ACTION ONE: APPROVAL OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION

Description of Capital Stock

The description below of our capital stock and provisions of our amended and restated articles of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated articles of incorporation, the amended and restated bylaws, and the applicable provisions of Nevada law.

General

Our articles of incorporation authorizes us to issue up to 100,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share.

As of July 2, 2019, there were 44,658,282 shares of common stock outstanding, and 1,000,000 shares of preferred stock outstanding.

Common Stock

Voting rights .  Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors. As a result, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

Dividends .  Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by our Board of Directors out of legally available funds. We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

Liquidation .  In the event of our liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.

Rights and preferences .  Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.

Fully paid and nonassessable .   All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering, if any, will be, fully paid and nonassessable.

Preferred Stock

Under our amended and restated articles of incorporation, our Board of Directors has the authority, without further action by the stockholders (unless such stockholder action is required by applicable law or the rules of any stock exchange or market on which our securities are then traded), to designate and issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the designations, voting powers, preferences and rights of the shares of each wholly unissued series, and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

We will fix the designations, voting powers, preferences and rights of the preferred stock of each series, as well as the qualifications, limitations or restrictions thereof, in a certificate of designation relating to that series. We will file as an exhibit to our reports, or will incorporate by reference from reports that we file with the SEC, the form of any certificate of designation that describes the terms of the series of preferred stock we are offering before the issuance of that series of preferred stock. This description will include:

Nevada law provides that the holders of preferred stock will have the right to vote separately as a class (or, in some cases, as a series) on an amendment to our articles of incorporation if the amendment would change the par value or, unless the articles of incorporation provided otherwise, the number of authorized shares of the class or change the powers, preferences or special rights of the class or series so as to adversely affect the class or series, as the case may be. This right is in addition to any voting rights that may be provided for in the applicable certificate of designation.

Our Board of Directors may authorize the issuance of preferred stock with voting, exchange or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Preferred stock could be issued quickly with terms designed to delay or prevent a change in control of our company or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of our common stock.

Series A Preferred Stock

On April 15, 2015, pursuant to Article IV of our Articles of Incorporation, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up to one million (1,000,000) shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will be entitled to quarterly dividends on 2% of our earnings before interest, taxes and amortization. The dividends are payable in cash or common stock. The holders will also have a liquidation preference on the state value of $0.02 per share plus any accumulated but unpaid dividends. The holders are further entitled to have the Company redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of the Company’s common stock on all matters submitted to stockholders at a rate of forty-five (45) votes for each share held.

Series B Preferred Stock

On April 16, 2019, pursuant to Article IV of our Articles of Incorporation, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up to one hundred thousand (100,000) shares, par value $0.001. Under the Certificate of Designation, the holders of Series B Preferred Stock are entitled to the following powers, designations, preferences and relative participating, optional and other special rights, and the following qualifications, limitations and restrictions, among others as set forth in the Certificate of Designation:

Stock Options

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”), which was established by the Board of Directors of the Company on June 19, 2017. A total of 3,000,000 shares were initially reserved for issuance under the Plan. As of March 31, 2019, there were 2,563,429 shares available for issuance under the plan.

The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation right, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Board believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.

As of March 31, 2019, there are options exercisable to purchase 436,571 shares of common stock in the Company and 47,260 unvested options outstanding that cannot be exercised until vesting conditions are met. As of March 31, 2019, the outstanding options have a weighted average remaining term of was 2.63 years and an intrinsic value of $1,700,174.

Warrants

As of March 31, 2019, there are warrants exercisable to purchase 10,357,918 shares of common stock in the Company and 482,714 unvested warrants outstanding that cannot be exercised until vesting conditions are met. 7,661,980 of the warrants require a cash investment to exercise as follows, 50,000 required a cash investment of $0.80 per share, 4,498,647 require a cash investment of $1.50 per share, 1,250,000 require a cash investment of $2.00 per share, 1,030,000 require a cash investment of $2.50 per share, 500,000 require an investment of $5.00 per share and 333,333 require a cash investment of $7.50 per share. 3,178,652 of the outstanding warrants contain provisions allowing a cashless exercise at their respective exercise price.  

Convertible Debt

As of March 31, 2019, the Company had $1,750,000 in debt that is convertible into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.05 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company. While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. As of March 31, 2019, the effective conversion price was $1.89.

Registration Rights

On December 28, 2018 and April 17, 2019, the Company agreed with the Investor that it will keep a registration available to cover the resale of the Warrant Shares issued in each of the financings.

Listings

The Company submitted an application for listing on the Nasdaq Capital Market on May 28, 2019 which is currently pending.

Anti-Takeover Laws

Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Action Stock Transfer. Its address is 2469 E. Fort Union Blvd, Suite 214 Salt Lake City, UT 84121. The transfer agent for any series of preferred stock, debt securities or warrants that we may offer will be named and described in the prospectus supplement for that series.

Quotation

Our common stock is quoted on the OTCQB under the symbol "CLSK."

Action by Written Consent; Vote Required

Under the NRS, unless otherwise provided in the articles of incorporation or the bylaws, any action that may be taken at a meeting of stockholders also can be taken without such meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding shares holding at least a majority of the voting power. Our Articles of Incorporation do not limit, prohibit, restrict or otherwise qualify the use of this procedure.

Further, unless the NRS or the articles of incorporation of a corporation requires a greater number of votes, matters submitted to stockholders generally require the approval of a majority of the outstanding shares at a meeting when a quorum is present. The NRS requires the approval of the holders of outstanding shares holding at least a majority of the voting power in order to amend a Nevada corporation’s articles of incorporation, unless the articles of incorporation require a greater vote to take such action. Our Articles of Incorporation do not require a greater vote to take such action. Accordingly, because the Action requires an amendment to our Articles of Incorporation, the approval of the Action required the receipt of the written consent of the holders of at least a majority of the outstanding voting power of the Company as of the Record Date.

Notice of Action by Written Consent

The Company is required to provide prompt notice of the taking of corporate action without a meeting to the stockholders of record who have not consented in writing to such action. This Information Statement is intended to provide such notice. No appraisal rights are afforded to stockholders of the Company under the laws as a result of the approval of the Action.

  No Cumulative Voting

Except as may be provided by the resolutions of the Board of Directors authorizing the issuance of Common Stock, cumulative voting by any stockholder is expressly denied.

DESCRIPTION OF THE AUTHORIZED SHARE INCREASE OF COMMON STOCK

General

Our Board of Directors and the Consenting Stockholders have approved the Authorized Share Increase and have authorized the Company to file an Amendment to our Articles of Incorporation to effect the Authorized Share Increase.

Background; Reasons for the Authorized Share Increase

The Authorized Share Increase is intended to allow the Company to maintain legal compliance with outstanding contractual obligations, including the obligation to maintain adequate share reserves, performance under the Financing Transaction, and for general corporate purposes.

The par value of the Common Stock will remain unchanged at $0.001 per share and the Authorized Share Increase will not change the number of outstanding shares of Common Stock under the Articles of Incorporation. Accordingly, the Authorized Share Increase will have the effect of creating additional authorized and unreserved shares of our Common Stock.

Although at present, other than as it relates to our rights and obligations under the Financing Transaction, we have no current plans, arrangements or understandings providing for the issuance of the additional shares of Common Stock that would be made available for issuance upon effectiveness of the Authorized Share Increase, such additional shares may be used by us for various purposes in the future without further stockholder approval. Other purposes may include, among other things:

Aside from the Financing Transaction and managing its existing convertible debt instruments and corresponding share reserves, the Board of Directors is not implementing the Authorized Share Increase in anticipation of any specific future transaction or series of transactions. Further, the Board of Directors does not intend for this transaction to be the first step in a series of plans or proposals of a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act.

Vote Required

We have obtained approval to effect the Authorized Share Increase through the written consent of the Consenting Stockholders. Therefore, a special meeting of our stockholders to approve the Authorized Share Increase will not take place for this purpose.

Material Effects of the Authorized Share Increase

The principal effect of the Authorized Share Increase will be to increase the number of authorized shares. As a result, stockholders should recognize that once the Authorized Share Increase is effected, they will own the same number of shares that they currently own. However, the Authorized Share Increase will affect all stockholders uniformly and will not affect any stockholder’s percentage ownership interest in the Company. Proportionate voting rights and other rights and preferences of the holders of Common Stock will not be affected by the Authorized Share Increase. For example, a holder of 2% of the outstanding shares of Common Stock immediately prior to the Authorized Share Increase would continue to hold 2% of the outstanding shares of Common Stock immediately after the Authorized Share Increase. The number of stockholders of record also will not be affected by the Authorized Share Increase.

The Company is subject to the periodic reporting and other requirements of the Securities Exchange Act. The Authorized Share Increase will not affect the registration of the Common Stock under the Securities Exchange Act and the Common Stock will continue to be reported on the OTCQB.

Effect on Fractional Stockholders

Stockholders will not receive fractional shares in connection with the Authorized Share Increase and the Company will not be paying any cash to any stockholders for any fractional shares from the Authorized Share Increase.

Effect on Registered and Beneficial Stockholders

Following the Authorized Share Increase, the Company intends to treat stockholders holding the Common Stock in “street name,” through a bank, broker or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Stockholders who hold their shares with such a bank, broker or other nominee and who have any questions in this regard are encouraged to contact their nominees.

Certain Risk Factors Associated with the Authorized Share Increase

In evaluating the Authorized Share Increase, the Board of Directors also took into consideration negative factors associated with authorized share increases. These factors included the negative perception of authorized share increases by some investors, analysts and other stock market participants, as well as various other risks and uncertainties that surround the implementation of an authorized share increase, including but not limited to the following:

There can be no assurance that the market price per share of the Common Stock after the Authorized Share Increase will remain unchanged. In the long term the price per share depends on many factors, including our performance, prospects and other factors, some of which are unrelated to the number of shares outstanding. If the Authorized Share Increase is consummated and the trading price of the Common Stock declines, the percentage decline as an absolute number and as a percentage of the Company’s overall market capitalization may be greater than would occur in the absence of the Authorized Share Increase. The history of similar authorized share increases for companies in similar circumstances is varied.

The Board of Directors, however, has determined that any potentially negative factors were outweighed by the potential benefits of the Authorized Share Increase and voted to approve the Authorized Share Increase.

Authorized Shares; Potential Dilutive Effect

As of the Record Date, the Company had 100,000,000 shares of Common Stock, par value $0.001, and 10,000,000 shares of preferred stock, par value $0.001, authorized.

The Authorized Share Increase would not change the number of authorized shares of preferred stock. Following the Authorized Share Increase, authorized but unissued shares of Common and preferred stock will be available for issuance, and the Company may issue such shares in the future.

The issuance of a substantial number of additional shares of Common Stock from the newly-authorized shares provided for in the Authorized Share Increase would result in dilution of our existing stockholders’ ownership interest in the Company. Stockholders of the Company do not have preemptive rights with respect to our Common Stock. Thus, existing stockholders would not have any preferential rights to purchase any shares. See “Action Two: Approval of the Financing Transaction” for specific plans related to issuance of securities which may have a dilutive effect.

Accounting Matters; Tax Consequences

The par value per share of Common Stock would remain unchanged at $0.001 per share after the Authorized Share Increase. As a result, on the effective date of the Authorized Share Increase, the stated capital on the Company’s balance sheet attributable to the Common Stock will remain the same. Our net income or loss and our net book value on a per share basis will remain the same. The Company does not anticipate that any accounting consequences would arise as a result of the Authorized Share Increase.

There are no tax consequences from the Authorized Share Increase.

Potential Anti-Takeover Effect

Although the increased proportion of unissued authorized shares of Common Stock available for issuance following the effective date of the Authorized Share Increase could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company), the Authorized Share Increase proposal is not being undertaken in response to any effort of which the Board of Directors is aware to accumulate shares of the Common Stock or obtain control of the Company. Other than the Authorized Share Increase, the Board of Directors does not currently contemplate the adoption of any other amendments to the Articles of Incorporation that could be construed to affect the ability of third parties to take over of change the control of the Company. In certain circumstances, our management may issue additional shares to resist a third party takeover transaction, even if done at an above-market premium and favored by a majority of independent stockholders.

DESCRIPTION OF THE DEBENTURE, THE SERIES B PREFERRED STOCK, THE COMMON STOCK AND THE WARRANT

The following is a summary of the material terms of the Debenture, Warrant and related securities issuable pursuant to the Purchase Agreement, dated as of April 17, 2019, by and between the Company and the Investor. While we believe this description covers the material terms of this agreement, we encourage you to read the Purchase Agreement, the related exhibits as well as the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on April 18, 2019. For more information about accessing this Current Report on Form 8-K and the other information we file with the SEC, please see “Where You Can Find More Information” below.

On April 17, 2019, we entered into a Purchase Agreement with a third party and we are offering the $10,750,000 face value Senior Secured Redeemable Convertible Promissory Note (the “Debenture”), 2,150 shares of Series B Preferred Stock, 1,250,000 shares of Common Stock, a Common Stock Purchase Warrant (the “Warrant”) to acquire up to 2,300,000 shares of Common Stock and the shares of our Common Stock underlying the Debenture, the Series B Preferred Stock and the Warrant Shares.

As part of the transaction, our stockholders owning and controlling more than 51% of our outstanding shares of Series A Preferred Stock and Common Stock were required to execute Voting Agreements that required those stockholders to vote in favor of the Purchase Agreement and issuance of the securities covered thereby.

The Debenture has a maturity date two years from the issuance date and we have agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal to 7.5% per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of our Common Stock. The features of the Series B Preferred Stock are discussed above in the section titled “Description of Capital Stock.” The Warrant is exercisable for a term of three years on a cash-only basis at an exercise price of $3.50 per share with respect to 2,000,000 Warrant Shares, $4.00 with respect to 100,000 Warrant Shares, $5.00 with respect to 100,000 Warrant Shares, $7.50 with respect to 50,000 Warrant Shares and $10.00 with respect to 50,000 Warrant Shares.

The purchase price for the Debenture, Series B Preferred Stock, Common Stock and the Warrant is $20,000,000.

Upon satisfaction of closing conditions, at the first closing we plan to sell the Debenture, the Common Stock and the Warrant for $10,000,000. At the second closing, we plan to sell 1,075 shares of Series B Preferred Stock for $5,000,000 upon approval of our stockholders: (1) to increase our authorized common stock from 100,000,000 shares, par value $0.001 per share, to 200,000,000 shares, and (2) to approve the Agreement and the issuance of the Debenture, the Series B Preferred Stock, the Warrant, the Common Stock and the shares underlying the Debenture and the Series B Preferred Stock and the Warrant Shares. We have also agreed to submit an application for listing on the Nasdaq Capital Market within 45 days of executing the Agreement. Within 30 days of approval of the above corporate actions and upon listing with the Nasdaq Capital Market, we have an option to sell the remaining 1,075 shares of Series B Preferred Stock at $5,000 per share with a 7.5% OID for the sum of up to $5,000,000.

Prior to the maturity date of the Debenture, provided that no trigger event has occurred, we will have the right at any time upon 30 trading days’ prior written notice, in our sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying the holder an amount equal to 145% of the face value of the Debenture.

The holder may convert the Debenture into shares of our Common Stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of our Common Stock, less $0.075 per share, during the period beginning on the issuance date and ending on the maturity date. There is a floor price of $1.00 per share until we complete the above corporate actions and then $0.35 per share. In the event certain equity conditions exist, we may require that the holder convert the Debenture. In no event shall the holder of the Debenture be allowed to effect a conversion if such conversion, along with all other shares of our Common Stock beneficially owned by the holder and its affiliates would exceed 4.99% of the outstanding shares of our Common Stock.

We do not intend to apply to list the Debenture, the Series Preferred Stock or Warrant on any national securities exchange or any automated dealer quotation system. Our Common Stock is listed on the OTCQB marketplace under the symbol “CLSK.” On April 16, 2019, the last reported sale price of our Common Stock was $3.34 per share.

We intend to use the net proceeds received from the sale of the above securities for general corporate purposes and the repayment of certain outstanding debt. We will not receive any additional proceeds if and when the Debenture or Series B Preferred Stock is converted, in whole or in part, into shares of our Common Stock. We will, however, receive any additional proceeds if and when the Warrant is exercised into shares of our Common Stock.

CONSENTING STOCKHOLDERS APPROVAL REQUIRED

The Consenting Stockholders holding more than a majority of the voting power of the Company executed and delivered to us a written consent, effective as of June 24, 2019, authorizing the Actions. As of the Record Date, the Consenting Stockholders held shares representing approximately 64.9% of the voting power of the Company. The Consenting Stockholders voted all of their respective shares to approve the Actions.

Taking action by written consent of the Consenting Stockholders has eliminated the costs and management time that would have otherwise been necessary to hold a special meeting of stockholders and will permit the Company to effect the Actions as early as possible in order to accomplish the purposes of the Company, as hereafter described.