7 million that Luminant had made to us under the Luminant Power Agreement for the electricity sold in the ERCOT market during July 2022 and August 2022 and (ii) the payment of $5.1 million made to us by Luminant in September 2022 in consideration for the modification to the ramp up schedule pursuant to the August Amendment (as defined below) to the Luminant Power Agreement. We received and recorded $1.7 million as part of the change in fair value of derivative asset in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022. We received and recorded $5.1 million as a reduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. We have not received payment from Luminant for electricity sold in the ERCOT market in September 2022 and October 2022.

On November 8, 2022, we also received a letter from Luminant requesting we deposit to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement. We expect to deliver to Luminant the remaining half of the Independent Collateral Amount before the end of November 2022.

~~For further information, see Note 15 to our unaudited condensed consolidated financial statements.~~

~~Known Trends or Future Events~~

~~Impact of COVID-19 and Other Economic, Business and Political Conditions~~

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, such as the outbreak and global spread of COVID-19. The 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 a result of the COVID-19 pandemic or otherwise, could result in a variety of risks to our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.

We may experience disruptions to our business operations resulting from supply interruptions, quarantines, self-isolations, or other movement and restrictions on the ability of our employees or our counterparties to perform their jobs. We may also experience delays in construction and obtaining necessary equipment in a timely fashion. For example, in early January 2022, we had to temporarily shut down construction at the Alborz Facility in response to employees being impacted by COVID-19. The temporary shutdown was less than a week, and we resumed the construction at the site immediately after. If we are unable to effectively set up and service our miners, our ability to mine Bitcoin will be adversely affected. The future impact of the 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.

~~Change in Fiscal Year~~

Starting with the three and eight months ended September 30, 2021, we assumed GWAC’s financial calendar for our third fiscal quarter ending September 30 and our fiscal year ending December 31. This change to the fiscal year end was approved by the Board on September 23, 2021. Cipher Mining Technologies’ fiscal year previously ended on January 31.

~~Results of Operations~~

Since our inception on January 7, 2021 and until the time of the Business Combination, our activities were primarily organizational and those necessary to prepare for the Business Combination. Following the Business Combination, our activities have been focused on the set-up of cryptocurrency mining data centers as part of our planned buildout, including entry into agreements with Bitmain, SuperAcme and Bitfury Top HoldCo and its subsidiaries (together the “Bitfury Group”) for supply of miners and other equipment and services. For further details, see “—Contractual Obligations and Other Commitments.” We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance). Our plan of operation for the next 12 months is to commence and maintain Bitcoin mining operations across our four sites and to continue developing our initial portfolio comprised of select sites in the United States.

~~Comparative Results for the Three Months Ended September 30, 2022 and 2021~~

We generated no revenue during the three months ended September 30, 2022 and 2021. We incurred general and administrative expenses of $17.8 million and $2.3 million during the three months ended September 30, 2022 and 2021, respectively. Share-based compensation costs of $10.5 million were recognized in total general and administrative expenses during the three months ended September 30, 2022, related to restricted stock units (“RSUs”), awarded to our employees. The remaining $7.3 million of general and administrative expenses incurred during the three months ended September 30, 2022 was recognized predominantly as follows: $2.4 million for business insurance, $1.4 million for payroll and payroll-related benefits for employees, $0.8 million for accounting and audit services, $0.5 million for each of consulting fees and legal expenses, $0.4 million for rent expense at the Company’s headquarters, $0.3 million for information technology (“IT”) and related IT security expenses, and $0.2 million each for the following: travel expenses, office supplies and software expenses mainly for licenses, board fees, and specific costs of operating as a public company. Certain costs such as accounting, legal and public company costs were higher during the three months ended September 30, 2022 as compared to the same period in 2021 due to our Registration Statement filed in September 2022. See additional information above in “—Recent Developments” or in “—Liquidity and Capital Resources” below.

Comparatively, general and administrative expenses recognized during the three months ended September 30, 2021 were mainly related to $1.6 million for business insurance, compensation and benefits of approximately $0.3 million, as well as approximately $0.1 million for each of the following: accounting and audit expenses, investor relations and specific costs of operating as a public company.

Change in the fair value of derivative asset increased operating income by $85.7 million during the three months ended September 30, 2022, which was primarily due to recording an $83.6 million derivative asset related to the Luminant Power Agreement on July 1, 2022.

Equity in loss of equity investment totaled $8.3 million for the three months ended September 30, 2022 and consisted of: a loss of $7.2 million related to our contribution of miners to Alborz LLC in July 2022 with fair values at the time of the contribution that were less than the costs we paid to acquire the miners; $1.9 million for our share of the loss of Alborz LLC for the three months ended September 30, 2022; and $0.8 million for accretion of the basis differences that resulted from our contributions of miners at a loss in both June and July 2022. Additionally, we recognized $0.3 million for impairment during the three months ended September 30, 2022 on Bitcoin that we received from Alborz LLC.

We paid $27.3 million for deposits on miners and mining equipment during the three months ended September 30, 2022, bringing total deposits on equipment on our unaudited condensed consolidated balance sheet to approximately $200.0 million as of September 30, 2022, after removing the miners and mining equipment contributed to Alborz LLC. Additionally, during the three months ended September 30, 2022, we paid approximately $15.9 million for purchases of property and equipment, which was principally related to construction-in-progress at our wholly-owned site in Odessa, Texas (the “Odessa Facility”), which is under development.

~~Comparative Results for the Nine Months Ended September 30, 2022 and the Eight Months Ended September 30, 2021~~

We generated no revenue during the nine months ended September 30, 2022 or during the eight months ended September 30, 2021. We incurred general and administrative expenses of $51.8 million and $2.9 million during the nine months ended September 30, 2022 and the eight months ended September 30, 2021, respectively. Share-based compensation costs of $30.1 million were recognized in total general and administrative expenses during the nine months ended September 30, 2022, related to RSUs awarded to our employees and directors. The remaining $21.7 million of general and administrative expenses incurred during the nine months ended September 30, 2022 was recognized predominantly as follows: $7.3 million for business insurance, $3.0 million for payroll and payroll-related benefits for employees, $2.0 million for taxes, $2.0 million for legal expenses, $1.8 million for accounting and audit services, $1.2 million for consulting expenses, $1.0 million for rent expense at the Company’s headquarters, $0.7 million for board fees, $0.5 million for specific costs of operating as a public company, and $0.5 million each for travel expenses and also for office supplies and software, as well as $0.4 million for recruiting fees. Certain costs such as accounting, legal and public company costs were higher during the nine months ended September 30, 2022 as compared to the eight months ended September 30, 2021 due to our Registration Statement filed in September 2022. See additional information above in “—Recent Developments” or in “—Liquidity and Capital Resources” below.

On March 15, 2022, we formed the Special Independent Committee to review, consider, deliberate, investigate, analyze, explore, evaluate, monitor and exercise general oversight of any and all activities of the Company directly or indirectly involving entry into the Waiver Agreement and the Observer Agreement. For more information about the Special Independent Committee, the Waiver and the Observer Agreements, see Note 9 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. Our legal expenses during the nine months ended September 30, 2022 totaled over $2.0 million and the expenses related to the Special Independent Committee and legal and advisory expenses related to entry into the Waiver Agreement and the Observer Agreement are included in our total legal expenses during this period.

Comparatively, general and administrative expenses recognized during the eight months ended September 30, 2021 were mainly related to $1.6 million of business insurance costs, compensation and benefits of approximately $0.6 million, as well as $0.3 million for accounting and audit expenses, $0.2 million for investor relations and approximately $0.1 million for each of the following: consulting expenses and specific costs of operating as a public company.

Equity in loss of equity investment totaled $20.6 million for the nine months ended September 30, 2022 and consisted of: losses of $18.8 million related to our contribution of miners to Alborz LLC in June and July 2022 with fair values at the time of the contribution that were less than the costs we paid to acquire the miners; $2.6 million for our share of the loss of Alborz LLC for the nine months ended September 30, 2022; and $0.8 million for accretion of the basis differences that resulted from our contributions of miners at a loss in both June and July 2022. Additionally, we recognized $0.9 million of impairment during the nine months ended September 30, 2022 on Bitcoin that we received from Alborz LLC.

We paid $184.1 million for deposits on miners and mining equipment during the nine months ended September 30, 2022, increasing total deposits on equipment on our unaudited condensed consolidated balance sheet to approximately $200.0 million as of

September 30, 2022, after removing the miners and mining equipment contributed to Alborz LLC. Additionally, during this period we also paid $29.0 million for purchases of property and equipment, which was principally related to construction-in-progress at our Odessa Facility, which is under development.

~~Factors Expected to Affect Our Future Results~~

There have been no material changes to the “Factors Expected to Affect Our Future Results” in the Management’s Discussion and Analysis section of our 2021 Form 10-K. Our financial position and results of operations depend to a significant extent on those factors.

~~Liquidity and Capital Resources~~

We had negative cash flows from operations of $8.9 million for the nine months ended September 30, 2022. As of September 30, 2022, we had cash and cash equivalents of $28.1 million, total stockholders’ equity of $383.1 million and an accumulated deficit of $59.6 million. To date, we have relied in large part on proceeds from the consummation of the Business Combination to fund our operations. During the nine months ended September 30, 2022, we paid $184.1 million as deposits on equipment, primarily for miners, and had additional future commitments related to these deposits as detailed below under “—Contractual Obligations and Other Commitments.” See “—Recent Developments” for additional information regarding the Supplementary Agreement with SuperAcme. Our management believes that our existing financial resources, combined with the ability to delay certain equipment orders, projected cash and cryptocurrencies inflows from our sites, the ability to sell cryptocurrency received or earned, as well as potential sales of Common Stock under our shelf registration statement on Form S-3 (see additional information below), will be sufficient to meet its operating and capital requirements for at least 12 months from the date these unaudited condensed consolidated financial statements are issued.

On September 21, 2022, we filed with the Securities and Exchange Commission a shelf registration statement on Form S-3, which was declared effective on October 6, 2022 (the “Registration Statement”). The Registration Statement covers: (i) the offer and sale by us, from time to time in one or more offering, securities having an aggregate public offering price of up to $500.0 million, (ii) the offer and sale from time to time by the selling securityholders identified therein of up to 23,265,565 shares of our Common Stock and the offer and sale from time to time by the selling securityholders of up to 85,500 of our warrants and (iii) the offer and sale of (A) up to 8,499,978 shares of Common Stock that are issuable by us upon the exercise of 8,499,978 public warrants that were previously registered and (B) up to 114,000 shares of Common Stock that are issuable by us upon the exercise of 114,000 private placement warrants.

In connection with the filing of the Registration Statement, we also entered into an at-the-market offering agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), under which we may, from time to time, sell shares of our Common Stock having an aggregate offering price of up to $250.0 million in “at-the-market” offerings through the Agent, which is included in the $500.0 million of securities that may be offered pursuant to the Registration Statement. Sales of the shares of Common Stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent.miners. Pursuant to the ~~Sales~~Bitmain Agreement, we will pay the Agent a commission of up to 3.0% of the gross proceeds from the sale of any shares of Common Stock under the Sales Agreement. We are not obligated to make any sales of shares of its Common Stock under the Sales Agreement. We have not sold any shares of our Common Stock under the Sales Agreement as of the issuance of these unaudited condensed consolidated financial statements.

~~Cash Flows~~

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

Nine Months Ended

Eight Months Ended

September 30, 2022

September 30, 2021

Net cash used in operating activities

$
(8,891
)

$
(27,100
)
Net cash used in investing activities

(169,762
)

(74,476
)
Net cash (used in) provided by financing activities

(3,077
)

383,853

Net (decrease) increase in cash and cash equivalents

$
(181,730
)

$
282,277

~~Operating Activities~~

Net cash used in operating activities for the nine months ended September 30, 2022 was $8.9 million, resulting from net income of $12.6 million, less non-cash income items of $85.8 million, consisting primarily of change in the fair value of derivative asset of $85.7 million and change in the fair value of our warrant liability of $0.1 million; partially offset by non-cash expense items of $52.1 million, which includes share-based compensation expense of $30.1 million, equity in loss of equity investment of $20.6 million

(which is mainly comprised of the losses on our June and July 2022 contributions of equipment of $18.8 million), cryptocurrency impairment of $0.9 million and amortization of $0.5 million. The change in assets and liabilities of $12.2 million consisted primarily of a decrease in prepaid and other current assets of $5.4 million primarily for insurance costs, proceeds from reduction of scheduled power of $5.1 million, proceeds from electricity sales of $1.7 million, increases in accrued expenses of $1.4 million and increases in accounts payable of $0.4 million, partially offset by a $1.1 increase in security deposits mainly due to a bond covering the shipment of miners and a $0.7 million increase in related party receivables related to amounts that we will be reimbursed for by the Alborz LLC.

Net cash used in operating activities for the five months ended September 30, 2021 was approximately $27.1 million, resulting from a net loss of $3.1 million, an increase in prepaid expenses and other current assets of $14.9 million that was primarily due to business insurance, increased security deposits of $9.4 million and a combined increase in accounts payable and accrued expenses totaling $0.2 million.

~~Investing Activities~~

Net cash used in investing activities during the nine months ended September 30, 2022 was $169.8 million, primarily related to $184.1 million for deposits for miners and mining equipment and $29.0 million for purchases of property and equipment primarily related to construction-in-progress at the Odessa Facility; partially offset by cash distributions of $43.3 million from the Alborz LLC.

~~Net cash used in investing activities during the eight months ended September 30, 2022 was $74.5 million and consisted mainly of $74.3 million for deposits on equipment.~~

~~Financing Activities~~

Net cash used in financing activities for the nine months ended September 30, 2022 was $3.1 million, which was used to repurchase shares to cover the tax obligations of employees resulting from the vesting of RSUs.

Net cash provided by financing activities for the eight months ended September 30, 2021 was $383.9 million and represented the cash proceeds received in connection with the Business Combination, net of issuance costs.

~~Limited Business History; Need for Additional Capital~~

~~There is limited historical financial information about~~ the Company ~~upon which to base an evaluation of our performance. Our business~~ is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in exploration and/or development, and possible cost overruns due to price and cost increases in services. We have no current intention of entering into a merger or acquisition within the next 12 months and we have a specific business plan and timetable to complete our 12-month plan of operation. We are in the process of an active operational buildout and anticipate that additional capital will be required to implement the buildout. See also “—Liquidity and Capital Resources.” We may also require additional capital to pursue certain business opportunities or respond to technological advancements, competitive dynamics or technologies, customer demands, challenges, acquisitions or unforeseen circumstances. Additionally, we have incurred and expect to continue to incur significant costs related to becoming a public company. Accordingly, we may engage in equity or debt financings or enter into credit facilities for the above-mentioned or other reasons; however, we may not be able to timely secure additional debt or equity financings on favorable terms, if at all. If we raise additional funds through equity financing, our existing stockholders could experience significant dilution. Furthermore, any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing on terms that are satisfactory to us, when we require it, our ability to continue to grow or support the business and to respond to business challenges could be significantly limited and we may be required to delay or change our planned buildout, which may adversely affect our business plan. For risks associated with this, see “Risks Factors—Risks Related to Our Business, Industry and Operations—We will need to raise additional capital, which may not be available on terms acceptable to us, or at all” in our 2021 Form 10-K.

~~Contractual Obligations and Other Commitments~~

We have a lease agreement for executive office space, with an effective term that commenced on February 1, 2022 and monthly rent payments of approximately $0.1 million commencing on June 1, 2022. The initial lease term is for a period of five years and four months.

~~Mining and Mining Equipment~~

~~As of September 30, 2022, we had the following contractual obligations and other commitments for miners and other mining equipment (amounts in thousands):~~

Vendor

Agreement Dates

Original Maximum Purchase Commitment*

Open Purchase Commitment

Deposits Paid

Expected Shipping for Open Purchase Commitments
Bitmain Technologies Limited**

August 20, 2021 and August 30, 2021

$
171,135

$
55,500

$
55,500

October 2022 - December 2022
SuperAcme Technology (Hong Kong)**/***

May 6, 2022

222,401

222,401

101,819

October 2022 - December 2022
Bitfury USA and other vendors (primarily for BBACs)****

Various

57,173

42,715

Total

$
335,074

$
200,033

~~__________~~

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

** Pursuant to our agreements with Bitmain and SuperAcme, we are responsible for all logistics costs related to transportation, packaging for transportation and insurance related to the delivery of the miners.

*** See “—Recent Developments” above and discussion below this table for additional information regarding the Supplementary Agreement with SuperAcme.

****See “—Recent Developments” for additional information regarding payments for BBACs.Black Pearl Purchase

On ~~August 20, 2021~~November 6, 2023, the Company and ~~on August 30, 2021, we and Bitmain Technologies Limited (“Bitmain”)~~its wholly-owned subsidiary, Cipher Black Pearl LLC, entered into a ~~Non-Fixed Price Sales~~Purchase and ~~Purchase~~Sale Agreement and a Supplemental Agreement to Non-Fixed Price Sales and Purchase Agreement, respectively, (together, the “Bitmain Agreement”) for us to purchase 27,000 Antminer S19j Pro (100 TH/s) miners, which were expected to be delivered in nine batches on a monthly basis between January 2022 and September 2022. As of September 30, 2022, 12,953 miners have been received. The original purchase price under the Bitmain Agreement was $171.1 million (the ~~“Total Purchase Price”~~“PSA”) with (i) 25% of the Total Purchase Price due paid within five days of execution of the Bitmain Agreement, (ii) 35% of the purchase price of each batch due five months prior to each delivery, and (iii) the remaining 40% of the purchase price of each batch due 15 days prior to each delivery. As of September 30, 2022, we had paid total deposits of $134.2 million for the miners (some of which are no longer reflected in the table above due to their receipt and deployment during the nine months ended September 30, 2022), and we do not expect to make any further payments to Bitmain to receive the rest of the miners.

On September 2, 2021, we entered into the Original SuperAcme Agreement to purchase 60,000 MicroBT M30S, M30S+ and M30S++ miners, which were expected to be delivered in six batches on a monthly basis between July 2022 and December 2022. On May 6, 2022, we entered into the Amended SuperAcme Agreement, which established a new delivery quantity ratio of miners as well as new fixed subtotal pricing. In connection with the Original SuperAcme Agreement, we previously paid an initial deposit of $22.2 million. No additional initial deposit was required as a result of the execution of the Amended SuperAcme Agreement. On November 4, 2022, through CipherTrinity Mining Technologies we entered into the Supplementary Agreement with SuperAcme, which supplements the Amended SuperAcme Agreement and the Original SuperAcme Agreement. The Supplementary Agreement establishes new fixed and floating price terms for remaining purchases of M30S, M30S+ and M30S++ miners and provides that we will not be obligated to send any further money to SuperAcme. In connection with the Amended SuperAcme Agreement, SuperAcme has delivered 17,833 miners to date, at an aggregate value of approximately $53.6 million, and we have paid aggregate advance payments of $101.8 million. The remaining balance of $48.2 million will be applied to the purchase of miners under the new fixed and floating price terms set forth in the Supplementary Agreement. Each batch of miners is paid in full prior to delivery.

~~On October 11, 2021, we entered into an agreement with Bitfury Top HoldCo, made under, and as a part of, the Master Services and Supply Agreement,~~Group, Inc. (“Trinity”) to purchase a ~~total~~data center lease (the “Lease”) related to certain tracts or parcels of ~~between 28,000 to 56,000 mining rigs, to be delivered~~land containing at least 50 acres of land located in ~~seven batches on a monthly basis between June 2022~~Winkler County, Texas (the “Leased Property”) and December 2022. Generally, under this agreement, we agreed to pay a maximum price of $6,250 per machine, with an advance payment of $10.0 million due on or before the third business day following the execution of the agreement, and advance payments for each monthly batch due thereafter in accordance with the terms of the agreement. The $10.0 million advance payment was paid by us prior to December 31, 2021. The agreement was a non-binding commitment unless and until confirmed by a mutually executed order confirmation. We did not enter into any such order confirmations and, as mentioned above, we executed the Waiver Agreement with Bitfury Top HoldCo in April 2022, which providedcertain other agreements (the “Assumed Agreements”) providing for the ~~Cancelled Shares as consideration for~~construction of a new data center the ~~$10.0 million deposit.~~

~~We also entered into two agreements with Bitfury USA, a subsidiary of Bitfury Top HoldCo, made under,~~Company expects to build and ~~as a part of,~~call “Black Pearl” or the ~~Master Services and Supply Agreement, to purchase a total of 240 units of BBACs.~~“Black Pearl Facility”. The ~~delivery of the first 20 containers was received in the first quarter of 2022 and the remainder is expected to be delivered in 2022.~~

We are also party to several power and hosting arrangements. We expect to deliver to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement before the end of November 2022.

On May 2, 2022, Alborz LLC, as borrower, entered into a facility and security agreement with BlockFi Lending LLC (“BlockFi”), as lender. Pursuant to this agreement, BlockFi agreed to provide a secured credit facility in the amount of up to approximately $46.9 million, which is available in up to three tranches, maturing on May 2, 2024 (the “BlockFi Facility”) to finance the purchase, installation and operation of Bitmain miners (“Mining Equipment”) at the Alborz Facility. The proceeds from the BlockFi Facility will be used by Alborz LLC to purchase Mining Equipment from us pursuant to that certain contribution agreement entered into between us and Alborz LLC on May 2, 2022 (the “Contribution Agreement”). Pursuant to the Contribution Agreement, Cipher Mining Technologies agreed to acknowledge and consent to the use of the Mining Equipment as well as any digital currency mined using the Mining Equipment as collateral in respect of the BlockFi Facility. Alborz LLC completed all of the three contemplated disbursements under the BlockFi Facility. The principal amount of the loan issued to Alborz LLC is approximately $26.8 million.

~~Non-GAAP Financial Measures~~

We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of depreciation of fixed assets, stock compensation expense and the non-cash change in fair value of derivative asset and (ii) non-GAAP net loss and non-GAAP diluted loss per share that exclude the impact of depreciation of fixed assets, the non-cash change in fair value of derivative asset, the change in fair value of the warrant liability and stock compensation expense. These supplemental financial measures are not measurements of financial performance under accounting principles generally accepted in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures are also useful to investors in comparing our performance across reporting periods on a consistent basis. Non-GAAP loss from operations excludes non-cash operational expenses that we believe are not reflective of our general business performance such as (i) depreciation of fixed assets, (ii) the non-cash change in fair value of our derivative asset and (iii) stock compensation expense, which could vary significantly in comparison to other companies.

Non-GAAP net loss and non-GAAP diluted loss per share exclude the impact of (i) depreciation of fixed assets, (ii) change in fair value of warrant liability, (iii) non-cash change in fair value of our derivative asset and (iv) stock compensation expense. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and isLease has an ~~important part of the compensation provided to certain employees, officers and directors. Similarly, we expect that depreciation of fixed assets will continue to be a recurring expense over the~~initial term of the useful life of the assets. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our consolidated financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with GAAP. We rely primarily on such 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 non-GAAP loss from operations, which excludes the impact of (i) depreciation of fixed assets, (ii) non-cash change in fair value of our derivative asset and (iii) stock compensation expense, to its most directly comparable GAAP measure for the periods indicated:

Three Months Ended September 30,

Nine Months Ended

Eight Months Ended

2022

2021

September 30, 2022

September 30, 2021

Reconciliation of non-GAAP loss from operations:

Operating income (loss)

$
59,233

$
(2,283
)

$
12,353

$
(2,943
)
Depreciation

11

-

26

1

Change in fair value of derivative asset

(83,936
)

-

(83,936
)

-

Stock compensation expense

10,494

-

30,072

-

Non-GAAP loss from operations

$
(14,198
)

$
(2,283
)

$
(41,485
)

$
(2,942
)

The following are reconciliations of our non-GAAP net loss and non-GAAP basic and diluted net loss per share, in each case excluding the impact of (i) depreciation of fixed assets (ii) non-cash change in fair value of derivative asset, (iii) change in fair value of warrant liability and (iv) stock compensation expense, to the most directly comparable GAAP measures for the periods indicated:

Three Months Ended September 30,

Nine Months Ended

Eight Months Ended

2022

2021

September 30, 2022

September 30, 2021

Reconciliation of non-GAAP net loss:

Net income (loss)

$
59,292

$
(2,421
)

$
12,574

$
(3,082
)
Non-cash adjustments to net income (loss):

Depreciation

11

-

26

1

Change in fair value of derivative asset

(83,936
)

-

(83,936
)

-

Change in fair value of warrant liability

4

(113
)

115

(113
)
Stock compensation expense

10,494

-

30,072

-

Total non-cash adjustments to net income (loss)

(73,427
)

(113
)

(53,723
)

(112
)
Non-GAAP net loss

$
(14,135
)

$
(2,534
)

$
(41,149
)

$
(3,194
)

Reconciliation of non-GAAP basic and diluted net loss per share:

Basic and diluted net income (loss) per share

$
0.24

$
(0.01
)

$
0.05

$
(0.01
)
Depreciation of fixed assets (per share)

-

-

-

-

Change in fair value of derivative asset (per share)

(0.34
)

-

(0.34
)

-

Change in fair value of warrant liability (per share)

-

-

-

-

Stock compensation expense (per share)

0.04

-

0.12

-

Non-GAAP basic and diluted net loss per share

$
(0.06
)

$
(0.01
)

$
(0.17
)

$
(0.01
)

~~Critical Accounting Policies and Use of Estimates~~

~~Cryptocurrencies~~ten years

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

~~Cryptocurrencies held are accounted~~four consecutive options to renew for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. We determine the fair valueperiods of ~~our cryptocurrencies on a nonrecurring basis in accordance with ASC 820,~~ ten years each~~Fair Value Measurement, based on the lowest intra-day market price of the cryptocurrency at the single Bitcoin level (one Bitcoin)~~. The excess, if any, represents a recognized impairment loss. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Cryptocurrencies awarded to us through our mining activities will be included as an adjustment to reconcile net income to cash used in operating activities in the consolidated statements of cash flows. The proceeds from sales of cryptocurrencies are included within operating activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in operating income (loss), net in the consolidated statements of operations. The receipt of cryptocurrency as distributions-in-kind from equity investees are included within investing activities in the consolidated statements of cash flows. We account for sales of cryptocurrencies in accordance with the first in first out method of accounting.

~~Investment in equity investee~~

We account for investments using the equity method of accounting if the investment provides us with the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an investee of between 20 percent and 50 percent, or an ownership interest greater than three to five percent in certain partnerships, unincorporated joint ventures and limited liability companies, although other factors are considered in determining whether the equity method of accounting is appropriate. Under this method, an investment in the common stock of an investee (including a joint venture) shall be initially measured and recorded at cost.; however, an investor shall initially measure at fair value an investment in the common stock of an investee (including a joint venture) recognized upon the derecognition of a distinct nonfinancial asset at the time that control over the distinct nonfinancial asset is transferredIn addition to the ~~equity investee, such as that which occurs upon the transfer of miners and mining equipment to a joint venture from us.~~

Our investment is subsequently adjusted to recognize our share of net income or losses as they occur. We also adjust our investment upon receipt of cryptocurrency from the equity investee, which is accounted for as a distribution-in-kind. Our share of investee earnings or losses is recorded, net of taxes, within equity in loss of equity investment in the consolidated statements of operations. Additionally, our interest in the net assets of our equity method investee is reflected in the consolidated balance sheets. If, upon the contribution of nonfinancial assets to a joint venture from us, there is any difference between the cost of the investmentLease and the ~~amount of~~Assumed Agreements, the ~~underlying equity in~~purchased assets under the net assets of an investee, the difference is required to be accounted for as if the investee were a consolidated subsidiary. If the difference is assigned to depreciable or amortizable assets or liabilities, then the difference should be amortized or accreted in connection with the equity earnings based on our proportionate share of the investee’s net income or loss. If we are unable to relate the difference to specific accounts of the investee, the difference should be considered goodwill.

We consider whether the fair value of our equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If we considered any such decline to be other than temporary (based on various factors, including historical financial results, success of the mining operationsPSA include certain books, records, reports, studies and ~~the overall health of the investee’s industry), then we would record a write-down of our investment~~governmental approvals related to the ~~estimated fair value.~~

~~Leases~~

~~We account for leases in accordance with ASC 842,~~ ~~Leases~~ ~~(“ASC 842”). Accordingly, we determine whether~~Leased Property, and an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the term of such lease is assessed based on the date on which the underlying asset is made available for our use by the lessor. Our assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which we are reasonably certain of not exercising, as well as periods covered by renewal options which we are reasonably certain of exercising. We also determine lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.

For leases with a term exceeding 12 months, a lease liability is recorded on the consolidated balance sheet at lease commencement reflecting the present value of its fixed minimum payment obligations over the lease term. A corresponding right-of-use (“ROU”) asset equal to the initial lease liability is also recorded, adjusted for any accrued or prepaid rents and/or unamortized initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received. For purposes of measuring the present value of its fixed payment obligations for a given lease, we generally use our incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in its leasing arrangements are typically not readily determinable. Our incremental borrowing rate reflects the rate we would pay to borrow on a secured basis and incorporates the term and economic environment of the associated lease. ROU assets will be reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

For our operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of 12 months or less, any fixed payments are recognized on a straight-line basis over the lease term and are not recognized on the consolidated balance sheet as an accounting policy election. Leases qualifying for the short-term lease exception are insignificant. Variable lease costs are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.

ASC 842 provides practical expedients for an entity’s ongoing accounting. We have elected the practical expedient not to separate lease and non-lease components for all leases, which means all consideration that is fixed, or in-substance fixed, relating to the non-lease components will be captured as part of our lease components for balance sheet purposes.

~~Derivative Accounting~~

~~Luminant Power Agreement~~

On June 23, 2021, we entered into a power purchase agreement with Luminant, which was subsequently amended and restated on July 9, 2021, and further amended on February 28, 2022 (the “February Amendment”) and August 26, 2022 (the “August Amendment”), for the supply of a fixed amount of electric power to the Odessa Facility at a fixed price for a term of five years with a subsequent automatic annual renewal provision (as amended, the “Luminant Power Agreement”). We are expecting to receive interconnection approval from the Electric Reliability Council of Texas (“ERCOT”) ~~this year, which will allow us~~conditionally approving up to ~~commence mining Bitcoin~~300 MW of energy consumption at the ~~Odessa Facility. Starting from July 1, 2022,~~interconnection point of the Leased Property (the “Purchased Assets”).

The consideration for the Purchased Assets will be $7.0 million (the “Purchase Price”). The Purchase Price will be paid by delivery of a number of whole shares of the Company’s common stock. The amount of the Company’s stock to be delivered under the ~~take or pay framework~~PSA will be calculated by dividing the Purchase Price by the volume weighted average price of the ~~Luminant Power~~Company’s common stock traded on the Nasdaq Global Select Market for the thirty (30) trading days immediately preceding the signing of the Purchase and Sale Agreement, ~~and~~determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.

The shares of the Company’s common stock to be issued to Trinity will be issued pursuant to the ~~ramp-up schedule agreed~~Registration Statement, including all information, documents and exhibits filed with or incorporated by reference into the Registration Statement, providing for the offering, issuance and sale by the Company from time to ~~between Luminant and us as part~~time of up to $500.0 million in aggregate of the ~~February Amendment~~Company’s common stock, preferred stock, warrants and ~~amended under~~units. The Company’s obligations to consummate the ~~August Amendment, Luminant began sales~~transactions contemplated by the PSA are subject to the satisfaction of certain conditions precedent. To the ~~scheduled energy in~~extent those conditions are satisfied, or waived by the ~~ERCOT market.~~Company, the Company expects the closing date to occur before the end of December 2023. If the closing date occurs before the end of December 2023, the Company expects to deliver to Oncor Electric Delivery Company LLC (“Oncor”) up to $6.3 million as collateral that Oncor will be obligated to return to the Company, provided that the Company energizes at least 135MW at the Black Pearl Facility by May 15, 2026.

~~Because ERCOT allows for net settlement, our management determined that, as of July 1, 2022, the Luminant Power Agreement meets the definition of a derivative under ASC 815,~~ ~~Derivatives and Hedging~~ (“ASC 815”). Because we have the ability to sell our electricity in the ERCOT market rather than take physical delivery, physical delivery is not probable through the entirety of the contract and therefore, our management does not believe 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 an estimated fair value each reporting period with the change in the fair value recorded in change in fair value of derivative asset in the consolidated statements of operations. See additional information regarding valuation of the Luminant Power Agreement derivative in Note 3.

Depending on the spot market price of electricity, we may opportunistically sell electricity in the ERCOT market in exchange for cash payments, rather than utilizing the power to mine for cryptocurrency at the Odessa Facility during peak times in order to most efficiently manage our operating costs. We, through Luminant, sold $1.7 million in electricity during the three months ended September 30, 2022. These power sales were recorded as part of the change in fair value of derivative asset in the accompanying condensed consolidated statements of operations during the three and nine months ended September 30, 2022. Once we begin cryptocurrency mining at the Odessa Facility, costs under the Luminant Power Agreement will be recorded in cost of revenues in our consolidated statements of operations.

~~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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, as well as our audited consolidated financial statements and related notes disclosed in our 2022 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 2022 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. Bitcoin mining is our principal revenue generating business activity.

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

Our key mission is to expand and strengthen the Bitcoin network’s critical infrastructure. As of October 31, 2023, we operated approximately 80,500 miners, with an aggregate hashrate capacity of approximately 8.2 EH/s, deploying approximately 267 MW of electricity, of which we owned approximately 70,500 miners, with an aggregate hashrate capacity of approximately 7.2 EH/s, deploying approximately 236 MW of electricity.

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.

Recent Developments

Miner Purchase

On October 4, 2023, we entered into an agreement with Bitmain Technologies Delaware Limited to purchase 1.2 EH/s worth of HASH Super Computing Servers (Antminer S21-200.0T model), for a total commitment of $24.0 million to be paid in cash and coupons, or $16.8 million in cash after applying coupons (the “Bitmain Agreement”). We expect the miners purchased under this agreement to be shipped in batches between January and June 2024. We expect to make periodic payments in accordance with the payment schedule under the Bitmain Agreement, with the final payment expected to occur one year after the delivery of the last batch of miners. Pursuant to the Bitmain Agreement, we are responsible for all logistics costs related to transportation, packaging for transportation and insurance related to the delivery of the miners.

Black Pearl Purchase

On November 6, 2023, we and our wholly-owned subsidiary, Cipher Black Pearl LLC, entered into a Purchase and Sale Agreement (the “PSA”) with Trinity Mining Group, Inc. (“Trinity”) to purchase a data center lease (the “Lease”) related to certain tracts or parcels of land containing at least 50 acres of land located in Winkler County, Texas (the “Leased Property”) and certain other agreements (the “Assumed Agreements”) providing for the construction of a new data center we expect to build and call “Black Pearl” or the “Black Pearl Facility”. The Lease has an initial term of ten years, and we have four consecutive options to renew for periods of ten years each. In addition to the Lease and the Assumed Agreements, the purchased assets under the PSA include certain books, records, reports, studies and governmental approvals related to the Leased Property, and an approval from the Electric Reliability Council of Texas (“ERCOT”) conditionally approving up to 300 MW of energy consumption at the interconnection point of the Leased Property (the “Purchased Assets”).

The consideration for the Purchased Assets will be $7.0 million (the “Purchase Price”). The Purchase Price will be paid by delivery of a number of whole shares of our common stock. The amount of our stock to be delivered under the PSA will be calculated by dividing the Purchase Price by the volume weighted average price of our common stock traded on the Nasdaq Global Select Market for the thirty (30) trading days immediately preceding the signing of the Purchase and Sale Agreement, determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.

The shares of our common stock to be issued to Trinity will be issued pursuant to the Company’s shelf registration statement on Form S-3, which was declared effective on October 6, 2022 (the “Registration Statement”), including all information, documents and exhibits filed with or incorporated by reference into the Registration Statement, providing for the offering, issuance and sale by us from time to time of up to $500.0 million in aggregate of our common stock, preferred stock, warrants and units. Our obligations to consummate the transactions contemplated by the PSA are subject to the satisfaction of certain conditions precedent. To the extent those conditions are satisfied, or waived by us, we expect the closing date to occur before the end of December 2023. If the closing date occurs before the end of December 2023, we expect to deliver to Oncor Electric Delivery Company LLC (“Oncor”) up to $6.3 million as collateral that Oncor will be obligated to return to us, provided that we energize at least 135MW at the Black Pearl Facility by May 15, 2026.

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 section of our 2022 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):


	Quantity			Amounts
Balance as of January 1, 2023		394		$	6,283
Bitcoin received from equity investees		18			317
Revenue recognized from bitcoin mined, net of receivable		3,131			83,162
Proceeds from sale of bitcoin, net of realized gain		(3,005	)		(68,019	)
Impairment of bitcoin		-			(8,076	)
Balance as of September 30, 2023		538		$	13,667

Results of Operations


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue - bitcoin mining	$	30,304		$	-		$	83,423		$	-
Costs and operating expenses (income)
Cost of revenue		13,008			-			37,017			-
General and administrative		23,898			17,755			62,653			51,849
Depreciation		16,217			11			42,284			26
Change in fair value of derivative asset		(4,744	)		(85,658	)		(13,294	)		(85,658	)
Power sales		(2,720	)		-			(8,469	)		-
Equity in losses of equity investees		1,998			8,345			4,179			20,577
Realized gain on sale of bitcoin		(2,505	)		(6	)		(10,711	)		(6	)
Impairment of bitcoin		3,443			320			8,076			859
Other gains		(95	)		-			(2,355	)		-
Total costs and operating expenses		48,500			(59,233	)		119,380			(12,353	)
Operating (loss) income		(18,196	)		59,233			(35,957	)		12,353
Other income (expense)
Interest income		11			55			112			106
Interest expense		(627	)		-			(1,513	)		-
Change in fair value of warrant liability		10			4			(49	)		115
Other expense		(6	)		-			(18	)		-
Total other (expense) income		(612	)		59			(1,468	)		221
(Loss) income before taxes		(18,808	)		59,292			(37,425	)		12,574
Current income tax expense		(95	)		-			(143	)		-
Deferred income tax benefit		1,192			-			555			-
Total income tax benefit		1,097			-			412			-
Net (loss) income	$	(17,711	)	$	59,292		$	(37,013	)	$	12,574

Comparative Results for the Three Months Ended September 30, 2023 and 2022

Revenue

Bitcoin mining operations at our Odessa Facility mined 1,078 bitcoin and generated revenue of $30.3 million for the three months ended September 30, 2023, at an average price per bitcoin of $28,129. The Odessa Facility began mining operations in mid-November 2022, therefore, we did not earn revenue from bitcoin mining during the three months ended September 30, 2022.

Cost of revenue

Cost of revenue for the three months ended September 30, 2023 was $13.0 million 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. We incurred no costs of revenue during the three months ended September 30, 2022 because the Odessa Facility did not begin its bitcoin mining operations until mid-November 2022.

General and administrative

General and administrative expenses were $23.9 million for the three months ended September 30, 2023, compared to $17.8 million for the three months ended September 30, 2022. The increase was primarily driven by increases of $4.9 million for payroll and payroll-related benefits due to increasing headcount, $0.8 million in property taxes, and a $0.8 million increase in office supplies and software costs.

Depreciation

Depreciation for the three months ended September 30, 2023 was $16.2 million, primarily related to miners, mining equipment and leasehold improvements at the Odessa Facility being placed into service beginning in November 2022, with additional miners and mining-related assets placed into service during the three months ended September 30, 2023 as we continued to expand capacity 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 of our finance lease right-of-use assets representing mining equipment from the Canaan Agreement (as defined below), and accretion of our estimated asset retirement obligation related to the Odessa Facility and depreciation of the associated capitalized costs. Depreciation for the three months ended September 30, 2022 was immaterial.

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 $4.7 million during the three months ended September 30, 2023. The gain was primarily due to the change in the power market forward curve as compared to the curve as of June 30, 2023. The Luminant Power Agreement was not in effect during the three months ended September 30, 2022.

Power sales

Equity in losses of equity investees

Equity in losses of equity investees totaled approximately $2.0 million for the three months ended September 30, 2023, a decrease of $6.3 million from approximately $8.3 million for the three months ended September 30, 2022. Equity in losses of equity investees consists of our 49% share in the earnings (losses) generated by our three partially-owned mining sites and also includes 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. Our share of the losses in the mining operations of Alborz LLC, Bear LLC and Chief LLC increased to approximately $3.7 million for the three months ended September 30, 2023 from approximately $0.5 million for the three months ended September 30, 2022. During the current three month period, all three sites were fully operational, whereas in the prior year period, only Alborz LLC had begun mining operations with a limited number of miners prior to September 30, 2022. We recognized approximately $1.7 million and nil for the three months ended September 30, 2023 and 2022, respectively, for the accretion of basis differences.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin was $2.5 million during the three months ended September 30, 2023. Bitcoin sales during the three months ended September 30, 2022 were not material.

Impairment of bitcoin

We recognized a total of approximately $3.4 million of impairment on our bitcoin holdings during the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022.

Other income (expense)

Other expense totaled $0.6 million for the three months ended September 30, 2023, consisting primarily of $0.6 million of interest expense recognized related to our finance leases for the Interconnection Electrical Facilities and the Canaan Agreement. Other income and expense for the three months ended September 30, 2022 was not significant.

Income tax benefit

Income tax benefit totaled $1.1 million, or 5.8% of loss before taxes, and nil for the three months ended September 30, 2023 and 2022, 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.

Comparative Results for the Nine Months Ended September 30, 2023 and 2022

Revenue

Bitcoin mining operations at our Odessa Facility mined 3,138 bitcoin and generated revenue of $83.4 million for the nine months ended September 30, 2023, at an average price per bitcoin of $26,313. The Odessa Facility began mining operations in mid-November 2022, therefore, we did not earn revenue from bitcoin mining during the nine months ended September 30, 2022.

Cost of revenue

Cost of revenue for the nine months ended September 30, 2023 was $37.0 million 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. Power costs for the nine months ended September 30, 2023 included $2.1 million of power costs related to the year ended December 31, 2022 that were recorded as an out-of-period adjustment during the current reporting period. We incurred no costs of revenue during the nine months ended September 30, 2022 because the Odessa Facility did not begin its bitcoin mining operations until mid-November 2022.

General and administrative

General and administrative expenses were $62.7 million for the nine months ended September 30, 2023 compared to $51.8 million for the nine months ended September 30, 2022. The increase was primarily driven by an increase of $9.9 million of payroll and payroll-related costs driven by increased headcount and bonus expense, as well as a $2.0 million accrual for the cost of resolving legal claims recorded during the nine months ended September 30, 2023.

Depreciation

Depreciation for the nine months ended September 30, 2023 was $42.3 million, primarily related to miners, mining equipment and leasehold improvements at the Odessa Facility being placed into service beginning in November 2022, with additional miners and mining-related assets placed into service during the nine months ended September 30, 2023 as we continued to expand capacity 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 of our finance lease right-of-use assets representing mining equipment from the Canaan Agreement, and accretion of our estimated asset retirement obligation related to the Odessa Facility and depreciation of the associated capitalized costs. Depreciation for the nine months ended September 30, 2022 was immaterial.

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 $13.3 million during the nine months ended September 30, 2023. The gain was primarily due to the change in the power market forward curve as compared to the curve as of December 31, 2022. The Luminant Power Agreement was not effective during the nine months ended September 30, 2022.

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 $8.5 million for the nine months ended September 30, 2023. Power sales for the nine months ended September 30, 2023 included $1.6 million for sales of power that occurred during the year ended December 31, 2022 that were recorded as an out-of-period adjustment during the current reporting period.

Equity in losses of equity investees

Equity in losses of equity investees totaled approximately $4.2 million for the nine months ended September 30, 2023, a decrease of $16.4 million from approximately $20.6 million for the nine months ended September 30, 2022. Equity in losses of equity investees consists of our 49% share in the earnings (losses) generated by our three partially-owned mining sites and also includes 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. Our share of the losses in the mining operations of Alborz LLC, Bear LLC and Chief LLC increased to approximately $9.2 million for the nine months ended September 30, 2023 from approximately $0.6 million for the nine months ended September 30, 2022. During the current nine month period, all three sites were fully operational, whereas in the prior year period, only Alborz LLC had begun mining operations with a limited number of miners prior to September 30, 2022. We recognized approximately $5.0 million and nil for the nine months ended September 30, 2023 and 2022, respectively, for the accretion of basis differences.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin was $10.7 million during the nine months ended September 30, 2023. Bitcoin sales during the nine months ended September 30, 2022 were not material.

Impairment of bitcoin

We recognized a total of approximately $8.1 million of impairment on our bitcoin holdings during the nine months ended September 30, 2023, compared to $0.9 million for the nine months ended September 30, 2022.

Other gains

We recognized proceeds of approximately $2.4 million during the nine months ended September 30, 2023 related to the sale of transferable coupons received from Bitmain Technologies Limited (“Bitmain”) during fiscal year 2022. 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 $1.5 million for the nine months ended September 30, 2023, consisting mainly of $1.5 million of interest expense recognized related to our finance lease for the Interconnection Electrical Facilities. Other income for the nine months ended September 30, 2023 was not significant.

Income tax benefit

Income tax benefit totaled $0.4 million, or 1.1% of loss before taxes, and nil for the nine months ended September 30, 2023 and 2022, 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 generated cash flows from operations of $32.4 million for the nine months ended September 30, 2023. As of September 30, 2023, we had cash and cash equivalents of $3.3 million, total stockholders’ equity of $342.7 million and an accumulated deficit of $148.2 million. For our fiscal years ended December 31, 2022 and 2021, in large part, we relied on proceeds from the consummation of our business combination with Good Works Acquisition Corp. (“GWAC”) to fund our operations; however, during the nine months ended September 30, 2023, we utilized proceeds from sales of bitcoin earned by or received from our bitcoin mining data centers to support operating expenses. During the nine months ended September 30, 2023, we sold 3,005 bitcoin for proceeds of approximately $78.7 million. On May 4, 2023, we entered into an agreement with Canaan Creative Global Pte. Ltd. (“Canaan”) to purchase 11,000 new A1346 model miners (the “Canaan Agreement”), all of which were delivered prior to June 30, 2023 and have been installed at the Odessa Facility. Because we are paying for the Canaan miners over time, we do not yet hold title to the miners. We paid an initial 10% deposit plus 18% of the total purchase price prior to delivery, and are required to pay monthly installment payments for the Canaan miners through November 2023, at which time title to the miners will transfer to us. We expect to fund our ongoing payment obligations for the purchase through our ongoing operations, including by selling bitcoin generated at our data centers.

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 September 30, 2023 we have not drawn upon the Credit Facility.

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.

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, the Company 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 “Agent” and, together, the “Agents”), pursuant to which the Company may offer and sell, from time to time through or to the Agents, shares of its Common Stock, for aggregate gross proceeds of up to $250.0 million. As of September 30, 2023, we received net proceeds on sales of 3.8 million shares of common stock under the Prior Sales Agreement and the Sales Agreement of approximately $11.3 million (net of commissions and expenses) at a weighted average price of $3.02.

Cash Flows

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


	Nine Months Ended September 30,
	2023			2022
Net cash provided by (used in) operating activities	$	32,404		$	(8,891	)
Net cash used in investing activities		(40,927	)		(169,762	)
Net cash used in financing activities		(62	)		(3,077	)
Net decrease in cash and cash equivalents	$	(8,585	)	$	(181,730	)

Operating Activities

Net cash provided by operating activities increased by $41.3 million to $32.4 million for the nine months ended September 30, 2023 from net cash used of $8.9 million for the nine months ended September 30, 2022. We incurred a net loss of $37.0 million for the nine months ended September 30, 2023, compared to net income of $12.6 million for the nine months ended September 30, 2022, representing a decrease of $49.6 million. Net loss impact to cash flows was impacted by a $11.4 million increase in non-cash items, primarily driven by $72.4 million change in fair value of the Luminant Power Agreement derivative asset, an increase of $42.3 million of depreciation, and $7.2 million increase in the impairment of bitcoin, partially offset by $83.2 million for bitcoin received as payment from our mining pool operator (with no comparable activity in the prior year period), a $16.4 million decrease in equity in losses of equity investees, and $10.7 million change in the realized gain on the sale of bitcoin. Additionally, changes in assets and liabilities resulted in an increase in cash provided of $79.5 million between the nine months ended September 30, 2023 and 2022. This increase in cash provided was due primarily to proceeds of $78.7 million from the sale of bitcoin.

Investing Activities

Net cash used in investing activities decreased by $128.8 million to $40.9 million for the nine months ended September 30, 2023 from $169.8 million for the nine months ended September 30, 2022, primarily related to a $179.6 million decrease of deposits for miners and mining equipment, partially offset by a $39.5 million decrease in capital distributions from equity investees.

Financing Activities

Net cash used in financing activities decreased by $3.0 million to $0.1 million for the nine months ended September 30, 2023 from $3.1 million for the nine months ended September 30, 2022, primarily driven by $11.6 million of proceeds from the issuance of common stock (with no comparable activity in the prior year period), partially offset by $8.2 million in principal payments on finance leases (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 have no current intention of entering into a merger or acquisition within the next 12 months. 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 2022 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.

Mining and Mining Equipment

In November and December 2022, we agreed to purchase 5,000 and 2,200, respectively, Antminer S19j Pro (100 TH/s) (“S19j Pro”) miners from Bitmain. For these miners, we paid an average price of $2.35 per terahash, covering the majority of the purchase price by using accumulated Bitmain coupons from previous orders. We have no further payments due in respect of those orders. As of April 2023, all of those miners have been delivered to us in Texas.

On May 4, 2023, we entered into the Canaan Agreement with Canaan to purchase 11,000 new A1346 model miners, all of which were delivered prior to June 30, 2023 and have been installed at the Odessa Facility. Because the Company is paying for the Canaan miners over time, the Company does not yet hold title to the miners. We paid an initial 10% deposit plus 18% of the total purchase price prior to delivery, and we are required to pay monthly installment payments for the Canaan miners through November 2023, at which time title to the miners will transfer to us.

On October 4, 2023, we entered into an agreement with Bitmain to purchase 1.2 EH/s worth of HASH Super Computing Servers (Antminer S21-200.0T model), for a total commitment of $24.0 million, or $16.8 million in cash after applying coupons. We expect the miners purchased under this agreement to be shipped in batches between January and June 2024.

We expect to fund our ongoing payment obligations for these purchases through our ongoing operations, including by selling bitcoin generated at our data centers.

Non-GAAP Financial Measures

We are providing supplemental financial measures for (i) non-GAAP loss from operations that excludes the impact of depreciation and amortization, the non-cash change in the fair value of our derivative asset, share-based compensation expense and nonrecurring gains, which in the nine months ended September 30, 2023 were associated with the sale of Bitmain coupons and (ii) non-GAAP net income (loss) and non-GAAP basic and diluted income (loss) per share that exclude the impact of depreciation and amortization, the non-cash change in the fair value of our derivative asset, share-based compensation expense, nonrecurring gains, the change in the fair value of the warrant liability and deferred income tax expense. These supplemental financial measures are not measurements of financial performance under accounting principles generally accepted in the United States (“GAAP”) and, as a result, these supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures are also useful to investors in comparing our performance across reporting periods on a consistent basis. Non-GAAP loss from operations excludes non-cash operational expenses that we believe are not reflective of our general business performance such as (i) depreciation and amortization, (ii) the non-cash change in the fair value of our derivative asset (iii) share-based compensation expense and (iv) nonrecurring gains, which could vary significantly in comparison to other companies.

Non-GAAP net income (loss) and non-GAAP basic and diluted income (loss) per share exclude the impact of (i) depreciation and amortization, (ii) the non-cash change in the fair value of our derivative asset, (iii) share-based compensation expense, (iv) nonrecurring gains, (v) the non-cash change in the fair value of our warrant liability and (vi) deferred income tax expense. We believe the use of these non-GAAP financial measures can also facilitate comparison of our operating results to those of our competitors.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the non-GAAP financial measures, will continue to be a significant recurring expense over the coming years and is an 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 useful lives of the related assets. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, which have been prepared in accordance with GAAP. We rely primarily on such unaudited 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 non-GAAP income (loss) from operations, which excludes the impact of (i) depreciation and amortization, (ii) the non-cash change in the fair value of our derivative asset (iii) share-based compensation expense and (iv) nonrecurring gains, to its most directly comparable GAAP measure for the periods indicated (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Reconciliation of non-GAAP income (loss) from operations:
Operating (loss) income	$	(18,196	)	$	59,233		$	(35,957	)	$	12,353
Depreciation and amortization		16,453			11			42,972			26
Change in fair value of derivative asset		(4,744	)		(85,658	)		(13,294	)		(85,658	)
Share-based compensation expense		10,699			10,494			28,687			30,072
Other gains - nonrecurring		-			-			(2,349	)		-
Non-GAAP income (loss) from operations	$	4,212		$	(15,920	)	$	20,059		$	(43,207	)

The following are reconciliations of our non-GAAP net income (loss) and non-GAAP basic and diluted net income (loss) per share, in each case excluding the impact of (i) depreciation and amortization (ii) the non-cash change in the fair value of our derivative asset, (iii) share-based compensation expense, (iv) nonrecurring gains, (v) the non-cash change in the fair value of our warrant liability and (vi) deferred income tax expense, to the most directly comparable GAAP measures for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Reconciliation of non-GAAP net income (loss):
Net (loss) income	$	(17,711	)	$	59,292		$	(37,013	)	$	12,574
Non-cash adjustments to net (loss) income:
Depreciation and amortization		16,453			11			42,972			26
Change in fair value of derivative asset		(4,744	)		(85,658	)		(13,294	)		(85,658	)
Share-based compensation expense		10,699			10,494			28,687			30,072
Other gains - nonrecurring		-			-			(2,349	)		-
Change in fair value of warrant liability		10			4			(49	)		115
Deferred income tax expense		1,192			-			555			-
Total non-cash adjustments to net (loss) income		23,610			(75,149	)		56,522			(55,445	)
Non-GAAP net income (loss)	$	5,899		$	(15,857	)	$	19,509		$	(42,871	)

Reconciliation of non-GAAP basic and diluted net income (loss) per share:
Basic and diluted net (loss) income per share	$	(0.07	)	$	0.24		$	(0.15	)	$	0.05
Depreciation and amortization (per share)		0.07			-			0.17			-
Change in fair value of derivative asset (per share)		(0.02	)		(0.35	)		(0.05	)		(0.35	)
Share-based compensation expense (per share)		0.04			0.04			0.11			0.12
Other gains - nonrecurring (per share)		-			-			(0.01	)		-
Change in fair value of warrant liability (per share)		-			-			-			-
Deferred income tax expense (per share)		-			-			-			-
Non-GAAP basic and diluted net income (loss) per share	$	0.02		$	(0.07	)	$	0.07		$	(0.18	)

Critical Accounting Policies and Use of Estimates

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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.

Item 4. Controls and Procedures.

Limitations on ~~effectiveness~~Effectiveness of ~~controls~~Controls and ~~procedures~~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~~Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of our “disclosure controls and ~~procedures~~

~~Our management, with~~procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the ~~participation~~Exchange Act, as of ~~our principal executive officer and principal financial officer, evaluated, as of~~September 30, 2023, the end of the period covered by this Quarterly ~~Report,~~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 ~~our~~any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures ~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).~~can only provide reasonable assurance of achieving their control objectives. Based ~~on that~~upon this evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer concluded that, ~~as of September 30, 2022,~~ our disclosure controls and procedures were not effective at the reasonable assurance ~~level.~~level as of September 30, 2023.

Remediation of Material Weakness

As noted in the 2022 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. Our plan includes the following:

•

Enhance our remediation efforts by continuing to devote resources in 2023 in key financial reporting and information technology areas.

•

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 over 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 is 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

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 ~~quarter~~three months ended September 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3936

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business. There have been no material changes to such proceedings previously disclosed in our 2022 Form 10-K.

Item 1A. Risk Factors.

Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to the risk factors as previously disclosed in Part I, Item 1A, “Risk Factors” of our ~~2021~~2022 Form 10-K, ~~and as updated in Part II, Item 1A, “Risk Factors” of our~~ ~~Quarterly Report on Form 10-Q for the first quarter 2022~~, which is incorporated herein by reference. ~~Other than such updates and as noted below, there~~There have been no material changes to the risk factors previously disclosed in our ~~2021~~2022 Form 10-K.

~~We have ongoing discussions with Luminant related to the payments Luminant made to us under the Luminant Power Agreement~~

We and Luminant are in discussions with respect to payments Luminant made to us under the Luminant Power Agreement. Specifically, on October 26, 2022, we received a letter from Luminant, disputing: (i) the payments of $1.7 million that Luminant had made to us under the Luminant Power Agreement for the electricity sold in the ERCOT market during July 2022 and August 2022 and (ii) the payment of $5.1 million made to us by Luminant in September 2022 in consideration for the modification to the ramp up schedule pursuant to the August Amendment to the Luminant Power Agreement. We received and recorded $1.7 million as part of the change in fair value of derivative asset in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022. We received and recorded $5.1 million as a reduction to the derivative asset on the condensed consolidated balance sheet during the three months ended September 30, 2022. We have not received payment from Luminant for electricity sold in the ERCOT market in September 2022 and October 2022.

We wholly dispute the claims made by Luminant and have been engaged in discussions with Luminant in an attempt to reach a mutually agreeable solution and resolve disagreements between the parties regarding these payments and whether the commencement of Luminant’s obligations under the Luminant Power Agreement should be tied to ERCOT’s interconnection approval. At this time we do not know how or when this dispute will be resolved. On November 8, 2022, we also received a letter from Luminant requesting we deposit to Luminant the remaining half of the Independent Collateral Amount under the Luminant Power Agreement. We expect to deliver to Luminant the remaining half of the Independent Collateral Amount before the end of November 2022.

Our management may devote significant time and resources to resolve these discussions, which may detract from time our management would otherwise devote to managing our operations, and could have a material adverse effect on our business, including potentially affecting the next quarterly valuation of the Luminant Power Agreement.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of ~~Proceeds.~~

~~Recent Sales~~Proceeds, and Issuer Purchases of ~~Unregistered~~ Equity ~~Securities~~Securities.

None.

~~Use of Proceeds~~

On October 22, 2020, GWAC completed its initial public offering (the “GWAC IPO”). All shares sold were registered pursuant to a registration statement on Form S-1 (File No. 333-248333), as amended (the “GWAC Registration Statement”), declared effective by the SEC on October 19, 2020. Simultaneous with the consummation of the GWAC IPO, GWAC consummated a private placement of units to certain another investors.

~~There has been no material change in the expected use of the net proceeds from the GWAC IPO and private placement as described in our 2021 Form 10-K.~~

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Not applicable.~~(a)

41We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 1.01 – Entry into a Material Definitive Agreement.

On November 6, 2023, the Company and its wholly-owned subsidiary, Cipher Black Pearl LLC, entered into a Purchase and Sale Agreement (the “PSA”) with Trinity Mining Group, Inc. (“Trinity”) to purchase a data center lease (the “Lease”) related to certain tracts or parcels of land containing at least 50 acres of land located in Winkler County, Texas (the “Leased Property”) and certain other agreements (the “Assumed Agreements”) providing for the construction of a new data center the Company expects to build and call “Black Pearl” or the “Black Pearl Facility”. The Lease has an initial term of ten years, and the Company has four consecutive options to renew for periods of ten years each. In addition to the Lease and the Assumed Agreements, the purchased assets under the PSA include certain books, records, reports, studies and governmental approvals related to the Leased Property, and an approval from the Electric Reliability Council of Texas (“ERCOT”) conditionally approving up to 300 MW of energy consumption at the interconnection point of the Leased Property (the “Purchased Assets”).

The consideration for the Purchased Assets will be $7.0 million (the “Purchase Price”). The Purchase Price will be paid by delivery of a number of whole shares of the Company’s common stock. The amount of the Company’s stock to be delivered under the PSA will be calculated by dividing the Purchase Price by the volume weighted average price of the Company’s common stock traded on the Nasdaq Global Select Market for the thirty (30) trading days immediately preceding the signing of the Purchase and Sale Agreement, determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.

The shares of the Company’s common stock to be issued to Trinity will be issued pursuant to the Registration Statement, including all information, documents and exhibits filed with or incorporated by reference into the Registration Statement, providing for the offering, issuance and sale by the Company from time to time of up to $500.0 million in aggregate of the Company’s common stock, preferred stock, warrants and units. The Company’s obligations to consummate the transactions contemplated by the PSA are subject to the satisfaction of certain conditions precedent. To the extent those conditions are satisfied, or waived by the Company, the Company expects the closing date to occur before the end of December 2023. If the closing date occurs before the end of December 2023, the Company expects to deliver to Oncor Electric Delivery Company LLC (“Oncor”) up to $6.3 million as collateral that Oncor will be obligated to return to the Company, provided that the Company energizes at least 135MW at the Black Pearl Facility by May 15, 2026.

(b) None.

(c) During the three months ended September 30, 2023, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits.

Incorporated by Reference

Filed/

Incorporated by Reference

Filed/

Exhibit
Number

Exhibit Description

From

File No.

Exhibit

Filing
Date

Furnished

Herewith

Exhibit Description

From

File No.

Exhibit

Filing Date

Furnished

Herewith

2.1†

Agreement and Plan of Merger, dated as of March 4, 2021, by and among Good Works Acquisition Corp., Currency Merger Sub, Inc. and Cipher Mining Technologies Inc.

8-K

001-39625

2.1

3/5/2021

Agreement and Plan of Merger, dated as of March 4, 2021, by and among Good Works Acquisition Corp., Currency Merger Sub, Inc. and Cipher Mining Technologies Inc.

8-K

001-39625

2.1

3/5/2021

3.1

Second Amended and Restated Certificate of Incorporation of Cipher Mining Inc.

8-K

001-39625

3.1

8/31/2021

Second Amended and Restated Certificate of Incorporation of Cipher Mining Inc.

8-K

001-39625

3.1

8/31/2021

3.2

Amended and Restated Bylaws of Cipher Mining Inc.

8-K

001-39625

3.2

8/31/2021

Amended and Restated Bylaws of Cipher Mining Inc.

8-K

001-39625

3.2

8/31/2021

4.1

Specimen Warrant Certificate of Good Works Acquisition Corp.

S-1/A

333-248333

4.3

10/9/2020

Specimen Warrant Certificate of Good Works Acquisition Corp.

S-1/A

333-248333

4.3

10/9/2020

4.2

Warrant Agreement, dated as of October 19, 2020, by and between Continental Stock Transfer & Trust Company and Good Works Acquisition Corp.

8-K

001-39625

4.1

10/28/2020

Warrant Agreement, dated as of October 19, 2020, by and between Continental Stock Transfer & Trust Company and Good Works Acquisition Corp.

8-K

001-39625

4.1

10/28/2020

10.1

Form of Cipher Mining Inc. Executive Officer Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (Double Trigger) under Incentive Award Plan.

8-K

001-39625

10.1

9/15/2022

Fourth Amendment to the Power Purchase Agreement, dated August 23, 2023, by and between Luminant ET Services Company LLC and Cipher Mining Technologies Inc.

8-K

001-39625

10.1

8/29/2023

10.2

Third Amendment to the Power Purchase Agreement, dated August 26, 2022, by and between Luminant ET Services Company LLC and Cipher Mining Technologies Inc.

8-K

001-39625

10.1

9/1/2022

Second Amendment to the Lease Agreement, dated August 23, 2023, by and between an affiliate of Luminant and Cipher Mining Technologies Inc.

8-K

001-39625

10.2

8/29/2023

10.3

At-The-Market Offering Agreement, dated September 21, 2022, between the Company and H.C. Wainwright & Co., LLC.

S-3

333-267537

1.2

9/21/2022

10.4

Supplementary Agreement of the Framework Agreement on Supply of Blockchain Servers, dated November 4, 2022.

8-K

001-39625

10.1

11/7/2022

31.1

Certification of Chief Executive Officer pursuant to Rule 13a‑14(a)/15d‑14(a).

31.2

Certification of Chief Financial Officer pursuant to Rule 13a‑14(a)/15d‑14(a).

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

† Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

4239

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CIPHER MINING INC.

Date: November ~~14, 2022~~8, 2023	By:	/s/ Tyler Page
		Tyler Page
		Chief Executive Officer
		(Principal Executive Officer)



Date: November ~~14, 2022~~8, 2023	By:	/s/ Edward Farrell
		Edward Farrell
		Chief Financial Officer
		(Principal Financial Officer)

4340


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)


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


	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
	(unaudited)						(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	28,111		$	209,841		$	3,342		$	11,927
Accounts receivable								360			98
Receivables, related party		731			-			-			1,102
Prepaid expenses and other current assets		8,276			13,819			3,962			7,254
Cryptocurrencies		2,263			-
Bitcoin								13,667			6,283
Derivative asset		30,393			-			33,087			21,071
Total current assets		69,774			223,660			54,418			47,735
Property and equipment, net								258,295			191,784
Deposits on equipment		200,033			114,857			1,220			73,018
Property and equipment, net		40,751			5,124
Investment in equity investees								33,609			37,478
Derivative asset								46,963			45,631
Operating lease right-of-use asset								4,399			5,087
Security deposits		11,455			10,352			17,586			17,730
Investment in equity investee		31,690			-
Right-of-use asset		5,303			-
Derivative asset		48,487			-
Deferred investment costs		-			174
Total assets	$	407,493		$	354,167		$	416,490		$	418,463
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,665		$	242		$	4,604		$	14,286
Accounts payable, related party		3,216			-			1,554			3,083
Accrued expenses and other current liabilities								24,813			19,353
Finance lease liability, current portion								6,749			2,567
Operating lease liability, current portion		1,002			-			1,117			1,030
Accrued expenses		10,726			257
Warrant liability								56			7
Total current liabilities		19,609			499			38,893			40,326
Operating lease liability, net of current portion		4,762			-
Warrant liability		22			137
Asset retirement obligation								17,966			16,682
Finance lease liability								12,014			12,229
Operating lease liability								3,645			4,494
Deferred tax liability								1,285			1,840
Total liabilities		24,393			636			73,803			75,571
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Stockholders’ equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding as of September 30, 2022 and December 31, 2021		-			-
Common stock, $0.001 par value, 500,000,000 shares authorized, 251,043,649 and 252,131,679 shares issued as of September 30, 2022 and December 31, 2021, respectively, and 247,518,966 and 249,279,420 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		251			252
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022								-			-
Common stock, $0.001 par value, 500,000,000 shares authorized, 259,682,742 and 251,095,305 shares issued as of September 30, 2023 and December 31, 2022, respectively, and 254,558,178 and 247,551,958 shares outstanding as of September 30, 2023 and December 31, 2022, respectively								259			251
Additional paid-in capital		442,435			425,438			490,655			453,854
Treasury stock, at par, 3,524,683 and 2,852,259 shares at September 30, 2022 and December 31, 2021, respectively		(4	)		(3	)
Accumulated deficit		(59,582	)		(72,156	)		(148,222	)		(111,209	)
Treasury stock, at par, 5,124,564 and 3,543,347 shares at September 30, 2023 and December 31, 2022, respectively								(5	)		(4	)
Total stockholders’ equity		383,100			353,531			342,687			342,892
Total liabilities and stockholders’ equity	$	407,493		$	354,167		$	416,490		$	418,463


	Common Stock				Additional			Accumulated			Treasury Stock						Total
	Shares		Amount		Paid-in Capital			Deficit			Shares			Amount			Stockholders’ Equity
Balance as of June 30, 2023		254,795,626	$	254	$	473,471		$	(130,511	)		(4,381,735	)	$	(4	)	$	343,210
Issuance of common shares, net of offering costs - At-the-market offering		2,831,736		4		8,597			-			-			-			8,601
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		1,983,952		1		(2,112	)		-			(742,829	)		(1	)		(2,112	)
Share-based compensation		71,428		-		10,699			-			-			-			10,699
Net loss		-		-		-			(17,711	)		-			-			(17,711	)
Balance as of September 30, 2023		259,682,742	$	259	$	490,655		$	(148,222	)		(5,124,564	)	$	(5	)	$	342,687


	Common Stock				Additional			Treasury Stock						Accumulated			Total Stockholders’			Common Stock				Additional			Accumulated			Treasury Stock						Total
	Shares		Amount		Paid-in Capital			Shares			Amount			Deficit			Equity			Shares		Amount		Paid-in Capital			Deficit			Shares			Amount			Stockholders’ Equity
Balance as of June 30, 2022		251,001,072	$	251	$	431,966			(3,511,490	)	$	(4	)	$	(118,874	)	$	313,339			251,001,072	$	251	$	431,966		$	(118,874	)		(3,511,490	)	$	(4	)	$	313,339
Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement		42,577		-		(25	)		(13,193	)		-			-			(25	)		42,577		-		(25	)		-			(13,193	)		-			(25	)
Share-based compensation		-		-		10,494			-			-			-			10,494			-		-		10,494			-			-			-			10,494
Net income		-		-		-			-			-			59,292			59,292			-		-		-			59,292			-			-			59,292
Balance as of September 30, 2022		251,043,649	$	251	$	442,435			(3,524,683	)	$	(4	)	$	(59,582	)	$	383,100			251,043,649	$	251	$	442,435		$	(59,582	)		(3,524,683	)	$	(4	)	$	383,100


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


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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


		Page

PART I.	FINANCIAL INFORMATION	34

Item 1.	Financial Statements (Unaudited)	34
	Condensed Consolidated Balance Sheets	34
	Condensed Consolidated Statements of Operations	45
	Condensed Consolidated Statement of Changes in ~~Stockholder's~~Stockholder’s Equity ~~(Deficit)~~	56
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Unaudited Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2725
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3935
Item 4.	Controls and Procedures	3935

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4037
Item 1A.	Risk Factors	4037
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	4037
Item 3.	Defaults Upon Senior Securities	4037
Item 4.	Mine Safety Disclosures	4137
Item 5.	Other Information	4137
Item 6.	Exhibits	4239
Signatures		4340


														Total
	Common Stock				Subscription			Additional			Accumulated			Stockholders'
	Shares		Amount		Receivable			Paid-in Capital			Deficit			Equity (Deficit)
Balance as of June 30, 2021		200,000,000	$	200	$	-		$	(200	)	$	(664	)	$	(664	)
Business Combination, net of redemptions and equity issuance costs of $41.0 million		46,381,119		46		(1,690	)		384,708			-			383,064
Net loss		-		-		-			-			(2,421	)		(2,421	)
Balance as of September 30, 2021		246,381,119	$	246	$	(1,690	)	$	384,508		$	(3,085	)	$	379,979


Balance, January 1, 2022	$	-
Fair value on derivative asset effective date		83,610
Proceeds from reduction of scheduled power		(5,056	)
Change in fair value		326
Balance, September 30, 2022	$	78,880


Balance, January 1, 2022	$	137
Change in fair value		(115	)
Balance, September 30, 2022	$	22


Balance, December 31, 2021	$	-
Cryptocurrencies received from equity investees		3,139
Proceeds from sale of cryptocurrencies		(23	)
Realized gain on sale of cryptocurrencies		6
Impairment of cryptocurrencies		(859	)
Balance, September 30, 2022	$	2,263


Vendor	Agreement Dates	Original Maximum Purchase Commitment*		Open Purchase Commitment		Deposits Paid		Expected Shipping for Open Purchase Commitments
Bitmain Technologies Limited**	August 20, 2021 and August 30, 2021	$	171,135	$	55,500	$	55,500	October 2022 - December 2022
SuperAcme Technology (Hong Kong)/*	May 6, 2022		222,401		222,401		101,819	October 2022 - December 2022
Bitfury USA and other vendors (primarily for BBACs)****	Various				57,173		42,715
Total				$	335,074	$	200,033


	September 30, 2022		December 31, 2021
Luminant Power Purchase Agreement Independent Collateral Amount (see Note 9)	$	6,277	$	6,277
Luminant Purchase and Sale Agreement collateral (see Note 9)		3,063		3,063
Office lease security deposit		960		922
Other deposits		1,155		90
Total security deposits	$	11,455	$	10,352


Balance, December 31, 2021	$	-
Cost of miners and mining equipment contributed, net of losses recognized upon contribution		74,384
Sales taxes to be paid by Cipher on behalf of equity investee		5,316
Accretion of basis difference		821
Legal costs related to formation of joint ventures reclassified from deferred investment costs		174
Capital distributions		(43,291	)
Cryptocurrencies received from equity investee		(3,139	)
Equity in net loss of equity investee		(2,574	)
Balance, September 30, 2022	$	31,690


	Nine Months Ended
	September 30, 2022
Operating cash flows - operating leases	$	395
Right-of-use assets obtained in exchange for operating lease liabilities	$	5,859
Weighted-average remaining lease term – operating leases (in years)		4.7
Weighted-average discount rate – operating leases		10.9	%


	Three Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2022
Service-Based RSUs	$	7,078	$	19,936
Performance-Based RSUs		3,416		10,136
Total share-based compensation expense	$	10,494	$	30,072


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2022		6,798,238		$	8.04
Granted		9,108,086			1.90
Forfeited		(205,048	)		6.34
Vested		(1,802,123	)		7.55
Unvested at September 30, 2022		13,899,153		$	4.10