What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-12-03 compared with 2023-12-01 · 19 added, 340 removed, 12 unchanged (97% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock, par value $0.001 per share, is listed on The Nasdaq Capital Market under the ticker symbol “CLSK.”

Our common stock, par value $0.001 per share, and redeemable warrants exercisable for shares of our common stock are listed on The Nasdaq Capital Market under the ticker symbols “CLSK” and “CLSKW,” respectively.

Holders of Our Common Stock

As of December 1, 2023, we had 195 registered holders of record of our common stock.

As of December 3, 2024, we had 241 registered holders of record of our common stock, and 2 registered holder of record for our redeemable warrants.

The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.

1 unchanged sentence

There are no redemption or sinking fund provisions applicable to our common stock.

Stock Performance Graph

This performance graph shall not be deemed "filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of the Company under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

The following graph shows a comparison over a five-year period from September 30, 2019 through September 30, 2024, of the cumulative total return on our common stock (CLSK), the NASDAQ Composite Index ("NASDAQ Composite”), RUSSELL 2000, the price of bitcoin, and to equally-weighted average return of our self-constructed Peer Group assuming an aggregate initial investment in each of $100 on September 30, 2019.

Our self-constructed Peer Group Index consists of the members of our peer group with available publicly traded market data as of, and subsequent to, September 30, 2019, and consists of:

Marathon Digital Holdings, Inc.

(MARA), Riot Platforms, Inc.

(RIOT), HIVE Digital Technologies, Ltd.

(HIVE), Bitfarms Ltd.

(BITF), Terawulf Inc.

(WULF), Cipher Mining Inc.

(CIFR) , Iris Energy Limited (IREN) and Hut 8 Corp.

Such returns are based on closing stock price of each entity on September 30th or the last trading day prior to September 30th of each year.

The results are not intended to suggest future performance.

Historically, we have not declared or paid cash dividends on our common stock.

There are no restrictions in our articles of incorporation and bylaws or agreements to which we are currently party that prevent us from declaring dividends.

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Use of Proceeds from Registered Securities

In the quarter ended December 2021, we issued an aggregate of 8,404 unregistered shares of our common stock to the sellers of GridFabric in accordance with the Membership Interest Purchase Agreement entered into on August 31, 2020, based upon the achievement of certain milestones.

The shares had a deemed aggregate value of $150.

The shares of common stock were issued in a transaction not involving a public offering in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.

During the quarter ended September 30, 2023, there were no other unregistered sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Reports on Form 10-Q.

The Company has not made any repurchases of shares or other units of any class of the Company’s equity securities during the fourth quarter of the fiscal year covered by this Annual Report.

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

Forward-Looking Statements

The following discussion of our financial condition and results of operations for the years ended September 30, 2023 and 2022 should be read in conjunction with our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K.

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors.

We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements.

See "Forward-Looking Statements."

Business Overview

We are a bitcoin mining company.

We independently own and operate five data centers in Georgia for a total developed capacity of 230 MW.

We are developing an additional 150 MW at our data center in Sandersville, GA.

We have a partner in Massena, NY, that hosts 50 MW for us.

We design our infrastructure to responsibly support bitcoin, the world’s most important digital commodity and an essential tool for financial independence and inclusion.

We strive to leave the planet better than we found it by investing in communities that source low-carbon energy, like wind, solar, nuclear, and hydro.

We endeavor to cultivate trust and transparency among our employees, the communities we operate in, and the people around the world who depend on bitcoin.

Bitcoin Mining

Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value.

Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,”

which contains a record of every bitcoin transaction ever processed.

The bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation.

The authenticity of each bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive bitcoin.

Users have full control over remitting bitcoin from their own sending addresses.

All transactions on the bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction.

To be recorded on the blockchain, each bitcoin transaction is validated through a proof-of-work consensus method, which entails solving cryptographic functions to validate transactions and post them on the blockchain.

This process is called mining.

Miners are rewarded with bitcoins, both in the form of newly created bitcoins and fees in bitcoin, for successfully solving for the cryptographic function and providing computing power to the network.

Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining.

As of September 30, 2023, our operating mining units were capable of producing over 9.6 EH/s of computing power.

In bitcoin mining, “hashrate”

is a measure of the computing and processing power and speed by which a computer processes transactions on the bitcoin network.

We expect to continue increasing our computing power through 2024 and beyond as we expand our infrastructure at our owned sites in the State of Georgia, seek strategic acquisition targets, and through strategic co-location agreements.

As of the date of this filing, December 1, 2023, we are capable of producing 10.0 EH/s of computing power.

A company’s computing power measured in hashrate is generally considered to be one of the most important metrics for evaluating bitcoin mining companies.

We owned approximately 113,500 miners as of September 30, 2023, of which approximately 88,000 were in service and the remainder mainly pertains to new machines ready to install in the Sandersville expansion.

These miners range in age from 1-37 months and have an average age of approximately 12 months.

We do not have scheduled downtime for our miners.

We periodically perform unscheduled maintenance on our miners, but such downtime has not historically been significant.

When performing unscheduled maintenance, we will typically replace the miner with a substitute miner to limit overall downtime.

The miners owned as of September 30, 2023 have a range of energy efficiency (watts per terahash –

“w/th”) of 21.5 to 38 w/th with an average energy efficiency of 28.4 w/th.

We obtain bitcoin as a result of our mining operations, and we sell bitcoin from time to time, to support our operations and strategic growth.

We do not currently plan to engage in regular trading of bitcoin (other than as necessary to

convert our bitcoin into U.S.

dollars) or to engage in hedging activities related to our holding of bitcoin;

however, our decisions to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically characterized by significant volatility.

Currently, we do not use a formula or specific methodology to determine whether or when we will sell bitcoin that we hold, or the number of bitcoins we will sell.

Rather, decisions to hold or sell bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time.

The value of bitcoin has historically been subject to wide swings.

The following table provides a range of intraday low and intraday high bitcoin prices between October 1, 2021 through September 30, 2023.

Range of intraday bitcoin prices

Quarterly Reporting Periods Ended

Minimum Price

Maximum Price

December 31, 2021

March 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

March 31, 2023

June 30, 2023

September 30, 2023

As of September 30, 2023, we held approximately 2,243 bitcoins.

The carrying value of our bitcoins as of September 30, 2023 was $56,241 on our Consolidated Balance Sheet.

We account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition.

Impairment losses cannot be recovered for any subsequent increase in fair value.

The carrying value of each bitcoin we held at the end of each reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition.

Therefore, negative swings in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our bitcoin.

Through our wholly owned subsidiaries CSRE Properties, LLC, CSRE Property Management Company, LLC, CSRE Properties Norcross, LLC, CSRE Properties Washington, LLC, CSRE Properties Sandersville, LLC, CSRE Properties Dalton, LLC and CleanSpark HQ, LLC, we maintain real property holdings.

Results of Operations for the Fiscal Years Ended September 30, 2023 and 2022

($ presented in 000’s, except for bitcoin price and information set forth under the heading “Bitcoin Mining Operations”)

Bitcoin Mining Operations

We operate a fleet of servers commonly known as miners or ASICs (Application-Specific Integrated Circuits), which are computer chips customized for a specific use.

In the case of bitcoin mining, ASICs calculate the SHA-256 algorithm as efficiently and quickly as possible in order to compete with other miners to solve blocks.

Each calculation is a hash, and each machine’s computational power is measured in terahash processed per second (“TH/s”).

One terahash is equal to 1 trillion hashes.

The more hashing power we produce and contribute to the total global hashrate, the higher our percentage of the block reward.

For example, as of September 30, 2023, our operating hashrate was approximately 2.45% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date, equaled approximately 20-22 bitcoins per day.

Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs.

There are a variety of factors that influence our ability to mine bitcoin profitability.

Our ability to mine profitability is dependent on successfully navigating these fluctuating variables, which include bitcoin’s value in USD (the volatility of which is described above), mining difficulty, global hashrate, power prices, fleet energy efficiency, data center energy efficiency and other factors.

The energy efficiency of a mining fleet helps drive profitability, because the most significant direct expense for bitcoin mining is power.

We measure efficiency by the watts of energy required to produce each terahash of

processing power.

We believe we operate a highly efficient fleet of miners.

The table below describes our fleet as of September 30, 2023 and 2022 and describes our miner efficiency and computing power as compared to the global computing power.

As of the fiscal periods ended

Combined facilities

September 30,

Period ended Global hashrate (in terms of EH/s) (1)

Period ended miner efficiency (w/th) (2)

Period ended CleanSpark hashrate (in terms of EH/s)

Period ended CleanSpark percentage of total global hashrate

Coinbase closing bitcoin price - high

Coinbase closing bitcoin price - low

(1) Total global hashrate obtained from YCHARTS (https://ycharts.com/indicators/bitcoin_network_hash_rate).

(2) Watts of energy required to produce each terahash of processing power.

The table below describes the average cost of mining each bitcoin for the years ended September 30, 2023 and 2022 and the total energy usage and cost per each kilowatt hour (“KWH”) utilized within both our five owned facilities and our hosted facility.

For the Year Ended

Cost of Revenues - Analysis of costs to mine one bitcoin (per bitcoin amounts are actual)

September 30,

Cost of Mining - Owned Facilities

Cost of energy per bitcoin mined

Other direct costs of mining - non energy utilities per bitcoin mined

Cost to mine one bitcoin - Owned facilities

Cost of Mining - Hosted Facilities

Hosting fees expense per one bitcoin

Weighted average cost of mining one bitcoin (1)

Average revenue of each bitcoin mined (2)

Cost of mining one bitcoin as % of average bitcoin mining revenue

Owned Facilities

Total bitcoin mined at owned facilities

Bitcoin mining revenue - Owned facilities- ($ in thousands)

Total miners in service in owned facilities - as of the periods ended

Total KWHs utilized

1,360,287,814

Total energy expense - ($ in thousands)

Energy expense as percentage of bitcoin mining revenue, net

Other direct costs of mining - non energy utilities - ($ in thousands)

Hosted Facilities

Total bitcoin mined at hosted facilities

Bitcoin mining revenue - Hosted facilities- ($ in thousands)

Total miners in service in hosted facilities - as of the periods ended

Total KWHs utilized

Total hosting fee expense - ($ in thousands)

Hosting fee per KWH

Hosting fee expense as percentage of bitcoin mining revenue, net

(1) Weighted average cost of mining one bitcoin is calculated by dividing the sum of total energy expense and other direct costs of mining non-energy utilities (owned facilities) and total hosting fee expense (hosted facilities) by the total bitcoin mined during the respective periods.

(2) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for both owned and hosted facilities by the total number of bitcoin mined during the respective periods.

The Company determines Coinbase as the principal market for valuing bitcoin transactions and uses the daily closing prices as the source of recording revenue.

See the table "Range of intraday bitcoin prices" for information on the range of intraday bitcoin prices for quarterly periods since October 1, 2021.

Power prices are the most significant cost driver for our wholly owned locations, and energy costs represented 51.5% and 19.6% of bitcoin mining revenues for the years ended September 30, 2023 and 2022, respectively.

For our co-locations, hosting fees (which comprise direct operating costs of the third-party operator with energy as the largest cost) and profit sharing were a combined 66.9% and 42.4% of bitcoin mining revenues for the fiscal years ended September 30, 2023 and 2022, respectively.

Energy prices can be highly volatile and global events (including the war in Ukraine and the resulting natural gas shortage) have caused power prices to increase nationwide over the past year.

All of our wholly owned and operated sites in the State of Georgia and our hosted miners in New York State are currently subject to variable prices and market rate fluctuations with respect to wholesale power costs.

Such prices are governed by power purchase agreements which vary by location and said prices can change hour to hour.

While this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume with an eye towards increasing profitability and energy efficiency.

Energy prices are also highly sensitive to weather events, such as heat waves, winter storms and polar vortices, which increase the demand for power regionally.

When such events occur, we may curtail our operations to avoid using power at increased rates.

The average power prices we paid in our

owned facilities for the years ended September 30, 2023 and 2022 was $0.048 and $0.041 per kilowatt hour, respectively.

At our hosting facilities, the hosting fee as compared to KWHs utilized in the hosted facilities was $0.064 and $0.098 per kilowatt hour for such periods, respectively.

The management team makes real-time determinations on the need and timing during which we should curtail energy use.

We curtail when power prices exceed the value we would receive for the corresponding fixed bitcoin reward.

This means if bitcoin’s value decreases or energy prices increase, our curtailment will increase;

likewise, when bitcoin’s value increases and energy prices decrease, our curtailment will decrease.

The management team manages this decision on an hour-by-hour basis across all our sites, both wholly owned and hosted.

In the quarter ended December 31, 2022, energy prices spiked nationwide due to weather events and, as a result, we curtailed a total of 15% of our fleet, with December being the month in fiscal year 2023 with the greatest curtailment.

Our active curtailment strategy allowed us to avoid excessive cost during these events, but it also resulted in decreased production.

During the remainder of our fiscal year ended September 30, 2023, the Company did not have significant curtailment due to weather events or energy price spikes.

Results of Operations

Bitcoin mining revenue

We earned $168,121 in revenues during the year ended September 30, 2023, which was an increase of $37,121, or 28%, as compared with $131,000 in revenues for the year ended September 30, 2022 primarily due to increase in revenues from our bitcoin mining operations.

Bitcoin mining revenues are determined by two main drivers:

quantity of bitcoin mined and the price of bitcoin on the date the bitcoin is mined.

During the fiscal year ended September 30, 2023, we mined 6,903 bitcoins with an average bitcoin price of $24,355 as compared to 3,752 bitcoins with an average bitcoin price of $34,916 during the year ended September 30, 2022.

The increase in the quantity of bitcoin mined was primarily driven by the increased number of miners in operation which almost doubled to approximately 88,000 as of September 30, 2023 from 47,000 as of September 30, 2022.

This increase in miners in operation increased our hashrate, which is our total computational power, and which when understood in the context of global hashrate, determines how much bitcoin we are able to mine.

Other services revenues

Other services revenues pertain to our data center operations for which we earned $287 in revenue from our data center operation for the year ended September 30, 2023, which is a decrease of $238, or 45% as compared to $525 for the year ended September 30, 2022.

This decrease was due to management's decision to divert all capacity within its operations to bitcoin mining.

As of September 30, 2023, we no longer recognize revenues from data center operations.

Cost of revenues (exclusive of depreciation and amortization expense)

Our cost of revenues were $93,580 for the year ended September 30, 2023, an increase of $52,346, or 127%, as compared with cost of revenues of $41,234 for the year ended September 30, 2022.

These costs were primarily related to energy costs to operate the mining equipment within our owned facilities, which was $65,824 for the year ended September 30, 2023, an increase of $52,490 as compared to $13,334 for the year ended September 30, 2022.

The increases in energy costs within our owned facilities relates to the full-year or approximate full-year, as applicable, of mining operations in fiscal year 2023 in our Washington and Sandersville locations which were acquired in August 2022 and October 2022, respectively.

We also incurred hosting fees of $22,974 and profit sharing fees of $3,991 for the year ended September 30, 2023, an increase of $266 and a decrease of $37, respectively, as compared to $22,708 and $4,028, respectively for the year ended September 30, 2022.

The hosting fees and profit sharing fees are primarily the result of our co-location agreement with Coinmint.

The hosting fees remained consistent for both fiscal years since the increase in KWHs utilized was offset by the decrease in the rate charged per KWH.

Professional fees

Professional fees, which consists primarily of legal, accounting and consulting fees, were $10,869 for the year ended September 30, 2023, an increase of $4,400, or 68%, from $6,469 for the year ended September 30, 2022.

Legal expenses were $7,676 for the year ended September 30, 2023, as compared to $2,714 in the prior year.

This increase was primarily attributable to $3,800 in litigation settlement with Darfon America Corp and additional activity in litigation and transactional costs.

Other professional fees, namely accounting, audit and consulting, were $3,193 for the year ended September 30, 2023 as compared to $3,755 for the year ended September 30, 2022, a decrease of $562.

Payroll expenses

Payroll expenses increased to $45,714 for the year ended September 30, 2023 from $40,920 for the same period ended September 30, 2022.

Our payroll expenses include all compensation related expenses for our employees and mainly includes salaries, wages, payroll-related taxes and benefits and non-cash stock-based compensation.

Payroll expenses, excluding non-cash stock-based compensation, were $21,572 the year ended September 30, 2023, representing an increase of 127% from $9,493 in the prior year ended September 30, 2022.

This increase was primarily due to the Company’s acquisition of both WAHA and Mawson in August 2022 and October 2022, respectively.

We grant stock-based awards to certain employees as a significant portion of our payroll-related costs.

Stock-based compensation, which is a non-cash expense, was $24,142 for the year ended September 30, 2023, a decrease of $7,324, or 23%, from $31,466 the prior year ended September 30, 2022.

General and administrative expenses

General and administrative fees increased to $20,823 for the year ended September 30, 2023 from $10,423 for the same period ended September 30, 2022, representing an increase of $10,400.

This increase was primarily attributable to increases in corporate overhead, including but not limited to, taxes and licenses, insurance premiums, travel expenses and rent expenses.

Other impairment expense (related to bitcoin)

Impairment expense in the amount of $7,163 was recognized for the year ended September 30, 2023 a decrease of $5,047 as compared to $12,210 for the year ended September 30, 2022.

The impairment expense consists of bitcoin impairments due to the general decrease in bitcoin prices during the year, for which there was a larger general decrease in bitcoin prices during fiscal year ended September 30, 2022 as compared to fiscal year ended September 30, 2023.

Decreases in bitcoin prices for periods subsequent to the mining date are recorded as impairment expense.

Impairment expense is measured utilizing the intraday low bitcoin price during the holding period of bitcoin.

ASC Topic 350 - Goodwill and Other that requires subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin decreased to $1,357 for the year ended September 30, 2023 from a realized gain of $2,567 for the year ended September 30, 2022.

Realized gains on sale of bitcoin is the difference between the sales proceeds of bitcoin and the carrying amount.

Typically gains are higher when bitcoin prices are increasing over a holding period.

Depreciation and amortization

Depreciation and amortization expense increased to $120,728 for the year ended September 30, 2023 from $49,045 for the same period ended September 30, 2022, an increase of $71,683.

Depreciation expense increased by $71,533, or 152%, during the year ended September 30, 2023, to $118,615 from $47,082 due to an increase in miners and mining-related equipment being placed in service during the comparative period.

Additionally, in the fourth quarter of fiscal year 2023, the Company purchased Antminer XPs (140 TH/s with 21.5 J/TH), and replaced certain less efficient miners with these newly acquired miners.

As a result, the Company recognized an additional $32,721 in accelerated depreciation expense on the replaced miners.

Amortization expense for the year ended September 30, 2023 was $2,113, an increase of $150, or 8%, from $1,963 for the prior year ended September 30, 2022.

Other Income (Expenses)

Other expense was $260 for the year ended September 30, 2023, compared with $2,225 for the year ended September 30, 2022, which is a variance of $1,965.

We recognized a gain on the change in fair value of contingent consideration of $2,484 for the year ended September 30, 2023 relating to the Mawson acquisition.

Unrealized loss on derivative security of $259 was recorded for the year ended September 30, 2023 as compared to loss for the same prior year period of $1,950.

Interest expense in the fiscal year ended September 30, 2023 also increased by $1,899 to $2,977 from $1,078 in the prior year comparable period.

This increase was primarily related to the Financing Agreement, which was issued in April 2022 and was outstanding for approximately five months in the fiscal year ended September 30, 2022 as compared to being outstanding during the entire fiscal year ended September 30, 2023.

Net Loss from Continuing Operations

Net loss from continuing operations for the year ended September 30, 2023 was $132,160 as compared to net loss of $40,089 for the year ended September 30, 2022 for the reasons discussed above.

Results of Discontinued Operations

Revenues from our former energy segment decreased year over year as expected to $158 from $9,667.

The total costs and expenses for the year ended September 30, 2023 decreased to $6,071 from $26,901 for the year ended September 30, 2022 primarily due to impairment expenses related to the energy business and severance-related payroll expenses recognized in the prior year.

As a result, the net loss from discontinued operations for the year ended September 30, 2023 decreased to $4,429 from $17,237 in the prior year ended September 30, 2022.

The Company does not expect any substantial activity to be recorded to discontinued operations in subsequent periods.

Net loss for the year ended September 30, 2023 was $136,589, an increase of $79,263 compared to a net loss of $57,326 for the year ended September 30, 2022.

Non-GAAP Measure

We present adjusted EBITDA, which is not a measurement of financial performance under generally accepted accounting principles in the United States ("GAAP").

Our non-GAAP "Adjusted EBITDA" excludes (i) impacts of interest, taxes, and depreciation;

(ii) our share-based compensation expense, unrealized gains/losses on securities, and changes in the fair value of contingent consideration with respect to previously completed acquisitions, all of which are non-cash items that we believe are not reflective of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies;

(iii) non-cash impairment losses related to long-lived assets (including goodwill);

(iv) realized gains and losses on sales of equity securities, the amounts of which are directly related to the unrealized gains and losses that are also excluded;

(v) legal fees related to litigation and various transactions, which fees management does not believe are reflective of our ongoing operating activities;

(vi) gains and losses on disposal of assets, the majority of which are related to obsolete or unrepairable machines that are no longer deployed;

(vii) gains and losses related to discontinued operations that would not be applicable to our future business activities;

and (viii) severance expenses.

We previously excluded non-cash impairment losses related to bitcoin and realized gains and losses on sales of bitcoin from our calculation of adjusted EBITDA but have determined such items are part of our normal ongoing operations and will no longer be excluding them from our calculation of adjusted EBITDA.

Management believes that providing this non-GAAP financial measure that excludes these items allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time.

In addition to management's internal use of non-GAAP adjusted EBITDA, management believes that adjusted EBITDA is also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis.

Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate our bitcoin related revenues).

For example, we expect that share-based compensation expense, which is excluded from adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers and directors.

Additionally, management does not consider any of the excluded items to be expenses necessary to generate our bitcoin-related revenue.

The Company's adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently.

The Company's adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating (loss) income or any other measure of performance derived in accordance with GAAP.

Although management utilizes internally and presents adjusted EBITDA, we only utilize that measure supplementally and do not consider it to be a substitute for, or superior to, the information provided by GAAP financial results.

Accordingly, adjusted EBITDA is not meant to be considered in isolation of, and should be read in conjunction with, the information contained in our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The following is a reconciliation of our non-GAAP adjusted EBITDA to its most directly comparable GAAP measure (i.e., net (loss) income) for the periods indicated:

For the Year Ended September 30,

($ in thousands)

Reconciliation of non-GAAP adjusted EBITDA

Loss on discontinued operations

Impairment expense - other

Impairment expense - goodwill

Depreciation and amortization

Share-based compensation expense

Change in fair value of contingent consideration

Realized gain on sale of equity security

Unrealized loss of equity security

Unrealized loss of derivative security

Interest income

Interest expense

Loss (gain) on disposal of assets

Income tax expense

Legal fees related to litigation & settlement related expenses

Legal fees related to financing & business development transactions

Severance expenses

Non-GAAP adjusted EBITDA*

The following is a reconciliation of the fair market value of our bitcoin holdings to the current carrying value at September 30, 2023 and 2022:

September 30, 2023

September 30, 2022

Number of bitcoins held

Value per bitcoin (1) (2)

(1) Value per bitcoin is the average book value per bitcoin determined by the number of bitcoins held as of the balance sheet date divided by the carrying value.

(2) Value per bitcoin is the quoted closing market price from our principal market Coinbase as of the balance sheet date.

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, capital expenditures, loan payments, public company costs and general corporate needs.

We expect these needs to continue as we further develop and grow our business.

For the year ended September 30, 2023, our primary sources of liquidity came from existing cash and cash equivalents and bitcoin.

Based on our current plans and business conditions, we believe that existing cash and cash equivalents and bitcoin, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements for the next 12 months and for the reasonably foreseeable future until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets.

We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

In particular, rising inflation and interest rates, and the conflict between Russia and Ukraine, have resulted in, and may continue to result in, significant disruption and volatility in the global financial markets, reducing our ability to access capital.

If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.

As of September 30, 2023, we had total current assets of $102,172, primarily consisting of cash and cash equivalents, bitcoin, inventory, and prepaid expenses and other current assets, and total assets in the amount of $761,578.

Our total current liabilities and total liabilities as of September 30, 2023 were $74,055 and $84,351, respectively.

We had a working capital of $28,117 as of September 30, 2023.

In addition, we have access to equity financing through our at-the-market offering facility and debt financing through the lending arrangement we entered into in April 2022.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties.

These obligations impact our short-term and long-term liquidity and capital resource needs.

Certain contractual obligations are reflected on the consolidated balance sheet as of September 30, 2023, while others are considered future commitments.

Our contractual obligations primarily consist of cancelable purchase commitments with various parties to purchase goods or services, primarily miners and equipment, entered into in the normal course of business, loans and both finance and operating leases.

We regularly evaluate opportunities to expand our business, including through potential acquisitions of businesses or assets.

We will evaluate a variety of sources of capital in connection with financing any future possible acquisitions, including the incurrence of debt, sales of stock or bitcoin, or using cash on hand.

We may also use the Company’s stock as transaction consideration, as we have done in the past.

For information regarding our contractual obligations, see Contractual Obligations below and refer to Note 17, Commitments and Contingencies included elsewhere in our Notes to Consolidated Financial Statements.

Operating Activities from Continuing Operations

Net cash used in operating activities was $31,720 for the year ended September 30, 2023, as compared to net cash provided by operating activities of $77,806 for the same period ended September 30, 2022.

Our proceeds from the sale of bitcoin of $116,271 and adding back non-cash expenses, such as depreciation and amortization of $120,728, stock-based compensation of $24,142 and impairment of bitcoin of $7,163 were the main components of net cash provided by operating activity for the year ended September 30, 2023, offset primarily by the net cash used in operating activities of bitcoin mining of $168,121, net loss of $136,589, and increase in prepaid and other current assets of $4,320.

Our net cash provided by operating activities during the year ended September 30, 2022 was primarily driven by net loss from continuing operations for the period of $40,089, bitcoin mining of $131,000, and unrealized gain on derivative asset of $1,950, offset by stock based compensation of $31,466, depreciation and amortization of $49,045, impairment of bitcoin of $12,210, proceeds from the sale of bitcoin of $133,201, and an increase in accounts payable and accrued liabilities of $16,040.

Cash provided by operating activities decreased significantly primarily due to an increase in the number of bitcoin held as of the year ended September 30, 2023 compared to as of the year ended September 30, 2022.

Investing Activities from Continuing Operations

Cash flows used by investing activities during the year ended September 30, 2023 was $334,179 as compared with $210,981 for the year ended September 30, 2022.

Our payments on miner equipment purchase and deposits of $239,416, purchase of fixed assets of $61,460, purchase of Mawson of $22,518, purchase of Coinmaker LLC of $9,389, and land acquisition in Sandersville, GA of $1,430 were the main components of our investing cash flow for the year ended September 30, 2023.

Our purchase of fixed assets of $19,286, payments on mining equipment (including deposits) of $171,181 and purchase of WAHA of $19,772 were the main components of our negative investing cash flow for the year ended September 30, 2022.

Financing Activities from Continuing Operations

Cash flows generated by financing activities during the year ended September 30, 2023 amounted to $371,075, as compared with $141,960 for the year ended September 30, 2022.

Our cash flows from financing activities for the year ended September 30, 2023 consisted primarily of proceeds from our at-the-market offering facility of $383,776 (98,829,525 shares at a weighted average price of $3.88 per share).

Our cash flows from financing activities for the year ended September 30, 2022 consisted of $125,048 in proceeds from offerings (17,740,081 shares at a weighted average price of $7.05 per share), and proceeds from equipment backed loan of $19,620.

Cash Flows from Discontinued Operations

Cash provided by discontinued operations was based on the winding down of operations, which includes receipt of payments from accounts receivable, payments of accounts payable and cash generated from the sale of assets during the fiscal year September 30, 2023.

In fiscal year ended September 30, 2022, we experienced significant cash outflows from our energy segment, which is a significant reason the Company decided to exit the energy business segment.

The cash used in the operating activities of the energy segment (discontinued operations) for the year ended September 30, 2022 was $6,362.

Recently Issued and Proposed Accounting Pronouncements

At its September 6, 2023 meeting, the Financial Accounting Standards Board (“FASB”) discussed feedback on its proposed ASU - Accounting for and Disclosure of Crypto Assets (Subtopic 350-60) on the accounting for and disclosure of certain crypto assets.

On the basis of comments received on the proposal, the FASB directed its staff to draft a final standard.

Under the new guidance, an entity would be required to subsequently measure certain crypto assets at fair value, with changes in fair value included in net income in each reporting period.

The proposes set of rules would:

Measure crypto assets at fair value with changes recognized in income each reporting period

Expense transaction costs incurred

Present crypto assets and related fair value changes separately in the balance sheet and income statement

Require various disclosures in interim and annual periods.

The proposed rules would apply to all entities, including employee benefit plans and not-for-profits.

Crypto assets would be defined narrowly and bitcoin would meet the definition.

The likelihood of a final standard before the end of the year is likely and early adoption would be permitted.

Transition would not be retrospective but would require a cumulative effect adjustment to beginning retained earnings.

The Company expects to early adopt the final standard when issued.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts.

Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date.

This new guidance is effective for the Company for its interim and fiscal year ended September 30, 2024.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”).

ASU 2016-13 requires entities to use a new forward-looking “expected loss”

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 adopted the ASU effective October 1, 2023, and the adoption of the new standard did not have a material impact on the Company's results of operations or cash flows.

The Company has evaluated all other recent accounting pronouncements and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.

Critical Accounting Policies and Estimates

Our accounting policies are discussed in detail in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended September 30, 2023 however we consider our critical accounting policies to be those related to revenue recognition, property and equipment, business combinations, intangible assets and goodwill, bitcoin, and stock-based compensation.

Our significant estimates include estimates used to review the Company’s goodwill impairments and estimations of recoverability for long-lived assets.

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.

Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

During the quarter ended September 30, 2024, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Reports on Form 10-Q.

We have not made any repurchases of shares or other units of any class of our equity securities during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.

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 5. Market for Registrant’s Common Equity