CLEANSPARK, INC. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number: 001-39187

CleanSpark, Inc.

(Exact name of Registrant as specified in its charter)


Nevada	87-0449945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2370 Corporate Circle, Suite 160

Henderson, NV 89074

(Address of principal executive offices)

(702) 989-7692

(Registrant’s telephone number, including area code)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CLSK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


☒ Large accelerated filer	☐ Accelerated filer
☐ Non-accelerated Filer	☐ Smaller reporting company
	☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 41,290,065 shares as of May 10, 2022.

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	5
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4:	Controls and Procedures	13
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	15
Item 1A:	Risk Factors	15
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3:	Defaults Upon Senior Securities	15
Item 4:	Mine Safety Disclosures	15
Item 5:	Other Information	15
Item 6:	Exhibits	16

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the success of its digital currency mining activities; the volatile and unpredictable cycles in the emerging and evolving industries in which we operate, increasing difficulty rates for bitcoin mining; bitcoin halving; new or additional governmental regulation; the anticipated delivery dates of new miners; the ability to successfully deploy new miners; the dependency on utility rate structures and government incentive programs; the successful deployment of energy solutions for residential and commercial applications; the expectations of future revenue growth may not be realized; ongoing demand for the Company's software products and related services; the impact of global pandemics (including COVID-19) on logistics and shipping and the demand for our products and services; and other risks described in the Company's prior press releases and in its filings with the Securities and Exchange Commission (SEC), including under the heading "Risk Factors" in the Company's Annual Report on Form 10-K and any subsequent filings with the SEC. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, references to “CleanSpark,” the “Company,” “we,” “us,” and “our,” refer to CleanSpark, Inc. and its consolidated subsidiaries.

GENERAL

We may announce material business and financial information to our investors using our investor relations website at https://www.cleanspark.com/investor-relations/. We therefore encourage investors and others interested in CleanSpark to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls. Information contained on our website is not part of this Quarterly Report on Form 10-Q.

WHERE YOU CAN FIND MORE INFORMATION

All reports we file with the SEC are available for download free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also make electronic copies of our reports available for download, free of charge, through our website at https://www.cleanspark.com/investor-relations/ as soon as reasonably practicable after filing such material with the SEC. Information contained on our website is not part of this Quarterly Report on Form 10-Q.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:


Consolidated Balance Sheets as of March 31, 2022 (unaudited) and September 30, 2021;	F-1
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended March 31, 2022 and 2021 (unaudited);	F-3
Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2022 and 2021 (unaudited);	F-5
Consolidated Statements of Cash Flow for the six months ended March 31, 2022 and 2021 (unaudited);	F-7
Notes to Consolidated Financial Statements (unaudited).	F-9

This report on Form 10-Q for the quarter ended March 31, 2022, should be read in conjunction with the Company's annual report on Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission (“SEC”) on December 14, 2021.

The accompanying consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2022 are not necessarily indicative of the results that can be expected for the full year.

CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS


	March 31, 2022 (Unaudited)			September 30, 2021

ASSETS
Current assets
Cash and cash equivalents, including restricted cash	$	1,912,947		$	18,040,327
Accounts receivable, net		6,836,253			2,619,957
Inventory		1,259,423			2,672,744
Prepaid expense and other current assets		10,316,242			5,129,047
Digital currency		17,045,640			23,603,210
Derivative investment asset		3,794,359			4,905,656
Investment in equity security		250,000			260,772
Investment in debt security, AFS, at fair value		541,200			494,608
Total current assets	$	41,956,064		$	57,726,321

Property and equipment, net	$	276,330,089		$	137,674,739
Operating lease right of use asset		1,353,557			1,488,240
Intangible assets, net		10,262,761			12,699,177
Deposits on mining equipment		69,902,321			87,959,910
Other long-term assets		5,943,314			875,536
Goodwill		19,049,198			19,049,198
Total assets	$	424,797,304		$	317,473,121

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	21,385,732		$	7,975,263
Contract liabilities		188,929			296,964
Operating lease liability		321,600			256,195
Finance lease liability		345,817			413,798
Acquisition liability		-			300,000
Contingent consideration		-			820,802
Dividends payable		335,439			-
Total current liabilities		22,577,517			10,063,022
Long-term liabilities
Operating lease liability, net of current portion		1,043,931			1,235,325
Finance lease liability, net of current portion		257,952			458,308
Total liabilities	$	23,879,400		$	11,756,655

Stockholders' equity
Common stock; $0.001 par value; 100,000,000 shares authorized; 41,290,587 and 37,395,945 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively		41,291			37,394
Preferred stock; $0.001 par value; 10,000,000 shares authorized; Series A shares; 2,000,000 authorized; 1,750,000 and 1,750,000 issued and outstanding as of March 31, 2022 and September 30, 2021, respectively		1,750			1,750
Additional paid-in capital		525,246,200			444,074,832
Accumulated other comprehensive income (loss)		41,200			(5,392	)
Accumulated deficit		(124,412,537	)		(138,392,118	)
Total stockholders' equity		400,917,904			305,716,466

F-1



Total liabilities and stockholders' equity	$	424,797,304	$	317,473,121

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-2

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	For the three months ended						For the six months ended
	March 31, 2022			March 31, 2021			March 31, 2022			March 31, 2021
Revenues, net
Digital currency mining revenue, net	$	36,965,739		$	6,715,792		$	73,940,317		$	7,449,202
Energy hardware, software and services revenue		4,585,971			1,313,530			8,556,181			2,827,233
Other services revenue		86,282			90,366			383,463			100,824
Total revenues, net		41,637,992			8,119,688			82,879,961			10,377,258

Costs and expenses
Cost of revenues (exclusive of depreciation and amortization shown below)		12,127,120			1,537,683			20,925,046			2,879,197
Professional fees		900,976			2,456,554			4,218,795			4,169,277
Payroll expenses		10,542,025			3,262,097			19,425,072			6,576,298
General and administrative expenses		3,182,946			1,243,154			5,071,046			2,193,293
(Gain) on disposal of assets		(920,861	)		—			(642,691	)		—
Other impairment expense (related to Digital Currency)		811,345			—			7,033,691			—
Depreciation and amortization		11,661,633			2,117,172			19,359,201			3,226,263
Total costs and expenses		38,305,184			10,616,660			75,390,160			19,044,328

Income (loss) from operations		3,332,808			(2,496,972	)		7,489,801			(8,667,070	)

Other income (expense)
Other income		308,038			541,576			308,038			541,576
Change in fair value of contingent consideration		290,249			—			345,791			—
Realized gain (loss) on sale of digital currency		(2,733,882	)		585,709			7,260,909			635,627
Realized gain on sale of equity security		—			—			665			—
Unrealized gain (loss) on equity security		—			343,000			(1,847	)		269,500
Unrealized gain (loss) on derivative security		(1,410,146	)		8,400,629			(1,111,297	)		7,380,135
Interest income		51,782			54,479			85,253			102,463
Interest expense		(9,584	)		(28,381	)		(62,293	)		(29,721	)
Total other income (expense)		(3,503,543	)		9,897,012			6,825,219			8,899,580

Income (loss) before income tax (expense) or benefit		(170,735	)		7,400,040			14,315,020			232,510
Income tax (expense) or benefit		—			—			—			—
Net income (loss)	$	(170,735	)	$	7,400,040		$	14,315,020		$	232,510

Preferred stock dividends		20,828		$	177,505			335,439		$	177,505

Net income (loss) attributable to common shareholders	$	(191,563	)	$	7,222,535		$	13,979,581		$	55,005

Other comprehensive income		28,479			—			46,592			—

Total comprehensive income (loss) attributable to common shareholders	$	(163,084	)	$	7,222,535		$	14,026,173		$	55,005

Income (loss) per common share - basic	$	(0.00	)	$	0.28		$	0.34		$	0.00

F-3


Weighted average common shares outstanding - basic		41,336,342			25,925,259		40,802,319		24,025,557

Income (loss) per common share - diluted	$	(0.00	)	$	0.22	$	0.34	$	0.00

Weighted average common shares outstanding - diluted		41,336,342			32,697,863		40,861,052		30,798,161

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-4

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)


	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2021		1,750,000	$	1,750		37,395,945		$	37,394		$	444,074,832	$	(5,392	)	$	(138,392,118	)	$	305,716,466
Options and restricted stock units issued for services		—		-		-			-			5,749,107		-			-			5,749,107
Shares issued for settlement of contingent consideration related to business acquisition		—		-		8,404			8			150,003		-			-			150,011
Exercise of options and warrants		—		-		52,061			52			281,564		-			-			281,616
Shares issued under equity offering, net of offering costs		—		-		4,017,652			4,021			67,984,972		-			-			67,988,993
Preferred stock dividends accrued		—		-		-			-			-		-			(314,611	)		(314,611	)
Net income		—		-		-			-			-		-			14,485,755			14,485,755
Other comprehensive income		—		-		-			-			-		18,113			-			18,113
Balance, December 31, 2021		1,750,000	$	1,750		41,474,062		$	41,475		$	518,240,478	$	12,721		$	(124,220,974	)	$	394,075,450
Options, restricted stock units and shares issued for services		—		-		1,874			2			6,553,982		-			-			6,553,984
Shares returned for settlement of contingent consideration and holdbacks related to business acquisition		—		-		(232,518	)		(233	)		233		-			-			-
Exercise of options and warrants		—		-		47,169			47			451,507		-			-			451,554
Preferred stock dividends accrued		—		-		-			-			-		-			(20,828	)		(20,828	)
Net loss		—		-		-			-			-		-			(170,735	)		(170,735	)
Other comprehensive income		—		-		-			-			-		28,479			-			28,479
Balance, March 31, 2022		1,750,000	$	1,750		41,290,587		$	41,291		$	525,246,200	$	41,200		$	(124,412,537	)	$	400,917,904

F-5


	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2020		1,750,000	$	1,750		17,390,979		$	17,391		$	132,809,830	$	-	$	(116,402,606	)	$	16,426,365
Shares issued for services		—		-		501,437			501			3,011,133		-		-			3,011,634
Options and warrants issued for services		—		-		-			-			1,339,009		-		-			1,339,009
Shares issued for business acquisition		—		-		1,618,285			1,618			21,181,733		-		-			21,183,351
Exercise of options and warrants		—		-		115,385			116			192,540		-		-			192,656
Shares issued under underwritten offering, net of offering costs		—		-		4,444,445			4,445			37,045,160		-		-			37,049,605
Net loss		—		-		-			-			-		-		(7,167,530	)		(7,167,530	)
Balance, December 31, 2020		1,750,000	$	1,750		24,070,531		$	24,071		$	195,579,405	$	-	$	(123,570,136	)	$	72,035,090
Shares issued for services		—		-		19,429			19			71,478		-		-			71,497
Options and warrants issued for services		—		-		-			-			777,517		-		-			777,517
Shares issued for business acquisition		—		-		477,703			478			13,246,226		-		-			13,246,704
Exercise of options and warrants		—		-		223,650			223			3,153,680		-		-			3,153,903
Shares issued under underwritten offering, net of offering costs		—		-		9,090,910			9,091			187,204,122		-		-			187,213,213
Shares returned in relation to business acquisition		—		-		(8,072	)		(8	)		8		-		-			-
Preferred stock dividends accrued		—		-		-			-			-		-		(177,505	)		(177,505	)
Net income		—		-		-			-			-		-		7,400,040			7,400,040
Balance, March 31, 2021		1,750,000	$	1,750		33,874,151		$	33,874		$	400,032,436	$	-	$	(116,347,601	)	$	283,720,459

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-6

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)


	Six Months Ended
	March 31, 2022			March 31, 2021
Cash Flows from Operating Activities
Net income	$	14,315,020		$	232,510
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Unrealized (gain) loss on equity security		1,847			(269,500	)
Realized gain on sale of equity security		(665	)		-
Impairment of digital currency		7,033,691			-
Realized gain on sale of digital currency		(7,260,909	)		(635,627	)
Digital currency issued for services		294,992			-
Unrealized (gain) loss on derivative asset		1,111,297			(7,380,135	)
Change in fair value of contingent consideration		(345,791	)		-
Non-cash lease expense		134,683			166,460
Stock based compensation		12,303,091			5,199,658
Depreciation and amortization		19,359,201			3,226,263
Provision for bad debts		-			231,932
PPP loan forgiveness		-			(531,169	)
Gain on write-off and disposal of assets		(642,691	)		-
Income from in-kind receipts of miners		(308,038	)		-
Changes in operating assets and liabilities
Mining of digital currency		(73,940,317	)		(7,449,202	)
Decrease in operating lease right of use liabilities		(125,989	)		(268,861	)
Decrease (increase) in contract assets, net		-			4,103
Increase (decrease) in contract liabilities, net		(108,035	)		487,779
Increase (decrease) in accounts payable and accrued liabilities		10,083,770			(2,890,270	)
(Increase) in prepaid expenses and other current assets		(12,985,662	)		(1,130,741	)
(Increase) decrease in accounts receivables		(3,963,323	)		114,285
(Increase) decrease in Inventory		1,495,321			(793,945	)
Net cash used in operating activities	$	(33,548,507	)	$	(11,686,460	)
Cash Flows from investing
Payments on miner deposits	$	(105,077,053	)	$	(45,488,258	)
Purchase of fixed assets		(28,914,917	)		(9,058,011	)
Settlement of holdbacks related to contingent consideration		(625,000	)		-
Investment in infrastructure development		-			(2,830,560	)
Proceeds from sale of digital currencies		80,430,113			2,422,282
Proceeds from sale of miners		3,497,654			-
Proceeds from the sale of equity securities		9,590			-
Acquisition of Solar Watt Solutions, net of cash received		-			(1,000,337	)
Acquisition of ATL Data Center, net of cash received		-			45,783
Net cash used in investing activities	$	(50,679,613	)	$	(55,909,101	)
Cash Flows from Financing Activities
Payments on promissory notes	$	-		$	(5,865,476	)
Payments on finance leases		(368,450	)		-
Proceeds from exercise of options and warrants		480,197			3,346,559
Proceeds from equity offerings, net		67,988,993			224,262,818
Net cash provided by financing activities	$	68,100,740		$	221,743,901

Net increase (decrease) in cash and cash equivalents and restricted cash	$	(16,127,380	)	$	154,148,340

Cash and cash equivalents and restricted cash, beginning of period	$	18,040,327		$	3,126,202

F-7



Cash and cash equivalents and restricted cash, end of period	$	1,912,947	$	157,274,542
Supplemental disclosure of cash flow information
Cash paid for interest	$	62,293	$	31,846
Non-cash investing and financing transactions
Shares and options issued for business acquisition	$	-	$	34,430,055
Cashless exercise of options and warrants	$	-	$	74
Receivables from exercise of options	$	252,973	$	-
Shares issued for settlement of seller agreements related to acquisition	$	150,011	$	-
Shares returned as part of settlement of seller agreements related to acquisition	$	233	$	-
Preferred shares dividends accrued	$	335,439	$	177,505
Unrealized gain on investment in available-for-sale debt security	$	46,592	$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-8

CLEANSPARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

ORGANIZATION AND LINE OF BUSINESS

Organization

The Company – CleanSpark, Inc. (“CleanSpark,” “we,” “our,” or the "Company") was incorporated in the state of Nevada on October 15, 1987 as SmartData Corporation. In October 2016, the Company changed its name to CleanSpark, Inc.

CleanSpark, Inc. is a bitcoin mining and energy technology company. The Company sustainably mines bitcoin and provides advanced energy technology solutions to commercial and residential customers to solve modern energy challenges. The Company, through itself and its wholly owned subsidiaries, has operated in the digital currency mining sector since December 2020, and in the alternative energy sector since March 2014.

Lines of Business

Digital Currency Mining Segment

Through our wholly owned subsidiaries, ATL Data Centers LLC (“ATL”) and CleanBlok, Inc. (“CleanBlok”), the Company mines bitcoin. The Company entered the bitcoin mining industry through our acquisition of ATL in December 2020. It acquired a second data center in August 2021 and has had a co-location agreement with New York-based Coinmint, LLC in place since July 2021. Bitcoin mining has now become the Company’s principal revenue generating business activity. We currently intend to acquire additional facilities, equipment and infrastructure capacity to continue to expand our bitcoin mining operations.

Through our subsidiaries CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC and CSRE Properties, LLC, we maintain real property holdings for ATL Data Centers LLC and CleanBlok Inc.

Energy Segment

The Company provides energy solutions through our wholly owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consist of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response (“OpenADR”), solar, energy storage for microgrid and distributed energy systems to military, commercial and residential customers in Southern California and throughout the world.

The Company’s solutions are supported by a proprietary suite of software solutions that include microgrid energy modeling, energy market communications and energy management solutions.

Other business activities

Through ATL, we also provide traditional data center services, such as providing customers with rack space, power and equipment, and offer several cloud-based service solutions including virtual services, virtual storage, and data backup services.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in

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the Company’s most recent annual report on Form 10-K for the year ended September 30, 2021, filed with the SEC on December 14, 2021 (“Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented in this quarterly report on Form 10-Q have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

The accompanying unaudited consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II, LLC, CleanSpark Critical Power Systems Inc., p2kLabs, Inc, GridFabric, LLC, ATL Data Centers LLC, CleanBlok, Inc., CSRE Properties, LLC, Solar Watt Solutions, Inc, CSRE Properties Norcross, LLC and CSRE Property Management Company, LLC. All intercompany transactions have been eliminated upon consolidation of these entities.

Liquidity

As shown in the accompanying unaudited consolidated financial statements, the Company generated a net income (loss) of ($170,735) and $14,315,020 respectively during the three months and six months ended March 31, 2022. While the Company has experienced negative cash flows from investing and operating activities due to its continued investments in capital expenditures in support of its bitcoin mining operations, it has generated positive cash flows from financing activities. The Company has sufficient working capital to support its ongoing operations for the next twelve months. In addition, the Company has access to equity financing through its At-the-Market offering facility and debt financing through the lending arrangement the Company entered into in April 2022 (see Note 15). As of March 31, 2022, the Company had working capital of $19,378,547.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include 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 the ongoing COVID-19 pandemic may have on the Company’s operations.

Revenue Recognition

We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

Our accounting policy on revenue recognition by type of revenue is provided below.

Revenues from digital currency mining

The Company has entered into contracts with digital asset mining pool operators to provide computing power to the mining pools. The contracts are terminable at any time by either party and the Company’s enforceable right to

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compensation only begins when the Company starts providing computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less net digital asset transaction fees to the mining pool operator), for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration the Company receives is noncash consideration, in the form of digital currency, which the Company measures at fair value on the date received which is not materially different than the fair value at contract inception or time the Company has earned the award from the mining pools. Fair value of the digital currency award received is determined using the spot price of the related digital currency on the date earned.

There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for digital currencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Engineering & Construction Contracts and Service Contracts

The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the Company is acting as a principal rather than as an agent (i.e., the Company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract.

The Company recognizes energy (solar panel and battery) installation contract revenue for residential customers at a point in time upon completion of the installation. The revenues associated with energy installations for commercial customers are recognized over a period of time as noted in the engineering and construction contract revenue disclosure above.

For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services.

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract.

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Revenues from Sale of Equipment

Performance Obligations Satisfied at a point in time.

We recognize revenue on agreements for equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery). Generally, shipping costs are included in the price of equipment unless the customer requests a non-standard shipment. In situations where an alternative shipment arrangement has been made, the Company recognizes the shipping revenue upon customer receipt of the shipment.

In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.

Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities.

Due to the customized nature of the equipment, the Company does not allow for customer returns.

Service Performance obligations satisfied over time.

We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods, and these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) and contract work in progress (typically for fixed-price contracts). There were no contracts assets as of March 31, 2022 and September 30, 2021. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. There are no advances that are payments on account of contract assets that have been deducted from contract assets as of March 31, 2022 and September 30, 2021. Contract liabilities represent deferred revenues as of March 31, 2022. The Company recorded $188,929 and $296,964 in contract liabilities as of March 31, 2022 and September 30, 2021, respectively.

Revenues from software

The Company derives its software revenue from both subscription fees from customers for access to its energy software offerings and software license sales and support services. Revenues from software licenses are generally recognized upfront when the software is made available to the customer and revenues from the related support is generally recognized ratably over the contract term. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements.

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The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time.

Revenues from design, software development and other technology-based consulting services

For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer.

Revenues from data center services

The Company provides data services such as providing its customers with rack space, power and equipment, and cloud services such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts. The performance obligations are the services provided to a customer for the month based on the contract. The transaction price is the price agreed with the customer for the monthly services provided and the revenues are recognized monthly based on the services rendered for the month.

Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Practical Expedients

If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the Company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.

The Company does not adjust the contract price for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a service to a customer and when the customer pays for that service will be one year or less.

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The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes).

Cost of Revenues

The Company includes the following in cost of revenues: energy costs, materials costs, manufacturing and logistics costs, freight costs, inventory write-downs, hosting services costs. The recognition of cost of revenue for our energy segment is dependent upon the revenue stream that it pertains to, refer below:

Products and related services delivered at a point in time. Cost of revenue from these products and related services is recognized when the Company transfers control of the product to the customer, which is generally upon shipment.

Products and related services delivered over time. Cost of revenue from these products and related services is recognized over the related service period.

Cash and cash equivalents

Cash and cash equivalents include cash and amounts due from banks and restricted cash. The Company’s restricted cash represents amounts held in trust for certain construction projects. The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statements of cash flows.


	March 31, 2022		September 30, 2021
Cash and cash equivalents, excluding restricted cash	$	1,695,718	$	14,571,198
Restricted cash - construction escrow account		217,229		3,469,129
Cash and cash equivalents, including restricted cash	$	1,912,947	$	18,040,327

Accounts receivable

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

Accounts receivable, net consists of the following:


	March 31, 2022			September 30, 2021
Accounts Receivable, gross	$	6,796,293		$	2,891,784
Other receivables		733,468			421,681
Provision for doubtful allowances		(693,508	)		(693,508	)
Total Accounts Receivable, net	$	6,836,253		$	2,619,957

Inventory

Inventory is stated at the lower of cost or net realizable value with cost being measured on a first-in, first-out basis. For solar panel and battery installations, the Company transfers component parts from inventories to cost of goods sold once installation is complete. The Company periodically reviews inventories for unusable and obsolete items based on assumptions about future demand and market conditions. Based on this evaluation, provisions are made to write inventories down to their net realizable value. There were no write-downs of inventory as of March 31, 2022

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and September 30, 2021, respectively. The composition of inventory as of March 31, 2022 and September 30, 2021 are as follows:


	March 31, 2022		September 30, 2021
Batteries and solar panels	$	595,432	$	1,819,398
Supplies and other		663,992		853,346
Total inventory	$	1,259,423	$	2,672,744

Prepaid expense and other current assets

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

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

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. The cash balance, in excess of the FDIC limits was $1,098,786 and $17,790,327 as of March 31, 2022 and September 30, 2021, respectively. The accounts offered by custodians of the Company’s bitcoin are not insured by the FDIC. The fair market value of bitcoin held in accounts not covered by FDIC limits was $17,045,640 and $23,603,210 as of March 31, 2022 and September 30, 2021, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

The Company has certain customers and vendors who individually represented 10% or more of the Company’s revenue or capital expenditures. Please refer to Note 13 - Major Customers and Vendors.

Stock-based compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 Compensation-Stock Compensation, which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense for stock options is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services. The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model. For equity awards granted by the Company that are contingent upon market-based conditions, the Company fair values these awards using the Monte Carlo simulation model. For discussion of accounting for restricted stock units (RSUs), please refer Note 11 – Stock-Based Compensation.

Earnings (loss) per share

The Company reports earnings (loss) per share in accordance with FASB ASC 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of March 31, 2022, 489,282 units of common stock equivalents that consist of options, warrants and restricted stock units were excluded from the

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calculation of the diluted (loss) per share calculation for the three months ended March 31, 2022 as their effect is anti-dilutive.


	For the Three Months Ended March 31,					For the Six Months Ended March 31,
	2022			2021		2022		2021
Numerator
Consolidated net income (loss) attributable to common shareholders	$	(191,563	)	$	7,222,535	$	13,979,581	$	55,005
Denominator
Weighted- average common shares outstanding, basic		41,336,342			25,925,259		40,802,319		24,025,557
Dilutive impact of stock options and other share-based awards		—			6,772,604		58,733		6,772,604
Weighted- average common shares outstanding, diluted		41,336,342			32,697,863		40,861,052		30,798,161
Net income (loss) per common share attributable
Basic	$	(0.00	)	$	0.28	$	0.34	$	0.00
Diluted	$	(0.00	)	$	0.22	$	0.34	$	0.00

Property and equipment

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

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


	Useful life (years)
Building		30
Land Improvements		15
Machinery and equipment	1-10
Office Equipment	3-7
Mining equipment	3-15
Miners	3-5
Infrastructure asset	Shorter of estimated lease term or 15 years
Leasehold improvements	Shorter of estimated lease term or 5 years
Furniture and fixtures	1-5

In accordance with the FASB ASC 360-10, "Property, Plant and Equipment” the carrying value of property and equipment, and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three and six months ended March 31, 2022 and March 31, 2021 the Company did not record an impairment expense.

Digital Currency

Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment. They are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above and in Note 2 – Summary of Significant Accounting Policies. An intangible asset with an indefinite useful life

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is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. Quantitative impairment is measured using the quoted price of the digital currency at the time its fair value is being measured in accordance with ASC 820, Fair Value Measurement. Quoted prices are obtained from the principal market. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted as per ASC 350, Intangibles – Goodwill and Other.

Digital currencies earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital currencies are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with the first in first out (“FIFO”) method of accounting.

The following table presents the activities of the digital currencies for the six months ended March 31, 2022:


	Amount
Balance as on September 30, 2021	$	23,603,210
Addition of digital currencies		73,940,317
Sale of digital currencies		(80,430,113	)
Digital currencies issued for services		(294,992	)
Realized gain on sale of digital currencies		7,260,909
Impairment loss		(7,033,691	)
Balance as on March 31, 2022	$	17,045,640

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

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

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

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

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

The carrying value of cash, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.

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The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of March 31, 2022 and September 30, 2021:


March 31, 2022
	Amount		Level 1		Level 2		Level 3
Derivative asset	$	3,794,359	$	-	$	-	$	3,794,359
Investment in debt security		541,200		-		-		541,200
Total	$	4,335,559	$	-	$	-	$	4,335,559

September 30, 2021
	Amount		Level 1		Level 2		Level 3
Derivative asset	$	4,905,656	$	-	$	-	$	4,905,656
Investment in equity security		10,772		10,772		-		-
Investment in debt security		494,608		-		-		494,608
Contingent cash consideration		820,802		-		-		820,802
Total	$	6,231,838	$	10,772	$	-	$	6,221,066

There were no transfers between Level 1, 2 or 3 during the three and six months ended March 31, 2022 and 2021.

Income taxes

The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of March 31, 2022 and September 30, 2021.

Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from managements estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of March 31, 2022 and September 30, 2021, the Company had no accrued interest or penalties related to uncertain tax positions.

Income tax expense/(benefit) from operations for the three and six months ended March 31, 2022 and 2021 was $0 in each period, which resulted primarily from maintaining a full valuation allowance against the Company's deferred tax assets.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company.

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Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company has two reportable segments, namely, (1) Digital Currency Mining Segment and (2) Energy 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 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 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.

ACQUISITIONS

SOLAR WATT SOLUTIONS, INC.

On February 23, 2021, the Company entered into an Agreement and Plan of Merger (the “SWS Merger Agreement”) with Solar Watt Solutions, Inc. (“SWS”) and its owners (the “Sellers”). The Company accounted for the acquisition of SWS as an acquisition of a business under ASC 805 – Business Combination.

At the closing on February 24, 2021, SWS became a wholly owned subsidiary of the Company. In exchange, the Company issued (i) 477,703 shares of restricted common stock with a deemed value of $15,640,000 calculated based on the five-day average closing price of the Company's common stock for the trading days including and immediately preceding the closing date of $32.74 per share to the Sellers, of which (a) 167,685 shares with a deemed value of $5,490,000 would be fully earned on closing, and (b) an additional 310,018 shares with a deemed fair value of $10,150,000 were issued to an escrow agent and only earned by Sellers, subject to holdback pending Sellers’ satisfaction of certain future milestones with all such shares subject to a lock up of no less than 180 days and a leak

F-19

out of no more than 10% of average daily trading value of the prior 30 days for a period of 36 months following the closing, and (ii) up to $3,850,000 in cash to the Sellers, minus the Sellers’ debt, minus the difference between the Actual Amount and Expected Amount consisting of: (a) $1,350,000 (no changes post acquisition date) in cash payable on a pro rata basis to Sellers at closing, less payment of $500,000 (no changes post acquisition date) to settle Sellers’ debt at closing, which includes (x) $200,000 (no changes post acquisition date) in cash held back by the Company to satisfy potential damages from indemnification claims and any amounts owed pursuant to post-closing adjustments, (y) an additional $100,000 (no changes post acquisition date) in cash held back by the Company to satisfy any amounts owed pursuant to post-closing adjustments, and (b) up to $2,500,000 (fair valued at $155,000 at acquisition date) in cash held back by the Company and only payable pro rata to Sellers upon meeting certain future milestones and subject to satisfaction of any amounts owing from SWS to the Company resulting from damages required to be indemnified under the SWS Merger Agreement.

The Company determined the fair value of the consideration given to the sellers of SWS in connection with the transaction in accordance with ASC 820 was as follows:


Consideration:	Fair Value
Cash	$	1,350,000
Contingent consideration		155,000
310,018 shares of common stock as contingent equity consideration	$	533,002
167,685 shares of common stock		4,649,905
Total Consideration	$	6,687,907


	Preliminary Allocation at Acquisition Date			Adjustments to Fair Value			Final Allocation at Acquisition Date
Customer List	$	5,122,733		$	(4,932,733	)	$	190,000
Goodwill		1,642,409			5,178,126			6,820,535
Other Assets and Liabilities assumed, net		(77,235	)		(245,393	)		(322,628	)
Total	$	6,687,907		$	—		$	6,687,907

The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration. Acquired goodwill is not deductible for income tax purposes. The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.

The amortization period for customer list is estimated to be 1.5 years. The Company estimated the fair value of the identified customer list using a discounted cash flow model. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include the level and timing of expected incremental future cash flows over its remaining useful life, and discount rates the Company believe to be consistent with the inherent risks associated with customer list, which is 14%. The Company believes the level and timing of expected future cash flows appropriately reflects market participant assumptions.

On January 31, 2022, the Company entered into a Merger Satisfaction and Release Agreement (the "Merger Satisfaction Agreement") with the Sellers of SWS. In consideration of fully satisfying the terms under the SWS Merger Agreement, the Company paid the Sellers $625,000 and released from escrow 77,500 shares of the Company's common stock. Additionally, the Sellers agreed to release back to the Company 232,518 shares of the Company's common stock held in escrow. Upon delivery of such consideration, the parties agreed that the shares and cash holdbacks contained in the original merger agreement were fully satisfied.

F-20

ATL DATA CENTERS, LLC

On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “ATL Merger”) with ATL Data Centers LLC (“ATL”) and its members. The Company accounted for the acquisition of ATL as an acquisition

of a business under ASC 805 – Business Combination.

At the closing, ATL became a wholly owned subsidiary of the Company. In exchange, the Company issued 1,618,285 shares of restricted common stock to the selling members of ATL, of which: (i) 642,309 shares were fully earned on closing, and (ii) an additional 975,976 shares were issued and held in escrow, subject to holdback pending satisfaction of certain indemnification claims and future milestones, with all such shares subject to a lock up of no less than 180 days and a leak out of no more than 10% of the average daily trading value of the prior 30 days.

Of the 975,976 shares held in escrow, 515,724 shares were released to the selling members of ATL and 68,194 shares were returned to the Company and canceled due to satisfy nonsatisfaction of certain indemnification matters during the year ended September 30, 2021. The remaining 392,058 shares held in escrow consist of 72,989 shares subject to holdback pending satisfaction of further indemnification matters and 319,069 shares subject to satisfaction of future milestones.

In connection with the return of the 68,194 shares held in escrow that were cancelled to satisfy certain indemnification matters, total consideration and the related goodwill, decreased by $892,659 during the year ended September 30, 2021.

The consideration remitted in connection with the ATL Merger is subject to adjustment based on post-closing adjustments to closing cash, indebtedness, and transaction expenses of ATL within 90 days of closing. The Company also assumed approximately $6,900,000 in debts of ATL at closing. As part of the transaction costs, the Company issued 41,708 shares of common stock for an aggregate value of $545,916 to the broker which were expensed upon issuance of the shares.


Purchase Price Allocation	Preliminary Allocation at Acquisition Date			Adjustments to Fair Value			Final Allocation at Acquisition Date
Strategic Contract	$	7,457,970		$	2,342,000		$	9,799,970
Goodwill		14,205,245			(1,264,167	)		12,941,078
Other Assets and Liabilities assumed, net		(479,864	)		(1,077,833	)		(1,557,697	)
Total	$	21,183,351		$	—		$	21,183,351

The Company made measurement period adjustments, primarily to strategic contract and goodwill, to better reflect the facts and circumstances that existed at the acquisition date.

The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration. Acquired goodwill is not deductible for income tax purposes. The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.

The strategic contract relates to supply of a critical input to our digital currency mining business. The other assets and liabilities assumed include $5,670,000 of digital currency mining equipment and approximately $5,475,000 of notes payable related to this equipment, which was settled by the Company in December 2020. In connection with the acquisition, the Company had acquired an operating lease related to a rental building, which had a purchase option associated with the lease agreement. The Company exercised the purchase option to buy the property in May 2021 and, as a result, terminated the lease.

The amortization period for strategic contracts is estimated to be 5 years. The Company estimated the fair value of the identified strategic contract using a discounted cash flow model. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include

F-21

the level and timing of expected future cash flows, conditions and demands over its remaining useful life, and discount rates the Company believe to be consistent with the inherent risks associated with strategic contract, which is 6.4%. The Company believes the level and timing of expected future cash flows appropriately reflects market participant assumptions.

Pro forma of Consolidated Financial Statements (Unaudited)

The following is the unaudited pro forma information assuming the acquisition of ATL and SWS occurred on October 1, 2020:


	For the three months ended		For the six months ended
	March 31, 2021		March 31, 2021
Net sales	$	8,907,200	$	12,967,229
Net income (loss)	$	7,208,568	$	(551,184	)
Net income / (loss) per common share – basic	$	0.27	$	(0.02	)
Weighted average common shares outstanding – basic		26,402,962		26,121,545
Net income / (loss) per common share – diluted	$	0.22	$	(0.02	)
Weighted average common shares outstanding – diluted		33,175,566		26,121,545

The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. All transactions that would be considered inter-company transactions for pro forma purposes have been eliminated.

INVESTMENTS

As of March 31, 2022 and September 30, 2021, the Company had total investments of $4,585,559 and $5,661,036, respectively that comprise of the following:

International Land Alliance, Inc.

On November 5, 2019, the Company entered into a binding Memorandum of Understanding (the “MOU”) with International Land Alliance, Inc. (“ILAL”), a Wyoming corporation, to lay a foundational framework where the Company expects to deploy its energy solutions across the portfolio of ILAL, including its energy projects, and its customers.

In connection with the MOU, and to support the power and energy needs of ILALs development and construction of certain projects, the Company entered into a Securities Purchase Agreement (“SPA”), dated as of November 6, 2019, with ILAL.

Pursuant to the terms of the SPA with ILAL, the Company purchased 1,000 shares of Series B Preferred Stock of ILAL (the “Preferred Stock”) for an aggregate purchase price of $500,000 (the “Stock Transaction”), less certain expenses and fees. The Series B Preferred Stock accrue cumulative in-kind accruals at a rate of 12% per annum and were redeemable on August 6, 2020. The Preferred Stock can be converted into common stock at a variable rate (refer the discussion on embedded derivative assets below). This variable conversion ratio will increase by 10% with the occurrence of certain events. Since the investments were not redeemed on August 6, 2020, they are now redeemable at the Company`s option in cash or into common stock, based on the conversion ratio. The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of March 31, 2022. Any change in the fair values of AFS debt securities are reported net of income tax as an element of Other Comprehensive income.

The Company accrued interest on our available-for-sale debt securities totaling $484,000 and $399,863, as of March 31, 2022 and September 30, 2021, respectively, presented as prepaid expense and other current assets on the

F-22

Consolidated Balance Sheets. The fair value of investment in Debt Securities is $541,200 and $494,608 as of March 31, 2022 and September 30, 2021, respectively. The Company has included gain on change in fair value of preferred stock amounting to $28,479 and $46,592 respectively for the three month and six month periods ended March 31, 2022, and $0 and $0 respectively for the three month and six month periods ended March 31, 2021, as part of other comprehensive income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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

Total fair value of investment in derivative assets as of March 31, 2022 and September 30, 2021, respectively was $3,794,359 and $4,905,656. The Company fair values the debt security as a straight debt instrument based on liquidation value and accrued interest to date. The fair value of the derivative asset is based on the difference in the fair value of the debt security determined as a straight debt instrument and the fair value of the debt security if converted as of the reporting date. The Company recorded an unrealized loss on derivative assets for $1,410,146 and $1,111,297 respectively for the three and six month periods ended March 31, 2022, compared to an unrealized gain on derivative assets for $8,400,629 and $7,380,135 for the three and six month periods ended March 31, 2021.

The following table sets forth a reconciliation of carrying value of all investments as of March 31, 2022 and September 30, 2021:


	ILAL Debt Securities		ILAL Derivative Asset			ILAL Equity Securities			Law Clerk Equity Securities
Balance as of September 30, 2021	$	494,608	$	4,905,656		$	10,772		$	250,000
Shares sold during the year		—		—			(9,590	)		—
Realized gain on fair value recognized in other income/expense		—		—			665			—
Unrealized loss recognized in other income/expense		—		(1,111,297	)		(1,847	)		—
Unrealized gain on fair value recognized in other comprehensive income		46,592		—			—			—
Balance as of March 31, 2022	$	541,200	$	3,794,359		$	—		$	250,000

INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2022 and September 30, 2021:

F-23


March 31, 2022
	Intangible assets		Accumulated amortization		Total
Patents	$	74,113	$	34,552	$	39,561
Websites		23,115		8,915		14,200
Customer list and non-compete agreement		6,892,024		5,981,767		910,257
Design assets		123,000		123,000		-
Trademarks		5,928		2,480		3,448
Engineering trade secrets		4,370,269		3,282,677		1,087,592
Software		870,000		344,375		525,625
Strategic Contract		9,799,970		2,568,129		7,231,841
mPulse software		741,846		291,609		450,237
Total	$	22,900,265	$	12,637,504	$	10,262,761


September 30, 2021
	Intangible assets		Accumulated amortization		Total
Patents	$	74,112	$	28,329	$	45,783
Websites		8,115		8,115		—
Customer list and non-compete agreement		6,892,024		4,940,456		1,951,568
Design assets		123,000		123,000		—
Trademarks		5,928		2,236		3,692
Engineering trade secrets		4,370,269		2,943,173		1,427,096
Software		870,000		325,519		544,481
Strategic Contract		9,799,970		1,577,098		8,222,872
mPulse software		741,846		238,161		503,685
Total	$	22,885,264	$	10,186,087	$	12,699,177

Amortization expense for the three and six months ended March 31, 2022 was $1,225,873 and $2,451,417, respectively. Amortization expense for the three and six months ended March 31, 2021 was $1,403,483 and $2,309,974, respectively.

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


Year	March 31, 2022
2022	$	2,063,365
2023		2,908,616
2024		2,827,374
2025		2,000,726
2026		439,811
Thereafter		22,869
	$	10,262,761

F-24

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


	March 31, 2022			September 30, 2021
Mining equipment	$	11,782,820		$	2,823,218
Miners		256,063,805			120,330,769
Land Improvements		1,529,937			—
Office Equipment		167,329			126,584
Land and building		12,624,608			11,048,299
Machinery and equipment		331,172			323,682
Leasehold improvements		158,110			69,056
Furniture and fixtures		82,601			30,934
Infrastructure		12,439,515			81,868
Construction in progress		4,172,407			10,498,311
Less: accumulated depreciation		(23,022,215	)		(7,657,982	)
Property and equipment, net	$	276,330,089		$	137,674,739

Depreciation expense for the three months ended March 31, 2022 and 2021 was $10,435,760 and $706,417, respectively. Depreciation expense for the six months ended March 31, 2022 and 2021 was $16,907,784 and $930,324, respectively. For the three months ended March 31, 2022, $3,978,676 of property and equipment was sold for a gain of $920,861. For the six months ended March 31, 2022, $4,390,160 of property and equipment was disposed of for a gain of $642,691, which included $411,484 of property and equipment that was written-off resulting in a loss of $278,170. There were no disposals during the three and six months ended March 31, 2021.

The Company placed-in service property and equipment of $160,345,487 during the six months ended March 31, 2022. This increase in fixed assets primarily consisted of miners amounting to $135,733,036, which also includes miners received in-kind under miner purchase agreements valued at approximately $308,038, mining equipment of $8,959,602, and infrastructure of $12,357,647.

Construction in progress: The Company is expanding its facilities in Georgia.

As of March 31, 2022, the Company has outstanding deposits totaling $69,902,321. These deposits are in prepayments paid to premier suppliers and manufacturers to purchase mining ASICs and equipment. The prepayments will be applied to the purchase price when the vendor ships the miners.

LEASES

On October 1, 2019, the Company adopted the amendments to ASC 842, Leases, which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet. The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements.

The Company’s operating leases are office spaces and finance leases which are primarily related to equipment used at its data center.

F-25

The Company's lease costs recognized during the three and six months ended March 31, 2022 and 2021 in the Consolidated Statements of Operations and Comprehensive Income (Loss) consist of the following:


	For the three months ended				For the six months ended
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Operating lease cost (1)	$	83,237	$	152,848	$	166,475	$	189,006
Finance lease cost:
Amortization of right-of-use assets	$	94,815	$	90,981	$	189,630	$	112,729
Interest on lease obligations	$	10,125	$	14,645	$	21,512	$	18,223

(1) Included in general and administrative expenses

Other lease information is as follows:


	For the six months ended
	March 31, 2022		March 31, 2021
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	157,780	$	158,874
Financing cash flows from finance leases	$	206,063	$	124,644


	March 31, 2022			September 30, 2021
Weighted-average remaining lease term - operating leases	4.54 years			5 years
Weighted-average remaining lease term - finance leases	1.78 years			3.2 years
Weighted-average discount rate - operating leases		4.50	%		4.50	%
Weighted-average discount rate - finance leases		5.50	%		5.50	%

The following is a schedule of the Company's lease liabilities by contractual maturity as of March 31, 2022:


Fiscal Year	Operating Leases			Finance Leases
2022	$	159,125		$	198,047
2023		324,949			295,541
2024		333,234			131,164
2025		341,767			11,092
2026		299,039			-
Thereafter		37,301			-
Gross lease liabilities		1,495,415			635,844
Less: imputed interest		(129,884	)		(32,075	)
Present value of lease liabilities	$	1,365,531		$	603,769
Less: Current portion of lease liabilities		(321,600	)		(345,817	)
Total lease liabilities, net of current portion	$	1,043,931		$	257,952

F-26

8. RELATED PARTY TRANSACTIONS

Zachary K. Bradford - Chief Executive Officer and Director

During the three and six months ended March 31, 2022, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $0 and $47,075, respectively, for accounting, tax, administrative services and reimbursement for office supplies. During the three and six months ended March 31, 2021, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $50,675 and $80,675, respectively, for accounting, tax, administrative services and reimbursement for office supplies. Blue Chip is 50% beneficially owned by Mr. Bradford. None of the services were associated with work performed by Mr. Bradford. The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance. The Company also sub-leases office space from Blue Chip. During the three and six months ended March 31, 2022, $0 and $4,575, respectively, was paid to Blue Chip for rent. During the three and six months ended March 31, 2021, $4,575 and $9,150, respectively, was paid to Blue Chip for rent. The sublease and engagement for accounting services was terminated on December 31, 2021.

STOCKHOLDERS’ EQUITY

Overview

The Company’s authorized capital stock consists of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of March 31, 2022, there were 41,290,587 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding. As of September 30, 2021, there were 37,395,945 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding.

Common Stock issuances during the six months ended March 31, 2022

The Company issued 99,230 common shares in relation to exercise of options.

The Company issued 1,874 common shares valued at $30,032 as compensation for Director services.

The Company issued 8,404 common shares valued at $150,011 for settlement of contingent consideration related to business acquisition.

The Company issued 4,017,652 common shares in relation to equity raises through its At-the-Market offering facility, net of offering costs, for net proceeds of $67,988,993.

Common stock returned during the six months ended March 31, 2022

The Company had 232,518 shares of common stock returned back to the Company as part of the settlement of contingent consideration and holdbacks related to business acquisition.

10.

STOCK WARRANTS

The following is a summary of stock warrant activity during the six months ended March 31, 2022:


	Number of Warrant Shares			Weighted Average Exercise Price ($)
Balance, September 30, 2021		615,704		$	30.72
Warrants granted		—			—
Warrants expired		(183,334	)	40.91
Warrants canceled		—			—
Warrants exercised		—			—
Balance, March 31, 2022		432,370		26.39

F-27

As of March 31, 2022, there are warrants exercisable to purchase 432,370 shares of common stock in the Company and there are no warrants that are unvested. As of March 31, 2022, the outstanding warrants have a weighted average remaining term of 1.62 years and an intrinsic value of $467,940.

During the three and six months ended March 31, 2022, there were no exercise of warrants.

11.

STOCK-BASED COMPENSATION

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”), which was established by the Board of Directors of the Company on June 19, 2017. On October 7, 2020, the Company executed a first amendment to the Plan to increase its share pool from 300,000 to 1,500,000 shares of common stock.

Effective September 15, 2021, following approval by our stockholders, the Plan was amended to (i) increase the number of shares of common stock authorized for issuance under the Plan by an additional 2,000,000 shares, resulting in an aggregate of 3,500,000 shares of common stock authorized for issuance under the Plan, and (ii) revise Section 19 of the Plan to more closely align with the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, and Section 17.2 of the Plan.

As of March 31, 2022, there were 370,821 shares available for issuance under the Plan.

The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, common stock, units of common stock, restricted stock, performance shares and performance units. Other than incentive stock options that are granted to participants who owns more than 10% of the total combined voting power of all classes of the stock of the Company or of its parent or subsidiary corporations (a “Ten Percent Stockholder”), stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees of the Company or Ten Percent Stockholders at the date of the grant of the option. Non-qualified stock options and the other types of awards issuable under the Plan may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Compensation Committee believes have contributed, or will contribute, to the success of the Company. The option vesting schedule for options granted is determined by the Compensation Committee at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.

The Company granted 64,000 non-qualified options pursuant to the Plan during the six months ended March 31, 2022.

The Company recognized $6,553,984 and $12,303,091 respectively for the three and six months ended March 31, 2022 in stock-based compensation under the Plan. The Company recognized $231,361 and $1,163,401 respectively for the three and six months ended March 31, 2021 in stock-based compensation under the Plan.

STOCK OPTIONS

The following is a summary of stock option activity during the six months ended March 31, 2022:


	Number of Option Shares			Weighted Average Exercise Price ($)
Balance, September 30, 2021		1,547,029			18.35
Options granted		197,250			15.29
Options expired		-			-
Options canceled/forfeited		(157,885	)		18.59
Options exercised		(99,230	)		7.39
Balance, March 31, 2022		1,487,164		18.69

F-28

As of March 31, 2022, there are options exercisable to purchase 632,753 shares of common stock in the Company and 854,508 unvested options outstanding that cannot be exercised until vesting conditions are met. As of March 31, 2022, the outstanding options have a weighted average remaining term of 1.61 years and an intrinsic value of $1,303,773.

During the six months ended March 31, 2022, a total of 99,230 shares of the Company’s common stock were issued in connection with the exercise of common stock options at exercise prices ranging from $4.65 to $15.10, for a total consideration of $733,170. For the six months ended March 31, 2022, the Company also granted 197,250 options with a total fair value of $2,958,367 to purchase shares of common stock to employees.

The Black-Scholes model utilized the following inputs to value the options granted during the six months ended March 31, 2022:


Fair value assumptions Options:	March 31, 2022
Risk free interest rate	0.10% - 2.55%
Expected term (years)	1.50 - 6.02
Expected volatility	140% - 533%
Expected dividends		0	%

As of March 31, 2022, the Company expects to recognize $13,096,168 of stock-based compensation for the non-vested outstanding options over a weighted-average period of 2.05 years.

RESTRICTED STOCK UNITS

The Company grants RSUs that contain (a) service conditions, (b) performance conditions, or (c) market performance conditions. RSUs containing service conditions vest monthly or annually. RSUs containing performance conditions generally vest over 1 year, and the number of shares earned depends on the achievement of predetermined Company metrics.

When the criteria for vesting is met, the Company recognizes the expense equal to the total fair value of the common stock price on the grant date. All of the RSUs issued prior to September 30, 2021 were either vested or forfeited and cancelled.

The following table summarizes the performance-based restricted stock units at the maximum award amounts based upon the respective performance share agreements. Actual shares that will vest depend on the attainment of the performance-based criteria.


	Number of Shares			Weighted Average Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at September 30, 2021		10,995		$	11.59	$	84,839
Granted		1,106,250			14.68		13,684,313
Vested		(77,885	)		20.15		1,569,280
Forfeited		(40,759	)		20.48		458,729
Outstanding at March 31, 2022		998,601		$	14.15	$	12,352,694

During the six months ended March 31, 2022, the Company granted 1,106,250 RSUs, which comprised of 90,000 that are service period based, 146,250 that are performance condition based, and 870,000 that are market condition based awards. The market condition based RSUs consist of 60,000 units that are perpetual in nature, and therefore, are given a derived service period of 5 years. The remaining 810,000 RSUs have a stated service period of 1 year. The fair value of the market based RSUs are determined using the Monte Carlo simulation and is in the following range: $11.03 - $17.89 per unit. The risk free rate, volatility, expected term, and cost of equity of these market based RSUs are as follows: 0.14-1.26%, 111.37-172.18%, 1-5 years, and 20.00-21.00%.

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As of March 31, 2022, the Company had $7,755,679 in unrecognized compensation costs related to RSU awards that it expects to recognize over a weighted average period of 0.75 years.

12.

COMMITMENTS AND CONTINGENCIES

Purchase of bitcoin mining equipment

The Company has cancellable purchase commitments totaling approximately $87,300,000 related to purchase of miners and approximately $10,600,000 related to purchase of mining operations related equipment and construction projects as of March 31, 2022, and the Company has paid approximately $73,700,000 towards these commitments as of the end of this period. As of March 31, 2022, the remaining commitment for future payments was approximately $24,200,000.

Future hosting agreements

On March 29, 2022, the Company entered into a Hosting Agreement (the "Lancium Agreement") with Lancium LLC (“Lancium”). Pursuant to the Lancium Agreement, Lancium has agreed to host, power and provide maintenance and other related services to the Company’s cryptocurrency mining equipment to be placed at Lancium facilities. Pursuant to the Agreement, Lancium will provide 200 megawatts in support of Company’s mining equipment. In addition, for a period of two and a half years following the operations commencement date under the Agreement, the Company will have an option to increase the power capacity supplied to the Company up to 500 MW or 40% of the aggregate capacity of all facilities owned and operated by Lancium, whichever is lesser. As consideration for the Services, the Company shall pay Lancium a power charge fee based on kilowatt hours consumed by the Company’s equipment and a hosting fee based on power consumed, subject to service level adjustments and credits, if any.

The Agreement further provides that through December 31, 2023, Lancium, subject to certain limited exceptions, will not enter into any all-in fixed price agreements with other customers with the same or less power draw as the Company that contains more favorable terms for the fixed all-in price than those in the Lancium Agreement, unless the Company is provided with the same lower fixed price under the Lancium Agreement. The Agreement has an initial term of five years from the operations commencement date (unless terminated earlier in accordance with the terms of the Agreement), after which it will renew automatically for two-year periods unless either party provides notice of non-renewal at least ninety days prior to the expiration of the term or renewal term, as applicable. As of March 31, 2022, the Company did not have any contractual future payment obligations under the terms of the Agreement.

Contractual future payments

The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of March 31, 2022:


	2022		2023		2024		2025		2026		Thereafter		Total
Recorded contractual obligations:
Operating lease obligations	$	159,125	$	324,949	$	333,234	$	341,767	$	299,039	$	37,301	$	1,495,415
Finance Lease obligations		198,047		295,541		131,164		11,092		-		-		635,844
Mining equipment		20,396,770		-		-		-		-		-		20,396,770
Mining operations related equipment		3,774,435		-		-		-		-		-		3,774,435
Total	$	24,528,377	$	620,490	$	464,398	$	352,859	$	299,039	$	37,301	$	26,302,464

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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.

On November 23, 2021, the Company settled all contingent consideration due to GridFabric resulting in a payment of 8,404 shares of 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 (fair valued at $155,000 at acquisition date) in cash held back by the Company and only payable pro rata to Sellers upon meeting certain future milestones and subject to satisfaction of any amounts owing from SWS to the Company resulting from damages required to be indemnified under the SWS Merger Agreement. The contingent cash consideration was re-measured to $615,249 at December 31, 2021.

On January 31, 2022, the Company settled all contingent consideration due to the SWS sellers, resulting in a payment of $625,000, 77,500 shares of common stock released out of escrow to the SWS sellers, and SWS sellers releasing 232,518 shares of common stock back the Company.

Legal contingencies

From time to time we may be subject to litigation arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Based on the opinion of legal counsel and other factors, management believes that the final disposition of these existing matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss is expected to be insignificant. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We maintain liability insurance to reduce such risk exposure to the Company. Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in contingent liabilities.

Bishins v. CleanSpark, Inc. et al.

On January 20, 2021, Scott Bishins (“Bishins”), individually, and on behalf of all others similarly situated (together, the “Class”), filed a class action complaint (the “Class Complaint”) in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Zachary Bradford (“Bradford”), and its Chief Financial Officer, Lori Love (“Love”) (such action, the “Class Action”). The Class Complaint alleged that, between December 31, 2020 and January 14, 2021, the Company, Bradford, and Love “failed to disclose to investors: (1) that the Company had overstated its customer and contract figures; (2) that several of the Company’s recent acquisitions involved undisclosed related party transactions; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a

F-31

reasonable basis.” The Class Complaint sought: (a) certification of the Class, (b) an award of compensatory damages to the Class, and (c) an award of reasonable costs and expenses incurred by the Class in the litigation.

On December 2, 2021, the Court appointed Darshan Hasthantra as lead Plaintiff (together, with Bishins, the “Plaintiffs”), and Glancy, Prongay and Murray LLP as class counsel.

Hasthantra filed an Amended Complaint on February 28, 2022 (the “Amended Class Complaint”). In the Amended Class Complaint, Love is no longer a defendant and S. Matthew Schultz (“Schultz”) has been added as a defendant (the Company, Bradford and Schultz, collectively, the “Defendants”). The Amended Class Complaint alleges that, between December 10, 2020 and August 16, 2021 (the “Class Period”), Defendants made material misstatements and omissions regarding the Company’s acquisition of ATL Data Centers, Inc. (“ATL”) and its anticipated expansion of bitcoin mining operations. In particular, Plaintiffs allege that Defendants: (1) were misleading in their various public announcements related to the timeline for expanding ATL’s mining capacity; and (2) failed to disclose other material conditions purportedly related to the Company’s acquisition of ATL, including that an ATL predecessor had filed for bankruptcy about six months prior to the acquisition, that another bitcoin miner had declined to acquire ATL, and that a related party had performed an audit of ATL for the Company. The Amended Class Complaint seeks: (a) certification of the Class, (b) an award of compensatory damages to the Class, and (c) an award of reasonable costs and expenses incurred by the Class in the litigation.

To date, no class has been certified in the Class Action.

The Company filed its Motion to Dismiss on April 28, 2022. The Motion to Dismiss seeks dismissal of all claims asserted in the Amended Class Complaint with prejudice and without leave to amend on the grounds that Plaintiffs fail to state a claim upon which relief can be granted under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. Plaintiffs’ opposition is due on June 27, 2022, and Defendants’ reply in further support of their Motion to Dismiss is due on August 11, 2022.

Although the ultimate outcome of the Class Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures and believes that the claims raised in the Amended Class Complaint and the Class Complaint are entirely without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.

Notwithstanding Plaintiffs’ allegations’ lack of merit, however, the Class Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims made in the Amended Class Complaint. Notwithstanding the Company’s belief that the Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Class Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Ciceri, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Schultz, Beynon, McNeill, and Wood (consolidated with Perna, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Schultz, Beynon, McNeill, and Wood)

On May 26, 2021, Andrea Ciceri (“Ciceri”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Ciceri Derivative Action”) in the United States District Court in the District of Nevada against Chief Executive Officer, Zachary Bradford (“Bradford”), Chief Financial Officer, Lori Love (“Love”) and Directors Matthew Schultz, Roger Beynon, Larry McNeill and Tom Wood (Bradford, Love and Directors collectively referred to as “Ciceri Derivative Defendants.”) On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Ciceri Derivative Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same Court against the same Ciceri Derivative Defendants, making substantially similar allegations. On June 29, 2021, the Court consolidated the Ciceri Derivative Action with the Perna Derivative Action in accordance with a stipulation among the parties (the consolidated case referred to as the “Derivative Action”). The Derivative Action alleges that Ciceri Derivative Defendants: (1) made materially false and misleading public statements about the Company’s business and prospects; (2) did not maintain adequate internal controls; and (3) did not disclose several related party transactions benefitting insiders, questionable uses of corporate assets, and excessive compensation. The claims asserted against all Ciceri Derivative Defendants include breach of fiduciary duties, unjust

F-32

enrichment, abuse of control, gross mismanagement, and waste of corporate assets. A claim for contribution under Sections 10(b) and 21D of the Securities and Exchange Act is asserted against only Bradford and Love. The Derivative Action seeks declaratory relief, monetary damages, and imposition of adequate corporate governance and internal controls. Plaintiffs were given the opportunity to submit an Amended Complaint by November 25, 2021, but elected not to. In January 2022, the Parties agreed to stay the entirety of the case pending the outcome of the Motion to Dismiss in the Class Action. Any of the Parties may also terminate the stay on 20 days’ notice.

Although the ultimate outcome of the Derivative Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures, and believes that the claims raised in that case are entirely without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.

Notwithstanding the Derivative Action’s lack of merit, however, it may distract the Company and cost the Company’s management time, effort and expense to defend against the claims. Notwithstanding the Company’s belief that the Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Derivative Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected.

Solar Watt Solutions, Inc., v. Pathion, Inc.

On January 6, 2022, Solar Watt Solutions, Inc., (“SWS”) filed suit in the Superior Court of the State of California in the County of Santa Clara against Pathion, Inc., (“Pathion”) for breach of contract, conversion, unjust enrichment and negligent misrepresentation. Prior to its acquisition by the Company, SWS paid Pathion $418,606 for solar batteries and related equipment for delivery in August 2019, later amended to November 2019. Pathion never delivered any of the items purchased by SWS. Pathion’s breach resulted in SWS being unable to complete a separate contract and cost the end-user client over $15,000 per month in electricity costs. SWS is seeking an award of compensatory damages totaling over $500,000. Pathion filed an answer on or around February 16, 2022, generally denying the claims asserted by SWS. A case management conference is scheduled for May 31, 2022, and discovery has commenced.

13.

MAJOR CUSTOMERS AND VENDORS

Digital Currency Mining Segment

For the three months ended March 31, 2022 and 2021, the digital currency mining business had the following customers that represented more than 10% of revenue. For these purposes customers are defined as the Company’s mining pool operators.


	Three Months Ended
		March 31, 2022			March 31, 2021
Mining Pool Operator A			99.99	%		—
Mining Pool Operator B			0.01	%		100.00	%

For the six months ended March 31, 2022 and 2021, the digital currency mining business had the following customers that represented more than 10% of revenue. For these purposes customers are defined as the Company’s mining pool operators.


	Six Months Ended
		March 31, 2022			March 31, 2021
Mining Pool Operator A			99.95	%		—
Mining Pool Operator B			0.05	%		100.00	%

F-33

For the three months ended March 31, 2022 and 2021, the Company had the following significant suppliers of mining equipment.


	Three Months Ended
		March 31, 2022			March 31, 2021
Vendor A			90.85	%		—
Vendor B			—			57.94	%
Vendor C			—			23.69	%
Vendor D			—			18.37	%

For the six months ended March 31, 2022 and 2021, the Company had the following significant suppliers of mining equipment.


	Six Months Ended
		March 31, 2022			March 31, 2021
Vendor A			71.70	%		—
Vendor B			24.03	%		—
Vendor C			—			46.77	%
Vendor D			—			27.49	%
Vendor E			—			14.91	%

Energy Segment

For the three months ended March 31, 2022 and 2021, the energy business had the following customers that represented more than 10% of revenue.


	Three Months Ended
		March 31, 2022			March 31, 2021
Customer A			37.39	%		39.06	%
Customer B			—			12.47	%
Customer C			—			10.17	%

For the six months ended March 31, 2022 and 2021, the energy business had the following customers that represented more than 10% of revenue.


	Six Months Ended
		March 31, 2022			March 31, 2021
Customer A			30.01	%		56.00	%
Customer B			—			12.25	%

For the three months ended March 31, 2022 and 2021, the Company had the following suppliers that represented more than 10% of direct material costs.


	Three Months Ended
		March 31, 2022			March 31, 2021
Vendor A			20.23	%		22.24	%
Vendor B			17.82	%		—
Vendor C			12.06	%		—
Vendor D			—			23.90	%

F-34

For the six months ended March 31, 2022 and 2021, the Company had the following suppliers that represented more than 10% of direct material costs.


	Six Months Ended
		March 31, 2022			March 31, 2021
Vendor A			38.87	%		—
Vendor B			11.76	%		—
Vendor C			—			15.62	%
Vendor D			—			14.54	%
Vendor E			—			12.91	%

14.

SEGMENT REPORTING

We disclose segment information that is consistent with the way in which management operates and views the business. Our operating structure contains two reportable segments: Digital Currency and Energy. The Company measures the results of its segments using, among other measures, each segment's sales and operating income, which includes certain corporate overhead allocations.

Digital Currency: This segment consists of operations related to Bitcoin mining. The Company provides computing power through ATL Data Centers LLC and CleanBlok Inc. to the mining pools. This segment also includes operation related to maintenance of real property holdings for company purposes through CSRE properties Norcross LLC and CSRE properties LLC. This segment revenue represents fractional share of the fixed cryptocurrency award received from the mining pool operator in exchange of computing power.

Energy: This segment provides services, equipment, and software to the energy industry. This segment includes revenue from providing engineering and construction services, selling equipment such as residential battery, residential solar, commercial solar and non-customized equipment and providing access to its energy software offerings and software license sales and support services.

Other Revenue and Eliminations: This includes revenue from providing design, software development, and other technology-based consulting services through p2k Labs and data center services through ATL Data Center. Corporate items and eliminations consist of corporate overhead and other items not allocated to any of the Company's segments as in the table below. Intersegment transactions, which were at market price, are included in the “Other revenue and eliminations” and “Corporate items and eliminations” in the table below.


	Three Months Ended
		March 31, 2022			March 31, 2021
Revenue
Energy		$	4,585,971		$	1,313,530
Digital Currency Mining			36,965,739			6,715,792
Total segment revenues			41,551,710			8,029,322
Other revenue and eliminations			86,282			90,366
Consolidated Revenues			41,637,992			8,119,688
Profit
Energy			945,534			292,023
Digital Currency Mining			28,476,493			6,251,287
Total segment profit			29,422,027			6,543,310
Corporate items and eliminations (including depreciation and amortization)			(29,592,762	)		856,730
Net income/(loss)		$	(170,735	)	$	7,400,040

F-35


	Six Months Ended
	March 31, 2022			March 31, 2021
Revenue
Energy	$	8,556,181		$	2,827,233
Digital Currency Mining		73,940,317			7,449,202
Total segment revenues		82,496,498			10,276,435
Other revenue and eliminations		383,463			100,824
Consolidated Revenues		82,879,961			10,377,259
Profit
Energy		1,931,774			389,853
Digital Currency Mining		59,809,483			7,107,416
Total segment profit		61,741,257			7,497,269
Corporate items and eliminations (including depreciation and amortization)		(47,426,237	)		(7,264,759	)
Net income	$	14,315,020		$	232,510

For details on major customers of Digital currency and Energy segment, see Note 13.

A summary of segment assets is as follows:


	March 31, 2022		September 30, 2021
Digital Currency Mining	$	375,183,757	$	270,995,942
Energy		25,267,292		17,507,314
Other and Corporate assets		24,346,255		28,969,865
Total	$	424,797,304	$	317,473,121

The Company operates its business only in the United States.

Total additions in long-lived assets for the three months and six months ended March 31, 2022 and 2021:


	Three Months Ended						Three Months Ended
	March 31, 2022						March 31, 2021
	Digital Currency		Energy		Corporate		Digital Currency		Energy		Corporate
Property and Equipment		97,273,057		13,939		78,393		9,001,813		70,688		1,945
Intangibles		-		-		15,000		-		190,000		-
Total		97,273,057		13,939		93,393		9,001,813		260,688		1,945


	Six Months Ended						Six Months Ended
	March 31, 2022						March 31, 2021
	Digital Currency		Energy		Corporate		Digital Currency		Energy		Corporate
Property and Equipment		168,566,562		29,993		148,202		10,259,396		83,554		8,160
Intangibles		-		-		15,000		-		190,000		-
Total		168,566,562		29,993		163,202		10,259,396		273,554		8,160

15.

SUBSEQUENT EVENTS

On April 22, 2022, the Company entered into a Master Equipment Financing Agreement with Trinity Capital Inc., as the Lender (the “Financing Agreement”). The Financing Agreement provides for up to $35 million of borrowings to finance the Company’s acquisition of blockchain computing equipment. The Company received a loan of $20 million at closing, with the remaining $15 million fundable upon the Company's request, if requested no later than December

F-36

31, 2022, subject to certain customary conditions. The loan draws have a term of 36 months from issuance with a monthly rate factor of at least 0.032198 payable monthly on the total cost of the equipment purchased with such borrowing. The Financing Agreement contains standard financial reporting requirements and certain other affirmative obligations, failure of which to comply with could result in an event of default under the Financing Agreement. In such an event, the Lender could exercise certain remedies including, but not limited to, declaring that all amounts outstanding under the Financing Agreement, together with accrued interest, be declared immediately due and payable. The Company received funding of $20 million at close, which included closing costs of $701,624 and security deposit of $643,960.

F-37

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 ("Form 10-K"). This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A “Risk Factors” or in other parts of this Quarterly Report on Form 10-Q, as well as those identified in the “Risk Factors” section of our Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. See “Forward-Looking Statements.”

Company Overview

CleanSpark, Inc. is a leading bitcoin mining and diversified energy company incorporated in Nevada, whose common stock is listed on the Nasdaq Capital Market. We sustainably mine bitcoin; we also provide advanced energy technology solutions to commercial and residential customers to solve modern energy challenges. The Company, through itself and its wholly owned subsidiaries, has operated in the digital currency mining sector since December 2020, and in the alternative energy sector since March 2014.

We are currently working with industry leaders and other advisors in developing a long-term sustainability and clean energy plan. As part of this plan, we are using the available clean and renewable energy resources that we currently have reasonable access to at our bitcoin mining locations in order to further support our sustainability efforts.

Lines of Business

Digital Currency Mining Segment

Through our wholly owned subsidiaries, ATL Data Centers LLC (“ATL”) and CleanBlok, Inc. (“CleanBlok”), we mine bitcoin. We entered the bitcoin mining industry through our acquisition of ATL in December 2020. We acquired a second data center in August 2021 and have had a co-location agreement with New York-based Coinmint in place since July 2021. In March 2022, we entered into a colocation agreement with Lancium LLC pursuant to which we have access to up to 500 MWs of power. Bitcoin mining has now become our principal revenue generating business activity, and consistent with our current business strategy, we intend to explore and opportunistically continue to acquire additional facilities, equipment and infrastructure capacity as well as evaluate other colocation opportunities, with the intention of expanding our bitcoin mining operations.

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 complex mathematical problems 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 the mathematical problems 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 geographic location play important roles in mining. As of the date of this filing, our mining units are currently capable of producing over 2.4 exahash per second (“EH/s”). In cryptocurrency mining, “hash rate” is a measure of the processing capacity and speed by which a mining computer mines and processes transactions on

the bitcoin network. Our activities in this area are complemented by our energy background and planning is underway to deploy certain energy technologies from our portfolio to advance our bitcoin mining business, with the goal of maximizing energy savings, increasing total power capacity, providing resilient electricity, and reducing greenhouse gas emissions. We are expanding our bitcoin mining business with the goal of reaching 4.0 to 5.0 EH/s in hash rate capacity at or near the end of December 31, 2022. We expect to exceed 3 EH/s in capacity at or near the end of September 30, 2022. Hash rate capacity is one of the most important metrics for evaluating bitcoin mining companies.

We obtain bitcoin as a result of our mining operations; while we retain a portion of the bitcoin we mine, we have sold, and intend to 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 convert our bitcoin to U.S. dollars). We do expect in the near future to engage in hedging and yield generating 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 analyzing forecasts, our operating needs and monitoring the market in real time.

Through our wholly-owned subsidiaries, CSRE Properties, LLC, CSRE Property Management Company LLC, and CSRE Properties Norcross, LLC, we maintain real property holdings for ATL and CleanBlok.

Energy Segment

We provide energy solutions through our wholly-owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consist of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response (“OpenADR”), solar, energy storage for microgrid and distributed energy systems to military, commercial and residential customers in Southern California and globally.

Our solutions are supported by our proprietary suite of software platforms (collectively, the “Platforms”) that include microgrid energy modeling, energy market communications and energy management solutions as summarized below:


	·	mPulse and mVoult: Patented, proprietary controls platforms that enable integration and optimization of multiple energy sources.


	·	Canvas: Middleware used by grid operators and aggregators to administrate load shifting programs.


	·	Plaid: Middleware used by controls and IoT (internet-of-things) product companies to participate in load shifting programs.


	·	mVSO: Energy modeling software for internal microgrid design .

The Platforms were developed to enable the designing, building, and operating of distributed energy systems and microgrids which efficiently manage energy assets. These strategies are generally targeted to achieve resiliency and economic optimization.

We also own patented gasification energy technologies. Our technology converts organic material into synthesis gas, which can be used as fuel for a variety of applications and as feedstock for the generation of DME (Di-Methyl Ether). As previously disclosed, we currently plan to continue to focus on our other offerings.

Because we view Bitcoin mining as our core focus, we are taking steps to strategically streamline and maximize our capital, as part of this process we are evaluating strategic opportunities and alternative to best utilize this segment.

Other business activities

Through ATL, we also provide traditional data center services, such as providing customers with rack space, power and equipment, and offer several cloud services including virtual services, virtual storage, and data backup services.

Results of operations for the three months ended March 31, 2022 and 2021

Revenues

Revenues increased to $41,637,992 during the three months ended March 31, 2022, as compared with $8,119,688 in revenues for the same period ended 2021 primarily due to increase in revenues from our digital currency mining segment.

For the three months ended March 31, 2022, our revenue was derived from digital currency mining, the sale of equipment, solar panels, batteries, design, engineering, energy services, and data center services. Income from our mining segment of $36,965,739 is a result of bitcoin mining activities in the United States. Income from our Energy segment of $4,585,971 is the result of contracts to sell switchgear equipment, perform engineering and design services, provide software for distributed energy and microgrid systems, and solar and battery installation services.

Costs and Expenses

We had costs and expenses of $38,305,184 for the three months ended March 31, 2022, as compared with $10,616,660 for the three months ended March 31, 2021.

Our cost of revenues was $12,127,120 for the three months ended March 31, 2022, as compared with cost of revenues of $1,537,683 for the three months ended March 31, 2021. Our cost of revenues during the three months ended March 31, 2022 was primarily the result of mining energy costs at owned facilities of $2,539,146, mining hosting and associated energy fees of $5,205,369, and energy hardware related cost of inventory of $2,949,422. Our cost of revenues during the three months ended March 31, 2021 was primarily the result of mining energy costs at owned facilities of $724,374, and energy hardware related cost of inventory of $543,330. The increase in cost of revenues between the comparative periods was mainly the result of revenue growth over the same period.

Professional fees decreased to $900,976 for the three months ended March 31, 2022 from $2,456,554 for the three months ended March 31, 2021. Our professional fees expenses for the three months ended March 31, 2022 consisted primarily of legal expenses of $583,742 and subcontractor expenses of $315,064. Our professional fees for the three months ended March 31, 2021 consisted primarily of legal fees of $1,608,671 and consulting expenses of $203,688.

Payroll expenses increased to $10,542,025 for the three months ended March 31, 2022 from $3,262,097 for the three months ended March 31, 2021. Our payroll expenses for the three months ended March 31, 2022 consisted primarily of salary and wages expense of $2,608,458, and employee and officer stock-based compensation of $6,509,964. Our payroll expenses for the three months ended March 31, 2021 consisted primarily of salary and wages expenses of $1,781,039 and employee and officer stock-based compensation of $834,014.

General and administrative expenses increased to $3,182,946 for the three months ended March 31, 2022 from $1,243,154 for the three months ended March 31, 2021. Our general and administrative expenses for the three months ended March 31, 2022 consisted primarily of insurance expenses of $970,965, marketing expenses of $697,374, dues and subscriptions expenses of $271,886, utilities expense of $165,117, and travel expenses of $197,944. Our general and administrative expenses for the three months ended March 31, 2021 consisted primarily of marketing expenses of $294,069, dues and subscriptions expenses of $233,307, bad debt expenses of $231,932, rent expenses of $226,843, and insurance expenses of $172,483.

Our gain on disposal of assets increased to $920,861 for the three months ended March 31, 2022 from $0 for the three months ended March 31, 2021. The gain on disposal is from the sale of miners and there were no such disposals for the three months ended March 31, 2021.

Impairment expenses recorded for the three months ended March 31, 2022 were $811,345, and $0 impairment expenses were recorded for the three months ended March 31, 2021. Impairment expense for the three months ended March 31, 2022 consisted of bitcoin impairment of $811,345.

Depreciation and amortization expense increased to $11,661,633 for the three months ended March 31, 2022, from $2,117,172 for the three months ended March 31, 2021.

Other income (expenses)

Other expense increased to $3,503,543 for the three months ended March 31, 2022 compared to other income of $9,897,012 for the three months ended March 31, 2021. Our other expenses for the three months ended March 31, 2022 consisted primarily of a realized loss on sales of digital currency of $2,733,882 and an unrealized loss on derivative security of $1,410,146. Our other income for the three months ended March 31, 2021 consisted primarily of a realized gain on sales of digital currency of $585,709 and an unrealized gain on derivative security of $8,400,629.

Net Income

We recorded a net loss of $170,735 for the three months ended March 31, 2022, as compared with a net income of $7,400,040 for the three months ended March 31, 2021. The decrease was due primarily to the increased losses from sale of digital currency and unrealized losses on derivative asset compared to a significant gain on the derivative asset in the prior period.

Results of operations for the six months ended March 31, 2022 and 2021

Revenues

Revenues increased to $82,879,961 during the six months ended March 31, 2022, as compared with $10,377,258 in revenues for the same period ended 2021 primarily due to increase in revenues from our digital currency mining segment.

For the six months ended March 31, 2022, our revenue was derived from digital currency mining, the sale of equipment, solar panels, batteries, design, engineering, and services, and data center services. Income from our mining segment of $73,940,317 is a result of bitcoin mining activities in the United States. Income from our Energy segment of $8,556,181 is the result of contracts to sell switchgear equipment, perform engineering design, provide software for distributed energy and microgrid systems, and provide solar and battery installation.

Costs and Expenses

We had costs and expenses of $75,390,160 for the six months ended March 31, 2022, as compared with $19,044,328 for the six months ended March 31, 2021.

Our cost of revenues was $20,925,046 for the six months ended March 31, 2022, as compared with cost of revenues of $2,879,197 for the six months ended March 31, 2021. Our cost of revenues during the six months ended March 31, 2022 was primarily the result of mining energy costs at owned facilities of $3,912,857, mining hosting and associated energy fees of $9,377,031, and energy hardware related cost of inventory of $5,587,847. Our cost of revenues during the six months ended March 31, 2021 was primarily the result of mining energy costs at owned facilities of $890,520, and energy hardware related cost of inventory of $1,556,295. The increase in cost of revenues between the comparative periods was mainly the result of revenue growth over the same period.

Professional fees increased to $4,218,795 for the six months ended March 31, 2022 from $4,169,277 for the six months ended March 31, 2021. Our professional fees expenses for the six months ended March 31, 2022 consisted primarily of accounting and tax expenses of $1,560,228, legal expenses of $868,318, and subcontractor expenses of $733,053.

Our professional fees for the six months ended March 31, 2021 consisted primarily of legal expenses of $2,840,232 and consulting expenses of $253,395.

Payroll expenses increased to $19,425,072 for the six months ended March 31, 2022 from $6,576,298 for the six months ended March 31, 2021. Our payroll expenses for the six months ended March 31, 2022 consisted primarily of salary and wages expenses of $5,092,739, and employee and officer stock-based compensation of $12,303,091. Our payroll expenses for the six months ended March 31, 2021 consisted primarily of salary and wages expenses of $3,118,279 and employee and officer stock-based compensation of $1,766,054.

General and administrative expenses increased to $5,071,046 for the six months ended March 31, 2022 from $2,193,293 for the six months ended March 31, 2021. Our general and administrative expenses for the six months ended March 31, 2022 consisted primarily of insurance expenses of $1,458,645, marketing expenses of $1,041,640, dues and subscriptions expenses of $534,330, utilities expenses of $361,242, and travel expenses of $348,465. Our general and administrative expenses for the six months ended March 31, 2021 consisted primarily of marketing expenses of $1,016,294, dues and subscription expenses of $405,600, rent expenses of $257,236, and insurance expenses of $244,641, and bad debt expenses of $231,932.

Our gain on disposal of assets increased to $642,691 for the six months ended March 31, 2022 from $0 for the six months ended March 31, 2021. The gain on disposal is from the sale of miners, offset by loss on disposal of miners, and there were no such disposals for the six months ended March 31, 2021.

Impairment expenses recorded for the six months ended March 31, 2022 were $7,033,691 and $0 impairment expenses were recorded for the six months ended March 31, 2021. Impairment expense for the six months ended March 31, 2022 consisted of bitcoin impairment of $811,345.

Depreciation and amortization expense increased to $19,359,201 for the six months ended March 31, 2022, from $3,226,263 for the six months ended March 31, 2021.

Other income (expenses)

Other income decreased to $6,825,219 for the six months ended March 31, 2022 compared to other income of $8,899,580 for the six months ended March 31, 2021. Our other income for the six months ended March 31, 2022 consisted primarily of a realized gain on sales of digital currency of $7,260,909 and an unrealized loss on derivative security of $1,111,297. Our other income for the six months ended March 31, 2021 consisted primarily of a realized gain on sales of digital currency of $635,627 and an unrealized gain on derivative security of $7,380,135.

Net Income

We recorded a net income of $14,315,020 for the six months ended March 31, 2022, as compared with a net income of $232,510 for the six months ended March 31, 2021. The increase was due primarily to the increased gains for sale of digital currency and unrealized gains on derivative securities.

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. Our principal sources of liquidity have been and are expected to be our cash and cash equivalents and digital currency inventory.

As of March 31, 2022, we had total current assets of $41,956,064, consisting of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, digital currency, investment in equity security, investment in debt security and related derivative asset, and total assets in the amount of $424,797,304. Our total current liabilities and total liabilities as of March 31, 2022 were $22,577,517 and $23,849,400 respectively. We had

working capital of $19,378,547 as of March 31, 2022. 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 (see Note 15 - Subsequent Events to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We believe our cash and cash equivalents on hand, together with cash we expect to generate from future operations, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, 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, the widespread COVID-19 pandemic, including variants, has resulted in, and may continue to result in, significant disruption of 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.

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 March 31, 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. For information regarding our other contractual obligations, refer to Note 12, Commitments and Contingencies on the Form 10-Q for the quarterly period ended March 31, 2022, and Note 15, Commitments and Contingencies included in our Annual Report on Form 10-K as filed with the SEC on December 14, 2021.

Operating Activities

Operating activities used $33,548,507 in cash for the six months ended March 31, 2022, as compared with using $11,686,460 in cash for the six months ended March 31, 2021. Our net income of $14,315,020 was the main component of our operating cash flow for the six months ended March 31, 2022, offset primarily by realized gain on digital currency of $7,260,909, increased by impairment of digital currency of $7,033,691, stock based compensation of $12,303,091, and unrealized loss on derivative asset of $1,111,297. Other components of our operating cash flow are the changes in operating assets and liabilities including increase in mining of digital currency of $73,940,317, increase in prepaid expenses and other current assets of $12,985,662, increase in accounts payable and accrued liabilities of $10,083,770, increase in accounts receivables of $3,963,323, and decrease in inventory of $1,495,321. Our net income of $232,510 was the main component of our negative operating cash flow for the six months ended March 31, 2021, increased primarily by stock based compensation of $5,199,658, and depreciation and amortization of $3,226,263, and decreased primarily by unrealized gain on derivative asset of $7,380,135. Other components of our operating cash flow are the changes in operating assets and liabilities including increase in production of digital currency of $7,449,202, increase in accounts payable and accrued liabilities of $2,890,270, and increase in prepaid expenses and other current assets of $1,130,741.

Investing Activities

Investing activities used $50,679,613 during the six months ended March 31, 2022, as compared with $55,909,101 for the six month period ended March 31, 2021. Our sale of digital currencies of $80,430,113, sale of miners of $3,497,654, payments on miner deposits of $105,077,053 and purchase of fixed assets of $28,914,917 were the main components of our investing cash flow for the six months ended March 31, 2022. Our sale of digital currencies of

$2,422,282, payments on miner deposits of $45,488,258, purchase of fixed assets of $9,058,011, investment in infrastructure development of $2,830,560, and acquisition of Solar Watt Solutions of $1,000,337 were the main components of our investing cash flow for the six months ended March 31, 2021.

Financing Activities

Cash flows generated from financing activities during the six months ended March 31, 2022 amounted to $68,100,740, when compared to $221,743,901 for the six months ended March 31, 2021. Our cash flows from financing activities for the six months ended March 31, 2022 consisted primarily of proceeds from underwritten offering of $67,988,993. Our cash flows from financing activities for the six months ended March 31, 2021 consisted primarily of proceeds from underwritten offering of $224,262,818, exercise of options and warrants of $3,346,559, and offset by payments on promissory notes of $5,865,476.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We evaluate our estimates and assumptions on an ongoing basis, and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for the judgments we make about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows.

There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Form 10-K. For a description of our critical accounting policies and estimates, see Part I, Item 1, Note 2, "Summary of Significant Accounting Policies" in our notes to the consolidated financial statements in this Quarterly Report.

Recent Accounting Pronouncements

Please refer to Note 2 in our unaudited condensed consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to several market risks in its normal business activities. The types of market risks the Company is exposed to are the market price of bitcoin, banking, costs of mining, and liquidity risk. We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Because our assets are primarily short-term and liquid in nature, they are generally not significantly impacted by inflation. The rate of inflation does, however, affect our expenses, including employee compensation, communications and information processing and office leasing costs, which may not be readily recoverable from our customers. To the extent inflation results in rising interest rates and has adverse impacts upon securities markets, it may adversely affect our results of operations and financial condition.

We continue to monitor rising inflationary pressures, including rising freight and import costs, in an attempt to minimize its effect through pricing strategies and cost reductions. If our costs become subject to significant inflationary

pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and operating results.

Market Price Risk of Bitcoin. We acquire bitcoin from our daily operations of mining and, as of March 31, 2022, we held approximately 431.67 bitcoins. The carrying value of our bitcoins as of March 31, 2022 was $17,045,640 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. For example, the market price of one bitcoin in our principal market ranged from $35,079 - $68,205 during the six months ended March 31, 2022, but the carrying value of each bitcoin we held at the end of the 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 digital assets.

Banking Risk. A number of companies that engage in bitcoin and/or other cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions. To the extent that such events may happen to us, they could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.

Costs of Mining Risk. Mining operations are costly and our expenses may increase in the future. Increases in mining expenses may not be offset by corresponding increases in revenue. Our expenses may become greater than we anticipate, and our investments to make our business more cost-efficient may not succeed. Bitcoin mining operations are also subject to increased costs as a result of the periodically increasing mining difficulty rates. Increases in our costs without corresponding increases in our revenue would adversely affect our profitability and could seriously harm our business and an investment in us.

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Liquidity Risk. Liquidity risk arises from the general funding needs of the Company's activities and in the management of the Company's assets and liabilities.

Item 4. Controls and Procedures

Limitation on Effectiveness of Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.

Material Weaknesses and Remediation Plan

We identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management assessment: (1) The Company did not adequately implement or properly maintain controls over its financial close and reporting process and its process over the recording of energy and other services revenue and (2) the Company did not adequately design and maintain effective general information technology controls over third-party information systems and applications that are relevant to the preparation of the Company’s financial statements. Specifically:

•

Financial Close and Reporting: Controls over financial statement reviews, specific to the appropriate reconciliation of certain balance sheet accounts, were not operating effectively.

▪

Recording of Revenues for certain non-principal revenue generating subsidiaries: Controls over the recording and processing of revenue for certain non-principal revenue generating entities, specifically, p2kLabs, Inc, GridFabric, LLC and CleanSpark, LLC, lack the level of precision necessary to ensure the completeness and accuracy of revenue recorded.

•

Information and Technology Controls: Certain individual control deficiencies related to information technology (“IT”) general controls and report reviews aggregate into a material weakness, as follows:

▪

Certain process-level and IT-dependent controls over user access to IT programs and applications, specifically utilized for hosting services and file storage, were not effective.

▪

Controls relating to the evaluation of service organization controls reports were not performed over certain third-party service providers to cover the entire fiscal year.

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. To date, the remediation actions include the following:

•

appointment of additional qualified staff;

•

implementation of additional monitoring of controls to improve documentation of internal control procedures;

•

expanding the management and governance over IT system controls; and

•

implementation of enhanced process controls around internal user access management including provisioning, removal, and periodic review.

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period, we are committed to continuous improvement and will continue to diligently review our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Other than remediation actions related to the material weaknesses in our internal controls described above, there has been no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to various claims, lawsuits, and other legal and administrative proceedings arising in the ordinary course of business. See Note 12 - Commitments and Contingencies to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item I A. of our Annual Report on Form 10-K for the year ended September 30, 2021, which could materially affect our business, financial condition or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith

3.1	First Amended and Restated Articles of Incorporation of CleanSpark, Inc., dated September 17, 2021	8-K	001-39187	3.1	9/17/2021
3.2	First Amended and Restated Bylaws of CleanSpark, Inc., dated September 17, 2021	8-K	001-39187	3.2	9/17/2021
4.1	Form of Senior Secured Redeemable Convertible Debenture, dated December 31, 2018 issued to the Investor	8-K	000-53498	4.1	12/31/2018
4.2	Form of Common Stock Purchase Warrant, dated December 31, 2018, issued to the Investor	8-K	000-53498	4.2	12/31/2018
4.3	Form of Senior Secured Redeemable Convertible Promissory Note, dated April 17, 2019, issued to the Investor	8-K	000-53498	4.1	4/18/2019
4.4	Form of Common Stock Purchase Warrant, dated December 31, 2018, issued to the Investor	8-K	000-53498	4,2	4/18/2019
10.1	Master Equipment Financing Agreement by and between CleanSpark, Inc. and Trinity Capital Inc. dated as of April 22, 2022	8-K	001-39187	10.1	4/26/2022
10.2	Form of Equipment Financing Schedule by and between CleanSpark, Inc. and Trinity Capital Inc.	8-K	001-39187	10.2	4/26/2022
10.3	Hosting Agreement by and between CleanSpark, Inc. and Lancium LLC, dated as of March 29, 2022					*, +
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)					*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)					*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350					**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350					**


101 INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101 SCH	Inline XBRL Taxonomy Extension Schema Document
101 CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*	Filed herewith.
**	Furnished herewith.
+	Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The Company will provide an unredacted copy of this agreement, on a supplemental basis, to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: May 10, 2022	By: /s/ Zachary K. Bradford Zachary K. Bradford Title: Chief Executive Officer (Principal Executive Officer)



Date: May 10, 2022	By: /s/Gary A. Vecchiarelli Gary A. Vecchiarelli Title: Chief Financial Officer (Principal Financial and Accounting Officer)