BUSINESS ACQUISITION

6 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Business Acquisition

4.     BUSINESS ACQUISITION

On July 1, 2016, the Company entered into the Purchase Agreement with Seller. Pursuant to the Purchase Agreement, the Company acquired all the assets related to Seller and its line of business and assumed certain liabilities.

The Assets the Company purchased from Seller include:

• Equipment and other tangible assets;

• Domain names, websites and intellectual property;

• All rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by the Seller;

• Contracts to which Seller is bound;

• Current and future customer accounts, including accounts receivable;

• The holdings that CleanSpark Holdings LLC has in CleanSpark LLC, and any investments it has as well; and

• Any other assets of any nature whatsoever that are related to or used in connection with the business of Seller and its goodwill.

On July 20, 2016, the parties to the Purchase Agreement entered into an amendment (the “Amendment”) that revised the assets to be acquired under the Purchase Agreement. Specifically, the parties decided on the following:

• Specialized Energy Solutions, Inc. would transfer and assign the ability to use its name and all of its Intellectual Property to CleanSpark II, LLC, and thereafter Specialized Energy Solutions, Inc. will not be included in the Assets acquired; and

• Clean Spark Technologies, LLC agrees to transfer and assign all of its Intellectual Property to CleanSpark II, LLC, and thereafter Clean Spark Technologies, LLC will not be included in the Assets acquired.

The Amendment also included an option to acquire Specialized Energy Solutions, Inc. and Clean Spark Technologies, LLC, which the parties agreed upon as follows:

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Specialized Energy Solutions, Inc. for 1,000 shares of CleanSpark Inc. Common Stock; and

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Clean Spark Technologies, LLC for 1,000 shares of CleanSpark Inc. Common Stock.

On August 19, 2016, the parties to the Purchase Agreement entered into a second amendment that revised the Closing Date of the transaction.

The Assumed Liabilities, consisted of certain accounts payable amounting to approximately $262,873 arising out of the Assets. Per the agreement the liabilities were to be limited to $200,000 therefore $62,873 must be reimbursed by CleanSpark Holdings, LLC. Subsequently the balance due was fully settled. See Note 9 for additional details.

As consideration, the Company issued to Seller six million (6,000,000) shares of common stock with a fair value of $18,420,000 and five-year warrants to purchase four million five hundred thousand (4,500,000) shares of common stock at an exercise price of $1.50 per share. The warrants were valued at $13,675,500 using the Black Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 1.0%, a dividend yield of 0% and volatility rate of 218%. The warrants were fully earned and vested on July 1, 2016. 

Simultaneously with the Purchase Agreement, the Company entered into certain ancillary agreements (the “Ancillary Agreements”) with Seller, consisting of a bill of sale, intellectual property assignment and lock-up agreement. The lock-up agreement prevents Seller from selling the Company’s securities in the public market for a year.

The Purchase Agreement contained customary representations, warranties and covenants. In addition, the Company and Seller agreed to appoint one (1) candidate chosen by Seller to the board of directors of the Company. As a result, Bryan Huber was appointed as a member of the board of directors. The term of the appointment of shall be in accordance with the Company’s bylaws.

CleanSpark provides microgrid, design, engineering, installation and consulting services to military, commercial and residential customers. The acquisition is designed to enhance the Company’s services for renewable technology and provide a pipeline for deployment of its gasification technology. As a result of the Purchase Agreement, CleanSpark, LLC became a wholly-owned subsidiary of the Company.

The acquisition was accounted for under ASC 805 and the transaction was valued for accounting purposes at $32,095,500, which was the fair value of the Assets acquired at time of acquisition. The assets and liabilities of the Seller were recorded at their respective fair values as of the date of acquisition. Since the Company determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following:

Shares of Common Stock	$	18,420,000
Stock warrants		13,675,500
Total purchase price	$	32,095,500
Tangible assets acquired	$	4,911,367
Liabilities assumed		(262,573)
Net tangible assets		4,648,794
Intangible assets acquired		22,526,847
Goodwill		4,919,859
Total purchase price	$	32,095,500

Key factors that make up the goodwill created by the transaction include knowledge and experience of the acquired team and infrastructure.

Pro forma results

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of Seller had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

	Three Months ended,		Six Months ended,
	March 31, 2016		March 31, 2016
Total revenues	$	25,148	$	1,888,875
Net Income (loss)		(1,710,257)		(2,667,416)
Basic net income (loss) per common share	$	(0.06)	$	(0.10)