UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 9, 2020
CLEANSPARK, INC.
(Exact name of Registrant as specified in its charter)
Nevada | 001-39187 | 87-0449945 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1185 S. 1800 West, Suite 3
Woods Cross, Utah 84087
(Address of Principal Executive Offices)
(702) 941-8047
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
||
Common Stock, par value $0.001 per share | CLSK | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
As previously reported by CleanSpark, Inc., a Nevada corporation (the “Company”), on a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (the “Commission”) on December 10, 2020 (the “Prior 8-K”), the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 9, 2020, by and among ATL Data Centers LLC, a Georgia limited liability company (“ATL”), CLSK Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”), Bernardo Schucman (“Schucman”), Gustavo Lima Caldeira De Andrada (“De Andrada), and John Allen Martins Blount (“Blount” and collectively with Schucman and De Andrada, the “Sellers”) (the “Merger”). The Merger closed on December 10, 2020.
This amended Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Prior 8-K to provide the financial statements and pro forma financial information as required by Items 9.01(a) and (b) of Form 8-K. No other amendments or modifications to the Prior 8-K are being made by this Amendment. This Amendment should be read in connection with the Prior 8-K, which provides a more complete description of the Merger, Merger Agreement, and transactions contemplated thereby.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of ATL Data Centers LLC, as of September 30, 2020, are filed as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information.
The unaudited pro forma consolidated balance sheet of the Company as of September 30, 2020, which gives effect to the acquisition of ATL Data Centers LLC, and the unaudited pro forma consolidated statement of operations of the Company for the year ended September 30, 2020, which gives effect to such acquisition, are filed as Exhibit 99.2 hereto.
(d) Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CLEANSPARK, INC. | ||||
Dated: February 24, 2021 | By: | /s/ Lori L. Love | ||
Lori L. Love |
||||
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Chief Financial Officer
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ATL Data Centers LLC
Financial Statements
September 30, 2020
ATL Data Centers LLC
Page | |
Report of Independent Registered Public Accounting Firm | 1 |
Financial Statements | |
Balance Sheet | 2 |
Statement of Operations | 3 |
Statement of Members’ Deficit | 4 |
Statement of Cash Flows | 5 |
Notes to Financial Statements | 6-10 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
ATL Data Centers LLC
Opinion on the Financial Statements
We have audited the accompanying balance sheet of ATL Data Centers LLC (the “Company”) as of September 30, 2020, and the related statements of operations, members’ equity and cash flows for the period from April 13, 2020 (inception) through September 30, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020, and the results of its operations and its cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2021.
Houston, Texas
February 24, 2021
1 |
BALANCE SHEET
See accompanying notes to the financial statements
2 |
STATEMENT OF OPERATIONS
From Inception | |||
(April 13, 2020) to | |||
September 30, 2020 | |||
Revenue: | |||
Revenue | $ | 264,782 | |
Revenue, related parties | 1,044,701 | ||
Total revenue | 1,309,483 | ||
Operating expenses | |||
Cost of revenue | 1,263,875 | ||
General and administrative | 396,022 | ||
Payroll and related expenses | 251,581 | ||
Professional fees | 26,687 | ||
Depreciation | 192,927 | ||
Total operating expenses | 2,131,092 | ||
Loss from operations | (821,609) | ||
Other expenses | |||
Interest expense | (64,262) | ||
Total other expenses | (64,262) | ||
Net loss | $ | (885,871) |
See accompanying notes to the financial statements
3 |
STATEMENT
OF MEMBERS' DEFICIT
Total Members' Deficit
Balance, Inception (April 13, 2020)
$
—
Net loss
(885,871)
Balance, September 30, 2020
$
(885,871)
See accompanying notes to the financial statements
4 |
STATEMENT OF CASH FLOWS
See accompanying notes to the financial statements
5 |
Notes to Financial Statements
September 30, 2020
1. | Organization and Nature of Business |
ATL Data Centers LLC (“our”, “ATL”, the Company) is a Georgia Limited Liability Company organized on April 13, 2020. The Company owns and operates a data center that provides customers with traditional on-site and cloud-based data center services.
2. | Summary of Significant Accounting Policies |
Basis of presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States using the accrual method of accounting.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the purpose of the statement of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value. As of the September 30, 2020, the Company had no cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash, cash equivalents, with high credit quality financial institutions, and evaluates the credit worthiness of these financial institutions on a regular basis. Revenue and trade receivables result from two major contracts with related entities. These contracts represented approximately 46% and 80% of total trade receivables and revenue as of September 30, 2020, respectively. To mitigate this credit risk, the Company closely monitors the payment history and credit worthiness of each customer.
Related parties
The Company has historically engaged in and may continue to engage in certain business transactions with related parties (See Note 4). Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in best interest of our company.
Accounts Receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $0 as September 30, 2020.
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Property and Equipment
Property and equipment, inclusive of assets under finance leases are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which is 24 months. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Long-Lived Assets
The Company regularly evaluates property and equipment to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the remaining balance should be evaluated for possible impairment. An estimate of the related undiscounted cash flows over the remaining life of the property and equipment is used in assessing whether an asset has been impaired. Measurement of impairment losses are based upon the amount by which the carrying amount of the asset exceeds the fair value. Management has determined there was no impairment of the carrying value of long-lived assets at September 30, 2020.
Revenue recognition
The Company provides data services such as providing its customers with rack space, power and equipment, and cloud services such as virtual services, virtual storage, and data backup services, generally based on monthly services provided at a defined price included in the contracts. Under ASC 606, the core principle is to recognize revenue to depict the transfer of promised goods and services to customers in amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Step 1: Identify the contract with a customer: For the traditional data center services provided, the contract with the customer is based on monthly services provided at a defined price.
Step 2: Identify the performance obligations in the contract: For the traditional data center services, the performance obligations are the services provided to the customer for the month.
Step 3: Determine the transaction price: Due to the monthly services provided, the transaction price is the price agreed for the monthly services.
Step 4: Allocate the transaction price to the performance obligations: The transaction price and the services performed are monthly. The allocation is determined monthly.
Step 5: Recognize revenue when each performance obligation is satisfied: The performance obligation is designed to be satisfied monthly.
As it relates to the services provided by the Company, the performance obligations are the services provided to a customer for the month based on the contract, the transaction price is the price agreed with the customer for the monthly services provided, and the revenues are recognized monthly based on the services rendered for the month.
Cost of revenue
The cost of revenues related to the traditional data services, including cloud services, primarily includes charges from cloud service solution providers, and utility charges related to power consumption. There are no material direct labor costs related to provision of these services.
Leases
Lease assets and lease liabilities are recognized at the commencement of an arrangement when it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the leased asset, unless the implicit rate is readily determinable (see Note 5).
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Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2020. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. Fair values were assumed to approximate carrying values for cash, accounts receivable and accounts payable due to their relatively short maturities The three (3) levels of fair value hierarchy defined by ASC 820 are:
• | Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets |
• | Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments |
• | Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. |
Income taxes
The Company operates as a limited liability company. As such, income and expenses of the Company are passed through to the members and are reported on their individual income tax returns. As a limited liability company, the Company is not required to pay federal or state income taxes. However, in certain jurisdictions the Company may be subject to certain state, excise, franchise and license fees.
The Company evaluates its uncertain tax positions and would recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position of for all uncertain tax positions in the aggregate could differ from the amount recognized. Management does not believe that the Company has any uncertain tax provisions.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases" ("ASC 842"). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. The new standard is effective for us on December 15, 2021, with early adoption permitted. The Company early adopted new standard for the period from inception through September 30, 2020. Upon adoption of this guidance for operating leases, the Company recorded a right-of-use asset and corresponding lease liability of $1,152,251 and $1,152,251, respectively. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company's results of operations or cash flows.
8 |
3. Property and Equipment, net
|
Major classes of property and equipment, inclusive of assets under finance leases consist of the following:
September 30, 2020 | |||
Mobile data centers | $ | 825,951 | |
Equipment | 433,376 | ||
Total property and equipment | 1,259,327 | ||
Less - accumulated depreciation | (192,927) | ||
Property and equipment, net | $ | 1,066,400 |
Depreciation expense was $192,927 for the period from inception through September 30, 2020.
4. | Related Party Transactions |
During the period from inception through September 30, 2020, $290,889 was advanced by two entities commonly controlled by the CEO and member of the Company for operating expenses and $60,037 was repaid. As of the September 30, 2020, $230,852 was due to these related parties. These amounts carried 0% interest and are due upon demand.
During the period from inception through September 30, 2020, the Company entered into colocation and maintenance agreements with two entities controlled by the CEO and member of the Company. For the period ended September 30, 2020, the Company recorded revenues of $1,044,701 under these agreements.
5. | Commitments and Contingencies |
Our lease portfolio consists primarily of real estate and equipment leases. Our real estate lease primarily consists of a leased 41,387 square foot facility located in College Park, GA with a lease term of 2 years. Our equipment lease portfolio consists primarily of mobile data center equipment. These leases typically include a term of five years and contain bargain purchase options.
The components of our lease cost were as follows:
September 30, 2020 | |||
Operating lease cost | |||
Amortization of right-of-use asset | $ | 177,071 | |
Interest expense | 34,761 | ||
Total operating lease cost | 211,832 | ||
Finance lease cost: | |||
Depreciation of assets under finance leases | 183,458 | ||
Interest expense | 29,501 | ||
Total finance lease cost | $ | 212,959 |
9 |
The components of our lease assets and liabilities were as follows:
September 30, | |||
2020 | |||
Assets | |||
Operating lease assets, net | $ | 975,180 | |
Finance lease assets, net | 1,015,166 | ||
Total lease assets | 1,990,346 | ||
Liabilities | |||
Current | |||
Operating | 566,369 | ||
Finance | 314,137 | ||
Long-term | |||
Operating | 408,811 | ||
Finance | 755,247 | ||
Total lease liabilities | $ | 2,044,564 |
The table below reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating and finance lease liability recorded on the balance sheet as of September 30, 2020:
Operating Leases | Finance leases | ||||||||
2021 | $ | 635,497 | $ | 405,317 | |||||
2022 | 423,664 | 405,317 | |||||||
2023 | — | 312,781 | |||||||
2024 | — | 130,110 | |||||||
Total minimum lease payments | $ | 1,059,161 | 1,253,525 | ||||||
Less: effect of discounting | (83,981 | ) | (184,141) | ||||||
Present value of future minimum lease payments | $ | 975,180 | $ | 1,069,384 |
Due to lessor
During the period ended September 30, 2020, the lessor of the Company’s operating lease paid certain operating expenses on the Company’s behalf in the amount of $317,709. As of the September 30, 2020, $317,709 was due on demand to lessor and included in Accounts payable and accrued liabilities on the Company’s balance sheet.
6. | Subsequent Events |
The Company evaluated events occurring after September 30, 2020, and through the date the financial statements were issued, February 24, 2021 and identified the following events or transactions that would require disclosure in these financial statements:
On December 9, 2020, in contemplation of the merger disclosed below, the Company entered into two separate arrangements with related parties, each including a purchase agreement and a promissory note, to purchase 2,194 miners for $3,740,000, and 1,322 miners for $1,735,000 respectively. The notes have 0% interest and were due on December 15, 2020. The notes were repaid on December 11, 2020.
On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger”) with Cleanspark, Inc. (“CleanSpark”).
At the closing, the Company became a wholly owned subsidiary of Cleanspark. In exchange, Cleanspark issued 1,618,285 shares of restricted common stock based on the average closing price of CleanSpark’s common stock (as reflected on Nasdaq.com) for the five trading days including and immediately preceding the closing date of $11.988 per share, to the selling members of the Company, of which: (i) 642,309 shares were fully earned on closing, and (ii) an additional 975,976 shares issued to escrow and subject to holdback pending 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 the average daily trading value of the prior 30 days.
The consideration remitted in connection with the Merger is subject to adjustment based on post-closing adjustments to closing cash, indebtedness, and transaction expenses of ATL within 90 days of closing.
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CleanSpark, Inc. and ATL Data Centers LLC
Unaudited Pro Forma Consolidated Balance Sheet
And
Unaudited Pro Forma Consolidated Statement of Operations
CleanSpark, Inc. and ATL Data Centers LLC
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 2020
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CleanSpark, Inc. and ATL Data Centers LLC | |||||
Unaudited Pro Forma Consolidated Statement of Operations | |||||
For the year ended September 30, 2020 |
Historical |
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CleanSpark | ATL | Proforma Adjustments | Notes | Proforma Consolidated | |||||||||||||||
Revenues, net | |||||||||||||||||||
Sale of goods revenues | $ | 8,620,574 | $ | — | $ | — | 8,620,574 | ||||||||||||
Service, software and related revenues | 1,408,127 | 264,782 | — | 1,672,909 | |||||||||||||||
Service revenues, related parties | — | 1,044,701 | — | 1,044,701 | |||||||||||||||
Total revenues, net | 10,028,701 | 1,309,483 | — | 11,338,184 | |||||||||||||||
Cost of revenues | |||||||||||||||||||
Product sale revenues | 7,558,075 | — | — | 7,558,075 | |||||||||||||||
Service, software and related revenues | 349,774 | 1,263,875 | — | 1,613,649 | |||||||||||||||
Total cost of revenues | 7,907,849 | 1,263,875 | — | 9,171,724 | |||||||||||||||
Gross profit | 2,120,852 | 45,608 | — | 2,166,460 | |||||||||||||||
Operating expenses | |||||||||||||||||||
Professional fees | 6,521,016 | 26,687 | — | 6,547,703 | |||||||||||||||
Payroll expenses | 6,813,641 | 251,581 | — | 7,065,222 | |||||||||||||||
Product development | 163,918 | — | — | 163,918 | |||||||||||||||
General and administrative expenses | 1,093,062 | 396,022 | — | 1,489,084 | |||||||||||||||
Depreciation and amortization | 2,672,331 | 192,927 | 3,316,594 | (2 | b) | 6,181,852 | |||||||||||||
Total operating expenses | 17,263,968 | 867,217 | 3,316,594 | 21,447,779 | |||||||||||||||
Loss from operations | (15,143,116 | ) | (821,609 | ) | (3,316,594 | ) | (19,281,319) | ||||||||||||
Other income (expense) | |||||||||||||||||||
Other income | 20,000 | — | — | 20,000 | |||||||||||||||
Loss on settlement of debt | — | — | — | — | |||||||||||||||
Unrealized gain/(loss) on equity security | 116,868 | — | — | 116,868 | |||||||||||||||
Unrealized gain on derivative security | 2,115,269 | — | — | 2,115,269 | |||||||||||||||
Loss on disposal of assets | (5,218 | ) | — | — | (5,218) | ||||||||||||||
Interest expense (net) | (10,449,946 | ) | (64,262 | ) | — | (10,514,208) | |||||||||||||
Total other income (expense) | (8,203,027 | ) | (64,262 | ) | — | (8,267,289) | |||||||||||||
Net loss | $ | (23,346,143 | ) | $ | (885,871 | ) | $ | (3,316,594 | ) | $ | (27,548,608) | ||||||||
Loss per common share - basic and diluted | $ | (2.44 | ) | — | — | $ | (2.47) | ||||||||||||
Weighted average common shares outstanding - basic and diluted | 9,550,626 | — | 1,618,285 | 11,168,911 |
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CleanSpark, Inc. and ATL Data Centers LLC
Notes to Unaudited Pro Forma Consolidated Financial Statements
1. | Basis of Presentation |
The unaudited pro forma financial statements have been prepared by applying pro forma adjustments to CleanSpark, Inc.’s (“CleanSpark”) (“the Company”) and ATL Data Centers LLC’s (“ATL”) historical financial statements as of September 30, 2020 and for the periods then ended.
CleanSpark’s audited consolidated financial statements and ATL’s audited financial statements have been used in the preparation of the unaudited pro forma consolidated balance sheet as of September 30, 2020 and the unaudited pro forma consolidated statement of operations for the year ended September 30, 2020.
The unaudited pro forma consolidated financial statements should be read in conjunction with the historical financial statements of CleanSpark and ATL as follows:
CleanSpark’s audited consolidated financial statements as of September 30, 2020 and 2019 and for the years then ended, as found in its Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on December 17, 2020; and
ATL’s audited financial statements as of September 30, 2020 and for the period from April 13, 2020 (inception) to September 30, 2020 included in this Form 8-K/A.
2. | Business Acquisition |
On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger”) with ATL and its members.
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 based on the average closing price of the Company’s common stock (as reflected on Nasdaq.com) for the five trading days including and immediately preceding the closing date of $11.988 per share, to the selling members of ATL, of which: (i) 642,309 shares were fully earned on closing, and (ii) an additional 975,976 shares issued to escrow and subject to holdback pending 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 the average daily trading value of the prior 30 days.
The consideration remitted in connection with the Merger is subject to adjustment based on post-closing adjustments to closing cash, indebtedness, and transaction expenses of ATL within 120 days of closing. The Company also assumed approximately $6.9 million in debts of ATL at closing.
The Company accounted for the acquisition of ATL as an acquisition of a business under ASC 805. The Company determined the fair value of the consideration given to the selling members of ATL in connection with the transaction in accordance with ASC 820 was as follows:
Consideration: | Fair Value | ||
1,618,285 shares of common stock | $ | 21,183,351 | |
Total Consideration | $ | 21,183,351 |
The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values as indicated below. The business combination accounting is not yet final and the amounts assigned to the assets acquired and the liabilities assumed are provisional. Therefore, this may result in future adjustments to the provisional amounts as new information is obtained about the facts and circumstances that existed at the acquisition date.
4 |
Purchase Price Allocation: | |||
Strategic contract | $ | 7,457,970 | |
Goodwill | $ | 14,205,245 | |
Other assets and liabilities assumed, net | $ | (479,864) | |
Total | $ | 21,183,351 |
This preliminary purchase price allocation has been used to prepare pro forma adjustments, (2a), in the unaudited pro forma consolidated balance sheet and consolidated statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property and equipment, (2) changes in allocations to intangible assets such as permits, noncompetition agreements, and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
Depreciation and amortization, (2b), have been provided for property and equipment and finite intangible assets based on the preliminary purchase price allocation. Property and equipment have been depreciated on a straight-line basis over their estimated useful lives. Intangible assets having a finite life have been amortized on a straight-line basis over their estimated useful lives.
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