CleanSpark(CLSK) - 2025 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements This section presents CleanSpark, Inc.'s unaudited condensed consolidated financial statements for the quarter ended June 30, 2025, prepared in accordance with GAAP and SEC instructions, including the early adoption of ASC 350-60 for crypto assets - The company early adopted ASC 350-60 effective October 1, 2023, requiring bitcoin to be measured at fair value with changes recorded in net income, resulting in a $4,183 cumulative-effect change to adjust bitcoin held[50] - The company made a strategic decision to classify a portion of its bitcoin holdings as noncurrent, intending to hold them long-term as part of its strategic reserve[57] Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (Unaudited) | September 30, 2024 | | :----------------------------------- | :-------------------------- | :------------------- | | ASSETS | | | | Cash and cash equivalents | $34,553 | $121,222 | | Bitcoin - current | $877,067 | $431,661 | | Bitcoin - noncurrent | $202,687 | $— | | Total current assets | $1,210,140 | $705,430 | | Total assets | $3,101,817 | $1,962,662 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $276,819 | $187,887 | | Total liabilities | $954,929 | $201,821 | | Total stockholders' equity | $2,146,888 | $1,760,841 | | Total liabilities and stockholders' equity | $3,101,817 | $1,962,662 | - Total assets increased by 58.05% from $1,962,662 thousand as of September 30, 2024, to $3,101,817 thousand as of June 30, 2025[28] - Total liabilities increased significantly by 373.16% from $201,821 thousand to $954,929 thousand, primarily due to an increase in long-term loans payable[28] Condensed Consolidated Statements of Operations and Comprehensive Income This statement details the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Bitcoin mining revenue, net | $198,644 | $104,108 | $542,662 | $289,693 | | Total costs and expenses | $(47,519) | $353,186 | $224,547 | $373,139 | | Income (loss) from operations | $246,163 | $(249,078) | $318,115 | $(83,446) | | Total other income | $29,334 | $3,341 | $71,555 | $3,347 | | Net income (loss) | $257,390 | $(236,242) | $365,389 | $(83,598) | | Net income (loss) attributable to common shareholders | $251,787 | $(236,242) | $354,645 | $(87,019) | | Basic EPS | $0.90 | $(1.03) | $1.26 | $(0.42) | | Diluted EPS | $0.78 | $(1.03) | $1.13 | $(0.42) | - Net income for the three months ended June 30, 2025, was $257,390 thousand, a significant turnaround from a net loss of $236,242 thousand in the prior-year period[33] - For the nine months ended June 30, 2025, net income was $365,389 thousand, compared to a net loss of $83,598 thousand in the same period last year[33] Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) | Metric | Balance, September 30, 2024 | Balance, June 30, 2025 | | :----------------------------------- | :-------------------------- | :------------------- | | Common Stock (shares) | 270,897,784 | 292,823,486 | | Common Stock (amount) | $271 | $293 | | Additional paid-in capital | $2,239,367 | $2,412,993 | | Accumulated deficit | $(479,218) | $(124,573) | | Treasury stock at cost | $— | $(145,000) | | Total stockholders' equity | $1,760,841 | $2,146,888 | - Total stockholders' equity increased by $386,047 thousand, or 21.92%, from September 30, 2024, to June 30, 2025, driven by net income and additional paid-in capital, partially offset by treasury stock purchases[36] - The accumulated deficit significantly decreased from $(479,218) thousand to $(124,573) thousand, reflecting the company's return to profitability[36] Condensed Consolidated Statements of Cash Flow This statement categorizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flow (in thousands) | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(341,623) | $(150,977) | | Net cash used in investing activities | $(441,154) | $(503,698) | | Net cash provided by financing activities | $696,514 | $754,624 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(86,263) | $99,949 | | Cash, cash equivalents and restricted cash, end of period | $38,015 | $129,164 | - Net cash used in operating activities increased by 126.28% to $(341,623) thousand for the nine months ended June 30, 2025, primarily due to non-cash gains in held bitcoin balance despite net income[40][286] - Net cash provided by financing activities decreased by 7.70% to $696,514 thousand, mainly from proceeds from convertible notes and equity offerings, partially offset by common stock repurchases and capped call payments[41][289] Notes to Condensed Consolidated Financial Statements This section provides additional information and explanations for the figures presented in the primary financial statements 1. ORGANIZATION This note describes CleanSpark, Inc.'s business operations, primary activities, and geographic footprint as a bitcoin mining company - CleanSpark, Inc. is a bitcoin mining company operating fourteen data centers in Georgia, five in Mississippi, twelve in Tennessee, and two in Wyoming as of June 30, 2025[43] - The company focuses on independently owning, leasing, and operating data centers to secure and support the bitcoin network, without hosting miners for other companies[43] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles, methods, and estimates used in preparing the financial statements, including the treatment of crypto assets - The company early adopted ASC 350-60 effective October 1, 2023, to measure bitcoin at fair value, with changes recognized in net income, resulting in a $4,183 cumulative-effect adjustment to accumulated deficit[50] - Bitcoin holdings are now classified as current or noncurrent based on the company's intent to sell periodically or hold long-term as a strategic reserve[57] Fair Value Hierarchy of Financial Instruments (June 30, 2025, in thousands) | ($ in thousands) | Amount | Level 1 | Level 2 | Level 3 | | :----------------------------- | :------- | :------ | :------ | :------ | | Assets: | | | | | | Cash equivalents | $27,375 | $27,375 | $— | $— | | Receivable from bitcoin collateral | $271,491 | $— | $271,491 | $— | | Bitcoin | $1,079,754 | $1,079,754 | $— | $— | | Bitcoin derivative - Bitmain contracts | $7,717 | $— | $— | $7,717 | | ILAL derivative asset | $126 | $— | $— | $126 | | Investment in debt security | $4,405 | $— | $— | $4,405 | | Liabilities: | | | | | | Interest rate swap derivative | $86 | $— | $86 | $— | | Warrant liabilities | $150 | $— | $150 | $— | 3. ACQUISITIONS This note details the company's recent business combinations and asset purchases, including the GRIID Infrastructure Inc. acquisition, and their financial impact - On October 30, 2024, CleanSpark completed the acquisition of GRIID Infrastructure Inc. for a preliminary purchase consideration of $128,247 thousand, enhancing bitcoin mining capacity and geographic diversification[71][76][77] - The GRIID acquisition resulted in goodwill of $120,767 thousand, later decreased by $6,442 thousand due to measurement period adjustments[79][81] - The company also completed several asset acquisitions in Georgia, Tennessee, and Mississippi, totaling $1,413 thousand, $29,854 thousand, and $3,020 thousand respectively, to expand its operational footprint[88][91][96][98] 4. BITCOIN This note provides information on the company's bitcoin holdings, mining activities, fair value measurements, and related transactions Bitcoin Holdings and Activity (in thousands, except per bitcoin amounts) | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Number of bitcoin held | 10,075 | 6,819 | | Cost basis - per bitcoin | $94,058 | $55,408 | | Fair value - per bitcoin | $107,173 | $63,301 | | Fair value of bitcoin | $1,079,754 | $431,661 | | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Adjusted beginning balance | $431,661 | $60,424 | | Addition of bitcoin from mining activities | $542,662 | $289,693 | | Bitcoin purchased | $82,152 | $— | | Bitcoin sold | $(127,829) | $— | | Bitcoin transferred to collateral account | $(291,278) | $— | | Bitcoin received from collateral account | $171,459 | $— | | (Gain) loss on fair value of bitcoin | $359,190 | $107,406 | | Ending Balance | $1,079,754 | $413,033 | - The company's bitcoin holdings increased to 10,075 bitcoins with a fair value of $1,079,754 thousand as of June 30, 2025, up from 6,819 bitcoins with a fair value of $431,661 thousand as of September 30, 2024[100] - Cumulative realized gains from bitcoin dispositions totaled $227,061 thousand for the nine months ended June 30, 2025, significantly higher than $12,862 thousand in the prior year[104] 5. NOTE RECEIVABLE FROM GRIID This note explains the terms and settlement of the note receivable from GRIID Infrastructure Inc. in connection with its acquisition - The Note receivable from GRIID, which initially provided a $55,919 thousand term loan and an additional $40,000 thousand delayed draw term loan facility, was effectively settled for $62,636 thousand as part of the GRIID acquisition on October 30, 2024[107][108][109] - As of June 30, 2025, the Note receivable from GRIID balance was $0, down from $60,919 thousand as of September 30, 2024[110] 6. INVESTMENTS AND DERIVATIVES This note describes the company's investment assets and derivative financial instruments, including bitcoin-linked derivatives and interest rate swaps - Total investment assets increased from $2,750 thousand as of September 30, 2024, to $12,248 thousand as of June 30, 2025[112] - In April 2025, the company launched a bitcoin treasury management strategy, utilizing bitcoin-linked derivative contracts (e.g., futures, options) to hedge volatility and generate liquidity, with gains/losses recognized in earnings[113][115] - The company holds two interest rate swap agreements, recorded as a combined fair value liability of $86 thousand as of June 30, 2025, with changes in fair value recognized in earnings[118][119][120] 7. PROPERTY AND EQUIPMENT This note details the company's tangible assets, including land, miners, and infrastructure, along with their depreciation and acquisition activities Property and Equipment (in thousands) | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Land | $39,299 | $32,190 | | Miners | $1,320,655 | $1,035,128 | | Infrastructure | $287,535 | $155,191 | | Total | $1,812,612 | $1,365,960 | | Less: accumulated depreciation | $(483,305) | $(496,267) | | Property and equipment, net | $1,329,307 | $869,693 | - Net property and equipment increased by $459,614 thousand, or 52.85%, from September 30, 2024, to June 30, 2025, primarily due to $544,413 thousand in miner acquisitions and $39,298 thousand from acquisition transactions[128][129] - Deposits on miners and mining equipment decreased from $359,862 thousand to $196,151 thousand, as the company exercised options to purchase 13,200 and 3,000 miners, paying with bitcoin at a premium[131][132][134] 8. INTANGIBLE ASSETS This note provides information on the company's intangible assets, such as software and strategic contracts, and their amortization Intangible Assets (in thousands) | Metric | June 30, 2025 (Net) | September 30, 2024 (Net) | | :---------------- | :------------------ | :----------------------- | | Software | $6,139 | $751 | | Strategic Contract | $816 | $2,287 | | Total | $6,955 | $3,040 | - Net intangible assets increased by $3,915 thousand, or 128.78%, from $3,040 thousand to $6,955 thousand, primarily due to the acquisition of $7,000 thousand in software during the current year[135][254][269] - Amortization expense for the nine months ended June 30, 2025, was $3,094 thousand, an increase of 98% from $1,563 thousand in the prior year[135][269] 9. LOANS This note outlines the company's outstanding debt obligations, including convertible notes, lines of credit, and mortgages, and their terms Loans Outstanding (in thousands) | Loan Type | June 30, 2025 | September 30, 2024 | | :------------------------------------------ | :------------ | :----------------- | | Convertible Note | $635,295 | $— | | Coinbase Line of Credit | $174,500 | $50,000 | | Western Alliance Bank Credit Agreement | $6,253 | $6,839 | | Mortgage - Corporate (New) | $1,962 | $— | | Total Loans Outstanding | $820,337 | $65,957 | | Loans payable, net of current portion, debt discount and debt issuance costs | $643,913 | $7,176 | - Total loans outstanding increased significantly to $820,337 thousand as of June 30, 2025, from $65,957 thousand as of September 30, 2024, primarily due to the issuance of $650,000 thousand in 0% convertible senior notes due 2030 and increased draws on the Coinbase Line of Credit[137][138][152] - The Coinbase Line of Credit was amended in April 2025 to expand borrowing availability to $200,000 thousand, with an outstanding balance of $174,500 thousand as of June 30, 2025[152] 10. INCOME TAXES This note explains the company's income tax expense, effective tax rate, and deferred tax assets and liabilities, including valuation allowances Income Tax Expense (Benefit) and Effective Rate (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense (benefit) | $18,107 | $(9,495) | $24,281 | $3,499 | | Effective income tax rate | 6.6% | 3.9% | 6.2% | -4.4% | - The effective income tax rate for the nine months ended June 30, 2025, was 6.2%, differing from the U.S. statutory rate of 21% primarily due to a partial release of valuation allowance of $47.5 million[163] - The company maintains a partial valuation allowance on its U.S. deferred tax assets, with a possibility of further release within the next 12 months based on sustained profitability[164] 11. STOCKHOLDERS' EQUITY This note details changes in the company's capital structure, including common stock issuances, repurchases, and authorized shares - The number of authorized common stock shares increased from 300,000,000 to 600,000,000 on October 25, 2024[165] - The company issued 5,031,221 shares of common stock for the GRIID Acquisition and 16,619,361 shares under the March 2024 ATM Amendment, generating $191,603 thousand in gross proceeds[171] - CleanSpark repurchased 11,759,935 shares of common stock for approximately $145,000 thousand in December 2024, in connection with the issuance of 2030 Notes[172] 12. STOCK WARRANTS This note describes the various stock warrants issued by the company, their classification, and activity during the reporting period - As part of the GRIID Acquisition, the company issued 22,803,726 warrants, including Public Warrants, Private Warrants, and GEM Warrants, with varying accounting treatments (equity vs. liability)[175][176] - All Private Warrants were converted to Public Warrants on January 3, 2025, becoming equity-classified[177] Stock Warrant Activity (Nine Months Ended June 30, 2025) | Metric | Number of Warrants Outstanding | Number of Shares to be Issued Upon Exercise | Weighted Average Exercise Price ($) | | :-------------------------- | :----------------------------- | :------------------------------------------ | :---------------------------------- | | Balance, September 30, 2024 | 17,560 | 17,560 | $6.12 | | Warrants granted | 22,803,726 | 1,586,999 | $157.96 | | Balance, June 30, 2025 | 22,821,286 | 1,604,559 | $156.30 | 13. STOCK-BASED COMPENSATION This note provides information on the company's stock option and restricted stock unit activity and related compensation expense Stock Option Activity (Nine Months Ended June 30, 2025) | Metric | Number of Option Shares | Weighted Average Exercise Price ($) | | :-------------------------- | :---------------------- | :---------------------------------- | | Balance, September 30, 2024 | 2,285,462 | $15.58 | | Options granted | 309,330 | $9.61 | | Options exercised | (93,435) | $5.35 | | Balance, June 30, 2025 | 2,268,130 | $15.37 | Restricted Stock Units (RSUs) Activity (Nine Months Ended June 30, 2025) | Metric | Number of Shares | Weighted Average Fair Value Per Share ($) | | :-------------------------- | :--------------- | :---------------------------------------- | | Outstanding at September 30, 2024 | 1,674,211 | $7.56 | | Granted | 2,590,551 | $7.72 | | Vested | (180,145) | $9.22 | | Outstanding at June 30, 2025 | 4,042,353 | $7.59 | - The 2025 Long-Term Incentive Plan (LTIP) was approved in October 2024, but no stock-based compensation expense has been recognized as of June 30, 2025, because specific performance metrics and key terms have not been finalized[191][193] 14. COMMITMENTS AND CONTINGENCIES This note discloses the company's contractual obligations, potential tariff liabilities, and ongoing legal proceedings Contractual Future Payments (in thousands) | Contractual obligations | Fiscal Year 2025 (Remainder) | | :-------------------------- | :--------------------------- | | Construction in progress | $30,689 | | Modular immersion data centers | $27,000 | | Total | $57,689 | - The company faces potential U.S. importation tariff liability of approximately $185,000 thousand for previously purchased miners, which it disputes and intends to defend against vigorously[198][199] - Legal proceedings include a class action lawsuit (Hasthantra v. CleanSpark, Inc. et al.) alleging material misstatements and omissions, and consolidated shareholder derivative actions (Consolidated Smith Derivative Actions) alleging breach of fiduciary duties and corporate waste[201][205] 15. MAJOR CUSTOMERS AND VENDORS This note identifies the company's significant revenue sources and primary suppliers for its bitcoin mining operations - Foundry Digital represented 100% of the company's revenue for the nine months ended June 30, 2025 and 2024, as its sole mining pool operator[208] Significant Miner Suppliers (Nine Months Ended June 30) | Supplier | 2025 | 2024 | | :----------------- | :--- | :--- | | Bitmain Technologies | 97% | 100% | | Canaan U.S. Inc | 3% | 0% | 16. SUBSEQUENT EVENTS This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - The call option to acquire additional bitcoin mining equipment, originally expiring on July 26, 2025, was extended by agreement with the manufacturer, pending finalization of terms or expiration[209] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of CleanSpark's financial condition and results of operations for the three and nine months ended June 30, 2025 and 2024, highlighting significant growth in revenue and net income, driven by increased mining capacity and favorable bitcoin prices, alongside strategic acquisitions and treasury management initiatives - CleanSpark is a bitcoin mining company operating a large portfolio of data centers across the U.S. with approximately 987 MW of contracted power capacity as of June 30, 2025[212] - The company launched an institutional-grade in-house trading function in April 2025 to balance monetizing new production with building long-term bitcoin holdings and utilizing derivative strategies[218] - As of June 30, 2025, the company held 10,075 bitcoins with a fair value of $1,079,754 thousand, with 99% in cold storage[220] Company Overview This section provides an introduction to CleanSpark's business, its operational footprint, and its strategic focus on bitcoin mining - CleanSpark operates a large portfolio of data centers in Georgia, Mississippi, Tennessee, and Wyoming, with a total contracted power capacity of approximately 987 megawatts (MW) as of June 30, 2025[212] - The company focuses exclusively on bitcoin mining and does not intend to mine, purchase, or hold any other crypto assets[212] Bitcoin Mining This section details CleanSpark's bitcoin mining operations, including computing power, miner efficiency, and treasury management strategies - As of June 30, 2025, CleanSpark's operating mining units produced an average computing power of 45.3 exahash per second (EH/s), reaching a peak of 50 EH/s[215] - The company owned approximately 329,001 miners as of June 30, 2025, with 241,227 in service, and an average operating energy efficiency of 16.2 w/th[217] - In April 2025, CleanSpark launched an in-house trading function for bitcoin treasury management, including derivative strategies, to generate yield and manage price exposure[218] Results of continuing operations for the three and nine months ended June 30, 2025 and 2024 This section analyzes the company's financial performance from continuing operations for the specified periods Bitcoin Mining Operations This subsection provides key statistics and cost analysis related to the company's bitcoin mining fleet and production efficiency Bitcoin Mining Fleet Statistics | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Global hashrate (EH/s) | 881.0 | 558.0 | | Miner efficiency (w/th) | 16.2 | 22.3 | | CleanSpark average hashrate (EH/s) | 45.3 | 20.4 | | CleanSpark percentage of total global hashrate | 5.14% | 3.66% | Cost of Mining One Bitcoin (Owned Facilities, per bitcoin amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of energy per bitcoin mined | $44,690 | $26,857 | $40,616 | $17,569 | | Direct cost to mine one bitcoin (Direct Energy Cost) | $44,806 | $26,945 | $40,683 | $17,605 | | Miner depreciation per bitcoin mined | $41,601 | $16,753 | $36,358 | $13,067 | | Direct cost to mine including non-cash depreciation and financing costs | $86,428 | $43,906 | $77,099 | $30,886 | | Average revenue of each bitcoin mined | $98,753 | $66,048 | $92,090 | $51,479 | - The average power price paid at owned facilities increased to $0.056 per kWh for the three and nine months ended June 30, 2025, from $0.048 and $0.045 per kWh, respectively, in the prior year periods[233] Results of continuing operations for the three months ended June 30, 2025 and 2024 This subsection analyzes the financial results for the three-month periods, focusing on revenue, costs, and profitability drivers - Bitcoin mining revenue increased by 91% to $198,644 thousand, driven by a higher average bitcoin price ($98,736 vs. $65,891) and an increase in mined bitcoin (2,012 vs. 1,580)[244] - Cost of revenues (exclusive of depreciation) increased by 99% to $90,128 thousand, primarily due to a 133% increase in energy costs from expanded operations[245] - A gain on fair value of bitcoin of $268,651 thousand was recognized, a significant change from a $48,338 thousand loss in the prior year, reflecting the increase in bitcoin's fair value from $82,500 to $107,200 per bitcoin[252] Results of continuing operations for the nine months ended June 30, 2025 and 2024 This subsection analyzes the financial results for the nine-month periods, highlighting trends in revenue, costs, and overall profitability - Bitcoin mining revenue increased by 87% to $542,662 thousand, due to a higher average bitcoin price ($91,765 vs. $51,472) and an increase in mined bitcoin (5,914 vs. 5,628)[260] - Cost of revenues (exclusive of depreciation) increased by 127% to $245,842 thousand, mainly from a 172% rise in energy costs due to increased miner volume and higher average cost per kWh[261] - Gain on fair value of bitcoin, net, increased by 234% to $359,190 thousand, reflecting the rise in bitcoin's fair value from $63,300 to $107,200 per bitcoin[267] Non-GAAP Measure (Adjusted EBITDA) This section presents a reconciliation of net income to Adjusted EBITDA, a non-GAAP measure used by management to assess operational performance Reconciliation of Non-GAAP Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) | $257,390 | $(236,242) | $365,389 | $(83,598) | | Depreciation and amortization | $94,880 | $40,727 | $240,010 | $102,761 | | Share-based compensation expense | $4,488 | $2,946 | $10,609 | $22,696 | | Income tax expense (benefit) | $18,107 | $(9,495) | $24,281 | $3,499 | | Non-GAAP Adjusted EBITDA | $377,701 | $(12,669) | $641,560 | $238,249 | - Adjusted EBITDA for the nine months ended June 30, 2025, was $641,560 thousand, a significant increase from $238,249 thousand in the prior-year period[280] - The company now includes net gain/loss on fair value of bitcoin in its Adjusted EBITDA calculation, considering it part of normal ongoing operations[276][280] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations, including sources of liquidity and cash flow activities - As of June 30, 2025, the company had working capital of $933,321 thousand, with total current assets of $1,210,140 thousand and total current liabilities of $276,819 thousand[282] - Primary liquidity sources include cash, bitcoin inventory, proceeds from convertible notes, and a $200,000 thousand line of credit with Coinbase[281][282] - Net cash used in operating activities was $341,623 thousand for the nine months ended June 30, 2025, while financing activities provided $696,514 thousand[286][289] Critical Accounting Estimates This section identifies the accounting estimates that require significant judgment and could materially impact the financial statements - There have been no material changes to critical accounting policies and estimates compared to the Annual Report on Form 10-K for the fiscal year ended September 30, 2024, except as described in Note 2[291] Recent Accounting Pronouncements This section provides an overview of new accounting standards that have been adopted or are pending adoption by the company - Refer to Note 2 - Summary of Significant Accounting Policies for details on recently adopted and issued accounting pronouncements not yet adopted[292] Item 3: Quantitative and Qualitative Disclosures About Market Risk This section outlines CleanSpark's exposure to market risks, primarily focusing on the volatility of bitcoin's market price and its impact on the company's significant bitcoin holdings and bitcoin-linked derivative instruments - CleanSpark holds approximately 10,075 bitcoin and 2,533 bitcoins receivable as collateral, totaling a fair value of approximately $1,080 million and $271 million, respectively, as of June 30, 2025[294] - A 10% increase or decrease in bitcoin's fair value would result in an approximate $135 million change in the total cash value if the company were to sell its bitcoin and related receivables[294] - The company held bitcoin-linked derivative assets with a fair value of approximately $7.7 million as of June 30, 2025, where a 10% change would impact net income by approximately $0.8 million[295] Item 4: Controls and Procedures This section details CleanSpark's disclosure controls and procedures, acknowledging their limitations and reporting that they were not effective as of June 30, 2025, due to identified material weaknesses, along with the ongoing remediation efforts - As of June 30, 2025, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[301] - Material weaknesses include ineffective information systems general controls over program change management, logical access, and segregation of duties for the general ledger, and ineffective controls over accounting for property, plant, and equipment, and deposits on miners[304] - Remediation efforts are underway, including removing unauthorized user access, implementing monthly access log reviews, redesigning user entity controls, and expanding IT system governance[306][309] PART II – OTHER INFORMATION Item 1: Legal Proceedings This section refers to Note 14 of the financial statements for details on various legal proceedings and claims arising in the ordinary course of business, including class action and derivative lawsuits - The company is subject to various legal proceedings and claims, as detailed in Note 14 - Commitments and Contingencies[314] Item 1A: Risk Factors This section highlights key risks that could materially affect CleanSpark's business, financial condition, and operating results, including those related to capped call transactions, counterparty risk, accounting treatment of convertible debt, technological obsolescence, supply chain disruptions, trade restrictions, the U.S. political and economic environment, and the company's new bitcoin treasury function - Capped call transactions may affect the value of the 2030 Notes and the market price of common stock, and the company is exposed to counterparty risk with financial institutions involved in these transactions[316][318] - Risks include technological obsolescence of miners, vulnerability of the global supply chain for cryptocurrency hardware (especially from China), potential trade restrictions and tariffs (e.g., $185 million potential tariff liability), and difficulty in obtaining new hardware[323][324] - The U.S. political and economic environment, including potential changes by the new presidential administration (e.g., strategic bitcoin reserve, tariffs), could significantly impact business operations and bitcoin prices[325][327][328] - The newly launched bitcoin treasury function exposes the company to unforeseen risks, challenges, and uncertainties, including speculative trading, counterparty default, and potential delays or losses in bitcoin recovery from insolvent counterparties[329][331] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period Item 3: Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period Item 4: Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company Item 5: Other Information This section reports that none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 plans for the purchase or sale of securities during the nine months ended June 30, 2025 - No directors or officers adopted, modified, or terminated Rule 10b5-1 plans for securities transactions during the nine months ended June 30, 2025[337] Item 6: Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, warrant agreements, indenture for convertible notes, capped call confirmations, master loan agreements, and certifications - The exhibits include the company's amended and restated articles of incorporation and bylaws, warrant agreements, indenture for 0.00% Convertible Senior Notes due 2030, and capped call confirmations[339] - Also included are the Master Loan Agreement with Coinbase Credit, Inc. and certifications from the Chief Executive Officer and Chief Financial Officer[339]