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17. COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | 17. COMMITMENTS AND CONTINGENCIES Future hosting agreements On March 29, 2022, the Company entered into a hosting agreement with Lancium LLC (“Lancium”). Pursuant to the agreement, Lancium has agreed to host, power and provide maintenance and other related services to the Company's mining equipment to be placed at Lancium facilities. Further, Lancium committed to provide 200 megawatts in support of the Company's mining equipment. In addition, for a period of two and a half years following the operations commencement date, the Company will have an option to increase the power capacity supplied to the equipment up to 500 MW or 40% of the aggregate capacity of all facilities owned and operated by Lancium, whichever is lesser. As of the date of this filing, the Company has not deployed any miners pursuant to the co-location mining services at Lancium’s facility in Texas. Lancium has informed the Company that it is experiencing significant delays due to the tightening of capital in the current market climate. The Company does not have any expected timeline on the readiness of these facilities for the foreseeable future. If Lancium’s situation improves in a timeline acceptable to the Company, it would anticipate utilizing Lancium as intended but there can be no assurance that Lancium's situation or market conditions will improve. Contractual future payments The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of September 30, 2023:
($ in thousands) |  | Fiscal Year 2024 |  |  | Fiscal Year 2025 |  |  | Fiscal Year 2026 |  |  | Fiscal Year 2027 |  |  | Fiscal Year 2028 |  |  | Thereafter |  |  | Total |
Recorded contractual obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating lease obligations |  | $ | 214 |  |  | $ | 201 |  |  | $ | 203 |  |  | $ | 106 |  |  | $ | 41 |  |  | $ | — |  |  | $ | 765 |
Finance lease obligations |  |  | 134 |  |  |  | 9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 143 |
Loans |  |  | 8,766 |  |  |  | 8,463 |  |  |  | 821 |  |  |  | 94 |  |  |  | 74 |  |  |  | 15 |  |  |  | 18,233 |
Construction in progress |  |  | 33,293 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33,293 |
Total |  | $ | 42,407 |  |  | $ | 8,673 |  |  | $ | 1,024 |  |  | $ | 200 |  |  | $ | 115 |  |  | $ | 15 |  |  | $ | 52,434 |
Contingent consideration Mawson Property Acquisition In connection with the Mawson Transaction (as discussed in Note 4), the Company and seller agreed to up to $2,000 of seller financing if the Company received, by April 8, 2023, written confirmation reasonably acceptable to it that it will be able to utilize at least 150 MW of additional power at the site. Such written confirmation was not received by April 8, 2023. See Note 4 for additional description of the resolution of this contingency. As of September 30, 2023, the Company has $0 recorded as contingent liability associated with the Mawson Transaction. Legal contingencies Bishins v. CleanSpark, Inc. et al. On January 20, 2021, Scott Bishins (“Bishins”), individually, and on behalf of all others similarly situated (together, the “Class”), filed a class action complaint (the “Class Complaint”) in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Zachary Bradford (“Bradford”), and its Chief Financial Officer at the time, Lori Love (“Love”) (such action, the “Class Action”). On December 2, 2021, the Court appointed Darshan Hasthantra as lead Plaintiff (together, with Bishins, the “Plaintiffs”), and Glancy, Prongay and Murray LLP as class counsel. Hasthantra filed an Amended Complaint on February 28, 2022 (the “Amended Class Complaint”). In the Amended Class Complaint, Love is no longer a defendant and S. Matthew Schultz (“Schultz”) has been added as a defendant (the Company, Bradford and Schultz, collectively, the “Defendants”). The Amended Class Complaint alleges that, between December 10, 2020 and August 16, 2021 (the “Class Period”), Defendants made material misstatements and omissions regarding the Company’s acquisition of ATL and its anticipated expansion of bitcoin mining operations. In particular, Plaintiffs allege that Defendants: (1) were misleading in their various public announcements related to the timeline for expanding ATL’s mining capacity; and (2) failed to disclose other material conditions purportedly related to the Company’s acquisition of ATL, including that an ATL predecessor had filed for bankruptcy about six months prior to the acquisition, that another bitcoin miner had declined to acquire ATL, and that a related party had performed an audit of ATL for the Company. The Amended Class Complaint seeks: (a) certification of the Class, (b) an award of compensatory damages to the Class, and (c) an award of reasonable costs and expenses incurred by the Class in the litigation. To date, no class has been certified in the Class Action. The Company filed a Motion to Dismiss in April 2022 which, after briefing, was denied in January 2023. On February 15, 2023, the Company filed its answer responding to Plaintiffs’ claims and asserting affirmative defenses. The case is moving forward in discovery. The Company believes that the claims raised in the Amended Class Complaint are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. The Class Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims made in the Amended Class Complaint. Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Class Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected. Shareholder Derivative Actions Consolidated Ciceri Derivative Actions On May 26, 2021, Andrea Ciceri (“Ciceri”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Ciceri Derivative Action”) in the United States District Court in the District of Nevada against certain of the Company’s officers and directors (collectively referred to as “Ciceri Derivative Defendants”) (Ciceri v. Bradford, Schultz, Love, Beynon, McNeill and Wood). On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Ciceri Derivative Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same Court against the same Ciceri Derivative Defendants, making substantially similar allegations. On June 29, 2021, the Court consolidated the Ciceri Derivative Action with the Perna Derivative Action in accordance with a stipulation among the parties (the consolidated case referred to as the “Consolidated Ciceri Derivative Action”). The Consolidated Ciceri Derivative Action alleges that Ciceri Derivative Defendants: (1) made materially false and misleading public statements about the Company’s business and prospects; (2) did not maintain adequate internal controls; and (3) did not disclose several related party transactions benefitting insiders, questionable uses of corporate assets, and excessive compensation. The claims asserted against all Ciceri Derivative Defendants include breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. On or about November 2, 2021, plaintiffs in the Consolidated Ciceri Derivative Action withdrew their claim for contribution under Sections 10(b) and 21D of the Securities and Exchange Act, which had been asserted against only Bradford and Love. The Consolidated Derivative Action seeks declaratory relief, monetary damages, and imposition of adequate corporate governance and internal controls. Plaintiffs were given the opportunity to submit an Amended Complaint by November 25, 2021, but elected not to. In January 2022, the Parties agreed to stay the entirety of the case pending the outcome of the Motion to Dismiss in the Class Action. On January 5, 2023, the Class Action Motion to Dismiss was denied, thereby terminating the stay in this matter. On April 20, 2023, the Ciceri Derivative Defendants filed a Motion to Dismiss the Consolidated Derivative Action. Plaintiffs’ filed their opposition on June 12, 2023 and Defendants’ filed their reply in further support of their Motion to Dismiss on July 13, 2023. In June 2023, the Company’s Board of Directors appointed a special litigation committee (the “SLC”), comprised of independent Directors and represented by independent counsel. The SLC was established to investigate, evaluate and prosecute as appropriate any and all claims asserted in the Consolidated Ciceri Derivative Action as well as the Consolidated Smith Derivative Actions (defined below). In October 2023, the SLC moved to intervene and stay the Consolidated Ciceri Derivative Action. The Ciceri Plaintiffs did not oppose that motion and, accordingly, on October 23, 2023, the Court granted it, staying the case until July 23, 2024, pending the completion of the SLC’s investigation. The Ciceri Defendants’ Motion to Dismiss was denied as moot, but may be re-filed if and when the stay is lifted. The Company believes that the claims raised in that case are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. The Consolidated Ciceri Derivative Action may distract the Company and cost the Company’s management time, effort and expense to defend against the claims. Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Consolidated Derivative Action, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected. Consolidated Smith Derivative Actions On February 21, 2023, Brandon Smith (“Smith”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (Smith v. Bradford, Love, Schultz, Beynon, McNeill and Wood). On February 24, 2023, Plaintiff Nicholas Iraci (“Iraci”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Iraci Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (Iraci v. Bradford, Love, Schultz, Beynon, McNeill and Wood). On March 1, 2023, Plaintiff Eric Atanasoff (“Atanasoff”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Atanasoff Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s Officers and Directors (Atanasoff v. Bradford, Schultz, Beynon, McNeill, and Wood). On March 8, 2023, Plaintiff Travis France (“France”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “France Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against certain of the Company’s officers and directors (France v. Bradford, Love, Tadayon, Schultz, Beynon, McNeill and Wood). The Smith Derivative Action, Iraci Derivative Action, Atanasoff Derivative Action and France Derivative Action each contain substantially similar allegations, namely that the defendants: (1) made materially false and misleading public statements about the Company’s business and prospects; (2) were misleading in their various public announcements related to the timeline for expanding ATL’s mining capacity; (3) failed to disclose other material conditions purportedly related to the Company’s acquisition of ATL, including that an ATL predecessor had filed for bankruptcy about six months prior to the acquisition, that another bitcoin miner had declined to acquire ATL, and that a related party had performed an audit of ATL for the Company; (4) did not maintain adequate internal controls; and (5) did not disclose several related party transactions benefitting insiders and excessive compensation. Between February and June 2023, the respective parties to the Smith Derivative Action, Iraci Derivative Action, Atanasoff Derivative Action and France Derivative Action litigated federal court versus state court jurisdictional issues and, ultimately, each of the aforementioned derivative actions were consolidated into the Smith Derivative Action in the Eighth Judicial District Court of Nevada (the “Consolidated Smith Derivative Actions”). The claims asserted in the operative Consolidated Smith Derivative Actions include breach of fiduciary duties, unjust enrichment and corporate waste. The damages sought include monetary damages, restitution, declaratory relief, litigation costs, and imposition of adequate corporate governance and internal controls. In September 2023, the Consolidated Smith Derivative Action filed a Motion to Dismiss the case based on the fact that the Plaintiffs lack standing, do not successfully rebut the business judgment rule, and fail to allege certain elements of the claims they assert. In June 2023, the Company’s Board of Directors appointed the SLC, comprised of independent Directors and represented by independent counsel. The SLC was established to investigate, evaluate and prosecute as appropriate any and all claims asserted in the Consolidated Ciceri Derivative Action (defined above) as well as the Consolidated Smith Derivative Actions. In October 2023, the SLC moved to intervene and stay the Consolidated Smith Derivative Action, which the Plaintiffs opposed. On November 6, 2023, the Court held a hearing on the SLC’s motion during which it granted the SLC’s motion to intervene and stayed the Consolidated Smith Derivative Action for five months. The Court has not yet entered an order memorializing its decision. The Company believes that the claims raised in Consolidated Smith Derivative Actions are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. The Consolidated Smith Derivative Actions may distract the Company and cost the Company’s management time, effort and expense to defend against the claims. Notwithstanding the Company’s belief that the claims are without merit, no assurance can be given as to the outcome of the Consolidated Smith Derivative Actions, and in the event the Company does not prevail in such action, the Company, its business, financial condition and results of operations could be materially and adversely affected. Solar Watt Solutions, Inc., v. Pathion, Inc. On January 6, 2022, Solar Watt Solutions, Inc., (“SWS”) filed suit in the Superior Court of the State of California in the County of Santa Clara against Pathion, Inc. (“Pathion”) for breach of contract, conversion, unjust enrichment and negligent misrepresentation. Prior to its acquisition by the Company, SWS paid Pathion $419 for solar batteries and related equipment for delivery in August 2019, later amended to November 2019. Pathion never delivered any of the items purchased by SWS. Pathion’s breach resulted in SWS being unable to complete a separate contract and cost the end-user client over $15 per month in electricity costs. SWS is seeking an award of compensatory damages totaling over $500. Pathion filed an answer on or around February 16, 2022, generally denying the claims asserted by SWS. SWS served discovery on Pathion in May 2022; Pathion did not serve responses. Accordingly, SWS filed a Motion for Order Establishing Admissions and for Sanctions on July 25, 2022 and was awarded $2 in sanctions. The parties are currently engaged in the discovery process and a trial date is scheduled for March 2024. Darfon America Corp. vs. CleanSpark, Inc. On August 18, 2022, Darfon America Corp. ("Darfon") filed a breach of contract suit in connection with a purchase contract for batteries. Plaintiff contends that the Company ordered batteries and did not pay for them. Plaintiff was seeking $5,400 in damages and additional costs and fees. The Company contends, among other things, that the batteries did not meet the necessary specifications. On January 27, 2023, the Superior Court of the State of California in the County of San Diego orally granted Plaintiff’s Motion for a pre-judgment Writ of Attachment. While no written order has been received as of the date of this filing, this Writ of Attachment will likely provide Plaintiff with right to seek a lien on any Company assets located in California. The Company had recorded a legal reserve of $1,100 in December 2022 in connection with this matter, which had represented the Plaintiff’s unmitigated damages less what the Company has already paid. In April 2023, the Company settled the suit with Darfon for a total amount of $3,800. The Company recorded the additional settlement expense of $2,700 in March 2023, which is included in professional fees on the consolidated statement of operations and comprehensive loss. The case was dismissed with prejudice effective July 27, 2023. The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.

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