CLEANSPARK, INC. 10-K

Item 9A. Controls and Procedures EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In connection with the preparation of this Annual Report on Form 10-K, our management conducted an assessment of the effectiveness of our internal controls over financial reporting as of the end of the period covered by this report (under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)). Based on that assessment, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective due to a material weakness in internal control over financial reporting, as described below. Management’s assessment of the effectiveness of our disclosure controls and procedures is expressed at a level of reasonable assurance because management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our Board and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Under the supervision and participation of our management, including our CEO, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. As part of our assessment of the effectiveness of our internal control over financial reporting as of September 30, 2023, management identified the following material weakness: the Company did not adequately design and maintain effective general information technology controls over third-party information systems and applications that are relevant to the preparation of the Company’s financial statements: • Information and Technology Controls: Certain individual control deficiencies related to information technology (“IT”) general controls and report reviews aggregate into a material weakness, as follows: o Controls were not fully documented responding to all of the Complementary User Entity Controls forwarded through Software as a Service (SaaS) vendor audit reports in the design and implementation of suggested controls. o There were not always appropriate IT controls related to information produced by the entity (IPE), including spreadsheets, that are relevant to the preparation of our consolidated financial statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. This material weakness did not result in any identified material misstatements to the financial statements, and there were no changes to previously released financial results. Based on this material weakness, management concluded that at September 30, 2023, internal control over financial reporting was not effective. Our independent registered public accounting firm, MaloneBailey, LLP, has issued an adverse audit report on the effectiveness of internal control over financial reporting as of September 30, 2023, which appears on page F-2. 44 Following identification of the material weakness and prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the year ended September 30, 2023. Based on these procedures, management believes that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S. GAAP. Our CEO and CFO has certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of CleanSpark as of, and for, the periods presented in this Form 10-K. MaloneBailey, LLP has issued an unqualified opinion on our financial statements, which appears on page F-1. REMEDIATION Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include the following: • establish more specific controls to respond to Complementary User Entity Controls forwarded through SaaS vendor audit reports in the design and implementation of suggested controls; • expand the management and governance over IT system controls; • establish more specific controls to gain additional comfort over the completeness and accuracy of IPE, including data used in spreadsheets used in the preparation of consolidated financial statements; and • implement enhanced process controls around internal user access management including provisioning, removal, and periodic review. We believe that these actions will remediate the material weakness, once management has performed its assessment of our internal controls over financial reporting including the remedial measures described above. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be fully completed prior to the end of fiscal year 2024. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING Except for the material weakness identified during the quarter, as of September 30, 2023, and except for the remedial measures described above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. INHERENT LIMITATIONS ON INTERNAL CONTROLS Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Item 9B. Other Information None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 45 PART III Item 10. Directors, Executive Officers, and Corporate Governance Information required by Item 10 is incorporated by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report. Item 11. Executive Compensation The information required by Item 11 is incorporated by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is incorporated by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is incorporated by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report. Item 14. Principal Accounting Fees and Services The information required by Item 14 is incorporated by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report. 46 PART IV Item 15. Exhibits and Financial Statement Schedules 1. Financial Statements. The consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K beginning on page F-2. 2. Financial Statement Schedules. Schedules are not submitted because they are not applicable or not required under Regulation S-X or because the required information is included in the financial statements or notes thereto. 3. Exhibits required to be filed by Item 601 of Regulation S-K. The information called for by this Item is incorporated by reference from the Index to Exhibits included in this Annual Report on Form 10-K. Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filing Date Filed Herewith 2.1 Agreement and Plan of Merger by and between the Company and Pioneer Critical Power, Inc., dated January 22, 2019 8-K 000-53498 2.1 January 24, 2019 2.2 † Agreement and Plan of Merger, dated as of December 9, 2020, by and among CleanSpark, Inc., ATL Data Centers LLC, CLSK Merger Sub, LLC and the Sellers 8-K 001-39187 2.1 December 10, 2020 2.3† Agreement and Plan of Merger, dated as of February 23, 2021, by and among CleanSpark, Inc., CLSK SWS Merger Sub, Inc., Solar Watt Solutions, Inc., and the Sellers. 8-K 001-39187 10.1 February 24, 2021 3.1 Conformed Copy of First Amended and Restated Articles of Incorporation of CleanSpark, Inc., as amended through March 8, 2023 S-8 333-271178 4.1 April 6, 2023 3.2 First Amended and Restated Bylaws of CleanSpark, Inc., dated September 17, 2021 8-K 001-39187 3.2 September 17, 2021 4.1 Description of Registered Securities X 10.1+ CleanSpark, Inc. 2017 Equity Incentive Plan S-8 333-218831 10.12 June 19, 2017 10.2 Non-Competition and Non-Solicitation Agreement, dated January 22, 2019 8-K 000-53498 10.2 January 24, 2019 10.3 Indemnity Agreement, dated January 22, 2019 8-K 000-53498 10.3 January 24, 2019 10.4 Contract Manufacturing Agreement, dated January 22, 2019 8-K 000-53498 10.4 January 24, 2019 10.5† Memorandum of Understanding, dated as of November 5, 2019 8-K 000-53498 10.1 November 12, 2019 10.6 Securities Purchase Agreement, dated as of November 6, 2019 8-K 000-53498 10.2 November 12, 2019 10.7 Promissory Note, dated as of May 7, 2020 8-K 001-39187 10.1 May 20, 2020 10.8+ First Amendment to CleanSpark, Inc. 2017 Equity Incentive Plan, dated as of October 7, 2020 DEF 14C 000-53498 Appendix B July 28, 2020 10.9+ Employment Agreement, entered into by and between CleanSpark, Inc. and Zachary K. Bradford, dated October 26, 2020 8-K 001-39187 10.1 October 28, 2020 10.10+ Employment Agreement, entered into by and between CleanSpark, Inc. and S. Matthew Schultz, dated October 26, 2020 8-K 001-39187 10.5 October 28, 2020 47 10.11 Non-Fixed Price Sales and Purchase Agreement between CleanSpark, Inc. and Bitmain Technologies Limited, dated April 14, 2021 10-Q 001-39187 10.1 May 6, 2021 10.12 Form of Hardware Purchase & Sales Agreement 10-Q 001-39187 10.2 May 6, 2021 10.13 Form of Future Sales Agreement 10-Q 001-39187 10.3 May 6, 2021 10.14 Form of Agreement for Sale of Equipment 10-Q 001-39187 10.4 May 6, 2021 10.15+ Amendment to Employment Agreement by and between CleanSpark, Inc. and Zachary K. Bradford, dated April 16, 2021 10-Q 001-39187 10.5 May 6, 2021 10.16+ Amendment to Employment Agreement by and between CleanSpark, Inc. and S. Matthew Schultz, dated April 16, 2021 10-Q 001-39187 10.7 May 6, 2021 10.17 At the Market Offering Agreement, dated June 3, 2021, between CleanSpark, Inc. and H.C. Wainwright & Co., LLC 8-K 001-39187 10.1 June 3, 2021 10.18† Coinmint Collection Mining Services Agreement, by and between CleanBlok, Inc. and Coinmint, LLC date July 8, 2021 10-Q 001-39187 10.11 August 16, 2021 10.19+ Second Amendment to CleanSpark, Inc. 2017 Incentive Plan, dated September 17, 2021 8-K 001-39187 10.1 September 17, 2021 10.20† Electrical Services Agreement between CleanBlok, Inc. and Georgia Power Company, dated October 1, 2021 10-K 001-39187 10.40 December 14, 2021 10.21 Form of Future Sales and Purchase Agreement 10-K 001-39187 10.41 December 14, 2021 10.22 Lease Agreement, by and between CleanSpark, Inc. and ANC Corporate Center & Paseo Verde, LLC, dated August 26, 2021 10-K 001-39187 10.42 December 14, 2021 10.23 Employment Agreement with Chief Financial Officer dated December 15, 2021 10-Q 001-39187 10.3 February 9, 2022 10.24 Master Equipment Financing Agreement by and between CleanSpark, Inc. and Trinity Capital Inc. dated as of April 22, 2022 8-K 001-39187 10.1 April 26, 2022 10.25 Form of Equipment Financing Schedule by and between CleanSpark, Inc. and Trinity Capital Inc. 8-K 001-39187 10.2 April 26, 2022 10.26 Hosting Agreement by and between CleanSpark, Inc. and Lancium LLC, dated as of March 29, 2022 10-Q 001-39187 10.3 May 10, 2022 10.27 Purchase and Sale Agreement by and between CSRE Properties Washington, LLC, SPRE Commercial Group, Inc. F/K/A, WAHA, Inc. and WAHA Technologies, Inc., dated as of August 5, 2022 10-Q 001-39187 10.3 August 10, 2022 10.28 Equipment Purchase and Sale Agreement by and between CleanSpark DW, LLC and WAHA Technologies, Inc., dated as of August 5, 2022 10-Q 001-39187 10.4 August 10, 2022 10.29 First Amendment to Purchase and Sale Agreement by and between CSRE Properties Washington, LLC and SPRE Commercial Group, Inc. f/k/a WAHA, Inc., dated as of August 17, 2022 8-K 001-39187 10.1 August 23, 2022 10.30 Sales and Purchase Agreement entered into by and between the CleanSpark, Inc. 8-K 001-39187 10.1 September 7, 2022 48 and Crypt Solutions, Inc. on September 1, 2022 10.31 Purchase and Sale Agreement, dated as of September 8, 2022, by and among CSRE Properties Sandersville, LLC, Luna Squares LLC, Mawson Infrastructure Group, Inc. and the Company 8-K 001-39187 10.1† September 9, 2022 10.32 Equipment Purchase and Sale Agreement, dated as of September 8, 2022, by and among CleanSpark GLP, LLC, Cosmos Infrastructure, LLC and Mawson Infrastructure Group, Inc. 8-K 001-39187 10.2† September 9, 2022 10.33+ Form of Restricted Stock Unit Award Agreement 8-K 001-39187 10.4 September 14, 2022 10.34+ Form of Performance-Based Stock Unit Award Agreement 8-K 001-39187 10.5 September 14, 2022 10.35+ Amendment to Employment Agreement, dated September 13, 2022, by and between CleanSpark, Inc. and Zachary K. Bradford. 8-K 001-39187 10.1 September 14, 2022 10.36+ Amendment to Employment Agreement, dated September 13, 2022, by and between CleanSpark, Inc. and S. Matthew Schultz. 8-K 10.2 September 14, 2022 10.37+ Amendment to Employment Agreement, dated September 13, 2022, by and between CleanSpark, Inc. and Gary Vecchiarelli. 8-K 001-39187 10.3 September 14, 2022 10.38 First Amendment to Purchase and Sale Agreement, dated as of October 3, 2022, by and among CSRE Properties Sandersville, LLC, Luna Squares LLC, Mawson Infrastructure Group, Inc. and the Company. 8-K 001-39187 10.3 October 11, 2022 10.39 Secured Promissory Note of CSRE Properties Sandersville, LLC dated October 5, 2022. 8-K 001-39187 10.4 October 11, 2022 10.40 Amendment No. 1 to the At the Market Offering Agreement, dated December 14, 2022, between CleanSpark, Inc. and H.C. Wainwright & Co., LLC 8-K 001-39187 10.1 December 14, 2022 10.41 Sales and Purchase Agreement entered into by and between CleanSpark, Inc. and Crypt Solutions, Inc. on February 15, 2023 8-K 001-39187 10.1 February 16, 2023 10.42+ Amendment to 2017 Incentive Plan, dated March 8, 2023 8-K 001-39187 10.1 March 9, 2023 10.43 Future Sales and Purchase Agreement entered into by and between CleanSpark, Inc. and Bitmain Technologies Delaware Limited on April 6, 2023 8-K 001-39187 10.1 April 11, 2023 10.44 Future Sales and Purchase Agreement entered into by and between CleanSpark, Inc. and Bitmain Technologies Delaware Limited on May 26, 2023 8-K 001-39187 10.1 June 1, 2023 10.45 Membership Interest Purchase Agreement, dated June 16, 2023, by and among Coinmaker Miners LLC, CleanSpark, Inc., Coinmaker Miners Limited and Makerstar Capital, Inc. 8-K 001-39187 10.1 June 21, 2023 49 10.46 Future Sales and Purchase Agreement entered into by and between CleanSpark, Inc. and BITMAIN TECHNOLOGIES DELAWARE LIMITED on October 6, 2023 8-K 001-39187 10.1 October 11, 2023 10.47+ Amendment, dated October 24, 2023, to Employment Agreement, by and between CleanSpark, Inc. and Zachary K. Bradford 8-K 001-39187 10.1 October 27, 2023 10.48+ Amendment, dated October 24, 2023, to Employment Agreement, by and between CleanSpark, Inc. and S. Matthew Schultz 8-K 001-39187 10.2 October 27, 2023 10.49+ Amendment, dated October 24, 2023, to Employment Agreement, by and between CleanSpark, Inc. and Gary Vecchiarelli 8-K 001-39187 10.3 October 27, 2023 21.1 List of Subsidiaries X 23.1 Consent of Malone Bailey, LLP X 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 97.1 CleanSpark, Inc. Executive Officer Incentive Compensation Recoupment (Clawback) Policy X 101 INS* Inline XBLR Instance Document 101 SCH* Inline XBLR Taxonomy Extension Schema Document 101 CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101 LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101 PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101 DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments) * These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. ** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. + Indicates management contract or compensatory plan. 50 † Portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K. 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CLEANSPARK, INC. By: /s/ Zachary K.Bradford Zachary K. Bradford Chief Executive Officer, Principal Executive Officer and Director December 1, 2023 By: /s/ Gary A. Vecchiarelli Gary A. Vecchiarelli Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer December 1, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: By: /s/ Zachary Bradford Zachary Bradford Chief Executive Officer, Principal Executive Officer and Director December 1, 2023 By: /s/ Gary A. Vecchiarelli Gary A. Vecchiarelli Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer December 1, 2023 By: /s/ S. Matthew Schultz S. Matthew Schultz Executive Chairman and Chairman of the Board December 1, 2023 By: / s/ Larry McNeill Larry McNeill Director December 1, 2023 By: /s/ Roger Beynon Roger Beynon Director December 1, 2023 By: /s/ Dr. Thomas Wood Dr. Thomas Wood Director December 1, 2023 By: / s/ Amanda Cavaleri Amanda Cavaleri Director December 1, 2023 52