CLEANSPARK, INC. 10-K

Item 7. 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 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 have no intention to mine, purchase or hold any other cryptocurrency at this time or in the foreseeable future, and we did not hold any other cryptocurrency as of September 30, 2024. We independently own and operate a large portfolio of data centers across the United States with locations in Georgia, Mississippi and Tennessee for a total developed power capacity of approximately 552 MW as of September 30, 2024. We are currently finalizing the developments of 75 MW in Wyoming and 16.5 MW in Mississippi. We have also had a hosting arrangement with GRIID Infrastructure, Inc. to host up to 54 MW of our bitcoin miners in Tennessee, which hosting arrangement terminated when we closed on our acquisition of GRIID Infrastructure, Inc. on October 30, 2024, and the 54 MW continued as our owned and operated facilities. We have an independent data center operation in Massena, NY that hosts 50 MW for us, which agreement will terminate on January 1, 2025. We design our infrastructure to responsibly secure and support bitcoin, the world’s most recognized digital commodity. We 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, 2024, our operating mining units were capable of producing over 27.6 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 the end of 2024 and beyond as we expand our infrastructure at our owned sites in Wyoming, Tennessee, and Mississippi, seek strategic acquisition targets, and through strategic co-location agreements. As of October 31, 2024, we are capable of producing 31.5 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. 42 We owned approximately 235,000 miners as of September 30, 2024, of which approximately 189,000 were in service and the remainder mainly pertains to new machines ready to install in the expansion in Wyoming, Mississippi and Tennessee. These miners range in age from 1-45 months and have an average age of approximately 12 months. Effective, May 2024, we estimate the useful lives of our miners to be 3-years (see Note 2 - Summary of Significant Accounting Policies). 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, 2024 have a range of energy efficiency (watts per terahash – “w/th”) of 15.0 to 34 w/th with an average energy efficiency of 21.9 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 also will utilize our bitcoin as collateral for lending arrangements. 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 the need for working capital, 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, 2024. Range of intraday bitcoin prices Quarterly Reporting Periods Ended Minimum Price Maximum Price December 31, 2021 $ 42,333 $ 69,000 March 31, 2022 $ 32,933 $ 48,240 June 30, 2022 $ 17,567 $ 47,469 September 30, 2022 $ 18,153 $ 25,215 December 31, 2022 $ 15,460 $ 21,479 March 31, 2023 $ 16,490 $ 29,190 June 30, 2023 $ 24,750 $ 31,444 September 30, 2023 $ 24,900 $ 31,862 December 31, 2023 $ 26,521 $ 45,000 March 31, 2024 $ 38,501 $ 73,836 June 30, 2024 $ 56,500 $ 72,777 September 30, 2024 $ 49,050 $ 68,244 As of September 30, 2024, we held approximately 6,819 bitcoins and had a receivable for 1,229 bitcoin that was posted as collateral and recorded on our Consolidated Balance Sheets as “Receivable for bitcoin collateral”. The fair value of our bitcoin as of September 30, 2024 was $431,661 on our Consolidated Balance Sheets and the fair value of our Receivable for bitcoin collateral was $77,827. Effective October 1, 2023, we adopted Accounting Standards Codification (“ASC”) 350-60 - Accounting for and Disclosure of Crypto Assets, which requires bitcoin to be measured at fair value. See Note 2 - Summary of Significant Accounting Policies for more details on the impact of implementation to the consolidated financial statements. As a result, the carrying value of each bitcoin we held at October 1, 2023 and each subsequent reporting period reflects the price of one bitcoin quoted on the active exchange, Coinbase, at the end of the reporting period. Therefore, decreases in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our bitcoin. As of September 30, 2023, we held $0.05 in USD Coin (“USDC”), which is a digital currency that is fully backed by U.S. dollar assets, with the value of one USDC coin pegged 1:1 to the value of one U.S. dollar. As of September 30, 2024, we did not hold any other cryptocurrency of value other than bitcoin. We maintain real property holdings through our wholly owned and consolidated subsidiaries. 43 Results of Operations ($ presented in 000’s, except for per share amounts, bitcoin price and information set forth under the heading “Bitcoin Mining Operations”) Bitcoin Mining Operations Overview 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 terahash we produce and contribute into the mining pool, the higher our percentage of the blockchain reward. 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, block rewards and halving, 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, 2024, 2023 and 2022 and our miner efficiency and computing power as compared to the global computing power. As of September 30, Combined facilities 2024 2023 2022 Global hashrate (in terms of EH/s) (1) 627.0 391.8 244.8 Miner efficiency (w/th) (2) 21.9 28.4 30.1 CleanSpark hashrate (in terms of EH/s) 27.6 9.6 4.2 CleanSpark percentage of total global hashrate 4.40 % 2.45 % 1.72 % (1) Total global hashrate obtained from mempool (https://mempool.space/graphs/mining/hashrate-difficulty ). (2) Watts of energy required to produce each terahash of processing power. Based on miner fleet operating at period end. As of September 30, 2024, our operating hashrate was approximately 4.40% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date equaled approximately 19-21 bitcoin per day, excluding the bitcoin earned from network transaction fees. Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs. 44 The table below describes the average cost of mining each bitcoin for the years ended September 30, 2024, 2023 and 2022 and the total energy usage and cost per each kilowatt hour ("KWH") utilized within our owned facilities. For the Year Ended Cost of Revenues - Analysis of costs to mine one bitcoin (per bitcoin amounts are actual) September 30, 2024 September 30, 2023 September 30, 2022 Cost of mining - Owned facilities Cost of energy per bitcoin mined $ 21,308 $ 12,668 $ 6,818 Other direct costs of mining - non energy utilities per bitcoin mined 93 75 277 Cost to mine one bitcoin - Direct energy cost - Owned facilities $ 21,401 $ 12,743 $ 7,095 Miner depreciation per bitcoin mined (excluding accelerated depreciation and impairment) 17,156 8,208 11,630 Financing costs per bitcoin mined 209 411 508 Direct cost to mine including direct energy costs, non-cash depreciation and financing costs - Owned facilities $ 38,766 $ 21,362 $ 19,233 Accelerated depreciation per bitcoin mined 1,170 4,764 - Direct cost to mine including direct energy costs, non-cash depreciation, financing costs and accelerated depreciation - Owned facilities $ 39,936 $ 26,126 $ 19,233 Average revenue of each bitcoin mined (1) $ 53,708 $ 24,601 $ 34,764 Direct cost to mine one bitcoin as % of average bitcoin mining revenue - Including direct energy cost only 39.8 % 51.8 % 20.4 % Direct cost to mine one bitcoin as % of average bitcoin mining revenue - Including direct energy costs, miner depreciation expense and financing costs 72.2 % 86.8 % 55.3 % Direct cost to mine one bitcoin as % of average bitcoin mining revenue - Including direct energy costs, miner depreciation expense, financing costs and accelerated depreciation expense 74.4 % 106.2 % 55.3 % Statistics Owned Facilities Total bitcoin mined at owned facilities 6,204 5,196 1,956 Bitcoin mining revenue - Owned facilities - ($ in thousands) $ 333,187 $ 127,827 $ 67,999 Total miners in service in owned facilities - as of the period ended 160,200 71,620 30,506 Total KWHs utilized 2,871,574,570 1,360,287,814 321,919,602 Total energy expense - ($ in thousands) $ 132,192 $ 65,824 $ 13,334 Cost per KWH $ 0.046 $ 0.048 $ 0.041 Energy expense as percentage of bitcoin mining revenue, net 39.7 % 51.5 % 19.6 % Other direct costs of mining - non energy utilities - ($ in thousands) $ 579 $ 391 $ 542 Depreciation Expense - Miners Only - ($ in thousands) $ 106,434 $ 42,651 $ 22,749 Accelerated Depreciation Expense - Miners Only - ($ in thousands) $ 7,261 $ 24,754 $ — Direct miner financing costs - ($ in thousands) $ 1,295 $ 2,138 $ 995 (1) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for our owned facilities by the total number of bitcoin mined by our owned facilities during the respective periods. We have determined that Coinbase is the principal market 45 for valuing bitcoin transactions and use the closing price of bitcoin at 23:59:59 UTC 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 between October 1, 2022 and September 30, 2024. Power prices are the most significant cost driver for our wholly owned locations, and energy costs represented 39.7%, 51.5% and 19.6% as expressed as a percentage of bitcoin mining revenues for the years ended September 30, 2024, 2023 and 2022, respectively. Energy prices can be highly volatile and global events (including the war in Ukraine and the resulting natural gas shortage) caused power prices to increase nationwide in 2022. All of our wholly owned and operated sites in Georgia and Mississippi 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 a goal of increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as winter storms, polar vortices and hurricanes, 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, 2024, 2023 and 2022 were $0.046, $0.048 and $0.041 per KWH, respectively. The management team makes real-time determinations on the need and timing during which we should curtail our operations. 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. The Company did not have significant curtailment greater than 20% during the years ended September 30, 2024, 2023 and 2022. The Company records depreciation expense (a non-cash expense) on its miners on a straight-line basis over the miners' expected useful life. Such non-cash depreciation amounts are recorded within the Consolidated Statements of Operations and Comprehensive Loss as "Depreciation and Amortization". Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment since depreciation expense is not an avoidable operating cost, such as energy costs. The table above presents the non-cash miner depreciation expense on a "per bitcoin" basis, calculated by dividing miner depreciation expense in our owned facilities by the number of bitcoin mined in the owned facilities. On a "cost per bitcoin" ratio, miner depreciation expense was $17,156, $8,208 and $11,630 for the years ended September 30, 2024, 2023 and 2022, respectively. The Company recorded accelerated depreciation on certain of its miners based on the reduction of the estimated useful life from 5 years to 3 years, which equaled $1,170 on a cost per bitcoin ratio for the year ended September 30, 2024. In fiscal 2023, the accelerated depreciation was applicable to certain miners removed from service prior to the conclusion of their originally estimated useful life. The number of bitcoin received by the Company was reduced by approximately 50% effective April 19, 2024 when the bitcoin algorithm halved the rewards from 6.25 per block to 3.125 per block. We have financing costs for a limited number of miners in our miner fleet and such costs are recorded within Interest Expense in our Consolidated Statements of Operations and Comprehensive Loss. The table above presents financing costs per bitcoin calculated by dividing direct interest expense on our miner financing agreement by the number of bitcoin mined in our owned facilities. On a cost per bitcoin ratio, financing costs were $209, $411 and $508 for the years ended September 30, 2024, 2023 and 2022, respectively. 46 The table below describes the average cost of mining each bitcoin for the years ended September 30, 2024, 2023 and 2022 and the total energy usage and cost per each KWH utilized within our hosted facilities. For the Year Ended Cost of revenues - Analysis of costs to mine one bitcoin (per bitcoin amounts are actual) September 30, 2024 September 30, 2023 September 30, 2022 Cost of mining - Hosted facilities Direct hosting fees expense per one bitcoin $ 36,564 $ 15,797 $ 14,885 Miner depreciation per one bitcoin 22,374 14,872 8,958 Direct cost to mine including non-cash depreciation expense - Hosted facilities $ 58,938 $ 30,669 $ 23,843 Accelerated depreciation per one bitcoin - 4,668 - Direct cost to mine including non-cash depreciation and accelerated depreciation expense- Hosted facilities $ 58,938 $ 35,337 $ 23,843 Average revenue of each bitcoin mined (1) $ 51,120 $ 23,611 $ 35,079 Direct cost to mine one bitcoin as % of average bitcoin mining revenue - Direct Hosting fees only 71.5 % 66.9 % 42.4 % Direct cost to mine one bitcoin as % of average bitcoin mining revenue - including miner depreciation expense / excluding accelerated depreciation 115.3 % 129.9 % 68.0 % Direct cost to mine one bitcoin as % of average bitcoin mining revenue - including depreciation expense / including accelerated depreciation 115.3 % 149.7 % 68.0 % Statistics Hosted Facilities Total bitcoin mined at Hosted facilities 896 1,707 1,796 Bitcoin mining revenue - Hosted facilities - ($ in thousands) $ 45,781 $ 40,294 $ 63,001 Total miners in service in Hosted facilities - as of the period ended 28,320 16,325 16,439 Total KWHs utilized 488,173,523 420,585,554 273,560,450 Total Hosting fee expense - ($ in thousands) $ 32,745 $ 26,965 $ 26,736 Hosting fee per KWH $ 0.067 $ 0.064 $ 0.098 Hosting fee expense as percentage of bitcoin mining revenue, net 71.5 % 66.9 % 42.4 % Depreciation expense - miners only - ($ in thousands) $ 20,038 $ 25,382 $ 16,089 Accelerated depreciation expense - miners only - ($ in thousands) $ — $ 7,967 $ — (1) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for hosted facilities by the total number of bitcoin mined within the hosted facilities during the respective periods. We have determined that Coinbase is the principal market for valuing bitcoin transactions and use the closing prices as of 23:59:59 UTC 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 between October 1, 2022 and September 30, 2024. For our hosted facilities, hosting fees (which comprise direct operating costs of the third-party operator with energy as the largest cost) and profit sharing were a combined 71.5%, 66.9% and 42.4% as a percentage of bitcoin mining revenues for the years ended September 30, 2024, 2023 and 2022, respectively. At our hosted facilities, the hosting fee as compared to KWHs utilized in the hosted facilities was $0.067, $0.064 and $0.098 per KWH for the years ended September 30, 2024, 2023 and 2022, respectively. We did not have significant curtailment greater than 20% during the years ended September 30, 2024, 2023 and 2022. 47 On a "cost per bitcoin" ratio, miner depreciation expense was $22,374, $14,872 and $8,958 for the years ended September 30, 2024, 2023 and 2022, respectively. The increase for the fiscal year 2024 period was mainly due to the decrease of bitcoin production as a result of the bitcoin halving on April 19, 2024 when the bitcoin algorithm halved rewards from 6.25 per block to 3.125 per block. The Company did not have any S19 XP or S21 miners at the hosted facilities during the periods presented and accordingly, there was no accelerated depreciation in the hosted facilities in fiscal 2024 following the reduction in the estimated useful life of our miners from 5 years to 3 years. In fiscal 2023, the accelerated depreciation was applicable to certain miners removed from service prior to the conclusion of their originally estimated useful life. 48 Results of Operations for the Fiscal Years Ended September 30, 2024 and 2023 Bitcoin mining revenue We earned $378,968 in revenues during the year ended September 30, 2024, which was an increase of $210,847, or 125%, as compared with $168,121 in revenues for the year ended September 30, 2023. Bitcoin mining revenues are recorded net of bitcoin mining fees charged by our sole mining pool operator that equaled approximately 0.16% and 0.09% of gross bitcoin mining revenues for the year ended September 30, 2024 and 2023, respectively, and 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, 2024, we mined 7,092 bitcoins, net of mining pool fees, with an average bitcoin price of $53,435 as compared to 6,903 bitcoins with an average bitcoin price of $24,355 during the year ended September 30, 2023. The increase in bitcoin mining revenue was primarily due to increase in the average bitcoin price and the increase in bitcoin mined year over year. The increase in the quantity of bitcoin mined was primarily driven by the increased number of miners in operation which more than doubled to approximately 188,500 as of September 30, 2024 from 88,000 as of September 30, 2023. 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 which ceased operations as of September 30, 2023 due to management's decision to divert all capacity within its operations to bitcoin mining. The Company earned $287 from its data center operations during the year ended September 30, 2023. Cost of revenues (exclusive of depreciation and amortization expense) Our cost of revenues were $165,516 for the year ended September 30, 2024, an increase of $71,936, or 77%, as compared with cost of revenues of $93,580 for the year ended September 30, 2023. These costs were primarily related to energy costs to operate miners within our owned facilities, which was $132,192 for the year ended September 30, 2024, an increase of $69,763 as compared to $65,824 for the year ended September 30, 2023. The increases in energy costs was primarily due to the increase in the volume of miners operating in our owned locations partially offset by the reduction in the average cost per KWHs, which approximated $0.046/KWH for the year ended September 30, 2024 as compared to an average cost of $0.048/KWH for the year ended September 30, 2023. We continually evaluate energy and bitcoin prices and periodically will curtail our mining operations when it is advantageous to do so. We also incurred hosting fees of $27,961 and profit sharing fees of $4,784 for the year ended September 30, 2024, an increase of $4,987 and $793, respectively, as compared to $22,974 and $3,991, respectively for the year ended September 30, 2023. The hosting fees and profit-sharing fees were primarily the result of our co-location agreements with Coinmint and GRIID. The hosting fees increased primarily due to increases in utility rates partially offset by a slight reduction in KWHs utilized. Professional fees Professional fees, which consists primarily of legal, accounting and consulting fees, were $13,806 for the year ended September 30, 2024, an increase of $2,937, or 27%, from $10,869 for the year ended September 30, 2023. Legal expenses were $5,707 for the year ended September 30, 2024, as compared to $7,676 in the prior year. This decrease was primarily attributable to no legal settlements during the year ended September 30, 2024, as compared to $3,800 of legal settlements in the prior year. Other professional fees, namely accounting, audit and consulting, were $8,099 for the year ended September 30, 2024 as compared to $3,193 for the year ended September 30, 2023, representing an increase of $4,906. 49 Payroll expenses Payroll expenses increased to $74,095 for the year ended September 30, 2024 from $45,714 for the same period ended September 30, 2023. Our payroll expenses include all compensation related expenses for our employees, primarily consisting of salaries, wages, payroll-related taxes and benefits and non-cash stock-based compensation. Payroll expenses, excluding non-cash stock-based compensation, were $44,540 the year ended September 30, 2024, representing an increase of 106% from $21,572 in the prior year ended September 30, 2023. This increase was primarily due to the significant growth in locations, increase in employee headcount along with employee bonuses during the year. 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 $29,555 for the year ended September 30, 2024, an increase of $5,413, or 22%, from $24,142 the prior year ended September 30, 2023. Such increase was primarily due to the vesting of market-based restricted stock awards in March due to achieving the market-based targets. General and administrative expenses General and administrative fees increased to $30,185 for the year ended September 30, 2024 from $20,823 for the same period ended September 30, 2023, representing an increase of $9,362. 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. Gain (loss) on fair value of bitcoin, net Gain on fair value of bitcoin, net for the year ended September 30, 2024 was $113,423. As discussed in Note 2 - Summary of Significant Accounting Policies and Note 6 - Bitcoin, the Company adopted the amendments per ASC 350-60 in the current period; accordingly, we measured crypto assets within the scope of ASC Topic 350-60 - Intangibles - Goodwill and Other - Crypto Assets at fair value in accordance with ASC Topic 820 - Fair Value Measurement and included the gains and losses from remeasurement in net income (loss). The gain pertains to the change in bitcoin’s fair value from $26,961 per bitcoin on October 1, 2023 to $63,301 per bitcoin on September 30, 2024. Prior to the adoption of ASC 350-60 - Crypto Assets, bitcoin was classified as indefinite-lived intangible assets and was measured at cost less impairment. Additionally, in the previous guidance, 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. Accordingly, gains (losses) recognized on fair value of bitcoin in fiscal year 2024 are not comparable to fiscal year 2023. Other impairment expense (related to bitcoin) Impairment expense in the amount of $7,163 was recognized for the year ended September 30, 2023. There was no impairment expense related to bitcoin for the year ended September 30, 2024 due to the adoption of ASC 350-60 (as described in Note 2 - Summary of Significant Accounting Policies and Note 6 - Bitcoin) which resulted in measuring bitcoin at fair value and recognizing gains or losses from remeasurement of the assets rather than at cost less impairment. The prior year impairment expense consisted of bitcoin impairments due to the general decrease in bitcoin prices during the year. Decreases in bitcoin prices for periods subsequent to the mining date were recorded as impairment expense. Under ASC Topic 350 - Goodwill and Other (prior guidance), 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 was $1,357 for the year ended September 30, 2023. As described under the heading “Gain (loss) on fair value of bitcoin, net” above, gains (losses) recognized on bitcoin transactions in fiscal year 2024 are not comparable to fiscal year 2023. 50 Impairment Expense - Fixed Assets Effective April 30, 2024, we concluded that various miner models (S19J, S19 J Pro and S19 J Pro+) would begin to be phased out and removed from service and replaced with newer, more efficient miner models. We began removing these miners in the periods subsequent to April 30,2024 and expect to have these miners removed from service by December 2024. Based on this operational change we recorded an impairment charge of $189,235 in the quarter ended June 30, 2024. The impairment charge was calculated by comparing the carrying amount as of April 30, 2024 to the fair value, which included the residual value of the miners. Due to subsequent reductions in salvage value between June 30, 2024 and September 30, 2024, we further reduced the estimated salvage value of these miners removed from service and recorded an additional impairment charge of approximately $7,806. Depreciation and amortization Depreciation and amortization expense increased to $154,609 for the year ended September 30, 2024 from $120,728 for the same period ended September 30, 2023, an increase of $33,881. Depreciation expense increased by $33,854, or 29%, during the year ended September 30, 2024, to $152,469 from $118,615 for the year ended September 30, 2023, due to an increase in miners and mining-related equipment being placed in service during the comparative period and due to accelerated depreciation expense on miners beginning in the second half of fiscal year 2024. Additionally, the Company reduced the expected useful life for miners from 5 years for new miners to 3 years, effective May 1, 2024. Amortization expense for the year ended September 30, 2024 was $2,140, an increase of $27, or 1%, from $2,113 for the prior year ended September 30, 2023. Other Income (Expenses) Other Income was $6,610 for the year ended September 30, 2024, compared with other expenses of $260 for the year ended September 30, 2023, which is a change of $6,870. The fluctuation was primarily related to the interest income earned in the year ended September 30, 2024 of $8,555 as compared to $481 in the prior year ended September 30, 2023 due to a higher balance of cash retained in short term interest bearing accounts and the interest earned on the note receivable from GRIID (See Note 7 - Note Receivable from GRIID). Interest expense in the year ended September 30, 2024 was $2,455 a decrease of $523 from $2,977 in the prior year comparable period. This decrease was primarily related to overall reduction in loan balances. Additionally, 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 $965 was recorded for the year ended September 30, 2024 as compared to loss for the same prior year period of $259, this change between the periods was the result of a change in fair value of the underlying instrument. Net Loss from Continuing Operations Net loss from continuing operations for the year ended September 30, 2024 was $145,777 as compared to net loss of $133,719 for the year ended September 30, 2023 for the reasons discussed above. Net Loss Net loss for the year ended September 30, 2024 was $145,777, an increase of $7,628 compared to a net loss of $138,148 for the year ended September 30, 2023. 51 Results of Operations for the Fiscal Years Ended September 30, 2023 and 2022 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 increase 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 were 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. 52 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, consisting primarily of 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 was 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. As described above, the Company adopted ASC 350-60 - Crypto Assets on October 1, 2023. 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 gain 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. 53 Other Income (Expenses) Other expense was $260 for the year ended September 30, 2023, compared with other expense of $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 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 entered into 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 $133,719 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 for the year ended September 30, 2023 from $9,667 for the year ended September 30, 2022. 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 Net loss for the year ended September 30, 2023 was $138,148, an increase of $80,822 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; (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. 54 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) 2024 2023 2022 Reconciliation of non-GAAP adjusted EBITDA Net income (loss) $ (145,777 ) $ (138,148 ) $ (57,326 ) Loss (income) on discontinued operations — 4,429 17,237 Impairment expense - fixed assets 197,041 — — Impairment expense - other 716 — 250 Impairment expense - goodwill — — 12,048 Depreciation and amortization 154,609 120,728 49,045 Share-based compensation expense 29,555 24,142 31,466 Other income — (11 ) (308 ) Change in fair value of contingent consideration — (2,484 ) (306 ) Realized gain on sale of equity security — — (1 ) Unrealized loss on equity security — — 2 Unrealized loss (gain) of derivative security 965 259 1,950 Interest income (8,555 ) (481 ) (190 ) Interest expense 2,455 2,977 1,078 Loss (gain) on disposal of assets 5,466 1,931 (643 ) Income tax expense 3,344 2,416 — Fees related to financing & business development transactions 4,059 697 827 Litigation & settlement related expenses 1,970 7,872 522 Severance and other expenses — 701 405 Non-GAAP adjusted EBITDA $ 245,848 $ 25,028 $ 56,056 55 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, 2024, our primary sources of liquidity came from existing cash and cash equivalents, bitcoin and proceeds from our at-the-market ("ATM") equity offering program. 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 the liquidity of our assets. We may continue utilizing the ATM program to strategically issue shares of common stock to support our liquidity needs, and we may amend or replace the program as necessary to maintain this funding flexibility. 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 changes in 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, 2024, we had total current assets of $705,430, primarily consisting of cash and cash equivalents, bitcoin, receivable from bitcoin collateral, the note receivable from GRIID, and prepaid expenses and other current assets, and total assets in the amount of $1,962,662. Our total current liabilities and total liabilities as of September 30, 2024 were $187,887 and $201,821, respectively. We had a working capital of $517,543 as of September 30, 2024. The Company had issued all of the ATM’s remaining capacity through the date of these consolidated financial statements. Consistent with past activity, management maintains various sources of funding available for the Company’s future needs. 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, 2024, 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, refer to Note 18 - Commitments and Contingencies included elsewhere in our Notes to Consolidated Financial Statements. 56 Operating Activities from Continuing Operations The Company generates non-cash revenue through mining Bitcoin, which it retains based on its long-term value strategy, while funding all operating expenses with cash. As a result, net cash used in operating activities was $233,154 for the year ended September 30, 2024 primarily due to net loss of $145,777, adjusted by adding non-cash adjustment to reconcile net loss to net cash of impairment of goodwill, fixed assets and other of $197,757, depreciation and amortization of $154,609, stock based compensation of $29,555 and loss on disposal of assets of $5,466 and subtracting non-cash bitcoin mining revenues of $378,968, gain on fair value of bitcoin, net of $113,423 and gain on fair value of receivable for bitcoin collateral of $1,384. Changes in operating assets and liabilities generated a net total of $16,529 of cash. Net cash used in operating activities was $18,573 for the year ended September 30, 2023 primarily due to net loss of $138,148, adjusted by adding non-cash adjustment to reconcile net loss to net cash of depreciation and amortization of $120,728, stock based compensation of $24,142, impairment of bitcoin of $7,163 and loss on disposal of assets of $1,931 and subtracting non-cash bitcoin mining revenues of $168,121. We also generated cash proceeds from selling bitcoin of $116,271. Changes in operating assets and liabilities generated a net total of $15,232 of cash. Investing Activities from Continuing Operations Cash flows used by investing activities during the year ended September 30, 2024 was $920,398 as compared with $334,179 for the year ended September 30, 2023. Our payments on miner equipment purchase and deposits of $740,296, purchase of fixed assets of $66,100, the combined asset purchases of land and locations of $97,647, and the note receivable from GRIID in the amount of $60,919 were the main cash outflows. The Company generated $43,126 of cash flows from the sales of bitcoin during the year ended September 30, 2024. Our purchase of fixed assets of $61,460, payments on mining equipment (including deposits) of $239,416 and purchase of Mawson for $22,518, and the acquisition of Coinmaker LLC for $9,389 were the main components of our negative investing cash flow for the year ended September 30, 2023. Financing Activities from Continuing Operations Cash flows generated by financing activities during the year ended September 30, 2024 amounted to $1,249,123, as compared with $357,928 for the year ended September 30, 2023. Our cash flows from financing activities for the year ended September 30, 2024 consisted primarily of proceeds from our at-the-market offering facility of $1,231,834 (106,969,819 shares at a weighted average price of $11.43 per share and $9,590 collections from receivable from equity offerings) and borrowings under our credit facility with Coinbase of $50,000. Our cash flows from financing activities for the year ended September 30, 2023 consisted of $376,200 in proceeds from offerings (98,829,525 shares at a weighted average price of $3.88 per share less 7,576 net collections on receivable for equity offerings) partially offset by payments on loans of $14,466. Cash Flows from Discontinued Operations Cash used in discontinued operations of $508 for the year ended September 30, 2024 was primarily based on the winding down of operations, which includes payments on warranty service. In the year ended September 30, 2023, operating cash flows generated was $1,326 mainly due to payments received from accounts receivable, payments made on accounts payable and cash generated from the sale of assets during the fiscal year. 57 Compensation Recovery Analysis As a result of our correction of errors in the prior year financial statements, the Compensation Committee of our Board of Directors, consisting entirely of independent directors, conducted a recovery analysis of incentive-based compensation received by our executive officers during the relevant period, as contemplated by Rule 10D-1 under the Exchange Act and in accordance with our Executive Officer Incentive Compensation Recoupment (Clawback) Policy. Based on this analysis, no recovery of incentive-based compensation is required, as the financial statement adjustments did not impact the metrics used to determine incentive compensation during the relevant recovery period, and thus there was no erroneously awarded compensation. Recently Issued and Proposed Accounting Pronouncements For information on new accounting pronouncements and the impact of these pronouncements on our Consolidated Financial Statements, see Note 2 - Summary of Significant Accounting Policies ” in the notes to our Consolidated Financial Statements. Critical Accounting Policies and Estimates We describe our most significant accounting policies in Note 2, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements. We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about highly complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. The most significant accounting policies in the preparation of our financial statements include revenue recognition and impairment of long-lived assets. Revenue Recognition We participate in a third-party operated mining pool. As a participant in this mining pool, we provide a service to perform hash calculations which is an output of our ordinary activities. The Company recognizes revenue in accordance with Accounting Standards Codification (“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. We receive non-cash consideration in the form of bitcoin, fair value of which we measure at 23:59:59 UTC on the date of contract inception using our principal market for bitcoin. The contract renews continuously throughout the day, and thus the value of the consideration should be assessed continuously throughout the day. Our critical policy is that we have concluded to use the 23:59:59 UTC bitcoin price each day. The market price of bitcoin fluctuates throughout the day, and the revenue recognized on a daily basis could be impacted if we utilized a different point in time or average price to recognize revenue. The Company assesses whether measuring the fair value of bitcoin received at 23:59:59 on the date of contract inception materially differs from assessing the fair value of bitcoin received continuously throughout the day at contract inception. Impairment of long-lived assets We evaluate impairment of long-lived assets when events or circumstance indicates there is a potential for impairment. The evaluation of impairment involves the conclusion that an indicator of impairment has occurred, the determination of the recoverability of long-lived assets from the results of operations and, if necessary, the fair value of the potentially impaired long-lived assets. The determination of fair value, specifically for our miners, includes estimates such as future bitcoin prices, transaction fees, and the future global hashrate. Actual future outcomes could result in different conclusions that could materially affect the consolidated financial statements. 58 The most significant accounting estimates in the preparation of our financial statements include estimate of useful lives of our miners, and impairment of long-lived assets and the valuation allowance associated with our deferred tax assets. Useful lives of miners We establish the useful lives of miners based upon the period over which they provide economic benefit to the Company in the form of bitcoin mining revenue and the duration of miner technological capability. Changes in the profitability of mining operations or miner technological capability could affect the determination of useful lives and have a material effect on the consolidated financial statements. Valuation allowances on deferred tax assets Accounting for income taxes 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. The guidance 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. We have recorded a valuation allowance on our deferred tax assets. 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. To fully utilize the net operating loss (“NOL”) carryforward, we will need to generate sufficient future taxable income in each respective jurisdiction. Due primarily to our history of losses, it is more likely than not that all or a portion of its deferred tax assets as of September 30, 2024 will not be realized. Future estimates of taxable income could have a material impact our utilization of our NOL’s.