What changed in this filing

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Item 9A. Controls and Procedures

2024-12-03 compared with 2023-12-01 · 159 added, 54 removed, 195 unchanged (52% of the section changed)

1 unchanged sentence

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.

In connection with the preparation of this Annual Report on Form 10-K, our management conducted an assessment of the effectiveness of the design and operation of our disclosure controls and procedures 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, as of September 30, 2024, 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 material weaknesses in internal control over financial reporting, as described below.

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.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act 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;

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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.

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.

Under the supervision and participation of our management, including our CEO and CFO, 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, 2024, management identified the following material weaknesses:

• The Company did not design and maintain effective information systems general controls over program change management, logical access and segregation of duties for our general ledger.

Specifically, we did not maintain documentation to support the operation of our controls over change management for the Company’s general ledger, and the assignment or permissions to users which allowed certain users to create new users and assign those users existing predefined roles in the general ledger, which could result in an override of existing internal controls over financial reporting.

The existence of this material weakness affected the design of internal controls related to various assertions in certain financial statement line items such that internal controls were not effective for cash and cash equivalents, bitcoin, receivable from bitcoin collateral, note receivable from GRIID, property and equipment, deposits on miners, accounts payable, accrued liabilities, loans payable, deferred income taxes, stockholders' equity, bitcoin mining revenue, cost and expenses, share-based payments, and income tax expense.

• The Company did not design and maintain effective controls to address the accounting for property plant and equipment, and deposits on miners.

• The Company did not design and maintain effective controls over payroll, including controls over the use of information from its third-party payroll service provider, maintaining appropriate segregation of duties and processing of payroll.

• The Company did not design and maintain effective controls to safeguard cash that could result in the issuance of cashier's checks without any independent oversight.

These material weaknesses did not result in any identified material misstatements to the financial statements, and there were no changes to previously released financial results.

Based on these material weaknesses, management concluded that at September 30, 2024, internal control over financial reporting was not effective.

Our independent registered public accounting firm, BDO USA, P.C., has issued an adverse audit report on the effectiveness of internal control over financial reporting as of September 30, 2024, which appears on page F-2.

Following identification of the material weaknesses and prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the year ended September 30, 2024.

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.

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.

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.

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 the Company as of, and for, the periods presented in this Form 10-K.

MANAGEMENT’S PLAN FOR REMEDIATION

The Company’s Board of Directors and management take internal control over financial reporting and the integrity of its consolidated financial statements seriously.

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses 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;

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.

Material weakness over design of information systems general controls

The planned remediation actions include the following:

• Removed users’ access within the general ledger system that allowed a user to create users and also perform accounting transactions;

• Implemented quarterly reviews of user access logs by individuals who do not perform accounting transactions in the general ledger;

• Redesigned and implemented relevant complementary user entity controls identified in third-party service organization system organization and control reports;

• Expanded the management and governance over IT system controls, including the hiring of a Systems Analyst and an IT Analyst;

• Redesigned and implemented controls over the completeness and accuracy of information used in the operation of controls, including data used in the preparation of condensed consolidated financial statements;

• Redesigned and implemented controls over logical access, including user access provisioning, termination, and periodic review for all financial reporting systems.

Material weakness design of property plant and equipment and deposits on miners.

The planned remediation actions include the following:

• Redesign and implementation of controls related to the counting of received property, plant and equipment;

• Design and implement controls over the completeness and accuracy of information used in the operation of controls, including data used in the preparation of condensed consolidation financial statements;

• Implement controls related to the miner receiving process to ensure adequate documentation is maintained to support the accounting for miners in transit and period-end balances;

• Conduct training related to documentation, policies and procedures for shipping, receiving and counting of property, plant and equipment.

Material weakness in the design of controls related to the Company’s use of its third-party payroll service provider and payroll processing.

The planned remediation actions include the following:

• Redesign and implement controls to address segregation of duties issues when processing, approving and submitting payroll.

• Implement controls related to confirmation of payrolls processed are same as those approved.

• Restrict administrator access to individuals who do not have responsibility to process, approve or submit payroll.

Material weakness related to the design of internal controls to safeguard cash assets

The planned remediation actions include the following:

• Design and implement a control to require two approval signatures for cashier check requests;

• Enhance the design of controls related to cash reconciliation procedures verifying cashier checks issued.

While these remedial actions are designed to correct the material weaknesses, changes to internal controls over financial reporting require operation for a sufficient period of time in order for management to evaluate and test the operating effectiveness.

Management will continue to monitor and evaluate the effectiveness of these changes for a sufficient period of time prior to concluding that these controls are designed and operating effectively, and the material weaknesses can be considered remediated.

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.

Except for the material weaknesses and 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 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

INHERENT LIMITATIONS ON INTERNAL CONTROLS

3 unchanged sentences

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.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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.

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.

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.

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.

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.

Exhibits and Financial Statement Schedules

6 unchanged sentences

Exhibit Description

Exhibit Filing Date

Filed Herewith

5 unchanged sentences

February 24, 2021

Conformed Copy of First Amended and Restated Articles of Incorporation of CleanSpark, Inc., as amended through March 8, 2023

April 6, 2023

Agreement and Plan of Merger, dated June 26, 2024, by and among CleanSpark, Inc., Tron Merger Sub, Inc.

and GRIID Infrastructure Inc.

June 27, 2024

Conformed Copy of First Amended and Restated Articles of Incorporation of CleanSpark, Inc., as amended through October 28, 2024

First Amended and Restated Bylaws of CleanSpark, Inc., dated September 17, 2021

September 17, 2021

First Amendment to First Amended and Restated Bylaws of CleanSpark, Inc., dated August 28, 2024

August 30, 2024

Certificate of Designation of Series A Preferred Stock, dated April 15, 2015

April 16, 2015

Certificate of Amendment to Certificate of Designation of Series A Preferred Stock, dated October 9, 2019

October 9, 2019

Certificate of Designation of Series X Preferred Stock, dated August 30, 2024

August 30, 2024

Description of Registered Securities

Amended and Restated Warrant Agreement, dated November 8, 2024, by and between CleanSpark, Inc.

and Securities Transfer Corporation

November 8, 2024

Form of Warrant Certificate (included in Exhibit 4.2)

November 8, 2024

CleanSpark, Inc.

32 unchanged sentences

Matthew Schultz, dated April 16, 2021

At the Market Offering Agreement, dated June 3, 2021, between CleanSpark, Inc.

Wainwright & Co., LLC

Coinmint Collection Mining Services Agreement, by and between CleanBlok, Inc.

and Coinmint, LLC date July 8, 2021

Coinmint Colocation Mining Services Agreement, by and between CleanBlok, Inc.

and Coinmint, LLC, dated July 1, 2021

August 16, 2021

30 unchanged sentences

August 23, 2022

Sales and Purchase Agreement entered into by and between the CleanSpark, Inc.

September 7, 2022

Sales and Purchase Agreement entered into by and between CleanSpark, Inc.

and Crypt Solutions, Inc.

on September 1, 2022

September 7, 2022

Purchase and Sale Agreement, dated as of September 8, 2022, by and among CSRE Properties Sandersville, LLC, Luna Squares LLC, Mawson Infrastructure Group, Inc.

21 unchanged sentences

October 11, 2022

Amendment No.

1 to the At the Market Offering Agreement, dated December 14, 2022, between CleanSpark, Inc.

Wainwright & Co., LLC

December 14, 2022

Sales and Purchase Agreement entered into by and between CleanSpark, Inc.

23 unchanged sentences

October 27, 2023

At the Market Offering Agreement, dated January 5, 2024, by and between CleanSpark, Inc.

Wainwright & Co., LLC

January 5, 2024

Future Sales and Purchase Agreement, dated January 6, 2024, by and between CleanSpark, Inc.

and Bitmain Technologies Delaware Limited

January 8, 2024

Membership Interest Purchase Agreement, dated February 2, 2024, by and between CSRE Properties Dalton, LLC and Eyas Investment Group Limited

February 6, 2024

Purchase and Sale Agreement, dated February 2, 2024, by and between CSRE Properties Dalton, LLC and Makerstar Capital, Inc.

February 6, 2024

Construction Management Services Agreement, dated February 2, 2024, by and between CSRE Properties Dalton, LLC and Makerstar Capital, Inc.

February 6, 2024

Purchase and Sale Agreement with MIPA Exhibit, dated February 5, 2024, by and between CSRE Properties Mississippi, LLC and Makerstar Capital, Inc.

February 6, 2024

Amendment No.

1 to the At the Market Offering Agreement, dated March 28, 2024, by and between CleanSpark, Inc.

Wainwright & Co., LLC

March 28, 2024

Supplemental Agreement to Future Sales and Purchase Agreement, dated April 8, 2024, by and between CleanSpark, Inc.

and Bitmain Technologies Delaware Limited

April 12, 2024

Option Exercise Notice from CleanSpark, Inc.

to Bitmain Technologies Delaware Limited, dated April 9, 2024

April 12, 2024

Employment Agreement by and between CleanSpark, Inc.

and Scott Garrison, dated May 7, 2024

Employment Agreement by and between CleanSpark, Inc.

and Taylor Monnig, dated May 7, 2024

Purchase and Sale Agreement, dated May 8, 2024, by and between CSRE Properties Wyoming, LLC and MineOne Wyoming Data Center, LLC

Purchase and Sale Agreement for Parcel 1, dated May 29, 2024, by and between CSRE Properties Wyoming, LLC and MineOne Wyoming Data Center, LLC

Purchase and Sale Agreement for Parcel 2, dated May 29, 2024, by and between CSRE Properties Wyoming, LLC and MineOne Wyoming Data Center, LLC

Asset Purchase Agreements, dated June 17, 2024

June 20, 2024

Credit Agreement, dated June 26, 2024, by and among CleanSpark, Inc., GRIID Infrastructure Inc., and the other loan parties from time to time party thereto

June 27, 2024

Form of Voting Agreement, dated June 26, 2024

June 27, 2024

Colocation Mining Services Agreement, dated June 26, 2024, by and between CleanSpark, Inc.

and GRIID Infrastructure Inc.

June 27, 2024

Amended and Restated Credit Agreement, dated August 2, 2024, by and among CleanSpark, Inc., GRIID Infrastructure Inc., and the other loan parties from time to time party thereto

August 5, 2024

Future Sales and Purchase Agreement, dated August 4, 2024, by and between CleanSpark, Inc.

and Bitmain Technologies Delaware Limited

August 9, 2024

Master Loan Agreement, dated August 7, 2024, by and between Coinbase Credit, Inc.

and CleanSpark, Inc.

August 9, 2024

Subscription and Investment Representation Agreement, dated August 30, 2024, by and between CleanSpark, Inc.

and Thomas L.

August 30, 2024

Membership Interest Purchase Agreement, dated September 10, 2024, by and between Exponential Digital, LLC and CleanSpark TN, LLC

September 11, 2024

Membership Interest Purchase Agreement, dated September 10, 2024, by and between Exponential Digital, LLC and CleanSpark TN, LLC

September 11, 2024

Membership Interest Purchase Agreement, dated September 10, 2024, by and between Exponential Digital, LLC and CleanSpark TN, LLC

September 11, 2024

Real Estate Purchase and Sale Agreement, dated September 10, 2024, by and between US Farms & Mining, Inc.

and CSRE Properties Tennessee, LLC

September 11, 2024

Membership Interest Purchase Agreement, dated September 16, 2024, by and between Eyas Investment Group Limited and CSRE Properties Mississippi, LLC

September 17, 2024

Real Estate Purchase and Sale Agreement, dated September 16, 2024, by and between Makerstar Capital, Inc.

and CSRE Properties Mississippi, LLC

September 17, 2024

Construction Management Services Agreement, dated September 16, 2024, by and between Beast Power, Inc.

and CSRE Properties Mississippi, LLC

September 17, 2024

Employment Agreement by and between CleanSpark, Inc.

and Brian Carson, dated October 1, 2024

October 3, 2024

Letter from MaloneBailey, LLP, dated July 3, 2024

CleanSpark, Inc.

Insider Trading Policy

List of Subsidiaries

Consent of Malone Bailey, LLP

Consent of BDO USA, P.C.

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

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Executive Officer Incentive Compensation Recoupment (Clawback) Policy

December 1, 2023

Inline XBLR Instance Document

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(formatted as Inline XBRL and contained in Exhibit 101

* 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.

* These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C.

Section 1350, are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, 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.

2 unchanged sentences

CLEANSPARK, INC.

/s/ Zachary K.Bradford

/s/ Zachary K.

Chief Executive Officer, Principal Executive Officer and Director

December 3, 2024

Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Chief Financial Officer, Principal Financial Officer

December 3, 2024

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:

/s/ Zachary Bradford

Zachary Bradford

/s/ Zachary K.

Chief Executive Officer, Principal Executive Officer and Director

December 3, 2024

Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Chief Financial Officer, Principal Financial Officer

December 3, 2024

/s/ Brian Carson

Chief Accounting Officer, Principal Accounting Officer

December 3, 2024

Matthew Schultz

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures