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ACQUISITION OF PIONEER CRITICAL POWER, INC. AND RELATED ASSETS

6 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

ACQUISITION OF PIONEER CRITICAL POWER, INC. AND RELATED ASSETS

3. ACQUISITION OF PIONEER CRITICAL POWER, INC. AND RELATED ASSETS

On January 22, 2019, CleanSpark entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pioneer Critical Power, Inc., a Delaware corporation (the “Pioneer”), and CleanSpark Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of CleanSpark (“Merger Sub”).

The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with Pioneer surviving the Merger as a wholly-owned subsidiary of CleanSpark. At the effective time of the Merger, the issued and outstanding common shares of Pioneer were automatically converted into the right to receive: (i) 1,750,000 of the common stock of CleanSpark, (ii) a five-year warrant to purchase 500,000 shares of CleanSpark common stock at an exercise price of $1.60 per share, and (iii) a five-year warrant to purchase 500,000 shares of CleanSpark common stock at an exercise price of $2.00 per share. The Merger closed on January 22, 2019 with the filing of a Certificate of Merger in Delaware.

The Company accounted for the acquisition of the Pioneer as an asset acquisition under ASC 805, because the assets acquired did not meet the definition of a business under ASC 805-10-55-4 as it lacked process and outputs at the time of acquisition.

The Company determined the fair value of the consideration in accordance with ASC 820 was as follows:

Consideration		Fair Value
1,750,000 shares of common stock		$	3,867,500
500,000 warrants @$1.60			1,102,417
500,000 warrants @$2.00			1,102,107
Total Consideration		$	6,072,024

The Company allocated the purchase price to the identifiable assets as follows:

Purchase Price Allocation
Engineering designs		$	250,000
UL files			100,000
Customer list & non-compete agreement			5,722,024
		$	6,072,024

On February 1, 2019, Pioneer Critical Power, Inc. was renamed CleanSpark Critical Power Systems, Inc.

Support Agreements

As a condition to the Merger Agreement, on January 22, 2019, CleanSpark and Pioneer Power Solutions, Inc. (“Pioneer Power”), a Delaware corporation and sole shareholder of Pioneer prior to the Merger, entered into a Non-Competition and Non-Solicitation Agreement whereby Pioneer Power agreed, among other things, to not compete with the Company or solicit employees or customers of the Company for a period of four years.

As another condition to the Merger Agreement, on January 22, 2019, CleanSpark, the Company and Pioneer Power entered into an Indemnity Agreement, whereby Pioneer Power agreed to indemnify CleanSpark for any claims made by Myers Power Products, Inc. in the case titled Myers Power Products, Inc. v. Pioneer Power Solutions, Inc., Pioneer Custom Electrical Products, Corp., et al., Los Angeles County Superior Court Case No. BC606546 (“Myers Power Case”) as they may relate to Pioneer or CleanSpark post-closing of the Merger Agreement.

Finally, as another condition to the Merger Agreement, on January 22, 2019, CleanSpark and Pioneer Power entered into a Contract Manufacturing Agreement, whereby Pioneer Power shall exclusively manufacture parallel switchgears, automatic transfer switches and related control and circuit protective equipment for CleanSpark for a period of eighteen months. The agreement did not create exclusivity for Pioneer and CleanSpark may have other providers perform contract manufacturing services, as desired.