CLEANSPARK INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

ORGANIZATION

CleanSpark, Inc. (the “Company”) is a bitcoin mining company. The Company independently owns and operates nine data centers in Georgia and three data centers in Mississippi for a total developed capacity of approximately 520 megawatts (“MW”) as of June 30, 2024. 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 also entered into a hosting agreement on June 26, 2024 with GRIID Infrastructure, Inc. to host up to 12 MW of the Company's bitcoin miners. The Company does not currently host miners for any other companies. The Company designs its infrastructure to responsibly secure and support the bitcoin network, the world’s most recognized digital commodity.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated interim financial statements 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 fiscal year. Unless otherwise noted, all amounts in these footnotes are in thousands.

The accompanying unaudited condensed consolidated financial statements include the accounts of CleanSpark, Inc., and the Company’s wholly owned 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, CSRE Properties Wyoming, LLC, Tron Merger Sub, Inc., MS Data, LLC, and CleanSpark HQ, LLC. All intercompany transactions have been eliminated upon consolidation of these entities. The Company has a sole reporting segment which is the bitcoin mining segment.

Recently Issued Accounting Pronouncements

On March 21, 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") No. 2024-01, Scope Application of Profits Interest and Similar Awards ("ASU 2024-01"), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of Accounting Standards Codification ("ASC") 718 -Compensation - Stock Compensationor (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, Accounting for and Disclosure of Crypto Assets (“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 (loss) 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 consolidated 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 accumulated deficit as of October 1, 2023.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, 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. The Company is currently evaluating the impact of the adoption of ASU 2023-09 on its consolidated financial statements.

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, 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 ("ASC 606"), 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 a material impact on the Company's consolidated financial statements.

Liquidity

The Company had cash and cash equivalents, including restricted cash, of $129,164 and bitcoin (measured at fair value) of$413,033 as of June 30, 2024. As shown in the accompanying unaudited condensed consolidated financial statements, the Company generated a net income from continuing operations of$83,598 during the nine months ended June 30, 2024. The Company had cash outflows from operating activities from continuing operations, which were$150,539 during the nine months ended June 30, 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 nine months ended June 30, 2024, the Company sold $42,803 of bitcoin 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 believes it has sufficient cash and bitcoin to support its 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 (“ATM") offering facility (see Note 13 - Stockholders' Equity). There can be no assurance that we will be able to sell any additional shares of our common stock under the ATM offering facility and no assurance regarding the price at which we will be able to sell such shares, and any sales of our common stock under the ATM offering facility may be at prices that result in additional dilution to our existing stockholders.

Use of Estimates

The preparation of condensed 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 condensed 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, share-based awards and 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 materially 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 participates in a third-party operated mining pool. As a participant in the third-party operated mining pool, the Company provides a service to perform hash calculations to the third-party operated mining pool, which is an output of our ordinary activities. 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 has identified the third-party mining pool operator as its customer (the "Customer"). The Company enters into a contract with the Customer to provide its hash calculations to the Customer's mining pool. The contracts are terminable without penalty at any time by either party, and thus the contract term is shorter than a 24-hour period and the contracts are continuously renewed.

Applying the criteria per ASC 606-10-25-1, the contract arises at the point that the Company provides hash calculations to the Customer's mining pool, which is considered contract inception, because Customer consumption is in tandem with delivery of the hash calculations.

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 identified a single performance obligation of providing hash calculations for the mining pool operator. The continuous renewal options do not represent material rights because they do not provide the Customer with the right to purchase additional goods or services at a discount. Specifically, the contract is renewed at the same terms, conditions, and rate as the current contract which is consistent with market rates, and there are no up front or incremental fees in the initial contract. The Company has full control of the mining equipment used in the mining pool, and if the Company determines if it will increase or decrease the hashrate calculations of its machines and/or fleet (i.e., for repairs or when power costs are excessive), thus increasing or reducing the hashrate provided to the Customer.

Step 3: The Company receives non-cash consideration in the form of bitcoin, fair value of which the Company measures at 23:59:59 UTC on the date of contract inception using the Company's 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, and the Company has concluded to use the 23:59:59 UTC bitcoin price each day. According to the Customer contract, daily settlements are made to the Company by the Customer based on the hash calculations provided over contract periods and the payout is made the following day. There are no other forms of variable considerations, such as discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items.

The Company earns non-cash consideration based on the Full-Pay-Per-Share (“FPPS”) payout method set forth by the Customer in the form of bitcoin. The amount of bitcoin the Company is entitled to for providing hash calculations to the Customer's mining pool under the FPPS payout method is made up of block rewards and transaction fees less mining pool fees determined as follows:

•

The non-cash consideration calculated as a block reward over the continuously renewed contract periods is based on the total blocks expected to be generated on the Bitcoin Network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the hash calculations that the Company provides to the Customer as a percent of the Bitcoin Network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin Network block rewards expected to be generated for the same period.

•

The non-cash consideration calculated as transaction fees paid by transaction requestors is based on the share of total actual fees paid over the continuously renewed contract periods beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: total actual transaction fees generated on the Bitcoin Network during the contract period as a percent of total block rewards the Bitcoin Network actually generated during the same period, multiplied by the block rewards we earned for the same period noted above.

•

The sum of the block reward and transaction fees earned by the Company is reduced by mining pool fees charged by the Customer for operating the mining pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent we perform hash calculations and generate revenue in accordance with the Customer’s payout formula during the continuously renewed contract periods beginning mid-night UTC and ending 23:59:59 UTC daily. The Customer provides services solely for bitcoin mining and the fees charged during the most recent quarter were 0.16% of the total daily bitcoin mined. This amount represents consideration paid to the Customer and is thus reported as a reduction in revenue as the Company does not receive a distinct good or service from the mining pool operator in exchange.

Step 4: There is a single performance obligation (i.e., hash calculations or hashrate) for the contract; therefore, all consideration from the Customer is allocated to this single performance obligation.

Step 5: The Company’s performance is completed over time as the Customer obtains control of the contributed hashrate. The performance obligation of hash calculations is fulfilled over time, as opposed to a point in time, because the Company provides the hash calculations throughout the contract period and the customer simultaneously obtains control of the service and uses it to produce bitcoin.

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 calculations.

Revenues from Data Center Services

Effective 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

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

Cash and cash equivalents

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.

Restricted cash

The Company considers cash to be restricted when held in a separate bank account and withdrawal and general use is restricted legally or to restrict a portion cash as collateral for insurance carriers. The Company had restricted cash of $3,023 as of June 30, 2024 held in a separate bank account in a certificate of deposit. Amounts included in restricted cash represent those required to be set aside by contractual agreements with insurance carriers in relation to utility bonds for various utility companies.

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 and is included in the condensed consolidated balance sheets as Prepaid and other currents assets:

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 $1,538 and $809 as of June 30, 2024 and September 30, 2023, respectivelyand is included in the condensed consolidated balance sheets as Prepaid and other currents assets.

Prepaid expense and other current assets

The Company records a prepaid expense for costs paid in advance of the benefit received. Those expected to be incurred within one year are recognized and shown as a short-term prepaid expense. Any costs not expected to be incurred within one year of the balance sheet date would be considered other long-term assets. The Company had prepaid expenses of $3,031 and $2,434 as of June 30, 2024 and September 30, 2023, respectively.

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 do not expect to receive within one year of the balance sheet date 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$2,871 and$28,965 as of June 30, 2024 and September 30, 2023, respectively. The accounts offered by the custodian of the Company’s bitcoin, which accounts totaled$413,033 and$56,241 as of June 30, 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 17 - 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 15 – 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 reflects the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net (loss) income per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.

The following table presents potentially dilutive securities that were not included in the computation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

Provided below is the loss per share calculation for thethree and nine months ended June 30, 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. Estimates of useful lives, residual values and methods of depreciation are periodically reviewed and revised to recognize changes in conditions. Any changes based on additional available information are accounted for prospectively as a change in accounting estimate. 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 three and nine months ended June 30, 2024 the Company recorded an impairment expense of $189,235 on certain miners (see Note 8 - 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("ASC 820"). Since bitcoin is traded on a 24-hour period, the Company utilizes the price as of 23:59:59 UTC, 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 are reflected on the Condensed Consolidated Statements of Operations and Comprehensive Loss as "Gain (loss) 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 was recorded at cost less impairment and was classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other, ("ASC - 350"). 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 the 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 its principal market for bitcoin in accordance with ASC 820. 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.

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 Condensed Consolidated Statements of Cash Flow. The cash proceeds from the sales of bitcoin are classified based on the holding period in which the bitcoin is 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. 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 of ASC 350-60, 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 nine months ended June 30, 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 are level 1 and 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 available to the Company for a similar duration. 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 June 30, 2024 and September 30, 2023:

There were no transfers between Level 1, 2 or 3 during the nine months ended June 30, 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 nine months ended June 30, 2024 are described in Note 7 - 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.

Reclassifications

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

ACQUISITIONS

Pending Acquisitions

GRIID Infrastructure Inc.

On June 26, 2024, the Company entered into an Agreement and Plan of Merger (the “GRIID Agreement”) with GRIID Infrastructure Inc., a Delaware corporation (“GRIID”), and Tron Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and a wholly owned subsidiary of the Company. The GRIID Agreement provides that, among other things and subject to the terms and conditions of the GRIID Agreement, (1) Merger Sub will be merged with and into GRIID (the “Merger”), with GRIID surviving and continuing as the surviving corporation in the Merger, and, (2) at the effective time of the Merger (the “Effective Time”), holders of each outstanding share of common stock, par value $0.0001 per share, of GRIID (“GRIID Common Stock”) will receive, in exchange for each share of GRIID Common Stock held immediately prior to the Merger (other than certain excluded shares), that number of shares of common stock, par value $0.001 per share, of CleanSpark common stock equal to the quotient obtained by dividing the Aggregate Merger Consideration (as defined below) by the total number of shares of GRIID Common Stock issued and outstanding as of the closing date of the Merger (the “Exchange Ratio”). The term “Aggregate Merger Consideration” means the quotient obtained by dividing (x) the sum of (i) $155,000 minus (ii) the amount of GRIID’s outstanding liabilities as of the closing date of the Merger (net of cash on hand), including all Indebtedness (as defined in the GRIID Agreement), plus up to $5,000 in severance obligations that would be due and payable upon termination of certain employees identified by the Company prior to the closing date, by (y) $16.587 (which is the volume-weighted average price of CleanSpark common stock for the two consecutive trading days prior to the date of the GRIID Agreement).

The GRIID Agreement provides that, at the Effective Time, each GRIID restricted stock unit award that is outstanding immediately prior to the Effective Time will immediately vest with respect to 100%of the shares of GRIID Common Stock subject to such GRIID restricted stock unit award, which shares of GRIID Common Stock will be converted into the right to receive the merger consideration with respect to each share of GRIID Common Stock. Further, the

GRIID Agreement provides that, at the Effective Time, each outstanding vested compensatory option to purchase shares of GRIID Common Stock will be canceled and converted into the right to receive that number of shares of CleanSpark common stock (rounded down to the nearest whole share) equal to the quotient of (i) the product of (A) the excess, if any, of the merger consideration value over the per share exercise price of the applicable option, multiplied by (B) the number of shares of GRIID Common Stock subject to such option immediately prior to the Effective Time, divided by (ii) the volume-weighted average price of CleanSpark common stock for the two consecutive trading days prior to the date of the GRIID Agreement. Any GRIID option that has an exercise price per share of GRIID Common Stock that is equal to or greater than the merger consideration value will be canceled for no consideration.

At the Effective Time, each outstanding and unexercised warrant to purchase shares of GRIID Common Stock will be converted into a warrant to purchase a number of shares of CleanSpark common stock, rounded down to the nearest whole share, that is equal to the product of (A) the number of shares of GRIID Common Stock subject to such warrant as of immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio. The exercise price per share of CleanSpark common stock underlying such warrant will be equal to the quotient obtained by dividing (x) the per share exercise price applicable to such warrant immediately prior to the Effective Time by (y) the Exchange Ratio, rounded up to the nearest whole cent. Each such CleanSpark warrant shall be on the same terms and conditions as were applicable under such GRIID warrant immediately prior to the Effective Time.

The completion of the Merger is subject to satisfaction or waiver of certain customary mutual closing conditions, including (1) the receipt of the required approvals from GRIID stockholders, (2) the absence of any governmental order or law that makes consummation of the Merger illegal or otherwise prohibited, (3) the effectiveness of the registration statement on Form S-4 to be filed by the Company pursuant to which the shares of CleanSpark common stock to be issued in connection with the Merger are registered with the SEC, and (4) the authorization for listing of CleanSpark common stock to be issued in connection with the Merger on The Nasdaq Stock Market LLC. The obligation of each party to consummate the Merger is also conditioned upon (1) the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), (2) the other party having performed in all material respects its obligations under the GRIID Agreement, (3) the absence of a material adverse effect on the other party and (4) the receipt of an officer’s certificate from the other party confirming that the foregoing conditions (1)-(3) have been satisfied.

The GRIID Agreement contains customary representations and warranties of CleanSpark and GRIID relating to their respective businesses, financial statements and public filings, in each case generally subject to customary materiality qualifiers. Additionally, the GRIID Agreement provides for customary pre-closing covenants for each party including, subject to certain exceptions, covenants to conduct their respective businesses in the ordinary course consistent with past practice and to refrain from taking certain actions without the other party’s consent. CleanSpark and GRIID also agreed to use their respective reasonable best efforts to cause the Merger to be consummated, subject to certain limitations set forth in the GRIID Agreement. CleanSpark and GRIID have agreed to file the registration statement on Form S-4 and the proxy statement for GRIID’s special meeting of stockholders no later than 60 days after the signing date of the GRIID Agreement.

The GRIID Agreement provides that, during the period from the date of the GRIID Agreement until the Effective Time, GRIID will be subject to certain restrictions on its ability to solicit alternative competing proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative competing proposals, subject to customary exceptions. GRIID is required to call a special meeting of its stockholders to approve the GRIID Agreement and, subject to certain exceptions, to recommend that its stockholders approve the GRIID Agreement.

The GRIID Agreement contains termination rights for each of the Company and GRIID, including, among others, (1) by mutual written consent of the Company and GRIID, (2) by either the Company or GRIID if the Merger has not been consummated on or before 5:00 p.m. Las Vegas, Nevada time, on March 31, 2025 (provided that such right will not be available to any party whose failure to fulfill any material covenant or agreement under the GRIID Agreement caused of or resulted in the failure of the Merger to occur on or before such date), and (3) if the stockholders of GRIID do not approve the GRIID Agreement at its special meeting of stockholders.

Additionally, the GRIID Agreement permits GRIID, subject to compliance with certain requirements and payment of a termination fee (described below), to terminate the GRIID Agreement to enter into a definitive agreement for a superior alternative competing proposal to the Merger.

Upon termination of the GRIID Agreement under specified circumstances, including, among others, the (1) termination by GRIID to enter into a definitive agreement for a superior alternative competing proposal to the Merger, (2) termination by the Company in the event of a change of recommendation by the GRIID board of directors or (3) termination by the Company because GRIID, its subsidiaries or any of its directors or officers materially breached their non-solicitation obligations, GRIID would be required to pay the Company a termination fee of $1,500. In addition, if the GRIID Agreement is terminated because of a failure of GRIID’s stockholders to approve the Merger, GRIID will be required to reimburse the Company for certain expenses incurred in connection with the Merger. In no event will the Company be entitled to receive more than one termination fee, net of any expense reimbursement.

Concurrent with the GRIID Agreement, the Company and GRIID entered into a senior secured term loan credit agreement (the “GRIID Credit Agreement”) and a co-location mining service agreement (the "Hosting Agreement") on June 26, 2024. See Note 6 - Note Receivable from GRIID for more information on the Credit Agreement. Pursuant to the Hosting Agreement, GRIID will host and power certain CleanSpark bitcoin mining equipment at GRIID facilities for a fee defined in the Hosting Agreement. The Hosting Agreement has an initial service term of one year with seven additional renewal terms, each for six months.

Wyoming Acquisition - Cheyenne, WY

On May 8, 2024, CSRE Properties Wyoming, LLC, a Wyoming limited liability company and wholly-owned subsidiary of the Company (the "Wyoming Buyer") entered into a Purchase and Sale Agreement with MineOne Wyoming Data Center LLC (the "Seller"), pursuant to which the Wyoming Buyer agreed to purchase approximately seventeen (17) acres of real property located in Wyoming. On May 29, 2024, the Company entered into new purchase and sale agreements with the Seller, collectively amending and restating the original agreement dated May 8, 2024.

The original transaction anticipated the purchase of approximately seventeen (17) acres of real property located in Wyoming, comprising two parcels, for a total purchase price of $18,750, allocated as $11,250 for Parcel 1 and $7,500 for Parcel 2, and a contingent payment of up to $13,750. Due to federal regulatory consent requirements relating to Parcel 1, the agreement was renegotiated and split into two agreements: the first agreement for Parcel 1, with a purchase price of $11,250, and the second agreement for Parcel 2, with a purchase price of $11,250, with no contingent payment requirements for either parcel.

As of June 30, 2024, the acquisition was not yet completed and no assets have been acquired (see Note 18 - Subsequent Events).

Completed Asset Acquisitions

LN Energy LLC Acquisition - Georgia

On June 17, 2024, CleanSpark, Inc., through its wholly-owned subsidiary, CSRE Properties Sandersville, LLC (the "LN Energy Buyer"), entered into six (6) definitive agreements to acquire bitcoin mining facilities located in Georgia from, respectively, LN Energy 1 LLC, LN Energy 3 LLC, LN Energy 4 LLC, LN Energy 5 LLC, LN Energy 6 LLC and LN Energy 7 LLC. The definitive agreements include the purchase of mining data centers, and the assumption of the underlying real property leases and one power agreement. The combined purchase price was $26,177, which includes $25,800 paid to the LN Energy Seller, $132 incurred for direct acquisition costs, and $245 in assumed lease liabilities. The transaction is accounted for as an asset acquisition, whereby the total purchase price is allocated first to the fair value of the assets acquired and any excess purchase price is allocated to the acquired assets pro-rata. No goodwill is calculated in an asset acquisition.

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

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, respectively, for approximately two 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 at the time of entry into the respective agreements. 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 consummated in February 2024 and 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.

In connection with the acquisition of the Dalton Property, the Company entered into a Construction Management Services Agreement dated February 1, 2024 with Makerstar Capital, Inc., pursuant to which the Company has engaged Makerstar Capital Inc. to manage the completion of the construction of a 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 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, 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 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

In June 2022, 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 June 30, 2024 and September 30, 2023 in the Condensed Consolidated Balance Sheets. Through September 2023, the Company 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 Condensed Consolidated Statements of Operations and Comprehensive 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 June 30, 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 basis for 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 thenine months ended June 30, 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 June 30, 2024, the Company held no other crypto currency. The cumulative realized gains from dispositions of bitcoin during the three and nine months ended June 30, 2024 were $443 and $12,862, respectively. There wereno cumulative realized losses from dispositions of bitcoin during thethree and nine months ended June 30, 2024.

6. NOTE RECEIVABLE FROM GRIID

On June 26, 2024, concurrent with the GRIID Agreement (see Note 3), the Company entered into the GRIID Credit Agreement, which is a senior secured term loan under which the Company provided a term loan of $55,919 to GRIID, which GRIID is permitted to use solely for certain purposes as set forth in the GRIID Credit Agreement. As of June 30, 2024, GRIID had borrowed $15,000 and subsequent to June 30, 2024, GRIID borrowed the remaining amount of $40,919. Any amounts repaid prior to the maturity date cannot be reborrowed.

The maturity date of the term loan is the earlier of (i) June 26, 2025, or (ii) 90 days after the termination of the merger transaction between the Company and GRIID under the GRIID Agreement (other than a termination resulting solely from the breach of the Company). On the maturity date, the principal and any accrued but unpaid interest will be due and payable. The term loan bears interest at a rate of 8.5% per annum. The GRIID Credit Agreement contains customary representations, warranties, covenants, and events of default for a term loan of this type. The GRIID Credit Agreement was amended and restated on August 2, 2024, see Note 18 - Subsequent Events.

7. INVESTMENTS

As of June 30, 2024 and September 30, 2023, the Company had total investments of$2,506 and$3,423, respectively, that were 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, 2019, 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 June 30, 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 on our available-for-sale debt securities as of June 30, 2024 and September 30, 2023, respectively. The fair value of investment in Debt Securities was$812 and$726 as of June 30, 2024 and September 30, 2023, respectively. The Company has included gain on change in fair value of preferred stock amounting to$86 for the nine months ended June 30, 2024, and$86 for the nine months ended June 30, 2023, as part of Other Comprehensive Income in the Condensed Consolidated Statements of Operations and Comprehensive 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 Condensed Consolidated Statements of Operations and Comprehensive Loss.

Total fair value of investment in derivative assets as of June 30, 2024 and September 30, 2023 was$1,692 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$1,005 for the nine months ended June 30, 2024, compared to an unrealized loss on derivative assets of$1,110 for the nine months ended June 30, 2023.

The following table sets forth a reconciliation of carrying value of all investments as of June 30, 2024:

8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

In April 2024, as a result of the bitcoin halving event and the execution of the 100,000 miner purchase option for new Bitmain Antminer S21 Pro models (see Note 16 - Commitments and Contingencies), the Company concluded that various miner models (S19J, S19 J Pro and S19 J Pro+) would be removed from service and replaced with newer, more efficient miner models. The planned replacement is expected to be completed by December 31, 2024. Accordingly, the Company performed an impairment test on the miners planned for replacement, resulting in an impairment charge of $189,235, which is recorded in the Condensed Consolidated Statements of Operations and Comprehensive Loss as "Impairment expense - fixed assets". The fair value less residual value of the impaired miners will depreciated over the remaining period in which they are operating.

Effective May 1, 2024, as a result of new information about actual lives of its bitcoin miners based on historical experience and advancements in overall miner efficiency, the Company has reduced the useful lives of miners from five years to three years. The impact of the change in useful lives of miners from five tothree years increased depreciation expense and loss before income tax expense by approximately $7,261 for the three months ended June, 30, 2024, and decreased basic and diluted earnings per share by $0.03 and $0.04, for thethree and nine months ended June 30, 2024, respectively. Total depreciation expense for the nine months ended June 30, 2024 and 2023 was$101,198 and$60,926, respectively.

For the nine months ended June 30, 2024, the Company disposed of $14,075 of miners with a net book value of $3,079 for $798 and recognized a $2,281 loss on disposal.

The Company placed-in service property and equipment of $317,147 during thenine months ended June 30, 2024, which included $287 in machinery and equipment acquired in equipment loan transactions. This increase in fixed assets primarily consisted of miners of $238,696. Assets acquired through acquisition transactions (see Note 3 - Acquisitions) resulted in an additional $46,967 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 for $4,100. 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 June 30, 2024 and September 30, 2023, the Company had outstanding deposits for miners and mining equipment totaling $284,541 and $75,959, respectively. Such deposits are recorded as long-term assets on the Condensed Consolidated Balance Sheets.

9. INTANGIBLE ASSETS

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

Amortization expense for the nine months ended June 30, 2024 and 2023 was$1,563 and$1,599, respectively.

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

LEASES

In January 2024, the Company ceased usage of its prior corporate headquarters, which was accounted for as an operating lease. As of June 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 Condensed Consolidated Statements of Operations and Comprehensive Loss.

In April 2024, the Company entered into a new operating land lease in Dalton, GA for the expansion of a fourth bitcoin mining location, which is located adjacent to one of its current facilities. The lease is for a total of $18 per year forfive years, for which the Company recorded a right of use asset and operating lease liability of $122.

In connection with the acquisition of the LN Energy locations (see Note 3 - Acquisitions), the Company assumed four land leases, which are included in the tables below.

The Company's lease costs recognized during thenine months ended June 30, 2024 and 2023 in the unaudited Condensed Consolidated Statements of Operations and Comprehensive 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 June 30, 2024:

11. LOANS

As of June 30, 2024, the Company had a gross balance outstanding of$11,075, netted against discount on loans payable of$96. Total principal payments on loans during the nine months ended June 30, 2024 were$5,296.

The following is a schedule of the Company's loan balance, net of debt discount and future loan payments, as of June 30, 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 8 - Property and Equipment). 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 $1,387, remaining payment terms ranging from 25-32 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 June 30, 2024 of $757. 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 thenine months ended June 30, 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%.

12. INCOME TAXES

The Company has calculated the tax provision using a cutoff approach based on year-to-date actual amounts and adjusts for discrete items in the quarter. The approach is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of this cutoff approach is more appropriate than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pre-tax income. The quarterly tax provision 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 benefit (including discrete items) was$9,495 and $0 for thethree months ended June 30, 2024 and 2023, respectively, and an income tax expense of$3,499 and $0 for thenine months ended June 30, 2024 and 2023, respectively.

The Company's effective income tax rate (including discrete items) was 3.9% and 0% for the three months ended June 30, 2024 and 2023, respectively, and (4.4%) and 0% for the nine months ended June 30, 2024 and 2023, respectively. The Company's effective tax rate differs from the U.S. statutory rate of 21% primarily due to maintaining a valuation allowance on the deferred tax assets.

13. 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 June 30, 2024, there were 235,525,077 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 nine months ended June 30, 2024, the Company recorded $0 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 nine months ended June 30, 2024 of $3,421 were paid to the Series A Preferred Stock and there are no unpaid dividends as of June 30, 2024. There wereno dividends recorded for either of thethree and nine months ended June 30, 2023.

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 ofshares of common stock, exclusive of any amounts previously sold under the Original ATM Agreement, (b) the number of authorizedbut 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 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). As of June 30, 2024, the Company has $623,035 of shares of common stock available to sell under the March 2024 ATM Amendment.

Common stock issuances during the nine months ended June 30, 2024

The Company issued 72,523,712 shares of common stock under the ATM Agreement and 2024 ATM Agreement, as amended by the March 2024 ATM Amendment, resulting in net proceeds of $801,611 with$780,043 received in cash during the nine months ended June 30, 2024 and $31,158 received on July 2, 2024 and recorded in Receivable from equity offerings on the Condensed Consolidated Balance Sheets as of June 30, 2024.

The Company issued 3,873,704 shares of common stock in relation to the settlement of restricted stock awards and withheld 1,191,370 shares of common stock of $17,246.

The Company issued 134,110 shares of common stock in connection with the exercise of stock options and warrants. Cash received from such issuance was $661.

Common stock issuances during the nine months ended June 30, 2023

The Company issued 71,748,638 shares of common stock under the ATM Agreement resulting in net proceeds of $237,517 during thenine months ended June 30, 2023.

The Company issued 2,298,822 shares of common stock in relation to the settlement of restricted stock awards and withheld 539,961 shares of common stock of $1,468 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 nine months ended June 30, 2023

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

14. STOCK WARRANTS

The following is a summary of stock warrant activity during thenine months ended June 30, 2024.

As of June 30, 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 thenine months ended June 30, 2024, there were 65,000 warrants exercised on a cash-less basis, with 42,777 net shares issued.

As of June 30, 2024,10,000 of the outstanding warrants had a remaining term of 4.2 years and an intrinsic value of $92. The remaining 7,560 of the outstanding warrants do not have expiration dates and have an intrinsic value of $103.

15. STOCK-BASED COMPENSATION

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan, as amended, (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 June 30, 2024, prior to giving any effect to the evergreen provision that allows for the increase of shares on April 1, 2024, there were 9,385,985 shares available and authorized for issuance under the Plan.

STOCK OPTIONS

The following is a summary of stock option activity during thenine months ended June 30, 2024:

As of June 30, 2024, there were options exercisable to purchase 1,321,554 shares of common stock in the Company and 928,366 unvested options outstanding that cannot be exercised until vesting conditions are met. As of June 30, 2024, the outstanding options had a weighted average remaining term of 7.75 years and an intrinsic value of $7,850.

For the nine months ended June 30, 2024, the Company also granted 495,525 options to purchase shares of common stock to employees with a total fair value of $6,639.

The Black-Scholes model utilized the following inputs to value the options granted during thenine months ended June 30, 2024:

The Company recognized stock-based compensation expense relating to stock options of$4,625 and$4,630 for the nine months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company expects to recognize $8,548 of stock-based compensation for the non-vested outstanding options over a weighted-average period of 2.5 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 thenine months ended June 30, 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 was 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. The third vesting occurred on June 30, 2024, and 52,492 shares were settled and issued in July 2024.

As of June 30, 2024, the Company had 2,070,496 outstanding unvested time-based restricted stock awards, which will vest over the weighted average 1.6 years.

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$18,072 and$12,938 for the nine months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had $8,568 in unrecognized compensation costs related to all RSU awards that it expects to recognize over a weighted average period of 1.6 years.

16. COMMITMENTS AND CONTINGENCIES

Purchase of bitcoin miners

The Company had $232,822 in open purchase commitments for miners or mining equipment as of June 30, 2024. These commitments pertain to the purchase transactions with Bitmain Technologies Delaware Limited ("Bitmain Technologies") signed in October 2023, January 2024, and April 2024 for the purchase of 22,050, 60,000 and 100,000 Antminer S21 and S21 Pro bitcoin mining machines with total purchase prices of $61,740, $193,200, and $374,400 (after coupons), respectively, and a cost per terahash of between $16.00-16.10. As of June 30, 2024, the Company has made combined payments of $386,125 and has accrued $10,392 for payment included in accounts payable and accrued liabilities on the Condensed 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.

Purchase of mobile data centers

The Company entered into a $165,000 contract subject to certain discounts in June 2024 for the purchase of mobile data centers. The contract includes two phases for which only phase 1 is a firm commitment to the Company in the amount of $66,000 (before taxes and discounts), for which approximately 50% was paid in July and the remainder is expected to be due in October and November 2024. If within 60 days after the contract execution date, the Company elects to undertake phase 2 for $99,000 (before taxes and discounts), then approximately 50% of the payment would be due within 90 days of such election. Only the phase 1 commitment is presented in the table below (before taxes and discounts) as the Company has not elected phase 2 yet.

Commitments on asset purchases

In June 2024, the Company entered into a purchase contract for the asset acquisition of an aircraft for $10,800, and has made a deposit of $500, which is recorded in Other long-term assets on the Condensed Consolidated Balance Sheet as of June 30, 2024. The remainder of the purchase price will be paid in the August 2024.

Commitments under open construction projects

The Company has open commitments of $8,791 relating to construction related contracts pertaining to the development of new mining locations and operational facilities.

Contractual future payments

The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of June 30, 2024 (Fiscal Year 2024 excludes nine months ended June 30, 2024):

** Represents a recorded contractual obligation, including interest component

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. During a March 20, 2024 status conference, the judge expressed her expectation that the parties attend mediation, accordingly, the partied are currently scheduled to attend mediation on September 6, 2024.

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. On July 3, 2024, the SLC requested an extension of the stay until August 9, 2024, which the court granted on July 23, 2024.

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 request by the SLC, the stay was extended through July 8, 2024 and was again extended through July 23, 2024. In its most recent status report dated July 9, 2024, the SLC indicated it expected to conclude the deliberations of its written report on or before August 9, 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.

17. MAJOR CUSTOMERS AND VENDORS

The Company hasone mining pool operator (Foundry Digital) that represented 100% of revenue for thenine months ended June 30, 2024 and 2023.

For thenine months ended June 30, 2024 and 2023, the Company had the following significant suppliers of miners.

SUBSEQUENT EVENTS

Amended and Restated - GRIID Credit Agreement

On August 2, 2024, the Company and GRIID amended and restated the GRIID Credit Agreement (as amended and restated, the “A&R GRIID Credit Agreement”) to include, in addition to the term loan amount, a new delayed draw term loan facility of $40,000 (the “delayed draw facility”), which amounts GRIID is permitted to request pursuant to the terms of the A&R GRIID Credit Agreement and use solely for certain purposes as set forth in the A&R GRIID Credit Agreement. The Company may make one or more delayed draw term loans (each, a "Draw Loan" and collectively to be referred to as Delayed Draw Term Loan") to GRIID from August 2, 2024 until the Delayed Draw Expiration Date, as defined in the A&R GRIID Credit Agreement. Each borrowing shall be in a principal amount of $250 or a whole multiple of $100 in excess thereof. The outstanding amount of Draw Loans shall bear an interest of 8.5% per annum from the date it is made to the day it is paid in full. Pursuant to the A&R GRIID Credit Agreement, any amounts borrowed and repaid prior to the maturity date cannot be reborrowed.

Line of Credit Agreement - Coinbase

On August 7, 2024, the Company signed a Master Loan Agreement (the “Master Loan”) with Coinbase Credit, Inc. (the “Lender”) for a line of credit in which the Lender will lend the Company certain digital assets or cash. The Company expects to utilize the line of credit to borrow USD collateralized with bitcoin.

Wyoming Asset Acquisition

On July 26, 2026, the Company completed the $11,250 acquisition of Parcel 2, pertaining to the Wyoming asset acquisition from MineOne Wyoming Data Center LLC (see Note 3 - Acquisitions). Additionally, on August 1, 2024, the Company purchased land adjacent to the Parcel 2 land for $1,500. The combined land from the closing of Parcel 2 and this additional purchase, will be combined and developed for bitcoin mining.

Bitmain Purchase Contract

On August 7, 2024, the Company entered into a Future Sales and Purchase Agreement (the " FSPA Agreement") with Bitmain Technologies Delaware Limited ("Bitmain") for the purchase of bitcoin mining hardware. The Agreement provides for the purchase of 26,000 units of S21 XP Immersion servers with a total rated hashrate of 7,800,000 terahashes at a total purchase price of $167,700, representing $21.5 per terahash.

The FSPA Agreement also grants the Company a call option to purchase 50,000 additional units of S21 XP Immersion servers (the "Forward Deliverables") with a maximum rated hashrate of 15,000,000 terahashes at a total purchase price of $322,500, representing $21.5 per terahash. The call option is exercisable from the date of the Agreement until July 26, 2025. To secure this option, the Company will pay a nonrefundable call purchase fee of $32,250, which is 10% of the total potential purchase price for the Forward Deliverables.

The initial 26,000 units are scheduled to be delivered in two batches of 13,000 units each in October and November 2024. If the call option is exercised, the Forward Deliverables would be delivered between October 2024 and October 2025.

At-the-Market Equity Issuances

From July 1, 2024 through August 8, 2024, the Company issued 9,922,456 shares under its March 2024 ATM Amendment offering facility resulting in net proceeds of approximately $214,200.