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4. ACQUISITIONS | 12 Months Ended
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Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS | 4. ACQUISITIONS Acquisitions Relating to Continuing Operations SPRE COMMERCIAL GROUP, INC. AND WAHA TECHNOLOGIES, INC. On August 17, 2022, the Company, through its wholly owned subsidiary, CSRE Properties Washington, LLC, (“CSRE”), completed the purchase of real property, together with all improvements situated thereon and all rights, easements and appurtenances belonging thereto (collectively, the “Property”), from SPRE Commercial Group, Inc. f/k/a WAHA, Inc. (“SPRE”), (the “Seller”), pursuant to a Land Purchase and Sale Agreement dated as of August 5, 2022 and amended on August 17, 2022. Additionally, on August 17, 2022, in connection with the Land Purchase and Sale Agreement, the Company completed the purchase of a mix of S19 and S19 J Pro bitcoin miners with a total processing power equal to approximately 341,985 terahashes, pursuant to an equipment purchase and sale agreement (together with the Land Purchase and Sale Agreement, the “Acquisition”), from Waha Technologies, Inc., a Georgia corporation (“WAHA”, collectively with the Seller "WAHA & SPRE" or the "Sellers"), an affiliate of the Seller. Pursuant to the Land Purchase and Sale Agreement and the Equipment Purchase and Sale Agreement the Company acquired substantially all of WAHA & SPRE's assets. The transaction was accounted for as an acquisition of a business. Total consideration for the Property and miners consisted of (i) $1,961,747 in financing provided by the Seller to the Company at an interest rate of 12% per annum, to be repaid in 12 monthly installments of $173,651, (ii) the Company’s assumption of a mortgage with a maximum principal amount of $2,158,253 and an interest rate of 13% and (iii) $19,771,610 of cash consideration paid by the Company to the Seller. Acquisition related costs of $118,058, consisting primarily of legal and recording fees, were expensed as incurred in accordance with ASC 805 and are reflected in professional fees on the Consolidated Statements of Operations and Comprehensive Loss. The Company determined the fair value of the consideration given to the Sellers in connection with the transaction and the allocation of the purchase price in accordance with ASC 820 were as follows:
Consideration: |  | Fair Value |
Cash |  | $ | 19,771,610 |
Financing provided by Seller |  |  | 1,961,747 |
Mortgage assumed |  |  | 2,158,253 |
Total Consideration |  | $ | 23,891,610 |
Purchase Price Allocation |  | Preliminary Allocation at Acquisition Date |
Land |  | $ | 100,000 |
Building/Improvements |  |  | 14,700,000 |
Miners |  |  | 9,091,610 |
Total |  | $ | 23,891,610 |
The total purchase price was allocated to identifiable assets deemed acquired based on their estimated fair values. The fair values of the assets have been recorded and are reflected in property and equipment, net on the Company's Consolidated Balance Sheets in this annual report. The useful life for the building and improvements is estimated to be 30 years consistent with the Company's policy. The useful life for miners was estimated to be 3 years consistent with the Company's policy for depreciating used miners. Land is not depreciated. Financing provided by the Seller and the mortgage assumed have been recorded as loans payable and are reflected in the Company's Consolidated Balance Sheets. 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 ATL 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 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. The strategic contract relates to supply of a critical input to our bitcoin mining business. The other assets and liabilities assumed include $5,670,000 of bitcoin mining equipment and approximately $5,475,000 of notes payable related to this equipment, which was settled by the Company in December 2020. 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 believes 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. Acquisitions Relating to Discontinued Operations 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 closing price of the Company's common stock for the trading days including and immediately preceding the closing date of $32.74 per share 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 (x) $200,000 (no changes post acquisition date) in cash held back by the Company to satisfy potential damages from indemnification claims and any amounts owed pursuant to post-closing adjustments, (y) an additional $100,000 (no changes post acquisition date) in cash 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 from 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 |
|  | 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. 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. On January 31, 2022, the Company entered into a Merger Satisfaction and Release Agreement (the "Merger Satisfaction Agreement") with the Sellers of SWS. In consideration of fully satisfying the terms under the SWS Merger Agreement, the Company paid the Sellers $625,000 and released from escrow 77,500 shares of the Company's common stock. Additionally, the Sellers agreed to release back to the Company 232,518 shares of the Company's common stock held in escrow. Upon delivery of such consideration, the parties agreed that the shares and cash holdbacks contained in the original merger agreement were fully satisfied. Pro forma of Consolidated Financial Statements (Unaudited) The following is the unaudited pro forma information for continuing operations assuming the acquisition of WAHA & SPRE occurred on October 1, 2020:
|  | For the Year Ended |
|  | September 30, 2022 |  |  | September 30, 2021 |
Net sales from continuing operations |  | $ | 161,090,831 |  |  | $ | 55,571,697 |
Loss from continuing operations |  | $ | (34,488,387 | ) |  | $ | (5,457,907 | )
Loss from continuing operations per common share - basic |  | $ | (0.81 | ) |  | $ | (0.19 | )
Weighted average common shares outstanding – basic |  |  | 42,614,197 |  |  |  | 29,441,364 |
Loss from continuing operations per common share - diluted |  | $ | (0.81 | ) |  | $ | (0.19 | )
Weighted average common shares outstanding – diluted |  |  | 42,614,197 |  |  |  | 29,441,364 |
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 pro forma purposes have been eliminated.

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- Definition Tabular disclosure of transactions that are recognized separately from the acquisition of assets and assumptions of liabilities in the business combination. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=79982066&loc=d3e1392-128463 + Details
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