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12. COMMITMENTS AND CONTINGENCIES | 6 Months Ended
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Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | 12. COMMITMENTS AND CONTINGENCIES Purchase of bitcoin mining related equipment The Company had no open purchase commitments for miners or mining equipment as of March 31, 2023. See Note 15-Subsequent Events for information on an additional purchase transaction with Bitmain Technologies Delaware Limited signed in April 2023 for the purchase of 45,000 XP mining machines for a purchase price up to $144,900 (based on coupons). 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. As of the date of this filing, the Company has paid no consideration or deposits to Lancium and, accordingly, there is no direct financial risk with respect to the delays Lancium is currently experiencing. To the extent services are provided in the future, the Company has agreed to compensate Lancium based on a power and hosting fee based on kilowatt hours consumed by the Company’s equipment, subject to service level adjustments and credits, if any. The agreement has an initial term of five years from the operations commencement date (unless terminated earlier in accordance with the terms of the agreement), after which it will renew automatically for two-year periods unless either party provides notice of non-renewal at least ninety days prior to the expiration of the term or renewal term, as applicable. Contractual future payments The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of March 31, 2023:
($ in thousands) |  | Remainder of Fiscal Year 2023 |  |  | Fiscal 2024 |  |  | Fiscal 2025 |  |  | Fiscal 2026 |  |  | Fiscal 2027 |  |  | Thereafter |  |  | Total |
Recorded contractual obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating lease obligations |  | $ | 221 |  |  | $ | 452 |  |  | $ | 456 |  |  | $ | 464 |  |  | $ | 376 |  |  | $ | 7,294 |  |  | $ | 9,263 |
Finance lease obligations |  |  | 120 |  |  |  | 154 |  |  |  | 22 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 297 |
Loans |  |  | 5,079 |  |  |  | 8,101 |  |  |  | 5,882 |  |  |  | 374 |  |  |  | 205 |  |  |  | 50 |  |  |  | 19,691 |
Construction in progress |  |  | 13,268 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13,268 |
Total |  | $ | 18,688 |  |  | $ | 8,707 |  |  | $ | 6,360 |  |  | $ | 839 |  |  | $ | 581 |  |  | $ | 7,344 |  |  | $ | 42,519 |
Contingent consideration Mawson Property Acquisition In connection with the Mawson Transaction (as discussed in Note 3), the Company agreed to additional consideration for the seller based upon certain post-closing criteria being met. Specifically, this amounted to 1,100,890 earn-out shares of Company stock with a value on the date of acquisition of $3,325. Additionally, the Company and seller agreed to up to $2,000 of seller financing if certain additional power can be delivered to the site. The Company believes both contingent agreements are probable and has recorded the total commitment as a current liability as of December 31, 2022. On January 13, 2023, the Company issued the 1,100,890 shares to the seller in full satisfaction of the first contingency at a value of $2,840, determined based on the stock price at the date of issuance. Legal contingencies From time to time the Company may be subject to litigation arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Based on the opinion of legal counsel and other factors, management believes that the final disposition of these existing matters will not have a material adverse effect on the business, results of operations, financial condition, or cash flows of the Company. The Company has identified certain claims as a result of which a loss may be incurred, but in the aggregate the loss is expected to be insignificant. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates. For other claims regarding proceedings that are in an initial phase, the Company is unable to estimate the range of possible loss, if any, but at this time believes that any loss related to such claims will not be material. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We maintain liability insurance to reduce such risk exposure to the Company. Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in contingent liabilities. 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”). The Class Complaint alleged that, between December 31, 2020 and January 14, 2021, the Company, Bradford, and Love “failed to disclose to investors: (1) that the Company had overstated its customer and contract figures; (2) that several of the Company’s recent acquisitions involved undisclosed related party transactions; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” The Class Complaint sought: (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. 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 Data Centers, Inc. (“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 its Motion to Dismiss on April 28, 2022. The Motion to Dismiss sought dismissal of all claims asserted in the Amended Class Complaint with prejudice and without leave to amend on the grounds that Plaintiffs failed to state a claim upon which relief can be granted under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. Plaintiffs filed their opposition on June 27, 2022. Defendants’ reply in further support of their Motion to Dismiss was filed on August 11, 2022. The Motion to Dismiss was denied on January 5, 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. Although the ultimate outcome of the Class Action cannot be determined with certainty, the Company believes that the claims raised in the Amended Class Complaint and the Class Complaint are without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims. Notwithstanding Plaintiffs’ allegations’ lack of merit, however, 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 Company and its management have complied with all of their obligations under applicable securities regulations, 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. Ciceri, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Schultz, Beynon, McNeill, and Wood (consolidated with Perna, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Schultz, Beynon, McNeill, and Wood) 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 Chief Executive Officer, Zachary Bradford (“Bradford”), Chief Financial Officer at the time, Lori Love (“Love”) and Directors Matthew Schultz, Roger Beynon, Larry McNeill and Tom Wood (Bradford, Love and Directors collectively referred to as “Ciceri Derivative Defendants.”) 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 Derivative Action”). The Consolidated 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 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’ opposition is due on May 22, 2023 and Defendants’ reply in further support of their Motion to Dismiss is due on June 7, 2023. Although the ultimate outcome of the Consolidated Derivative Action cannot be determined with certainty, 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. Notwithstanding the Consolidated Derivative Action’s lack of merit, however, it 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 Company and its management have complied with all of their obligations under applicable securities regulations, 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. Smith, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Schultz, Beynon, McNeill, and Wood On February 21, 2023, Brandon Smith (“Smith”), derivatively on behalf of CleanSpark, Inc., filed a verified shareholder derivative action (the “Smith Derivative Action”) in the Eighth Judicial District Court of the State of Nevada in and for Clark County against Chief Executive Officer Zachary Bradford (“Bradford”), former Chief Financial Officer, Lori Love (“Love”), and Directors Matthew Schultz, Roger Beynon, Larry McNeill, and Thomas Wood (Bradford, Love, and Directors collectively referred to as “Smith Derivative Defendants”). The Smith Derivative Action alleges that the Smith Derivative 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. The claims asserted against all Smith Derivative Defendants include breach of fiduciary duties and unjust enrichment. The Smith Derivative Action seeks monetary damages, restitution, litigation costs, and imposition of adequate corporate governance and internal controls. On March 23, 2023, the Smith Derivative Defendants removed the action to the United States District Court for the District of Nevada. On March 24, 2023, the Smith Derivative Defendants filed a Motion to Consolidate the Smith Derivative Action with the Consolidated Derivative Action. On April 6, 2023, Plaintiff filed a Motion to Remand the Smith Derivative Action to Nevada state court. On April 17, 2023, Plaintiff opposed the Smith Derivative Defendants’ Motion to Consolidate. On April 20, 2023, the Smith Derivative Defendants opposed Plaintiff’s Motion to Remand. On April 24, 2023, the Smith Derivative Defendants filed their reply in further support of their Motion to Consolidate. On April 27, 2023, Plaintiff filed his reply in further support of his Motion to Remand. Although the ultimate outcome of the Smith Derivative Action cannot be determined with certainty, 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. Notwithstanding the Smith Derivative Action’s lack of merit, however, it 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 Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Smith 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. Iraci, derivatively on behalf of CleanSpark, Inc., 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 Chief Executive Officer Zachary Bradford (“Bradford”), former Chief Financial Officer, Lori Love (“Love”), and Directors Matthew Schultz, Roger Beynon, Larry McNeill, and Thomas Wood (Bradford, Love, and Directors collectively referred to as “Iraci Derivative Defendants”). The Iraci Derivative Action alleges that the Iraci Derivative 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, questionable uses of corporate assets, and excessive compensation. The claims asserted against all Iraci Derivative Defendants include breach of fiduciary duties, aiding and abetting breach of fiduciary duties, and unjust enrichment. The Iraci Derivative Action seeks monetary damages, restitution, litigation costs, and imposition of adequate corporate governance and internal controls. On February 28, 2023, Defendants removed the Iraci Derivative Action to the United States District Court for the District of Nevada. On March 24, 2023, the Iraci Derivative Defendants filed a Motion to Consolidate the Iraci Derivative Action with the Consolidated Derivative Action. On March 30, 2023, Plaintiff filed a Motion to Remand the Iraci Derivative Action to Nevada state court. On April 13, 2023, the Iraci Derivative Defendants filed their opposition to Plaintiff’s Motion to Remand. On April 17, 2023, Plaintiff filed his opposition to the Iraci Derivative Defendants’ Motion to Consolidate. On April 20, 2023, Plaintiff filed his reply in further support of his Motion to Remand. On April 24, 2020, the Iraci Derivative Defendants filed their reply in further support of their Motion to Consolidate, and the Iraci Derivative Defendants filed their Motion to Dismiss the Iraci Derivative Action. Plaintiff’s opposition to Defendants’ Motion to Dismiss is due May 24, 2023 and the Iraci Derivative Defendants’ reply in further support of their Motion to Dismiss is due June 14, 2023. Although the ultimate outcome of the Iraci Derivative Action cannot be determined with certainty, 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. Notwithstanding the Iraci Derivative Action’s lack of merit, however, it 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 Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Iraci 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. Atanasoff, derivatively on behalf of CleanSpark, Inc., v. Bradford, 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 Chief Executive Officer Zachary Bradford (“Bradford”) and Directors Matthew Schultz, Roger Beynon, Larry McNeill, and Thomas Wood (Bradford and Directors collectively referred to as “Atanasoff Derivative Defendants”). The Atanasoff Derivative Action alleges that the Atanasoff Derivative 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; and (4) did not maintain adequate internal controls. The claims asserted against all Atanasoff Derivative Defendants include breach of fiduciary duties and unjust enrichment. The Atanasoff Derivative Action seeks monetary damages, restitution, litigation costs, and imposition of adequate corporate governance and internal controls. On March 7, 2023, the Atanasoff Derivative Defendants removed the Atanasoff Derivative Action to the United States District Court for the District of Nevada. On March 24, 2023, Defendants filed a Motion to Consolidate the Atanasoff Derivative Action with the Consolidated Derivative Action. On April 4, 2023, Plaintiff filed a Motion to Remand the Atanasoff Derivative Action to Nevada state court. On April 7, 2023, Plaintiff opposed the Atanasoff Derivative Defendants’ Motion to Consolidate. On April 18, 2023, the Atanasoff Derivative Defendants opposed Plaintiff’s Motion to Remand. On April 24, 2023, the Atanasoff Derivative Defendants filed their reply in further support of their Motion to Consolidate. On April 25, 2024, Plaintiff filed his reply in further support of his Motion to Remand. The Atanasoff Derivative Defendants filed a Motion to Dismiss on May 5, 2023. Plaintiff’s opposition to Defendants’ Motion to Dismiss is due June 5, 2023, and Defendants’ reply in further support is due June 26, 2023. Although the ultimate outcome of the Atanasoff Derivative Action cannot be determined with certainty, 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. Notwithstanding the Atanasoff Derivative Action’s lack of merit, however, it 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 Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the Atanasoff 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. France, derivatively on behalf of CleanSpark, Inc., v. Bradford, Love, Tadayon, 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 Chief Executive Officer Zachary Bradford (“Bradford”), former Chief Financial Officer, Lori Love (“Love”), former Chief Revenue Officer, Amer Tadayon, and Directors Matthew Schultz, Roger Beynon, Larry McNeill, and Thomas Wood (Bradford, Love, Tadayon, and Directors collectively referred to as “France Derivative Defendants”). The France Derivative Action alleges that the France Derivative 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, questionable uses of corporate assets, and excessive compensation. The claims asserted against all France Derivative Defendants include breach of fiduciary duties, unjust enrichment, and corporate waste. The France Derivative Action seeks declaratory relief, monetary damages, restitution, litigation costs, and imposition of adequate corporate governance and internal controls. On March 23, 2023, the France Derivative Defendants removed the France Derivative Action to the United States District Court for the District of Nevada. On March 24, 2023, the France Derivative Defendants filed a Motion to Consolidate the France Derivative Action with the Consolidated Derivative Action. On March 31, 2023, Plaintiff filed a Motion to Remand the France Derivative Action to Nevada state court. On April 7, 2023, Plaintiff filed a response opposing the France Derivative Defendants’ Motion to Consolidate. On April 11, 2023, the France Derivative Defendants filed Motions to Dismiss the France Derivative Action. On April 14, 2023, the France Derivative Defendants opposed Plaintiff’s Motion to Remand. On April 21, 2023, Plaintiff filed a reply in further support of his Motion to Remand. On April 24, 2023, the France Derivative Defendants filed a reply in further support of their Motion to Consolidate. The Court granted Plaintiff’s Motion to Remand on May 4, 2023 and the case will now proceed in Nevada state court. Unless the Nevada court revises deadlines, Plaintiff’s opposition to the France Derivative Defendants’ Motion to Dismiss is due May 11, 2023 and the France Derivative Defendants’ reply in further support of their Motion to Dismiss is due June 1, 2023. Although the ultimate outcome of the France Derivative Action cannot be determined with certainty, 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. Notwithstanding the France Derivative Action’s lack of merit, however, it 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 Company and its management have complied with all of their obligations under applicable securities regulations, no assurance can be given as to the outcome of the 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. 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. Darfon America Corp. vs. CleanSpark, Inc. On August 18, 2022, Darfon America Corp 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 income (loss).

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