What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-12-01 compared with 2022-12-15 · 706 added, 647 removed, 757 unchanged (64% of the section changed)

2 unchanged sentences

Audited Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB ID 206 )

Reports of Independent Registered Public Accounting Firm (PCAOB ID 206 )

Consolidated Balance Sheets as of September 30, 2023 and 2022;

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

To the Stockholders and Board of Directors of

CleanSpark, Inc.

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and its subsidiaries (collectively, the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021 , and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

equity, and cash flows for each of the two years in the period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects,the financial position of the Company as of September 30, 2023 and 2022, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)and our report dated December 1, 2023 expressed an adverse opinion.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Critical Audit Matters

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the Accounting for and Disclosure of Bitcoin Mining Revenue Recognized

As disclosed in Note 2, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers.

The Company provides computing power to the mining pools and in exchange for providing such computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the pool operator receives for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that block.

The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

The Company provides computing power to its mining pool and in exchange for providing such computing power, the Company is entitled to a pro-rata share of the fixed bitcoin awards earned over the measurement period, plus a pro-rata fractional share of the global transaction fee rewards for the respective measurement period, less net digital asset fees due to the mining pool operator over the measurement period.

The Company’s pro-rata share is based on the proportion of computing power the Company contributed to the mining pool operator as compared to the bitcoin network’s algorithmic difficulty.

During the year ended September 30, 2023, the Company recognized net bitcoin mining revenue of approximately $168.1 million.

We identified the accounting for and disclosure of bitcoin mining revenue recognized

as a critical audit matter because, currently, no specific definitive guidance exists for the accounting for and disclosure of bitcoin mining revenue recognized in accordance with GAAP.

The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for and disclosure of bitcoin mining revenue recognized.

The primary procedures we performed to address this critical audit matter included the following:

Performed a site visitation of the facilities where the Company’s mining hardware is located.

The visitation included an observation of the physical and environmental controls and mining equipment inventory observation procedures;

Evaluated management’s rationale for the application of ASC 606 to account for bitcoin awards earned;

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The Company’s bitcoin as of September 30, 2023 amounted to approximately $56.2 million.

We identified the accounting for and disclosure of bitcoin held as a critical audit matter because, currently, no specific definitive guidance exists for the accounting for and disclosure of bitcoin held in accordance with accounting principles generally accepted in the United States (“GAAP”).

The Company’s management has exercised significant judgment in their determination of how existing GAAP should be applied to the accounting for bitcoin held, the associated financial statement presentation and accompanying footnote disclosures.

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December 1, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

CleanSpark, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited the internal control over financial reporting of CleanSpark, Inc.

and its subsidiaries (collectively, the “Company”) as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company did not maintain effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of September 30, 2023 and 2022 and for the years then ended and our report dated December 1, 2023 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Management’s Report on Internal Control Over Financial Reporting (“Management’s Report”).

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment:

the Company did not adequately design and maintain effective general information technology controls over third-party information systems and applications that are relevant to the preparation of the Company’s financial statements.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report on those financial statements.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2018.

Houston, Texas

December 1, 2023

CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)

September 30,

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Current assets

Cash and cash equivalents, including restricted cash

Cash and cash equivalents

Accounts receivable, net

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Derivative investment asset

Investment in equity security

Investment in debt security, AFS, at fair value

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Intangible assets, net

Deposits on mining equipment

Deposits on miners and mining equipment

Other long-term asset

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Accounts payable and accrued liabilities

Operating lease liability

Finance lease liability

Acquisition liability

Contingent consideration

Current portion of operating lease liability

Current portion of finance lease liability

Current portion of long-term loans payable

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Loans payable, net of current portion

Deferred income taxes

Long-term liabilities held for sale

Total liabilities

CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS (continued)

(in thousands, except par value and share amounts)

September 30,

Stockholders' equity

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160,184,921 and

37,395,945 shares issued and outstanding as of September 30, 2022 and

September 30, 2021, respectively

55,661,337 shares issued and outstanding, respectively

Preferred stock;

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2,000,000 authorized;

1,750,000 and 1,750,000 issued and outstanding

as of September 30, 2022 and September 30, 2021, respectively

1,750,000 and 1,750,000 issued and outstanding, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit

( 196,053,911

( 138,392,118

Total stockholders' equity

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share and share amounts)

For the year ended

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General and administrative expenses

Gain on disposal of assets

Loss (gain) on disposal of assets

Other impairment expense (related to bitcoin)

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Unrealized loss on equity security

Unrealized (loss) gain on derivative security

Unrealized loss on derivative security

Interest income

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Total other (expense) income

Loss before income tax (expense) or benefit

Loss before income tax expense

Income tax expense

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Loss from discontinued operations

Income tax (expense) or benefit

Income tax expense

Loss on discontinued operations

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Net loss attributable to common shareholders

Other comprehensive income (loss)

Other comprehensive income

Total comprehensive loss attributable to common shareholders

Income (loss) from continuing operations per common share - basic

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share and share amounts)

For the year ended

September 30,

Loss from continuing operations per common share - basic

Weighted average common shares outstanding - basic

Income (loss) from continuing operations per common share - diluted

Loss from continuing operations per common share - diluted

Weighted average common shares outstanding - diluted

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands, except share amounts)

Preferred Stock

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Balance, September 30, 2021

( 116,402,606

Shares issued for services

Exercise of options and warrants

Shares returned for settlement of debt

Shares issued for business acquisition

Shares in escrow for business acquisition

Options and warrants issued for services

Shares issued under underwritten offering, net of offering costs

Shares returned in relation to business acquisition

Options and restricted stock units issued for services

Shares withheld for net settlement of restricted stock units related to tax withholdings

Shares issued for settlement of contingent consideration related to business acquisition

Shares returned for settlement of contingent consideration and holdbacks related to business acquisition

Exercise of options

Shares issued under equity offering,

net of offering costs

Preferred stock dividends

Other comprehensive loss

Other comprehensive income

Balance, September 30, 2022

( 138,392,118

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands, except share amounts)

Preferred Stock

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Balance, September 30, 2022

( 138,392,118

Options and restricted stock units issued for services

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Shares issued for settlement of contingent consideration related to business acquisition

Shares issued for business acquisition

Shares returned for settlement of contingent consideration and holdbacks related to business acquisition

Exercise of options

Shares issued under equity offering,

net of offering costs

Preferred stock dividends

Other comprehensive income

Balance, September 30, 2023

( 196,053,911

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

September 30,

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Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Unrealized (gain) loss on equity security

Unrealized loss on equity security

Realized gain on sale of equity security

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Impairment of goodwill

Impairment of intangibles

Impairment of investment in equity security

Unrealized (gain) loss on derivative asset

Unrealized loss on derivative asset

Gain on fair value of contingent consideration

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Amortization of debt discount

PPP loan forgiveness

Gain on write-off and disposal of assets

Loss (gain) on write-off and disposal of assets

Changes in operating assets and liabilities

Mining of bitcoin

( 130,999,686

Proceeds from sale of bitcoin

Change in contract liabilities

(Decrease) in operating lease liabilities

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(Increase) in accounts receivables

Decrease (Increase) in Inventory

(Increase) decrease in Inventory

Deferred income taxes

Long -term deposits paid

Net cash provided by (used in) operating activities from Continuing Operations

Net cash used in operating activities of Discontinued Operations

Net cash provided by (used in) Operating Activities

Cash Flows from investing

Payments on miners (incl.

( 171,181,268

Net cash (used in) provided by operating activities from Continuing Operations

Net cash provided by (used in) operating activities of Discontinued Operations

Net cash (used in) provided by operating activities

Cash Flows from Investing Activities

Payments on miners (including deposits)

Purchase of fixed assets

( 139,234,948

Purchase of intangible assets

Settlement of holdbacks related to contingent consideration

Investment in infrastructure development

Land acquisition in Sandersville, GA

Proceeds from sale of miners

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Acquisition of WAHA, net of cash received

Acquisition of ATL, net of cash received

Deposit on Acquisition of Mawson

Acquisition of Coinmaker LLC

Acquisition of Mawson

Net cash used in investing activities - Continuing Operations

( 210,981,538

( 228,157,922

Net Cash used in Investing Activities - Discontinued Operations

Net cash provided by investing activities - Discontinued Operations

Net cash used in investing activities

( 210,981,538

( 229,158,058

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

September 30,

Cash Flows from Financing Activities

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Payments on finance leases

Refund of loan commitment fee

Proceeds from loan payable

Proceeds from equipment backed loan

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Net cash provided by financing activities

Net increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

Cash and cash equivalents and restricted cash, end of period

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosure of cash flow information

Cash paid for interest

Cash paid for tax

Cash paid for income taxes

Non-cash investing and financing transactions

Day one recognition of right of use asset and liability

Right of use asset and liability written off due to lease termination

Shares and options issued for business acquisition

Cashless exercise of options and warrants

Shares issued as collateral returned to treasury

Shares and options issued for services

Shares issued for settlement of contingent consideration related to business acquisition

Fixed asset and miner purchases accrued not paid

Shares withheld for net settlement of restricted stock units related to tax withholdings

Fixed assets purchased through finance transactions

Software purchased with bitcoin

Shares issued for settlement of seller agreements related to acquisition

Shares returned as part of settlement of seller agreements related to acquisition

Preferred shares dividends accrued

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in thousands, except per share amounts)

ORGANIZATION AND LINE OF BUSINESS

The Company –

CleanSpark, Inc.

(“CleanSpark,”

“we,”

“our,”

"Company") was incorporated in the state of Nevada on October 15, 1987 as SmartData Corporation.

In October 2016, the Company changed its name to CleanSpark, Inc.

CleanSpark, Inc.

is a sustainable bitcoin mining company.

The Company, through itself and its wholly owned subsidiaries, has operated in the bitcoin mining sector since December 2020.

CleanSpark is a bitcoin mining company.

The Company independently owns and operates five data centers in Georgia for a total developed capacity of 230 MW.

The Company is developing an additional 150 MW at its data center in Sandersville, GA.

The Company does not currently host miners for any other companies.

A partner in Massena, NY, hosts 50 MW for the Company.

CleanSpark designs its infrastructure to responsibly support bitcoin, the world’s most important digital commodity and an essential tool for financial independence and inclusion.

Lines of Business

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The Company currently intends to acquire additional facilities, equipment and infrastructure capacity to continue to expand our bitcoin mining operations.

Through the Company’s subsidiaries CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC, CSRE Properties, LLC, CSRE Properties Washington, LLC and CSRE Properties Sandersville, LLC the Company maintains real property holdings.

Discontinued Operations

As of June 30, 2022, the Company deemed its energy operations to be discontinued operations due to its strategic decision to strictly focus on its bitcoin mining operations and divest of the majority of its energy assets.

Through our discontinued operations segment, we previously provided energy solutions through our wholly-owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc.

These solutions consisted of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response (“OpenADR”), solar, energy storage for microgrid and distributed energy systems.

The Company has since sold the majority of its software and intellectual property assets related to the Energy Segment, and is in the process of selling additional remaining inventory and assets.

We still own patented gasification energy technologies and are not currently planning to sell or market these technologies.

Our technology converts organic material into synthesis gas, which can be used as fuel for a variety of applications and as feedstock for the generation of DME (Di-Methyl Ether).

Other business activities

Through ATL, the Company also provides traditional data center services to a small number of remaining customers, such as providing customers with rack space, power and equipment, and offers several cloud services including virtual services, virtual storage, and data backup services.

The Company is in the process of offloading those customers.

Through the Company’s subsidiaries CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC, CSRE Properties, LLC, CSRE Properties Washington, LLC, CSRE Properties Sandersville, LLC, CSRE Properties Dalton, LLC, and CleanSpark HQ, LLC, the Company maintains real property holdings.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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As shown in the accompanying audited consolidated financial statements, the Company incurred a net loss from continuing operations of $ 132,160 and $ 40,089 during the years ended September 30, 2023 and September 30, 2022, respectively.

While the Company has experienced negative cash flows from investing activities due to its continued investments in capital expenditures in support of its bitcoin mining operations, it has generated positive cash flows from operating and financing activities in fiscal 2022.

The Company used $ 31,720 in cash from its operations for fiscal 2023, however, the Company made a decision to sell fewer bitcoin than it generated and the increase in bitcoin held at the end of the year (for which the Company classifies as a current asset) was $ 56,241 .

The Company has sufficient working capital to support its ongoing operations for the next twelve months.

In addition, the Company has access to equity financing through its at-the-market ("ATM") offering facility and debt financing through the lending arrangement the Company entered into in April 2022 (see Note 9 and Note 11).

In addition, the Company has access to equity financing through its at-the-market ("ATM") offering facility (see Note 12 - Stockholders' Equity).

As of September 30, 2023 and September 30, 2022, the Company had working capital of $ 28,117 and $ 16,735 , respectively.

Principles of Consolidation

The accompanying audited consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II, LLC, CleanSpark Critical Power Systems Inc., p2kLabs, Inc, GridFabric, LLC, ATL Data Centers LLC, CleanBlok, Inc., CSRE Properties, LLC, Solar Watt Solutions, Inc, CSRE Properties Norcross, LLC and CSRE Property Management Company, LLC.

The accompanying audited consolidated financial statements include the accounts of CleanSpark, Inc., and the Company’s wholly owned subsidiaries, ATL, CleanBlok, CleanSpark DW, LLC, CleanSpark GLP, LLC, CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC, CSRE Properties, LLC, CSRE Properties Washington, LLC, CSRE Properties Sandersville, LLC, CSRE Properties Dalton, LLC, and CleanSpark HQ, LLC.

All intercompany transactions have been eliminated upon consolidation of these entities.

As of June 30, 2022, the Company deemed its energy operations to be discontinued operation due to its strategic shift to strictly focus on its bitcoin mining operations and divest of its energy assets.

The disposal groups related to the energy operations are part of the following entities:

CleanSpark, LLC, CleanSpark Critical Power Systems Inc., GridFabric, LLC, and Solar Watt Solutions, Inc.

Going Concern

As of June 30, 2022, the Company deemed its energy operations to be discontinued operations due to its strategic shift to strictly focus on its bitcoin mining operations and divest of its energy assets.

The disposal groups related to the

energy operations are part of the following entities:

CleanSpark LLC, CleanSpark Critical Power Systems Inc., GridFabric, LLC, Solar Watt Solutions, Inc, and CleanSpark II, LLC.

The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern.

The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The evaluation of going concern under the accounting guidance requires significant judgment which involves the Company to consider that it has historically incurred losses in recent years as it has prepared to grow its business through acquisition opportunities.

The Company must also consider its current liquidity as well as future market and economic conditions that may be deemed outside the control of the Company as it relates to obtaining financing and generating future profits.

As of September 30, 2022, the Company had $ 20,462,570 of available cash on-hand and Bitcoin with a fair market value of $ 11,147,478 .

In determining whether there is substantial doubt about the Company’s ability to continue as a going concern, the Company may consider the effects of any mitigating plans for additional sources of financing.

The Company identified additional financing sources it believes are currently available to fund its operations and drive future growth that include (i) the ability to access capital using the ATM equity offering program available to the Company whereby the Company may sell additional shares of its common stock (discussed in Note 11 –

Stockholders’

Equity), and (ii) the ability to raise additional financing from other sources.

(Refer to Note 11 for further details).

As of September 30, 2023, the Company had $ 29,215 available cash on-hand and bitcoin with a fair market value of $ 56,241 .

After considering its current liquidity and future market and economic conditions, the Company has concluded there is no substantial doubt about the Company’s ability to continue as a going concern.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates include estimates used to review the Company’s goodwill and bitcoin impairment, intangible assets acquired,

impairments and estimations of long-lived assets, revenue recognition from bitcoin mining, valuation of derivative assets and liabilities, available-for-sale investments, allowances for uncollectible accounts, valuation of bitcoin, valuation of contingent consideration, warranty, and the valuations of share based awards.

Significant estimates include estimates used to review the Company’s goodwill impairment, intangible assets acquired, impairments and estimations of long-lived assets, valuation of derivative assets and liabilities, available-for-sale investments, allowances for uncollectible accounts, valuation of contingent consideration, and the valuations of share based awards.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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and (v) recognize revenue when or as the entity satisfied a performance obligation.

Our accounting policy on revenue recognition for our bitcoin mining segment (sole reporting unit as of September 2022) by type of revenue is provided below.

Revenues from bitcoin mining

The Company has entered into contracts with digital asset mining pool operators to provide computing power to the mining pools.

The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company starts providing computing power to the mining pool operator.

In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less net digital asset transaction fees to the mining pool operator), for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain.

The transaction consideration the Company receives is noncash consideration, in the form of bitcoin, which the Company measures at fair value on the date received which is not materially different than the fair value at contract inception or time the Company has earned the award from the mining pools.

Fair value of the bitcoin award received is determined using the spot price of the related bitcoin on the date earned.

There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for bitcoin recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.

In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

The total revenue recognized from bitcoin mining for the years ended September 30, 2022 and September 30, 2021 is $ 130,999,686 and $ 38,846,633 , respectively.

Our accounting policy on revenue recognition for our bitcoin mining segment (sole reporting unit as of September 2023 and 2022) by type of revenue is provided below.

Revenue from Contracts with Customers - Revenue from Bitcoin Mining

The Company recognizes revenue in accordance with ASC Topic 606 –

Revenue from Contracts with Customers (ASC 606).

The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the Company satisfies a performance obligation

The Company enters into a contract with a bitcoin mining pool operator (i.e., the customer) to provide computing power to the mining pools.

In exchange for providing computing power, the Company is entitled to a pro-rata share of the fixed bitcoin awards earned over the measurement period, plus a pro-rata fractional share of the global transaction fee rewards for the respective measurement period, less net digital asset fees due to the mining pool operator over the measurement period.

The Company’s pro-rata share is based on the proportion of computing power the Company contributed to the mining pool operator as compared to the bitcoin network’s algorithmic difficulty.

The proportionate share of the transaction fee rewards earned are based on the Company’s computing power as compared to the total computing power contributed to the global network.

Applying the criteria per ASC 606-10-25-1, the contract arises at the point that the Company provides computing power to the mining pool operator, which is beginning contract day at midnight UTC (contract inception), because customer consumption is in tandem with daily earnings of delivery of the computing power.

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct.

A performance obligation meets ASC 606’s definition of a “distinct”

good or service (or bundle of goods or services) if both of the following criteria are met:

The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct);

The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

Based on these criteria, the Company has a single performance obligation in providing computing power services (i.e., hashrate) to the mining pool operator (i.e., customer).

The performance obligation of computing power services is fulfilled daily over-time, as opposed to a point in time, because the Company provides the hashrate throughout the day and the customer simultaneously obtains control of it and uses the asset to produce bitcoin.

The Company has full control of the mining equipment utilized in the mining pool and if the Company determines it will increase or decrease the processing power of its machines and/or fleet (i.e., for repairs or when power costs are excessive) the computing power provided to the customer will be reduced.

The transaction consideration the Company earns is non-cash digital consideration in the form of bitcoin, which the Company measures at fair value on the date earned at the daily closing price, which is not materially different from the fair value at contract inception, which is the daily opening price.

According to the customer contract, daily earnings are calculated from midnight-to-midnight UTC time, and the sub-account balance is credited one hour later at 1:00 AM UTC time.

The Company utilizes Greenwich Mean Time (GMT), which is also the midnight of UTC time, since this is consistent with our customer contract in calculating our daily earnings from midnight-to-midnight UTC time.

The transaction consideration the Company earns is all variable since it is dependent on the daily computing power provided by the Company.

The Company’s bitcoins earned through the contractual payout formula is not known until the Company’s computational hashrate contributed over the daily measurement period is fulfilled over-time daily between midnight-to-midnight UTC time.

The Company’s proportionate amount of the global network transaction fee rewards earned are calculated at the end of each transactional day (midnight to midnight).

There are no other forms of variable considerations, such as discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items.

The Company fully constrains all variable consideration as a result of ASC 606-10-32-12a because the amount of consideration is highly susceptible to factors outside of our control as defined by the Company’s customer’s payout methodology.

The variable consideration is constrained until the Company can reasonably estimate the amount of mining rewards by the end of a given transactional day based on the actual amount of computing power provided to the mining pool operators.

By then, the Company considers it is highly probable that a significant reversal in the amount of revenues will not occur and includes such variable consideration in the transaction price.

The transaction price is allocated to the single performance obligation upon verification for the provision of computing power to the mining pool operator.

There is a single performance obligation (i.e., computing power or

hashrate) for the contract;

therefore, all consideration from the mining pool operator is allocated to this single performance obligation.

The Company’s performance is complete in transferring the hashrate service over-time (midnight to midnight) to the customer and the customer obtains control of that asset.

The transaction consideration the Company receives is non-cash consideration, in the form of bitcoin.

The Company measures the bitcoin at fair value on the date earned using the closing price of bitcoin on the date earned (midnight UTC).

There are no deferred revenues or other liability obligations recorded by the Company since there are no payments in advance of the performance.

At the end of the 24 hour “midnight-to-midnight”

period, there are no remaining performance obligations.

Revenues from data center services

The Company provides data services such as providing its customers with rack space, power and equipment, and cloud services such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts.

The Company, through its wholly owned subsidiary ATL, previously provided data services, such as providing its customers with rack space, power and equipment, and cloud services, such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts.

The performance obligations are the services provided to a customer for the month based on the contract.

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The total revenue recognized from data center services for the years ended September 30, 2023 and September 30, 2022 is $ 287 and $ 525 , respectively.

As of September 30, 2023, data center services are no longer provided to external customers.

Cost of Revenues

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Cash and cash equivalents

Cash and cash equivalents include cash and amounts due from banks and restricted cash.

The Company’s restricted cash represents amounts held in trust for certain construction projects.

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets that agrees to the total of those amounts as presented in the consolidated statements of cash flows.

September 30,

Cash and cash equivalents, excluding restricted cash

Restricted cash - construction escrow account

Cash and cash equivalents, including restricted cash

Cash and cash equivalents includes cash in banks.

None of the Company’s cash was restricted as of September 30, 2023 or September 30, 2022 .

Accounts receivable

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Accounts receivable, net consists of the following:

($ in thousands)

September 30,

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Total Accounts Receivable, net

Inventory is stated at the lower of cost or net realizable value with cost being measured on a first-in, first-out basis.

For solar panel and battery installations, the Company transfers component parts from inventories to cost of goods sold once installation is complete.

The Company periodically reviews inventories for unusable and obsolete items based on assumptions about future demand and market conditions.

Inventory balances mainly include supplies inventory used to maintain bitcoin mining facilities and are presented at net realizable value with cost being measured on a first-in, first-out basis.

The Company periodically reviews inventories for unusable and obsolete items.

Based on this evaluation, provisions are made to write inventories down to their net realizable value.

There were no write-downs of inventory as of September 30, 2022 and 2021 , respectively.

Prepaid expense and other current assets

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Those we expect to receive outside of one year are shown as other long-term assets.

Bitcoin are included in current assets in the consolidated balance sheets due to the Company’s ability to sell it in a highly liquid marketplace and its intent to liquidate its bitcoin to support operations when needed.

Bitcoin is recorded at cost less impairment.

They are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles —

Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above and in this Note 2 –

Summary of Significant Accounting Policies.

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.

In testing for impairment of bitcoin, the Company does not perform a qualitative assessment as allowed under ASC350-30-35-18A, and therefore goes directly to the quantitative assessment at the end of each reporting period.

Quantitative impairment is measured using the lowest recognized selling price of the bitcoin at the time its fair value is being measured in accordance with ASC 820, Fair Value Measurement.

Quoted prices are obtained from the Company's principal market (Coinbase).

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 as per ASC 350, Intangibles –

Goodwill and Other.

Bitcoin earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.

The sales of bitcoin are included within operating activities as the Company sells its bitcoin within a short period of time subsequent to the mining of such bitcoin.

The Company will evaluate time periods when the Company holds bitcoin for a longer period of time and sale so such would be recorded as investing activities.

For the fiscal years ended September 30, 2023 and 2022 , all cash proceeds received from sale of bitcoin were classified as operating cash flows in the accompanying consolidated statements of cash flows.

Any realized gains or losses from such sales are included in total costs and expenses in the consolidated statements of operations and comprehensive loss.

The Company accounts for its gains or losses in accordance with the "first-in, first-out" method of accounting.

Investment securities

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Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits.

The cash balance, in excess of the FDIC limits was $ 20,212,570 and $ 17,790,327 for periods ended September 30, 2022 and September 30, 2021, respectively.

The accounts offered by custodians of the Company’s bitcoin are not insured by the FDIC.

The fair market value of bitcoin held in accounts covered by FDIC limits was $ 11,147,478 and $ 23,603,210 for the periods ended September 30, 2022 and 2021, respectively.

The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of Federal Deposit Insurance Corporation ("FDIC") limits.

The cash balance in excess of the FDIC limits was $ 28,965 and $ 20,213 for the periods ended September 30, 2023 and September 30, 2022, respectively.

The accounts offered by the custodian of the Company’s bitcoin, which totaled $ 56,241 and $ 11,147 as of September 30, 2023 and September 30, 2022, respectively, are not insured by the FDIC.

The Company has not experienced any losses in such accounts.

The Company has certain customers and vendors who individually represented 10 % or more of the Company’s revenue or capital expenditures.

In fiscal year ended September 30, 2022 , revenue is concentrated with one mining pool operator and all bitcoin reside in one exchange.

In fiscal year ended September 30, 2023 , revenue is concentrated with one mining pool operator and all bitcoins reside in one exchange.

Refer to Note 16 - Major Customers and Vendors.

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Loss per share

The Company reports earnings (loss) per share in accordance with FASB ASC 260-10 “Earnings Per Share,”

The Company reports loss per share in accordance with FASB ASC 260-10 “Earnings Per Share,”

which provides for calculation of “basic”

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however, potential common shares are excluded if their effect is anti-dilutive.

As of September 30, 2022 and 2021 , there were 7,069,706 and 2,173,578 , respectively, units of common stock equivalents that consist of options, warrants, and restricted stock units, as well as 5,250,000 shares issuable upon preferred stock conversions, that were excluded from the current and prior period diluted (loss) per share calculation as their effect is anti-dilutive.

As of September 30, 2023 and 2022 , there were 300,698 and 7,069,706 , respectively, units of common stock equivalents that consist of options, warrants, and restricted stock units, as well as 5,250,000 shares issuable upo n preferred stock conversions, that were excluded from the current and prior period diluted loss per share calculation as their effect is anti-dilutive.

Provided below is the loss per share calculation for the years ended September 30, 2023 and 2022:

Ended September 30,

($ in thousands, except share and per share)

Continuing Operations

Income (loss) from continuing operations

Loss from continuing operations

Preferred stock dividends

Income (loss) from continuing operations attributable to common shareholders

Loss from continuing operations attributable to common shareholders

Weighted- average common shares outstanding,

Dilutive impact of stock options and other share-based awards

Dilutive impact of contingent shares issued for business acquisition

Weighted- average common shares outstanding,

Income (loss) from continuing operations per common share attributable to common shareholders

Loss from continuing operations per common share attributable to common shareholders

Discontinued Operations

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Dilutive impact of stock options and other share-based awards

Dilutive impact of contingent shares issued for business acquisition

Weighted- average common shares outstanding,

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Land improvements

Building and building improvements

Shorter of lease term or 30 years

Leasehold improvements

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During the years ended September 30, 2023 and September 30, 2022 the Company did not record an impairment expense for assets within its continuing operations.

However, in connection with property and equipment in our discontinued operations, an impairment expense in the approximate amount of $ 32,000 was recognized and included in loss from discontinued operations in the consolidated statements of operations and comprehensive loss.

In connection with property and equipment in our discontinued operations, an impairment expense in the approximate amount of $ 32 was recognized in fiscal year ended September 30, 2022 and included in loss from discontinued operations in the consolidated statements of operations and comprehensive loss.

Business combinations, Intangible Assets and Goodwill

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During the years ended September 30, 2023 and 2022, the Company incurred the following impairment losses:

($ in thousands)

September 30, 2023

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2023 Goodwill Impairment analysis

In accordance with ASC 350-30-35-18A, an entity may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test, and has the unconditional option to bypass the qualitative assessment in any period and proceed directly to performing the quantitative analysis.

In completing the 2023 annual goodwill impairment analysis, the Company elected to perform a quantitative assessment for our goodwill.

The assessment involves comparing the carrying value of the entity, including goodwill, to its estimated fair value.

In accordance with ASU 2017-04, a goodwill impairment charge is recorded for the amount by which the carrying value unit exceeds the fair value of the reporting unit.

In accordance with ASU 2017-04, a goodwill impairment charge is recorded for the amount by which the carrying value

unit exceeds the fair value of the reporting unit.

In determining the fair value for which the quantitative assessment was performed, the Company engaged a valuation specialist to perform the quantitative impairment analysis.

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The market valuation approach evaluated the company's market value as compared to the net asset balance.

The assessment indicated that impairment of goodwill was necessary.

Based on the assessment for impairment, the Company recognized an impairment expense of goodwill of $ 12,048,419 for the year ended September 30, 2022.

In completing the 2021 annual goodwill impairment analysis, there were no impairments recognized.

The fiscal year 2023 assessment indicated that no impairment of goodwill was necessary.

In completing the 2022 annual goodwill impairment analysis, there was an impairment recognized.

In fiscal 2022, there was a sustained downturn in the price of bitcoin which resulted in the carrying value of the Company's goodwill to exceed the fair value.

The following table reflects goodwill activity for the years ended September 30, 2023 and 2022, respectively:

Goodwill- September 30, 2020

New Acquisitions

Goodwill- September 30, 2021

($ in thousands)

For the year ended September 30,

Balance at beginning of Fiscal Year

New Acquisitions

Goodwill- September 30, 2022

Balance at end of Fiscal Year

The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between two and twenty years as follows:

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Strategic contract

Bitcoin are included in current assets in the consolidated balance sheets.

Bitcoin is recorded at cost less impairment.

They are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles —

Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above and in Note 2 –

Summary of Significant Accounting Policies.

Impairment exists when the carrying amount exceeds its fair value.

In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.

If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.

If the Company concludes otherwise, it is required to perform a quantitative impairment test.

Quantitative impairment is measured using the quoted price of the bitcoin at the time its fair value is being measured in accordance with ASC 820, Fair Value Measurement.

Quoted prices are obtained from the principal market.

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 as per ASC 350, Intangibles –

Goodwill and Other.

Bitcoin earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.

The sales of bitcoin are also included within operating activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in operating costs and expenses in the consolidated statements of operations and comprehensive income (loss).

The Company accounts for its gains or losses in accordance with the first in first out (“FIFO”) method of accounting.

The following table presents the activities of the bitcoin for the years ended September 30, 2022 and 2021:

Balance as on September 30, 2020

Addition of bitcoin

Sale of bitcoin

Bitcoin issued for services

Realized gain on sale of bitcoin

Impairment loss

Balance as on September 30, 2021

Addition of bitcoin

Sale of bitcoin

( 133,201,006

Bitcoin issued for services

Realized gain on sale of bitcoin

Impairment loss

Balance as on September 30, 2022

Fair Value Measurement of financial instruments, derivative asset and contingent consideration

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September 30, 2023:

Derivative asset

September 30, 2023

($ in thousands)

Derivative investment asset

Investment in debt security

September 30, 2022:

Derivative asset

Investment in equity security

September 30, 2022

($ in thousands)

Derivative investment asset

Investment in debt security

Contingent cash consideration

There were no transfers between Level 1, 2 or 3 during the years ended September 30, 2023 and 2022.

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Segment Reporting

The Company determines its operating segments based on how the Chief Operating Decision Maker ("CODM") views and evaluates operations, performance and allocates resources.

As of June 30, 2022, the Company only has the bitcoin mining business as its operating segment due to its determination to consider the energy business as discontinued operation based on its decision to make a strategic shift to focus on the bitcoin mining business and divest of its energy assets.

The Company determines its operating segments based on how the Chief Operating Decision Maker views and evaluates operations, performance and allocates resources.

Since June 30, 2022, the Company's only operating segment is the bitcoin mining business.

Discontinued Operations

The Company deems it appropriate to classify a business as a discontinued operation if the related disposal group meets all the following criteria:

1) The disposal group is a component of the Company;

2) The component meets the held-for-sale criteria;

and 3) The disposal of the component represents a strategic shift that has a major effect on the Company's operations and financial results.

As of June 30, 2022, the Company deemed its energy operations to be

discontinued operation due to its strategic shift to strictly focus on its bitcoin mining operations and divest of its energy assets .

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation.

In June 2022, the Company made a strategic shift to focus on the bitcoin mining business and divest its energy assets.

As a result, assets and liabilities related to the energy segment have been classified as held for sale for all periods presented.

Additionally, amounts previously presented as part of continuing operations have been reclassified into discontinued operations for all periods presented.

Additionally, the following reclassifications had no effect on the reported results of operations or net assets of the Company and are as follows:

The intangible assets, net presentation has been updated to include capitalized software, net, which was previously presented separately on the balance sheet.

Additionally, infrastructure asset has been reclassified from intangible assets, net to property and equipment, net in the current year.

The Company deemed its energy operations to be discontinued operations due to its strategic decision to strictly focus on its bitcoin mining operations and divest of the majority of its energy assets.

Through its discontinued operations segment, the Company previously provided energy solutions through its wholly-owned subsidiaries CleanSpark LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc.

These solutions consisted of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response, solar, energy storage for microgrid and distributed energy systems.

The Company has since sold the majority of its assets related to the Energy Segment, which included software and intellectual property, and inventory.

See Note 3 –

Discontinued Operations.

Commitments and contingencies

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model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses.

As the Company was a Smaller Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim periods within the fiscal year.

Early application of the adoption is permitted.

The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company's results of operations or cash flows.

As the Company was a smaller reporting company at the time of issuance of the ASU, the Company adopted the ASU effective October 1, 2023, and adoption of the new standard did not have a material impact on the Company's results of operations or cash flows.

In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),”

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By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate.

Further, the diluted net income

per share calculation for convertible instruments will require the Company to use the if-converted method.

Further, the diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method.

The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments.

The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We expect the adoption of ASU 2020-06 to not have a material impact on the Company’s financial statements or disclosures.

The amendment was effective for the Company effective October 1, 2022, including interim periods.

The adoption did not have a material impact on the Company’s financial statements or disclosures.

DISCONTINUED OPERATIONS

The Company determined to make available for sale the asset groups related to the energy segment due to its strategic shift to strictly focus on its bitcoin mining operations.

As a result, the Energy segments' results of operations have been reclassified as discontinued operations on a retrospective basis for all periods presented.

The Company determined to make available for sale the asset groups related to its energy segment due to its strategic shift to strictly focus on its bitcoin mining operations.

As a result, the energy segment's results of operations have been reclassified as discontinued operations on a retrospective basis for all periods presented.

Accordingly, the assets and liabilities of this segment are separately reported as “assets and liabilities held for sale”

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Total liabilities held for sale

For the year ended

For the twelve months ended

September 30,

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Other income (expense)

Gain on disposal of assets

Interest expense

Total other income (expense)

Loss before income tax (expense) or benefit

Income tax (expense) or benefit

Acquisitions Relating to Continuing Operations

Loss before income tax (expense) benefit

Income tax benefit (expense)

Net loss attributable to common shareholders

Coinmaker LLC Acquisition - Dalton, GA

On June 21, 2023, the Company completed the acquisition of two bitcoin mining facilities in Dalton, GA for $ 9,389 .

Each of the facilities are located on separate one acre sites, each of which are under land leases.

The combined facilities are able to currently utilize 20 megawatts of power and are expected to host a total of approximately 6,000 miners.

The transaction was accounted for as an asset acquisition, whereby the total purchase price is allocated first to the fair value of the assets acquired and any excess purchase price is allocated to the acquired assets pro-rata.

No goodwill is calculated in an asset acquisition.

The preliminary allocation of the purchase price of the assets acquired are summarized below:

($ in thousands)

Allocation at

Acquisition Date

Land lease - right of use asset

Operating lease liability

Infrastructure

Total purchase price

There have been no subsequent adjustments to the allocation of the purchase price after the preliminary allocation.

Mawson Infrastructure Group - Sandersville, GA

On October 8, 2022, the Company completed the acquisition of a lease for approximately 16.35 acres of real property located in Sandersville, Washington County, Georgia (the “Mawson Property”), all personal property located on the Mawson Property, and 6,349 application-specific integrated circuit miners (the “ASICs”) from subsidiaries of Mawson Infrastructure Group, Inc.

a Delaware corporation (“Mawson”), all pursuant to a Purchase and Sale Agreement dated September 8, 2022 and an Equipment Purchase and Sale Agreement dated September 8, 2022 (the "Mawson Transaction").

The Company paid the following consideration to Mawson for the Mawson Property:

(i) $ 13,500 in cash;

(ii) 1,590,175 shares (the “Closing Shares”) of the Company's common stock (which had a value of $ 4,803 based upon the closing price of the common stock on October 7, 2022), and (iii) $ 6,500 in seller financing in the form of a promissory note.

The Company also paid $ 9,018 in cash within 15 days of the closing for the ASICs.

The following additional contingent consideration was included in the purchase price:

up to 1,100,890 shares of the Company's common stock (the “Earn-out Shares”) (which have a value of approximately $ 3,325 based upon the closing price of the Company's common stock on October 7, 2022), based upon the number of modular data centers on the Mawson Property occupied by Mawson being emptied and made available for our use.

These Earn-out Shares had been classified as a liability in the Consolidated Balance Sheets in accordance with ASC 480, and accordingly was reported at fair value at the end of each reporting period.

As of December 31, 2022, the fair value of this contingent liability was reduced to $ 2,840 from $ 3,325 , resulting in a change in fair value of contingent consideration of $ 484 in Other Income (expense) in the Consolidated Statements of Operations and Comprehensive Loss.

The shares associated with the earn-out were issued to Mawson in January 2023 (see Note 12 - Stockholders' Equity).

up to an additional $ 2,000 in a seller-financed earn-out payable at least 60 days post-closing if the Company receives written confirmation that it will be able to utilize at least an additional 150 megawatts ("MW") of power on the Mawson Property by the six month anniversary of the closing, April 8, 2023.

Such written confirmation was not received by April 8, 2023 and accordingly, the Company determined t his contingency criteria was not met by April 8, 2023 and it has not paid the additional consideration;

however, Mawson has expressed the position, with which the Company disagrees, that this contingency criteria was in fact met.

The Company is currently negotiating with the power provider and is confident that it will be able to reach an agreement to access at least 150 MW of power at the site later this year.

The Company has adjusted the contingency liability to $ 0 as of June 30, 2023 and recognized $ 2,000 gain in Change in Fair Value of Contingent Consideration on the Statement of Operations and Comprehensive Loss.

The Company accounted for this transaction as an acquisition of a business.

The fair value of the consideration given to Mawson and the other sellers in connection with the transaction and the allocation of the purchase price in accordance with ASC 820 were as follows:

($ in thousands)

Financing provided by seller

1,590,175 shares of CLSK common stock

Total purchase price

Contingent Consideration

Earn-out Shares of CLSK common stock

Megawatt earnout (up to $ 2,000 max)

Total contingent consideration

Total purchase sale agreement consideration-Combined

($ in thousands)

Allocation at

Acquisition Date

Right of use lease asset

Lease liability assumed

Infrastructure asset

Machinery and equipment

There were no subsequent adjustments to the allocation of the purchase price after the preliminary allocation.

SPRE Commercial Group Inc.

and WAHA Technologies Inc.

- Washington, GA

On August 17, 2022, the Company, through its wholly owned subsidiary CSRE Properties Washington, LLC, (“CSRE”), completed the purchase of real property, together with all improvements situated thereon and all rights, easements and appurtenances belonging thereto (collectively, the “Property”), from SPRE Commercial Group, Inc.

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Consideration:

Financing provided by Seller

($ in thousands)

Financing provided by SPRE

Mortgage assumed

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Purchase Price Allocation:

($ in thousands)

Allocation at

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Financing provided by the Seller and the mortgage assumed have been recorded as loans payable and are reflected in the Company's Consolidated Balance Sheets.

ATL DATA CENTERS, LLC

On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “ATL Merger”) with ATL Data Centers LLC (“ATL”) and its members.

The Company accounted for the acquisition of ATL as an acquisition of a business under ASC 805 –

Business Combination.

At the closing, ATL became a wholly owned subsidiary of the Company.

In exchange, the Company issued 1,618,285 shares of restricted common stock to the selling members of ATL, of which:

(i) 642,309 shares were fully earned on closing, and (ii) an additional 975,976 shares were issued and held in escrow, subject to holdback pending satisfaction of certain indemnification claims and future milestones, with all such shares subject to a lock up of no less than 180 days and a leak out of no more than 10% of the average daily trading value of the prior 30 days .

The Company determined the fair value of the consideration given to the sellers of ATL in connection with the transaction in accordance with ASC 820 was as follows:

Consideration

Preliminary Allocation at Acquisition Date

Adjustments to Fair Value

Final Allocation at Acquisition Date

642,309 shares of common stock

975,976 shares of common stock –

held in escrow

Total Consideration

Of the 975,976 shares held in escrow, 515,724 shares were released to the selling members of ATL and 68,194 shares were returned to the Company and canceled due to nonsatisfaction of certain indemnification claims during the year ended September 30, 2021.

The remaining 392,058 shares held in escrow consist of 72,989 shares subject to holdback pending satisfaction of further indemnification claims and 319,069 shares subject to satisfaction of future milestones.

In connection with the return of the 68,194 shares held in escrow that were cancelled due to the non-satisfaction of certain indemnification claims, total consideration and the related goodwill, decreased by $ 892,659 during the year ended September 30, 2021.

The consideration remitted in connection with the ATL Merger is subject to adjustment based on post-closing adjustments to closing cash, indebtedness, and transaction expenses of ATL within 90 days of closing.

The Company also assumed approximately $ 6.9 million in debts of ATL at closing.

As part of the transaction costs, the Company issued 41,708 shares of common stock for an aggregate value of $ 545,916 to the broker which were expensed upon issuance of the shares.

Purchase Price Allocation

Allocation at

to Fair Value

Allocation at

Strategic Contract

Other Assets and Liabilities assumed, net

The Company made measurement period adjustments, primarily to strategic contract and goodwill, to better reflect the facts and circumstances that existed at the acquisition date.

The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration.

Acquired goodwill is not deductible for income tax purposes.

The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.

The strategic contract relates to supply of a critical input to our bitcoin mining business.

The other assets and liabilities assumed include $ 5,670,000 of bitcoin mining equipment and approximately $ 5,475,000 of notes payable related to this equipment, which was settled by the Company in December 2020.

In connection with the acquisition, the Company had acquired an operating lease related to a rental building, which had a purchase option associated with the lease agreement.

The Company exercised the purchase option to buy the property in May 2021 and, as a result, terminated the lease.

The amortization period for strategic contracts is estimated to be 5 years .

The Company estimated the fair value of the identified strategic contract using a discounted cash flow model.

These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement.

Key assumptions include the level and timing of expected future cash flows, conditions and demands over its remaining useful life, and discount rates the Company believe to be consistent with the inherent risks associated with strategic contract, which is 6.4 %.

The Company believes the level and timing of expected future cash flows appropriately reflects market participant assumptions.

Net sales and net income of this business included in CleanSpark’s consolidated results of operations in fiscal year 2021 were approximately $ 30,234,683 and $ 14,449,160 , respectively.

Acquisitions Relating to Discontinued Operations

SOLAR WATT SOLUTIONS, INC.

On February 23, 2021, the Company entered into an Agreement and Plan of Merger (the “SWS Merger Agreement”) with Solar Watt Solutions, Inc.

(“SWS”) and its owners (the “Sellers”).

The Company accounted for the acquisition of SWS as an acquisition of a business under ASC 805 –

Business Combination.

At the closing on February 24, 2021, SWS became a wholly owned subsidiary of the Company.

In exchange, the Company issued (i) 477,703 shares of restricted common stock with a deemed value of $ 15,640,000 calculated based on the five-day average closing price of the Company's common stock for the trading days including and immediately

preceding the closing date of $ 32.74 per share to the Sellers, of which (a) 167,685 shares with a deemed value of $ 5,490,000 would be fully earned on closing, and (b) an additional 310,018 shares with a deemed fair value of $ 10,150,000 were issued to an escrow agent and only earned by Sellers, subject to holdback pending Sellers’

satisfaction of certain future milestones with all such shares subject to a lock up of no less than 180 days and a leak out of no more than 10% of average daily trading value of the prior 30 days for a period of 36 months following the closing, and (ii) up to $3,850,000 in cash to the Sellers, minus the Sellers’

debt, minus the difference between the Actual Amount and Expected Amount consisting of:

(a) $1,350,000 (no changes post acquisition date) in cash payable on a pro rata basis to Sellers at closing, less payment of $500,000 (no changes post acquisition date) to settle Sellers’

debt at closing, which includes (x) $200,000 (no changes post acquisition date) in cash held back by the Company to satisfy potential damages from indemnification claims and any amounts owed pursuant to post-closing adjustments, (y) an additional $100,000 (no changes post acquisition date) in cash held back by the Company to satisfy any amounts owed pursuant to post-closing adjustments, and (b) up to $2,500,000 (fair valued at $155,000 at acquisition date) in cash held back by the Company and only payable pro rata to Sellers upon meeting certain future milestones and subject to satisfaction of any amounts owing from SWS to the Company resulting from damages required to be indemnified under the SWS Merger Agreement.

The Company determined the fair value of the consideration given to the sellers of SWS in connection with the transaction in accordance with ASC 820 was as follows:

Consideration:

Contingent consideration

310,018 shares of common stock as contingent equity consideration

167,685 shares of common stock

Total Consideration

Allocation at

Acquisition Date

Allocation at

Customer List

Other Assets and Liabilities assumed, net

The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration.

Acquired goodwill is not deductible for income tax purposes.

The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.

The amortization period for customer list is estimated to be 1.5 years.

The Company estimated the fair value of the identified customer list using a discounted cash flow model.

These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement.

Key assumptions include the level and timing of expected incremental future cash flows over its remaining useful life, and discount rates the Company believe to be consistent with the inherent risks associated with customer list, which is 14 %.

The Company believes the level and timing of expected future cash flows appropriately reflects market participant assumptions.

On January 31, 2022, the Company entered into a Merger Satisfaction and Release Agreement (the "Merger Satisfaction Agreement") with the Sellers of SWS.

In consideration of fully satisfying the terms under the SWS Merger Agreement, the Company paid the Sellers $ 625,000 and released from escrow 77,500 shares of the Company's common stock.

Additionally, the Sellers agreed to release back to the Company 232,518 shares of the Company's common stock held in escrow.

Upon delivery of such consideration, the parties agreed that the shares and cash holdbacks contained in the original merger agreement were fully satisfied.

Pro forma of Consolidated Financial Statements (Unaudited)

The following is the unaudited pro forma information for continuing operations assuming the acquisition of WAHA & SPRE occurred on October 1, 2020:

The following is the unaudited pro forma information assuming the consummation of each of the Mawson Transaction and WAHA Transaction occurred on October 1, 2021:

For the Year Ended

September 30,

($ in thousands, except share and per share)

September 30, 2022

Net sales from continuing operations

Loss from continuing operations

Loss from continuing operations attributable to common shareholders

Loss from continuing operations per common share - basic

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Weighted average common shares outstanding –

The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities.

Pro forma results of operations for the Mawson Transaction for the year ended September 30, 2023 were not presented since the Mawson Transaction occurred on October 8, 2022 and the results for the 8-day period would be immaterial.

The WAHA Transaction was included during the entire year ended September 30, 2023.

The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the acquisitions occurred on the first day of the earliest period presented, or of future results of the consolidated entities.

The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition.

All transactions that would be considered inter-company transactions for pro forma purposes have been eliminated.

As of September 30, 2022 and September 30, 2021, the Company had total investments of $ 3,565,998 and $ 5,661,040 that comprise of the following:

As of September 30, 2023 and 2022 , the Company held 2,243 and 595 bitcoin, respectively.

The following table presents the activities of the Company's bitcoin holdings for the years ended September 30, 2023 and 2022:

($ in thousands)

For the year ended September 30,

Balance at beginning of Fiscal Year

Addition of bitcoin

Carrying amount of bitcoin sold

Bitcoin issued for services

Bitcoin issued for software

Impairment loss

Balance at end of Fiscal Year

The Company's bitcoin holdings are not subject to rehypothecation and do not serve as collateral for any existing loans or agreements.

As of September 30, 2023, the Company held 95 % of its bitcoin in cold storage and 5 % in hot wallets.

As of September 30, 2023 and September 30, 2022, the Company had total investments of $ 3,423 and $ 3,566 , respectively, that comprise of the following:

International Land Alliance, Inc.

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(“ILAL”), a Wyoming corporation, to lay a foundational framework where the Company will deploy its energy solutions products and services to ILAL, its energy projects, and its customers.

In connection with the MOU, and to support the power and energy needs of ILALs development and construction of certain projects, the Company entered into a Securities Purchase Agreement (“SPA”), dated as of November 6, 2019, with ILAL.

In connection with the MOU, and to support the power and energy needs of ILAL's development and construction of certain projects, the Company entered into a Securities Purchase Agreement (“SPA”), dated as of November 6, 2019, with ILAL.

Investment in Debt Securities (Preferred Stock) and related Embedded Derivative Asset

Pursuant to the terms of the SPA with ILAL, the Company purchased 1,000 shares of Series B Preferred Stock of ILAL (the “Preferred Stock”) an aggregate purchase price of $ 500,000 (the “Stock Transaction”), less certain expenses and fees.

Pursuant to the terms of the SPA with ILAL, the Company purchased 1,000 shares of Series B Preferred Stock of ILAL (the “Series B Preferred Stock”) for an aggregate purchase price of $ 500 (the “Stock Transaction”), less certain expenses and fees.

The Series B Preferred Stock accrue cumulative in-kind accruals at a rate of 12% per annum and were redeemable on August 6, 2020.

The Preferred Stock can be converted into common stock at a variable rate (refer the discussion on embedded derivative assets below).

The Series B Preferred Stock can be converted into common stock at a variable rate (refer the discussion on embedded derivative assets below).

This variable conversion ratio will increase by 10% with the occurrence of certain events.

Since the investments were not redeemed on August 6, 2020, they are now redeemable at the Company`s option in cash or into common stock, based on the conversion ratio.

The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of September 30, 2022 .

The Series B Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of September 30, 2023 .

Any change in the fair values of AFS debt securities are reported net of income tax as an element of Other Comprehensive income.

The Company accrued interest (net of allowance) on our available-for-sale debt securities totaling $ 0 and $ 399,863 , as of September 30, 2022 and 2021, respectively, is included in prepaid expense and other current assets on the Consolidated Balance Sheets.

The Company accrued no interest (net of allowance) on our available-for-sale debt securities, as of September 30, 2023 and 2022, respectively.

The fair value of our investment in debt securities is $ 726 and $ 610 as of September 30, 2023 and 2022, respectively.

The Company has included gain (loss) on fair value of preferred stock amounting to $ 115,500 and ( $ 5,392 ) for the years ended September 30, 2022 and 2021, respectively, as part of other comprehensive loss in the Consolidated Statements of Operations and Comprehensive Loss.

The Company has included gain on fair value of preferred stock amounting to $ 116 and $ 115 for the years ended September 30, 2023 and 2022, respectively, as part of other comprehensive income in the Consolidated Statements of Operations and Comprehensive Loss.

The Company has deemed this variable conversion feature of ILAL preferred stock as an embedded derivative instrument in accordance with ASC Topic No.

1 unchanged sentence

Unrealized gain or loss on fair valuation of this embedded feature is recognized as an income in the Consolidated Statements of Operations and Comprehensive Loss.

Total fair value of investment in Derivative assets as of September 30, 2022 and 2021 is $ 2,955,890 and $ 4,905,660 .

Total fair value of investment in Derivative assets as of September 30, 2023 and 2022 is $ 2,697 and $ 2,956 , respectively.

The Company fair values the debt security as a straight debt instrument based on liquidation value and accrued interest to date.

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Commitment shares - Common stock of ILAL

Pursuant to the terms of the SPA with ILAL, the Company received 350,000 shares (commitment shares) of ILALs common stock.

Pursuant to the terms of the SPA with ILAL, the Company received 350,000 shares (commitment shares) of ILAL's common stock.

The commitment shares were fully earned at the time of execution of the agreement.

The Company sold 334,611 shares at various prices and fair valued the remaining 15,389 shares at the closing stock price of ILAL as of September 30, 2021.

The Company sold 334,611 shares at various prices and fair valued the remaining 15,389 shares at the closing stock price of ILAL

as of September 30, 2021.

During the year ended September 30, 2022 , the Company sold 15,389 commitment shares, and recorded realized gain on sale of shares for $ 1 .

4 unchanged sentences

Refer the table below for a reconciliation of carrying value of all investments for the year ended September 30, 2023 and 2022:

Balance as of September 30, 2020

Shares sold during the year

Realized gain on fair value recognized in other income (expense)

Unrealized gain (loss) recognized in other income (expense)

Unrealized loss on fair value recognized in Other comprehensive income

($ in thousands)

Balance as of September 30, 2021

5 unchanged sentences

Balance as of September 30, 2022

INTANGIBLE ASSETS

Intangible assets consist of the following as of September 30, 2022 and 2021:

September 30, 2022

September 30, 2021

Intangible assets

Accumulated amortization

Net intangible assets

Intangible assets

Accumulated amortization

Net intangible assets

Strategic Contract

Amortization expense for the years ended September 30, 2022 and 2021 was $ 1,963,328 and $ 1,577,098 , respectively.

During the years ended September 30, 2022 and 2021 the Company did no t incur impairment losses related to the above intangible assets.

The strategic contract relates to supply of a critical input to our bitcoin mining business at significantly low prices compared to market.

During the year ended September 30, 2021, the initial allocation of $ 7,457,970 was adjusted by $ 2,342,000 .

The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows:

September 30, 2022

Unrealized loss on derivative asset

Unrealized gain on fair value recognized in other comprehensive income

Balance as of September 30, 2023

PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of September 30, 2023 and September 30, 2022:

($ in thousands)

September 30, 2023

11 unchanged sentences

Depreciation expense for the years ended September 30, 2023 and 2022 was $ 118,615 and $ 47,082 , respectively.

During the year ended September 30, 2022 , $ 4,390,160 of property and equipment was disposed of for

a gain of $ 642,691 , which included $ 411,484 of property and equipment that was written-off resulting in a loss of $ 278,170 .

There were no disposals during the year ended September 30, 2021.

During the year ended September 30, 2023 , $ 1,966 of property and equipment was disposed of for a loss of $ 1,931 .

The Company placed in service property and equipment of $ 231,135 during the year ended September 30, 2023.

This increase in fixed assets primarily consisted of miners and mining equipment amounting to $ 175,558 .

On April 7, 2023, CleanSpark HQ, LLC (“HQLLC”), a single member limited liability company and subsidiary wholly owned by the Company, purchased certain real property located at 10424 South Eastern Ave., Suite 200, Henderson, Nevada (the "Eastern Property") for $ 4,100 .

The property consists of approximately 15,000 square feet of office space.

The Company intends to utilize this office space as its new corporate headquarters.

The real property is recorded in construction in progress as of September 30, 2023, and includes an additional $ 560 in building improvements.

The completion is expected to occur in the first quarter of fiscal year 2024.

On May 1, 2023, the Company entered into a Purchase and Sale agreement with the Development Authority of Washington County to purchase 16.35 acres of land that was previously leased by the Company and an additional 10 acres of parcels in Sandersville, GA ("Sandersville Land") for a purchase price of $ 1,300 (the agreement was subsequently amended in June 2023 to increase the purchase price to $ 1,400 ).

The leased land had been subject to an operating lease which was acquired by the Company under the Mawson Transaction.

In accordance with ASC 842-Leases, the Company reassessed the lease classification as a finance lease and recorded land at the present value of the lease term (net of the carrying amount of the operating lease at time of conversion) and the land was recorded at $ 1,167 .

The land was also reclassified from finance lease right of use asset to land upon final payment being made on June 30, 2023.

Construction in progress:

The Company is expanding its facilities in Georgia.

The Company has cancellable purchase commitments for approximately $ 30 million related to purchase of miners as of September 30, 2022 , and the Company has paid $ 3 million towards these commitments as of the end of this period.

As of September 30, 2022 , the remaining commitment for future payments was $ 27 million.

As of September 30, 2022 and September 30, 2021, the Company has outstanding deposits for miners and mining equipment totaling $ 12.5 million a nd $ 88 million, resp ectively.

These deposits are in prepayments paid to premier suppliers and manufacturers to purchase mining ASICs and equipment.

The prepayments will be applied to the purchase price when the vendor ships the miners.

On October 1, 2019, the Company adopted the amendments to ASC 842, Leases, which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet.

The Eastern Property is recorded in construction in progress.

The Company is also expanding its facilities in Georgia, including infrastructure, building, and land improvements to expand its mining operations.

As of September 30, 2023 and September 30, 2022 , the Company has outstanding deposits for miners and mining equipment totaling $ 75,959 and $ 12,497 , respectively.

These deposits are paid to vendors and manufacturers to purchase miners.

The deposits are to be applied to the purchase price when either the vendor ships the miners or when the miners are received, depending on the contracted terms.

Such deposits are recorded in long-term assets on the Consolidated Balance Sheets.

If miners are purchased with terms that pass title to the goods at time of shipment, then such miners are recorded in construction in progress until they are physically received and placed in service.

INTANGIBLE ASSETS

Intangible assets consist of the following as of September 30, 2023 and 2022:

September 30, 2023

September 30, 2022

($ in thousands)

Intangible assets

Accumulated amortization

Net intangible assets

Intangible assets

Accumulated amortization

Net intangible assets

Strategic Contract

Amortization expense for the years ended September 30, 2023 and 2022 was $ 2,113 and $ 1,963 , respectively.

During the years ended September 30, 2023 and 2022 , the Company did no t incur impairment losses related to the above intangible assets.

The strategic contract relates to supply of a critical input to our bitcoin mining business at significantly lower prices compared to market.

The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows:

($ in thousands)

September 30, 2023

On October 1, 2019, the Company adopted the amendments to ASC 842, leases which require lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet.

The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements.

2 unchanged sentences

For the year ended

($ in thousands)

September 30,

2 unchanged sentences

Finance lease cost:

Depreciation expense financed assets

Depreciation expense of financed assets

Interest on lease obligations

2 unchanged sentences

For the year ended

($ in thousands)

September 30,

11 unchanged sentences

finance leases

Weighted-average discount rate - operating

Weighted-average discount rate - finance

Weighted-average discount rate - operating leases

Weighted-average discount rate - finance leases

The following is a schedule of the Company's lease liabilities by contractual maturity as of September 30, 2023:

($ in thousands)

Gross lease liabilities

3 unchanged sentences

Total lease liabilities, net of current portion

The following table reflects our outstanding loans as of September 30, 2022:

As of September 30, 2023 , the Company had a gross balance outstanding of $ 16,080 , netted against discount on the loans payable of $ 177 .

Total principal payments on loans during the years ended September 30, 2023 and 2022 was $ 14,466 and $ 2,779 , resp ectively.

The following table reflects our outstanding loans as of September 30, 2023 and September 30, 2022:

September 30, 2023

September 30, 2022

($ in thousands)

Maturity Date

Debt Balance, Net

Master Equipment Financing Arrangement

Mortgage - Corporate Facility

SPRE Commercial Group, Inc.

1 unchanged sentence

Jul-26 - Feb-27

Auto & Equipment Loans

Oct-26 - Jun -29

0.99 - 9.60 %

3 unchanged sentences

The following table reflects the principal amount of loan maturities due over the next five years and beyond as of September 30, 2023:

($ in thousands)

5-Year Loan Maturities

Outstanding Loan

Master Equipment Financing Arrangment

SPRE Commercial Group, Inc.

Master Equipment Financing Arrangement

Mortgage - Corporate Facility

Marquee Funding Partners

Auto & Equipment Loans

Total principal amount of loan payments by fiscal year

Unamortized deferred financing costs and discounts on Master Equipment Financing Arrangement

Unamortized deferred financing costs and discounts

Total loan book value as of September 30, 2023

1 unchanged sentence

Master Equipment Financing Agreement

On April 22, 2022, the Company entered into a Master Equipment Financing Agreement with Trinity Capital Inc., as the Lender (the “Financing Agreement”).

The Financing Agreement provides for up to $ 35 million of borrowings to finance the Company’s acquisition of blockchain computing equipment.

The Company received a loan of $ 20 million at closing, with the remaining $ 15 million fundable upon the Company's request, if requested no later than December 31, 2022, subject to certain customary conditions.

The loan draws have a term of 36 months from issuance with a monthly rate factor of at least 0.032198 payable monthly on the total cost of the equipment purchased with such borrowing.

The Financing Agreement contains standard financial reporting requirements and certain other affirmative obligations, failure of which to comply with could result in an event of default under the Financing Agreement.

In such an event, the Lender could exercise certain remedies including, but not limited to, declaring that all amounts outstanding under the Financing Agreement, together with accrued interest, be declared immediately due and payable.

The Company received funding of $ 20 million at close, which included closing costs of $ 701,624 and security deposit of $ 643,960 .

The loan is collateralized with 3,336 S19j Pro miners and carries and effective interest rate of 13.80 %.

The Company recorded a loan discount of approximately $ 379,000 , of which $ 46,000 was amortized and recorded to interest expense during the year ended September 30, 2022.

SPRE Commercial Group, Inc.

In connection with the acquisition of WAHA, the Company entered into a financing arrangement with the seller.

The loan has a term of 12 months with monthly payments of $ 173,651 and a stated interest rate of 12 %.

On April 22, 2022, the Company entered into a Master Equipment Financing Agreement with Trinity Capital Inc.

(the "Lender").

The Master Equipment Financing Agreement provided for up to $ 35,000 of borrowings to finance the Company’s acquisition of blockchain computing equipment.

The Company received a loan of $ 20,000 at closing, with the remaining $ 15,000 fundable upon the Company's request, if requested no later than December 31, 2022, subject to certain customary conditions.

The Company did not request the funding and agreed with the Lender that the related 1 % loan commitment fee for the unused portion would be refunded to the Company, which was received in December 2022.

The borrowings under the Master Equipment Financing Agreement are collateralized by 3,336 S19j Pro miners, which are located at the Company's College Park, GA and Norcross, GA sites.

The Company recorded an original loan discount of approximately $ 379 , of which $ 150 was refunded and $ 56 an d $ 46 was amortized and recorded to interest expense during the years ended September 30, 2023 and 2022.

Mortgage - Corporate Office

On May 10, 2023, HQLLC completed a refinancing transaction whereby it borrowed a net $ 1,937 against the equity of the real property purchased in April that is intended for the future Corporate Office (see Note 7 - Property and Equipment).

The loan agreement has a two-year term, 10 % interest rate and monthly interest only payments until maturity.

Marquee Funding Partners

In connection with the acquisition of WAHA, certain assets were encumbered with mortgages which the Company assumed.

The mortgages assumed have a combined balance of $ 2,158,253 and remaining payment terms ranging from 47 - 54 months and annual interest of 13 %.

In September 2022, the Company purchased vehicles through financing arrangements with combined principal amount of $ 212,421 .

The loans are for a term of 72 months with annual interest of 9 %.

The loans are secured with the purchased vehicles.

Paycheck Protection Program Loan

On May 7, 2020, the Company applied for a loan from Celtic Bank Corporation, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as administered by the U.S.

Small Business Administration (the "SBA").

On May 15, 2020, the loan was approved, and the Company received the proceeds from the loan in the amount of $ 531,169 (the “PPP Loan”).

The Company applied for and received loan forgiveness from the SBA on March 23, 2021.

The entire principal balance and interest charges were forgiven.

The gain on loan forgiveness of $ 531,169 is included in other income in the consolidated statements of operations and comprehensive loss for the year ended September 30, 2021 .

RELATED PARTY TRANSACTIONS

Zachary Bradford Chief Executive Officer, Director and Former Chief Financial Officer

During the years ended September 30, 2022 and 2021, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $ 47,075 and $ 183,075 , respectively, for accounting, tax, administrative services and reimbursement for office supplies.

Blue Chip is 50 % beneficially owned by Mr.

None of the services were associated with work performed by Mr.

The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance.

During the years ended September 30, 2022 and 2021 , $ 4,575 and $ 18,300 , respectively, was paid to Blue Chip for rent.

The sublease and engagement for accounting services was terminated on December 31, 2021.

The mortgages assumed have a combined balance of $ 1,725 , remaining payment terms ranging from 35 - 42 months and annual interest of 13 %.

SPRE Commercial Group, Inc.

In connection with the acquisition of WAHA, the Company entered into a financing arrangement with the seller.

The loan had a term of 12 months with monthly payments of $ 174 and a stated interest rate of 12 %.

The loan matured in fiscal year 2023 and no amount is outstanding as of September 30, 2023.

The Company has entered into various financing arrangements to purchase vehicles and non-miner equipment with combined principal amount of $ 625 as of September 30, 2023 .

The loans vary in terms from 36 - 72 months with annual interest rates ranging from 0.99 % - 9.60 %.

The loans are secured with the purchased vehicles and equipment.

During the year ended September 30, 2023 , the Company entered into five separate agreements for the purchase of machinery and equipment and mining equipment with a combined principal of $ 493 , with terms ranging from 36 - 72 months and interest rates ranging from 0.99 %- 9.60 %.

The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes.

FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes.

Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.

FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset.

Accordingly, a valuation allowance has been recorded.

Due to the enactment of the Tax Reform Act of 2017, we have calculated our federal taxes using an estimated corporate tax rate of 21 %.

Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.

For the years ended September 30, 2023 and 2022 the Company's loss from continuing operations before provision for income taxes were as follows:

($ in thousands)

September 30, 2023

September 30, 2022

Loss before income taxes

The components of the provision for income taxes in the years ended September 30, 2023 and 2022 were as follows:

($ in thousands)

September 30, 2023

September 30, 2022

Provision for income taxes

The effective income tax rate for the periods ended September 30, 2023 and 2022 as a percentage of pre-tax income is ( 0.65 %) and 0 %, respectively.

The significant reconciling items between the effective tax rate and the statutory tax rate for the period ended September 30, 2023 consist of valuation allowance, adjustments to deferred taxes, state taxes and permanent items.

A detailed breakout is provided below:

($ in thousands)

September 30, 2023

September 30, 2022

Tax benefit at federal statutory rate

State taxes (net of federal benefit)

Meals and entertainment

Stock based compensation

162(m) Excess Executive Compensation

ISO - Disqualifying Dispositions

Deferred only adjustment

Discontinued Operations

Change in Valuation Allowance

Deferred income taxes are the result of timing differences between GAAP accounting and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items, and net operating loss carry-forwards.

These differences result in deferred tax assets and liabilities, which are recorded in the balance sheet, net of valuation allowance.

The Company evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance on an ongoing basis.

In evaluating its deferred tax assets, the Company considers whether it is more likely than not that the deferred income tax assets will be realized.

The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes.

This assessment requires significant judgment.

The significant components of the Company's deferred tax assets and liabilities as of September 30, 2023 and 2022 were as follows:

($ in thousands)

September 30, 2023

September 30, 2022

Deferred Tax Assets:

Right of Use - Lease Liability

Charitable Contributions

Section 1231 Loss Carryforwards

Stock Based Compensation

Interest Expense Carryforwards

Intangible Assets

Net Operating Loss carryforwards

Gross Deferred Tax Assets

Valuation Allowance

Total deferred tax assets, net of valuation allowance

Deferred Tax Liabilities

Right of Use - Lease Asset

Prepaid Expenses

Unrealized Gain on Derivative Asset

Unrealized Gain on Equity Security

Gain/Loss on Sale of Assets not on TR

Fixed Assets & Intangible Assets

Net Deferred Tax Liability

For balance sheet presentation, the Company nets non-current deferred tax assets (net of valuation allowance) and liabilities.

The following table summarizes the presentation:

September 30, 2023

September 30, 2022

Net Non-current Deferred Tax Liabilities

In accordance with ASC 740, Accounting for Income Taxes, the Company evaluates its deferred income taxes to determine if valuation allowances are required.

Pursuant to U.S.

income tax accounting standards, companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a “more-likely-than-not”

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.

The Company considers the scheduled reversal of deferred tax liabilities.

To fully utilize the net operating loss (“NOL”) carryforward, the Company will need to generate sufficient future taxable income in each respective jurisdiction.

Due primarily to the Company’s history of losses, it is more likely than not that all or a portion of its deferred tax assets as of September 30, 2023 will not be realized.

The Company recorded a valuation allowance to offset the DTA that is not considered realizable for the tax year ended September 30, 2023 and September 30, 2022.

As of September 30,

Valuation Allowance

As of September 30, 2023, the Company had approximately $ 270,400 of federal and $ 96,400 of state net operating loss carryforwards available to reduce future taxable income, of which federal net operating loss carryforwards of approximately $237 ,700 have an indefinite life.

The federal net operating losses will begin to expire on September 30, 2025, while state net operating losses will begin to expire in the year ending September 30, 2036.

The Company's ability to utilize its federal and state net operating loss carryforwards and federal tax credit carryforwards to reduce future taxable income and future taxes, respectively, may be subject to restrictions attributable to equity transactions that may have resulted in a change in ownership as defined by Internal Revenue Code ("IRC") Section 382.

The Company is in the process of completing a detailed study for the year ended September 30, 2023, but does not expect that the results of this study will have a material impact on its financial statements.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained.

Recognized income tax positions are measured at the largest amount that is greater than a 50 % likelihood of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest and penalties related to unrecognized tax benefits in income tax expense, if any exist.

The Company has no liability, interest or penalties for unrecognized tax benefits as of September 30, 2023.

The Company does not anticipate the need to record a liability for unrecognized tax benefits within the coming year.

The Company files income tax returns in the U.S.

federal and state jurisdictions.

The 2019-2022 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.

In August 2022, two pieces of U.S.

tax legislation that have significant tax-related provisions were signed into law:

(1) the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the “CHIPS Act”), which creates a new advanced manufacturing investment credit under new Internal Revenue Code Section 48D, and (2) the Inflation Reduction Act of 2022 (the “IRA”), which has a number of tax-related provisions, including:

(a) a 15 percent book minimum tax on “adjusted financial statement income of applicable corporations,”

(b) a plethora of clean energy tax incentives in the form of tax credits, and (c) a one percent excise tax on certain corporate stock buybacks.

The Company will monitor additional guidance and impact that the CHIPS Act, the IRA and other potential legislation may have on its income taxes.

For the period ended September 30, 2023, the Company does not believe the provisions from these legislative updates will have any material impact on the Company's income taxes.

STOCKHOLDERS’

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The dividends are payable in cash or common stock.

The preferred stock dividend for the year ended September 30, 2022 was $ 335,439 , which the Company paid $ 314,611 and has a preferred stock dividend payable in the amount of $ 20,828 .

The preferred dividend was $ 177,502 for the year ended September 30, 2021 and was paid in the 2021 fiscal year.

The holders will also have a liquidation preference on the stated value of $ 0.02 per share plus any accumulated but unpaid dividends.

The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

The preferred stock dividend for the year ended September 30, 2023 was $ 0 .

The preferred stock dividend for fiscal year ended September 30, 2022 was $ 335 , which the Company paid $ 314 and had a preferred stock dividend payable in the amount of $ 21 , which was subsequently paid in fiscal year 2023.

The holders of the Series A Preferred Stock will also have a liquidation preference on the stated value of $ 0.02 per share plus any accumulated but unpaid dividends.

The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to stockholders at a rate of forty-five (45) votes for each share held.

Amendment to Articles of Incorporation

On October 2, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to increase its authorized shares of common stock to 35,000,000 .

On March 16, 2021, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to increase its authorized shares of common stock to 50,000,000 .

On September 17, 2021, the Company filed its First Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) with the Secretary of State of the State of Nevada, which Amended and Restated Articles became effective upon filing.

The Amended and Restated Articles were previously approved by the Company’s Board, subject to stockholder approval, on July 16, 2021, and were approved by the Company’s stockholders at the

Company’s Annual Meeting and, among other things, increased the Company’s authorized shares of common stock to 100,000,000 .

In March 2023, the Company's stockholders approved an amendment to the Company's Articles of Incorporation to increase the number of shares of common stock authorized and outstanding from 100,000,000 to 300,000,000 .

Common stock issuances for the year ended September 30, 2023

The Company issued 638,764 common shares in relation to restricted stock units issued for service.

The Company issued 105,423 common shares in relation to the exercise of stock options with proceeds received of 816,602 .

The Company issue d 5,238 common shares valued at $ 60,043 as c ompensation for Director services.

The Company is sued 8,404 common shares valued at $ 150,011 for settlemen t of contingent consideration related to business acquisition.

The Company issued 17,740,081 common shares in relation to equity raises through its At-the-Market offering facility, net of offering costs, for net proceeds of $ 125,047,987 .

The Company issued 98,829,525 shares of common stock through its ATM offering facility, net of offering costs, resulting in net proceeds of $ 383,776 .

The Company issued 4,483,669 shares of common stock in relation to the settlement of restricted stock awards and withheld 1,397,258 shares of common stock of $ 5,873 for net settlement.

The Company issued 1,590,175 shares of common stock valued at $ 4,802 as consideration in connection with business acquisitions.

The Company issued 1,100,890 shares of common stock valued at $ 2,840 in settlement of the contingent purchase price in connection with the Mawson Transaction.

Common stock returned during the year ended September 30, 2023

The Company had 232,518 shares o f common stock returned back to the Company as part of the settlement of contingent consideration and holdbacks related to business acquisition.

The Company had 83,417 shares of common stock returned in connection with the ATL acquisition due to nonsatisfaction of certain milestones.

Common stock issuances for the year ended September 30, 2022

The Company issued 4,444,445 shares of the Company’s common stock in connection with its underwritten equity offering at a price of $ 9.00 per share for net proceeds of approximately $ 37.05 million.

The Company issued 9,090,910 shares of the Company’s common stock in connection with its underwritten public equity offering at a price of $ 22.00 per share for net proceeds of approximately $ 187.2 million.

The Company issued 236,000 shares of common stock as settlement of accrued bonus compensation related to the year ended September 30, 2020.

The fair value of these shares was approximately $ 1.9 million and was fully expensed for in the prior year.

The Company issued 327,725 shares of common stock for the current year related to bonus compensation.

The fair value of these shares is approximately $ 3.07 million.

The Company issued 1,618,285 shares of common stock in relation to the acquisition of ATL, which includes 809,142 shares held in escrow.

The Company issued 477,703 shares of common stock in relation to the acquisition of SWS, which includes 310,000 shares held in escrow.

(See Note 4 for additional details)

The Company issued 57,045 shares of common stock for services rendered for a total fair value of approximately $ 815,000 which has been fully expensed during the year ended September 30, 2021.

The Company issued 389,745 shares of common stock in relation to the exercise of stock options and warrants.

(See Notes 12 and 13 for additional details)

The Company issued 15,577 restricted stock units to certain SWS employees as part of the transaction to incentivize the employees for retention purposes.

These restricted stock units vest over a period of one year .

As of September 30, 2021, 4,582 of the restricted stock units had been forfeited.

(See Note 13 for additional details)

On June 3, 2021, the Company entered into an At-the-Market Offering Agreement (“ATM”) with H.C.

Wainwright & Co., LLC, to create an at-the-market equity program under which the Company may, from time to time, offer and sell shares of its common stock having an aggregate gross offering price of up to $ 500,000,000 to or through H.C.

Wainwright & Co., LLC.

During the year ended September 30, 2021, the Company issued 3,443,379 shares of the Company’s common stock under the ATM for net proceeds of $ 46.4 million.

The shares were sold pursuant to a prospectus dated March 15, 2021 and a prospectus supplement dated June 3, 2021 filed with the SEC.

The Company issued 1,002,586 shares of common stock in relation to the settlement of restricted stock awards and stock options and withheld 358,681 shares of common stock of $ 1,638 for net settlement.

The Company issued 105,423 shares of common stock in relation to the exercise of stock options with proceeds received of 817 .

The Company issue d 5,238 shares of common stock valued at $ 60 as c ompensation for Director services.

The Company is sued 8,404 shares of common stock valued at $ 150 for settlemen t of contingent consideration related to business acquisition.

The Company issued 17,740,081 shares of common stock through its ATM offering facility, net of offering costs, for net proceeds of $ 125,048 .

Common stock returned during the year ended September 30, 2022

As a result of an adjustment of holdback shares to actual milestones earned in relation to the p2k acquisition, 8,072 shares were returned and cancelled.

As a result of an adjustment of holdback shares pursuant to Article II and Schedule A of that certain Agreement and Plan of ATL Merger in connection with the acquisition of ATL, 68,194 shares were returned and cancelled.

(See Note 4 for additional details)

15,000 shares, held in escrow as collateral, were returned from a lender on September 30, 2021.

The Company had 232,518 shares o f common stock returned back to the Company as part of the settlement of contingent consideration and holdbacks related to business acquisition.

STOCK WARRANTS

The following is a summary of stock warrant activity during the years ended September 30, 2022 and September 30, 2021.

The following is a summary of stock warrant activity during the years ended September 30, 2023 and 2022.

Balance, September 30, 2021

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Warrants expired

Warrants canceled

Warrants exercised

Balance, September 30, 2022

1 unchanged sentence

Warrants expired

Warrants canceled

Warrants exercised

Balance, September 30, 2023

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As of September 30, 2023 , the outstanding warrants have a weighted average remaining term of 2.15 years and an intrinsic value of $ 2 .

During the year ended September 30, 2022, there were no exercise of warrants.

Warrant activity for the year ended September 30, 2021

During the year ended September 30, 2021, a total of 173,990 shares of the Company’s common stock were issued in connection with the exercise of common stock warrants at exercise prices ranging from $ 3.36 and $ 20.00 , for total consideration of $ 2,883,623 .

Additionally, a total of 74,437 shares of the Company’s common stock were issued in connection with the cashless exercise of 76,800 common stock warrants at exercise prices ranging from $ 0.83 to $ 3.67 .

During the years ended September 30, 2023 and 2022 , there were no exercise of warrants.

STOCK-BASED COMPENSATION

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Effective September 15, 2021, following approval by our stockholders, the Plan was amended to (i) increase the number of shares of common stock authorized for issuance under the Plan by an additional 2,000,000 shares, resulting in an aggregate of 3,500,000 shares of common stock authorized for issuance under the Plan, and (ii) revise Section 19 of the Plan to more closely align with the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, and Section 17.2 of the Plan.

As of September 30, 2022 , there were 89,889 shares available for issuance under the Plan.

In March 2023, the stockholders approved an amendment to the Plan, as amended to date, to (i) increase the number of shares authorized for issuance thereunder from 3,500,000 shares of common stock to 11,512,000 shares and (ii) add an evergreen provision to, on April 1st and October 1st of each year, automatically increase the maximum number of shares of common stock available under the Plan to fifteen percent ( 15 % ) of the Company's outstanding shares of common stock, in each case as of the last day of the immediately preceding month.

On March 31, 2023, there were 96,950,555 outstanding shares of common stock, and accordingly on April 1, 2023, the total shares authorized for issuance under the Plan increased to 14,542,583 .

As of September 30, 2023 , there were 715,896 shares available and authorized for issuance under the Plan.

The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, common stock, units of common stock, restricted stock, performance shares and performance units.

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The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.

The Company grant ed 89,445 n on-qualified options pursuant to the Plan during the year ended September 30, 2022.

The Company grant ed 24,482 and 89,445 n on-qualified options pursuant to the Plan during the years ended September 30, 2023 and 2022.

The Company recognized $ 24,142 and $ 31,466 for the years ended September 30, 2023 and September 30, 2022, respectively, in stock-based compensation.

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Options granted

Options expired

Options canceled/forfeited

2 unchanged sentences

As of September 30, 2023 , there are options exercisable to purchase 1,065,882 shares of common stock in the Company and 904,576 unvested options outstanding that cannot be exercised until vesting conditions are met.

As of September 30, 2022 , the outstanding options have a weighted average remaining term of 3.86 years and an no intrinsic value.

As of September 30, 2023 , the outstanding options have a weighted average remaining term of 5.47 years and an aggregate intrinsic value of $ 50 .

Option activity for the year ended September 30, 2023

During the year ended September 30, 2022 , a total of 105,423 shares of the Company’s common stock were issued in connection with the exercise of common stock options at exercise prices ranging from $ 4.65 to $ 15.10 , for net proceeds of $ 816,602 .

During the year ended September 30, 2023 , no stock options were exercised.

For the year ended September 30, 2023 , the Company also granted 789,750 options with a total fair value of $ 4,513 to purchase shares of common stock to employees.

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Option activity for the year ended September 30, 2022

During the year ended September 30, 2021, a total of 141,318 shares of the Company’s common stock were issued in connection with the exercise of 141,318 common stock options at exercise prices ranging from $ 4.65 to $ 24.40 , for a total consideration of $ 867,308 .

During the year ended September 30, 2021, the Company granted 1,469,250 options with a total fair value of $ 21,582,485 to purchase shares of common stock to employees.

The Company offset $ 953,125 of stock compensation expense against bonuses accrued during the prior year and recognized $ 7,731,606 during the year.

The shares were granted at quoted market prices ranging from $ 7.55 to $ 34.67 and were valued at issuance using the Black Scholes model.

During the year ended September 30, 2022, a total of 105,423 shares of the Company’s common stock were issued in connection with the exercise of common stock options at exercise prices ranging from $ 4.65 to $ 15.10 , for net proceeds of $ 817 .

For the year ended September 30, 2022, the Company also granted to employees 215,750 options with a total fair value of $ 3,121 to purchase shares of common stock.

The Black-Scholes model utilized the following inputs to value the options granted during year ended September 30, 2022:

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RESTRICTED STOCK UNITS

The Company grants restricted stock units ("RSU"s) that contain either a) service conditions, or b) performance conditions, or c) market performance conditions.

The Company grants restricted stock units ("RSU"s) that contain either a) service conditions, b) performance conditions, or c) market performance conditions.

RSUs containing service conditions vest monthly or annually.

RSUs containing performance conditions generally vest over 1 year, and the number of shares earned depends on the achievement of predetermined Company metrics.

RSU's that contain market conditions will vest based on the terms of the agreement and generally are either 1 year or over the employee's term of employment.

RSUs that contain market conditions will vest based on the terms of the agreement and generally are either 1 year or over the employee's term of employment.

The Company recognizes the expense equal to the total fair value of the common stock price on the grant date.

The expense is recorded ratably over the service period.

The expense is recognized ratably over the service period.

The following table summarizes the performance-based restricted stock units at the maximum award amounts based upon the respective performance share agreements.

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Outstanding at September 30, 2023

During the year ended September 30, 2022 , the Company granted 1,176,250 RSUs, which comprised of 120,000 that were service condition based, 146,250 that were performance condition based, and 910,000 that were market condition based awards.

The market condition based RSUs consist of 60,000 units that were perpetual in nature, and therefore, are given a derived service period of 5 years.

During the year ended September 30, 2023 , the Company granted 3,880,552 RSUs, which consisted of 360,552 time-based RSUs, 60,000 performance-based RSUs (of which 40,000 market-based awards were exchanged and reflected in the table above as cancelled).

Additionally, on September 29, 2023, the Compensation Committee granted 3,460,000 market-based restricted stock units to senior leadership of the Company.

The market-based awards vest 33% each tranche based upon the Company's stock price reaching 200%, 300% and 400% of the stock price on the date of grant.

Each tranche will vest upon the target stock price being met for at least 10 of 20 consecutive trading days and the awards are not dependent on a defined service period.

The total fair value of the award is approximately $ 13,160 and is amortized over a weighted average period of less than 1 year.

During the year ended September 30, 2022 , the Company granted 7,306,250 share of restricted stock awards.

Certain of the awards were issued in the first quarter of fiscal year 2022, and comprised of 120,000 service condition based awards, 146,250 that were performance condition-based awards, and 910,000 that were market condition-based awards.

The market condition based RSUs consist of 60,000 units that were perpetual in nature, and therefore, were given a derived service period of 5 years.

The remaining 810,000 RSUs had a stated service period of 1 year.

The fair value of the market based RSUs are determined using the Monte Carlo simulation and is in the following range:

In the fourth quarter of fiscal year 2022, on September 12, 2022, the Compensation Committee granted additional grants as follows:

(1) 2,565,000 service condition based RSUs which vest over a 3-year period beginning on the grant date;

(2) 2,565,000 performance based RSUs, of which, 2,381,781 vested in fiscal year 2023;

(3) 760,000 restricted stock units, which vested in March 2023 when approved by our stockholders.

The Compensation Committee also modified previously issued awards from the first quarter of fiscal year 2022 as follows:

(1) granted immediate vesting of the 810,000 market based awards;

(2) modified the market condition based 60,000 units that were perpetual in nature, and 10,000 unvested service condition RSUs, and were replaced with

(2a) 120,000 service condition-based RSUs that vest over a 3-year period, and

(2b) 120,000 performance-based RSUs, of which $ 111,429 vested in fiscal year 2023.

The fair value of the market based RSUs were determined using the Monte Carlo simulation and is in the following range:

$ 11.03 - $ 17.89 per unit.

The inputs of these market based RSUs are as follows:

Fair value assumptions RSUs:

The inputs of market-based RSUs for each of the fiscal years are as follows:

Fair value assumptions - Market-based RSUs granted:

September 30, 2023

September 30, 2022

Risk free interest rate

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20.00 % - 21.00 %

On September 12, 2022, the Compensation Committee approved to immediately vest the 810,000 market based RSUs that were subject to the 1 -year stated service period.

Accordingly, the Company recorded an incremental stock-based compensation expense of $ 3.96 million in the fiscal year September 30, 2022.

Additionally, on September 12, 2022, the Compensation Committee approved the following modifications and grants, each of which are pending ratification by shareholders:

(1) to grant 2,565,000 service condition based RSUs which will vest over a 3-year period beginning on the grant date,

(2) to grant 2,565,000 performance based RSUs which are expected to vest within a 12-month period,

(3) to modify the market condition based 60,000 units that were perpetual in nature, and 10,000 unvested service condition RSUs, and were replaced with;

(3a) 120,000 service condition based RSUs that vest over a 3-year period,

(3b) 120,000 performance based RSUs, which are expected to vest within 12 months from date of modification.

(4) to grant 760,000 restricted stock units, which shall vest on the later of the grant date and the Shareholder Approval Date.

As of September 30, 2022 , the Company had approximately $ 26 million unrecognized compensation cost related to restricted stock unit awards that will be recognized over a weighted average period of 2 years.

As of September 30, 2023 , the Company had approximately $ 22,300 unrecognized compensation cost related to restricted stock unit awards that will be recognized over a weighted average period of 1.6 years.

The Company recognized stock-based compensation expenses related to restricted stock units, of $ 17,720 and $ 23,661 for fiscal years ended 2023 and 2022 .

The Company recognized $ 1,904,520 in stock-based compensation expense for restricted stock units issued in 2021 related to 2020 bonuses.

The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes.

FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes.

Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.

In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset.

Accordingly, a valuation allowance equal to the deferred tax asset has been recorded.

Due to the enactment of the Tax Reform Act of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 21 %.

Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.

For the years ended September 30, 2022 and 2021 the Company's income (loss) from continuing operations before provision for income taxes were as follows:

September 30, 2022

September 30, 2021

Loss before income taxes

The component of the provision for income taxes in the years ended September 30, 2022, 2021, and 2020 were as follows:

September 30, 2022

September 30, 2021

Provision for income taxes

Income tax benefit attributable to loss from continuing operations differed from the amounts computed by applying the statutory U.S federal income tax rate of 21 % to pretax loss from continuing operations as a result of the following:

September 30, 2022

September 30, 2021

Tax Benefit at Federal statutory rate

Tax Benefit at State rate

Meals and Entertainment

Stock Based Compensation

Non deductible Payroll expense

ISO - Disqualifying Dispositions

Discontinued Operations

Change in Valuation Allowance

The significant components of the Company's deferred tax assets and liabilities as of September 30, 2022 and 2021 were as follows:

RELATED PARTY TRANSACTIONS

Zachary Bradford Chief Executive Officer, Director and Former Chief Financial Officer

During the year ended September 30, 2022, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $ 47 for accounting, tax, administrative services and reimbursement for office supplies.

Blue Chip was 50 % beneficially owned by Mr.

None of the services were associated with work performed by Mr.

The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance.

During the year ended September 30, 2022 , $ 5 was paid to Blue Chip for rent.

The sublease and engagement for accounting services was terminated on December 31, 2021.

MAJOR CUSTOMERS AND VENDORS

The Company had one mining pool operator (Foundry Digital) in fiscal years ended September 30, 2023 and 2022.

The Company had the following significant suppliers of mining equipment, with the percentage based on purchase amounts.

September 30, 2023

September 30, 2022

Deferred Tax Assets:

Right of Use - Lease Liability

Charitable Contributions

Section 1231 Loss Carryforwards

Stock Based Compensation

Interest Expense Carryforwards

Net Operating Loss carryforwards

Gross Deferred Tax Assets

Valuation Allowance

Total deferred tax assets, net of valuation allowance

Deferred Tax Liabilities

Right of Use - Lease Asset

Prepaid Expenses

Unrealized Gain on Derivative Asset

Unrealized Gain on Equity Security

Gain/Loss on Sale of Assets not on TR

Fixed Assets & Intangible Assets

Net Deferred Tax Assets

For the year ended September 30, 2022, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was not more likely than not that the net deferred tax assets were fully realizable as of September 30, 2022.

Accordingly, the Company established a full valuation allowance against its deferred tax assets.

As of September 30, 2022, the Company had $ 417.8 million of federal and $ 91.6 million of state net operating loss carryforwards available to reduce future taxable income, of which federal net operating loss carryforwards of $ 358.6 million have an indefinite life.

The federal net operating losses began to expire in 2007, while state net operating losses begin to expire in 2025.

In the event that the Company has such a change in ownership, the Company's utilization of these carryforwards could be severely restricted and could result in the expiration of a significant amount of these carryforwards prior to the Company recognizing their benefit.

The Company files income tax returns in the U.S.

federal and state jurisdictions.

The 2018-2021 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.

The Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted March 27, 2020.

Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property.

Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses.

The Company has evaluated the impact of both the Acts and has determined that any impact is not material to its financial statements.

Cryptech Solutions

Bitmain Technologies Ltd.

COMMITMENTS AND CONTINGENCIES

Purchase of bitcoin mining equipment

The Company has cancellable purchase commitments totaling approximately $ 27 million related to purchase of miners and approximately $ 1.5 million related to purchase of mining operations related equipment and construction projects as of September 30, 2022 , and the Company has paid approximately $ 3 million towards these commitments as of the end of this period.

As of September 30, 2022 , the remaining commitment for future payments was approximately $ 28.5 million.

Future hosting agreements

On March 29, 2022, the Company entered into a Hosting Agreement (the "Lancium Agreement") with Lancium LLC (“Lancium”).

Pursuant to the Lancium Agreement, Lancium has agreed to host, power and provide maintenance and other related services to the Company’s mining equipment to be placed at Lancium facilities.

Pursuant to the Agreement, Lancium will provide 200 megawatts in support of Company’s mining equipment.

In addition, for a period of two and a half years following the operations commencement date under the Agreement, the Company will have an option to increase the power capacity supplied to the Company up to 500 MW or 40% of the aggregate capacity of all facilities owned and operated by Lancium, whichever is lesser.

As consideration for the Services, the Company shall pay Lancium a power charge fee based on kilowatt hours consumed by the Company’s equipment and a hosting fee based on power consumed, subject to service level adjustments and credits, if any.

The Agreement further provides that through December 31, 2023, Lancium, subject to certain limited exceptions, will not enter into any all-in fixed price agreements with other customers with the same or less power draw as the Company that contains more favorable terms for the fixed all-in price than those in the Lancium Agreement, unless the Company is provided with the same lower fixed price under the Lancium Agreement.

The Agreement has an initial term of five years from the operations commencement date (unless terminated earlier in accordance with the terms of the Agreement), after which it will renew automatically for two-year periods unless either party provides notice of non-renewal at least ninety days prior to the expiration of the term or renewal term, as applicable.

As of September 30, 2022, the Company did not have any contractual future payment obligations under the terms of the Agreement.

On March 29, 2022, the Company entered into a hosting agreement with Lancium LLC (“Lancium”).

Pursuant to the agreement, Lancium has agreed to host, power and provide maintenance and other related services to the Company's mining equipment to be placed at Lancium facilities.

Further, Lancium committed to provide 200 megawatts in support of the Company's mining equipment.

In addition, for a period of two and a half years following the operations commencement date, the Company will have an option to increase the power capacity supplied to the equipment up to 500 MW or 40% of the aggregate capacity of all facilities owned and operated by Lancium, whichever is lesser.

As of the date of this filing, the Company has not deployed any miners pursuant to the co-location mining services at Lancium’s facility in Texas.

Lancium has informed the Company that it is experiencing significant delays due to the tightening of capital in the current market climate.

The Company does not have any expected timeline on the readiness of these facilities for the foreseeable future.

If Lancium’s situation improves in a timeline acceptable to the Company, it would anticipate utilizing Lancium as intended but there can be no assurance that Lancium's situation or market conditions will improve.

Contractual future payments

The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of September 30, 2023:

($ in thousands)

Fiscal Year 2024

Fiscal Year 2025

Fiscal Year 2026

Fiscal Year 2027

Fiscal Year 2028

Recorded contractual obligations:

1 unchanged sentence

Finance lease obligations

Mining equipment

Mining operations related equipment

Construction in progress

Contingent consideration

GridFabric, LLC

On August 31, 2020, the Company acquired GridFabric, LLC.

Pursuant to the terms of the purchase agreement, additional shares of the Company’s common stock valued at up to $ 750,000 were issuable if GridFabric, LLC achieves certain revenue and product release milestones.

On September 30, 2021, the contingent consideration was re-measured to $ 500,000 .

On November 23, 2021, the Company settled all contingent consideration due to GridFabric, LLC resulting in a payment of 8,404 shares of common stock valued at $ 150,000 .

Solar Watt Solutions, Inc.

On February 24, 2021, the Company acquired Solar Watt Solutions, Inc.

Pursuant to the terms of the purchase agreement, additional cash consideration of up to $ 2,500,000 (fair valued at $ 155,000 at acquisition date) in cash held back by the Company and only payable pro rata to Sellers upon meeting certain future milestones and subject to satisfaction of any amounts owing from SWS to the Company resulting from damages required to be indemnified under the SWS Merger Agreement.

The contingent cash consideration was re-measured to $ 615,249 at December 31, 2021.

On January 31, 2022, the Company settled all contingent consideration due to the SWS sellers, resulting in a payment of $ 625,000 , 77,500 shares of common stock released out of escrow to the SWS sellers, and SWS sellers releasing 232,518 shares of common stock back the Company.

Mawson Property Acquisition

In connection with the Mawson Transaction (as discussed in Note 4), the Company and seller agreed to up to $ 2,000 of seller financing if the Company received, by April 8, 2023, written confirmation reasonably acceptable to it that it will be able to utilize at least 150 MW of additional power at the site.

Such written confirmation was not

received by April 8, 2023.

See Note 4 for additional description of the resolution of this contingency.

As of September 30, 2023, the Company has $ 0 recorded as contingent liability associated with the Mawson Transaction.

Legal contingencies

From time to time we may be subject to litigation arising in the ordinary course of business.

The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated.

When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made.

Legal fees are expensed as incurred.

Based on the opinion of legal counsel and other factors, management believes that the final disposition of these existing matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company.

The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss is expected to be insignificant.

This assessment is based on our current understanding of relevant facts and circumstances.

As such, our view of these matters is subject to inherent uncertainties and may change in the future.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates.

For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material.

Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time.

We maintain liability insurance to reduce such risk exposure to the Company.

Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in contingent liabilities..

CleanSpark, Inc.

On January 20, 2021, Scott Bishins (“Bishins”), individually, and on behalf of all others similarly situated (together, the “Class”), filed a class action complaint (the “Class Complaint”) in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Zachary Bradford (“Bradford”), and its Chief Financial Officer, Lori Love (“Love”) (such action, the “Class Action”).

The Class Complaint alleged that, between December 31, 2020 and January 14, 2021, the Company, Bradford, and Love “failed to disclose to investors:

(1) that the Company had overstated its customer and contract figures;

(2) that several of the Company’s recent acquisitions involved undisclosed related party transactions;

and (3) that, as a result of the foregoing, Defendants’

positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

The Class Complaint sought:

(a) certification of the Class, (b) an award of compensatory damages to the Class, and (c) an award of reasonable costs and expenses incurred by the Class in the litigation.

On January 20, 2021, Scott Bishins (“Bishins”), individually, and on behalf of all others similarly situated (together, the “Class”), filed a class action complaint (the “Class Complaint”) in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Zachary Bradford (“Bradford”), and its Chief Financial Officer at the time, Lori Love (“Love”) (such action, the “Class Action”).

On December 2, 2021, the Court appointed Darshan Hasthantra as lead Plaintiff (together, with Bishins, the “Plaintiffs”), and Glancy, Prongay and Murray LLP as class counsel.

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Matthew Schultz (“Schultz”) has been added as a defendant (the Company, Bradford and Schultz, collectively, the “Defendants”).

The Amended Class Complaint alleges that, between December 10, 2020 and August 16, 2021 (the “Class Period”), Defendants made material misstatements and omissions regarding the Company’s acquisition of ATL Data Centers, Inc.

(“ATL”) and its anticipated expansion of bitcoin mining operations.

In particular, Plaintiffs allege that Defendants:

(1) were misleading in their various public announcements related to the timeline for expanding ATL’s mining capacity;

and (2) failed to disclose other material conditions purportedly related to the Company’s acquisition of ATL, including that an ATL predecessor had filed for bankruptcy about six months prior to the acquisition, that another bitcoin miner had declined to acquire ATL, and that

a related party had performed an audit of ATL for the Company.

The Amended Class Complaint seeks:

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To date, no class has been certified in the Class Action.

The Company filed its Motion to Dismiss on April 28, 2022.

The Motion to Dismiss seeks dismissal of all claims asserted in the Amended Class Complaint with prejudice and without leave to amend on the grounds that Plaintiffs fail to state a claim upon which relief can be granted under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder.

Plaintiffs filed their opposition on June 27, 2022.

Defendants’

reply in further support of their Motion to Dismiss was filed on August 11, 2022.

The parties are awaiting a decision or oral argument on the Motion to Dismiss.

Although the ultimate outcome of the Class Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures and believes that the claims raised in the Amended Class Complaint and the Class Complaint are entirely without merit.

The Company filed a Motion to Dismiss in April 2022 which, after briefing, was denied in January 2023.

On February 15, 2023, the Company filed its answer responding to Plaintiffs’

claims and asserting affirmative defenses.

The case is moving forward in discovery.

The Company believes that the claims raised in the Amended Class Complaint are without merit.

The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.

Notwithstanding Plaintiffs’

allegations’

lack of merit, however, the Class Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims made in the Amended Class Complaint.

Notwithstanding the Company’s belief that the Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Class Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Ciceri, derivatively on behalf of CleanSpark, Inc., v.

Bradford, Love, Schultz, Beynon, McNeill, and Wood (consolidated with Perna, derivatively on behalf of CleanSpark, Inc., v.

Bradford, Love, Schultz, Beynon, McNeill, and Wood)

On May 26, 2021, Andrea Ciceri (“Ciceri”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Ciceri Derivative Action”) in the United States District Court in the District of Nevada against Chief Executive Officer, Zachary Bradford (“Bradford”), Chief Financial Officer, Lori Love (“Love”) and Directors Matthew Schultz, Roger Beynon, Larry McNeill and Tom Wood (Bradford, Love and Directors collectively referred to as “Ciceri Derivative Defendants.”) On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Ciceri Derivative Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same Court against the same Ciceri Derivative Defendants, making substantially similar allegations.

On June 29, 2021, the Court consolidated the Ciceri Derivative Action with the Perna Derivative Action in accordance with a stipulation among the parties (the consolidated case referred to as the “Derivative Action”).

The Derivative Action alleges that Ciceri Derivative Defendants:

The Class Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims made in the Amended Class Complaint.

Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Class Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Shareholder Derivative Actions

Consolidated Ciceri Derivative Actions

On May 26, 2021, Andrea Ciceri (“Ciceri”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Ciceri Derivative Action”) in the United States District Court in the District of Nevada against certain of the Company’s officers and directors (collectively referred to as “Ciceri Derivative Defendants”) ( Ciceri v.

Bradford, Schultz, Love, Beynon, McNeill and Wood ).

On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Ciceri Derivative Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same Court against the same Ciceri Derivative Defendants, making substantially similar allegations.

The Consolidated Ciceri Derivative Action alleges that Ciceri Derivative Defendants:

(1) made materially false and misleading public statements about the Company’s business and prospects;

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and (3) did not disclose several related party transactions benefitting insiders, questionable uses of corporate assets, and excessive compensation.

The claims asserted against all Ciceri Derivative Defendants include breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.

A claim for contribution under Sections 10(b) and 21D of the Securities and Exchange Act is asserted against only Bradford and Love.

The Derivative Action seeks declaratory relief, monetary damages, and imposition of adequate corporate governance and internal controls.

The claims asserted against all Ciceri Derivative

Defendants include breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.

On or about November 2, 2021, plaintiffs in the Consolidated Ciceri Derivative Action withdrew their claim for contribution under Sections 10(b) and 21D of the Securities and Exchange Act, which had been asserted against only Bradford and Love.

The Consolidated Derivative Action seeks declaratory relief, monetary damages, and imposition of adequate corporate governance and internal controls.

Plaintiffs were given the opportunity to submit an Amended Complaint by November 25, 2021, but elected not to.

In January 2022, the Parties agreed to stay the entirety of the case pending the outcome of the Motion to Dismiss in the Class Action.

Any of the Parties may also terminate the stay on 20 days’

Although the ultimate outcome of the Derivative Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures, and believes that the claims raised in that case are entirely without merit.

On January 5, 2023, the Class Action Motion to Dismiss was denied, thereby terminating the stay in this matter.

On April 20, 2023, the Ciceri Derivative Defendants filed a Motion to Dismiss the Consolidated Derivative Action.

Plaintiffs’

filed their opposition on June 12, 2023 and Defendants’

filed their reply in further support of their Motion to Dismiss on July 13, 2023.

In June 2023, the Company’s Board of Directors appointed a special litigation committee (the “SLC”), comprised of independent Directors and represented by independent counsel.

The SLC was established to investigate, evaluate and prosecute as appropriate any and all claims asserted in the Consolidated Ciceri Derivative Action as well as the Consolidated Smith Derivative Actions (defined below).

In October 2023, the SLC moved to intervene and stay the Consolidated Ciceri Derivative Action.

The Ciceri Plaintiffs did not oppose that motion and, accordingly, on October 23, 2023, the Court granted it, staying the case until July 23, 2024, pending the completion of the SLC’s investigation.

The Ciceri Defendants’

Motion to Dismiss was denied as moot, but may be re-filed if and when the stay is lifted.

The Company believes that the claims raised in that case are without merit.

The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.

Notwithstanding the Derivative Action’s lack of merit, however, it may distract the Company and cost the Company’s management time, effort and expense to defend against the claims.

Notwithstanding the Company’s belief that the

Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Derivative Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

The Consolidated Ciceri Derivative Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims.

Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Consolidated Derivative Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Consolidated Smith Derivative Actions

On February 21, 2023, Brandon Smith (“Smith”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors ( Smith v.

Bradford, Love, Schultz, Beynon, McNeill and Wood).

On February 24, 2023, Plaintiff Nicholas Iraci (“Iraci”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Iraci Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors ( Iraci v.

Bradford, Love, Schultz, Beynon, McNeill and Wood) .

On March 1, 2023, Plaintiff Eric Atanasoff (“Atanasoff”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Atanasoff Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s Officers and Directors ( Atanasoff v.

Bradford, Schultz, Beynon, McNeill, and Wood ).

On March 8, 2023, Plaintiff Travis France (“France”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “France Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors ( France v.

Bradford, Love, Tadayon, Schultz, Beynon, McNeill and Wood ).

The Smith Derivative Action, Iraci Derivative Action, Atanasoff Derivative Action and France Derivative Action each contain substantially similar allegations, namely that the defendants:

(1) made materially false and misleading public statements about the Company’s business and prospects;

(2) were misleading in their various public announcements related to the timeline for expanding ATL’s mining capacity;

(3) failed to disclose other material conditions purportedly related to the Company’s acquisition of ATL, including that an ATL predecessor had filed for bankruptcy about six months prior to the acquisition, that another bitcoin miner had declined to acquire ATL, and that a related party had performed an audit of ATL for the Company;

(4) did not maintain adequate internal controls;

and (5) did not disclose several related party transactions benefitting insiders and excessive compensation.

Between February and June 2023, the respective parties to the Smith Derivative Action, Iraci Derivative Action, Atanasoff Derivative Action and France Derivative Action litigated federal court versus state court jurisdictional

issues and, ultimately, each of the aforementioned derivative actions were consolidated into the Smith Derivative Action in the Eighth Judicial District Court of Nevada (the “Consolidated Smith Derivative Actions”).

The claims asserted in the operative Consolidated Smith Derivative Actions include breach of fiduciary duties, unjust enrichment and corporate waste.

The damages sought include monetary damages, restitution, declaratory relief, litigation costs, and imposition of adequate corporate governance and internal controls.

In September 2023, the Consolidated Smith Derivative Action filed a Motion to Dismiss the case based on the fact that the Plaintiffs lack standing, do not successfully rebut the business judgment rule, and fail to allege certain elements of the claims they assert.

In June 2023, the Company’s Board of Directors appointed the SLC, comprised of independent Directors and represented by independent counsel.

The SLC was established to investigate, evaluate and prosecute as appropriate any and all claims asserted in the Consolidated Ciceri Derivative Action (defined above) as well as the Consolidated Smith Derivative Actions.

In October 2023, the SLC moved to intervene and stay the Consolidated Smith Derivative Action, which the Plaintiffs opposed.

On November 6, 2023, the Court held a hearing on the SLC’s motion during which it granted the SLC’s motion to intervene and stayed the Consolidated Smith Derivative Action for five months.

The Court has not yet entered an order memorializing its decision.

The Company believes that the claims raised in Consolidated Smith Derivative Actions are without merit.

The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.

The Consolidated Smith Derivative Actions may distract the Company and cost the Company’s management time, effort and expense to defend against the claims.

Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Consolidated Smith Derivative Actions, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Solar Watt Solutions, Inc., v.

Pathion, Inc.

On January 6, 2022 , Solar Watt Solutions, Inc., (“SWS”) filed suit in the Superior Court of the State of California in the County of Santa Clara against Pathion, Inc., (“Pathion”) for breach of contract, conversion, unjust enrichment and negligent misrepresentation.

On January 6, 2022 , Solar Watt Solutions, Inc., (“SWS”) filed suit in the Superior Court of the State of California in the County of Santa Clara against Pathion, Inc.

(“Pathion”) for breach of contract, conversion, unjust enrichment and negligent misrepresentation.

Prior to its acquisition by the Company, SWS paid Pathion $ 419 for solar batteries and related equipment for delivery in August 2019, later amended to November 2019.

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Accordingly, SWS filed a Motion for Order Establishing Admissions and for Sanctions on July 25, 2022 and was awarded $ 2 in sanctions.

The parties are currently engaged in discovery process.

Darfon America Corp., etc.

CleanSpark, Inc., etc., et al.

On August 18, 2022, Darfon America Corp filed a breach of contract suit in connection with a purchase contract for batteries.

In short, Plaintiff contends that the Company ordered batteries and did not pay for them.

Plaintiff is seeking $ 5.4 million in damages and additional co sts and fees.

The parties are currently engaged in the discovery process and a trial date is scheduled for March 2024.

Darfon America Corp.

CleanSpark, Inc.

On August 18, 2022, Darfon America Corp.

("Darfon") filed a breach of contract suit in connection with a purchase contract for batteries.

Plaintiff contends that the Company ordered batteries and did not pay for them.

Plaintiff was seeking $ 5,400 in damages and additional costs and fees.

The Company contends, among other things, that the batteries did not meet the necessary specifications.

This case is in a very early stage as discovery has only just commenced.

The Company is confident in its legal position and does not anticipate a loss.

MAJOR CUSTOMERS AND VENDORS

The bitcoin mining business had the following customers that represented more than 10 % of revenue.

For these purposes customers are defined as the Company’s mining pool operators.

September 30, 2022

September 30, 2021

Mining Pool Operator A

Mining Pool Operator B

The Company had the following significant suppliers of mining equipment.

September 30, 2022

September 30, 2021

On January 27, 2023, the Superior Court of the State of California in the County of San Diego orally granted Plaintiff’s Motion for a pre-judgment Writ of Attachment.

While no written order has been received as of the date of this filing, this Writ of Attachment will likely provide Plaintiff with right to seek a lien on any Company assets located in California.

The Company had recorded a legal reserve of $ 1,100 in December 2022 in connection with this matter, which had represented the Plaintiff’s unmitigated damages less what the Company has already paid.

In April 2023, the Company settled the suit with Darfon for a total amount of $ 3,800 .

The Company recorded the additional settlement expense of $ 2,700 in March 2023, which is included in professional fees on the consolidated statement of operations and comprehensive loss.

The case was dismissed with prejudice effective July 27, 2023.

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved.

The outcome of litigation is inherently uncertain.

In the opinion of management,

there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.

SUBSEQUENT EVENTS

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There were no material subsequent events except as disclosed below:

Mawson Purchase Agreement

On October 8, 2022, the Company completed the acquisition of a lease for approximately 16.35 acres of real property located in Sandersville, Washington County, Georgia (the “Property”), all personal property located on the Property and 6,349 application-specific integrated circuit miners (the “ASICs”) from subsidiaries of Mawson Infrastructure Group, Inc.

a Delaware corporation (“Mawson”), who is the selling shareholder named herein (the “Mawson

Transaction”), all pursuant to a Purchase and Sale Agreement dated September 8, 2022 (the “Purchase Agreement”) and an Equipment Purchase and Sale Agreement dated September8, 2022.

The Company paid the following consideration to Mawson for the Property:

(i) $ 13.5 million in cash;

(ii) 1,590,175 shares (the “Closing Shares”) of our common stock, par value $ 0.001 per share (which had a value of approximately

$ 4.8 million based upon the closing price of the common stock on October 7, 2022), and (iii) $ 6.5 million in seller financing in the form of a promissory note.

We also agreed to pay up to $ 9.02 million in cash within 15 days of the closing for the ASICs.

The following additional consideration may be payable to Mawson following the closing:

up to 1,100,890 shares of our common stock (the “Earn-out Shares”

and, together with the Closing Shares, the “Company Shares”) (which have a value of approximately $ 3.3 million based upon the closing price of our common stock on October 7, 2022), based upon the number of modular data centers on the Property occupied by Mawson being emptied and made available for our use;

up to an additional $ 2.0 million in a seller-financed earn-out payable at least 60 days post-closing if we are able to utilize at least an additional 150 MW of power on the Property by the six month anniversary of the closing.

Disposal of Certain Energy Assets

On November 18, 2022, the Company completed the sale of certain assets of its discontinued energy business.

The transaction involved the sale of certain software rights and assets for approximately $ 2.75 million.

At-the-Market Equity Issuances

Subsequent to September 30, 2022, the Company issued 14,481,208 common shares in relation to equity raises through its At-the-Market offering facility, net of offering costs, for net proceeds of approximat ely $ 41,344,000 .

From October 1, 2023 through December 1, 2023, the Company issued 24,475,832 shares under its ATM offering facility resulting in net proceeds of $ 99,336 .

Issuance of Shares under Restricted Stock Grants

In October 2023, the Company settled and issued 88,888 shares to members of its Board of Directors in connection with time-based RSUs that vested on September 30, 2023.

Purchase Agreement

On October 6, 2023, the Company executed an agreement to purchase 4.4 exahashes per second (EH/s) of the recently announced Antminer S21 bitcoin mining machines, which have an efficiency rating of 17.5 joules per terahash (J/TH).

The delivery of the mining machines are set to begin in January 2024.

The agreement allows for 20% of the purchase price to be paid to the seller 365 days after the date that machines are ready-to-ship.

The purchase was made pursuant to the terms of a Future Sales and Purchase Agreement entered into by and between the Company and BITMAIN TECHNOLOGIES DELAWARE LIMITED on October 6, 2023.

The Company plans to use the mining machines to expand its digital currency mining activities through its wholly-owned subsidiaries.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data