CLEANSPARK INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, $ in thousands, except per share and per bitcoin and per terahash amounts)

ORGANIZATION

CleanSpark is a bitcoin mining company. The Company independently owns and operates five data centers in Georgia and three data centers in Mississippi for a total developed capacity of 420 megawatts (“MW”) and 435 MW as of March 31, 2024 and April 4, 2024, respectively. The Companyhas completed an additional 50 MW of data center infrastructure in Sandersville, GA, which is pending the commissioning of a utility transformer before it goes into service and the Company is currently finalizing the development of an additional 15 MW expansion at its Dalton, GA location. An independent data center operation in Massena, NY, hosts 50 MW for the Company. The Company does not currently host miners for any other companies. CleanSpark designs its infrastructure to responsibly support bitcoin, the world’s most important digital commodity and an essential tool for financial independence and inclusion.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the SEC and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the SEC on December 1, 2023 (the “Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented in this Quarterly Report on Form 10-Q have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

The accompanying unaudited consolidated financial statements include the accounts of CleanSpark, Inc., and the Company’s wholly owned, capitalized, and operating subsidiaries, ATL Data Centers LLC (“ATL”), CleanBlok, Inc., CleanSpark DW, LLC, CleanSpark GLP, LLC, CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC, CSRE Properties, LLC, CSRE Properties Washington, LLC, CSRE Properties Sandersville, LLC, CSRE Properties Dalton, LLC, Dalton15, LLC, CleanSpark MS, LLC, CSRE Properties Mississippi, LLC, CSRE Properties Vicksburg, LLC, MS Data, LLC, and CleanSpark HQ, LLC. All intercompany transactions have been eliminated upon consolidation of these entities.

Recently Issued Accounting Pronouncements

On March 21, 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2024-01 ("ASU 2024-01"), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or nonemployees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The Company is currently evaluating the impact of the adoption of ASU 2024-01 on its consolidated financial statements.

In December 2023, the FASB issued Accounting Standards Update No. 2023-08, Intangible - Goodwill and Other - Crypto Assets (Subtopic 350-60) (“ASC 350-60”). ASC 350-60 requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. Crypto assets that meet all the following criteria are within the scope of ASC 350-60:

(1)

meet the definition of intangible assets as defined in the Codification;

(2)

do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets;

(3)

are created or reside on a distributed ledger based on blockchain or similar technology;

(4)

are secured through cryptography;

(5)

are fungible; and

(6)

are not created or issued by the reporting entity or its related parties. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets.

Bitcoin, which is the sole crypto asset mined by the Company, meets each of these criteria. For all entities, the ASC 350-60 amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt the new guidance effective October 1, 2023 resulting in a $4,183 cumulative-effect change to adjust the Company's bitcoin held on October 1, 2023 with the corresponding entry to beginning accumulated deficit.

In December 2023, the FASB issued ASU 2023-09, which established a new income tax disclosure requirement in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. Companies must also further disaggregate income taxes paid. Companies are required to apply the guidance to annual periods beginning after December 15, 2024. The Company does not intend to early adopt this standard.

In November 2023, the FASB issued ASU 2023-07, Improvements to Disclosures About Reportable Segments (“ASU 2023-07”), which requires enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its consolidated financial statements.

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. The Company adopted the provisions of the accounting pronouncement as of October 1, 2023 and the new standard did not have an impact on the Company's consolidated financial statements for the six months ended March 31, 2024.

Liquidity

The Company had cash and cash equivalents, including restricted cash, of$323,052 and bitcoin (measured at fair value) of$357,981 as of March 31, 2024. As shown in the accompanying unaudited consolidated financial statements, the Company generated a net income from continuing operations of$152,644 during the six months ended March 31, 2024. The Company had cash outflows from operating activities from continuing operations, which were$82,525 during the six months ended March 31, 2024. The Company had cash outflows from investing activities from continuing operations due to its investments in capital expenditures in support of its bitcoin mining operations partially offset by proceeds of bitcoin sales. The Company generated significant cash inflows from financing activities from continuing operations, primarily attributed to proceeds from equity offerings. The Company generates non-cash consideration in the form of bitcoin, that the Company will sell to generate cash to funds its operations. During the six months ended March 31, 2024, the Company sold $43,103 ofbitcoin at various times during the period and utilized the proceeds to pay expenditures. However, the Company utilized portions of its equity offerings to offset its cash used in operating and investing activities. The Company has sufficient cash and bitcoin, which should continue to supportits ongoing operations for the next twelve months. The Company intends to continue generating cash from its access to equity financing through its at-the-market offering facility (see Note 12).

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of derivative assets, available-for-sale investments, the valuations of share-based awards and the valuations of tangible assets acquired in asset acquisitions. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under 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. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that the ongoing global supply chain issues may have on the Company’s operations.

Revenue from Contracts with Customers - Revenue from Bitcoin Mining

The Company recognizes revenue in accordance with ASC Topic 606 –Revenue from Contracts with Customers (ASC 606). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the company satisfies a performance obligation

Step 1: The Company operates in the bitcoin mining industry and has identified its bitcoin mining pool operator as its customer. The Company enters into a contract with a bitcoin mining pool operator (the "customer") to provide hash computation computing power to the mining pools. The contracts are terminable at any time by either party, the contract term is shorter than a 24-hour period, the contracts are continuously renewed, and there are no penalties for contract termination by either party. The Company earns revenue based on the Full-Pay-Per-Share (“FPPS”) payout method, set forth by our customer. The calculation has specific components which include network block subsidies, network difficulty, network transaction fees, and pool operating fees. The network block subsidy consists of newly generated bitcoins and comprises the largest share of the block reward. Network difficulty is the difficulty required to mine a block on the bitcoin network. Network transaction fees consist of fees paid by the users of the network for the execution of transactions that are included in the block. Pool operating fees are fees charged by the mining pool operator in order to operate the pool. Network block subsidies are based on the total amount of block subsidies that are expected to be generated on the bitcoin network as a whole during a 24-hour period beginning at midnight Universal Time Coordinated (UTC) daily, regardless of whether the mining pool operator successfully records a block to the blockchain. Network difficulty is based on the actual difficulty to mine a block on the bitcoin network. Network transaction fees are based on the total amount of transaction fees that are actually generated on the blockchain network as a whole during a 24-hour period. Pool operating fees are determined by a fee rate set forth in the customer’s terms of service as a percentage of the actual daily FPPS payout.

The mining pool that the Company contributes its hash computation computing power to only provides services for bitcoin mining and the fees charged during the most recent quarter were 0.19% of the total daily bitcoin mined. Applying the criteria per ASC 606-10-25-1, the contract arises at the point that the Company provides hash computation computing power to the mining pool operator, which is considered contract inception, because customer consumption is in tandem with delivery of the computing power.

Step 2: In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

•

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

•

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

Based on these criteria, the Company has a single performance obligation in providing computing power services (i.e., hashrate) to the mining pool operator (i.e., customer). The performance obligation of computing power services is fulfilled over time, as opposed to a point in time, because the Company provides the hash computation computing power throughout the day and the customer simultaneously obtains control of it and uses the asset to produce bitcoin. The Company has full control of the mining equipment utilized in the mining pool, and if the Company determines it will increase or decrease the hashrate computation computing power of its machines and/or fleet (i.e., for repairs or when power costs are excessive) the computing power provided to the customer will be increased or reduced.

Step 3: The transaction consideration the Company receives is non-cash digital consideration in the form of bitcoin, which the Company measures at fair value as the closing bitcoin price on the date of contract inception as determined by the Company's principal market of bitcoin, Coinbase, and such price is not materially different from using the opening bitcoin price on the date of contract inception. According to the customer contract, daily earnings are calculated from midnight-to-midnight UTC time, and the payout is made one hour later at 1:00 AM UTC time after the preceding midnight-to-midnight 24-hour period. The Company utilizes midnight Greenwich Mean Time (GMT), which is also the midnight of UTC time, since this is consistent with our customer contract in calculating our daily non-cash digital consideration from midnight-to-midnight UTC time.

The transaction consideration the Company earns is all variable since it is dependent on the daily computing power provided by the Company. The Company’s bitcoins earned through the contractual payout formula is not known until the Company’s hash computation computing power contributed over the daily measurement period is fulfilled over-time between midnight-to-midnight UTC time. The Company’s proportionate amount of the network transaction fee rewards earned are calculated at the end of each transactional day (midnight to midnight). There are no other forms of variable considerations, such as discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items.

Step 4: The transaction price is allocated to the single performance obligation upon verification for the provision of hash computation computing power to the mining pool operator. There is a single performance obligation (i.e., hash computation computing power or hashrate) for the contract; therefore, all consideration from the mining pool operator is allocated to this single performance obligation.

Step 5: The Company’s performance is complete in transferring the hash computation computing power over time to the customer and the customer obtains control of the contributed hashrate.

There are no deferred revenues or other liability obligations recorded by the Company since there are no payments in advance of the performance, and there are no remaining performance obligations after providing hash computation computing power.

Revenues from Data Center Services

As of September 30, 2023, data center services are no longer provided to external customers. The Company formerly provided data services, such as providing its customers with rack space, power and equipment, and cloud services, such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts. The performance obligations were the services provided to a customer for the month based on the contract. The transaction price was the price agreed with the customer for the monthly services provided and the revenues are recognized monthly based on the services rendered for the month.

Cost of revenues

Bitcoin mining segment (sole reportable segment)

The Company includes energy costs and external co-location mining hosting fees in cost of revenues.

Cash and cash equivalents, including restricted cash

Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. Temporary cash investments are made with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits.

The Company had restricted cash of $2,992 as of March 31, 2024 held in a separate bank account in a certificate of deposit as collateral for utility bonds. The utility bonds are reported in prepaid expense and other current assets on the Consolidated Balance Sheets.

Accounts receivable, net

Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. They are initially recorded at the invoiced amount upon the sale of goods or services to customers and do not bear interest. The Company performs ongoing credit evaluation of its customers, and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded.

Accounts receivable, net consists of the following:

Inventory

Inventory balances mainly include supplies inventory used to maintain bitcoin mining facilities and are presented at net realizable value with cost being measured on an average cost method. The Company periodically reviews inventories for unusable and obsolete items. Based on this evaluation, provisions are made to write inventories down to their net realizable value. Inventory was $991 and $809 as of March 31, 2024 and September 30, 2023, respectively.

Prepaid expense and other current assets

The Company records a prepaid expense for costs paid but not yet incurred. Those expected to be incurred within one year are recognized and shown as a short-term pre-paid expense. Any costs expected to be incurred outside of one year would be considered other long-term assets.

Other current assets are assets that consist of supplies, deposits and interest receivable. Deposits and interest we expect to receive within one year are shown as short-term. Those we expect to receive outside of one year are shown as other long-term assets.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. The cash balance in excess of the FDIC limits was$22,638 and$28,965 as of March 31, 2024 and September 30, 2023, respectively. The accounts offered by the custodian of the Company’s bitcoin, which accounts totaled$357,981 and$56,241 as of March 31, 2024 and September 30, 2023, respectively, are not insured by the FDIC. The Company has not experienced any losses in such accounts.

The Company has certain customers and vendors who individually represented 10% or more of the Company’s revenue or capital expenditures. Please refer to Note 16 - Major Customers and Vendors.

Stock-based compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 Compensation-Stock Compensation, which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense for stock options is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services. The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model. For equity awards granted by the Company that are contingent upon market-based conditions, the Company fair values these awards using the Monte Carlo simulation model. For discussion of accounting for restricted stock units, please refer Note 14 – Stock-Based Compensation.

Earnings (loss) per share

The Company reports earnings (loss) per share in accordance with FASB ASC 260-10 Earnings Per Share, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net income (loss) per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. All common stock equivalents that consist of options, warrants and restricted stock units were excluded from the calculation of the diluted loss per share calculation for the three and six months ended March 31, 2023 as their effect is anti-dilutive. Provided below is the income (loss) per share calculation for thethree and six months ended March 31, 2024 and 2023:

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Construction-in-progress is the construction or development of assets that have not yet been placed in service for their intended use. Depreciation for building and building improvements, leasehold improvements, miners, mining equipment, infrastructure assets, machinery and equipment, and furniture and fixtures commences once they are ready for their intended use. Leasehold improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases. Land is not depreciated.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

In accordance with FASB ASC 360-10, Property, Plant and Equipment, the carrying value of property and equipment and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the six months ended March 31, 2024 and 2023, the Company didnot record an impairment expense on property and equipment.

Bitcoin

Bitcoin are included in current assets in the Consolidated Balance Sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace and such bitcoin holdings are expected to be realized in cash or sold or consumed during the normal operating cycle of the Company.

As a result of adopting ASC 350-60 on October 1, 2023, bitcoin is measured at fair value as of each reporting period (see Recently Issued Accounting Pronouncements). The fair value of bitcoin ismeasured using the period-end closing bitcoin price from its principal market, Coinbase, in accordance with ASC 820, Fair Value Measurement. Since bitcoin is traded on a 24-hour period, the Company utilizes the price as of midnight UTC time, which aligns with the Company's revenue recognition cut-off. The changes in bitcoin valuation due to remeasurement in fair value within each reporting period is reflected on the consolidated statements of operations and comprehensive income (loss) as "Gain on fair value of bitcoin, net". In accordance with ASC 350-60, the Company discloses realized gains and losses from the sale of bitcoin and such gains and losses are measured as the difference between the cash proceeds and the cost basis of bitcoin as determined on a First In-First Out ("FIFO") basis.

Prior to the issuance of ASU 2023-08 and adoption of ASC 350-60, bitcoin were recorded at cost less impairment and were classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other. Bitcoin was accounted for in connection with the Company’s revenue recognition policy detailed above. An intangible asset with an indefinite useful life was not amortized but was assessed for impairment annually, or more frequently, when events or changes in circumstances occurred indicating that it was more likely than not that the indefinite-lived asset was impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment for periods under prior accounting guidance, the Company had the option to first perform a qualitative assessment to determine whether it was more likely than not that an impairment exists. If it was determined that it was not more likely than not that an impairment exists, a quantitative impairment test was not necessary. If the Company concluded otherwise, it was required to perform a quantitative impairment test. The Company elected to perform the quantitative impairment test each period rather than first performing the qualitative assessment. Quantitative impairment was measured using the intraday low bitcoin price from Coinbase in accordance with ASC 820, Fair Value Measurement. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses was not permitted as per ASC 350, Intangibles – Goodwill and Other.

Bitcoin, which is non-cash consideration earned by the Company through its mining activities, are included as a reconciling item as a cash outflow within operating activities on the accompanying Consolidated Statements of Cash Flow. The cash proceeds from the sales of bitcoin are classified based on the holding period in which the bitcoin are held. ASC 350-60 provides guidance on classifying proceeds from bitcoin and concludes that bitcoin converted nearly immediately into cash would qualify as cash flows from operating activities. All other sales would qualify as investing activities. In prior fiscal periods, the Company did not hold its bitcoin for extended periods of time and such sales proceeds prior to the adoption of ASC 350-60 were reported as cash flows from operating activities. Upon adoption, the Company evaluates its sales of bitcoin and records bitcoin sold nearly immediately as operating cash flows and the remainder will be recorded as investing activities. During the six months ended March 31, 2024, all proceeds from bitcoin sales were classified as investing activities.

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

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable:

Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments.

Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available under the circumstances.

The carrying value of cash, accounts payable, accrued expenses and short-term portion of loan payable approximate their fair values because of the short-term nature of the instruments. The carrying amount of the Company's long-term portion of loan payable is also stated at fair value since the stated rate of interest approximates market rates. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.

The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2024 and September 30, 2023:

There were no transfers between Level 1, 2 or 3 during the six months ended March 31, 2024.

The activities of the financial instruments that were measured and recorded at fair value on the Company's balance sheets on a recurring basis during the six months ended March 31, 2024 are described in Note 6 - Investments.

Discontinued Operations

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

Through its discontinued operations segment, the Company previously provided energy solutions through its wholly-owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consisted of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response, solar, energy storage for microgrid and distributed energy systems. The Company has sold the majority of its assets related to the Energy Segment, which included software and intellectual property, and inventory. See Note 4 – Discontinued Operations.

ACQUISITIONS

Asset Acquisitions

Dalton 3 Acquisition - Dalton, GA

On February 2, 2024, the Company, through its wholly-owned subsidiary CSRE Properties Dalton, LLC, entered into two purchase agreements with Makerstar Capital, Inc. and its wholly-owned subsidiary, Eyas Investment Group, for approximately two (2) acres of real property (the “Dalton Property”) located in Dalton, Whitfield County, Georgia and all improvements, fixtures and personal property situated on the Dalton Property. The Dalton Property was in the early stages of construction and included a concrete foundation and in-process electrical infrastructure. The combined purchase price (including direct acquisition costs of $132) for the real property and improvements, fixtures and personal property was approximately $3,569. The transaction was accounted for as an asset acquisition, whereby the total purchase price is allocated first to the fair value of the assets acquired and any excess purchase price is allocated to the acquired assets pro-rata. No goodwill is calculated in an asset acquisition.

Concurrent with the acquisition of the Dalton Property, the Company entered into a Construction Management Services Agreement dated February 2, 2024 (the “CMSA”) with Makerstar Capital Inc., pursuant to which the Company has engaged Makerstar Capital Inc. to manage the completion of the construction of a 15 MW data center facility on the Dalton Property for aggregate consideration of $3,435. The construction was substantially completed, and the facility began bitcoin mining operations on April 4, 2024.

Mississippi Locations Acquisition - Meridian, Vicksburg and Wiggins, MS

On February 26, 2024, the Company, through its wholly-owned subsidiary CSRE Properties Mississippi, LLC, closed on the Real Property Purchase and Sale Agreement entered into with Makerstar Capital, Inc. on February 5, 2024, pursuant to which the Company agreed to purchase three bitcoin mining facilities in Mississippi for an aggregate purchase price (including direct acquisition costs of $148) of $19,771. The three facilities are located in Meridian, Vicksburg, and Wiggins and each have power purchase agreements with capacities of 22 MW,6 MW and 16 MW, respectively. The transaction was accounted for as an asset acquisition, whereby the total purchase price is allocated first to the fair value of the assets acquired and any excess purchase price is allocated to the acquired assets pro-rata. No goodwill is calculated in an asset acquisition.

Dalton 1 & 2 Acquisition - Dalton, GA

On June 21, 2023, the Company completed the acquisition oftwo bitcoin mining facilities in Dalton, GA for $9,389. Each of the facilities are located on separateone-acre sites, each of which are under land leases. The combined facilities utilize 20 MW of power and operates a total of approximately 6,000 miners. The transaction was accounted for as an asset acquisition, whereby the total purchase price is allocated first to the fair value of the assets acquired and any excess purchase price is allocated to the acquired assets pro-rata. No goodwill is calculated in an asset acquisition.

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

DISCONTINUED OPERATIONS

The Company determined to make available for sale the asset groups related to its energy segment due to its strategic shift to strictly focus on its bitcoin mining operations. As a result, the energy segment's results of operations have been reclassified as discontinued operations on a retrospective basis for all periods presented. Accordingly, the assets and liabilities of this segment are separately reported as “assets and liabilities held for sale” as of March 31, 2024 and September 30, 2023 in the Consolidated Balance Sheets. The Company has since sold the majority of its software and intellectual property assets related to the energy segment and is in the process of selling additional remaining inventory and assets. The results of operations of this segment, for all periods, are separately reported as “discontinued operations” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Provided below are the key areas of the financials that constitute the discontinued operations:

BITCOIN

The following table presents the Company's bitcoin holdings as of March 31, 2024 and September 30, 2023:

The cost basis represents the valuation of bitcoin at the time the Company earns the bitcoin through mining activities. The cost basisfor 2,243 bitcoin held as of the adoption of ASC 350-60, was determined on the "cost less impairment" basis.

The following table presents information based on the activity of bitcoin for thesix months ended March 31, 2024:

The Company's bitcoin holdings are not subject to rehypothecation and do not serve as collateral for any existing loans or agreements. As of March 31, 2024, the Company held no other crypto currency. The cumulative realized gains from dispositions of bitcoin during the three and six months ended March 31, 2024 were $332 and $12,419, respectively.

INVESTMENTS

As of March 31, 2024 and September 30, 2023, the Company had total investments of$1,288 and$3,423, respectively, that are comprised of the following:

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

On November 5, 2019, the Company entered into a Securities Purchase Agreement (the "SPA"), dated as of November 6, with International Land Alliance, Inc. ("ILAL").

Pursuant to the terms of the SPA with ILAL, the Company purchased 1,000 shares of Series B Preferred Stock of ILAL (the “ILAL Preferred Stock”) for an aggregate purchase price of $500, less certain expenses and fees. The Series B Preferred Stock accrue cumulative in-kind accruals at a rate of 12% per annum and were redeemable on August 6, 2020. The ILAL Preferred Stock can be converted into common stock at a variable rate (refer to the discussion on embedded derivative assets below). This variable conversion ratio will increase by 10% with the occurrence of certain events. Since the investments were not redeemed on August 6, 2020, they are now redeemable at the Company`s option in cash or into common stock, based on the conversion ratio. The ILAL Preferred Stock is recorded as an available-for-sale ("AFS") debt security and is reported at its estimated fair value as of March 31, 2024. Any change in the fair values of AFS debt securities are reported net of income tax as an element of Other Comprehensive Income.

The Company accrued no interest, net on our available-for-sale debt securities as of March 31, 2024 and September 30, 2023, respectively. The fair value of investment in Debt Securities was$784 and$726 as of March 31, 2024 and September 30, 2023, respectively. The Company has included gain on change in fair value of preferred stock amounting to$58 for the six months ended March 31, 2024, and$58 for the six months ended March 31, 2023, as part of Other Comprehensive Income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company has deemed this variable conversion feature of the ILAL Preferred Stock as an embedded derivative instrument in accordance with ASC Topic No. 815. This topic requires the Company to account for the conversion feature on its balance sheet at fair value and account for changes in fair value as a derivative gain or loss. Unrealized gain or loss on fair valuation of this embedded feature is recognized as income or loss in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Total fair value of investment in derivative assets as of March 31, 2024 and September 30, 2023 was$505 and$2,697, respectively. The Company fair values the debt security as a straight debt instrument based on liquidation value and accrued interest to date. The fair value of the derivative asset is based on the difference in the fair value of the debt security determined as a straight debt instrument and the fair value of the debt security if converted as of the reporting date. The Company recorded an unrealized loss on derivative assets of$2,192 for the six months ended March 31, 2024, compared to an unrealized loss on derivative assets of$1,215 for the six months ended March 31, 2023.

The following table sets forth a reconciliation of carrying value of all investments as of March 31, 2024:

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation expense for the six months ended March 31, 2024 and 2023 was$60,999 and$39,656, respectively. For the six months ended March 31, 2024, the Company disposed of $11,648 of miners with a net book value of $2,837 for $508 and recognized a $2,329 loss on disposal.

The Company placed-in service property and equipment of $214,448 during thesix months ended March 31, 2024, which included $287 in machinery and equipment acquired in equipment loan transactions. This increase in fixed assets primarily consisted of miners of $142,456. Assets acquired through acquisition transactions (see Note 3 Acquisitions) resulted in an additional $23,340 in total assets placed in service. Additionally, in January 2024, the Company purchased raw land next to the Sandersville, GA location for approximately $1,038.

On April 7, 2023, CleanSpark HQ, LLC (“HQLLC”), a single-member limited liability company and subsidiary wholly owned by the Company, purchased certain real property located in Henderson, Nevada (the "Eastern Property") for $4,100. The property consists of approximately 15,000 square feet of office space. The Company utilizes this office space as its new corporate headquarters. The real property is recorded in building and building improvements and was placed in service in the first quarter of fiscal 2024.

Construction in progress: The Company is expanding its facilities in the State of Georgia, including infrastructure, building, and land improvements to expand its mining operations.

As of March 31, 2024 and September 30, 2023, the Company has outstanding deposits for miners and mining equipment totaling $161,309 and $75,959, respectively. Such deposits are as long-term assets on the Consolidated Balance Sheets.

8. INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2024 and September 30, 2023:

Amortization expense for the six months ended March 31, 2024 and 2023 was$1,035 and$1,019, respectively.

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

LEASES

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

In January 2024, the Company ceased usage of its prior corporate headquarters, which was accounted for as an operating lease. As of March 2024, the Company has not sub-leased the location and has impaired the right of use asset in the amount of $396 and has recorded this as "impairment expense - other" on the Consolidated Statement of Operations and Comprehensive Income (Loss).

The Company's lease costs recognized during thesix months ended March 31, 2024 and 2023 in the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) consist of the following:

(1)Included in general and administrative expenses

Other lease information is as follows:

The following is a schedule of the Company's lease liabilities by contractual maturity as of March 31, 2024:

10. LOANS

As of March 31, 2024, the Company had a gross balance outstanding of$12,900, netted against discount on loans payable of$124. Total principal payments on loans during the six months ended March 31, 2024 were$3,467.

The following is a schedule of the Company's loan balance, net of debt discount and future loan payments, as of March 31, 2024:

Mortgage - Corporate Office

On May 10, 2023, HQLLC completed a refinancing transaction whereby it borrowed a net $1,937 against the equity of the real property purchased in April 2023 that is currently utilized as the Company's Corporate Office (see Note 7). The loan agreement has atwo year term,10% interest rate and monthly interest only payments until maturity.

Master Equipment Financing Agreement

On April 22, 2022, the Company entered into a Master Equipment Financing Agreement (the "Master Equipment Financing Agreement") with Trinity Capital Inc. (the "Lender"). The Master Equipment Financing Agreement provided for up to $35,000 of borrowings to finance the Company’s acquisition of blockchain computing equipment. The Company received a loan of $20,000 at closing, with the remaining $15,000 fundable upon the Company's request, if requested no later than December 31, 2022, subject to certain customary conditions. The Company did not request the funding and agreed with the Lender that the related 1% loan commitment fee for the unused portion would be refunded to the Company, which was received in December 2022. The borrowings under the Master Equipment Financing Agreement are collateralized by 3,336 S19j Pro miners, which are located at our College Park, GA and Norcross, GA sites.

Marquee Funding Partners

In connection with the acquisition of a bitcoin mining facility from WAHA Technologies Inc. in August 2022, certain assets were encumbered with mortgages which the Company assumed. The mortgages assumed have a current unpaid principal balance of $1,503, remaining payment terms ranging from 28-35 months and annual interest of 13%.

Auto and Equipment Loans

The Company has entered into various financing arrangements to purchase vehicles and non-miner equipment with combined principal outstanding at March 31, 2024 of $812. The loans vary in terms from 12-72 months with annual interest rates ranging from 0.00% -11.30%. The loans are secured with the purchased vehicles and equipment. During thesix months ended March 31, 2024, the Company entered into seven separate agreements for the purchase of machinery, autos and equipment with a combined principal of $287, with terms ranging from 12-72 months and interest rates ranging from 0.00% to 11.3%.

11. INCOME TAXES

The Company calculates the tax provision for interim periods using an estimated annual effective tax rate applied to year-to-date ordinary income and adjusts for discrete items, if applicable, in the quarter. In each quarter, the estimate of the annual effective tax rate is updated and an adjustment is made in the year-to-date provision. The annual effective tax rate is subject to fluctuation due to factors including changing assumptions on forecasted annual pretax income, certain book and tax differences, valuation allowances against deferred tax assets, or changes in or interpretation of tax laws. We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. We evaluate information such as historical financial results, historical taxable income, projected future taxable income, expected timing of the reversals of existing temporary differences and available prudent and feasible tax planning strategies in our analysis.

The Company's income tax expense (including discrete items) was$11,595 andnil for thethree months ended March 31, 2024 and 2023 and$12,994 andnil for thesix months ended March 31, 2024 and 2023, respectively. The Company's estimated annual effective tax rate of 7.8% differs from the U.S. statutory rate of 21% primarily due to maintaining a valuation allowance on the deferred tax assets.

12. STOCKHOLDERS’ EQUITY

Overview

The Company’s authorized capital stock consists of 300,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. In the 2023 Annual Meeting of Stockholders held in March 2023, the Company's stockholders approved an amendment to the Company's First Amended and Restated Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 100,000,000 to 300,000,000. As of March 31, 2024, there were 225,469,791 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding. As of September 30, 2023, there were 160,184,921 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding.

For the three and six months ended March 31, 2024, the Company recorded $2,842 and $3,421, respectively, as dividends to holders of the Series A Preferred Stock, pursuant to the requirements listed in the certificate of designation. The dividends recorded for the three months ended December 31, 2023 of $579 were paid to the Series A Preferred Stock and the remaining unpaid dividend is recorded on the Consolidated Balance Sheets as Dividends Payable.

On June 3, 2021, the Company entered into an At The Market Offering Agreement (the “Original ATM Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”) to create an at-the-market equity program under which the Company may, from time to time, offer and sell shares of its common stock, having an aggregate gross offering price of up to $500,000 to or through the Agent.

On December 14, 2022, the Company entered into Amendment No. 1 to the At the Market Offering Agreement with the Agent (the “ATM Agreement Amendment” and, together with the Original ATM Agreement, the “ATM Agreement”). Under the ATM Agreement, the Company may, but has no obligation to, issue and sell up to the lesser number of shares (the “Shares”) of the Company’s common stock that does not exceed (a) $500,000 of shares of common stock, exclusive of any amounts previously sold under the Original ATM Agreement, (b) the number of authorized but unissued shares of common stock (less the number of shares of common stock issuable upon exercise, conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital stock), or (c) if applicable, the maximum number or dollar amount of shares of common stock that can be sold without causing the Company or the offering of the Shares to fail to satisfy the eligibility and transaction requirements for use of Form S-3, including General Instruction I.B.6 of Registration Statement on Form S-3, from time to time through the Agent, or to them, as sales agent and/or principal, on the terms set forth therein.

On January 5, 2024, the Company entered into a new At The Market Offering Agreement (the “2024 ATM Agreement”) with the Agent, to create an at-the-market equity program under which the Company may, but has no obligation to, issue and sell up to the lesser number of shares of the Company’s common stock that does not exceed (a) $500,000 of shares of common stock, or (b) the number of authorized but unissued shares of common stock (less the number of shares of common stock issuable upon exercise, conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital stock). In connection with the Company’s entry into the 2024 ATM Agreement, the ATM Agreement was terminated. From the inception of the 2024 ATM Agreement through March 31, 2024, the Company issued and sold 34,075,408 shares under the 2024 ATM Agreement for net proceeds of $487,500.

On March 28, 2024, the Company entered into Amendment No. 1 to the At the Market Offering Agreement with the Agent (the “March 2024 ATM Amendment”). Under the March 2024 ATM Amendment, the Company may, but has no obligation to issue and sell up to the lesser number of shares of the Company’s common stock that does not exceed (a) $800,000 ofshares of common stock, or (b) the number of authorized but unissued shares of common stock (less thenumber of shares of common stock issuable upon exercise, conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital stock).

Common stock issuances during the six months ended March 31, 2024

The Company issued 62,554,658 shares of common stock under its ATM Agreement and 2024 ATM Agreement resulting in net proceeds of$629,074 during thesix months ended March 31, 2024.

The Company issued 3,800,313 shares of common stock in relation to the settlement of restricted stock awards and withheld 1,184,490 shares of common stock of $17,139 for net settlement.

The Company issued 114,389 shares of common stock in connection with the exercise of stock options and warrants. Cash received from such issuance was $541.

Common stock issuances during the six months ended March 31, 2023

The Company issued 37,061,234 shares of common stock under its ATM Agreement resulting in net proceeds of $99,506 during thesix months ended March 31, 2023.

The Company issued 2,160,297 shares of common stock in relation to the settlement of restricted stock awards and withheld 539,961 shares of common stock for net settlement.

The Company issued 1,590,175 shares of common stock valued at $4,803 as consideration in connection with business acquisitions.

The Company issued 1,100,890 shares of common stock valued at $2,840 in settlement of the contingent purchase price in connection with the acquisition of a bitcoin mining facility from Mawson Infrastructure Group, Inc.

Common stock returned during the six months ended March 31, 2023

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

13. STOCK WARRANTS

The following is a summary of stock warrant activity during thesix months ended March 31, 2024.

As of March 31, 2024, there were warrants exercisable to purchase 17,560 shares of common stock in the Company and there wereno warrants that were unvested. These warrants have a weighted average exercise price of $6.12. During thesix months ended March 31, 2024, there were 65,000 warrants exercised on a cash-less basis, with 42,777 net shares issued.

As of March 31, 2024,10,000 of the outstanding warrants had a remaining term of 4.4 years and an intrinsic value of $132. The remaining 7,560 of the outstanding warrants do not have expiration dates and have an intrinsic value of $133.

14. STOCK-BASED COMPENSATION

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”) with an evergreen provision that allows for the increase of the maximum number of shares of common stock available under the Plan to fifteen percent (15%) of the Company's outstanding shares of common stock. As of March 31, 2024, prior to giving any effect to the evergreen provision that allows for the increase of shares on April 1, 2024, there were 10,016,167 shares available and authorized for issuance under the Plan.

STOCK OPTIONS

The following is a summary of stock option activity during thesix months ended March 31, 2024:

As of March 31, 2024, there were options exercisable to purchase 1,208,895 shares of common stock in the Company and 666,465 unvested options outstanding that cannot be exercised until vesting conditions are met. As of March 31, 2024, the outstanding options had a weighted average remaining term of 5.29 years and an intrinsic value of $12,784.

For the six months ended March 31, 2024, the Company also granted 90,000 options to purchase shares of common stock to employees with a total fair value of $769.

The Black-Scholes model utilized the following inputs to value the options granted during thesix months ended March 31, 2024:

The Company recognized stock-based compensation expense relating to stock options of$3,620 and$3,145 for the six months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Company expects to recognize $4,041 of stock-based compensation for the non-vested outstanding options over a weighted-average period of 2.1 years.

RESTRICTED STOCK UNITS

The Company grants restricted stock units ("RSU"s) that contain a) service conditions, b) performance conditions, or c) market performance conditions. RSUs containing service conditions vest monthly or annually. RSUs containing performance conditions generally vest over 1 year, and the number of shares earned depends on the achievement of predetermined Company metrics. RSUs that contain market conditions will vest based on the terms of the agreement and generally are over the employee's term of employment.

The Company recognizes the expense equal to the total fair value of the RSUs on the grant date. The time-based RSUs granted were valued equal the stock price on the grant date and the value of market-based RSUs were valued utilizing the Monte-Carlo valuation model. The expense is recognized ratably over the requisite service period.

The following table summarizes the activity for all RSUs during thesix months ended March 31, 2024:

On September 29, 2023, the Compensation Committee granted 3,460,000 market-based restricted stock units to senior leadership of the Company. A 33% tranche of the market-based awards vest based upon the Company's stock price reaching 200%, 300% and 400% of the stock price on the date of grant. The vesting of each tranche was dependent upon the target stock price being met for at least 10 of 20 consecutive trading days and the awards were not dependent on a defined service period. The total fair value of the award is approximately $13,160. In December 2023, the Company's stock price reached the 200% target and 33% of the grant was vested and shares settled. In February 2024, the Company's stock reached both 300% and 400% of the target stock price for a period greater than 10 of 20 consecutive days and the remaining market-based awards vested. Accordingly, the Company recognized the entire $13,160 in stock compensation through March 2024 and all shares were settled as of March 31, 2024.

On October 1, 2023, the Company granted 209,972 time-based RSUs to its board members as part of their annual compensation. These RSUs vest 25% each quarter-end and have a combined grant-date fair value of $800. The first vesting occurred on December 31, 2023, and 52,492 shares were settled and issued in January 2024. The second vesting occurred on March 31, 2024, and 52,492 shares were settled and issued in April 2024.

As of March 31, 2024, the Company had 1,914,988 outstanding unvested time-based restricted stock awards. About 50% of the time-based awards will vest by September 2024 and the rest will vest in the Company's fourth fiscal quarter ending September 30, 2025.

As of September 30, 2023, the Company had 196,435 performance-based awards that were unvested. In October 2023,193,931 performance-based awards vested when the Company achieved its exahash target rate of 10.0. Additionally,2,504 performance-based awards were forfeited in October 2023 due to termination.

The Company recognized stock-based compensation expense relating to restricted stock units of$16,130 and$8,476 for the six months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Company had $6,803 in unrecognized compensation costs related to all RSU awards that it expects to recognize over a weighted average period of 1.39 years.

15. COMMITMENTS AND CONTINGENCIES

Purchase of bitcoin mining related equipment

The Company had $92,544 in open purchase commitments for miners or mining equipment as of March 31, 2024. These commitments pertain to the purchase transactions with Bitmain Technologies Delaware Limited ("Bitmain Technologies") signed in both October 2023 and January 2024 for the purchase of 22,050 and 60,000 Antminer S21 bitcoin mining machines with purchase prices of $61,740 and $193,200 (after coupons), respectively. As of March 31, 2024, the Company has made combined payments of $158,884 and has accrued $3,512 for payment included in accounts payable and accrued liabilities on the Consolidated Balance Sheets. In connection with the October 2023 miner transaction, the purchase agreement allowed for a portion of the purchase price to be paid one year after shipment of the miners.

Contractual future payments

The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of March 31, 2024:

Legal contingencies

In addition to the legal matters disclosed below, the Company may from time to time be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

Bishins v. CleanSpark, Inc. et al.

On January 20, 2021, Scott Bishins (“Bishins”), individually, and on behalf of all others similarly situated (together, the “Class”), filed a class action complaint in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Zachary Bradford (“Bradford”), and its Chief Financial Officer at the time, Lori Love (“Love”) (such action, the “Class Action”). Subsequent to the filing of the Class Action, Darshan Hasthantra, as lead Plaintiff (together with Bishins, the “Plaintiffs”), filed an amended complaint (the “Amended Class Complaint”), which named S. Matthew Schultz (“Schultz”) as a defendant (the Company, Bradford and Schultz, collectively, the “Defendants”) and no longer named Love as a defendant.

The Amended Class Complaint alleges that, between December 10, 2020 and August 16, 2021 (the “Class Period”), Defendants made material misstatements and omissions regarding the Company’s acquisition of ATL and its anticipated expansion of bitcoin mining operations and seeks: (a) certification of the Class, (b) an award of compensatory damages to the Class, and (c) an award of reasonable costs and expenses incurred by the Class in the litigation.

To date, no class has been certified in the Class Action, and the case is moving forward in discovery.

The Company believes that the claims raised in the Amended Class Complaint are without merit. The Company intends to defend itself vigorously against these claims. At this time, the Company is unable to estimate potential losses, if any, related to the Amended Class Complaint.

Consolidated Ciceri Derivative Actions

On May 26, 2021, Andrea Ciceri (“Ciceri”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Ciceri Derivative Action”) in the United States District Court in the District of Nevada against certain of the Company’s officers and directors (collectively referred to as “Ciceri Derivative Defendants”) (Ciceri v. Bradford, Schultz, Love, Beynon, McNeill and Wood). On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Ciceri Derivative Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same court against the same Ciceri Derivative Defendants, making substantially similar allegations. On June 29, 2021, the Court consolidated the Ciceri Derivative Action with the Perna Derivative Action in accordance with a stipulation among the Parties (the consolidated case referred to as the “Consolidated Ciceri Derivative Action”). The Consolidated Ciceri Derivative Action asserts claims of breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets and seeks declaratory relief, monetary damages, and the imposition of adequate corporate governance and internal controls.

In June 2023, the Company’s Board of Directors appointed a special litigation committee (the “SLC”), comprised of independent Directors and represented by independent counsel, to intervene in the case, investigate, evaluate and prosecute as appropriate any and all claims asserted in the Consolidated Ciceri Derivative Action as well as the Consolidated Smith Derivative Actions (defined below). On October 23, 2023, the Court stayed the case until July 23, 2024, pending the completion of the SLC’s investigation.

The Company believes that the claims raised in the Consolidated Ciceri Derivative Action are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. At this time, the Company is unable to estimate potential losses, if any, related to the Consolidated Ciceri Derivative Action.

Consolidated Smith Derivative Actions

On February 21, 2023, Brandon Smith (“Smith”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (Smith v. Bradford, Love, Schultz, Beynon, McNeill and Wood).

On February 24, 2023, Plaintiff Nicholas Iraci (“Iraci”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (Iraci v. Bradford, Love, Schultz, Beynon, McNeill and Wood).

On March 1, 2023, Plaintiff Eric Atanasoff (“Atanasoff”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s Officers and Directors (Atanasoff v. Bradford, Schultz, Beynon, McNeill, and Wood).

On March 8, 2023, Plaintiff Travis France (“France”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (France v. Bradford, Love, Tadayon, Schultz, Beynon, McNeill and Wood).

Ultimately, each of the aforementioned derivative actions were consolidated into the Smith Derivative Action in the Eighth Judicial District Court of Nevada (the “Consolidated Smith Derivative Actions”).

The operative Consolidated Smith Derivative Actions assert claims of breach of fiduciary duties, unjust enrichment and corporate waste and seek monetary damages, restitution, declaratory relief, litigation costs, and the imposition of adequate corporate governance and internal controls.

On November 6, 2023, the Court stayed the Consolidated Smith Derivative Actions for five months pending the completion of the SLC’s investigation. On March 26, 2024, the SLC moved for an extension of the stay, which was granted on April 23, 2024, through July 8, 2024.

The Company believes that the claims raised in Consolidated Smith Derivative Actions are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. At this time, the Company is unable to estimate potential losses, if any, related to the Consolidated Smith Derivative Actions.

16. MAJOR CUSTOMERS AND VENDORS

The Company hasone mining pool operator (Foundry Digital) that represented 100% of revenue for thesix months ended March 31, 2024 and 2023.

For thesix months ended March 31, 2024 and 2023, the Company had the following significant suppliers of mining equipment.

SUBSEQUENT EVENTS

We have evaluated events occurring between April 1, 2024 through May 8, 2024. There were no material subsequent events except as disclosed below:

At-the-Market Equity Issuances

From April 1, 2024 through May 8, 2024, the Company issued 2,342,000 shares under its March 2024 ATM Amendment offering facility resulting in net proceeds of approximately $45,502.

Issuance of Shares from Option Exercises

From April 1, through May 8, 2024, the Company issued 58,469 shares of common stock relating to exercises of employee stock options.

Miner Purchase Agreement

On April 11, 2024, the Company entered into a Supplemental Agreement with Bitmain Technologies to amend certain terms of the Future Sales and Purchase Agreement dated January 6, 2024. The Supplemental Agreement amends the January 2024 Bitmain Technologies contract by modifying the type of miners to be purchased under the option from the S21 model to the upgraded S21 Pro model at a total purchase price of $374,400 for 100,000 units. The Company has paid a combined total of $93,600, of which $32,000 was paid as of March 31, 2024 and is included in Deposits on miners and mining equipment in our Consolidated Balance Sheets, and the remainder of $61,600 was paid in April 2024.

Bitcoin Reward Halving

On April 20, 2024, the bitcoin rewards issued for each block solved dropped from 6.25 to 3.125, effectively reducing the non-cash consideration received from bitcoin mining by 50% (excluding transactions fee rewards).