Item 1. Business
Item 1. Business
As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” the “Company,” “CleanSpark, Inc.” and “CleanSpark” mean CleanSpark, Inc. and its consolidated subsidiaries, unless otherwise indicated. Dollar amounts presented in this Annual Report on Form 10-K are presented in thousands, except per share amounts, bitcoin price, and information set forth under the heading “Bitcoin Mining Operations”.
Overview
CleanSpark is a bitcoin mining company. We independently own and operate a large portfolio of data centers across the United States with locations in Georgia, Tennessee, Mississippi and Wyoming. As of October 31, 2024, we have with 676 megawatts (“MW”) of developed capacity and has 50 MWs of hosted machines in New York, which supports approximately 31.5 exahash per second (“EH/s”) of bitcoin mining computational power. We are currently developing an additional 211.5 MW across the portfolio, which is expected to support approximately 50 EH/s of mining capacity. We do not host miners for any other companies. A partner in Massena, NY, hosts 1.5 EH/s for us. However, following a non-renewal, the agreement governing such hosting of our miners is scheduled do expire on January 1, 2025 and we plan to move all operational capacity to wholly owned sites to maximize operational efficiency. We design our proprietary data center infrastructure to operate at high uptime and efficiency in support of bitcoin, the world’s most important digital commodity and an essential tool for financial independence and inclusion.
Through CleanSpark and our wholly owned subsidiaries, we have operated in the bitcoin mining sector since December 2020.
Business Activity
Bitcoin mining is our principal revenue generating business activity. As of September 30, 2024, we operated approximately 188,500 bitcoin mining machines, with a hashrate capacity of approximately 27.6 EH/s and a fleetwide efficiency of 21.94 joules per terahash (“J/TH”). In fiscal year 2024, we mined 7,092 bitcoins, net of mining pool fees, a 3% increase over the 6,903 bitcoins we mined in fiscal year 2023. We expect to continue increasing our computing power through 2024 and beyond as we expand our infrastructure at our portfolio of data centers across the United States with locations in Georgia, Tennessee, Mississippi and Wyoming. We intend to continue growing our capacity and plan to pursue additional capacity through both organic growth and strategic acquisitions.
Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin depends on 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 intermediaries, 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 broadcast across the network and validated by nodes. Miners then compete, using a proof-of-work consensus method, to find a target hash value, or output of a cryptographic function, and thereby add a new block and its transactions to the blockchain. This process is called mining. Miners are rewarded with bitcoins, in the form of newly-created bitcoins from the block subsidy and transaction fees included in that block.
Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining. In bitcoin mining, “hashrate” is a measure of the computing and processing power and speed by which a mining computer mines and processes transactions on the bitcoin network. A company’s hashrate when compared to global hashrate determines its market share and is therefore generally considered one of the most important metrics for evaluating bitcoin mining companies.
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We obtain bitcoin as a result of our mining operations by contributing all of our computing power (both owned locations and hosted locations) to one mining pool operator who is our sole customer. The contract with our mining pool operator is terminable at any time by either party. In exchange for providing computing power to the mining pool, we are entitled to bitcoin rewards from the mining pool operator, which is a variable consideration calculated based on a predetermined formula agreed to by us and the mining pool operator as a part of the arrangement. The variable consideration is constrained until we can reasonably estimate the amount of mining rewards by the end of a given day based on the actual amount of computing power provided to the mining pool operator. By then, we consider it a high probability that a significant reversal in the amount of revenue will not occur and include such variable consideration in the transaction price. Providing computing power is an output of our ordinary activities and the only performance obligation in our contracts with our mining pool operator. We recognize the revenue when the variable consideration is no longer constrained and the performance obligation of providing computing power has been satisfied. As a result, we do not present disaggregated revenue information on block rewards and transaction verification fees.
We have historically and may in the future sell bitcoin from time to time, to support our operations and strategic growth. Our decisions to engage in hedging, lending, borrowing activities, to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically subject to significant volatility. Decisions to hedge, lend, borrow, hold or sell bitcoins are determined by management by analyzing forecasts and monitoring the market in real time.
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, CSRE Properties Mississippi, LLC, CSRE Properties Wyoming, LLC, CSRE Properties Tennessee, LLC, and CleanSpark HQ, LLC, we maintain real property holdings.
Markets, Geography and Major Customers
Bitcoin is a global store of value and a medium of exchange used by people across the world as an asset and to conduct daily transactions. Mining bitcoin supports the global bitcoin blockchain and the millions of people that depend on it for economic security and other benefits. Strictly speaking, there is no customer market for mining bitcoin but we consider our mining pool operator a customer because it compensates us for providing processing power to the mining pool (see Part I, Item 1A., “Risk Factors”—“Our reliance on a third-party mining pool service provider for our mining revenue payouts may adversely affect an investment in us . ”). We own and operate our own facilities and do not lease mining space to other mining companies or private individuals that mine. Our wholly-owned mining operations are located in the State of Georgia, Tennessee, Mississippi and Wyoming in the United States. We also have a relationship with a facility located in New York State that hosts a portion of our miners. However, on October 1, 2024, we and our hosting partner, Coinmint, LLC, agreed to a non-renewal of the agreement governing the hosting of our miners, which is scheduled to expire January 1, 2025. See Note 19 - Subsequent Events.
Georgia Operations
As of September 30, 2024, our Georgia facilities have a developed data center infrastructure backed by approximately 483 MW, which supports an operational hashrate of 20.6 EH/s. Our Georgia operations are geographically spread across eight cities.
Mississippi Operations
As of September 30, 2024, our Mississippi facilities have a developed data center infrastructure backed by approximately 44 MW, which supports an operational hashrate of 2.0 EH/s. Our Mississippi operations are located in three cities and a fourth location is currently under construction.
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Tennessee Operations
As of September 30, 2024, our Tennessee facilities have a developed data center infrastructure backed by 79 MW, which supports an operational hashrate of 3.5 EH/s. We have five owned locations, two of which were operational as of September 30, 2024. Our Tennessee operations are located in six cities. Additionally, we had three locations operating through a co-location hosting agreement with GRIID. Effective October 30, 2024, each of these co-locations became fully owned after completing the acquisition of GRIID (see Note 5 - Acquisitions). The Company also closed on the acquisition two of additional Tennessee locations in October 2024.
Wyoming Operations
As of September 30, 2024, we have two separate mining locations in Wyoming that are under construction and are expected to be operational between the first and second quarter of fiscal year 2025. These locations will include miners that are cooled through immersion technology, a method of submerging mining hardware in a non-conductive fluid to cool the equipment and improve its efficiency, and are expected to have approximately 75 MW of data center infrastructure power under contract.
The table below summarizes our portfolio of operating locations as of September 30, 2024.
State
MWs Operational
EH/s Operational
Number of mining locations
Georgia
483
20.6
12
Mississippi (1)
44
2.0
4
New York (2)
50
1.5
1
Tennessee (3)
79
3.5
8
Total
656
27.6
25
(1) One of Mississippi locations is currently under construction and is expected to begin operation in December 2024.
(2) The New York location is a hosted location subject to the Coinmint co-location agreement (discussed below).
(3) Three of the Tennessee locations were previously hosted locations subject to the GRIID co-location agreement which became fully owned effective October 30, 2024 after the completion of the GRIID acquisition. Two of the five owned Tennessee locations were operational as of September 30, 2024.
Distribution, Marketing and Strategic Relationships
We have developed strategic relationships with well-established companies in key areas, including utilities, traditional and renewable energy, infrastructure, construction, and bitcoin mining equipment procurement. In addition to operating our own mining facilities, we may engage with third-parties to host and operate mining equipment on our behalf.
Coinmint
On July 8, 2021, our subsidiary CleanBlok, Inc., a wholly owned subsidiary of the Company, entered into a services agreement with Coinmint, LLC (“Coinmint”). Pursuant to the agreement, Coinmint has agreed to house and power certain of our bitcoin mining equipment in its facilities, and to use commercially reasonable efforts to mine bitcoin on our behalf. All bitcoin mining services performed by Coinmint are conducted using our own mining equipment. All computing power generated by our ASICs (Application-Specific Integrated Circuits) is contributed to our mining pool operator, Foundry Digital. As of the date of this filing, we have deployed approximately 16,400 total miners pursuant to the co-location mining services agreement at Coinmint’s facility in New York.
Pursuant to the agreement, as consideration for its services, we pay Coinmint certain services fees, which are based on the operating costs incurred by Coinmint in performing its services, and a variable fee calculated based on the profitability of the bitcoin mined during the relevant payment period, subject to uptime performance commitments. The agreement had an initial term of one year, after which it renews automatically for three-month periods until terminated in accordance with its terms. On October 1, 2024, we agreed to a non-renewal of the agreement, which is scheduled to expire January 1, 2025.
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Materials and Suppliers
We engage in high efficiency bitcoin mining by using ASICs. These specialized computers, often called miners, have few manufacturers. Most of the machines we purchased this year were manufactured by Bitmain Technologies Delaware Limited (“Bitmain”), one of the top three preeminent manufacturers of bitcoin miners. Bitmain manufactures ASICs throughout Asia with subsidiaries in the United States, Singapore, Malaysia, Kazakhstan and other locations.
In addition to ASICs, mining equipment includes networking equipment, power cords, racking, other specialized equipment, transformers and energy equipment. We rely on utility providers for our power needs. These utilities buy into local energy mixes to source power. We make every effort to establish our facilities in locations serviced by utilities that source a substantial portion of their energy from clean and renewable sources.
We have exposure to market fluctuations in energy prices through our power providers. We actively manage these risks through activities such as the deployment of advanced software solutions to increase unit efficiency and energy curtailment when appropriate. These energy market prices may be significantly impacted by market conditions and geopolitical events. Historically, our methodology and operations have been efficient and resilient enough to withstand market pressures and global events, but there can be no certainty that we will not be negatively affected in the future.
Inflationary pressures impact virtually all aspects of our materials and suppliers, including power prices, and could impact our fiscal year ending September 30, 2025.
Environmental Issues
No significant pollution or other types of hazardous emission result from our direct operations and it is not anticipated that our operations will be materially affected by federal, state or local provisions concerning environmental controls. Our costs of complying with environmental, health and safety requirements have not historically been material.
Some local, state and federal policymakers have expressed concerns over the high energy consumption of data centers, including bitcoin miners, and the ancillary effects on the environment from that energy consumption. Many media reports focus exclusively on the energy requirements of bitcoin mining and cite it as an environmental concern. We carefully monitor existing and pending climate change legislation, regulation, and international treaties or accords for any material effect on our business or markets that we serve, our operational results, our capital expenditures or our financial position.
We purchase energy from the electrical grid, and as a result our energy mix will vary from period to period based on a variety of factors including weather, temperature, demand, and how the grid operator ultimately procures and utilizes energy resources. Historically, one of our strategies had been to prioritize sustainable and environmentally friendly sources of energy, including nuclear energy sources. However, as we have accelerated our expansion efforts, including through multiple acquisitions of companies and assets, where we have focused on reliability and cost of the power, our overall energy source mix has changed, subject to the factors mentioned above. As a result, our current sources of energy include a significant portion of both non-carbon sources (including hydro, nuclear, wind and solar) and carbon sources (including coal and natural gas). We do not, however, currently have sufficient data to quantify the current energy mix at each of our sites, and any such data we receive is subject to the timing and details of the energy source mix information disclosed by our energy providers, including portions of the energy mix which is not disclosed by the energy providers.
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Competition
Bitcoin mining is a global activity. During fiscal year 2021, a majority of bitcoin mining occurred in China. After China banned bitcoin mining in May 2021, the center of mining moved to North America. Bitcoin mining by its nature is a competitive business; all miners compete for the same number of bitcoin rewards. Our competitors include large, publicly listed mining companies, large private mining companies, and, in some cases, independent, individual miners who pool resources. We define our principal competitors as other publicly traded bitcoin miners because there is widely available information about their operations. We believe our principal competitive advantages include our energy background, and the efficiency of our mining fleet and our operational expertise in managing uptime of our owned and operated facilities. We strategically use bitcoin we mine as a store of value, to fund operational growth and the use of bitcoin as collateral for borrowing activities. We are dedicated to working with communities to help stabilize energy usage to capture stranded power that can assist with reducing power rates for residential purchasers of power. Within North America, our major competitors include:
• MARA Holdings, Inc.;
• Riot Platforms, Inc.;
• Core Scientific, Inc.;
• Bitfarms Ltd.;
• Iris Energy Limited;
• Cipher Mining Inc.; and,
• Terawulf Inc.
In addition to the foregoing, we compete with other companies that focus all or a portion of their activities on mining activities at scale. We face significant competition in certain operational aspects of our business, including, but not limited to, the acquisition of new miners, obtaining low-cost electricity, obtaining access to energy sites with reliable sources of power and evaluating new technology developments in the industry.
Intellectual Property
We do not currently own any patents in connection with our existing and planned bitcoin mining-related operations. We do rely, and expect to continue relying, upon trade secrets, trademarks, service marks, trade names, copyrights and other intellectual property rights.
Government Regulation
Bitcoin mining is largely an unregulated activity at both the state and federal level. We anticipate that bitcoin mining will be a focus for increased regulation in the near- and long-term, and we cannot predict how future regulations may affect our business or operations.
State regulation of bitcoin mining is important with respect to where we conduct our mining operations. The majority of our mining facilities are located in Georgia, Mississippi and Tennessee, which have favorable regulatory environments for bitcoin miners. However, we also have co-location operations in New York, which has generally been more aggressive in its regulation of bitcoin mining. We have terminated our agreement with our hosting facility in New York and effective after January 1, 2025, we will no longer have co-location activities in the state.
In addition, federal regulators have increased their enforcement activity in the digital asset industry. Federal agencies such as the SEC and Commodity Futures Trading Commission (“CFTC”) have brought a number of enforcement actions, including actions against significant players in the industry. In fiscal year 2023, for example, the CFTC brought 47 actions involving conduct related to digital asset commodities, representing more than 49 percent of all actions filed by the CFTC during that time period. Increased enforcement by agencies like the SEC and CFTC has resulted in part from the failure of FTX Trading Ltd. (“FTX”) in November 2022 and the resulting market turmoil that such failure caused.
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While these statements tend to focus more on digital asset exchanges and other players in the digital asset space and less on bitcoin miners, the failure of large exchanges may impact the adoption and value of bitcoin. Additionally, because we sell our bitcoin on exchanges, we may also be impacted by exchange failures in that respect. For those reasons, we carefully vet the exchanges we use for adequate compliance with U.S. laws as well as liquidity, using the information available to us, but we cannot be certain that we will be able to avoid the negative effects of a large exchange failure.
As the regulatory and legal environment evolves, we may become subject to new laws and regulations, including by the SEC, CFTC and other agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see Part I, Item 1A. “Risk Factors” beginning on page 13 of this Annual Report on Form 10-K.
Protection of Bitcoin Assets
Our share of bitcoins mined from our pool is initially received by us in wallets we control, which are maintained by Coinbase Inc. (“Coinbase”), a U.S.-based digital assets exchange. We sell portions of the bitcoin we mine and utilize hot wallets to hold this bitcoin immediately prior to selling for working capital purposes. We hold any remainder of our bitcoin in cold storage. Bitcoin held in cold storage is reconciled monthly and associated with unique blockchain addresses, with their activity recorded on the blockchain. For security reasons, Coinbase does not disclose the geographic location of its cold storage wallets to its customers. Our custody agreement with Coinbase provides that Coinbase will obtain and maintain at its sole expense insurance coverage in such types and amounts as are commercially reasonable for the custodial services provided under the custody agreement. We do not carry additional insurance coverage on our bitcoin holdings. Further we are not aware of any insurance providers or other third parties (e.g. auditors) having inspection or other verification rights associated with digital assets held in storage.
Bitcoins we mine or hold for our own account may be subject to loss, theft or restriction on access. Hackers or malicious actors may launch attacks to steal, compromise or secure bitcoins, such as by attacking the bitcoin network source code, exchange miners, third-party platforms (including Coinbase), cold and hot storage locations or software, or by other means. We may be in control and possession of substantial holdings of bitcoin, and as we increase in size, we may become a more appealing target of hackers, malware, cyberattacks or other security threats.
See Part I, Item 1C. “Cybersecurity” of this Annual Report on Form 10-K.
Insurance
We have property insurance coverage for our bitcoin miners under a multi-tiered insurance program with 21 different underwriters for a total of $200,000 in limits. This insurance coverage covers all of our bitcoin miners and includes earthquake and flood insurance with a $5,000 limit. Storm, wind, and hail coverage is also included within the $200,000 policy limit. We do not maintain Business Interruption Coverage, which is currently not commercially available for bitcoin mining companies. The policies also exclude coverage of our bitcoin holdings and cybersecurity coverage. We engage our insurance broker annually to solicit underwriters to provide proposals to renew our current coverage or update our policies to meet our needs, prior to the policies’ expiration on November 1st of each year .
Human Resources
We believe that our future success depends, in no small part, on our ability to continue to attract, hire, and retain qualified personnel. As of September 30, 2024, we had 270 staff members, all located in the United States, of which 256 were full time. We believe that we have adequate personnel and resources with the specialized skills required to carry out our operations successfully. Employees participate in equity incentive plans and receive generous compensation in the form of salary and benefits. We continually seek to hire and retain talented professionals, although the competition for such personnel in our segments is significant. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe we have a strong and engaging relationship with our employees.
We cultivate trust and transparency among our employees, the communities we operate in, and the people around the world who depend on bitcoin as we jointly strive to build the infrastructure of the future.
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Discontinued Operations
As of June 30, 2022, we deemed our energy operations to be discontinued operations due to our strategic decision to strictly focus on bitcoin mining operations and to divest or dispose of the remaining energy assets. Through our discontinued operations segment, we previously provided energy solutions and we have since sold or disposed of the related assets.
Other Business Activities
Through our wholly owned subsidiary ATL Data Centers LLC (“ATL”), we previously provided traditional data center services to a small number of remaining clients, such as providing customers with rack space, power and equipment, and offered several cloud services including virtual services, virtual storage, and data backup services. As of September 30, 2023, ATL no longer provided data center services to external customers and all capacity of the location is now dedicated to bitcoin mining activities.
Company Information
CleanSpark, Inc. was incorporated in 1987 and is headquartered in Henderson, Nevada. It is incorporated in Nevada. The Company was formerly known as Stratean Inc. and changed its name to CleanSpark, Inc. in November 2016. We maintain a corporate website at: www.cleanspark.com.
The contents of our website are not incorporated in, or otherwise to be regarded as part of, this Annual Report on Form 10-K.
We file reports with the SEC. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings on Form 3, Form 4, and Form 5, and other related filings and exhibits, each of which is provided on our website free of charge as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.
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