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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Jun. 30, 2024
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the SEC on December 1, 2023 (the “Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented in this Quarterly Report on Form 10-Q have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. Unless otherwise noted, all amounts in these footnotes are in thousands. The accompanying unaudited condensed consolidated financial statements include the accounts of CleanSpark, Inc., and the Company’s wholly owned subsidiaries, ATL Data Centers LLC (“ATL”), CleanBlok, Inc., CleanSpark DW, LLC, CleanSpark GLP, LLC, CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC, CSRE Properties, LLC, CSRE Properties Washington, LLC, CSRE Properties Sandersville, LLC, CSRE Properties Dalton, LLC, Dalton15, LLC, CleanSpark MS, LLC, CSRE Properties Mississippi, LLC, CSRE Properties Vicksburg, LLC, CSRE Properties Wyoming, LLC, Tron Merger Sub, Inc., MS Data, LLC, and CleanSpark HQ, LLC. All intercompany transactions have been eliminated upon consolidation of these entities. The Company has a sole reporting segment which is the bitcoin mining segment. Recently Issued Accounting Pronouncements On March 21, 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") No. 2024-01, Scope Application of Profits Interest and Similar Awards ("ASU 2024-01"), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of Accounting Standards Codification ("ASC") 718 - Compensation - Stock Compensation or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or nonemployees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The Company is currently evaluating the impact of the adoption of ASU 2024-01 on its consolidated financial statements. In December 2023, the FASB issued Accounting Standards Update No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASC 350-60”). ASC 350-60 requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income (loss) in each reporting period. Crypto assets that meet all the following criteria are within the scope of ASC 350-60: (1) meet the definition of intangible assets as defined in the Codification; (2) do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets; (3) are created or reside on a distributed ledger based on blockchain or similar technology; (4) are secured through cryptography; (5) are fungible; and (6) are not created or issued by the reporting entity or its related parties. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. Bitcoin, which is the sole crypto asset mined by the Company, meets each of these criteria. For all entities, the ASC 350-60 amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted for both interim and annual consolidated financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt the new guidance effective October 1, 2023 resulting in a $4,183 cumulative-effect change to adjust the Company's bitcoin held on October 1, 2023 with the corresponding entry to accumulated deficit as of October 1, 2023. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which established a new income tax disclosure requirement in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. Companies must also further disaggregate income taxes paid. Companies are required to apply the guidance to annual periods beginning after December 15, 2024. The Company does not intend to early adopt this standard. The Company is currently evaluating the impact of the adoption of ASU 2023-09 on its consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Improvements to Disclosures About Reportable Segments (“ASU 2023-07”), which requires enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The new guidance is effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The Company adopted the provisions of the accounting pronouncement as of October 1, 2023 and t he new standard did not have a material impact on the Company's consolidated financial statements. Liquidity The Company had cash and cash equivalents, including restricted cash, of $129,164 and bitcoin (measured at fair value) of $413,033 as of June 30, 2024. As shown in the accompanying unaudited condensed consolidated financial statements, the Company generated a net income from continuing operations of $83,598 during the nine months ended June 30, 2024. The Company had cash outflows from operating activities from continuing operations, which were $150,539 during the nine months ended June 30, 2024. The Company had cash outflows from investing activities from continuing operations due to its investments in capital expenditures in support of its bitcoin mining operations partially offset by proceeds of bitcoin sales. The Company generated significant cash inflows from financing activities from continuing operations, primarily attributed to proceeds from equity offerings. The Company generates non-cash consideration in the form of bitcoin, that the Company will sell to generate cash to funds its operations. During the nine months ended June 30, 2024, the Company sold $42,803 of bitcoin at various times during the period and utilized the proceeds to pay expenditures. However, the Company utilized portions of its equity offerings to offset its cash used in operating and investing activities. The Company believes it has sufficient cash and bitcoin to support its ongoing operations for the next twelve months. The Company intends to continue generating cash from its access to equity financing through its at-the-market (“ATM") offering facility (see Note 13 - Stockholders' Equity). There can be no assurance that we will be able to sell any additional shares of our common stock under the ATM offering facility and no assurance regarding the price at which we will be able to sell such shares, and any sales of our common stock under the ATM offering facility may be at prices that result in additional dilution to our existing stockholders. Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation of derivative assets, available-for-sale investments, share-based awards and tangible assets acquired in asset acquisitions. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that the ongoing global supply chain issues may have on the Company’s operations. Revenue from Contracts with Customers - Revenue from Bitcoin Mining The Company participates in a third-party operated mining pool. As a participant in the third-party operated mining pool, the Company provides a service to perform hash calculations to the third-party operated mining pool, which is an output of our ordinary activities. The Company recognizes revenue in accordance with ASC Topic 606 – Revenue from Contracts with Customers (ASC 606). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: 1. Identify the contract with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when the company satisfies a performance obligation Step 1: The Company has identified the third-party mining pool operator as its customer (the "Customer"). The Company enters into a contract with the Customer to provide its hash calculations to the Customer's mining pool. The contracts are terminable without penalty at any time by either party, and thus the contract term is shorter than a 24-hour period and the contracts are continuously renewed. Applying the criteria per ASC 606-10-25-1, the contract arises at the point that the Company provides hash calculations to the Customer's mining pool, which is considered contract inception, because Customer consumption is in tandem with delivery of the hash calculations. Step 2: In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: • The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct); and • t he entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract). Based on these criteria, the Company has identified a single performance obligation of providing hash calculations for the mining pool operator. The continuous renewal options do not represent material rights because they do not provide the Customer with the right to purchase additional goods or services at a discount. Specifically, the contract is renewed at the same terms, conditions, and rate as the current contract which is consistent with market rates, and there are no up front or incremental fees in the initial contract. The Company has full control of the mining equipment used in the mining pool, and if the Company determines if it will increase or decrease the hashrate calculations of its machines and/or fleet (i.e., for repairs or when power costs are excessive), thus increasing or reducing the hashrate provided to the Customer. Step 3: The Company receives non-cash consideration in the form of bitcoin, fair value of which the Company measures at 23:59:59 UTC on the date of contract inception using the Company's principal market for bitcoin. The contract renews continuously throughout the day, and thus the value of the consideration should be assessed continuously throughout the day, and the Company has concluded to use the 23:59:59 UTC bitcoin price each day. According to the Customer contract, daily settlements are made to the Company by the Customer based on the hash calculations provided over contract periods and the payout is made the following day. There are no other forms of variable considerations, such as discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items. The Company earns non-cash consideration based on the Full-Pay-Per-Share (“FPPS”) payout method set forth by the Customer in the form of bitcoin. The amount of bitcoin the Company is entitled to for providing hash calculations to the Customer's mining pool under the FPPS payout method is made up of block rewards and transaction fees less mining pool fees determined as follows: • The non-cash consideration calculated as a block reward over the continuously renewed contract periods is based on the total blocks expected to be generated on the Bitcoin Network for the daily 24-hour period beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: the hash calculations that the Company provides to the Customer as a percent of the Bitcoin Network’s implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin Network block rewards expected to be generated for the same period. • The non-cash consideration calculated as transaction fees paid by transaction requestors is based on the share of total actual fees paid over the continuously renewed contract periods beginning midnight UTC and ending 23:59:59 UTC in accordance with the following formula: total actual transaction fees generated on the Bitcoin Network during the contract period as a percent of total block rewards the Bitcoin Network actually generated during the same period, multiplied by the block rewards we earned for the same period noted above. • The sum of the block reward and transaction fees earned by the Company is reduced by mining pool fees charged by the Customer for operating the mining pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent we perform hash calculations and generate revenue in accordance with the Customer’s payout formula during the continuously renewed contract periods beginning mid-night UTC and ending 23:59:59 UTC daily. The Customer provides services solely for bitcoin mining and the fees charged during the most recent quarter were 0.16% of the total daily bitcoin mined. This amount represents consideration paid to the Customer and is thus reported as a reduction in revenue as the Company does not receive a distinct good or service from the mining pool operator in exchange. Step 4: There is a single performance obligation (i.e., hash calculations or hashrate) for the contract; therefore, all consideration from the Customer is allocated to this single performance obligation. Step 5: The Company’s performance is completed over time as the Customer obtains control of the contributed hashrate. The performance obligation of hash calculations is fulfilled over time, as opposed to a point in time, because the Company provides the hash calculations throughout the contract period and the customer simultaneously obtains control of the service and uses it to produce bitcoin. There are no deferred revenues or other liability obligations recorded by the Company since there are no payments in advance of the performance, and there are no remaining performance obligations after providing hash calculations. Revenues from Data Center Services Effective as of September 30, 2023, data center services are no longer provided to external customers. The Company formerly provided data services, such as providing its customers with rack space, power and equipment, and cloud services, such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts. The performance obligations were the services provided to a customer for the month based on the contract. The transaction price was the price agreed with the customer for the monthly services provided and the revenues are recognized monthly based on the services rendered for the month. Cost of revenues Bitcoin mining segment The Company includes energy costs and external co-location mining hosting fees in cost of revenues. Cash and cash equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. Temporary cash investments are made with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits. Restricted cash The Company considers cash to be restricted when held in a separate bank account and withdrawal and general use is restricted legally or to restrict a portion cash as collateral for insurance carriers. The Company had restricted cash of $3,023 as of June 30, 2024 held in a separate bank account in a certificate of deposit. Amounts included in restricted cash represent those required to be set aside by contractual agreements with insurance carriers in relation to utility bonds for various utility companies. Accounts receivable, net Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. They are initially recorded at the invoiced amount upon the sale of goods or services to customers and do not bear interest. The Company performs ongoing credit evaluation of its customers, and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable, net consists of the following and is included in the condensed consolidated balance sheets as Prepaid and other currents assets:
($ in thousands) |  | June 30, 2024 |  |  | September 30, 2023 |
Accounts Receivable, gross |  | $ | — |  |  | $ | 353 |
Provision for doubtful allowances |  |  | — |  |  |  | (348 | )
Total Accounts Receivable, net |  | $ | — |  |  | $ | 5 |
Inventory Inventory balances mainly include supplies inventory used to maintain bitcoin mining facilities and are presented at net realizable value with cost being measured on an average cost method. The Company periodically reviews inventories for unusable and obsolete items. Based on this evaluation, provisions are made to write inventories down to their net realizable value. Inventory was $1,538 and $809 as of June 30, 2024 and September 30, 2023, respectively and is included in the condensed consolidated balance sheets as Prepaid and other currents assets. Prepaid expense and other current assets The Company records a prepaid expense for costs paid in advance of the benefit received. Those expected to be incurred within one year are recognized and shown as a short-term prepaid expense. Any costs not expected to be incurred within one year of the balance sheet date would be considered other long-term assets. The Company had prepaid expenses of $3,031 and $2,434 as of June 30, 2024 and September 30, 2023, respectively. Other current assets are assets that consist of supplies, deposits and interest receivable. Deposits and interest we expect to receive within one year are shown as short-term. Those we do not expect to receive within one year of the balance sheet date are shown as other long-term assets. Concentration Risk At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. The cash balance in excess of the FDIC limits was $2,871 and $28,965 as of June 30, 2024 and September 30, 2023, respectively. The accounts offered by the custodian of the Company’s bitcoin, which accounts totaled $413,033 and $56,241 as of June 30, 2024 and September 30, 2023, respectively, are not insured by the FDIC. The Company has not experienced any losses in such accounts. The Company has certain customers and vendors who individually represented 10% or more of the Company’s revenue or capital expenditures. Please refer to Note 17 - Major Customers and Vendors. Stock-based compensation The Company follows the guidelines in FASB Codification Topic ASC 718-10 Compensation-Stock Compensation, which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense for stock options is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services. The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model. For equity awards granted by the Company that are contingent upon market-based conditions, the Company fair values these awards using the Monte Carlo simulation model. For discussion of accounting for restricted stock units, please refer Note 15 – Stock-Based Compensation. Earnings (loss) per share The Company reports earnings (loss) per share in accordance with FASB ASC 260-10 Earnings Per Share, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net (loss) income per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. The following table presents potentially dilutive securities that were not included in the computation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.
|  | Three months ended June 30, |  |  | Nine months ended June 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Restricted stock awards |  |  | 1,028,749 |  |  |  | 763,190 |  |  |  | 1,707,026 |  |  |  | - |
Options |  |  | 339,282 |  |  |  | 9,397 |  |  |  | 158,124 |  |  |  | 2,289 |
Warrants |  |  | 13,767 |  |  |  | 729 |  |  |  | 12,376 |  |  |  | - |
Contingently Issued Earn-out Shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 387,126 |
Total |  |  | 1,381,798 |  |  |  | 773,316 |  |  |  | 1,877,526 |  |  |  | 389,415 |
Provided below is the loss per share calculation for the three and nine months ended June 30, 2024 and 2023:
|  | For the Three Months Ended June 30, |  |  | For the Nine Months Ended June 30, |
($ in thousands, except share and per share amounts) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Continuing Operations |  |  |  |  |  |  |  |  |  |  |  |
Numerator |  |  |  |  |  |  |  |  |  |  |  |
(Loss) income from continuing operations |  | $ | (236,242 | ) |  | $ | (14,117 | ) |  | $ | (83,598 | ) |  | $ | (62,771 | )
Preferred stock dividends |  |  | — |  |  |  | — |  |  |  | 3,421 |  |  |  | — |
(Loss) income from continuing operations attributable to common shareholders |  | $ | (236,242 | ) |  | $ | (14,117 | ) |  | $ | (87,019 | ) |  | $ | (62,771 | )
Denominator |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average common shares outstanding, basic |  |  | 228,642,939 |  |  |  | 114,844,402 |  |  |  | 205,482,062 |  |  |  | 87,248,719 |
Dilutive impact of stock options and other share-based awards |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 389,415 |
Weighted-average common shares outstanding, diluted |  |  | 228,642,939 |  |  |  | 114,844,402 |  |  |  | 205,482,062 |  |  |  | 87,638,134 |
(Loss) income from continuing operations per common share attributable to common shareholders |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (1.03 | ) |  | $ | (0.12 | ) |  | $ | (0.42 | ) |  | $ | (0.72 | )
Diluted |  | $ | (1.03 | ) |  | $ | (0.12 | ) |  | $ | (0.42 | ) |  | $ | (0.72 | )
Discontinued Operations |  |  |  |  |  |  |  |  |  |  |  |
Numerator |  |  |  |  |  |  |  |  |  |  |  |
(Loss) income from discontinued operations |  | $ | — |  |  | $ | (102 | ) |  | $ | — |  |  | $ | 1,061 |
Denominator |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average common shares outstanding, basic |  |  | 228,642,939 |  |  |  | 114,844,402 |  |  |  | 205,482,062 |  |  |  | 87,248,719 |
Dilutive impact of stock options and other share-based awards |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 389,415 |
Weighted-average common shares outstanding, diluted |  |  | 228,642,939 |  |  |  | 114,844,402 |  |  |  | 205,482,062 |  |  |  | 87,638,134 |
Income on discontinued operations per common share attributable to common shareholders |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.01 |
Diluted |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.01 |
Property and equipment Property and equipment are stated at cost less accumulated depreciation. Construction-in-progress is the construction or development of assets that have not yet been placed in service for their intended use. Depreciation for building and building improvements, leasehold improvements, miners, mining equipment, infrastructure assets, machinery and equipment, and furniture and fixtures commences once they are ready for their intended use. Leasehold improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases. Estimates of useful lives, residual values and methods of depreciation are periodically reviewed and revised to recognize changes in conditions. Any changes based on additional available information are accounted for prospectively as a change in accounting estimate. Land is not depreciated. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
|  | Useful life (years)
Land improvements |  | 5 - 15
Building and building improvements |  | Shorter of lease term or 30 years
Leasehold improvements | ﻿ | Shorter of lease term or 15 years
Miners |  | 3 (1)
Mining equipment |  | 3 - 15
Infrastructure asset |  | Shorter of lease term or 15 years
Machinery and equipment |  | 3 - 10
Furniture and fixtures |  | 1 - 5
(1) Effective May 1, 2024, the Company reduced the useful life for miners from five years to three years |  |
In accordance with FASB ASC 360-10, Property, Plant and Equipment, the carrying value of property and equipment and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three and nine months ended June 30, 2024 the Company recorded an impairment expense of $189,235 on certain miners (see Note 8 - Property and Equipment). Bitcoin Bitcoin are included in current assets in the Consolidated Balance Sheets due to the Company’s ability to sell bitcoin in a highly liquid marketplace, and such bitcoin holdings are expected to be realized in cash or sold or consumed during the normal operating cycle of the Company. As a result of adopting ASC 350-60 on October 1, 2023, bitcoin is measured at fair value as of each reporting period (see Recently Issued Accounting Pronouncements). The fair value of bitcoin is measured using the period-end closing bitcoin price from its principal market, Coinbase, in accordance with ASC 820, Fair Value Measurement ("ASC 820"). Since bitcoin is traded on a 24-hour period, the Company utilizes the price as of 23:59:59 UTC, which aligns with the Company's revenue recognition cut-off. The changes in bitcoin valuation due to remeasurement in fair value within each reporting period are reflected on the Condensed Consolidated Statements of Operations and Comprehensive Loss as "Gain (loss) on fair value of bitcoin, net". In accordance with ASC 350-60, the Company discloses realized gains and losses from the sale of bitcoin and such gains and losses are measured as the difference between the cash proceeds and the cost basis of bitcoin as determined on a First In-First Out ("FIFO") basis. Prior to the issuance of ASU 2023-08 and adoption of ASC 350-60, bitcoin was recorded at cost less impairment and was classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other, ("ASC - 350"). Bitcoin was accounted for in connection with the Company’s revenue recognition policy detailed above. An intangible asset with an indefinite useful life was not amortized but was assessed for impairment annually, or more frequently, when events or changes in circumstances occurred indicating that it was more likely than not that the indefinite-lived asset was impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment for periods under the prior accounting guidance, the Company had the option to first perform a qualitative assessment to determine whether it was more likely than not that an impairment exists. If it was determined that it was not more likely than not that an impairment exists, a quantitative impairment test was not necessary. If the Company concluded otherwise, it was required to perform a quantitative impairment test. The Company elected to perform the quantitative impairment test each period rather than first performing the qualitative assessment. Quantitative impairment was measured using the intraday low bitcoin price from its principal market for bitcoin in accordance with ASC 820. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses was not permitted as per ASC 350. Bitcoin, which is non-cash consideration earned by the Company through its mining activities, are included as a reconciling item as a cash outflow within operating activities on the accompanying Condensed Consolidated Statements of Cash Flow. The cash proceeds from the sales of bitcoin are classified based on the holding period in which the bitcoin is held. ASC 350-60 provides guidance on classifying proceeds from bitcoin and concludes that bitcoin converted nearly immediately into cash would qualify as cash flows from operating activities. All other sales would qualify as investing activities. The Company did not hold its bitcoin for extended periods of time, and such sales proceeds prior to the adoption of ASC 350-60 were reported as cash flows from operating activities. Upon adoption of ASC 350-60, the Company evaluates its sales of bitcoin and records bitcoin sold nearly immediately as operating cash flows and the remainder will be recorded as investing activities. During the nine months ended June 30, 2024, all proceeds from bitcoin sales were classified as investing activities. Fair Value Measurement of Financial Instruments, Derivative Asset and Contingent Consideration Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable: Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments. Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available under the circumstances. The carrying value of cash, accounts payable, accrued expenses and short-term portion of loan payable are level 1 and approximate their fair values because of the short-term nature of the instruments. The carrying amount of the Company's long-term portion of loan payable is also stated at fair value since the stated rate of interest approximates market rates available to the Company for a similar duration. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2024 and September 30, 2023:
June 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Bitcoin |  | $ | 413,033 |  |  | $ | 413,033 |  |  | $ | — |  |  | $ | — |
Derivative investment asset |  |  | 1,692 |  |  |  | — |  |  |  | — |  |  |  | 1,692 |
Investment in debt security |  |  | 812 |  |  |  | — |  |  |  | — |  |  |  | 812 |
Total |  | $ | 415,537 |  |  | $ | 413,033 |  |  | $ | — |  |  | $ | 2,504 |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
($ in thousands) |  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Derivative investment asset |  | $ | 2,697 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,697 |
Investment in debt security |  |  | 726 |  |  |  | — |  |  |  | — |  |  |  | 726 |
Total |  | $ | 3,423 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,423 |
There were no transfers between Level 1, 2 or 3 during the nine months ended June 30, 2024. The activities of the financial instruments that were measured and recorded at fair value on the Company's balance sheets on a recurring basis during the nine months ended June 30, 2024 are described in Note 7 - Investments. Discontinued Operations The Company deemed its energy operations to be discontinued operations due to its strategic decision to strictly focus on its bitcoin mining operations and divest of the majority of its energy assets. Through its discontinued operations segment, the Company previously provided energy solutions through its wholly-owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consisted of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response, solar, energy storage for microgrid and distributed energy systems. The Company has sold the majority of its assets related to the Energy Segment, which included software and intellectual property, and inventory. Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation.

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