Item 9A. Controls and Procedures
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 material weaknesses 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.
MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures
that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (2) provide reasonable
assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3)
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.
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.
Under the supervision of and with the participation of our management,
we assessed the effectiveness of our internal control over financial reporting as of September 30, 2021, using the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). We excluded
from our assessment the internal control over financial reporting of ATL Data Centers LLC and Solar Watt Solutions, Inc. with total assets
of $267.3 million (of which $27.3 million represents goodwill and intangibles included within the scope of the assessment), and total
revenues of $43.2 million included in the consolidated financial statements of the Company as of and for the year ended September 30,
2021.As part of our assessment of the effectiveness of our internal control over financial reporting as of September 30, 2021, management
identified the following material weaknesses: (1) the Company did not adequately implement or properly maintain controls over its financial
close and reporting process, its process over the recording of energy and other services revenue and its process over the accounting and
valuation of certain aspects of business combinations involving significant estimates and (2) 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:
· Financial Close and Reporting:
Controls over financial statement reviews, specific to the appropriate reconciliation of certain balance sheet accounts, were not
operating effectively.
o Recording of Revenues for
certain non-principal revenue generating subsidiaries: Controls over the recording and processing of revenue for certain non-principal
revenue generating entities, specifically, p2kLabs, Inc, GridFabric, LLC and CleanSpark, LLC, lack the level of precision necessary to
ensure the completeness and accuracy of revenue recorded.
o Business Combinations: Controls
designed to properly consider and evaluate certain aspects of our business combinations and related reporting units did not operate effectively
to identify all necessary adjustments made to the purchase price during the valuation process and the related goodwill balances recorded.
This includes controls around business combination accounting, specifically as it relates to the valuation of contingent consideration
as part of the purchase price underlying the business combinations, as well as the identification of reporting units.
43
Table of Contents
·
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
Certain process-level and IT-dependent controls over user access to IT programs and applications, specifically utilized for hosting services and file storage, were not effective.
o
Controls relating to the evaluation of service organization controls reports were not performed over certain third-party service providers to cover the entire fiscal year.
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
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, 2021, 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, 2021, 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, 2021. 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:
· additional qualified staff were
appointed during the year-ended September 30, 2021 and subsequent to year-end to ensure appropriate reviews occur
· the implementation of additional
monitoring of controls to improve documentation of internal control procedures
· expanding the management and
governance over IT system controls; and
· implementing enhanced process
controls around internal user access management including provisioning, removal, and periodic review
We believe that these actions will remediate the material weaknesses,
once management has performed its assessment of our internal controls over financial reporting including the remedial measures described
above. The weaknesses 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 these
material weaknesses will be completed prior to the end of fiscal year 2022.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Except for the material weaknesses identified
during the quarter, as of September 30, 2021, 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 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
44
Table of Contents
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.
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.
45
Table of Contents
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a)
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
Stock
Purchase Agreement by and between p2klabs, Inc., Amer Tadayon and the Company, dated January 31, 2020
8-K
001-39187
2.1
February
6, 2020
2.3
†
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
3.1
Articles
of Incorporation, dated October 9, 1987
10-12G
000-53498
3.1
November
17, 2008
3.2
Amendment
to Articles of Incorporation, dated October 9, 1987
10-12G
000-53498
3.1A
November
17, 2008
3.3
Bylaws,
dated October 15, 1987
10-12G
000-53498
3.2
November
17, 2008
3.4
Amended
Bylaws, dated February 5, 2013
8-K
000-53498
3.1
February
12, 2013
3.5
Certificate
of Change, dated February 26, 2013
8-K
000-53498
3.1
February
26, 2013
3.6
Article
of Merger, dated November 14, 2021
8-K
000-53498
3.1
December
1, 2014
3.7
Certificate
of Amendment, dated April 15, 2015
8-K
000-53498
3.1
April
16, 2015
46
Table of Contents
3.8
Certificate
of Designation, dated April 15, 2015
8-K
000-53498
3.2
April
16, 2015
3.9
Certificate
of Change, dated May 6, 2015
8-K
000-53498
3.1
May
13, 2015
3.10
Article
of Merger, dated October 31, 2016
8-K
000-53498
3.1
November
14, 2016
3.11
Certificate
of Designation, dated April 16, 2019
8-K
000-53498
3.1
April
18, 2019
3.12
Certificate
of Amendment to Articles of Incorporation, dated August 9, 2019
DEF
14C
000-53498
Appendix
A
July
12, 2019
3.13
Amendment
to Certificate of Designation, dated October 9, 2019
8-K
000-53498
3.1
October
9, 2019
3.14
Certificate
of Change, dated December 4, 2019
8-K
000-53498
3.1
December
10, 2019
3.15
Certificate
of Withdrawal of Series B Preferred Stock Certificate of Designation, dated March 10, 2020
8-K
001-39187
3.1
March
10, 2020
3.16
Certificate
of Amendment to Articles of Incorporation of CleanSpark, Inc., dated October 2, 2020
DEF
14C
000-53498
Appendix
A
July
28, 2020
3.17
Certificate
of Amendment to Articles of Incorporation of CleanSpark, Inc., dated March 16, 2021 .
8-K
001-39187
3.1
March
18, 2021
3.18
First
Amended and Restated Articles of Incorporation of CleanSpark, Inc., dated September 17, 2021
8-K
001-39187
3.1
September
17, 2021
3.19
First
Amended and Restated Bylaws of CleanSpark, Inc., 2017 Incentive Plan, dated September 17, 2021
8-K
001-39187
3.2
September
17, 2021
4.1
Form
of Senior Secured Redeemable Convertible Debenture, dated December 31, 2018 issued to the Investor
8-K
000-53498
4.1
December
31, 2018
4.2
Form
of Common Stock Purchase Warrant, dated December 31, 2018, issued to the Investor
8-K
000-53498
4.2
December
31, 2018
4.3
Form
of Senior Secured Redeemable Convertible Promissory Note, dated April 17, 2019, issued to the Investor
8-K
000-53498
4.1
April
18, 2019
47
Table of Contents
4.4
Form
of Common Stock Purchase Warrant, dated December 31, 2018, issued to the Investor
8-K
000-53498
4.2
April
18, 2019
10.1 +
CleanSpark,
Inc. 2017 Equity Incentive Plan
S-8
333-218831
10.12
June
19, 2017
10.2
Form
of Securities Purchase Agreement, dated December 31, 2018, between CleanSpark Inc. and the Investor
8-K
000-53498
10.1
December
31, 2018
10.3
Form
of IP Security Agreement, dated December 31, 2018, between CleanSpark, Inc. and the Investor
8-K
000-53498
10.2
December
31, 2018
10.4
Non-Competition
and Non-Solicitation Agreement, dated January 22, 2019
8-K
000-53498
10.2
January
24, 2019
10.5
Indemnity
Agreement, dated January 22, 2019
8-K
000-53498
10.3
January
24, 2019
10.6
Contract
Manufacturing Agreement, dated January 22, 2019
8-K
000-53498
10.4
January
24, 2019
10.7
Form
of Purchase Agreement, dated April 17, 2019, between the Company and the Investor
8-K
000-53498
10.1
April
18, 2019
10.8
IP
Security Agreement dated April 17, 2019
8-K
000-53498
10.3
April
18, 2019
10.9†
Memorandum
of Understanding, dated as of November 5, 2019
8-K
000-53498
10.1
November
12, 2019
10.10
Securities
Purchase Agreement, dated as of November 6, 2019
8-K
000-53498
10.2
November
12, 2019
10.11
Escrow
Agreement, dated January 31, 2020
8-K
001-39187
10.1
February
6, 2020
10.12
Amendment
to Transaction Documents, dated as of March 10, 2020
8-K
001-39187
10.1
March
10, 2020
10.13
Second
Amendment to Transaction Documents, dated as of March 13, 2020
8-K
001-39187
10.1
March
16, 2020
10.14
Joint
Venture Agreement, dated as of April 6, 2020
10-Q
001-39187
10.1
August
4, 2020
10.15
Third
Amendment to Transaction Documents, dated as of May 1, 2020
8-K
001-39187
10.1
May
6, 2020
10.16
Promissory
Note, dated as of May 7, 2020
8-K
001-39187
10.1
May
20, 2020
10.17 +
First
Amendment to CleanSpark, Inc. 2017 Equity Incentive Plan, dated as of October 7, 2020
DEF
14C
000-53498
Appendix
B
July
28, 2020
48
Table of Contents
10.18
Form
of Securities Purchase Agreement, dated July 20, 2020
8-K
001-39187
10.1
July
21, 2020
10.19
Exclusive
Partner Agreement, by and between the Company and Sunshine Energy Corp., dated August 6, 2020
8-K
001-39187
10.1
August
7, 2020
10.20
Membership
Interest Purchase Agreement, dated as of August 31, 2010, by and between the Company, GridFabric, LLC and its sole member, DuPont
Hale Holdings, LLC
8-K
001-39187
10.1
September
1, 2020
10.21 +
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
10.22 +
Employment
Agreement, entered into by and between CleanSpark, Inc. and Lori Love, dated October 26, 2020
8-K
001-39187
10.2
October
28, 2020
10.23 +
Employment
Agreement, entered into by and between CleanSpark, Inc. and Amanda Kabak, dated October 26, 2020
8-K
001-39187
10.3
October
28, 2020
10.24 +
Amended
and Restated Employment Agreement, entered into by and between CleanSpark, Inc. and Amer Tadayon, dated October 26, 2020
8-K
001-39187
10.4
October
28, 2020
10.25 +
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
10.26†
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
10.27
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
49
Table of Contents
10.28
Form
of Hardware Purchase & Sales Agreement
10-Q
001-39187
10.2
May
6, 2021
10.29
Form
of Future Sales Agreement
10-Q
001-39187
10.3
May
6, 2021
10.30
Form
of Agreement for Sale of Equipment
10-Q
001-39187
10.4
May
6, 2021
10.31+
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
10.32+
Amendment
to Employment Agreement by and between CleanSpark, Inc. and Lori Love, dated April 16, 2021
10-Q
001-39187
10.6
May
6, 2021
10.33+
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
10.34
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
10.35+
Amendment
to Amended and Restated Employment Agreement by and between CleanSpark, Inc. and Amer Tadayon, dated June 9, 2021
8-K
001-39187
10.1
June
15, 2021
10.36
Lease,
by and between ATL Data Centers LLC and Arkhos Property Group Holdings, LLC dated June 5, 2020
10-Q
001-39187
10.9
August
16, 2021
10.37†
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
10.38
Purchase
Agreement, by and between CSRE Properties, LLC and MDRE-Norcross, LLC
10-Q
001-39187
10.12
August
16, 2021
10.39+
Second
Amendment to CleanSpark, Inc. 2017 Incentive Plan, dated September 17, 2021
8-K
001-39187
10.1
September
17, 2021
50
Table of Contents
10.40†
Electrical
Services Agreement between CleanBlok, Inc. and Georgia Power Company, dated October 1, 2021
X
10.41
Form
of Future Sales and Purchase Agreement
X
10.42
Lease
Agreement, by and between CleanSpark, Inc. and ANC Corporate Center & Paseo Verde, LLC, dated August 26, 2021
X
21.1
List
of Subsidiaries
X
23.1
Consent
of MaloneBailey
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
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.
†Portions
of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
51
Table of Contents
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 Bradford
Zachary
Bradford
Chief
Executive Officer, Principal Executive Officer and Director
December 14, 2021
By:
/s/
Lori Love
Lori
Love
Chief
Financial Officer, Principal Financial Officer, Principal Accounting Officer
December 14, 2021
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
14, 2021
By:
/s/
Lori Love
Lori
Love
Chief
Financial Officer, Principal Financial Officer, Principal Accounting Officer
December 14, 2021
By:
/s/
S. Matthew Schultz
S.
Matthew Schultz
Executive
Chairman and Chairman of the Board
December 14, 2021
By:
/s/
Larry McNeill
Larry
McNeill
Director
December 14, 2021
By:
/s/
Roger Beynon
Roger
Beynon
Director
December 14, 2021
By:
/s/
Dr. Thomas Wood
Dr.
Thomas Wood
Director
December 14,2021
52