3. ACQUISITIONS

12 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

3. ACQUISITIONS

3.    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 price 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 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 (I) $200,000 (no changes post acquisition date) in cash was held back by the Company to satisfy potential damages from indemnification claims and any amounts owed pursuant to post-closing adjustments, (II) an additional $100,000 (no changes post acquisition date) in cash was 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 rom 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

Purchase Price Allocation	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.

In connection with the preparation of our financial statements, the Company determined that the accounting treatment of the contingent consideration as reported in the March 31, 2021 and June 30, 2021 consolidated financial statements needed to be revised.  Specifically, the contingent cash consideration liability recorded at acquisition date of $2,500,000 should be adjusted to $155,000 due to probability of non-satisfaction of future milestones. As a result, the contingent cash consideration liability recorded at acquisition date of $2,500,000 was adjusted to $155,000 due to probability of non-satisfaction of future milestones. The Company also estimated that based upon the milestones, only 19,221 contingent shares will be earned out of the 310,018 total contingent shares, and as a result, the Company adjusted the contingent stock consideration to $533,002. The Company assessed the materiality of these adjustments and determined that these were not material to previously issued financial statements for the quarters ended March 31, 2021 and June 30, 2021.

The immaterial impacts of these adjustments for the quarters ended March 31, 2021 and June 30, 2021 are as follows:

Condensed Consolidated Balance Sheet (unaudited)

	March 31, 2021			June 30, 2021
	As Reported ($)	Change ($)	As Revised ($)	As Reported ($)	Change ($)	As Revised ($)
Goodwill	32,034,559	(10,408,798)	21,625,761	31,797,564	(10,408,798)	21,388,766
Total assets	292,612,596	(10,408,798)	282,203,798	297,488,821	(10,408,798)	287,080,023
Contingent consideration - Current	2,416,667	(1,319,751)	1,096,916	650,000	(855)	649,145
Total current liabilities	7,340,445	(1,319,751)	6,020,694	11,910,017	(855)	11,909,162
Contingent consideration - Non Current	833,333	(833,333)	-	2,600,000	(2,000,000)	600,000
Total Liabilities	8,892,137	(2,153,084)	6,739,053	15,693,207	(2,000,855)	13,692,352
Additional paid-in capital	400,032,436	(8,063,798)	391,968,638	414,783,896	(8,063,798)	406,720,098
Total Stockholders' equity	283,720,459	(8,255,714)	275,464,745	281,795,614	(8,407,943)	273,387,671
Total Liabilities and Stockholders' equity	292,612,596	(10,408,798)	282,203,798	297,488,821	(10,408,798)	287,080,023

Condensed Consolidated Statement of operations (unaudited)

	For the Three Months Ended March 31, 2021			For the Three Months Ended June 30, 2021
	As Reported ($)	Change ($)	As Revised ($)	As Reported ($)	Change ($)	As Revised ($)
Change in fair value of contingent consideration	—	(191,916)	(191,916)	—	(152,229)	(152,229)
Total other income (expense)	9,897,012	(191,916)	9,705,096	(2,058,948)	(152,229)	(2,211,177)
Net Income/(loss)	7,400,040	(191,916)	7,208,124	(16,677,127)	(152,229)	(16,829,356)
Net Income (loss) attributable to the Company’s common shareholders	7,222,535	(191,916)	7,030,619	(16,677,127)	(152,229)	(16,829,356)

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.

The contingent cash consideration was re-measured to $320,802 at September 30, 2021. The company estimates the total contingent cash consideration to be between $320,000 and $550,000 based on the range of possible outcomes. In addition, the Company estimates the total stock consideration to be between $1,100,000 and $1,900,000 based on the range of possible outcomes.

Net sales and net loss of this business included in the Company’s consolidated results of operations in fiscal year 2021 were approximately $3,806,007 and $811,727, respectively.

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.

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	Preliminary Allocation at Acquisition Date		Adjustments to Fair Value	Final Allocation at Acquisition Date
642,309 shares of common stock	$	8,407,826	—	$	8,407,826
975,976 shares of common stock – held in escrow		12,775,525	—		12,775,525
Total Consideration	$	21,183,351	—	$	21,183,351

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 nonsatisfaction of certain indemnification claims 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 claims 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 due to the non-satisfaction of certain indemnification claims, 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 $6.9 million 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 mcarket 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 $5.67 million of digital currency mining equipment and $5.475 million of notes payable related to this equipment, which was settled by the Company during the year ended September 30, 2021. 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 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 believe the level and timing of expected future cash flows appropriately reflects market participant assumptions.

Net sales and net income of this business included in CleanSpark’s consolidated results of operations in fiscal year 2021 were approximately $30,234,683 and $14,449,160, respectively.

P2K LABS, INC.

On January 31, 2020, the Company, entered into an Agreement with p2k, and its sole stockholder, Amer Tadayon (the “Seller”), whereby the Company purchased all of the issued and outstanding shares of p2k in exchange for an aggregate adjusted purchase price of cash and equity of $1,688,935. The transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020.

As a result of the transaction, p2k became a wholly owned subsidiary of the Company. Pursuant to the terms of the Agreement, the purchase price was as follows:

a) $1,039,500 in cash was paid to the Seller;

b) 31,183 restricted shares of the Company’s common stock, valued at $145,000, were issued to the Seller (the “Shares”). The Shares are subject to certain lock-up and leakout provisions whereby the Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”);

c) $115,500 in cash was paid to an independent third-party escrow where such cash is subject to offset for adjustments to the purchase price and indemnification purposes;

d) 64,516 restricted shares of the Company’s common stock, valued at $300,000, were issued to an independent third-party escrow agent (the “Holdback Shares”) and will be released to the Seller upon achievement of certain revenue milestones. During the year ended September 30, 2021, 56,444 restricted shares of the Company’s common stock were released to the Seller and the balance of 8,072 shares of the Company’s common stock were returned and cancelled. The Holdback Shares are subject to the Leak-Out Terms.

The Shares and Holdback Shares were deemed to have a fair market value of $4.65 per share, which was the closing price of the Company’s common stock on January 31, 2020; and

e) 26,950 common stock options that were deemed to have a fair market value of $88,935 on the date of the closing of the transaction.

The Company accounted for the acquisition of p2k as an acquisition of a business under ASC 805 – Business Combinations.

The Company determined the fair value of the consideration given to the Seller in connection with the transaction in accordance with ASC 820 – Fair Value Measurement was as follows:

Cash Consideration ($):
Cash	1,155,000
95,699 shares of common stock	445,000
26,950 common stock options	88,935
Total Consideration	1,688,935

The total purchase price of the Company’s acquisition of p2k was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values as indicated below.

Purchase Price Allocation ($):
Customer list	710,000
Design and other assets	123,000
Goodwill	977,388
Other assets and liabilities assumed, net	(121,453)
Total	1,688,935

Net sales and net loss of this business included in the Company’s consolidated results of operations in fiscal year 2021 were approximately $1,241,641 and $1,201,753, respectively.

GRIDFABRIC, LLC

On August 31, 2020, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with GridFabric, and its sole member, Dupont Hale Holdings, LLC (the “Seller”), whereby the Company purchased all of the issued and outstanding membership units of GridFabric from the Seller (the “Transaction”) in exchange for an aggregate purchase price of cash and stock of up to $1,400,000 (the “Purchase Price”). The Transaction closed simultaneously with execution on August 31, 2020. As a result of the Transaction, GridFabric, became a wholly owned subsidiary of the Company.

Pursuant to the terms of the Agreement, the Purchase Price was as follows:

1. $360,000 in cash was paid to the Seller at closing;

2. $400,000 in cash was delivered to an independent third-party escrow agent where such cash is subject to offset for adjustments to the Purchase Price and indemnification purposes for a period of 12 months;

3. 26,427 restricted shares of the Company’s common stock, valued at $250,000, were issued to the Seller. The shares issued are subject to certain leak-out provisions whereby the Seller may sell an amount of shares equal to no more than ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”); and

4. additional shares of the Company’s common stock, valued at up to $750,000, will be issuable to Seller if GridFabric achieves certain revenue and product release milestones related to the future performance of GridFabric (the “Earn-out Shares”). The Earn-Out Shares are also subject to the Leak-Out Terms.

The Shares were issued at a fair market value of $9.46 per share. The Earn-Out Shares are accounted for as contingent consideration and the number of shares to be issued will be determined based on the closing price of the Company’s common stock on the date such milestone event occurs.

The Agreement contains standard representations, warranties, covenants, indemnification and other terms customary in similar transactions.

In connection with the transaction, the Company also entered into employment relationships and non-compete agreements with GridFabric’s key employees for a period of 36 months and plans to issue future equity compensation to said employees, subject to approval of the Company’s board of directors.

The Company accounted for the acquisition of GridFabric as an acquisition of a business under ASC 805 – Business Combinations.

The Company determined the fair value of the consideration given to the Seller in connection with the Transaction in accordance with ASC 820 – Fair Value Measurement was as follows:

Consideration:	Fair Value ($)
Cash		400,000
26,427 shares of common stock		250,000
Contingent consideration - common stock issuable upon achievement of milestone(s)		750,000
Total Consideration		1,400,000

During the year ended September 30, 2021, the Company reassessed the contingent consideration due to GridFabric to $500,000.

A change in the fair value of the contingent consideration of $250,000 is included in change in fair value of contingent consideration   in Consolidated Statement of Consolidated Operations and Comprehensive Loss.

The total purchase price of the Company’s acquisition of GridFabric was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values as indicated below.

Purchase Price Allocation:
Software	$	1,120,000
Customer list		60,000
Non-compete		190,000
Goodwill		26,395
Net Assets		3,605
Total	$	1,400,000

Net sales and operating loss of this business included in the Company’s consolidated results of operations in fiscal year 2021 were approximately $299,606 and $794,805, respectively.

The following is the unaudited pro forma information assuming the acquisition of GridFabric, p2k Labs, ATL, and SWS occurred on October 1, 2019:

	September 30, 2021		September 30, 2020
Net sales	$	35,581,937	$	25,627,704
Net income (loss)		12,848,264		(47,333,110)
Net profit / (loss) per common share – basic and diluted	$	0.43	$	(4.04)
Weighted average common shares outstanding – basic and diluted	$	29,939,290	$	11,701,937

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 proforma purposes have been eliminated.