CLEANSPARK, INC. (CLSK)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements. See "Forward-Looking Statements."

Business Overview

We are a bitcoin mining company. We have no intention to mine, purchase or hold any other cryptocurrency at this time or in the foreseeable future, and we did not hold any other cryptocurrency as of September 30, 2024. We independently own and operate a large portfolio of data centers across the United States with locations in Georgia, Mississippi and Tennessee for a total developed power capacity of approximately 552 MW as of September 30, 2024. We are currently finalizing the developments of 75 MW in Wyoming and 16.5 MW in Mississippi. We have also had a hosting arrangement with GRIID Infrastructure, Inc. to host up to 54 MW of our bitcoin miners in Tennessee, which hosting arrangement terminated when we closed on our acquisition of GRIID Infrastructure, Inc. on October 30, 2024, and the 54 MW continued as our owned and operated facilities. We have an independent data center operation in Massena, NY that hosts 50 MW for us, which agreement will terminate on January 1, 2025.

We design our infrastructure to responsibly secure and support bitcoin, the world’s most recognized digital commodity. We cultivate trust and transparency among our employees, the communities we operate in and the people around the world who depend on bitcoin.

Bitcoin Mining

Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,” which contains a record of every bitcoin transaction ever processed. The bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation. The authenticity of each bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive bitcoin. Users have full control over remitting bitcoin from their own sending addresses. All transactions on the bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. To be recorded on the blockchain, each bitcoin transaction is validated through a proof-of-work consensus method, which entails solving cryptographic functions to validate transactions and post them on the blockchain. This process is called mining. Miners are rewarded with bitcoins, both in the form of newly created bitcoins and fees in bitcoin, for successfully solving for the cryptographic function and providing computing power to the network.

Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining. As of September 30, 2024, our operating mining units were capable of producing over 27.6 EH/s of computing power. In bitcoin mining, “hashrate” is a measure of the computing and processing power and speed by which a computer processes transactions on the bitcoin network. We expect to continue increasing our computing power through the end of 2024 and beyond as we expand our infrastructure at our owned sites in Wyoming, Tennessee, and Mississippi, seek strategic acquisition targets, and through strategic co-location agreements. As of October 31, 2024, we are capable of producing 31.5 EH/s of computing power. A company’s computing power measured in hashrate is generally considered to be one of the most important metrics for evaluating bitcoin mining companies.

42

We owned approximately 235,000 miners as of September 30, 2024, of which approximately 189,000 were in service and the remainder mainly pertains to new machines ready to install in the expansion in Wyoming, Mississippi and Tennessee. These miners range in age from 1-45 months and have an average age of approximately 12 months. Effective, May 2024, we estimate the useful lives of our miners to be 3-years (see Note 2 - Summary of Significant Accounting Policies). We do not have scheduled downtime for our miners. We periodically perform unscheduled maintenance on our miners, but such downtime has not historically been significant. When performing unscheduled maintenance, we will typically replace the miner with a substitute miner to limit overall downtime. The miners owned as of September 30, 2024 have a range of energy efficiency (watts per terahash – “w/th”) of 15.0 to 34 w/th with an average energy efficiency of 21.9 w/th.

We obtain bitcoin as a result of our mining operations, and we sell bitcoin from time to time to support our operations and strategic growth. We also will utilize our bitcoin as collateral for lending arrangements. We do not currently plan to engage in regular trading of bitcoin (other than as necessary to convert our bitcoin into U.S. dollars) or to engage in hedging activities related to our holding of bitcoin; however, our decisions to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell bitcoin that we hold, or the number of bitcoins we will sell. Rather, decisions to hold or sell bitcoins are currently determined by management by analyzing the need for working capital, forecasts and monitoring the market in real time.

The value of bitcoin has historically been subject to wide swings. The following table provides a range of intraday low and intraday high bitcoin prices between October 1, 2021 through September 30, 2024.

As of September 30, 2024, we held approximately 6,819 bitcoins and had a receivable for 1,229 bitcoin that was posted as collateral and recorded on our Consolidated Balance Sheets as “Receivable for bitcoin collateral”. The fair value of our bitcoin as of September 30, 2024 was $431,661 on our Consolidated Balance Sheets and the fair value of our Receivable for bitcoin collateral was $77,827. Effective October 1, 2023, we adopted Accounting Standards Codification (“ASC”) 350-60 - Accounting for and Disclosure of Crypto Assets, which requires bitcoin to be measured at fair value. See Note 2 - Summary of Significant Accounting Policies for more details on the impact of implementation to the consolidated financial statements. As a result, the carrying value of each bitcoin we held at October 1, 2023 and each subsequent reporting period reflects the price of one bitcoin quoted on the active exchange, Coinbase, at the end of the reporting period. Therefore, decreases in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our bitcoin.

As of September 30, 2023, we held $0.05 in USD Coin (“USDC”), which is a digital currency that is fully backed by U.S. dollar assets, with the value of one USDC coin pegged 1:1 to the value of one U.S. dollar. As of September 30, 2024, we did not hold any other cryptocurrency of value other than bitcoin.

We maintain real property holdings through our wholly owned and consolidated subsidiaries.

43

Results of Operations

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

Bitcoin Mining Operations

Overview

We operate a fleet of servers commonly known as miners or ASICs (Application-Specific Integrated Circuits), which are computer chips customized for a specific use. In the case of bitcoin mining, ASICs calculate the SHA-256 algorithm as efficiently and quickly as possible in order to compete with other miners to solve blocks. Each calculation is a hash, and each machine’s computational power is measured in terahash processed per second (“th/s”). One terahash is equal to 1 trillion hashes. The more terahash we produce and contribute into the mining pool, the higher our percentage of the blockchain reward.

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

The energy efficiency of a mining fleet helps drive profitability, because the most significant direct expense for bitcoin mining is power. We measure efficiency by the watts of energy required to produce each terahash of processing power. We believe we operate a highly efficient fleet of miners.

The table below describes our fleet as of September 30, 2024, 2023 and 2022 and our miner efficiency and computing power as compared to the global computing power.

As of September 30, 2024, our operating hashrate was approximately 4.40% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date equaled approximately 19-21 bitcoin per day, excluding the bitcoin earned from network transaction fees. Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs.

44

The table below describes the average cost of mining each bitcoin for the years ended September 30, 2024, 2023 and 2022 and the total energy usage and cost per each kilowatt hour ("KWH") utilized within our owned facilities.

(1) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for our owned facilities by the total number of bitcoin mined by our owned facilities during the respective periods. We have determined that Coinbase is the principal market

45

for valuing bitcoin transactions and use the closing price of bitcoin at 23:59:59 UTC as the source of recording revenue. See the table "Range of intraday bitcoin prices" for information on the range of intraday bitcoin prices for quarterly periods between October 1, 2022 and September 30, 2024.

Power prices are the most significant cost driver for our wholly owned locations, and energy costs represented 39.7%, 51.5% and 19.6% as expressed as a percentage of bitcoin mining revenues for the years ended September 30, 2024, 2023 and 2022, respectively.

Energy prices can be highly volatile and global events (including the war in Ukraine and the resulting natural gas shortage) caused power prices to increase nationwide in 2022. All of our wholly owned and operated sites in Georgia and Mississippi and our hosted miners in New York State are currently subject to variable prices and market rate fluctuations with respect to wholesale power costs. Such prices are governed by power purchase agreements which vary by location, and said prices can change hour to hour. While this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume with a goal of increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as winter storms, polar vortices and hurricanes, which increase the demand for power regionally. When such events occur, we may curtail our operations to avoid using power at increased rates. The average power prices we paid in our owned facilities for the years ended September 30, 2024, 2023 and 2022 were $0.046, $0.048 and $0.041 per KWH, respectively.

The management team makes real-time determinations on the need and timing during which we should curtail our operations. We curtail when power prices exceed the value we would receive for the corresponding fixed bitcoin reward. This means if bitcoin’s value decreases or energy prices increase, our curtailment will increase; likewise, when bitcoin’s value increases and energy prices decrease, our curtailment will decrease. The management team manages this decision on an hour-by-hour basis across all our sites, both wholly owned and hosted. The Company did not have significant curtailment greater than 20% during the years ended September 30, 2024, 2023 and 2022.

The Company records depreciation expense (a non-cash expense) on its miners on a straight-line basis over the miners' expected useful life. Such non-cash depreciation amounts are recorded within the Consolidated Statements of Operations and Comprehensive Loss as "Depreciation and Amortization". Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment since depreciation expense is not an avoidable operating cost, such as energy costs. The table above presents the non-cash miner depreciation expense on a "per bitcoin" basis, calculated by dividing miner depreciation expense in our owned facilities by the number of bitcoin mined in the owned facilities. On a "cost per bitcoin" ratio, miner depreciation expense was $17,156, $8,208 and $11,630 for the years ended September 30, 2024, 2023 and 2022, respectively. The Company recorded accelerated depreciation on certain of its miners based on the reduction of the estimated useful life from 5 years to 3 years, which equaled $1,170 on a cost per bitcoin ratio for the year ended September 30, 2024. In fiscal 2023, the accelerated depreciation was applicable to certain miners removed from service prior to the conclusion of their originally estimated useful life. The number of bitcoin received by the Company was reduced by approximately 50% effective April 19, 2024 when the bitcoin algorithm halved the rewards from 6.25 per block to 3.125 per block.

We have financing costs for a limited number of miners in our miner fleet and such costs are recorded within Interest Expense in our Consolidated Statements of Operations and Comprehensive Loss. The table above presents financing costs per bitcoin calculated by dividing direct interest expense on our miner financing agreement by the number of bitcoin mined in our owned facilities. On a cost per bitcoin ratio, financing costs were $209, $411 and $508 for the years ended September 30, 2024, 2023 and 2022, respectively.

46

The table below describes the average cost of mining each bitcoin for the years ended September 30, 2024, 2023 and 2022 and the total energy usage and cost per each KWH utilized within our hosted facilities.

(1) Average revenue of each bitcoin mined is calculated by dividing the sum of bitcoin mining revenue for hosted facilities by the total number of bitcoin mined within the hosted facilities during the respective periods. We have determined that Coinbase is the principal market for valuing bitcoin transactions and use the closing prices as of 23:59:59 UTC as the source of recording revenue. See the table “Range of intraday bitcoin prices” for information on the range of intraday bitcoin prices for quarterly periods between October 1, 2022 and September 30, 2024.

For our hosted facilities, hosting fees (which comprise direct operating costs of the third-party operator with energy as the largest cost) and profit sharing were a combined 71.5%, 66.9% and 42.4% as a percentage of bitcoin mining revenues for the years ended September 30, 2024, 2023 and 2022, respectively.

At our hosted facilities, the hosting fee as compared to KWHs utilized in the hosted facilities was $0.067, $0.064 and $0.098 per KWH for the years ended September 30, 2024, 2023 and 2022, respectively. We did not have significant curtailment greater than 20% during the years ended September 30, 2024, 2023 and 2022.

47

On a "cost per bitcoin" ratio, miner depreciation expense was $22,374, $14,872 and $8,958 for the years ended September 30, 2024, 2023 and 2022, respectively. The increase for the fiscal year 2024 period was mainly due to the decrease of bitcoin production as a result of the bitcoin halving on April 19, 2024 when the bitcoin algorithm halved rewards from 6.25 per block to 3.125 per block. The Company did not have any S19 XP or S21 miners at the hosted facilities during the periods presented and accordingly, there was no accelerated depreciation in the hosted facilities in fiscal 2024 following the reduction in the estimated useful life of our miners from 5 years to 3 years. In fiscal 2023, the accelerated depreciation was applicable to certain miners removed from service prior to the conclusion of their originally estimated useful life.

48

Results of Operations for the Fiscal Years Ended September 30, 2024 and 2023

Bitcoin mining revenue

We earned $378,968 in revenues during the year ended September 30, 2024, which was an increase of $210,847, or 125%, as compared with $168,121 in revenues for the year ended September 30, 2023. Bitcoin mining revenues are recorded net of bitcoin mining fees charged by our sole mining pool operator that equaled approximately 0.16% and 0.09% of gross bitcoin mining revenues for the year ended September 30, 2024 and 2023, respectively, and are determined by two main drivers: quantity of bitcoin mined and the price of bitcoin on the date the bitcoin is mined.

During the fiscal year ended September 30, 2024, we mined 7,092 bitcoins, net of mining pool fees, with an average bitcoin price of $53,435 as compared to 6,903 bitcoins with an average bitcoin price of $24,355 during the year ended September 30, 2023. The increase in bitcoin mining revenue was primarily due to increase in the average bitcoin price and the increase in bitcoin mined year over year. The increase in the quantity of bitcoin mined was primarily driven by the increased number of miners in operation which more than doubled to approximately 188,500 as of September 30, 2024 from 88,000 as of September 30, 2023. This increase in miners in operation increased our hashrate, which is our total computational power, and which when understood in the context of global hashrate, determines how much bitcoin we are able to mine.

Other services revenues

Other services revenues pertain to our data center operations which ceased operations as of September 30, 2023 due to management's decision to divert all capacity within its operations to bitcoin mining. The Company earned $287 from its data center operations during the year ended September 30, 2023.

Cost of revenues (exclusive of depreciation and amortization expense)

Our cost of revenues were $165,516 for the year ended September 30, 2024, an increase of $71,936, or 77%, as compared with cost of revenues of $93,580 for the year ended September 30, 2023. These costs were primarily related to energy costs to operate miners within our owned facilities, which was $132,192 for the year ended September 30, 2024, an increase of $69,763 as compared to $65,824 for the year ended September 30, 2023. The increases in energy costs was primarily due to the increase in the volume of miners operating in our owned locations partially offset by the reduction in the average cost per KWHs, which approximated $0.046/KWH for the year ended September 30, 2024 as compared to an average cost of $0.048/KWH for the year ended September 30, 2023. We continually evaluate energy and bitcoin prices and periodically will curtail our mining operations when it is advantageous to do so.

We also incurred hosting fees of $27,961 and profit sharing fees of $4,784 for the year ended September 30, 2024, an increase of $4,987 and $793, respectively, as compared to $22,974 and $3,991, respectively for the year ended September 30, 2023. The hosting fees and profit-sharing fees were primarily the result of our co-location agreements with Coinmint and GRIID. The hosting fees increased primarily due to increases in utility rates partially offset by a slight reduction in KWHs utilized.

Professional fees

Professional fees, which consists primarily of legal, accounting and consulting fees, were $13,806 for the year ended September 30, 2024, an increase of $2,937, or 27%, from $10,869 for the year ended September 30, 2023. Legal expenses were $5,707 for the year ended September 30, 2024, as compared to $7,676 in the prior year. This decrease was primarily attributable to no legal settlements during the year ended September 30, 2024, as compared to $3,800 of legal settlements in the prior year. Other professional fees, namely accounting, audit and consulting, were $8,099 for the year ended September 30, 2024 as compared to $3,193 for the year ended September 30, 2023, representing an increase of $4,906.

49

Payroll expenses

Payroll expenses increased to $74,095 for the year ended September 30, 2024 from $45,714 for the same period ended September 30, 2023. Our payroll expenses include all compensation related expenses for our employees, primarily consisting of salaries, wages, payroll-related taxes and benefits and non-cash stock-based compensation. Payroll expenses, excluding non-cash stock-based compensation, were $44,540 the year ended September 30, 2024, representing an increase of 106% from $21,572 in the prior year ended September 30, 2023. This increase was primarily due to the significant growth in locations, increase in employee headcount along with employee bonuses during the year.

We grant stock-based awards to certain employees as a significant portion of our payroll-related costs. Stock-based compensation, which is a non-cash expense, was $29,555 for the year ended September 30, 2024, an increase of $5,413, or 22%, from $24,142 the prior year ended September 30, 2023. Such increase was primarily due to the vesting of market-based restricted stock awards in March due to achieving the market-based targets.

General and administrative expenses

General and administrative fees increased to $30,185 for the year ended September 30, 2024 from $20,823 for the same period ended September 30, 2023, representing an increase of $9,362. This increase was primarily attributable to increases in corporate overhead, including, but not limited to, taxes and licenses, insurance premiums, travel expenses and rent expenses.

Gain (loss) on fair value of bitcoin, net

Gain on fair value of bitcoin, net for the year ended September 30, 2024 was $113,423. As discussed in Note 2 - Summary of Significant Accounting Policies and Note 6 - Bitcoin, the Company adopted the amendments per ASC 350-60 in the current period; accordingly, we measured crypto assets within the scope of ASC Topic 350-60 - Intangibles - Goodwill and Other - Crypto Assets at fair value in accordance with ASC Topic 820 - Fair Value Measurement and included the gains and losses from remeasurement in net income (loss). The gain pertains to the change in bitcoin’s fair value from $26,961 per bitcoin on October 1, 2023 to $63,301 per bitcoin on September 30, 2024.

Prior to the adoption of ASC 350-60 - Crypto Assets, bitcoin was classified as indefinite-lived intangible assets and was measured at cost less impairment. Additionally, in the previous guidance, subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized. Accordingly, gains (losses) recognized on fair value of bitcoin in fiscal year 2024 are not comparable to fiscal year 2023.

Other impairment expense (related to bitcoin)

Impairment expense in the amount of $7,163 was recognized for the year ended September 30, 2023. There was no impairment expense related to bitcoin for the year ended September 30, 2024 due to the adoption of ASC 350-60 (as described in Note 2 - Summary of Significant Accounting Policies and Note 6 - Bitcoin) which resulted in measuring bitcoin at fair value and recognizing gains or losses from remeasurement of the assets rather than at cost less impairment. The prior year impairment expense consisted of bitcoin impairments due to the general decrease in bitcoin prices during the year. Decreases in bitcoin prices for periods subsequent to the mining date were recorded as impairment expense. Under ASC Topic 350 - Goodwill and Other (prior guidance), subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin was $1,357 for the year ended September 30, 2023. As described under the heading “Gain (loss) on fair value of bitcoin, net” above, gains (losses) recognized on bitcoin transactions in fiscal year 2024 are not comparable to fiscal year 2023.

50

Impairment Expense - Fixed Assets

Effective April 30, 2024, we concluded that various miner models (S19J, S19 J Pro and S19 J Pro+) would begin to be phased out and removed from service and replaced with newer, more efficient miner models. We began removing these miners in the periods subsequent to April 30,2024 and expect to have these miners removed from service by December 2024. Based on this operational change we recorded an impairment charge of $189,235 in the quarter ended June 30, 2024. The impairment charge was calculated by comparing the carrying amount as of April 30, 2024 to the fair value, which included the residual value of the miners. Due to subsequent reductions in salvage value between June 30, 2024 and September 30, 2024, we further reduced the estimated salvage value of these miners removed from service and recorded an additional impairment charge of approximately $7,806.

Depreciation and amortization

Depreciation and amortization expense increased to $154,609 for the year ended September 30, 2024 from $120,728 for the same period ended September 30, 2023, an increase of $33,881.

Depreciation expense increased by $33,854, or 29%, during the year ended September 30, 2024, to $152,469 from $118,615 for the year ended September 30, 2023, due to an increase in miners and mining-related equipment being placed in service during the comparative period and due to accelerated depreciation expense on miners beginning in the second half of fiscal year 2024. Additionally, the Company reduced the expected useful life for miners from 5 years for new miners to 3 years, effective May 1, 2024.

Amortization expense for the year ended September 30, 2024 was $2,140, an increase of $27, or 1%, from $2,113 for the prior year ended September 30, 2023.

Other Income (Expenses)

Other Income was $6,610 for the year ended September 30, 2024, compared with other expenses of $260 for the year ended September 30, 2023, which is a change of $6,870. The fluctuation was primarily related to the interest income earned in the year ended September 30, 2024 of $8,555 as compared to $481 in the prior year ended September 30, 2023 due to a higher balance of cash retained in short term interest bearing accounts and the interest earned on the note receivable from GRIID (See Note 7 - Note Receivable from GRIID).

Interest expense in the year ended September 30, 2024 was $2,455 a decrease of $523 from $2,977 in the prior year comparable period. This decrease was primarily related to overall reduction in loan balances. Additionally, we recognized a gain on the change in fair value of contingent consideration of $2,484 for the year ended September 30, 2023 relating to the Mawson acquisition. Unrealized loss on derivative security of $965 was recorded for the year ended September 30, 2024 as compared to loss for the same prior year period of $259, this change between the periods was the result of a change in fair value of the underlying instrument.

Net Loss from Continuing Operations

Net loss from continuing operations for the year ended September 30, 2024 was $145,777 as compared to net loss of $133,719 for the year ended September 30, 2023 for the reasons discussed above.

Net Loss

Net loss for the year ended September 30, 2024 was $145,777, an increase of $7,628 compared to a net loss of $138,148 for the year ended September 30, 2023.

51

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

Bitcoin mining revenue

We earned $168,121 in revenues during the year ended September 30, 2023, which was an increase of $37,121, or 28%, as compared with $131,000 in revenues for the year ended September 30, 2022 primarily due to increase in revenues from our bitcoin mining operations. Bitcoin mining revenues are determined by two main drivers: quantity of bitcoin mined and the price of bitcoin on the date the bitcoin is mined. During the fiscal year ended September 30, 2023, we mined 6,903 bitcoins with an average bitcoin price of $24,355 as compared to 3,752 bitcoins with an average bitcoin price of $34,916 during the year ended September 30, 2022. The increase in the quantity of bitcoin mined was primarily driven by the increased number of miners in operation which almost doubled to approximately 88,000 as of September 30, 2023 from 47,000 as of September 30, 2022. This increase in miners in operation increased our hashrate, which is our total computational power, and which when understood in the context of global hashrate, determines how much bitcoin we are able to mine.

Other services revenues

Other services revenues pertain to our data center operations for which we earned $287 in revenue from our data center operation for the year ended September 30, 2023, which is a decrease of $238, or 45%, as compared to $525 for the year ended September 30, 2022. This decrease was due to management's decision to divert all capacity within its operations to bitcoin mining. As of September 30, 2023, we no longer recognize revenues from data center operations.

Cost of revenues (exclusive of depreciation and amortization expense)

Our cost of revenues were $93,580 for the year ended September 30, 2023, an increase of $52,346, or 127%, as compared with cost of revenues of $41,234 for the year ended September 30, 2022. These costs were primarily related to energy costs to operate the mining equipment within our owned facilities, which was $65,824 for the year ended September 30, 2023, an increase of $52,490 as compared to $13,334 for the year ended September 30, 2022. The increase in energy costs within our owned facilities relates to the full-year or approximate full-year, as applicable, of mining operations in fiscal year 2023 in our Washington and Sandersville locations which were acquired in August 2022 and October 2022, respectively.

We also incurred hosting fees of $22,974 and profit-sharing fees of $3,991 for the year ended September 30, 2023, an increase of $266 and a decrease of $37, respectively, as compared to $22,708 and $4,028, respectively, for the year ended September 30, 2022. The hosting fees and profit-sharing fees were primarily the result of our co-location agreement with Coinmint. The hosting fees remained consistent for both fiscal years since the increase in KWHs utilized was offset by the decrease in the rate charged per KWH.

Professional fees

Professional fees, which consists primarily of legal, accounting and consulting fees, were $10,869 for the year ended September 30, 2023, an increase of $4,400, or 68%, from $6,469 for the year ended September 30, 2022. Legal expenses were $7,676 for the year ended September 30, 2023, as compared to $2,714 in the prior year. This increase was primarily attributable to $3,800 in litigation settlement with Darfon America Corp. and additional activity in litigation and transactional costs. Other professional fees, namely accounting, audit and consulting, were $3,193 for the year ended September 30, 2023 as compared to $3,755 for the year ended September 30, 2022, a decrease of $562.

52

Payroll expenses

Payroll expenses increased to $45,714 for the year ended September 30, 2023 from $40,920 for the same period ended September 30, 2022. Our payroll expenses include all compensation related expenses for our employees, consisting primarily of salaries, wages, payroll-related taxes and benefits and non-cash stock-based compensation. Payroll expenses, excluding non-cash stock-based compensation, were $21,572 the year ended September 30, 2023, representing an increase of 127% from $9,493 in the prior year ended September 30, 2022. This increase was primarily due to the Company’s acquisition of both WAHA and Mawson in August 2022 and October 2022, respectively.

We grant stock-based awards to certain employees as a significant portion of our payroll-related costs. Stock-based compensation, which is a non-cash expense, was $24,142 for the year ended September 30, 2023, a decrease of $7,324, or 23%, from $31,466 the prior year ended September 30, 2022.

General and administrative expenses

General and administrative fees increased to $20,823 for the year ended September 30, 2023 from $10,423 for the same period ended September 30, 2022, representing an increase of $10,400. This increase was primarily attributable to increases in corporate overhead, including, but not limited to, taxes and licenses, insurance premiums, travel expenses and rent expenses.

Other impairment expense (related to bitcoin)

Impairment expense in the amount of $7,163 was recognized for the year ended September 30, 2023, a decrease of $5,047 as compared to $12,210 for the year ended September 30, 2022. The impairment expense consists of bitcoin impairments due to the general decrease in bitcoin prices during the year, for which there was a larger general decrease in bitcoin prices during fiscal year ended September 30, 2022 as compared to fiscal year ended September 30, 2023. Decreases in bitcoin prices for periods subsequent to the mining date are recorded as impairment expense. Impairment expense was measured utilizing the intraday low bitcoin price during the holding period of bitcoin. ASC Topic 350 -Goodwill and Other that requires subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized. As described above, the Company adopted ASC 350-60 - Crypto Assets on October 1, 2023.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin decreased to $1,357 for the year ended September 30, 2023 from a realized gain of $2,567 for the year ended September 30, 2022. Realized gain on sale of bitcoin is the difference between the sales proceeds of bitcoin and the carrying amount. Typically, gains are higher when bitcoin prices are increasing over a holding period.

Depreciation and amortization

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

Depreciation expense increased by $71,533, or 152%, during the year ended September 30, 2023, to $118,615 from $47,082, due to an increase in miners and mining-related equipment being placed in service during the comparative period. Additionally, in the fourth quarter of fiscal year 2023, the Company purchased Antminer XPs (140 th/s with 21.5 J/TH), and replaced certain less efficient miners with these newly acquired miners. As a result, the Company recognized an additional $32,721 in accelerated depreciation expense on the replaced miners.

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

53

Other Income (Expenses)

Other expense was $260 for the year ended September 30, 2023, compared with other expense of $2,225 for the year ended September 30, 2022, which is a variance of $1,965. We recognized a gain on the change in fair value of contingent consideration of $2,484 for the year ended September 30, 2023 relating to the Mawson acquisition. Unrealized loss on derivative security of $259 was recorded for the year ended September 30, 2023 as compared to loss for the same prior year period of $1,950.

Interest expense in the fiscal year ended September 30, 2023 increased by $1,899 to $2,977 from $1,078 in the prior year comparable period. This increase was primarily related to the Financing Agreement, which was entered into in April 2022 and was outstanding for approximately five months in the fiscal year ended September 30, 2022 as compared to being outstanding during the entire fiscal year ended September 30, 2023.

Net Loss from Continuing Operations

Net loss from continuing operations for the year ended September 30, 2023 was $133,719 as compared to net loss of $40,089 for the year ended September 30, 2022 for the reasons discussed above.

Results of Discontinued Operations

Revenues from our former energy segment decreased year over year as expected to $158 for the year ended September 30, 2023 from $9,667 for the year ended September 30, 2022. The total costs and expenses for the year ended September 30, 2023 decreased to $6,071 from $26,901 for the year ended September 30, 2022 primarily due to impairment expenses related to the energy business and severance-related payroll expenses recognized in the prior year. As a result, the net loss from discontinued operations for the year ended September 30, 2023 decreased to $4,429 from $17,237 in the prior year ended September 30, 2022. The Company does not expect any substantial activity to be recorded to discontinued operations in subsequent periods.

Net Loss

Net loss for the year ended September 30, 2023 was $138,148, an increase of $80,822 compared to a net loss of $57,326 for the year ended September 30, 2022.

Non-GAAP Measure

We present adjusted EBITDA, which is not a measurement of financial performance under generally accepted accounting principles in the United States ("GAAP"). Our non-GAAP "Adjusted EBITDA" excludes (i) impacts of interest, taxes, and depreciation; (ii) our share-based compensation expense, unrealized gains/losses on securities, and changes in the fair value of contingent consideration with respect to previously completed acquisitions, all of which are non-cash items that we believe are not reflective of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) non-cash impairment losses related to long-lived assets; (iv) realized gains and losses on sales of equity securities, the amounts of which are directly related to the unrealized gains and losses that are also excluded; (v) legal fees related to litigation and various transactions, which fees management does not believe are reflective of our ongoing operating activities; (vi) gains and losses on disposal of assets, the majority of which are related to obsolete or unrepairable machines that are no longer deployed; (vii) gains and losses related to discontinued operations that would not be applicable to our future business activities; and (viii) severance expenses.

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

54

Management believes that providing this non-GAAP financial measure that excludes these items allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. In addition to management's internal use of non-GAAP adjusted EBITDA, management believes that adjusted EBITDA is also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate our bitcoin related revenues). For example, we expect that share-based compensation expense, which is excluded from adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers and directors. Additionally, management does not consider any of the excluded items to be expenses necessary to generate our bitcoin-related revenue.

The Company's adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. The Company's adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating (loss) income or any other measure of performance derived in accordance with GAAP. Although management utilizes internally and presents adjusted EBITDA, we only utilize that measure supplementally and do not consider it to be a substitute for, or superior to, the information provided by GAAP financial results.

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

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

55

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, capital expenditures, loan payments, public company costs and general corporate needs. We expect these needs to continue as we further develop and grow our business. For the year ended September 30, 2024, our primary sources of liquidity came from existing cash and cash equivalents, bitcoin and proceeds from our at-the-market ("ATM") equity offering program.

Based on our current plans and business conditions, we believe that existing cash and cash equivalents and bitcoin, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements for the next 12 months and for the reasonably foreseeable future until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in the liquidity of our assets. We may continue utilizing the ATM program to strategically issue shares of common stock to support our liquidity needs, and we may amend or replace the program as necessary to maintain this funding flexibility. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, rising inflation and changes in interest rates, and the conflict between Russia and Ukraine, have resulted in, and may continue to result in, significant disruption and volatility in the global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.

As of September 30, 2024, we had total current assets of $705,430, primarily consisting of cash and cash equivalents, bitcoin, receivable from bitcoin collateral, the note receivable from GRIID, and prepaid expenses and other current assets, and total assets in the amount of $1,962,662. Our total current liabilities and total liabilities as of September 30, 2024 were $187,887 and $201,821, respectively. We had a working capital of $517,543 as of September 30, 2024. The Company had issued all of the ATM’s remaining capacity through the date of these consolidated financial statements. Consistent with past activity, management maintains various sources of funding available for the Company’s future needs.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of September 30, 2024, while others are considered future commitments. Our contractual obligations primarily consist of cancelable purchase commitments with various parties to purchase goods or services, primarily miners and equipment, entered into in the normal course of business, loans and both finance and operating leases.

We regularly evaluate opportunities to expand our business, including through potential acquisitions of businesses or assets. We will evaluate a variety of sources of capital in connection with financing any future possible acquisitions, including the incurrence of debt, sales of stock or bitcoin, or using cash on hand. We may also use the Company’s stock as transaction consideration, as we have done in the past.

For information regarding our contractual obligations, refer to Note 18 - Commitments and Contingencies included elsewhere in our Notes to Consolidated Financial Statements.

56

Operating Activities from Continuing Operations

The Company generates non-cash revenue through mining Bitcoin, which it retains based on its long-term value strategy, while funding all operating expenses with cash. As a result, net cash used in operating activities was $233,154 for the year ended September 30, 2024 primarily due to net loss of $145,777, adjusted by adding non-cash adjustment to reconcile net loss to net cash of impairment of goodwill, fixed assets and other of $197,757, depreciation and amortization of $154,609, stock based compensation of $29,555 and loss on disposal of assets of $5,466 and subtracting non-cash bitcoin mining revenues of $378,968, gain on fair value of bitcoin, net of $113,423 and gain on fair value of receivable for bitcoin collateral of $1,384. Changes in operating assets and liabilities generated a net total of $16,529 of cash.

Net cash used in operating activities was $18,573 for the year ended September 30, 2023 primarily due to net loss of $138,148, adjusted by adding non-cash adjustment to reconcile net loss to net cash of depreciation and amortization of $120,728, stock based compensation of $24,142, impairment of bitcoin of $7,163 and loss on disposal of assets of $1,931 and subtracting non-cash bitcoin mining revenues of $168,121. We also generated cash proceeds from selling bitcoin of $116,271. Changes in operating assets and liabilities generated a net total of $15,232 of cash.

Investing Activities from Continuing Operations

Cash flows used by investing activities during the year ended September 30, 2024 was $920,398 as compared with $334,179 for the year ended September 30, 2023. Our payments on miner equipment purchase and deposits of $740,296, purchase of fixed assets of $66,100, the combined asset purchases of land and locations of $97,647, and the note receivable from GRIID in the amount of $60,919 were the main cash outflows. The Company generated $43,126 of cash flows from the sales of bitcoin during the year ended September 30, 2024.

Our purchase of fixed assets of $61,460, payments on mining equipment (including deposits) of $239,416 and purchase of Mawson for $22,518, and the acquisition of Coinmaker LLC for $9,389 were the main components of our negative investing cash flow for the year ended September 30, 2023.

Financing Activities from Continuing Operations

Cash flows generated by financing activities during the year ended September 30, 2024 amounted to $1,249,123, as compared with $357,928 for the year ended September 30, 2023. Our cash flows from financing activities for the year ended September 30, 2024 consisted primarily of proceeds from our at-the-market offering facility of $1,231,834 (106,969,819 shares at a weighted average price of $11.43 per share and $9,590 collections from receivable from equity offerings) and borrowings under our credit facility with Coinbase of $50,000. Our cash flows from financing activities for the year ended September 30, 2023 consisted of $376,200 in proceeds from offerings (98,829,525 shares at a weighted average price of $3.88 per share less 7,576 net collections on receivable for equity offerings) partially offset by payments on loans of $14,466.

Cash Flows from Discontinued Operations

Cash used in discontinued operations of $508 for the year ended September 30, 2024 was primarily based on the winding down of operations, which includes payments on warranty service. In the year ended September 30, 2023, operating cash flows generated was $1,326 mainly due to payments received from accounts receivable, payments made on accounts payable and cash generated from the sale of assets during the fiscal year.

57

Compensation Recovery Analysis

As a result of our correction of errors in the prior year financial statements, the Compensation Committee of our Board of Directors, consisting entirely of independent directors, conducted a recovery analysis of incentive-based compensation received by our executive officers during the relevant period, as contemplated by Rule 10D-1 under the Exchange Act and in accordance with our Executive Officer Incentive Compensation Recoupment (Clawback) Policy. Based on this analysis, no recovery of incentive-based compensation is required, as the financial statement adjustments did not impact the metrics used to determine incentive compensation during the relevant recovery period, and thus there was no erroneously awarded compensation.

Recently Issued and Proposed Accounting Pronouncements

For information on new accounting pronouncements and the impact of these pronouncements on our Consolidated Financial Statements, see Note 2 - Summary of Significant Accounting Policies” in the notes to our Consolidated Financial Statements.

Critical Accounting Policies and Estimates

We describe our most significant accounting policies in Note 2, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements. We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about highly complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

The most significant accounting policies in the preparation of our financial statements include revenue recognition and impairment of long-lived assets.

Revenue Recognition

We participate in a third-party operated mining pool. As a participant in this mining pool, we provide a service to perform hash calculations which is an output of our ordinary activities. The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Revenue from Contracts with Customers(ASC 606). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We receive non-cash consideration in the form of bitcoin, fair value of which we measure at 23:59:59 UTC on the date of contract inception using our principal market for bitcoin. The contract renews continuously throughout the day, and thus the value of the consideration should be assessed continuously throughout the day. Our critical policy is that we have concluded to use the 23:59:59 UTC bitcoin price each day. The market price of bitcoin fluctuates throughout the day, and the revenue recognized on a daily basis could be impacted if we utilized a different point in time or average price to recognize revenue. The Company assesses whether measuring the fair value of bitcoin received at 23:59:59 on the date of contract inception materially differs from assessing the fair value of bitcoin received continuously throughout the day at contract inception.

Impairment of long-lived assets

We evaluate impairment of long-lived assets when events or circumstance indicates there is a potential for impairment. The evaluation of impairment involves the conclusion that an indicator of impairment has occurred, the determination of the recoverability of long-lived assets from the results of operations and, if necessary, the fair value of the potentially impaired long-lived assets. The determination of fair value, specifically for our miners, includes estimates such as future bitcoin prices, transaction fees, and the future global hashrate. Actual future outcomes could result in different conclusions that could materially affect the consolidated financial statements.

58

The most significant accounting estimates in the preparation of our financial statements include estimate of useful lives of our miners, and impairment of long-lived assets and the valuation allowance associated with our deferred tax assets.

Useful lives of miners

We establish the useful lives of miners based upon the period over which they provide economic benefit to the Company in the form of bitcoin mining revenue and the duration of miner technological capability. Changes in the profitability of mining operations or miner technological capability could affect the determination of useful lives and have a material effect on the consolidated financial statements.

Valuation allowances on deferred tax assets

Accounting for income taxes requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently. The guidance requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have recorded a valuation allowance on our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. To fully utilize the net operating loss (“NOL”) carryforward, we will need to generate sufficient future taxable income in each respective jurisdiction. Due primarily to our history of losses, it is more likely than not that all or a portion of its deferred tax assets as of September 30, 2024 will not be realized. Future estimates of taxable income could have a material impact our utilization of our NOL’s.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our financial condition and results of operations for the years ended September 30, 2023 and 2022 should be read in conjunction with our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements. See "Forward-Looking Statements."

Business Overview

We are a bitcoin mining company. We independently own and operate five data centers in Georgia for a total developed capacity of 230 MW. We are developing an additional 150 MW at our data center in Sandersville, GA. We have a partner in Massena, NY, that hosts 50 MW for us. We design our infrastructure to responsibly support bitcoin, the world’s most important digital commodity and an essential tool for financial independence and inclusion. We strive to leave the planet better than we found it by investing in communities that source low-carbon energy, like wind, solar, nuclear, and hydro. We endeavor to cultivate trust and transparency among our employees, the communities we operate in, and the people around the world who depend on bitcoin.

Bitcoin Mining

Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,” which contains a record of every bitcoin transaction ever processed. The bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation. The authenticity of each bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive bitcoin. Users have full control over remitting bitcoin from their own sending addresses. All transactions on the bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. To be recorded on the blockchain, each bitcoin transaction is validated through a proof-of-work consensus method, which entails solving cryptographic functions to validate transactions and post them on the blockchain. This process is called mining. Miners are rewarded with bitcoins, both in the form of newly created bitcoins and fees in bitcoin, for successfully solving for the cryptographic function and providing computing power to the network.

Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining. As of September 30, 2023, our operating mining units were capable of producing over 9.6 EH/s of computing power. In bitcoin mining, “hashrate” is a measure of the computing and processing power and speed by which a computer processes transactions on the bitcoin network. We expect to continue increasing our computing power through 2024 and beyond as we expand our infrastructure at our owned sites in the State of Georgia, seek strategic acquisition targets, and through strategic co-location agreements. As of the date of this filing, December 1, 2023, we are capable of producing 10.0 EH/s of computing power. A company’s computing power measured in hashrate is generally considered to be one of the most important metrics for evaluating bitcoin mining companies.

We owned approximately 113,500 miners as of September 30, 2023, of which approximately 88,000 were in service and the remainder mainly pertains to new machines ready to install in the Sandersville expansion. These miners range in age from 1-37 months and have an average age of approximately 12 months. We do not have scheduled downtime for our miners. We periodically perform unscheduled maintenance on our miners, but such downtime has not historically been significant. When performing unscheduled maintenance, we will typically replace the miner with a substitute miner to limit overall downtime. The miners owned as of September 30, 2023 have a range of energy efficiency (watts per terahash – “w/th”) of 21.5 to 38 w/th with an average energy efficiency of 28.4 w/th.

We obtain bitcoin as a result of our mining operations, and we sell bitcoin from time to time, to support our operations and strategic growth. We do not currently plan to engage in regular trading of bitcoin (other than as necessary to

42

convert our bitcoin into U.S. dollars) or to engage in hedging activities related to our holding of bitcoin; however, our decisions to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell bitcoin that we hold, or the number of bitcoins we will sell. Rather, decisions to hold or sell bitcoins are currently determined by management by analyzing forecasts and monitoring the market in real time.

The value of bitcoin has historically been subject to wide swings. The following table provides a range of intraday low and intraday high bitcoin prices between October 1, 2021 through September 30, 2023.

As of September 30, 2023, we held approximately 2,243 bitcoins. The carrying value of our bitcoins as of September 30, 2023 was $56,241 on our Consolidated Balance Sheet. We account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition. Impairment losses cannot be recovered for any subsequent increase in fair value. The carrying value of each bitcoin we held at the end of each reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition. Therefore, negative swings in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our bitcoin.

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

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

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

Bitcoin Mining Operations

Overview

We operate a fleet of servers commonly known as miners or ASICs (Application-Specific Integrated Circuits), which are computer chips customized for a specific use. In the case of bitcoin mining, ASICs calculate the SHA-256 algorithm as efficiently and quickly as possible in order to compete with other miners to solve blocks. Each calculation is a hash, and each machine’s computational power is measured in terahash processed per second (“TH/s”). One terahash is equal to 1 trillion hashes. The more hashing power we produce and contribute to the total global hashrate, the higher our percentage of the block reward. For example, as of September 30, 2023, our operating hashrate was approximately 2.45% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date, equaled approximately 20-22 bitcoins per day. Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs.

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

The energy efficiency of a mining fleet helps drive profitability, because the most significant direct expense for bitcoin mining is power. We measure efficiency by the watts of energy required to produce each terahash of

43

processing power. We believe we operate a highly efficient fleet of miners. The table below describes our fleet as of September 30, 2023 and 2022 and describes our miner efficiency and computing power as compared to the global computing power.

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

44

Power prices are the most significant cost driver for our wholly owned locations, and energy costs represented 51.5% and 19.6% of bitcoin mining revenues for the years ended September 30, 2023 and 2022, respectively. For our co-locations, hosting fees (which comprise direct operating costs of the third-party operator with energy as the largest cost) and profit sharing were a combined 66.9% and 42.4% of bitcoin mining revenues for the fiscal years ended September 30, 2023 and 2022, respectively.

Energy prices can be highly volatile and global events (including the war in Ukraine and the resulting natural gas shortage) have caused power prices to increase nationwide over the past year. All of our wholly owned and operated sites in the State of Georgia and our hosted miners in New York State are currently subject to variable prices and market rate fluctuations with respect to wholesale power costs. Such prices are governed by power purchase agreements which vary by location and said prices can change hour to hour. While this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume with an eye towards increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as heat waves, winter storms and polar vortices, which increase the demand for power regionally. When such events occur, we may curtail our operations to avoid using power at increased rates. The average power prices we paid in our

45

owned facilities for the years ended September 30, 2023 and 2022 was $0.048 and $0.041 per kilowatt hour, respectively. At our hosting facilities, the hosting fee as compared to KWHs utilized in the hosted facilities was $0.064 and $0.098 per kilowatt hour for such periods, respectively.

The management team makes real-time determinations on the need and timing during which we should curtail energy use. We curtail when power prices exceed the value we would receive for the corresponding fixed bitcoin reward. This means if bitcoin’s value decreases or energy prices increase, our curtailment will increase; likewise, when bitcoin’s value increases and energy prices decrease, our curtailment will decrease. The management team manages this decision on an hour-by-hour basis across all our sites, both wholly owned and hosted.

In the quarter ended December 31, 2022, energy prices spiked nationwide due to weather events and, as a result, we curtailed a total of 15% of our fleet, with December being the month in fiscal year 2023 with the greatest curtailment. Our active curtailment strategy allowed us to avoid excessive cost during these events, but it also resulted in decreased production.

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

Results of Operations

Bitcoin mining revenue

We earned $168,121 in revenues during the year ended September 30, 2023, which was an increase of $37,121, or 28%, as compared with $131,000 in revenues for the year ended September 30, 2022 primarily due to increase in revenues from our bitcoin mining operations. Bitcoin mining revenues are determined by two main drivers: quantity of bitcoin mined and the price of bitcoin on the date the bitcoin is mined. During the fiscal year ended September 30, 2023, we mined 6,903 bitcoins with an average bitcoin price of $24,355 as compared to 3,752 bitcoins with an average bitcoin price of $34,916 during the year ended September 30, 2022. The increase in the quantity of bitcoin mined was primarily driven by the increased number of miners in operation which almost doubled to approximately 88,000 as of September 30, 2023 from 47,000 as of September 30, 2022. This increase in miners in operation increased our hashrate, which is our total computational power, and which when understood in the context of global hashrate, determines how much bitcoin we are able to mine.

Other services revenues

Other services revenues pertain to our data center operations for which we earned $287 in revenue from our data center operation for the year ended September 30, 2023, which is a decrease of $238, or 45% as compared to $525 for the year ended September 30, 2022. This decrease was due to management's decision to divert all capacity within its operations to bitcoin mining. As of September 30, 2023, we no longer recognize revenues from data center operations.

Cost of revenues (exclusive of depreciation and amortization expense)

Our cost of revenues were $93,580 for the year ended September 30, 2023, an increase of $52,346, or 127%, as compared with cost of revenues of $41,234 for the year ended September 30, 2022. These costs were primarily related to energy costs to operate the mining equipment within our owned facilities, which was $65,824 for the year ended September 30, 2023, an increase of $52,490 as compared to $13,334 for the year ended September 30, 2022. The increases in energy costs within our owned facilities relates to the full-year or approximate full-year, as applicable, of mining operations in fiscal year 2023 in our Washington and Sandersville locations which were acquired in August 2022 and October 2022, respectively.

We also incurred hosting fees of $22,974 and profit sharing fees of $3,991 for the year ended September 30, 2023, an increase of $266 and a decrease of $37, respectively, as compared to $22,708 and $4,028, respectively for the year ended September 30, 2022. The hosting fees and profit sharing fees are primarily the result of our co-location agreement with Coinmint. The hosting fees remained consistent for both fiscal years since the increase in KWHs utilized was offset by the decrease in the rate charged per KWH.

46

Professional fees

Professional fees, which consists primarily of legal, accounting and consulting fees, were $10,869 for the year ended September 30, 2023, an increase of $4,400, or 68%, from $6,469 for the year ended September 30, 2022. Legal expenses were $7,676 for the year ended September 30, 2023, as compared to $2,714 in the prior year. This increase was primarily attributable to $3,800 in litigation settlement with Darfon America Corp and additional activity in litigation and transactional costs. Other professional fees, namely accounting, audit and consulting, were $3,193 for the year ended September 30, 2023 as compared to $3,755 for the year ended September 30, 2022, a decrease of $562.

Payroll expenses

Payroll expenses increased to $45,714 for the year ended September 30, 2023 from $40,920 for the same period ended September 30, 2022. Our payroll expenses include all compensation related expenses for our employees and mainly includes salaries, wages, payroll-related taxes and benefits and non-cash stock-based compensation. Payroll expenses, excluding non-cash stock-based compensation, were $21,572 the year ended September 30, 2023, representing an increase of 127% from $9,493 in the prior year ended September 30, 2022. This increase was primarily due to the Company’s acquisition of both WAHA and Mawson in August 2022 and October 2022, respectively.

We grant stock-based awards to certain employees as a significant portion of our payroll-related costs. Stock-based compensation, which is a non-cash expense, was $24,142 for the year ended September 30, 2023, a decrease of $7,324, or 23%, from $31,466 the prior year ended September 30, 2022.

General and administrative expenses

General and administrative fees increased to $20,823 for the year ended September 30, 2023 from $10,423 for the same period ended September 30, 2022, representing an increase of $10,400. This increase was primarily attributable to increases in corporate overhead, including but not limited to, taxes and licenses, insurance premiums, travel expenses and rent expenses.

Other impairment expense (related to bitcoin)

Impairment expense in the amount of $7,163 was recognized for the year ended September 30, 2023 a decrease of $5,047 as compared to $12,210 for the year ended September 30, 2022. The impairment expense consists of bitcoin impairments due to the general decrease in bitcoin prices during the year, for which there was a larger general decrease in bitcoin prices during fiscal year ended September 30, 2022 as compared to fiscal year ended September 30, 2023. Decreases in bitcoin prices for periods subsequent to the mining date are recorded as impairment expense. Impairment expense is measured utilizing the intraday low bitcoin price during the holding period of bitcoin. ASC Topic 350 -Goodwill and Other that requires subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin decreased to $1,357 for the year ended September 30, 2023 from a realized gain of $2,567 for the year ended September 30, 2022. Realized gains on sale of bitcoin is the difference between the sales proceeds of bitcoin and the carrying amount. Typically gains are higher when bitcoin prices are increasing over a holding period.

Depreciation and amortization

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

47

Depreciation expense increased by $71,533, or 152%, during the year ended September 30, 2023, to $118,615 from $47,082 due to an increase in miners and mining-related equipment being placed in service during the comparative period. Additionally, in the fourth quarter of fiscal year 2023, the Company purchased Antminer XPs (140 TH/s with 21.5 J/TH), and replaced certain less efficient miners with these newly acquired miners. As a result, the Company recognized an additional $32,721 in accelerated depreciation expense on the replaced miners.

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

Other Income (Expenses)

Other expense was $260 for the year ended September 30, 2023, compared with $2,225 for the year ended September 30, 2022, which is a variance of $1,965. We recognized a gain on the change in fair value of contingent consideration of $2,484 for the year ended September 30, 2023 relating to the Mawson acquisition. Unrealized loss on derivative security of $259 was recorded for the year ended September 30, 2023 as compared to loss for the same prior year period of $1,950.

Interest expense in the fiscal year ended September 30, 2023 also increased by $1,899 to $2,977 from $1,078 in the prior year comparable period. This increase was primarily related to the Financing Agreement, which was issued in April 2022 and was outstanding for approximately five months in the fiscal year ended September 30, 2022 as compared to being outstanding during the entire fiscal year ended September 30, 2023.

Net Loss from Continuing Operations

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

Results of Discontinued Operations

Revenues from our former energy segment decreased year over year as expected to $158 from $9,667. The total costs and expenses for the year ended September 30, 2023 decreased to $6,071 from $26,901 for the year ended September 30, 2022 primarily due to impairment expenses related to the energy business and severance-related payroll expenses recognized in the prior year. As a result, the net loss from discontinued operations for the year ended September 30, 2023 decreased to $4,429 from $17,237 in the prior year ended September 30, 2022. The Company does not expect any substantial activity to be recorded to discontinued operations in subsequent periods.

Net Loss

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

Non-GAAP Measure

We present adjusted EBITDA, which is not a measurement of financial performance under generally accepted accounting principles in the United States ("GAAP"). Our non-GAAP "Adjusted EBITDA" excludes (i) impacts of interest, taxes, and depreciation; (ii) our share-based compensation expense, unrealized gains/losses on securities, and changes in the fair value of contingent consideration with respect to previously completed acquisitions, all of which are non-cash items that we believe are not reflective of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) non-cash impairment losses related to long-lived assets (including goodwill); (iv) realized gains and losses on sales of equity securities, the amounts of which are directly related to the unrealized gains and losses that are also excluded; (v) legal fees related to litigation and various transactions, which fees management does not believe are reflective of our ongoing operating activities; (vi) gains and losses on disposal of assets, the majority of which are related to obsolete or unrepairable machines that are no longer deployed; (vii) gains and losses related to discontinued operations that would not be applicable to our future business activities; and (viii) severance expenses.

48

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

Management believes that providing this non-GAAP financial measure that excludes these items allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. In addition to management's internal use of non-GAAP adjusted EBITDA, management believes that adjusted EBITDA is also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate our bitcoin related revenues). For example, we expect that share-based compensation expense, which is excluded from adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers and directors. Additionally, management does not consider any of the excluded items to be expenses necessary to generate our bitcoin-related revenue.

The Company's adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. The Company's adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating (loss) income or any other measure of performance derived in accordance with GAAP. Although management utilizes internally and presents adjusted EBITDA, we only utilize that measure supplementally and do not consider it to be a substitute for, or superior to, the information provided by GAAP financial results.

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

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

49

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

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

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

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, capital expenditures, loan payments, public company costs and general corporate needs. We expect these needs to continue as we further develop and grow our business. For the year ended September 30, 2023, our primary sources of liquidity came from existing cash and cash equivalents and bitcoin. Based on our current plans and business conditions, we believe that existing cash and cash equivalents and bitcoin, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements for the next 12 months and for the reasonably foreseeable future until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, rising inflation and interest rates, and the conflict between Russia and Ukraine, have resulted in, and may continue to result in, significant disruption and volatility in the global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.

As of September 30, 2023, we had total current assets of $102,172, primarily consisting of cash and cash equivalents, bitcoin, inventory, and prepaid expenses and other current assets, and total assets in the amount of $761,578. Our total current liabilities and total liabilities as of September 30, 2023 were $74,055 and $84,351, respectively. We had a working capital of $28,117 as of September 30, 2023. In addition, we have access to equity financing through our at-the-market offering facility and debt financing through the lending arrangement we entered into in April 2022.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of September 30, 2023, while others are considered future commitments. Our contractual obligations primarily consist of cancelable purchase commitments with various parties to purchase goods or services, primarily miners and equipment, entered into in the normal course of business, loans and both finance and operating leases.

We regularly evaluate opportunities to expand our business, including through potential acquisitions of businesses or assets. We will evaluate a variety of sources of capital in connection with financing any future possible acquisitions, including the incurrence of debt, sales of stock or bitcoin, or using cash on hand. We may also use the Company’s stock as transaction consideration, as we have done in the past.

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

50

Operating Activities from Continuing Operations

Net cash used in operating activities was $31,720 for the year ended September 30, 2023, as compared to net cash provided by operating activities of $77,806 for the same period ended September 30, 2022. Our proceeds from the sale of bitcoin of $116,271 and adding back non-cash expenses, such as depreciation and amortization of $120,728, stock-based compensation of $24,142 and impairment of bitcoin of $7,163 were the main components of net cash provided by operating activity for the year ended September 30, 2023, offset primarily by the net cash used in operating activities of bitcoin mining of $168,121, net loss of $136,589, and increase in prepaid and other current assets of $4,320. Our net cash provided by operating activities during the year ended September 30, 2022 was primarily driven by net loss from continuing operations for the period of $40,089, bitcoin mining of $131,000, and unrealized gain on derivative asset of $1,950, offset by stock based compensation of $31,466, depreciation and amortization of $49,045, impairment of bitcoin of $12,210, proceeds from the sale of bitcoin of $133,201, and an increase in accounts payable and accrued liabilities of $16,040.

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

Investing Activities from Continuing Operations

Cash flows used by investing activities during the year ended September 30, 2023 was $334,179 as compared with $210,981 for the year ended September 30, 2022. Our payments on miner equipment purchase and deposits of $239,416, purchase of fixed assets of $61,460, purchase of Mawson of $22,518, purchase of Coinmaker LLC of $9,389, and land acquisition in Sandersville, GA of $1,430 were the main components of our investing cash flow for the year ended September 30, 2023.

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

Financing Activities from Continuing Operations

Cash flows generated by financing activities during the year ended September 30, 2023 amounted to $371,075, as compared with $141,960 for the year ended September 30, 2022. Our cash flows from financing activities for the year ended September 30, 2023 consisted primarily of proceeds from our at-the-market offering facility of $383,776 (98,829,525 shares at a weighted average price of $3.88 per share). Our cash flows from financing activities for the year ended September 30, 2022 consisted of $125,048 in proceeds from offerings (17,740,081 shares at a weighted average price of $7.05 per share), and proceeds from equipment backed loan of $19,620.

Cash Flows from Discontinued Operations

Cash provided by discontinued operations was based on the winding down of operations, which includes receipt of payments from accounts receivable, payments of accounts payable and cash generated from the sale of assets during the fiscal year September 30, 2023. In fiscal year ended September 30, 2022, we experienced significant cash outflows from our energy segment, which is a significant reason the Company decided to exit the energy business segment. The cash used in the operating activities of the energy segment (discontinued operations) for the year ended September 30, 2022 was $6,362.

Recently Issued and Proposed Accounting Pronouncements

At its September 6, 2023 meeting, the Financial Accounting Standards Board (“FASB”) discussed feedback on its proposed ASU - Accounting for and Disclosure of Crypto Assets (Subtopic 350-60) on the accounting for and disclosure of certain crypto assets. On the basis of comments received on the proposal, the FASB directed its staff to draft a final standard. Under the new guidance, an entity would be required to subsequently measure certain crypto assets at fair value, with changes in fair value included in net income in each reporting period. The proposes set of rules would:

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

51

•
Expense transaction costs incurred

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

•
Require various disclosures in interim and annual periods.

The proposed rules would apply to all entities, including employee benefit plans and not-for-profits. Crypto assets would be defined narrowly and bitcoin would meet the definition. The likelihood of a final standard before the end of the year is likely and early adoption would be permitted. Transition would not be retrospective but would require a cumulative effect adjustment to beginning retained earnings. The Company expects to early adopt the final standard when issued.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This new guidance is effective for the Company for its interim and fiscal year ended September 30, 2024.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. As the Company was a smaller reporting company at the time of issuance of the ASU, the Company adopted the ASU effective October 1, 2023, and the adoption of the new standard did not have a material impact on the Company's results of operations or cash flows.

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

Critical Accounting Policies and Estimates

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

Our significant estimates include estimates used to review the Company’s goodwill impairments and estimations of recoverability for long-lived assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our financial condition and results of operations for the years ended September 30, 2022 and 2021 should be read in conjunction with our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements. See "Forward-Looking Statements."

Business Overview

We are a sustainable bitcoin mining operator that owns and operates facilities as well as holds contracts with co-location and hosting operators. A bitcoin mining company uses specialized computers to verify transactions on the bitcoin blockchain. Without mining, there would be no bitcoin. Prior to June 2022, we also operated in a specialized energy industry that provided advanced energy technology solutions to commercial and residential customers. Effective June 30, 2022, 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 its energy assets. Accordingly, the Company now solely operates in one business segment. The energy segment has now been classified as held-for-sale and will be discussed in this management discussion & analysis within the "Results of Discontinued Operations" section. On November 18, 2022, we disposed of the majority of our intellectual property and software related to the energy segment. We are currently working to sell the remaining assets and inventory of the energy segment, but currently plan to maintain ownership of the patents related to the gasifier technology.

Results of Operations for the Year Ended September 30, 2022 and 2021

Bitcoin Mining Operations

Bitcoin mining revenue

We earned $130,999,686 in revenues during the year ended September 30, 2022, which was an increase of $92,153,053, or 237%, as compared with $38,846,633 in revenues for the year ended September 30, 2021 primarily due to increase in revenues from our bitcoin mining operations. Bitcoin mining revenues are determined by two main drivers; quantity of bitcoin mined and the price of bitcoin on the date the bitcoin is mined. During the fiscal year ended September 30, 2022, we mined 3,752 bitcoin with an average bitcoin price of $34,916 as compared to 899 bitcoin with an average bitcoin price of $43,232 during the year ended September 30, 2021. The increase in the quantity of bitcoin mined is primarily based on the increased number of miners in operation which increased to approximately 42,000 as of September 30, 2022. The increase in miners in operation increases our hashrate, which is our total computational power, and which when understood in the context of global hashrate, determines how much bitcoin we are able to mine.

Other services revenues

Other services revenues pertain to our data center operations for which we earned $524,759 in revenue from our data center operation for the year ended September 30, 2022, which is an increase of $84,287, or 19% as compared to $440,472 for the year ended September 30, 2021. This increase was due to a full year of data center operations during the fiscal year ended September 30, 2022, whereas the prior fiscal year saw data center operations begin in December 2020 as the result of the ATL acquisition.

Cost of revenues (exclusive of depreciation and amortization expense)

Our cost of revenues were $41,233,650 for the year ended September 30, 2022, an increase of $35,970,621, or 683%, as compared with cost of revenues of $5,263,029 for the year ended September 30, 2021. These costs were primarily related to energy costs to operate the mining equipment within our owned facilities, which was $13,554,648 for the

37

year ended September 30, 2022, an increase of $10,610,995 as compared to $2,943,653 for the year ended September 30, 2021. We also incurred hosting fees of $22,707,539 for the year ended September 30, 2022, an increase of $20,761,197 as compared to $1,946,342 for the year ended September 30, 2021, which was the result of our co-location agreement with Coinmint. The increases in both utilities and hosting fees were due to the increases in the volume of mining equipment installed in both our owned and co-locations as well as a general increase in the cost of each MW utilized.

Professional fees

Professional fees, which consists primarily of legal, accounting and consulting fees, were $6,469,064 for the year ended September 30, 2022, a slight decrease of $68,998, or 1%, from $6,538,062 for the year ended September 30, 2021. Legal expenses were $2,713,726 for the year ended September 30, 2022, as compared to $4,496,482 in the prior year. Other professional fees, namely accounting, audit and consulting, were $3,755,338 for the year ended September 30, 2022 as compared to $2,041,580 for the year ended September 30, 2021 an increase of $1,713,758. This increase was primarily attributable to additional activity in litigation and transactional costs.

Payroll expenses

Payroll expenses increased to $40,920,163 for the year ended September 30, 2022 from $21,181,905 for the same period ended September 30, 2021. Our payroll expenses include all compensation related expenses for our employees and mainly includes salaries, wages, payroll related taxes and benefits and non-cash stock-based compensation. Payroll expenses were $9,492,676 the year ended September 30, 2022, representing a decrease of 29% from $13,450,299 in the prior year ended September 30, 2021. This decrease was primarily due to the Company’s exit from the energy business, some costs of which were classified as discontinued operations.

We grant stock-based awards to certain employees as a significant portion of our payroll related costs. Stock-based compensation, which is a non-cash expense, was $31,464,994 for the year ended September 30, 2022, an increase of $22,918,282, or 268%, from $8,546,712 the prior year ended September 30, 2021.

General and administrative expenses

General and administrative fees increased to $10,422,716 for the year ended September 30, 2022 from $5,716,465 for the same period ended September 30, 2021, representing an increase of $4,706,251. This increase was primarily attributable to increases in corporate overhead including, but not limited to, insurance premiums, travel expenses and rent expenses.

Other impairment expense (related to bitcoin)

Impairment expense in the amount of $12,210,269 was recognized for the year ended September 30, 2022 an increase of $5,602,193 as compared to $6,608,076 for the year ended September 30, 2021. The impairment expense consists of bitcoin impairments due to the general decrease in bitcoin prices during the year. Decreases in bitcoin prices for periods subsequent to the mining date are recorded as impairment expense. ASC Topic 350 -Goodwill and Other requires subsequent increases in bitcoin prices are not allowed to be recorded (unrealized gains) unless the bitcoin is sold, at which point the gain is recognized.

Realized gain on sale of bitcoin

Realized gain on sale of bitcoin decreased to $2,567,101 for the year ended September 30, 2022 from a realized gain of $3,104,378 for the year ended September 30, 2021 due to the decrease in bitcoin prices during the period.

Depreciation and amortization

38

Depreciation and amortization expense increased to $49,044,877 for the year ended September 30, 2022, from $8,982,123 for the same period ended September 30, 2021, an increase of $40,062,754. Depreciation expense increased by $39,676,525, or 536%, during the year ended September 30, 2022, to $47,081,550 from $7,405,025 due to increase in mining related equipment being placed in service during the comparative period. Amortization expense for the year ended September 30, 2022 was $1,963,328, a decrease of $386,230, or 24%, from $1,577,098 for the prior year ended September 30, 2021

Other Income (Expenses)

Other expense was $2,224,472 for the year ended September 30, 2022, compared with other income of $3,669,015 for the year ended September 30, 2021, which is a variance of $5,893,487. Other expense for the year ended September 30, 2022 consisted primarily of an unrealized loss on derivative security of $1,949,770 as compared to gain for the same prior year period of $2,790,387. This change between the periods is the result of a change in fair value of the underlying instrument.

Interest expense in the current fiscal year ended September 30, 2022 also increased by $932,099 to $1,077,827 from $145,728 in the prior year comparable period. This increase was due to the Company increasing the amount of long-term debt during the fiscal year ended September 30, 2022

Net Loss from Continuing Operations

Net loss from continuing operations for the year ended September 30, 2022 was $40,089,393 as compared to net loss of $8,229,162 for the year ended September 30, 2021.

Results of Discontinued Operations

Revenues from our former energy segment, which is now classified as discontinued operations remained fairly consistent for fiscal year ended September 30, 2022 from fiscal 2021, $9,667,290 and $10,151,010 respectively. The total costs and expenses for the year ended September 30, 2022 increased to $26,900,776 from $23,725,506 for the year ended September 30, 2021 primarily due to impairment expenses related to the energy business and severance related payroll expenses. As a result, the net loss from discontinued operations for the year ended September 30, 2022 increased to $17,236,961 from $13,582,848 in the prior year ended September 30, 2021. The Company expects that most costs related to discontinued operations have been incurred as of the period ended September 30, 2022 and future period costs will significantly decline in subsequent periods.

Net Loss

Net loss for the year ended September 30, 2022 was $57,326,354, in increase of $35,514,344 compared to net loss of $21,812,010 for the year ended September 30, 2021.

Non-GAAP Measure

We present adjusted EBITDA, which is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company's non-cash operating expenses, CleanSpark management believes that providing this non-GAAP financial measure that exclude non-cash and non-recurring expenses allows for meaningful comparisons between the Company's core business operating results and those of other companies, as well as providing the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. We believe that adjusted EBITDA is also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. Adjusted EBITDA excludes (i) impacts of interest, taxes, and depreciation; (ii) significant non-cash expenses such as our share-based compensation expense, unrealized gains/losses on securities, certain financing costs, other non-cash items that we believe are not reflective of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) significant impairment losses related to long-lived and digital assets, which include our bitcoin for which the accounting requires significant estimates and judgment, and the resulting expenses could vary significantly

39

in comparison to other companies; and (iv) and impacts related to discontinued operations that would not be applicable to our future business activities.

The Company's adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. The Company's adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. Our management does not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

We are providing non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) that excludes the impact of interest, taxes, depreciation, amortization, our share-based compensation expense, and impairment of assets, unrealized gains/losses on securities, certain financing costs, other non-cash items, certain non-recurring expenses, and impacts related to discontinued operations; Adjusted EBITDA is a supplemental financial measure and is not a measurement of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, this supplemental financial measure may not be comparable to similarly titled measures of other companies. Management uses adjusted EBITDA, a non-GAAP financial measure internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

Non-GAAP financial measures are subject to material limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect that share-based compensation expense, which is excluded from the adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.

We have also excluded impairment losses on assets, including impairments of our bitcoin from adjusted EBITDA, which may continue to occur in future periods as a result of our continued holdings of significant amounts of bitcoin. Adjusted EBITDA is not meant to be considered in isolation and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use adjusted EBITDA only supplementally.

40

The following is a reconciliation of our non-GAAP adjusted EBITDA, which excludes the impact of (i) interest, taxes, depreciation, amortization; (ii) our share-based compensation expense; (iii) impairment expense; (iv) unrealized gains/losses on securities; and (v) impacts related to discontinued operations, to its most directly comparable GAAP measure (i.e., net loss) for the periods indicated:

The following is a reconciliation of fair market value of our bitcoin holdings to the current carrying value at September 30, 2022 and 2021:

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

(2)
Value per coin is the quoted market price as of the balance sheet date.

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we further develop and grow our business. For the year ended September 30, 2022, our primary sources of liquidity came from existing cash and cash equivalents, and bitcoin. Based on our current plans and business conditions, we believe that existing cash and cash equivalents and bitcoin, together with cash generated from operations will be sufficient to satisfy our anticipated cash requirements until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to

41

obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, rising inflation and interest rates, and the conflict between Russia and Ukraine have resulted in, and may continue to result in, significant disruption and volatility in the global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.

As of September 30, 2022, we had total current assets of $50,775,974, consisting of cash and cash equivalents, bitcoin, accounts receivable, inventory, prepaid expenses and other current assets, investment in debt security and related derivative asset, current assets held for sale, and total assets in the amount of $452,624,772. Our total current liabilities and total liabilities as of September 30, 2022 were $34,040,775 and $48,612,961, respectively. We had a working capital of $16,735,199 as of September 30, 2022. In addition, we have access to equity financing through our At-the-Market ("ATM") offering facility and debt financing through the lending arrangement we entered into in April 2022.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of September 30, 2022, while others are considered future commitments. Our contractual obligations primarily consist of cancelable purchase commitments with various parties to purchase goods or services, primarily miners and equipment, entered into in the normal course of business and operating leases. The Company also has contractual obligations outside the normal course of business related to acquisitions deemed to be business combinations.

For information regarding our contractual obligations, see Contractual Obligations below and refer to Note 15, Commitments and Contingencies included elsewhere in this Annual Report. For information regarding our contractual obligations related to acquisitions deemed to be business combinations, refer to Note 4 included elsewhere in this Annual Report.

Operating Activities from Continuing Operations

Operating activities provided $77,806,160 in cash for the year ended September 30, 2022, as compared to cash outflows of $12,159,108 for the same period ended September 30, 2021. Our sale of bitcoin of $133,201,006, depreciation and amortization of $49,044,877, stock-based compensation of $31,464,994, and impairment of bitcoin of $12,210,269 were the main components of our operating cash flow for year ended September 30, 2022, offset primarily by the increase in bitcoin mining of $130,999,686, net loss of $57,326,354, and increase in prepaid and other current assets of $2,393,320. Our use of net cash in operating activities during the year ended September 30, 2021 were primarily driven by net loss from continuing operations for the period of $8,229,162, bitcoin mining of $38,846,633, and unrealized gain on derivative asset of $2,790,387, offset by stock based compensation of $8,546,712, depreciation and amortization of $9,336,941, impairment of bitcoin of $6,608,076, sale of bitcoin of $11,443,132, and increase in accounts payable and accrued liabilities of $4,246,445.

Cash provided by operating activities increased significantly primarily due to increased sales of bitcoin. During the fiscal year ended September 30, 2022, the Company mined significantly more bitcoin than the prior year, resulting in greater cash proceeds generated.

Investing Activities from Continuing Operations

Cash flows used by investing activities during the year ended September 30, 2022 was $210,981,538 as compared with $228,157,922 for the year ended September 30, 2021. Our payments on miner equipment purchase and deposits of $171,181,268, purchase of fixed assets of $19,285,904, and sale of miners of $3,497,654 were the main components of our investing cash flow for the year ended September 30, 2022.

Our purchase of fixed assets of $139,234,948, and deposits on mining equipment of $89,260,010 were the main components of our negative investing cash flow for the year ended September 30, 2021. The negative cash flow from

42

investing activities was offset by acquisition of ATL Data Center, net of cash received of $45,783 and sale of equity securities of $373,121.

Financing Activities from Continuing Operations

Cash flows generated by financing activities during the year ended September 30, 2022 amounted to $141,959,688, as compared with $268,058,393 for the year ended September 30, 2021. Our cash flows from financing activities for the year ended September 30, 2022 consisted primarily of proceeds from underwritten offering of $125,047,987 and proceeds from equipment backed loan of $19,620,356. Our cash flows from financing activities for the year ended September 30, 2021 consisted of $270,656,118 in proceeds from offerings, $3,750,932 in proceeds from the exercise of warrants and options offset by repayments of $5,882,553 on promissory notes and $288,602 in finance leases.

In June 2021, we implemented an at-the-market share offering program (“ATM Offering”), whereby we may offer and sell our shares of common stock, $0.001 par value per share, having an aggregate gross sales price of up to $500 million. During our fiscal year ended September 30, 2022, under this program, we sold 17,722,026 shares at a weighted average price of $7.06 per share, generating net proceeds of $125,047,987. The proceeds were used primarily to make acquisitions of capital equipment, including but not limited to bitcoin mining equipment, electrical infrastructure and acquisitions deemed business combinations.

Cash Flows from Discontinued Operations

The Company experienced significant cash outflows from its energy segment, which is a significant reason the Company concluded to exit the energy business segment. The cash used in the operating activities of the energy segment (discontinued operations) for the year ended September 30, 2022 was $6,362,067, as compared to cash used of $11,827,102 for the year ended September 30, 2021. The Company anticipates that the sale of its energy business will improve the future total cash provided by operating activities, and will improve liquidity to fund future growth initiatives in the bitcoin mining segment.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This new guidance is effective for the Company for its fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company's results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. As the Company was a Smaller Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim periods within the fiscal year. Early application of the adoption is permitted. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company's results of operations or cash flows.

In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income

43

per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We expect the adoption of ASU 2020-06 to not have a material impact on the Company’s financial statements or disclosures.

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

Critical Accounting Policies and Estimates

Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended September 30, 2022 however we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, fair value of financial instruments, bitcoin, and stock-based compensation.

Our significant estimates include estimates used to review the Company’s goodwill impairments and estimations of recoverability for long-lived assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our financial
condition and results of operations for the years ended September 30, 2021 and 2020 should be read in conjunction with our consolidated
financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion
includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect,
believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements.

Results of Operations for the Year Ended
September 30, 2021 and 2020

Revenues

We earned $49,438,115 in revenues during the
year ended September 30, 2021, as compared with $10,028,701 in revenues for the year ended September 30, 2020.

For the year ended September 30, 2021, our
revenue was derived from cryptocurrency mining revenues, the sale of equipment, solar panels, batteries, design, engineering, and services
revenue. Income from our mining segment is a result of bitcoin mining activities in the United States. Income from our Energy segment
is the result of contracts to sell switchgear equipment, perform engineering design, and provide software for distributed energy and microgrid
systems. For the year ended September 30, 2021, we also generated services revenue from p2kLabs. We hope to generate more significant
revenue from customers through the sale and licensing of our Software platforms and services in the future. However, we
are unable to estimate with any degree of certainty the amount of future revenues, from existing or future software contracts.
Also, we do not anticipate earning significant revenues from our Gasifier business until
such time that we have fully developed our technology and are able to market our products.

Costs and Expenses

We had costs and expenses of $78,015,168 for
the year ended September 30, 2021, as compared with $25,171,817 for the year ended September 30, 2020.

Our cost of revenues were $13,964,711 for
the year ended September 30, 2021, as compared with cost of revenues of $7,907,849 for the year ended September 30, 2020.

Our cost of revenues in 2021 was mainly the
result of mining energy costs, hosting fees, contract manufacturing expenses, and hardware materials. Our cost of revenues in 2020 was
mainly the result of contract manufacturing expenses and hardware materials.

Mining expenses incurred during the year ended
September 30, 2021 is $4,889,996. It consisted mainly of energy costs and hosting fees paid to Coinmint.

Contract
manufacturing expenses decreased to $3,926,060   for
the year ended September 30, 2021, from $6,704,075   for
the year ended 2020. Our manufacturing expense consisted of the cost of contract manufacturing of switchgear equipment.

Table of Contents

Hardware
material purchases increased to $3,205,547 for the year ended September 30, 2021, from $824,665
in hardware expenses for the
year ended September 30, 2020. Our materials expense for the years ended September 30, 2021 and 2020 consisted mainly of the cost of energy
storage and solar panels.

Professional fees increased to $8,272,966
for the year ended September 30, 2021 from $6,521,016 for the same period ended September 30, 2020. Our professional fees expenses for
the year ended September 30, 2021 consisted mainly of legal fees of $4,570,216, accounting and tax fees of $1,070,174 consulting fees
of $818,741, investor relations and external marketing consulting fees of $959,717, director fees of $177,084, recruitment and conference
fees of $251,183, subcontract fees of $185,980 and audit and review fees of $214,100.

Our professional fees expenses for the year
ended September 30, 2020 consisted mainly of consulting fees of $607,392 paid to management of the Company, stock-based compensation for
consulting of $2,265,194, sales consulting of $278,547, legal fees of $1,472,421, investor relations and external marketing consulting
of $725,347, director fees of $442,000, consulting for software and engineering of $82,031, accounting and tax fees of $186,969 and audit
and review fees of $135,060.

Payroll expenses increased to $25,355,684
for the year ended September 30, 2021 from $6,813,641 for the same period ended September 30, 2020. Our payroll expenses for the year
ended September 30, 2021 consisted mainly of salary and wages expense of $17,624,078 and employee and officer stock-based compensation
and related bonuses of $7,731,605. Our payroll expenses for the year ended September 30, 2020 consisted mainly of salary and wages expense
of $4,293,559 and employee and officer stock-based compensation of $2,520,083.

General
and administrative fees increased to $5,291,652 for
the year ended September 30, 2021 from $1,093,062 for the same period ended September 30, 2020. Our general and administrative expenses
for the year ended September 30, 2021 consisted mainly of marketing related expenses of $1,488,933, travel expenses of $367,632, rent
expenses of $445,944, insurance expenses of $720,053, dues and subscriptions of $1,129,963, repairs and maintenance of $174,192, supplies
of $134,163, utilities of $184,232 and bad debt expense of $246,453. Our general and administrative expenses for the year ended September
30, 2020 consisted mainly of travel expenses of $82,407, rent expenses of $117,223, insurance expenses of $232,043, dues and subscriptions
of $362,887, marketing related expenses of $153,091, and bad debt expense of $36,924.

Depreciation and amortization expense increased
to $12,244,368 for the year ended September 30, 2021, from $2,836,249 for the same period ended September 30, 2020.

Impairment expenses were recorded for the
year ended September 30, 2021 for $12,885,776, and no impairment expenses were recorded for the same period ended September 30, 2020.
Impairment expense for the year ended September 30, 2021 consisted primarily of bitcoin impairment of $6,608,076, goodwill impairment
of $5,723,388 and software impairment of $554,322, which represents a write down of our GridFabric product line of $250,000 and our mVSO
platform of $304,322.

Other Income/Expenses

We
had net other income of $6,765,043 for the year ended September 30, 2021, compared with other expenses of $8,203,027 for the year ended
September 30, 2020. Other income for the year ended September 30, 2021 consisted mainly of other income of $544,778, change in fair value
of contingent consideration of $84,198, gains on derivative assets of $2,790,387, realized gains on the sale of digital currency of $3,104,378,
realized gains on the sale of equity securities  of
$179,046, interest income of $221,488 and interest expense of $154,079. Our other income/expenses for the year ended September 30, 2020
consisted mainly of other income of $20,000, unrealized gains on equity security and derivative security of $116,868 and $2,115,269 respectively,
interest income of $308,804, and interest expense of $10,758,750.

Net Loss

Net loss for the year ended September 30,
2021 was $21,812,010 compared to net loss of $23,346,143 for the year ended September 30, 2020.

Table of Contents

Non-GAAP Measures

Adjusted EBITDA and Adjusted EPS is not a measurement
of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available
valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company's non-cash operating expenses,
CleanSpark management believes that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for
meaningful comparisons between the Company's core business operating results and those of other companies, as well as providing the Company
with an important tool for financial and operational decision making and for evaluating its own core business operating results over different
periods of time.

The Company's adjusted EBITDA measure may not provide
information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate
non-GAAP financial results differently, particularly related to non-recurring, unusual items. The Company's adjusted EBITDA is not a measurement
of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating
performance or any other measure of performance derived in accordance with GAAP. Our management does not consider adjusted EBITDA to be
a substitute for, or superior to, the information provided by GAAP financial results.

We are providing supplemental financial measures for
(i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”) that excludes
the impact of interest, taxes, depreciation, amortization, our share-based compensation expense, and impairment of assets, unrealized
gains/losses on securities, certain financing costs, other non-cash items, certain non-recurring expenses, and impacts related to discontinued
operations; and (ii) non-GAAP adjusted EBITDA and non-GAAP earnings per share that excludes the impact of interest, taxes, depreciation,
amortization, our share-based compensation expense, and impairment of assets, unrealized gains/losses on securities, certain financing
costs, other non-cash items, and impacts related to discontinued operations. These supplemental financial measures are not measurements
of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these
supplemental financial measures may not be comparable to similarly titled measures of other companies. Management uses these non-GAAP
financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures
are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis. The first supplemental
financial measure excludes (i) impacts of interest, taxes, and depreciation; (ii) significant non-cash expenses such as our share-based
compensation expense, unrealized gains/losses on securities, certain financing costs, other non-cash items that we believe are not reflective
of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary
significantly in comparison to other companies; (iii) significant impairment losses related to long-lived and digital assets, which include
our bitcoin for which the accounting requires significant estimates and judgment, and the resulting expenses could vary significantly
in comparison to other companies; and (iv) and impacts related to discontinued operations that would not be applicable to our future business
activities.

Non-GAAP financial measures are subject to material
limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP. For example, we expect
that share-based compensation expense, which is excluded from the first two non-GAAP financial measures, will continue to be a significant
recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.

We have also excluded impairment losses on assets,
including impairments of our digital currency our non-GAAP financial measures, which may continue to occur in future periods as a result
of our continued holdings of significant amounts of bitcoin. Our non-GAAP financial measures are not meant to be considered in isolation
and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP. We
rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP
financial measures only supplementally.

Table of Contents

The following is a reconciliation of our non-GAAP
adjusted EBITDA to the most directly comparable financial measure stated in accordance with GAAP, which excludes the impact of (i) interest,
taxes, depreciation, amortization; (ii) our share-based compensation expense; (iii) impairment expense; (iv) unrealized gains/losses on
securities; (v) and (vi) impacts related to discontinued operations, to its most directly comparable GAAP measures for the periods indicated:

The following is a reconciliation of our non-GAAP
adjusted EBITDA earnings per share, in each case excluding the impact of (i) interest, taxes, depreciation, amortization; (ii) our share-based
compensation expense; (iii) impairment expense; (iv) unrealized gains/losses on securities; (v) certain financing costs and other non-cash
items; (vi) certain non-recurring expenses; and (vii) impacts related to discontinued operations:

Table of Contents

The following is a reconciliation of fair
market value of our digital currency holdings to the current carrying value at September 30, 2021. We did not hold any digital currency
as of September 30, 2020:

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

(2) Value per coin is the quoted market price
as of the balance sheet date.

Liquidity and Capital Resources

For the year ended September 30, 2021, our
primary sources of liquidity came from existing cash and proceeds from share offerings. On March 18, 2021, the Company consummated a
fully underwritten public offering of shares of its common stock, which resulted in net proceeds to the Company of approximately $187,200,000.
On June 3, 2021, the Company entered into an At the Market Offering Agreement (the “ATM”) with H.C. Wainwright & Co.,
LLC (“HCW”), pursuant to which it may, from time to time, offer and sell up to an aggregate of $500,000,000 of shares of
its common stock to or through HCW. During the fiscal year ended September 30, 2021, the Company issued an aggregate of 3,443,379 shares
of the Company’s common stock under the ATM for net proceeds of $46.4 million. The shares were sold pursuant to a prospectus dated
March 15, 2021 and a prospectus supplement dated June 3, 2021 filed with the SEC. Based on our current plans and business conditions,
we believe that existing cash, cash generated from operations and our ATM will be sufficient to satisfy our anticipated cash requirements
until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably
likely to result in a decrease in liquidity of our assets. However, our future capital requirements will depend on many factors including
our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing, the timing
of new product introductions and the continuing market acceptance of our products and services. If cash generated from operations is
insufficient to satisfy our capital requirements, we may open a revolving line of credit with a bank, or we may have to sell additional
equity or debt securities or obtain credit facilities. In the event such financing is needed in the future, there can be no assurance
that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us. If cash flows
from operations became insufficient to continue operations at the current level, and if no additional financing was obtained, our business,
operating results and financial condition would be adversely affected.

As of September 30, 2021, we had total current
assets of $57,726,321, consisting of cash, accounts receivable, inventory, digital currency, investments, prepaid expenses and other current
assets, and total assets in the amount of $317,473,121. Our total current liabilities as of September 30, 2021 were $10,063,022. We had
a working capital surplus of $47,663,299 as of September 30, 2021.

Operating
activities used $35,429,342 in cash for the year ended September 30, 2021, as compared with $6,642,734 for the same period ended September
30, 2020. Our net loss of $21,812,010 was the main component of our negative operating cash flow for the year ended September 30, 2021,
offset mainly by stock-based compensation of $8,546,712, impairment expense of $12,885,786 and depreciation and amortization of $12,244,368.
Our net loss of $23,346,143 was the main component of our negative operating cash flow for the year ended September 30, 2020, offset mainly
by amortization of debt discount of $9,010,547, depreciation and amortization of $2,672,331, shares issued as interest of $2,050,000,
amortization of capitalized software of $163,918 and stock-based compensation of $2,053,232.

Cash
flows used by investing activities during the year ended September 30, 2021 was $217,714,926, as compared with $2,383,623 for the year
ended September 30, 2020. Our acquisitions of Solar watt Solutions for  $1,000,136,
purchase of fixed assets of $139,234,948, and deposits on mining equipment of $87,959,910 were the main components of our negative investing
cash flow for the year ended September 30, 2021. The negative cash flow from investing activities is offset by sale of digital currencies
of $11,443,132, acquisition of ATL  Data
Center, net of cash received of $45,783 and sale of equity securities of $373,121.

For the year ended September 30, 2020, our
investment in the capitalized software of $84,924, acquisition of P2K Labs of $1,141,990, acquisition of Grid Fabric of $371,812, purchase
of fixed assets of $34,897, and investment in equity and debt security of $750,000 were the main components of our negative investing
cash flow.

Cash
flows provided by financing activities during the year ended September 30, 2021 amounted to $268,058,393, as compared with $4,313,702
for the year ended September 30, 2020. Our positive cash flows from financing activities for the year ended September 30, 2021 consisted
of $270,656,118 in proceeds from offerings, $3,750,932 in proceeds from the exercise of warrants  and
options offset by repayments of $5,882,553 on promissory notes and $288,602 in finance leases. Our positive cash flows from financing
activities for the year ended September 30, 2020 consisted of $4,000,000 in proceeds from the sale of common stock, $531,169 in proceeds
from promissory notes offset by repayments of $217,467 on promissory notes.

Table of Contents

Contractual Obligations

The
Company has purchase commitments for approximately $203.6 million related to purchase of miners as of September 30, 2021, and the Company
has paid $144.7   million
towards these commitments as of the end of this period.

The
Company has purchase commitments for infrastructure assets and other mining equipment of approximately $6,512,000 as of September 30,
2021 and the Company has paid $4,576,000 towards these commitments during  this
period.

The following table sets forth certain information
concerning our obligations to make contractual future payments towards our agreements as of September 30, 2021:

Contingent consideration

GridFabric: On August 31, 2020, the Company acquired GridFabric, LLC. Pursuant
to the terms of the purchase agreement, additional shares of the Company’s common stock valued at up to $750,000 were issuable if
GridFabric achieves certain revenue and product release milestones. On September 30, 2021, the contingent consideration was re-measured
to $500,000.

Subsequent to September 30, 2021, the Company settled all contingent consideration
due to GridFabric resulting in the issuance of 8,404 shares of Company common stock valued at $150,000.

Solar Watt Solutions: On February 24, 2021, the Company acquired Solar
Watt Solutions, Inc. Pursuant to the terms of the purchase agreement, additional cash consideration of up to $2,500,000 and up to 310,018
shares of the Company’s common stock may be payable if Solar Watt Solutions achieves certain revenue milestones. As of September
30 2021, none of the contingent consideration had been earned.

Known Trends or Uncertainties

Although we have not seen any significant
reduction in revenues to date, we have seen some consolidation in our industry during economic downturns. These consolidations have not
had a negative effect on our total sales; however, should consolidations and downsizing in the industry continue to occur, those events
could adversely impact our revenues and earnings going forward.

As discussed in the Risk Factors section of
this Annual Report on Form 10-K, the world has been affected due to the COVID-19 pandemic. Until the pandemic has passed, there remains
uncertainty as to the effect of COVID-19 on our business in both the short and long-term.

We believe that the need for improved productivity
in the research and development activities directed toward developing new products and/or software will continue to result in increasing
adoption of energy solution tools such as those we produce. New product and/or software developments in the energy business segment could
result in increased revenues and earnings if they are accepted by our markets; however, there can be no assurances that new products and/or
software will result in significant improvements to revenues or earnings. For competitive reasons, we do not disclose all of our new product
development activities.

Our continued quest for acquisitions could
result in a significant change to revenues and earnings if one or more such acquisitions are completed.

The potential for growth in new markets is
uncertain. We will continue to explore these opportunities until such time as we either generate sales or determine that resources would
be more efficiently used elsewhere.

Table of Contents

Inflation

We have not been affected materially by inflation
during the periods presented, and no material effect is expected in the near future.

Recently
Issued Accounting Pronouncements

In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized
and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it
had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer
at fair value on the acquisition date. This new guidance is effective for the Company for its fiscal year beginning February 1, 2023 and
interim periods within that fiscal year, and early adoption is permitted. The Company is evaluating its potential impact but
does not expect the new standard to have a material impact on the Company's results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and issued subsequent amendments
to the initial guidance (collectively, “Topic 848”). Topic 848 became effective immediately and expires on December 21, 2022.
Topic 848 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve
their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity
debt securities that are affected by rate reform. Topic 848 provides optional expedients and exceptions for contracts, hedging relationships
and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be
discontinued because of reference rate reform if certain criteria are met. The adoption of ASU 2020-04 is not expected to have a material
impact on the Company’s financial statements or disclosures.

The Company adopted ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”).
ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including
credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to
inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. As the Company was a Smaller
Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim
periods within the fiscal year. In August 2020, the FASB issued ASU2020-06, “Debt - Debt with Conversion and Other Options (subtopic
470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting
models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will
be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition
as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the
coupon interest rate. Further, the diluted net income per share calculation for convertible instruments will require the Company to use
the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible
instruments. The amendment will be effective for the Company with annual periods beginning January 1, 2022 and early adoption is permitted.
The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or disclosures.

In August 2020, the FASB issued Account Standard
Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require
separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability
measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation
models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net
income per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method
should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the
Company with annual periods beginning January 1, 2022 and early adoption is permitted. The adoption of ASU 2020-06 is not expected to
have a material impact on the Company’s financial statements or disclosures.

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

Critical Accounting Policies

In December 2001, the SEC requested that all
registrants list their most critical accounting policies in the Management Discussion and Analysis. The SEC indicated that a critical
accounting policy is one which is both important to the portrayal of a Company’s financial condition and results, and requires managements
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are
inherently uncertain.

Our accounting policies are discussed in detail
in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended September 30, 2021 however
we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, accounts receivable, fair
value of financial instruments, cash and cash equivalents, digital currency and stock-based compensation.

Our
significant estimates include estimates used to review the Company’s goodwill and digital currency impairment, intangible assets
acquired, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, revenue recognition
from digital currency mining, valuation of derivative assets and liabilities, available-for-sale investments, allowances for uncollectible
accounts, valuation of digital currencies, valuation of contingent consideration, warranty, and the valuations of share based awards.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s
operations.

Off Balance Sheet Arrangements

As of September 30, 2021, there were no off-balance
sheet arrangements.

Table of Contents